Small and Medium Enterprise’s

Success Factors
A Literature Review

Submitted by
Amin S. Lalani (M.Phil Program)

Submitted to
Fasihul Karim Siddqui

Institute of Business and Management

Karachi, Pakistan.
 Executive Summary

The Purpose of this Literature Review is to aggregate various success factors recommended by
researchers through published articles in the journals, and by the government and international
development agencies.

Traditionally more emphasis has been placed on core factors like management, marketing and
accounting. Apparently, there are other complementary factors like mentoring, competitive
advantage and innovation which are equally important for the success of SMEs. In trying to
identify the factors that help small business, it appears there is no simple pattern which maps
growth or potential growth. Rather, the evidence points towards a complex set of interrelated
factors that increase or decrease the probability that an individual will establish a successful and
growing small business. (Stanworth and Gray, 1991)

Through the Literature Review, I have identified 8 complementary factors that can help in
sustainability and growth in Small Businesses. One important barrier was also identify ie of
Regulatory Cost that keeps new startups away from entering into business venture and restrict
growth and long term sustainability. The eight factors are listed below:

Mentoring Innovation Growth Strategy

Competitive Advantage Agility Partnership
SME Corporate Culture Community/Social Networking

Table of Content
1. Introduction

1.1 SMEs a backbone to National Economy

1.2 Discrete definition of SMEs by Government and Institutions
1.3 Core SME success factor
1.4 Complementary SME success factors

2. Complementary success factors

2.2 Mentoring
2.3 Innovation
2.4 Growth Strategy
2.5 Competitive Advantage
2.6 Agility
2.7 Partnership
2.8 SME Corporate Culture
2.9 Community Social Networking

3 Barriers: Regulatory Burden

4 Summary

5 Conclusion

6 References

1. Introduction
Small and Medium Enterprises (SMEs) are considered as the backbone of any economy. It constitute
significance share in GDP and generates jobs, opportunities and innovation in an economy. SMEs
eventually lead to large and multinational organization. There is a mis-conception about Micro
Enterprises, which are considered as Small Business. Apparently, SMEs are defined discretely by
various organizations and governments as shown in the following table in order to develop policy around
the framework.

SMEDA SME Definition

Small & Medium Enterprises are defined as follows, as approved in SME Policy 2007

Enterprise Category Employment Size (a) Paid Up Capital Annual Sales (c)
(b)
Small & Medium Enterprise (SME)  Up to 250 Up to Rs. 25 Million Up to Rs. 250 Million

SME Definitions used by various institutions in Pakistan

Institution Small Medium

SME Bank
Federal Bureau of Statistics
Punjab Small Industries
Corporation
Punjab Industries Department
Sindh Industries Department
State Bank of Pakistan (SME
Prudential Regulations)
Sector
APEC
Total Assets of Rs. 20 million Total Assets of Rs.
100 million
Less than 10 employees N/A
Fixed investment. up to Rs. 20 million N/A
excluding land and building
Fixed assets with Rs. 10 million excluding cost of land
Entity engaged in handicrafts or manufacturing of consumer or
producer goods with fixed capital investment up to Rs.10 million
including land & building
An entity , ideally not being a public limited company, which does not
employee more than 250 persons ( manufacturing) and 50 persons
(trade / services)   and also fulfills one of the following criteria:
(i) A trade / services concern with total assets at cost excluding land
and buildings up to Rs 50 million.
(ii) A manufacturing concern with total assets at cost excluding land
and building up to Rs 100 million.
(iii) Any concern (trade, services or manufacturing) with net sales not
exceeding Rs 300 million as per latest financial statements.
Enterprises exporting up to US$2.5 Million a year are considered Small
by the State Bank of Pakistan
Employment Other Measures

Australia Manufacturing Less than 100 employees  

 Services Less than 20 employees  
Canada Manufacturing Less than 500 employees  
Services Less than 50 employees  
China Varies with Usually less than 100 Employees  
Industry
Indonesia   Less than 100 employees  
Japan* Manufacturing Less than 300 employees ¥100 million assets
Wholesaling Less than 100 employees ¥30 million assets
Retailing-Services Less than 50 employees ¥10 million assets
Korea Manufacturing Less than 300 employees  
Services Less than 20 employees  
Malaysia Varies (for SMI) Less than 75 employees (Different for Less than RM 2.5
Bumiputra Enterprises) million
Philippines   Less than 200 employees P 40 million assets
Singapore Manufacturing   less than S$12 million
fixed assets
Services   Less than 100
employees
USA   Less than 500 employees  

SMEDA (Small and Medium Development Authority, Pakistan)

Small Business Success Factors

SMEToolkits a small business portal by IFC (International Finance Corporate) suggests following core
success factors apparently vital for small businesses

Accounting and Finance Business planning HR

Legal Sales and Marketing International
Operation Technology
2. Complementary Success Factors

Besides core factors other complementary factors, suggested in various researches which are equally
vital for success are

Mentoring Innovation Growth Strategy

Competitive Advantage Agility Partnership
SME Corporate Culture Community/Social Networking
Mentoring
Mentoring is a single most important factor for SME success. Mentoring is provided at every stage, either
it’s a startup, growth or crisis. Mentors are volunteer offering specialized services to catalyst the setup or
growth processes in the business. Mentorship could be formal or informal to Protégé. Kram (1983, 1985)
suggested that mentoring relationships serve two separate, but interrelated, functions: career-related and
psychosocial. Career-related support facilitates career advancement by increasing a protege's visibility in
the organization and by improving the protege's knowledge of how to effectively navigate the corporate
world (Aryee, Wyatt & Stone, 1996). The psychosocial function provides emotional and psychological
support to the protege (Olian, Carroll & Giannantonion, 1993), and serves to enhance confidence in the
protege's professional role. Participants, who are in the early stages of business development, were

likely to be anxious and, therefore, in need of high levels of psychosocial support. In deed, Pollock (1995)
this is informal mentoring.

Innovation
iPad and iPhone is one of the most recent examples of innovation that has rocked the company with
billions of dollar and secure long term growth and opportunity in international market. Apple, which was
struggling in its computer segment, created a Blue Ocean Strategy for iPad and iPhone and captured the
market in no time. So far iPhone have launched 4 versions, the recent one is 4G and iPad is at second
version. Innovation is vital for economic momentum of a country as stated by (Edwards and Gordon
1984).” A process that begins with an invention proceeds with the development of the invention and
results in introduction of a new product, process or service to the marketplace” (Edwards and Gordon
1984).

Growth Strategy:
Many SMEs fail to sustain growth and gets dismantle. There are various forms of growth process Useful
analytical framework is provided by punctuated equilibrium theory (PET) (e.g., Gersick 1991; Romanelli
and Tushman 1994; Tushman and Romanelli 1985), a theory that has been adapted from evolutionary
biology into management theory. Researchers who use PET typically focus on three concepts:
evolutionary periods, revolutionary periods, and deep structures.

Growth is not only subject to sales but, due to new production plant, warehousing and more. In order to
grow, small businesses must evolve their organization, incorporating changes to management structure,
operational planning, control, and communication processes (Hanks 1990; Steinmetz 1969),

Competitive Advantage:
Those businesses having competitive advantage leads in sales, profit and growth. Having competitive
advantage like: technology, innovation, qualified and competitive human resource or an international
outsourcing setup for eg: software house in India, manufacturing centre in China or textile industry in
Pakistan creates a competitive advantage to a firm which enables higher growth and profitability.
Competitive Advantage is gained by industry analysis and competitor analysis (ME Porter. 1985).
Competitive advantage cannot be understood by looking at a firm as a whole. It stems from the many
descrete activities a firm performs in design, producing, marketing, delivery, and supporting its product.
Each of these activites can contribute to a firm’s relative cost position and create a basis for
differentiation. (ME Porter 1985)

Agility
Today’s car assembling belt manages more models of cars then ever before. Customizations have
become KING and product innovation has become a routine for business growth. In such arena, Agility to
change, innovate, perform, grow has become vital for small businesses. SME has to agile in different
segment of business which includes Marketing, Operations, etc. Business Agility in operation using most
modern technology is well defined by Nicholas D. Evans (2002). ‘What is fascinating is that we are now
entering an era where emerging technology is allowing su to combine them in powerful new ways that
signal what could well be a true business – that of Business Agility.’ The following formula can help
explain the requirements for business agility

Business Agility = Process Agility + Technical Agility

Partnership
Small Businesses can plug more ideas, capital and resources to the business while having 1 or more
partners on board. Whilst, the entry and the exit should be transparent, fair and easy for any partner
which could attract more partner entering into business leading growth and prosperity. Power (1987:71)
describes the benefits of partnership as: Partnerships can afford a firm access to new technologies or
markets; the ability to provide a wider range of products/services; economies of scale in joint research
and/or production; access to knowledge beyond the firm's boundaries; sharing of risks; and access to
complementary skills. Figure 1 describes the factors associated with partnership success.
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Figure 1. Factors associated with partnership success. Jakki Mohr and Robert Spekman (1994)

SME Corporate
Unlike large organization, SMEs have their own structure of culture which is centralized and people
oriented. Although this culture have pros and cons. SMEs are considered to have greater flexibility, an
absence of bureaucracy, less rigidity in decision-making, and can respond more quickly to new
opportunities and threats (Carsson, 1999; Kuratko, Goodale, and Hornsby, 2001). Consequently, SMEs
are considered to have a competitive advantage over the “corporate disnosurs driven by standardization,
mass production and stifled by bureaucratic organizations.” (Thore, 1995, p115). In addition, the close
interaction of management with employees in small organizations provides an opportunity for direct
leadership which may facilitate the permeation of strong culture and innovation practices (Weisner and
McDonald 2000)

Community/Social Networking
Social Software Tools: A Critical Evaluation offered useful insight into the choices SMBs need to make
when moving into social networking. Tony Byrne, founder of CMS Watch, started with a useful breakdown
of the complex world of social networking, beginning with separating external and internal applications,
depending on whether the connections occur inside or outside your company:

External
Branded community
Tech support
Reader interaction
Internal
Project collaboration
Enterprise collaboration
Enterprise discussion (especially useful after a

Partner collaboration
Professional networking
Hosted user blogs and blog comments (you host,
but don't control, user postings)
Frederic Paul. 2009. Forbes Magazine
merger or acquisition)
Information organization/filtering
Knowledgebase management (collaboration)
Communities of practice
Enterprise networking (intranets and/or Facebook
groups for employees); vendors include Ning and
Lithium

3. Barrier: Regulatory Burden

Regulatory Burden is one of the major barrier blocking small business startups not only in developing
countries but, also in developed countries. It is common for firms with less than 20 employees to incur
compliance costs that are several times greater than the costs incurred by large businesses (e.g. UK
Inland Revenue 1998). Although government try to facilitate small businesses but it is impossible to
evaluate the cost and benefit ratio as suggested in the OMB (Office of Management and Budget) for
compliance 2000 report which states that:

“it is difficult , if not impossible, to estimate the actual total costs and benefits of all existing federal
regulations with accuracy. We lack good information about the complex interactions between the different
regulations and the economy. A variety of estimation problems for individual and aggregate estimates
distort the results in different ways”

4. Summary

The Literature review reflects that SMEs are more tilted towards core success factors, whereas,
complementary factors are equally important which actually boost business growth and profitability. For
example: Mentoring, a complementary component could save initial cost for setting up the business can
can guide through the initial setup process which is more crucial and full of challenges

1. Mentoring can play a vital role in SME setup, growth and critical situation, it could save time and
cost for the growth, profitability of small businesses.

2. Partnership firm can be more vibrant than a proprietor firm as different partners brings with them
different sets of knowledge and specialization which creates competitive advantage for a firm.

3. Innovation can act as a spring for a SMEs. Through innovation new product/processes could be
created in shortest possible time as due to centralized decision system, the decision could be
taken in no time to apply innovation to workplace and earn an edge over competition.

4. Community / Social Network dynamics can bring feedback, customer retentionship, new ideas
and new customer onboard

5. Growth can paralyze businesses as it involve risk, resources and challenges. If any of the factor
goes short, there are chances SMEs may not only suffer loss but may complete get out of
business. In this situation Growth should be taken as a challenge as Growth cans equality
damage business as do the crisis.

6. Any business can survive and compete in the market through its competitive advantage. SMEs
can build unique competitive advantage for example: ‘Pizza in 30 minutes’ by Dominos. Such
competitive advantage could bring more loyal customer to business and stay for long period of
time

7. The world has become more dynamics, products/services can come from any corner of the world
with exceptional quality and affordable price. SMEs should be agile to take such challenges to
deliver new product/service at affordable in local and international market

8. Like any other culture, SMEs has its own culture which do have pros and cons, SMEs through its
size and structure must over come traditional method of business and apply best practices by
giving authority and

9. Barriers such as Regulatory Burden slows the setup and growth process of SMEs

5. Conclusion

Following conclusion derived from the Literature review

 1. SMEs must consider complementary factors which are equally important as core factors as SME
can curtail cost, jump to high growth and become innovative during the first phase of business
cycle rather than waiting for 2nd and 3rd phrase.

2. SMEs should buildup linkage with Universities to apply research which could optimize productivity
and performance of the organization or help in developing new product/process

3. Having empowered employee and centralized management system can boost small business
due to its flexibility to adopt new process and technology in no time.

4. There is evidence that SMEs are equally innovative as large businesses, this could help small
businesses to reach market in shortest possible time as it has no bureaucracy hierarchy to delay
the process.

5. SME can buildup and reach to the market through its new Competitive Advantage in no time due
to its size and structure of business which is a great advantage

6. SMEs are mostly social active which gives them edge of corporate as it has no real face to follow.
SMEs can use this advantage to get closer to the social and community network to get feedback,
loyalty and new customers.

6. References
Aryee, S., Wyatt, T., & Stone, R. (1996). Early career outcomes of graduate employees: the effect of
mentoring and ingratiation. Journal of Management Studies, 33, 95-118.

Carlsson, B. 1999. “Small Business Entrepreneurship and Industrial Dynamics.” In Are Small Firms
Important? Their Role and Impact. Ed Z. L. Acs Boston MA:Khwer Academic Publishers, 99-100.

Edwards, K. & Gordon, T. 1984. Characterization of innovations introduced on the U.S. market in 1982.
The Futures Group and U.S. Small Business Administration, Washington DC.

Frederic Paul. Smart Social Networking For Your Small Business. 2009. Forbes Magazine.
http://www.forbes.com/2009/06/05/social-networking-interop-entrepreneurs-technology-bmighty.html

Jakki Mohr and Robert Spekman. (1994) Characteristics of Partnership Success: Partnership Attributes,
Communication Behavior, and Conflict Resolution Techniques. Strategic Management Journal. pp. 135-
152

Kuratko. D.F., J.C. Goodale. and J.S.Hornsby 2001. “Quality Practices for a Competitive Advantage in
Small Firms. “ Journal of Small Business Management 39 no.4:293-312.

Kram, K (1983). Phases of the mentoring relationship. Academy of Management Journal, 26, 608-625.

Kram, K (1985). Mentoring at Work. Glenview, IL: Scott, Foresman & Co.

Michael E. Porter. Competitive Advantage. Creating and sustaining superior performance. Michael E.
Porter. The Free Press 1985

Nicholas D.Evans. Business Agility. 2002. Strategies for Gaining Competitive Advantage Through Mobile
Business Solutions.

Olian, J., Carroll, S., & Giannantonio, C. (1993). Mentor reactions to proteges: An experi ment with
managers. Journal of Vocational Behavior, 43, 266-278.

Stanworth, John & Gray, Colin. The small firm in the 1990s. P. Chapman Pub.  (London). 1991.

Thore.S. 1995. “Lean and Mean: The Changing Landscape of Corporate Power in the Age of Flexibility.”
Journal of Macromarketing. 15 no. I: 115-17

Weisner.R., and J.MacDonald. 2000. “The Human Side of Small and Medium Enterprises.” Journal of the
Australian and New Zealand Academy of Management 7 no.2:58-69