Q3Lecture1.pptxBMAN 73150 Trends in Global Business and Management Lecture 3: The question of SMEs and the evolving fascination with their role across time in policy and management circles
Dr Peter Schofield
Structure of Lecture
The importance of the SME
History of the SME and public policy – the case of the UK
The SME and HRM – some of the key characteristics
Problems and challenges of the SME
Regulatory space and the influence (and support) of a diverse set of actors.
Summary conclusions
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Learning Outcomes
To recognise the ever increasing importance and role of small business within global business and management trends; with SMEs representing a key part of an economy (and the renewal of it).
To appreciate the complex and diverse nature of the SME.
To reflect on our evolving fascination with them. As we shall discover, SMEs are the focus of increasing attention, at different times they have been approached and regulated in different ways.
To consider some of the challenges faced by SMEs and the support outlets available to them.
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Why are SMEs important to study?
Today, the economic importance of SMEs as a major employer and in GDP terms:
SMEs make up 99.9% of all UK private sector firms.
Their role as a major employer (60% of total).
Combined overall contribution to the private sector turnover (52% of total).
(Source: BEIS, 2018)
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A brief history of the SME and public policy (the case of the UK):
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SMEs thinking Pre-1970
The traditional viewpoint held SMEs as superfluous to economic growth.
Global marketing trends of the 1950s and 1960s handed the key to economic prosperity to the multinational corporation and Fordist mass-production ideals, including the much sought after economies of scale, thereby confining smaller firms to a mere peripheral role.
(Stokes & Wilson, 2006)
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“You can have any colour as long as it is black”
1970s: The Bolton Committee Report
Eight key roles for smaller firms were identified:
A productive outlet for enterprising and independent individuals;
The most efficient form of business organisation in some industries or markets where the optimum size of the production unit or sales outlet is small;
Specialist supplier, or subcontractors, to larger companies;
Contributors to the variety of products and services made available to customers in specialised markets, too small for larger companies to consider worthwhile;
Competition to the monopolistic tendencies of large companies;
Innovators of new products, services and processes;
The breeding ground for new industries; and
The seedbed from which tomorrows larger companies will grow, providing entry points for entrepreneurial talent who will become the industrial leaders of the future.
(Stokes & Wilson, 2006)
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1970s: The Bolton Committee Report (Cont’d)
“We believe that the health of the economy requires the birth of new enterprises in substantial numbers and the growth of some to a position from which they are able to challenge and supplant the existing leaders of industry. We fear that an economy totally dominated by large firms could not for long avoid ossification and decay.”
“This ‘seedbed’ function, therefore, appears to be a vital contribution of the small firm sector to the long-run health of the economy. We cannot assume that the ordinary working of market forces will necessarily preserve a small firm sector large enough to perform this function in the future.”
(Bolton Report, 1971: 85)
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“We fear that an economy totally dominated by large firms could not for long avoid ossification and decay” - Recognition of change as an inherent characteristic of business and the SMEs’ ability to quickly adapt to it.
“We cannot assume that the ordinary working of market forces will necessarily preserve a small firm sector large enough to perform this function in the future” – Recognition of the need to provide support for smaller businesses
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1980s: Thatcherism and Entrepreneurship
In the 1980s, SMEs were hailed as the saviours of western economies, most noticeably because they played a key role in the assurance of fuller employment and were believed to lead the way from an innovation standpoint.
“The seed corn of Britain’s prosperity” – key characteristics or features include capitalism, privatisation, competition, de-centralisation of the state, and a decollectivisation of industrial relations.
Piore and Sabel’s (1984) – Second Industrial Divide – flexible specialisation, industrial spaces and networks between smaller firms (e.g. Silicon Valley)
See also Bagnasco (1977) – Third Italy – an industrial district of small Italian firms experiencing economic expansion at a time when the rest of Italy, and indeed other industrialised nations, were undergoing economic decline.
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Perceived importance in a growing ‘network society’ (Castells, 1996), a post-industrialised era with economic growth and expansions now firmly directed towards information exchange and a service society.
A more recent example is that of Silicon Valley in California, an industrial district renowned for the presence of small high-tech start-up firms. Ultimately, success resulted from the degree of flexibility and dynamism afforded to these smaller networked organisations, allowed to prosper in a post-bureaucratic decentralised age, and the subsequent ability of smaller firms to better cater for newer patterns of variable consumer demand.
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1990s: Migration and Social Inclusion
Ethnic minority entrepreneurship and the role of social networks:
Policy interest in ethnic minority businesses (EMB)s has been boosted by a twin preoccupation of promoting ‘enterprise’ and of combating ‘social exclusion’ (Blackburn & Ram, 2006).
Enterprise is not, as postulated in traditional microeconomics, a process that takes place in some hermetically sealed ‘economic’ sphere, but is decisively grounded in social relations (Ram & Jones, 2008).
‘Mixed embeddedness’ (Kloosterman et al., 1999) perspective, views EMBs as being grounded in their own social capital but being crucially shaped by a wider political economy in which a key element is the state regulatory regime.
Inner city ethnic minority small business development (e.g. GLEB)
Of relevance here is Kotkin’s (1992) ‘Tribes’ which offers insights into ethnically orientated, geographically located micro-business networks seen to provide a source of competitive advantage.
The informal economy, ‘grey market’ illegitimacy and exploitative practices.
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GLEB was formed with the intention of ensuring the local infrastructure was sufficiently optimal to assist small firms and industrial districts to prosper through the promotion of public-private partnership and investment in innovation, entrepreneurship and enterprise (Best, 1989). The most commonly cited example is remains the industrial district of small furniture firms sited in the East End of London who specialised in the design and manufacture of customised furniture.
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Examples of exploitative practices identified in the UK – hand car wash and garment sectors
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2000s: The Rise of the Creative Class
The role of individual networks and new forms of collaboration amongst smaller firms and clusters of individuals.
Greater emphasis on lifestyle issues and more mobile workplaces and spaces.
The emergence of a cultural set of relations and lifestyles as defining this community of micro businesses.
See Miguel’s section of the Lecture for more details.
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What does this tell us?
It shows us how SMEs are important to the political and institutional dynamics and susceptible to the influence of the external environment.
That the state takes a great interest in SMEs not just due to their employment coverage and effects but also as a major space for innovation and change.
That SMEs and micro-businesses especially are seen as the generators of new ideas but also a key point of inclusion for ethnic and generational communities based on the margins.
Although, much of the policy approach seems to rest on specific characterisations and views – i.e. innovation and fuller employment – they do not always capture the downside and challenges facing the SME and micro-business sector. Increasingly these are a space for uneven employment practices.
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Trends mutate and re-emerge in different forms as well.
The different ‘trends’ in this lecture vary and are different in some senses but there are sometimes common links or ‘drivers’ and imperatives for change that underpin them
The desire for a more local and decentred approach resurfaces in various ways
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Some core elements of SME debates and key assumptions in terms of HRM:
“The emergent role of SME’s on the world economic stage stands in stark contrast to our limited understanding of HRM activity within them.” (Arthur & Hendry, 1992: 246)
Employment relations in the small firm:
‘Small is Beautiful’ (Schumacher, 1973) Vs. ‘Bleak House’ (Sisson, 1993)
Assumed informality and an ad-hoc piecemeal approach are prominent features.
Presumed universalism; ‘little-big business syndrome’ (Welsh & White, 1981)
Typically lacking in uptake of normative best practice HRM – the ‘deficit position’ (Wapshott et al., 2014), often assumed to be a consequence of ‘resource poverty’ (Harney & Nolan, 2014).
Paucity in research - academic motivations have historically been directed towards blue-chip organisations or public bodies (Heneman et al., 2000)
SME employees were thus labelled as the ‘invisible workforce’ (Curran, 1986)
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If the overarching purpose of this week’s lecture is to consider structural change and fragmentation and how that can unsettle forms of work and/or transform them, we need to think about such within an SME of small firm context…
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Problems and challenges that are particularly common amongst SMEs:
Centred around capacity and capability problems:
Skills and experience of the workforce
Knowledge & learning difficulties
Training opportunities
Typically lacking in functional expertise e.g. in the areas of finance, HR and health & safety
Line managers often assume the role of the HR Manager but with limited knowledge and training
Performance management and personal development
Attracting and retaining valuable employees
Adherence to employment law regulations
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See also, Miguel’s slides from the first part of this week’s lecture in relation to the difficulties and challenges of de-centring organisations – particularly in relation to networks, which SMEs are invariably a part of – and can in turn be influenced/pressurised by dominant players in the network.
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Exploring the Regulatory Space
Regulation is a complex phenomenon
De-regulation discourses do not accurately capture the nuances and realities of regulation (MacKenzie & Martinez-Lucio, 2005)
‘Regulatory space’ moving beyond the command based view seen as being limited to government regulators (Hancher & Moran, 1989; Frazer, 2006)
The sum total of intersecting and conflicting interests and value systems.
Multiplicity of sites, spaces and actors.
Boundaries subject to constant renegotiation and regulatory jurisdictions may overlap (MacKenzie & Martinez-Lucio, 2005)
No deterministic situation exists, there are no singular paths, firms appear to choose as they mature and utilise different external assets.
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SMEs encounter similar (dilemmas and) interactions with the external regulatory environment to those of larger firms and there are similarly curious developments and processes of adaption.
Regulation as a broader concept…
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The Influence of a Diverse Set of Actors
The requirement for state or expert support/assistance and the influence of a diverse set of actors;
The interventionist state… focus on rules and regulations – ‘hard’ forms of governance e.g. HSE.
The informational state… advisory in approach – ‘soft’ forms of governance e.g. ACAS – the consultative arm of the state.
Intermediary actors e.g. employment law consultants (think back to Lecture 1), CIPD, Trade Unions etc.
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Ranging from the authoritative influences of actors who assert formalisation to proceedings, most noticeably the CAA in relation to training activities, to the more indirect influences who accentuate informality.
SMEs often regulated without a trade union presence; by a functional equivalent to worker representation – ACAS and Consultants - all serve to ensure the SME operates within the boundaries of what would be considered appropriate conduct of the notional reasonable employer.
ACAS represents an important example of the consultative arm of the State, it offers training too, and accordingly provides reasoning for why budgetary cuts should not be made in this area.
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The Myth of De-regulation?
“The overall regulatory burden associated with employment has increased since the mid 1980’s.” (CIPD, 2015)
Role of social partner institutions and public bodies;
LPC, ACAS, HSE
Dispersed and fragmented, but no unified consistent pressure resulting in added complexity.
Further evidenced by a rise in employment law consultant services.
Financial and human resources typically scarce in the SME (Sullivan & Garcia, 2005)
Or re-regulation?
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Summary
SMEs are a key part of an economy and are central to the overall evolution and renewal of it.
They are also the focus of increasing attention and at different times they have been approached and regulated in different ways.
They present ways in which to generate new forms of economic change – decentralisation, outsourcing etc.
The SME sector however is diverse and remains a complex area in need of more attention regardless of the stereotypes that exist of it.
Supporting this sector is a key part of sustaining a vibrant economy (but this also requires greater attention to the collaboration and networking within this large economic space).
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References
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