SMEs have been becoming major drivers of the national economy in many countries. SMEs have become the major part of supply chain management. Therefore, each country is paying attention towards the development of SMEs. Many countries have started different finance plans to provide adequate capital resources to the particular project. But this is not the case with each country. Here in Nigeria, there is always difficulty in channeling financial sources. In addition to this, location is a major factor which needs to be considered. The SMEs located in the cluster have the advantage of networking and relationships whereas SMEs out of cluster face hindrances due to geographical location (Hashim, 2009). It has been proved that if an SME gets out of the cluster, it may lose its 60-70% customers. Customers have more knowledge about the clusters; they are aware of clusters and tend to go in the place where all the services are present in the form of a cluster. It has been very challenging for SMEs to survive in the unsupportive environment, especially in developing countries. The situation in Nigeria is further worse (Messaadia,2016).
Here I am dealing with the same kind of situation. My subject organization, MGP (Madedor Group Printing), provides state of the art services related to wedding card printing. It is located in Lekki, Lagos- Nigeria. There is no major competitor as the company deals in a completely different filed; the field in which organizations rarely indulge them. So the company has an advantage of supplying unique product to the customers. The MPG has created the niche for itself. In addition to this, the company has built its own machine and ready to get new technology (Yulia Milshina, 2016). The company does not have access to a few machines as there is no major supplier for those machines so it can take the help from other organizations if it is located within the cluster. The company has the financial problem because of increased prices of diesel. The power supply has to be maintained without increasing the further cost. The MGP cannot increase the price of its products as then it will not be competitive enough in the market. The continuous power supply is provided to the company but sometimes there is a power cut off a few hours. During any major fault like wire breakage, it becomes challenging for MGP to continue its routine work. The deadlines given by the company have been missed in some cases because of this problem. The company supplies only quality made products so it has a good image so far. Not indulging in any controversy makes the organization and customer relationship trustworthy. It uses the paper recommended by the customers (Nordman, 2011).
This research will explore the facts of remaining outside the cluster. What are the benefits and factors need to be considered for the survival of SME outside the business cluster? unfortunately, to date, there has been no organized effort to organize and synthesize the various sets of critical factors influencing industrial location, nor have valid and reliable measures for those factors been developed (G. Azumah, 2005).
Here lies the dilemma of studies on the location of SME as regards their survival and growth, yet developing and developed countries alike note the importance of SMEs as the bedrock of any nation’s economic growth. In developing countries, they are particularly considered as apparatuses useful for responding to globalization and poverty alleviation in Africa. The MGP is marketing itself through the means of providing contact at the corner of wedding card. The relevant person watches the card and asks the whereabouts of the card (Martin Beckinsale, 2006). Then this person tells another one. This is how marketing is done by MPG. This method is effective because it does not involve any cost. But MPG will have to employ other means to remain competitive and survive in the market.
It has the plan to use social media channels like Instagram, Facebook, and Whatsapp. This will provide the efficient method of marketing. The company has just opened a page on Instagram and looking to do marketing on a large scale. It cannot employ website promotion agencies because of the high prices they cost. According to (Issam Laguir, 2015) the SMEs can share the labor and equipment in the clusters so clustering is advantageous for SMEs. For example, MPG needs technician sometimes but cannot afford to spend more on staff. So it can easily source technician on contract if it were in the cluster. In addition to this, it can outsource the work to other members of the cluster. Location is very important for the basic survival of SME. Locational advantage refers to the institutional and productive factors that exist in a particular geographical location such as market availability as represented by favorable demand conditions, related and supporting businesses and other factor conditions. SME will not be able to use all the resources if it remains out of the cluster (Maneesh Kumar, 2011).
It is observed that MPG was established at the current location by looking at the opportunity of providing unique products. It is acknowledged by the investors that they got swayed by the factor of missing competition and did not consider other factors. Another major problem in the organization is the structuring. Structuring of an organization makes it effective in day-to-day functioning. It is generally observed that SMEs do not focus on structuring that leads to administrative inefficiency (Falk, 2015). This is what happened in this case. In the beginning phase, many tasks were carried out by the same person which led to inefficiency in working. The big corporate giants focus on structuring from the beginning. Therefore the survival rate of SMEs is less in Nigeria.
Sometimes customer demands the stuff which is not imported in Nigeria. In such a case, the company loses the customer. MPG, like all other SMEs, face problem in raising capital. This has been the major area of concern for MPG. Because of the absence of collateral, financial institutions hesitate to provide the loan to SMEs. On the other hand, SMEs cannot buy collateral as that will impact the fiscal position of the company (Liu, 2012).
MPG also faces the problem of is the interrupted customer service. The customers are not provided uninterrupted services so there is need to do scheduling of activities. The big giants always make sure that the front desk never remains unattended. There are various factors which influence the interest of the customer in the particular organization. It is noted that most of the customers of MPG contact through phone or online. So front desk service becomes very important for the survival of the organization.
However, I have observed that when different unique business opportunities avail itself for an organization and the organization still finds it continually difficult to harness such unique growth opportunities in its business environment, this becomes a critical problem for any organization to survive. This is the situation my subject organization has found itself in. As an SME, MGP finds its existence being threatened, which appears to be hindering both profitability and growth. MGP is worried that in spite of following all the rules in the book, they are still struggling to survive. If this continues then the viability and sustainability of the organization is at stake (Muscio, 2007). SME’s in Nigeria are often vulnerable and only a few are able to survive owing to low profitability. My subject organization has been experiencing declining profits, and its management thinks this is as a result of its seemingly problematic location. My inquiry seeks to identify and put together elements of a business model that solves this problem of location. This newly developed business model will require a series of actions to be implemented. I, with the cooperation of the management, will implement these actions to test the plausibility of the newly developed business model (Hudson, 2001).
The literature review reflects the matter in detail. It observes the concern in every aspect. This is important to critically analyze the positive and negative factors of the particular attribute. Critical analysis is important for the survival of the organization; without analyzing, the performance cannot be evaluated. In this research, the importance of location as the factor for survival of SMEs is considered. There have been different opinions on the particular topic but no major study has been done. Arguments of different individuals make it a complex issue which needs to be considered in detail. The sustainability of the SME itself depends upon the location, according to some scholars (Antony,2008).
For concept clarity, location within this research refers to the physical space from where a business operates and exists. Business location for the purpose of this research refers to the actual physical environment in which the business is situated. (Hultén, 2009) argues that location plays a vital role for SME’s in their choice to position themselves in any market based on the location advantage that accrues to them. Locational advantage refers to the institutional and productive factors that exist in a particular geographical location such as market availability as represented by favorable demand conditions, related and supporting businesses and other factor conditions
It is argued that location is a major factor for the survival of SMEs. The SMEs, which are located outside of the business cluster face many problems (Petra De Saá-Pérez, 2012). It is emphasized that if the SME remain in a business cluster, it come to know about the developments going around (Febriani, 2018). It makes new technology available for the particular SME (Larivet, 2012). In addition to this, the SMEs can share labor and staff to reduce the manufacturing cost (Febriani, 2018). Being in the cluster, an organization gets skilled from its peers (Liu, 2012). On the other hand, many scholars argue that location is not a major factor to decide the survival of the company. Various other factors like marketing, technology up-gradation, customer delivery services etc. matter more (Muscio, 2007). He highlights the disadvantages, which occur because of remaining in the cluster. It is argued that it is true the labor can be shared and skills can be acquired if the company remains in the business cluster, but the organization faces the risk of losing IP ownership. Trade secrets can get revealed which can be detrimental for the functioning of the company (Hultén, 2009).
It is argued that if the work is outsourced to other companies in the cluster, the SME become dependent on that. In addition to this, the particular company may say that this product is made by us so customers can be stolen from the SME (Azumah, 2005). In addition to this, outsourcing waste the time (Hultén, 2009). The product which is to be made in 2 hours takes one day to get completed (Liu, 2012). The customers also go to the company which actually manufactures the product (Azumah, 2005). It is argued that these problems prove detrimental for the organization and the particular organization loses the customers (Larivet, 2012). It has been acknowledged by MPG that in one case of outsourcing, it had to wait for long to get its cards manufactured and embellished. In addition to this, the work was not done properly and MPG lost the customer. Adherence to the deadline is very much necessary for survival. If the deadlines are missed, customers will lose the trust in the company (Afrifa, 2014). It will impact the image of the organization.
Several argue that cluster development is beneficial for SMEs from the financial perspective. Raising capital resources becomes easy for the organization if it is a part of the cluster (Hultén, 2009). In addition to this, the technology is shared which enhances fiscal prudence (Liu, 2012). It has also been argued that customers tend to visit clusters, not an individual company. If an SME gets out of the cluster, it loses 60-70% of its customers (Nordman,2011). Customers are more aware of the nearby business cluster (Larivet, 2012). The government also supports the clustering of SMEs (Gannon-Leary, 2007). The sound example of the beneficial aspect of clustering is China. China has made many special economic zones (SEZs). These are basically the clustering of business organizations. The SEZ has become the driver of growth of the Chinese economy. The same kind of model can be developed by developing countries of Africa. Merdji advances an argument that businesses need to weigh the comparative advantages and disadvantages of every location (2008) and based on urban incubator hypothesis articulated by Hoover and Vernon, which states and predicts that urban areas are most advantageous for new organizations especially for the growth of business because of the various advantages that accrue in urban areas referred to as urbanization economies. These advantages include dividable space for small-scale production transportation support; larger local markets; support for the production of niche products and services and easily accessible space for small-scale production
There have been many theories related to industrial agglomeration, but the best one was given by Michael Porter in his book. The theory is known as the cluster theory. There have been, many critiques of this theory also but this is considered as the major idea described by any scholar. Cluster theory argues that co-location with other firms does not imply clustering when associated benefits like prolific innovation, increase in productivity, and/or the presence of externalities cannot be demonstrated (Demmer, 2011). This theory argues that clusters have their own life cycle. They go through the stages of initiation, boom, and decline so it is not always true that the company benefits in clusters. Clustering is defined as an agglomeration of industrial groups, which are linked horizontally and vertically through their commonalities and complementarities.
This theory is used by international institutions like the Organization for Economic Co-operation and Development (OECD) and the United Nations. This theory was used by the UK government in the 1990s and 2000s. This has been the most common theory for decades. It argues that clusters tend to attract firms in large number, but once the threshold is reached, the cluster cannot accommodate more firms in it (Chen, 2017). Eventually, because of intense competition, the health of firms in the particular cluster declines. The findings suggest that clusters have a life cycle so joining the cluster is not always a right decision. In addition to the location many other factors, lure the firms to join the cluster like the market reach, creativity, and innovation, productivity, linkages, transportation etc. The cluster theory as postulated by Porter points out that a business cluster has the potential to grow businesses in a number of ways. (Jafar Rezaei, 2015) point out that they are significant advantages for businesses setting up in an established cluster, and attendant demerits in not located in such an environment. He argues that business clusters throw up windows of opportunity for assertive prospect seekers. From the point of view of Porter, geographical location is important to an SME’s survival in as much as the organization has the capability to exploit the location in which it is located as well as be innovative to ensure a relative power position. Buttressing this viewpoint many other scholars also belongs to the school of thought that being located inside an industrial cluster is advantageous to the growth and survival of such businesses, especially for SME’s (Lejpras, 2015). This is attributed to the advantages that accrue inside the cluster such as the availability of an industrial network to enhance their economic activity; which can be accessed easily by businesses within the cluster (Babatunde, 2017).
This theory has been used in many situations and by many organizations. It emphasizes that clustering is not always beneficial for SMEs but in most of the situations. There can be spillover effects in which small business institutions can be engulfed by the big corporate giants. But there are high opportunities for SMEs to grow in clusters. It emphasizes benefits more in comparison to the disadvantages of clustering (Torre, 2016). The clustering provides conducive ambiance for the organization so there can be disadvantages of not location the organization at the particular place. Location does matter for the survival of the company itself. But Porter also emphasizes that the organization must be able to exploit the benefits of geographical location. Strategic location will help only if there are sound strategies for the organization to follow up. According to (Dietmar Sternad, 2017), clustering tends to increase innovation. Because of clustering, the organizations of different kinds compete with each other and they innovate themselves. The race of competition brings creativity and innovation in the particular organization. Therefore, clustering is beneficial for SMEs.
Along with creativity and innovation, there can be many other benefits. The clustering improves the skill development. An SME, usually would not like to spend on training but in clustering, it can take advantage of networking so it can ask its networks to provide training to its employees. This is how an SME is benefitted (Hala El-Said, 2015). In addition to skill development, the clustering helps in the growth of the organization. There is more information for the organization to gather. In clustering technology can be shared by the corresponding firms which will be the win-win situation for all the organizations. Technology is very crucial in the era of globalization; it influences the organization in its day-to-day functioning (Fletcher, 2008). Clustering increases productivity as the efficiency is gained through training and speed of work gets increased. The clustering helps the organization by sharing labor which tends to decrease the manufacturing cost, thus making the products competitive in the market. Clustering also helps the organization in transportation and population targeting. The intended product is reached to the desired location in the desired time. Thus, customer service delivery is improved and the demands of the customers are met. It has been acknowledged by the MGP that sometimes, the customer demands altogether different product, which, may not be possible to provide without clustering. Being inside the cluster, the company will have easy access to market and sound infrastructure (Mazzarol, 2015). Porter argues that geographical location is important to an SME’s survival in as much as the organization has the capability to exploit the location in which it is located as well as be innovative to ensure a relative power position. He links the peculiar circumstances of an SME’s location and its local competitive conditions. What can be inferred from this study is that every location will affect an SME’s survival based on other factors that relate to the location such as the type of industry, product, and market availability. It is for this reason that (Edvardsson, 2009) argues that locational differences have little relationships with competitive conditions and advantage and therefore by extension are not directly related to their survival. Rather profitability and growth of an organization are more determined by the advantages of marketing, reputation, and range of services the organization’s offer and specialization irrespective of their location. It is argued that there will be better communication and networking and relationships will help the organization grow (Lal, 2008).
They argue that clustering motivates the employees to work better and achieve intended results. The companies perform better in clustering because employees perform better. In addition to motivation, clustering provides many other benefits which prove crucial for the survival of the organization. Clustering also helps SMEs in structuring; thus porter highlighted all the major positive aspects of clustering. The theory suggested by him is in wide use today but it has some lacunae (Kakouris, 2018). Thus cluster theory only emphasizes the positive aspects of clustering. Intense competition and congestion, in the long term, can make the industrial cluster vulnerable to decline. This research focuses on other negative aspects of clustering also. As mentioned in the literature review, the outsourcing in clustering tends to be detrimental to the IP ownership. This result in corporate disputes and legal costs for the SMEs, which cannot afford that. The clustering, as mentioned above, has a life cycle. This life cycle is very important to be considered before planning the location of the organization (Kyllikki Taipale-Erävala, 2015).
The threefold methodology will be used to meet the research objectives. My organization is facing the survival issue, despite favoring conditions. In this research, the qualitative approach will be used (Murphy, 2004). The factors acting as disadvantages for the organization will be considered. The qualitative approach will provide the reasons for these disadvantages. The methodology to be followed here is the Action Research (AR).
Action research is a disciplined process of inquiry conducted by and for those taking the action. The primary reason for engaging in action research is to assist the “actor” in improving and/or refining his or her actions. Action research empowers the engaging individuals. Action research is never irrelevant to participants. It brings desired results by considering different factors related to an organization (Waehrens, 2015).
This action research will test plausibility through the case study of MGP, identify through a learning set elements of a business model for a business located outside its business cluster which seeks to accrue benefits of being outside a business cluster and avoid the disadvantages of being in a business cluster. The steps to be followed are as follows (Galati, 2018)
The focus of the study will be the impact of location on the survival and sustainability of the MGP. It is very essential to select the focus so that the research can be done around that focus. Without focus, the research cannot begin. There cannot be further progress in action research without selecting the focus. The elements to be considered in action research are determined while selecting the focus. All the aspects will revolve around the focus in an action research (Roberto Cerchione, 2016)
The theories will be clarified so that the essence of the research can be decided. There are many theories but the Michael Porter theory is most widely in use. As mentioned above, many international organizations used this theory for their growth (Watson, 2006). These theories will be researched upon and their co-relation with MGP will be identified. The suitable theory will be selected and accordingly action research will be done.
The major questions related to the study will be identified. The research objective will be to find the suitable answer to those questions. These questions can be as follows:
The most important question which will be considered is that why MGP is not able to explore the benefit of its strategic location.
Finally, the data will be gathered. Random sample survey method will be used to gather reliable data. In addition to this, a questionnaire and transcripts of the face-to-face interview will be used in the action research (Kumar, 2018). There will be information from social media channels also. Social media channels have become the reliable source for getting feedback regarding the services of the particular organization. Trends in social media impact the policy of the organization. Social media tells about the changing demand of the customers and helps target the population better. The data can also be taken from reliable government sources and journal articles published in reputed journals. The data must be reliable so that the objective of action research can be met. Triangulation will be used to select only relevant data. Triangulation is basically looking at the data through different prisms (Walmsley, 2012).
After data collection, it will be analyzed and answers to the questions framed above will find out. There will be a qualitative approach so as to avoid complex calculation problems. Action researchers involved in the process will be able to gain a lot from this action research. It will empower them and make them change ready. A number of relatively user-friendly procedures can help a practitioner identify the trends and patterns in action research data. Template and matrix analysis will be used to interpret the data. Both template and Matrix analysis is appropriate when trying to discover the cause of human action and are especially useful when a researcher seeks to achieve research objectivity (Zhang, 2014).
Finally, the results will be reported and suitable recommendations will be made. The answer to the relevant questions will be taken from the result of action research. There will be a participatory approach so that associated individuals contribute to their full potential.
The suitable changes will be made in the organization according to the results prepared by the action researchers. The organization will go through different stages of implementation and necessary actions. There will be an effective and timely follow-up.
These 7 steps will be used in action research and the lacunae in the organization will be identified. My role here will be two-fold- one, to conduct action research as well as taking management decisions. These two roles will be played by me sincerely and with full effort. Pragmatic action research is being adopted and deemed as appropriate because it centers on the creation of co-generative ideas for learning and provides a platform for creating the managerial expertise through an emergent inquiry process that has been identified by stakeholders, to tackle organizational problems identified by the local stakeholders (Aspinwall, 2010). In addition, Pragmatic oriented AR is epistemologically sound and focuses on the collaboration within the organizational environment.
This aids the tackling of complex real-life problems and provides a platform for the immediate apprehensions of critical organizational problems where immediate action is required to sort out critical organizational problems while enhancing management and organizational practice through organizational learning in a democratic setting (Nosella, 2012). This methodology is apt because it focuses on praxis with the help of all stakeholders. In this research, it will involve a learning set of eight people including me the researcher as a facilitator who will be involved in the active research process because I see myself as part of the problem.
As a researcher, I will set aside to the best of my ability known theoretical ideas while keeping an open mind. I will through practical research seek to alleviate my organizations’ problem based on critical practical reflection and collaboration. Solution planning will emerge based on practical experience, evidence and empirical data that will lead to practical knowledge that can later be tested since this research has a limited time span of twenty-four months. The AR element is being employed because AR pulls together theory and practice where management practitioners through cycles of change and critical reflection in a problematic situation can alleviate an organizational problem within a mutually acceptable ethical framework (Sgobbi, 2003). I believe that employing AR will enable my organization to explore ways to enhance and improve our organizational practice as AR informs practice and practice should inform research synergistically. From all previous researches reviewed what appears to be missing in the studies reviewed are the inability of these studies to proffer a generalisation for SME growth and why there continue to be SME failures in location where management has deemed profitable as has been found in the case of my own organization this is an area that will be explored further in this inquiry (Boadi, 2017).
The MGP group is recommended to continue major policies in its organization. It is following sound policies but some changes need to be done. There must be an ID card for employees. This will bring the feeling of belonging in employees. Another change to be considered is structuring. There is a need to schedule the activities and do major changes in administration. There must be a suitable work description for each employee so that there is no overlap of functions in different departments (Q. Peng, 2007). To tackle the problem of power shortage, it can use generators which can be shared by many firms. There must be an effective customer delivery system so that customer is not harassed when he or she approaches the company. There must be sound management policies catering to the objectives, mission, and vision of the organization. There must be an efficient delivery system so that the products reached to the intended person on time. The company is rightly considering hiring a technician on a contract basis. The company also wants to use a social media channel which is the step in the right direction. The company has opened a page on Instagram. It will promote the products of MGP without costing much. There will be fiscal balance management as well as marketing of the services and products of the company (Imran Ali, 2017).
The company should try to build the network with other SMEs so that pooling and consequent sharing of resources can prove beneficial. The employees must be provided with sound ambiance so that they remain motivated to work in the company. Not only location, many other factors determine the survival of SMEs outside the business cluster. These factors must be considered aptly so that the company gets out of decline phase. The MGP has the potential to do better as there is positive feedback from the customers who have received the services of the company. There must be the suitable strategy to harness this potential. It is acknowledged that the except location, no other factor was kept into consideration while establishing the organization which is paying dear to its founders and investors.
Conclusion
My literature research identified that they are benefits of organizations located outside their business cluster and disadvantages of being inside the business cluster. Other questions like the role of location in the survival of SMEs, the potential of MGP etc. are considered. In this research, the question that how much important the location is for the survival of an SME. What are other factors which play role in the functioning of the organization is considered? These factors can be marketing, demography, meeting demands of customers, access to transportation etc. Different factors related to MPG are considered and is explained that how these factors can overcome the disadvantage of specific location. How the location can be made advantageous for the organization is discussed (Hultén, 2009).
Based on the literature reviewed and the problem of my organization one of survival and growth, my research will be of significance because through my moment of inquiry I can explore elements of a new business model. This research will be of significance because finding a suitable business model to address this problem practically it lays down a process. It gives one the opportunity to explore the scholarly processes involved in practical management learning in the process of solving ‘wicked’ organizational problems It is, therefore, worth engaging in this action research. In addition, it gives me as a scholar-researcher an opportunity to distinctive contribution to the development of insider knowledge about organizations and organizational change through taking practical action to solve a ‘wicked’ organizational issue my organization is presently undergoing. In addition, this review showed a lack of standardization on factors to ensure or guide SME survival and growth especially outside their business clusters in developing countries.
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