Essay Sample on SMEs: Driving the Economy, Fuelling Growth

Introduction

Small and medium enterprises are on the rise. Many nations across the world have developed mechanisms to help the establishment of small and medium enterprises due to their ability to improve the economy. The SME sector is undoubtedly significant in its role to the economy of the country. Some countries tend to focus on the large corporations forgetting that the input of the small and medium enterprises could be higher than that of the large corporations. It is estimated that small and medium enterprises provide for more than 70% of the employments. Taking the example of the UK, a research conducted in 2015 showed that 95% of all the firms in the country were classified under small and medium enterprises. Since each of the enterprise employs about 9 employees, then the number of people employed was very large. Although a large corporation may employ more than twenty employees at a time, they are scarcely placed and this tells that they may not take as many employees as small and medium enterprises would.

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There is a misinformed notion among the general public that large corporations are the drivers of developed economies. However, this is not true. The economy of a country cannot depend on a few corporations which are set apart. It depends on firms which can serve the needs of every citizen with convenience. The higher the number of small and medium enterprises in a country, the more stable the country is. The world is changing every day. In the same way, firms need to adapt to the changes so as to remain relevant. Big enterprises find it difficult to adapt to change due to their complexity, size and structure. Small and medium enterprises are easier to adapt to the changes since they are more agile.

The world has moved from the slogan of "Survival for the Fittest" to "Survival for the Most Adaptable." Enterprises face both internal and external threats each day. Some of the challenges that they face include political challenges, environmental challenges, and changes in the trends and preferences. To mitigate the effects of these changes, companies must seek to adapt as soon as possible. It becomes easier for small and medium enterprises to adapt and stay relevant in the market.

Small and medium enterprises serve an important role of forming a united workforce. Due to their small nature, employees in small and medium enterprises work the same floor as opposed to larger organizations where employees work on different floors and buildings. As a result, the employees interact easily and this helps them to work as a united team. Additionally, the manager is able to interact with the employees and this helps him or her to realize their needs and address them accordingly. This is not possible in larger organizations where employees are separated and the manager rarely interacts with all of them.

Small and medium enterprises are essential in the reduction of poverty. The reason behind this is that these enterprises tend to employ the poor and low income workers. These are the people who are usually neglected by large corporations. In most of the poor regions, small and medium enterprises are sometimes the only source of employment in rural areas as well as poor regions. Where poverty is most severe, small and medium enterprises act as the sources of employment and offer the residents a livelihood.

Small and medium enterprises have the potential to contribute substantially to the economy and a robust foundation for the growth of new industries and also serve to strengthen the existing ones. Thus, small and medium enterprises can be regarded as important drivers of wealth creation as well as productivity in the economy. Small and medium enterprises are also important in driving innovation. In the current business world, innovations cannot be ignored at any cost. The more an organization becomes innovative, the better for it in terms of growth.

Drucker stated that small enterprises are a representative of the main catalyst of economic development. Small as they are, small and medium enterprises contribute immensely to the ability of a country to achieve its fundamental goals. As such, they can be regarded as the backbone of social-economic progress.

Small and medium enterprises are also important in that in the middle class people, the firms are used as major decisive role in a bid to maintain the social-political stability in country. Many decisions made by political leaders and economists must be guided by the operations of small and medium enterprises. The distribution of economic power by small and medium enterprises leads to proper distribution of power in a society.

Small and medium enterprises are also beneficial in that they use innovation to utilize the local resources which would have otherwise remained unused. Small and medium enterprises also utilize secondary products obtained from big companies. By use of partnership agreements, small and medium enterprises are able to cooperate with large companies and work together and this ensures that all the resources are used fully.

In many cases, small and medium enterprises are directly managed by their owners. As a result, the process of decision making is usually simple and more straightforward. It depends on managerial abilities of the owner. Thus, small and medium enterprises are more flexible than large corporations and are able to adapt easily to changing market.

Challenges Faced by Small and Medium Enterprises

Small and Medium enterprises are vital engines for the growth of the economy. As stated earlier, small and medium enterprises are important to the economy as they help in industrial development, and in the boosting of GDP. According to IMF, growth in many developed countries has been supported by strong private consumption. A number of developing countries are depending on entrepreneurs to support future growth. Since entrepreneurship plays a great role in the development and growth of small and medium enterprises, there is a great scope for small and medium enterprises to support the growth of these nations. Small and medium enterprises have an average annual turnover of between 5,000 dollars to 50,000 dollars.

Despite these contributions of small and medium enterprises, they face various challenges which affect their performance. One of these challenges is lack of adequate managerial training. A majority of small and medium enterprises lack proper managerial strategies which delay their progress. They depend on trial and error mechanisms. Most of the managerial techniques used by small and medium enterprises rely on operational plans as opposed to strategic plans for their organizations. Besides, some of the managerial techniques used are substandard. This makes it difficult for the managers and owners of small and medium enterprises to handle challenges facing enterprises adequately.

The other challenge faced by small and medium enterprises is that they lack access to finance and credit to boost their operations. Many commercial banks fear giving loans to small and medium enterprises as they consider them volatile and not likely to repay the loan. Additionally, to get a substantial loan, commercial banks ask for collateral and this makes it difficult for small and medium enterprises as they have a small asset base.

As a result, a majority of small and medium enterprises end up seeking for assistance from relatives and friends and other well-wishers. In most cases, these methods do not provide enough capital and this force the management to use cheap and local technology which are usually inappropriate at many times.

Findings on Impacts of Leadership Styles

Adebayo conducted a research to look at the impacts of leadership styles in the learning of organizations. He collected the data, and obtained a lot of information that was useful in stating the impacts of leadership styles on managing small and medium enterprises. He used both questionnaires and interviews to collect data from the respondents. The questionnaires given to the respondents were divided into three sections. The first section was Section A, which was intended to collect the demographic information of the respondents. In this section, respondents were supposed to provide information such as age, sex and number of years working for the organization, among others. To ensure that there was anonymity in analyzing the information, respondents were not required to write their names on the questionnaires. Even in interviews, the respondents were not required to provide their names. Section B of the questionnaire was meant to capture data on leadership styles, while Section C meant to collect data on the impact of leadership style on firm performance. Before the questionnaires were given to the respondents, Adebayo conducted a pilot study that was intended to address issues relating to language difficulty and issues on ambiguity. After the pilot study, it was clear that the study was feasible and could be conducted well.

The respondents were asked about how transformational and transactional leadership styles affect the performance of the firm. While there are many other leadership styles, the researcher chooses to concentrate on these two since they are more applicable than the others. As stated in the introduction and literature review, the researcher chose to concentrate on transformational and transactional leadership due to their wide usage in small and medium enterprises.

In the questionnaire given to the managers and supervisors, they were two sections where the first section, the respondent, was supposed to write their leadership styles. In this section, most of the respondents listed transformational leadership styles, while a slight minority listed the transactional leadership style. Based on the responses, it was clear that the use of transformational leadership style and transactional leadership style is almost the same.

The second section of the questionnaire required the respondent to state how the stated leadership style affects firm performance. The tables below show the results for the transformational and transactional leadership styles.

Table 1: Transformational leadership

Sources: (Adebayo, 2003).

Table 2: Transactional leadership

Sources: (Adebayo, 2003).

The tables above show the responses of the respondents on leadership styles. During the thematic coding, Adebayo grouped the responses into transformational and transactional leadership styles as that are what emerged....