strategy development by smes for competitiveness a review

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Strategy development by SMEsfor competitiveness: a review

Rajesh K. Singh and Suresh K. Garg Mechanical Engineering Department, Delhi College of Engineering,

Delhi, India, and

S.G. Deshmukh Mechanical Engineering Department, Indian Institute of Technology,

Delhi, India

Abstract

Purpose – SMEs are considered as engine for economic growth all over the world. After theglobalization of market, SMEs have got many opportunities to work in integration with large-scale

organizations. They cannot exploit these opportunities and sustain their competitiveness if they focusonly on certain aspects of their functioning and work in isolation. This paper tries to identify the majorareas of strategy development by SMEs for improving competitiveness of SMEs in globalised market.

Design/methodology/approach – About 134 research papers, mainly from referred international journals are reviewed to identify thrust areas of research. On the basis of review, gaps are identifiedand research agenda is proposed.

Findings – SMEs have not given due attention for developing their effective strategies in the past.They are localized in functioning. On export fronts SMEs face many constraints due to lack of resources and poor innovative capabilities. For sustaining their competitiveness, they have tobenchmark their assets, processes and performance with respect to the best in industry. There is alsoneed for developing a framework for quantifying the competitiveness by adopting a holistic approach.

Originality/value – This paper explores major areas for research on SMEs. It will be of great valuefor researchers and professionals involved on SMEs management.

Keywords Globalization, Small to medium-sized enterprises, Competitive strategy

Paper type General review

1. IntroductionSmall and medium enterprises are considered backbone of economic growth in allcountries. They contribute in providing job opportunities, act as supplier of goods andservices to large organizations. SMEs are defined by a number of factors and criteria,such as location, size, age, structure, organization, number of employees, sales volume,worth of assets, ownership through innovation and technology (Rahman, 2001).In manufacturing sector, SMEs act as specialist suppliers of components, parts, andsub-assemblies to larger companies because the items can be produced at a cheaper

price than the large companies could achieve in-house. Lack of product qualitysupplied by them could adversely affect the competitive ability of the largerorganizations.

Majority of SMEs have simple systems and procedures, which allows flexibility,immediate feedback, short decision-making chain, better understanding and quicker

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1463-5771.htm

The authors would like to thank referees and chief editor of the journal for their valuablesuggestions and comments to improve the quality and contents of this paper.

SMEs forcompetitiveness

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Benchmarking: An International

Journal

Vol. 15 No. 5, 2008

pp. 525-547

q Emerald Group Publishing Limited

1463-5771

DOI 10.1108/14635770810903132


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response to customer needs than larger organizations. In spite of these supportingcharacteristics of SMEs, they are on tremendous pressure to sustain theircompetitiveness in domestic as well as global markets. Owing to global competition,technological advances and changing needs of consumers, competitive paradigms are

continuously changing. These changes are driving firms to compete, simultaneouslyalong different dimensions such as design and development of product,manufacturing, distribution, communication and marketing.

According to Chiarvesio et al. (2004), a leading firm is characterized by dynamicstrategic behaviour in terms of innovation, relationship management with market andsuppliers, internationalization processes, ability to organize and manage businessnetworks, etc. According to Leachman et al. (2005), superior manufacturingperformance leads to competitiveness. It is synonymous with productivity and isassumed to capture quality as well as efficiency feature (Porter, 1998). In most of thestudies, competitiveness of an organization is measured in terms of certain financialparameters. Man et al. (2002) and Vargas and Rangel (2007) have observed thatbusiness performance is positively related with development of internal capabilities

such as soft technology (methods and processes that support the firm) and hardtechnology (externally acquired equipment, in house development of machinery andinnovation in raw materials) and a strategy of continuous improvement, innovationand change.

For continuous improvement and change, SMEs have to benchmark themselveswith the best in industry. This study will try to synthesize different issues related withthe competitiveness through review of literature to identify the directions for futureresearch on strategy development by SMEs. Framework adopted for classifying thisliterature is shown in Figure 1. According to this framework, market condition will bemajor guiding force for deciding strategies and priorities. Based on these priorities,organizations have to adopt different processes and management practices. Effectiveimplementation of theses processes will lead to performance improvement. Processesand performance have to be reviewed with respect to benchmark standardscontinuously in order to develop dynamic strategies.

2. Market condition for SMEs after globalisationImprovements in competitors’ capabilities have shortened product life cycles, elevatedproduct complexity and expanded accessibility to new technical breakthroughs.

Figure 1.Framework forcompetitiveness analysis

Market condition

• Pressures

• Constraints

Strategy

development

Competitive

Priorities

Processes/

Management

Practices

Performance

Benchmarking

of processes and

performance

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Recently intense competition requires that firms excel simultaneously in several areaswithout trade-off, including innovativeness and responsiveness to their customers.Rise in global competition has compelled the firms to increase performance standardsin many dimensions such as quality, cost, productivity, product introduction time and

smooth flowing operations. Different pressures on SMEs are conformance to quality,i.e. low-defect rates, product features or attributes, competitive price and performance(Corbett and Campbell-Hunt, 2002). Capacity of a firm to maintain reliable andcontinuously improving business and manufacturing processes to meet abovechallenges appears to be a key condition for ensuring its competitiveness in the longrun (Lagace and Bourgault, 2003). Other major challenges for SMEs are up gradation of technology (Kleindl, 2000), human resource development (Hudson et al., 2001), newproduct development (Sonia and Francisca, 2005) and finally managing its supplychain through collaboration and partnerships with customers, suppliers, distributors,competitors, and other organizations such as consulting firms and research centers(Soh and Roberts, 2005; Bennett and O’Kane, 2006).

In such a challenging environment, the capacity of a firm to maintain reliable andcontinuously improving business and manufacturing processes appears to be a keycondition for ensuring its sustainability in the long run (Denis and Bourgault, 2003).Vos (2005) has observed that managers of SMEs have poor skills in reflecting upontheir companies strategically. SMEs often are oriented towards serving local niches ordeveloping relatively narrow specializations (Urbonavicius, 2005). They may haveconstraints due to the scarcity of resources, flat organizational structure, lack of technical expertise, paucity of innovation, occurrence of knowledge loss, etc. The flatstructure of SMEs can often leave employees frustrated because they are often unableto realize their short and mid-term career goals. That is why SMEs may find it difficultto employ high-caliber staff and even harder to retain them (Ghobadian and Gallear,1996). Major constraints on SMEs in meeting the challenges of competitiveness are:

.

Inadequate technologies as well as other resources (Gunasekaran et al., 2001;Hashim and Wafa, 2002).

. Excessive cost of product development projects (Chorda et al., 2002).

. Lack of effective selling techniques and market research (Hashim and Wafa,2002).

. Unable to meet the demand for multiple technological competencies (Muscatelloet al., 2003; Narula, 2004).

. Information gap between marketing and production functions as well as lack of funds for implementing expensive software such as ERP system (Xiong et al.,2006).

3. Strategy developmentA firm’s competitive strategy specifies the potential products and markets, long-termobjectives, and policies for achieving the objectives. Organizations must continuouslyreview their manufacturing strategies to identify the aspects of market priority,product structure, manufacturing configuration, and investment (Errin, 2004; Silveira,2005). Improvement programs should match operational goals and objectives (Mudaand Hendry, 2003; Sum, 2004; Raymond and St-Pierre, 2005).


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Main task of corporate strategy is not to describe the current state-of-art, but toidentify and explore core competencies that must be added. Otherwise the currentcompetencies can become obsolete and begin to function as core rigidities. Buildingcore competencies becomes essential for long-term competitive advantage because

advantages emanating from the product-price-performance-tradeoffs are almostshort-term (Kak and Sushil, 2002).

SMEs, which link operations to their business strategies, outperform thecompetition. O’Regan et al. (2006a, b) have observed that high-growth firms place agreater emphasis on external drivers such as strategic orientation, their operatingenvironment and the use of e-commerce compared with firms having static or decliningsales. As SMEs are faced with unfamiliar products and processes on a fairly regularbasis, they must develop programs for improving their skills and competencies(Fuller-Love, 2006). They can get competitive advantage by developing internal andexternal capabilities (Lai-Yu, 2001). According to Corbett and Campbell-Hunt (2002),companies should focus their energy and resources on innovative product and itsniche. Singh et al. (2006) have observed that SMEs should be flexible in developingtheir strategies. Chou and Hsu (2005) have suggested that by developing industryportals, SMEs can aggregate flexibility and agility, despite their lack of resources.

For the SME to grow from local to world class status, entrepreneurial actions needto be undertaken. This includes recognizing and exploiting market opportunitiesthrough the use of advanced technology, such as advanced manufacturing systems(AMS), creating new distribution channels, products, services and customer segments(Sambamurthy et al., 2003). World class SMEs develop themselves throughdiversification and extended networks (Cagliano et al., 2001). They can outperformlocal and transition SMEs with regards to the development of networks and markets(Raymond and Croteau, 2006).

4. Competitive prioritiesCompetitive priorities represent a holistic set of tasks, which should be performed bythe manufacturing function in order to support the business strategy (Kim and Arnold,1996).Competitiveness of a company is mostly dependent on its ability to perform wellin dimensions such as cost, quality, delivery, dependability and speed, innovation andflexibility to adapt itself to variations in demand (Carpinetti et al., 2000). Whilealignment of the manufacturing function with strategic priorities is core tocompetitiveness, the continuous improvement of the manufacturing function plays avery important complimentary role in the quest of competitiveness in the long run.

Four widely accepted competitive priorities are cost, delivery, quality andflexibility. Competitive priorities might be used as measures of competitiveness

(external) and competence (internal). According to Fleury and Fleury (2003),organizations should optimize the quality/price ratio for operational excellence. Lau(2002) have observed that quality and lower cost are the top ranking competitivefactors among US electronics and computer industries. Dangayach and Deshmukh(2005) have observed that SMEs give highest priority to quality and the least priorityto flexibility. Lagace and Bourgault (2003) have advocated for linking of manufacturing improvement programs and practices with the competitive prioritiesof SMEs. Therefore, competitive priorities will have to be decided very carefully

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with high-job satisfaction exhibited the highest creativity when commitment tocompany was high and when support for creativity was available from theorganization and coworkers (Zhou and George, 2001).

Culture and cultural fit are more important in SMEs than other organizations

because an SME is likely to be entirely enveloped in a culture, rather than largeorganizations, where several cultures may be present. It is easier to attain culturalchange in SMEs than in larger organizations. However, it is probably more difficult forSMEs management to recognize the need for change (Ghobadian and Gallear, 1996).McAdam and McClelland (2002) have observed a strong correlation between theculture of continuous improvement and innovation in SMEs. Quality culture is a keyenabler in the development of innovation management. Flat structure of SMEs andfewer departmental interfaces normally result in a more flexible work environment.

5.3 Total quality management Total quality management (TQM) is a philosophy mainly dominated by large

companies (Yosuf and Aspinwall, 2000) but the fear of losing contracts prompts SMEsto bring quality into their system. The increasing intensity of competition has madecontinuous planning and quality improvement a prerequisite for the survival of notonly large firms but also for SMEs (Temtime, 2003). According to Yosuf and Aspinwall(2000), TQM should not be implemented at the expense of losing flexibility which isstrength in small businesses. While implementing TQM, SMEs should focus ontraining and education of employees. Leadership and information analysis play asignificant role in shaping the quality focus of companies (Sila and Ebrahimpour,2005).The success of a TQM program increases when its implementation is extended tothe entire company.

TQM can foster continual improvement (CI) through integrated, consistent andinvolving everyone and everything in SMEs. Effective implementation of TQM is a

valuable asset in a company’s resource portfolio, which can produce importantcompetitive capabilities and be a source of competitive advantage (Demirbag et al.,2006). Prajogo (2007) have observed that that quality is predicted by differentiationstrategy. This strategy aims to build up competitive advantage by offering uniqueproducts which are characterized by valuable features, such as quality, innovation, andcustomer service. Firms can achieve improved productivity, greater customersatisfaction, increased employee morale, improved management labour relations andhigher overall performance through TQM. According to Corbett and Campbell-Hunt(2002), SMEs can gain competitive advantage through the quality of their productsbecause they can implement JIT system with low-defect rates or higher quality of products. It will also help in reducing product cost through eliminating scrap andrework (Fullerton and McWatters, 2001).

5.4 Development of alliancesSince scope for improvement within the organization is decreasing; organizations haveto think for newer alternatives of integrating the business activities beyond theorganizations boundary. Cagliano et al. (2006) have advocated for integration of information flows and integration of physical flows. Even the most vulnerable newlyestablished SMEs have potential of joining international value chains and evendeveloping their own marketing strategies (Chen and Huang, 2004). By aligning and

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coordinating the business processes and activities, overall performance and effectivenessof value chain can be improved (Sarmah et al., 2006). Alliances provide sharing of product, manufacturing technology, marketing and R&D know how and resources.It also reduces the uncertainty and vulnerability associated with the design and

introduction of new products (Magnan et al., 1999). In addition, through alliances andcollaborations, new product design and development and manufacturing capabilitiesare internalized (Banerjee, 2000). It also helps in tracking of customer expectations andreduction of product and process development cycle times (Perry and Sohal, 2001).

Learning how to build stronger relationships with customers is often recommendedas a way of ensuring the survival of firms in the face of turbulent and highlycompetitive market conditions. Organizations should have thorough analysis abouttheir own strengths and weaknesses before thinking of getting into partneringrelations (Varis et al., 2004). Firm’s competitiveness may be determined more by itsexternal network than its own size. Alliances provide higher added value to customersand develop better working relationships (Loh and Koh, 2004). Noori and Lee (2006)have advocated for dispersed network manufacturing (DNM) by SMEs to compete onglobal scale. This will focus on creating network of plants that are electronically linkedso that the participating members, spread geographically, focus on their specializedtasks yet also share their manufacturing and production resources to create a looselystructured and flexible enterprise. DNM will require SMEs to have the ability torapidly develop and enhance their internal production capabilities.

5.5 Vendor development A large number of SMEs operate with poor forecasting and planning systems andoperate with long cycle times. They also have problems with unreliable inventorycontrol systems, with no stock tracing and poor cost control. This can lead to excessobsolete stock and eroding customer service levels (Gunasekaren et al., 2000). SMEs in

manufacturing industry need to improve their production and material managementsystems (Ulusoy, 2003). For this development of vendors is essential. Vendordevelopment helps in improving the performance of not only buyers but of vendorsalso (Humphreys et al., 2004). By vendor development, buying firm helps their vendorsfor increasing their capabilities to improve their performance. It was found that higherrated vendors emphasize process management and employee satisfaction to a greaterdegree than the lower rated vendors (Park et al., 2001).

Trent and Monczka (1999) stressed that maintaining a small number of vendors,improves product quality and productivity of buyers by encouraging enhanced vendorcommitment to product design and quality. Mutually supportive long-term supplierrelationship is the best way to achieve quality improvement. Direct product costs andcustomer’s acquisition and operational costs can be also lowered when buyers and

suppliers work together closely (Canon and Homburg, 2001).

5.6 Supply chain management Earlier most of the manufacturing organizations have accomplished massiveproductivity gains through the implementation of lean production by eliminating“waste” from different internal operations. Now a significant productivityimprovement for most of the manufacturing organizations is very limited. However,there is a huge improvement potential to reduce the inefficiencies caused by the poor


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performance of the suppliers, unpredictable customer demands and uncertain businessenvironment. This can be done by integration of internal processes of the organizationwith the suppliers and customers known as supply chain management (SCM). SMEshave significant impacts on supply chain performance, where they may serve the roles

of suppliers, distributors, producers and customers (Hong and Jeong, 2006). Owing tothis, firm level competition is popular only in developing economies and is beingreplaced by competition between supply chains (Koh et al., 2006).

SCM practices will not only reduce inventory level, but will also free up warehousespace and untighten cash flow (Mistry, 2006). This is particularly important for SMEswhich are in constant need for cash to run the business. Building long-term partnershiprelations with suppliers and customers also helps to improve the flexibility of the supplychain by creating a mutual understanding among the members (Chang et al., 2005). SCMpractices directly influence operational performance of SMEs (Koh et al., 2007).

5.7 Clean production and total productive maintenance (TPM)

Clean production and safety measures for environment have become essential criteriafor organizations to compete in the market. Worthington and Patton (2005) haveobserved that companies that voluntarily embrace environmental friendly practicescan simultaneously improve their business performance. Rao and Holt (2005) haveadvocated for green supply chains to improve competitiveness of organization.Competitive advantage can arise from integrating environmentalism withorganizational strategy. SMEs see the environment as an important business issuebut are often unaware of environmental legislation affecting their business (Petts et al.,1999). One way to enhance understanding among SMEs is to consider environmentalresponsibility as part of the quality attributes which customers may expect fromsuppliers.

Laugen et al. (2005) have observed that increasing equipment productivity and

environmental compatibility are the best manufacturing practices for improvingperformance of organization in present scenario. For improving equipmentproductivity and environmental compatibility, TPM can be an important strategy.Machine productivity can be improved by using properly trained personnel and byusing appropriate IT controlled processes, thereby providing better proactive servicing(Eti et al., 2006). It is observed that business performance of TPM firms is significantlysuperior to the non-TPM firms (Brah and Chong, 2004; Chan et al., 2005).

5.8 Innovation and knowledge management To keep in pace with international competition, firms of all size are challenged toimprove and innovate their products and processes constantly (Ernesto et al., 2005).The foundation of organizational competitiveness has shifted from physical and

tangible resources to knowledge (Wong and Aspinwall, 2005). SMEs can improve theirresponsiveness by developing capabilities in external knowledge acquisition (Liao et al.,2003). Learning-by-doing is the most effective mode of knowledge acquisition(Oyeyinka and Lal, 2006). Knowledge-based resources are positively linked toperformance of SMEs (Wiklund and Shepard, 2003; Liu et al., 2004).

Innovation, firm’s knowledge accumulation and the development of internaltechnical capabilities help SMEs in achieving better competitive position ininternational and national market (Vargas and Rangel, 2007). Nunes et al. (2006)

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have observed that by adequately capturing, storing, sharing and disseminatingknowledge, SMEs could achieve greater innovation and productivity. When comparedwith large-sized firms, the innovative process in small units is more informal and lessstructured, the base of managerial competencies is limited, availability of financial

resources is lower and the attraction towards skilled labour is weaker (Toni andNassimbeni, 2003; Scozzi et al., 2005). Levy et al. (2003) have observed that SMEs areknowledge creators but are poor at knowledge retention.

The ability of a firm to respond to identified changes in market or customerbehaviour is an important feature exhibited by successful firms (Chaston et al., 2001).For innovative products and processes, management of employees’ knowledge andskills is essential. Lei et al. (1999) have expressed the view that in tomorrow’s businessworld, success will be critically influenced by the degree to which firms utilize newknowledge to support innovation. Innovation implementation requires ongoing effort,commitment and understanding beyond that of continuous improvement (Humphreyset al., 2005). Effective innovation must involve all areas of an SME with the potential toaffect every discipline and process (McAdam, 2000).

5.9 Research and development To meet rapidly changing product features and customer needs, SMEs should build adynamic capability to develop new to market products (Eisenhardt and Martin, 2000).According to Mosey (2005), SMEs can compete with their larger rivals by developingnew-to-market products. Investment in product research and development will alsohelp in improving quality and in reducing cost. According to Chorda et al. (2002), costof product development and uncertainty of the market were found to be the majordeterminants that confront the product development.

Most of the SMEs research focuses on factors that contribute to their survival suchas financing, rather than a greater understanding of the growth process and

the achievement of sustainable competitive advantage. However, according toKarlsson and Olsson (1998), small firms not only spend more on fundamental researchbut also account for a high proportion of innovations in products and services. Forhigher growth small firms should focus on research and innovation in the longer term.However, many SMEs have some difficulty in converting research and developmentinto effective innovation, that leads to positive return/high growth (O’Regan et al.,2006a, b).

5.10 Technology management Majority of SMEs rely on outdated technology, labour intensive and traditionalmanagement practices. This in many cases led to inefficient, lack of information andinadequate in-house expertise (Hashim and Wafa, 2002). Increased uncertainty in the

SMEs’ environment has lead to increased levels of critical success factors for advancedmanufacturing technologies applications (Raymond, 2005). According to Mosey (2005),SMEs can compete with their larger rivals by developing new to market productsusing novel and often simpler technologies.

According to Chanaron and Jolly (1999), global competitive strategies areincreasingly becoming technology driven in the context of extremely dynamic andturbulent environments. There should be linking between the capabilities of thetechnologies and the firm’s business and manufacturing priorities (Gupta, 1996).


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More importantly, if a competitor’s technology is accepted as the industry standard,it can threaten the existence of the firm (Narula, 2004).

Technology operates on competitiveness in two ways. First by altering the pricestructure through the development of more efficient and flexible processes and second

by enabling the creation of better products of greater quality, better design, after salesservice and short delivery periods (Vinas et al., 2001). New technologies available forSMEs provide them with the possibility of accessing international markets andfacilitate the process of introducing products to these markets (Aspelund and Moen,2004). Gunasekaran e t a l. (2001) have observed that computer integratedmanufacturing helps SMEs to reduce lead time, increase flexibility, reliability and toimprove customer service.

5.11 Information technology applicationsInformation and communication technologies are indispensable to the operation of thecore routines of organizations (Hicks et al., 2006). SMEs generally have an ad hocapproach to IT management, and therefore seldom have a defined IT budget or anexplicit IT plan or strategy (Sadowski et al., 2002; Barry and Milner, 2002). Investmentsin technology are often driven by the owner, rather than by any formal cost-benefit orstrategic analysis. For making investment in information and communicationtechnologies, SMEs should seek accredited advisors to ensure success (Morgan et al.,2006). Business executives of SMEs must regard IT as a strategic resource (Beheshti,2004; Floyd and McManus, 2005). SMEs can get Competitive advantage by havingintegrated information systems (Koh and Simpson, 2005; Blackwell et al., 2006).

AMS based on IT applications such as CAD/CAM, EDI, and MRPII help in strategicdevelopment and growth of SMEs (Gunasekaran and Ngai, 2004). e-Businessapplications such as EDI enhance SMEs SCM and collaboration capabilities withinnetworks (Brown and Lockett, 2004). IT has both indirect and a direct effect on

performance (Rivard et al., 2006). According to Corbett and Campbell-Hunt (2002), IThas become an important part of the manufacturing strategy for SMEs. Manufacturingperformance of SMEs can be improved as a consequence of the use of the mostappropriate IT tools without any major changes in business practices, manufacturingoperations or the production facilities (Lal, 2004; Hodgkinson and McPhee, 2002).

6. Measurements of performance and competitivenessFor sustainable growth in highly competitive global market, performancemeasurement has become an essential component of strategy development bySMEs. Effective performance measurement system plays an important role insupporting managerial development in the organizations (Garengo et al., 2005).Performance measurement is defined as the process of quantifying the efficiency and

effectiveness of manufacturing system. Performance of an enterprise is often measuredas a ratio of output to input. The outputs constitute the products of the enterprise andthe inputs are the resources used by the enterprise (Choudhary, 2001). It is highlyessential that all the factors, both tangible and intangible, should be included inanalysing organizations performance.

Traditionally, organizational performance has been measured by using onlyfinancial indicators such as profit, market share, sales, and growth rate. Financialindicators measure only past performance. Garg et al. (2003) suggest that as most small

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firms are privately held, it is unlikely that their CEOs will be willing to provide detailedaccounting data on the firms performance. Therefore, they suggest the use of “subjective and self-reporting measures of performance.” Performance of anorganization relative to its industry standards is termed as its competitiveness.

Vastag and Montabon (2001) have measured competitive advantage by using fivepoint Likert scales, which compared the firm’s unit cost of manufacturing, deliveryspeed, etc. with its competitors. This comparison with best in industry is also referredas benchmarking. The core of the current interpretation of benchmarking is (Denkenaet al., 2006):

. Measurement of the own and the benchmarking partners’ performance level.

. Comparison of performance levels, processes, practices, etc.

. Learning from the benchmarking partners to introduce improvements.

. Improvement, which is the ultimate objective of any benchmarking study.

Benchmarking contributes to the CI in performance factors. Deros et al. (2006) have

developed a benchmarking implementation framework for automotivemanufacturing SMEs but it has been validated with only six pilot case studies,not tested empirically. They have divided key performance measures in twocategories, i.e. hard measures and soft measures. Hard or tangible measures includework-in-progress levels, lead-time, delivery-time, rejection (percent), rework (percent),product quality, product reliability, process cycle time, employees skill level, etc. Thesoft measures may include management commitment towards quality improvement,improvement in customer’s satisfaction for both internal and external customers,existence and practice of team working, employee’s involvement, rewards andsuggestion schemes, etc.

Ribeiro and Cabral (2006) have developed a benchmarking methodology for metalcasting industry. Performance assessment model given by them involves broad areasof manufacturing, customer focus and business results. St-Pierre and Delisle (2006)have developed an expert diagnosis system for the benchmarking of SMEsperformance. On the basis of data taken from 100 SMEs, they have observed thatbenchmarking improve their operational and financial performance. Denkena et al.(2006) have given knowledge-based benchmarking of production performance forSMEs using an existing European database called Benchmark Tool to improve theProduction Performance. It has integrated quantitative and qualitative informationabout the company.

Many excellence models and performance measurement frameworks, like theKanji’s business scorecard (Kanji and Sá, 2002), the performance prism (Neely et al.,2002), balanced scorecard (Kaplan and Norton, 1992) and assets, processes and

performance model (Momaya, 2000) have proposed ways for analysing performancebut gaps have been observed between strategy and performance measures(Frigo, 2002). Hudson et al. (2001) have also recommended for taking steps toredesign the current performance measurement systems.

7. Benchmarking of processes and performanceFor having continuous improvements on different processes and performance, SMEshave to set some benchmark standards as their target. Benchmarking will have


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positive impact on competitiveness (Cassell et al., 2001; Carpinetti and Melo, 2002).Identification and transfer of best practices is considered a difficult task for SMEs dueto severe resource constraints and limited knowledge of benchmarking methodologies.They often have difficulty in identifying their reference group. The selection of most

appropriate reference group plays a key role in benchmarking since it greatlyinfluences the performance indicators that will be used by enterprises throughout theexercise (Sousa et al., 2006).

Benchmarking starts with a deep understanding of the internal processes. Then,competitors, dissimilar organizations or different units of the same organization arecomparatively analysed. Practices and performance change frequently. Therefore,organizations should adopt benchmarking as an on-going process. Benchmarkinginvolves lot of processes and activities, which are complex. Basic steps of benchmarking are planning, information gathering, analysis of the gaps between theenterprise and its partner and adoption or implementation of changes (Ribeiro andCabral, 2006).

8. Summary and gaps identified from the literatureThis paper has tried to review the literature on different areas of strategy developmentby SMEs for competitiveness. Major areas considered in the framework for this studyare concerned with market condition, strategy development, competitive priorities,processes, performance and benchmarking.

In this regard 133 research papers are reviewed. The references corresponding toeach particular area and major findings have been summarized in Table I.

Most of the studies by researchers have focused on a specific issue such as qualitymanagement, technology management, competitive priorities, leadership issues,constraints and challenges for them. On the basis of this extensive literature review,the following gaps are identified:

. There has been lack of empirical research on strategy development by SMEs forcompetitiveness. Even in developed countries, most of the studies related tocompetitiveness have been devoted to large-scale enterprises (LSEs). Thesestudies have also not tried to compare SMEs with LSEs as well as differentmanufacturing sectors in terms of operation management issues. Most of theresearchers have not tried to analyse the pressures and constraints of SMEsunder globalized and liberalized economy.

. Holistic approach has not been adopted to analyse the competitiveness.Researchers analysed certain aspects of competitiveness in isolation. Most of thestudies have considered the relationship of a particular strategic issue withcertain financial parameters only, not with overall performance or

competitiveness. Different dimensions of competitiveness have not beenexplored in available studies. Available studies lack in identifying majordrivers of competitiveness in global economy. No adequate framework wasfound to quantify the competitiveness of SMEs.

. For continuous improvement of various processes and performance measures,organizations need to benchmark themselves with available standards. Simpleand systematic empirically tested frameworks for benchmarking of SMEsprocesses and performance are lacking. Most of the frameworks have not

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S no. Areas of strategy development References

1 Concept of strategy development Explore core competencies

Continuous improvement in processesLink operations to business strategies

Cagliano et al. (2001), Lai-Yu (2001), Corbett andCampbell-Hunt (2002), Kak and Sushil (2002),

Muda and Hendry (2003), Sambamurthy et al.(2003), Sum (2004), Errin (2004), Raymond andSt-Pierre (2005) Silveira (2005), Chou and Hsu(2005), O’Regan et al. (2006a, b), Fuller-Love(2006), Raymond and Croteau (2006) and Singhet al. (2006)

2 Competitive prioritiesHolistic set of tasks to support the strategyMeasures of competitivenessLinking of manufacturing programs withcompetitive priorities

Kim and Arnold (1996), Carpinetti et al. (2000),Lau (2002), Fleury and Fleury (2003), Lagace andBourgault (2003) and Dangayach and Deshmukh(2005)

3 Leadership/top management support Success is attributed to management skillsMotivate workers to think and act flexiblyDefine objectives and strategies

Schroder and Sohal (1999), Chapman and Hyland(2000), Egbu et al. (2005), O’Regan et al. (2005)and Sila and Ebrahimpour (2005), Deros et al.(2006) and Vargas and Rangel (2007)

4 Organization cultureSupport innovation/creativity/excellenceFocus individual needs /motivation of eachemployeePromote flexibility and personal autonomy

Ghobadian and Gallear (1996), Zhou and George(2001), McAdam and McClelland (2002) andO’Regan et al. (2006a, b)

5 Total quality management Continuous planning and qualityimprovement a prerequisite for survivalHelps in implementing JIT systems

Yosuf and Aspinwall (2000), Fullerton andMcWatters (2001), Corbett and Campbell-Hunt(2002), Temtime (2003), Sila and Ebrahimpour(2005), Demirbag et al. (2006) and Prajogo (2007)

6 Development of alliancesSharing of product/technology/R&DCapabilities are internalized

Reduction of product development time

Magnan et al. (1999), Banerjee (2000), Perry andSohal (2001), Loh and Koh (2004), Varis et al.(2004), Chen and Huang (2004), Sarmah et al.

(2006),Cagliano et al. (2006) and Noori and Lee(2006)7 Vendor development

Helpful to buyers as well as vendorsRationalization of vendors for productivityand quality improvement

Trent and Monczka (1999), Gunasekaren et al.(2000), Park et al. (2001), Canon and Homburg(2001), Ulusoy (2003) and Humphreys et al.(2004)

8 Supply chain management Competition is between supply chainsMore scope for performance improvementthrough SCM

Chang et al. (2005), Hong and Jeong (2006), Kohet al. (2006), Mistry (2006) and Koh et al. (2007)

9 Clean production/TPM Clean production essential to competeTPM is beneficial for machines as well asemployees

Petts et al. (1999), Brah and Chong (2004),Worthington and Patton (2005), Laugen et al.(2005), Chan et al. (2005), Rao and Holt (2005) andEti et al. (2006)

10 Innovation/knowledge management To keep in pace with internationalcompetitionIncorporate both incremental and radicalchangesIncorporate new knowledge to supportinnovation

Lei et al. (1999), McAdam (2000), Chaston et al.(2001), Liao et al. (2003), Wiklund and Shepard(2003), Levy et al. (2003), Toni and Nassimbeni(2003) Oyeyinka and Lal (2006), Liu et al. (2004),Scozzi et al. (2005), Humphreys et al. (2005),Ernesto et al. (2005), Wong and Aspinwall (2005),Nunes et al. (2006) and Vargas and Rangel (2007)

( continued )

Table I.Classification of reviewed

papers on strategydevelopment by SMEs


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followed holistic approach rather they have focused on a specific functional area.Researchers have suggested improvement practices as part of benchmarking butnot prioritized them. Prioritization of improvement activities will help SMEs insuccessful implementation of benchmarking exercise.

. Major emerging areas of research for strategy development by SMEs areextended network/synchronous supply chain and utilization of combinedresources, distributed network manufacturing, to integrate SMEs indeveloping economies with developed economies, innovation and knowledge

management, extent of TQM implementation and its effect on performance of SMEs, effective implementation of government policies to improve SMEscapabilities and competencies, decision support system for makinginvestments in IT and AMTs.

. Most of the performance model do not have predictive power for futureperformance of SMEs and do not specify causes and corrective actions. Gaps areobserved between existing performance models and management practicesadopted by organizations.

S no. Areas of strategy development References

11 Research and development To meet rapidly changing product features

and customer needsSMEs research focuses on short termobjectives

Karlsson and Olsson (1998), Eisenhardt andMartin (2000), Chorda et al. (2002) and Mosey

(2005) and O’Regan et al. (2006a, b)

12 Technology management Better technological decisions improveproductivityLinking of technological capabilities andmanufacturing prioritiesEnable high quality products at low costwith timely delivery

Gupta (1996), Chanaron and Jolly (1999),Gunasekaran et al. (2001), Vinas et al. (2001),Hashim and Wafa (2002), Aspelund and Moen(2004), Narula (2004), Mosey (2005) andRaymond (2005)

13 IT applicationsHas direct and indirect effect on performanceEnable better performance in international

marketSMEs reluctant to make investment in IT

Corbett and Campbell-Hunt (2002), Sadowskiet al. (2002), Barry and Milner (2002),Hodgkinson and McPhee (2002), Beheshti (2004),

Brown and Lockett (2004), Lal (2004),Gunasekaran and Ngai (2004), Koh and Simpson(2005), Floyd and McManus (2005), Rivard et al.(2006), Morgan et al. (2006), Hicks et al. (2006)and Blackwell et al. (2006)

14 Performance and competitivenessProcess of quantifying the efficiency andeffectiveness of manufacturing systemSubjective and self reporting measures forSMEs

Kaplan and Norton (1992), Momaya (2000),Hudson et al. (2001), Frigo (2002), Vastag andMontabon (2001), Kanji and Sá (2002), Neely et al.(2002), Choudhary (2001), Garg et al. (2003),Garengo et al. (2005), Denkena et al. (2006), Deroset al. (2006), Ribeiro and Cabral (2006) andSt-Pierre and Delisle (2006)

15 Benchmarking of processes and performanceIdentification and transfer of best practices

Contributes to improvement in performance

Cassell et al. (2001), Carpinetti and Melo (2002),Sousa et al. (2006) and Ribeiro and Cabral (2006)

Table I.

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9. Concluding remarksIt has been observed that all over the world, SMEs are considered as major source foreconomic growth. SMEs have not given due attention for developing their effectivestrategies in the past. The reviewed literature reveals that most of the strategies have

been formulated for short-term goals as most of them are localized in their functioning.On the export front, they are facing many constraints due to their limited resources andlack of innovation in capability development. Major problems are related withknowledge loss, product design and development capability, training infrastructureand networking. SMEs are also not following any comprehensive framework fordeveloping their strategies and quantifying their competitiveness. Present paper hastried to identify different areas of strategy development by them. On the basis of gapsidentified, further study need to be carried out to develop a holistic approach,i.e. considering all aspects of organization functioning for strategy development. Thisframework should also enable them in benchmarking of their processes andperformance for continuous improvement.

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About the authorsRajesh K. Singh is a Senior Lecturer in Mechanical Engineering at Delhi College of Engineering,Delhi, India. His areas of interest include competitiveness, small business management andquality management. He has published papers in journals such as Singapore Management

Review, International Journals of Productivity and Performance Management , Competitiveness Review, Global Journal of Flexible Systems and Management , International Journals of Productivity and Quality Management , International Journal of Services and Operations Management , South Asian Journal of Management, Productivity , IIMB Management Review and Productivity Promotion. Rajesh K. Singh is the corresponding author and can be contacted at:[email protected]

Suresh K. Garg is a Professor in Mechanical Engineering at Delhi College of Engineering,Delhi, India His areas of interest include competitive strategies, JIT manufacturing systems,quality management and SCM. He has published 60 papers in international and national

BIJ15,5

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journals/conferences such as International journal of Manufacturing Technology and Management , International Journal of Production Economics, Competitiveness Review, International Journals of Productivity and Quality Management , International Journal of Services and Operations Management , IIMB Management Review, Global Journal of Flexible

Systems and Management and Productivity.S.G. Deshmukh is a Professor in Mechanical Engineering at Indian Institute of Technology,Delhi India. His major research interests include manufacturing management, SCM and qualitymanagement. He has a long list of papers published in reputed international and national journals such as International Journal of Operations and Production Management , International Journal of Production Research, Competitiveness Review, International Journal of Manufacturing Technology and Management , Production Planning & Control , International Journal of

Production Economics, International Journals of Productivity and Quality Management , International Journal of Services and Operations Management , IIMB Management Review, etc.


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