Research on the Strategic Management of Small and Medium Enterprises in China
Xin Zhu 1, Ying Li2
1
2
School of Management, Guangxi University of Technology, Liuzhou, China
School of Management, Guangxi University of Technology, Liuzhou, China
(zhuxinjupiter@hotmail.com, 5266736@qq.com)
Abstract - The goal of this paper is to analyze the
status and the need strategic management in SMEs in China,
and make analysis on the problems and countermeasures for
the implementation of strategic management in SMEs.
Firstly, we make an analysis about the importance of SMEs
for China's economic development, and analyze the need for
SMEs to implement strategic management. Secondly, we
make an introduction about the step of the implementation
of strategic management for the SMEs, and divide the
implementation process into five steps. Then, we make a
discussion
about
the
existing
problems
during
implementation of strategic management for the SMEs in
recent China. We find that the lack of skills, the lack of
consideration of macro environment, and the speculative
mentality are the main obstacles for the implementation of
strategic management for SMEs. Finally, we put forward the
corresponding suggestions and recommendations for the
implementation of strategic management for SMEs.
Keywords - strategic management; SMEs, recommendations
I.
However, it should be noted that the development of
SME faced with unprecedented difficulties due to a
variety of factors. There are serious problems for their
ideas, technologies and equipment, management structure
and other aspects. Particularly in its strategic
management, the majority of SMEs lack of clear strategic
positioning, and their strategic management are in chaos.
With China's accession to WTO and economic
globalization, information technology conditions, the
SMEs exposure to a dynamic ultra-competitive
environment the same as the large enterprises [1]. This
environment is unpredictable, treacherous, and for the
self-limited conditions, often in competition for SMEs at
a disadvantage. This environment is unpredictable,
treacherous, and for the self-limited conditions, SMEs are
often at a disadvantage in the competition. This
determines the depth of the environment for SMEs to
capture the opportunities, avoid threats, exceed and
develop appropriate strategies to be possible to grasp the
business destiny.
INTRODUCTION
II.
Since the reform and opening policy in 1978, the
number and scale of Small and Medium Enterprises
(SMEs) have prospered for a long time with the rapid
development of private economy in China. The SMEs
increasingly become an important pillar of China's
economic development. According to the introduction of
National Development and Reform Commission, The
number of SMEs in China has reached more than 4200
million, accounting for over 99.8% of total number of
enterprises. The number of SMEs registered by the
business sector reached 460 million, and the number of
self-employed households reached more than 3800
million in the end of 2009. The value of final goods and
services created by the SMEs is account for 60% of the
gross domestic product. The goods produced by the SMEs
accounts for the 60 percent of the community's total sales.
The tax revenue by SMEs turned over more than half of
the total. The SMEs also supply more than 80 percent of
the total job positions. We can get the conclusion that the
SMEs are playing an increasingly important role for the
economic development in China. The development status
of SMEs becomes an important indicator of economic
vitality for a country or region all around the world.
____________________
This research is supported by the Foundation of Guangxi Educational
Committee (Grant No: 201012MS121)
THE NEED FOR SMES TO IMPLEMENT
STRATEGIC MANAGEMENT
The SMEs will face many strategic choices which
can affect the fate of the corporations in their growth and
development, just the same as the large businesses. In the
course of business, there are strategic management issues.
SME managers, especially senior management across the
enterprise in the business planning process of
development requires far-sighted to think, to make
appropriate choices. These options relate to the long-term
business interests and global interests, only to make the
right strategic choices to be effective in guiding the
development of enterprises.
A. The Implementation of the Strategic Management Is
the Need for SMEs to Survive
With the development of social productivity, market
supply and demand has changed from past over-supply
shortage. SMEs had a "small boat U-turn" advantage in
the increasingly fierce competition in the market has
gradually disappeared. The survival of SMEs should not
only to consider the current pressure, but also to consider
the future long-term environmental impact. Therefore, the
strategic management of SMEs must be on the agenda,
careful analysis of the external environment and internal
business environment, accurate positioning and
positioning the industry to continuously optimize the
development strategy, otherwise the survival of SMEs
will be increasingly difficult.
B. The Implementation of the Strategic Management Is the
Need for SMEs to Develop
The large enterprises usually developed on the basis
of SMEs through the careful design their own
development strategies, accurate self-positioning, the
correct direction of investment, etc., only to the original to
the continuous development of SMEs. Practice shows that
the growth process in SMEs, strategic management is the
management of the most important, only to seize the
small and medium enterprise development strategies in
the development of the road can make the right strategic
choices.
C. The implementation of strategic management is the
need for SMEs to improve core competitiveness
Core competence is to win in a competitive market,
the key to SMEs succeed in the attack of many large
enterprises to survive, they must have the unique core
competence, which can not be duplicated, and strategic
management is to play small and medium enterprises
effective way of core competence. SMEs under the
guidance of strategic management thinking focus on
human, financial and material resources form the core
technology of its own intellectual property in order to
enhance their core competitiveness.
D. The Implementation of Strategic Management Is the
Need for Innovative SMEs
Taking into account the characteristics of SMEs, the
steps of the implementation strategic management should
include analysis of business environment, industry and
market position, identify strategic objectives, business
strategy formulation and selection, implementation and
evaluation for strategy aspects.
A. Analysis of Business Environment
The business environment includes both the external
environment and internal environment. The purpose of the
external environmental analysis is to understand the
enterprise's survival and development of a significant
impact on the various factors including the macro
environment, industry environment, and the competitive
environment outside the enterprise [3]. For SMEs, the
external environment can not control, but can take
corresponding measures with the different types of
external influences. SMEs have to grasp the status and
trends of macroeconomic environment and the industrial
environment, which can enable their business strategy to
have strong adaptability.
Internal environment analysis is the enterprise's own
environment, including the operation of existing
enterprises, business performance, product development
and marketing, management ability, all kinds of resources
to conduct in-depth analysis to understand they will have
on future activities which affect the business. The analysis
of the internal environment should have a clear
understanding for the business advantages and
disadvantages. The supporting impact is advantage, and
the impeding inferior is disadvantage. We should know
the advantage the companies have, and should clarify the
disadvantages for the further development. In this way,
we can get the right strategic direction on how to avoid
weaknesses for the long-term development for SMEs
B. Positioning of Industry and Market
With the rise of high-tech industries and knowledge
economy, the world economy has entered a new era. In
this economic situation that traditional industries are
facing integration, the traditional mode of operation are
facing challenges, and the new business areas and ways
are emerging [2]. Only the SMEs with continuous
innovation can be invincible. In the new economic
situation, the SMEs should treat strategic management as
the guiding ideology, and play their advantages as much
as possible. The SMEs should continue their innovation in
areas such as in the mode of operation, technology,
product development, service production process.
III. THE STEP OF THE IMPLEMENTATION OF
STRATEGIC MANAGEMENT FOR THE SMES
We should make comprehensive consideration of
their internal and external environment when the SMEs
conduct industry and market positioning. We should start
from the situation of the enterprises themselves, and select
the proper industries and markets for the survival and
development of small and medium enterprises. For SMEs
in general should choose the less trade monopoly or near
perfectly competitive market. In addition, the business
scope should not be too broad, should concentrate their
limited resources and human well specialization [4]. When
the development of SMEs to a certain scale, in order to
expand, you can try to diversification, but must carefully
consider their own abilities, or they might have disastrous
consequences.
C. Identify the Strategic Objectives
The strategic goal means the expected results to be
achieved in the scope of their business during certain
period of time under the enterprises’ operation thought.
The division of the contents of strategic objectives will be
different with different categories standards. It can be
divided into departmental goals, and job goals according
to target level. It can also be divided into long-term goals,
medium-term objectives and short-term goals according
to the length of time. The SMEs should be according to
their capabilities, and can not be too high or too low, it
should be through the efforts of the enterprise can achieve
In determining the strategic objectives.
D. Formulate and Choose the Business Strategy
Business strategy is means of channels and concrete
action plans adopted to achieve the strategic goals.
Management strategy to be addressed include business
how to allocate and use enterprise resources, how to
coordinate actions among various departments, how to
improve overall competitiveness of enterprises to achieve
the desired strategic effects [5]. SMEs in the development
and selection of management strategy must be combined
with the characteristics of the enterprises themselves,
according to the enterprise, outside the specific
environment to develop viable business strategy, the
choice of the number of options to select the best of its
ability to pay attention not to go to the pursuit of
satisfaction strategy difficult to achieve the optimal
strategy.
E. Implementation and Evaluation of the Strategy
The Implementation and evaluation of the strategy is
the key link to achieve strategic objectives. The SMEs are
different from large enterprises, so we should pay more
attention for the strategy control in the implementation of
the strategy. That means we should control the speed,
direction, deviation of the implementation of the strategy.
At the same time, we should clarify the scope of
responsibility of all organizations, so that every
department, every employee behavior and corporate
coherent overall strategy. In the strategy implementation
process, we also constantly checking the implementation,
correct the problem in time. We should make accurate
evaluation for the implementation of the strategic
objectives, and make certain adjustment according to
strategic objectives and strategic programs. The
implementation of the strategy process is a continuous
improvement process. The SMEs should be on
implementation of the strategy process and results of
lessons learned in a timely manner, so as to achieve
satisfactory results.
IV. THE PROBLEMS OF IMPLEMENTATION OF
STRATEGIC MANAGEMENT FOR THE SMES
A. The Lack of Strategic Development and
Implementation Skills
Some of our SMEs lack strategic thinking, and don’t
have adequate understanding of what is the strategy, the
value of strategic for enterprise. They treat strategy
intangible thing, and the short-term behaviors are very
common without long-term goals. However, more and
more enterprises realize the importance of strategic with
the deep of reform and opening up, the frequency of
economic activities, the promotion of their own
understanding [6]. But many of the managers of SMEs lack
enough awareness of what kind of strategy on the
development, how to develop strategies and how effective
implementation of the strategic and other issues. Some
SMEs treat corporate profits as a strategic objective, but
lack of depth thought on where's the money earned, earn
whose money and so on. The company is in machine
industry today, may enter the health care products, real
estate and other industries tomorrow, which significantly
increase business risk.
B. SMEs strategy Is not With the State's Political and
Economic environment
A considerable part of the SME leaders think macroeconomic and political environment has little to do with
production and operations [7]. Some of them even don’t
have time to take account of these issues. China's SME
owners like to deal with urgent business personally, and
are difficult to find time for strategic thinking. Their
efforts are how to survive their enterprises and how to
solve the employees’ food problem. Thus changes in
domestic and international political and economic
situation and little is known about the general direction of
existing problems. The scanty information, shallow
understanding and they are not good at closely linking the
macro political and economic environment and
production and operations. Their grasp of policy and the
economy is relatively slow, which missed the best
opportunity of development. Some enterprises even as the
direction and policy guidance is inconsistent, leading to
bankruptcy and insolvency risk.
C. The Speculative Mentality is Serious and Like
Opportunism
During China's 30 years of market economic
reforms, many speculators have gotten great interest in
short time due to policy loopholes and laws are not
perfect. In this way, many small business owners develop
a quick success, ignoring the rules of the bad habits [8].
They believe that success relies on speculation and luck,
and don’t take a strategic perspective on the development
of enterprises. There are lots of meteor type business
because of the lack of speculative opportunities and
intense competition in the market. Such kinds of
enterprises have created a brilliant closing down of many
small and medium enterprises.
V. THE RECOMMENDATIONS TO PROMOTE
THE STRATEGIC MANAGEMENT OF SMES
Whether to implement the strategic management of
the enterprise is ultimately determined by enterprises. Can
be expected, with the SME owners and entrepreneurs on
the environment is complex and dynamic nature of
awareness-raising, our newly revised state constitution to
protect private property on the terms of the deeply rooted
among the growing number of SMEs will abandon the
short-term behavior, lofty ideals, in order to implement
and strengthen the strategic management as an inherent
requirement of enterprise development. We put forward
the following recommendations, in order to make
strategic management been widely used to enable the
small and medium enterprises.
A. Strong Leadership Training and Enhance Their Own
Capacity
Corporate strategy is often the values of a company’s
top leader. So, First of all, business leaders must be
trained. to improve their strategy awareness and skills.
Now business leaders are increasingly aware of the
importance of training. However, most of them think that
only the subordinates need training to improve strategy
execution. They do themselves or as busy no time to
participate in specific training or simply think they don’t
need training. As everyone knows most need training in
business strategy is to business leaders themselves.
Training method can be flexible. For example, enterprises
have plans to allow the operator to "go out" to the
advanced business study tour or through target training.
We can send them out to supplement the theoretical
knowledge management systematically. We can also ask
some related experts and scholars come to update their
management philosophy and knowledge. We have to
develop their thinking, enhance their management,
strengthen the political and economic policy studies and
enhance their ability to grasp the political and economic
direction.
B. Encourage the Staff Involved in Developing Corporate
Strategies
The staff participation is the key for whether the
corporate strategy can be carried out perfectly. When
employees do not agree with the strategic decisions, there
will be resistance, decreased satisfaction, which will
impact on productivity directly. If a company's employees
do not understand how to be different with companies, do
not understand what business value created, they will be
difficult to understand face multiple choices [9]. If the sales
staff does not know strategy, they will not know who to
sell. If engineers do not know strategy, they will not know
what outputs. If the employee participate in strategic
management, Understand business strategy development
through, it is easy to recognize strategy, understand
strategic in their daily work.
C. Strengthen Human Resource Management
Modern enterprise competition is the talent
competition. Any effective strategy is to develop and
implement by people. Therefore, the level of capacity of
enterprises will directly determine the effect of the
strategy. There are certain problems for the human
resources management of China’s SMEs such as the lack
of scientific and effective introduction of talents, training
and use of mechanisms; personnel appointments and
irrational allocation of human resources; human resource
performance evaluation and incentives imperfect. There
are two main reasons for the low efficiency of
productivity in SMEs: the lack of staff capability in itself;
the second is the lack of system and means to full use the
human capacity. We can rely on new concepts, establish
the right talent, strengthen staff training, individual talent
among staff. We can establish scientific personnel
selection system and equal competition, and establish a
scientific distribution system. We should improve the
incentive mechanism, so as to improve the level of human
resource management of SMEs.
D. We Should Make Use of Outer Brain and Establish
Thinking Tanks
There are more and more factors to consider for
enterprises’ business development strategy. Enterprise
business development strategy more and more factors to
consider. Strategies must also change according to market
changes more and more frequently. We should grasp the
changing situation, develop appropriate strategies and
countermeasures. It is not enough to make decision with
individual mind, and should focus as much as possible of
social intelligence [10]. The thinking tank has the following
functions:
Innovate business thinking. We can break the
company's own mindset through the introduction of
foreign brains Resources. We can eliminate blind spots in
production, management, sales, service, research and other
areas to provide new ideas, new knowledge, new
information, new ideas, new methods, and new strategies.
Enhance enterprise intelligence. Leadership and
employees are fixed constants, but the outer brain
resources are infinite variables. The establishment of think
tanks outside the brain will result in enhanced business
intelligence advantage. Mechanism in the enterprise has
created a unique highlight of the new intelligence, which
will effectively improve the business identify problems
and solve problems [11]. Competition in the market
committed fewer errors, and create more opportunities.
Develop the interface of enterprise. The introduction
of outer brains can not only enhance business intelligence
with external intelligence, but also can integrating the
human, material and social relations owned by outer
brains. We can expand the interface through the project or
joint system of enterprise management platform. This
flexible operation mode can maximize the company's
virtual resources and make up the short board for business
[12]
.
VI.
CONCLUSION
Some SME managers believe that only the large
enterprises need strategic management, while SMEs do
not need. Such kind of idea is completely wrong. The
Viability of the SMEs is tough, because the SMEs can not
to compete with larger enterprises in terms of technology,
personnel, capital and other aspects. SMEs without clear
strategic management thinking will easily get lost in the
market and defeated with the increasingly fierce
international and domestic market competition. Therefore,
how to implement the strategic management of small and
medium enterprises, how to analyze their strengths and
weaknesses, how to correctly select the management
strategy have become the key for the healthy and rapid
development of SMEs in the future.
REFERENCES
[1]
[2]
[3]
[4]
[5]
[6]
Hennart, J.F. “Theories of Multinational Enterprise”, in
A.M. Rugman and T.L. Brewer (eds.) The Oxford
Handbook of International Business, 2001, pp. 127–149.
Rugman, A.M. and Verbeke, A. “Subsidiary-specific
advantages in multinational enterprises”, Strategic
Management Journal 2001, 22(3), pp. 237–250.
Williamson, O.E. “Strategy research: governance and
competence perspectives”, Strategic Management Journal,
1999, 20(12), pp. 1087–1108.
Ghemawat, P. “The incomplete integration of markets,
location-specificity, and international business strategy”,
Journal of International Business Studies, 2003, 34, pp.
138–152.
Almeida, P. “Knowledge sourcing by foreign
multinationals: patent citation analysis in the US
semiconductor industry”, Strategic Management Journal,
1996, 17, pp. 155–165.
Hedlund, G. “A model of knowledge management and the
N-form corporation”, Strategic Management Journal,
2007,15(3), pp. 73–91.
[7]
[8]
[9]
[10]
[11]
[12]
Chang, S.& H.Singh. “Corporate And Industry Effects On
Business
Unit
Competitive
Position”.
Strategic
Management Journal. 2000, 21, pp. 739-752.
Scott, A.J. “Entrepreneurship, innovation and industrial
development: geography and the creative field revisited”,
Small Business Economics, 2006, 26, pp.1–24.
Brandenburger, A. M. and B. J. Nalebuff. “Theright game:
Use game theory to shape strategy, Harvard Business
Review, 1995, 73(4), pp. 57-71.
Glimstedt, H., W. Lazonick, and H. Xie. “Evolution and
allocation of stock options: adapting US-style
compensation to the Swedish Business Model”, European
Management Review, 2006, 3, pp. 1–21.
Mulcaster, W.R. “Three Strategic Frameworks”, Business
Strategy Series, 2009, 10, pp. 68 – 75,.
Markides, Constantinos “A dynamic view of strategy”
Sloan Management Review, 1999, 40, pp55–63.