1. Define SMEs according to the European definition
According to European defintion of SME’s, it was believed that some of the SME’s in United Kingdom, implies ample recognition as it is appropriate in determing the weight as well as size of SME employees as it is common to measure size according to numbers of employees respectively. Moreover, just last February of 1996, the European Commission adopted a communication setting out a single definition of SMEs as it applies as the process of communication explains that existing SME definition that could be: Quantitative which is based upon criteria such as employment, asset size and varies through the industry and the nation but the Qualitative for example, the ownership as well as organizing the flow of business. Thus, small firms were independent and not being owned and not being openly restricted by large organizations as there are other forms of such qualitative approach in terms of describing small firms that tries to capture SME images, viewpoint and behavior facets like for instance, possible issues and challenges facing the UK managers of the SME’s that will be able to differentiate small business sectors from large companies.
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2. What is the total stock of SMEs in the UK? Give the date
During the middle of last year 2006, the total UK business stock totaled to approximately 3.1 million organizations and such stock has problems in size within the past decades as the certified figures point to mostly successful businesses and predictably all from the SME sectors and during the second quarter of 2006, the typical firm comprised of 3.1 million as the whole is presently at 1.7 million which is the VAT stock integrating a total stock of 4.3 million. ( 2006)
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3. With respect to a) small firms b) medium size firms: what was their respective share of employment in the UK in 2002? Construct your own bar chart (not downloaded)
The share of employment in the year 2002 of the small and medium sized enterprises (SMEs) in the U.K is simplified in the bar graph below:
The share of employment of these SME’s provides a certain process of analysis showing that these type of organizations covers most number of personnel and employees employing between 50 and 249 people amounting to 11.2 percent of employment for small size firms as compared to medium size firms employing over 250 people but employed 44.6 percent of the employees respectively.
4. From the years 1999-2001 how would you describe the productivity comparison between large firms and SMEs in the UK? (3 marks) Construct your own graph (not downloaded)
Thus, in describing the productivity comparison among SME’s and large firms in the United Kingdom, it indicated that the level of production presents the findings from a series of studies that use large sets of data to evaluate the sources of productivity growth at the industry level. In addition, it discusses these findings to link them with theories about how and why firms perform in a different way. There have been increases in the UK on the past years but with limit. Furthermore, incomes of UK people depend on productivity and adhere amid SME firms within same industry as smaller firms can be found covering behind of its productivity in the UK but it does not mean that small and medium enterprises do not contribute to the UK’s productivity growth. Henceforth, SMEs may possibly have few capital assets as compared to larger firms as the SMEs pay subordinate earnings than larger firms and reflects that, smaller firms may be late in line for well accomplished work and the SMEs may discover process towards the low end of productivity scale.
5. Through using the theory of economies of scale explain the existence of small firms
The economies of scale decide the best possible size of the firm but the organisation of the firm also has an influence on its size as there has the creation diseconomies of scale and starts altering the finest dimension of the SME firms and once a firm starts to increase in size both the degree of control and the closeness of communication will decrease, rendering the function of coordination unnecessary in smaller firms by the combined effects of technical economies of scale and diseconomies produced by the technology. The existence of small and medium firms can be explain by prevalence of organization diseconomies wherein the size of the firm is explained due to efficient allocation of given resources as the actual size is clarified in terms of the economies of scale as being derived from the adopted production technology that provides better account of small firms within its normal allocation between SME sectors and other countries aside UK even if there does not explain the difference among small and large firms within the common business sector.
6. What can the neo-classical theory of markets tell us of small firms
Neoclassical theory’s objective is to recognize cost guided, not organization guided, reserve portion. The SME firms does not play essential function in the having such black-box into which resources go and which goods come as there has just right antagonism, the alteration accord with the uttering of identified knowledge and price. Thus, the UK market expose switch opportunities but do not create services and will not replace for failed SME’s in the process. The small firms in neoclassical theory replicate the imperative of the value system and not those of administration; if the cost scheme works fine then, small firms’ income are owed healthy like, if a firm can be small and compete so, the property can be own by a sole person or by few individuals as rights arrangement of big firms must disperse to improve the small firms in its risk problems and shareholder status within assuring valued clientele and suppliers as there is no solo shareholder that undermine the small firm’s ability to credit certain agreement when ask about the firms like in purchasing such small share of small firms resources.
7. What is the Structure-Conduct Performance paradigm. What can it explain about small firms
Accordingly, the Structure-Conduct-Performance (SCP) paradigm is considered to be an important tool of contemporary industrial economics. It states that market performance depends on various elements of market structure, such as entry conditions, market concentration and number and size of firms and forms of firm conduct and strategic behavior, such as capacity utilization, publicity and collusion as the process pertains to the developed and developing economies that are based on the SCP paradigm, while exploring the relevance of the SCP paradigm to the Indian industry. The relationship between market concentration and market performance in the Indian industry is discussed in depth, as is the association between entry barriers in SME’s and market performance. The small and medium-sized enterprises (SMEs) firm performance is a complex, multifaceted construct that should be examined with an eye toward its complexity. Understanding how SMEs achieve high performance has significant implications for SME owners/managers, SME employees and the economies in which the SME operates. High levels of performance can facilitate firm growth and subsequent profit performance, which in turn can yield employment gains and contribute to the general economic health in UK with respect to environment change and uncertainty, a better understanding of the contributing factors and mechanisms for high performance is desirable.
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8. Explain the N-firm concentration ratio. Give examples. What can it tell us about the size structure of an industry?
In economics, the concentration ratio of an industry is used as an indicator of the relative size of firms in relation to the industry as a whole and the commonly used concentration ratio is the four-firm concentration ratio, which consists of the market share, as a percentage of the four largest firms in the industry. In general, the N-firm concentration ratio is the percentage of market output generated by the N largest firms in the industry. This ratio tell the economost, a fair amount of correlation to cerrtain indexes and some examples of the four-firm concentration ratio include within the SME’s dealing to the following:
Ø Publishing
Ø Soap and detergent
Ø Men's slack
Ø Greeting card
Ø Cigarette
Aside, in UK there can be enormous range in the size of firms, from one-person businesses through to firms employing over 50,000 people and widely used definition of small business, following the European Union, is that a small enterprise is one with under fifty employees and a medium sized one, fifty to two hundred fifty employees. The growth in the importance of small firms in the past quarter of a century reverses previous trends and appears to have occurred in many other industrialised economies. The size of firms influenced by the nature of technology and the extent of economies. Where there were substantial economies of scale, large firms would have lower costs than smaller firms, and the industry could be expected to be dominated by large firms. One possible explanation for the growth of small businesses is the changing nature of technology and of the extent of economies of scale.
9. What are fragmented markets? Can it help us understand small firms?
The UK SMEs have developed in figures and the curiosity to UK’s financial system appreciably in current years as growth can be connected to augmented elasticity of UK’s economic stance while, UK consumer demand process has resulted to fragmented markets and improved globalization within niche’ markets as it tells the UK people so that the small business can fill into better market structures. Aside, the ways of technology lowered marketplace access costs and condensed the reward of superior unit linked with the economics of scale that prepared small firms to be competitive enough because of suppleness. Thus, efficiency increase comes from obtainable SME that added to such ratio of money per worker and assume original knowledge as UK does not need to augment the figure of its small firms and recommendation to these firms on managerial and executive matters are to be provided before starting as several UK SMEs function as routine organization as the cause why small firm’s competitors are non-competing are not forever obvious provided that UK small firms with short productivity are most likely at risk and other firms can welcome an easy indicator that reveal a relative performance within SME industry.
10. Using the Dti web site and using an excel spreadsheet construct your own graph of the share figures of SMEs from 1990 to the latest figures available
11. What are the theoretical reasons for the existence of the supposed small firm revival?
The theoretical reasons for the existence of a small firm revival can be reflected in the following points:
Innovation capability – refers to knowledge and skills required for firms to choose, operate and develop technologies as small firms that are adept at this are called learning organisations
Internal sources – within various factors like, internal and external to the firm may contribute to innovation capability that brings knowledge and skills into the small firm
External sources – allows the Interaction with suppliers, customers, public institutions and industry associations may provide missing inputs into the learning process which smalls cannot provide such proximity effects in present-day global economies.
Research objectives and analytical framework – there suggests that a large number of internal and external factors contribute to a degree of innovation ability of small firms as such factors are the crucial sources of SME along its modernization that is geographically near to few actors that develop the worth of outside connections.
Sampling and measurement – there involves selection cases in facilitating determinants of change and be taken as indicator of certain patterns and trends that might have enough strength.
12. What is the evidence for a small firm revival in the UK?
In the UK, there has been a revival of interest in small manufacturing firms as important agents of industrial growth as small enterprise sector were on a path of secular decline for decades and seen as anachronism with low productivity and incomes and poor working conditions to be supported for purposes of income support for disadvantaged groups (1998). The manufacturing institution with a maximum of ten employees rose from a low of 35,000 to over 100,000 (1989) and their contribution to manufacturing output increased from 19 percent to 32 percent by 1990 (1994, ). ‘’The recognition that small firms could make a key contribution to industrial regeneration has made them a central element in recent UK government policies aimed at increasing national industrial competitiveness as it is pointed out that if the British SME sector is to enhance industrial competitiveness in the knowledge-driven economy, emphasis should be put on promoting the use of science and technology and stimulating innovation by strengthening links with the national science and engineering base’’ (DTI, 1998). Furthermore, it is believed that SME’s pioneering capability and competitiveness are improved by network and assistance with agents of the business system for example, suppliers, customers and competitors as the UK government desires to take action as channel in promoting region cluster like in such industries wherein UK has a strong information base.
13. What is the long term evidence of small firm share in Venezuelan manufacturing? What reasons can you give for this trend?
There exist few studies of continuing small and medium size enterprise share in developing countries as there present and examine evidence that SME share in Venezuelan manufacturing has experienced serious decline from the year 1961 to present era as there evidence given of the particular decline in lieu of useful production events such as the numbers of firms, employment numbers and manufacturing value added as there was an complete turn down of the stratum that happened in the year 1979 and onwards and for the trend, there has the use of economic modeling suggesting that such competence and modernism variables are considerably connected with the decline but such structural variable make clear of the useful and possible movement within the trend in a selected ways of economies as the groups of variables are found to be important in the process and unlike Venezuela, the variables discusses present revival in the economies' SME share and found that evidence of rejection in Venezuelan SMEs' presentation along with the business environment causes the decline within the SME share.
Referred to: ABSTRACT
‘’Aside, studies of SME share willpower have employed fractional adjustment replica which specify disequilibrium as only way of explanation as the time sequence data available for Venezuela allows the testing of such an equilibrium using the (1987) error correction methodology. Thus, such variables are important in the short rather than long run determination of SME shares and that only information known at the time the equilibrium is formed enters the long run component. The primary factors explaining equilibrium share are barriers to entry, factor mix, enterprise modernisation and a new exogenous proxy variable, GDP. The main determinants of short run movements are factor mix and enterprise modernisation. as there involves a manufacturing share of the SME’s in Venezuela’’
Referred to: ABSTRACT
14. What do you consider to be the central ingredients in UK policy towards small and medium size firms?
The central ingredients in UK policy toward SME’s can be in terms of financial constraints to innovation in Europe and that constraints can be greater for those firms engaged in crucial matters for small and medium sized firms and that firms within the market financial system and extensive change in European monetary environment did not detached such problems, especially for SMEs. There must be policy desire to recover modern presentation of SMEs as over the years there was great number of diverse policy intervention intended to address troubles like, tax subsidy and other SME schemes, civic economics and others with enough attention provided to SME’s. However, UK SMEs show much innovation as compared to the European context rather than in larger firms and it is important to identify appropriate policies which lie behind that phenomenon and links as made among novelty and trade performance. Thus, SMEs in the UK are constrained by management skills than they are by financial market failures and that management competence and skill issues may be a key factor in preventing innovation from producing thoroughly positive bottom line profitability effects. It follows from this argument that an important emphasis in policy should be placed on building management competence in UK SMEs. In a related vein it is critical that policy should place greater emphasis on developing competence in the stock of businesses with growth aspirations as compared to its emphasis in promotion of starting business.
There were changes have resulted in both the development of specific support programs for SMEs and more general deregulatory measures to improve the economic environment for business and that SMEs contribute to a dynamic and innovative environment and generate high quality employment. The majority of SMEs does not carry out research and development and are associated with low quality and insecure employment. Policies in support of SMEs need to be formulated with an awareness of the diversity of SMEs. There are only a very limited number of SMEs which make an important contribution to employment and innovation. Aside, there are efforts in facilitating business and increase of high quality SMEs that require a target program rather than universal procedures like the labor market deregulation as well as development of SME’s elusive savings and right to use the resources and information in order to generate better environment in which fineness are found in SMEs with good future.
15. Examine briefly some of the major theoretical arguments for such policies
For instance, neither size variable had a statistically significant effect on R&D intensity when small number of outliers, namely seven very large firms with very high reported Research and Development (R&D) vigor relation to the size, were removed and a threshold effect was identified, using a probit model to explain the decision of the business unit to do R&D – the size of the business unit, but not the overall size of the firm, had a positive and significant effect on the probability of conducting R&D. Aside, the industrially active, SME firms were being divided into sectors but don’t notably develop people’s understanding of precise mechanism relating to the market organization and ground-breaking actions. Although, small firms can be fairly in forced because of available internal funds that is limited in small firms than larger firms that has such problems in information asymmetry that can be severe for new SME firms having no path in basing cases for funding and have realizable assets to use that will mean that supply of finance to small firms were incomplete. In the UK, the pattern is less intense assets, little private management as well as little inter-corporate property within the SME firms across system.
16. Suppose that you wish to do econometric research on the reasons for the growth in small firms in a particular industry or area. Which dependent and independent variables might be of interest to you? Give the reasons for this choice. Explain your expectation of the sign of the variable in a multiple regression analysis
There attempts to understand the dynamics at work on the performance of firms because to do so may help to improve it. Improved firm efficacy certainly can facilitate a number of desirable outcomes related to economic development, growth and resilience particularly in light of the dominance SMEs represent to the economy as the researchers acknowledge that performance is a complex and multidimensional construct (2005; 1993). The objective of multiple regression analysis is to predict the single dependent variable by a set of independent variables. Here both independent and dependent variables should be metric such as interval or ratio statistics.
There are some assumptions in using this statistics
Ø the criterion variable is assumed to be a random variable
Ø there would be statistical relationship that will be estimating the average value rather functional relationship and calculating an exact value
Ø there should be linear relationship among the predictors and between the predictors and criterion variable.
In considering very high and positive correlations of SME variables with life satisfaction multiple regression analysisRegressed Variable
Self awareness (OA)
Autonomy (AU)
Creativity (CR)
Evaluation (EV)
Trust (TR)
Involvement (OCOM)
Environmental awareness (EA)
Environmental satisfaction (ES)
Self satisfaction (OS)
Approaches to regression analysis based on above table:
There has to be the use of backward elimination which involves computing a regression equation with other variables and then going back and deleting those independent variables that do not contribute significantly to it as well as the step-wise forward estimation as every variable is considered for inclusion prior to developing the equation. The chosen variables below will help assimilate and strengthen important matters dealing to small and medium firms and large firms in aligning useful processes for growing small firms on a high note with a specific industry like SME’s and large firms from manufacturing and production industry that integrates all of the variables mentioned.
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