Introduction to Management

Entrepreneurship and Small and Medium Enterprises (SMEs) Management

Learning Objectives:
After studying this chapter, you should be able to
 Describe the characteristics and aptitudes of entrepreneurs.
 Describe the importance of entrepreneurship in business development and economic
growth.
 Describe the characteristics of SMEs.
 Explain the importance of SMEs to the local economy.
 Identify the differences between small and large business from management perspectives.

(A) Entrepreneurs
A person takes risks to start a business for the purpose of making profit. They are able to
transform their dreams into successful business ventures.

(B) Characteristics and aptitudes of entrepreneurs

1) Innovative  See things from different angles
 Desire to stay ahead of others
 Create new ideas for the business
2) Visionary  Always look for new opportunities in the market rather than
following trends
3) Desire to achieve  Persistent and determined
 Strong motivation to succeed
4) Committed to work  Willing to take initiatives
 Total commitment and devotion to work
6) Willing to take  Different from gamblers in that they do not take any risk without
risks a moderate possibility of success.
7) Flexible  Ability to adapt to the changing business environment
8) Self-confident  Believe in themselves instead of relying on luck
 Optimistic attitude and enthusiastic
9) Independent  Do not like to be bound by rules and policies.
 Have their own thoughts and ideas

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(C) Importance of entrepreneurship to business and economy
1) Innovating new  Many innovative products and services to gain a competitive
products and services position in the market.
 New products and services are created to satisfy customer
demand.
 Can create a new business and even an entirely new market.
2) Promoting market  Face up with many challenges that drive them to make
competition continuous improvementfirms operate more efficiently.
 diversity of products and services  consumers can enjoy
cheaper and higher quality goods
3) Organising production  resources are better used
and enhancing  production becomes more efficient
production efficiency
3) Economic growth  Positive impacts on the whole economy
Force of the economic transformation in Hong Kong over the
past century.
 Usually a small start-up (small or medium enterprises) to
support large businesses
 Providing more employment opportunities
4) Social advancement  Opportunity to advance their social status
Eg: 1980’s / ethnic minority

(D) Small and Medium Enterprise (SMEs)

Firms that are independently owned and operated, they are not dominant in their market.

Definition of SMEs
1) Value of assets  Assets (currents assets, fixed assets and intangible assets
 SMEs – majority of their assets are current assets
2) Amount of capital  SMEs - Limited resources and capital
3) Amount of profit  SME – with lower profit
4) Number of  Manufacturing business – employees should be less than 100.
employees  Non-manufacturing business – employees should be less than 50.
5) Sales revenue  Total amount of money received by the company for goods sold or
services provided
 Might not reflect the real situation as the size of revenue is different
from industry to industry - Value of production
(eg: jewellery shop / stationery shop)

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Characteristics of SMEs
1) Owner and managed  Forms of business
by single individuals (Most are sole proprietorships, partnerships or private limited
/ their families companies, also can be public limited company)
 Family members are involved in managing the business
 They may have no experience and lack of management skills
2) Limited resources  Mainly from personal saving, relatives and friends
and capital  Inadequate capital and less creditworthiness to raise loan
Difficult for them to get loans from banks because of their small size
3) Small market share  Focus on narrow markets
 Concentrated marketing
 Use niche marketing  serving a small group of customers
4) Innovative  To explore new opportunities in the market
 Receptive to new ideasnew products and servicesnew markets
 Direct competition with large companies can be avoided
5) Greater flexibility  Can make decisions quickly
 Have quick response to market changes

Contributions of SMEs to the local economy

1) Comprise the  SMEs accounted for over 98% of the total business units
majority of  The import and export trade industry was the largest industry sector
businesses followed by wholesale and retail trade, restaurants and hotels.
3) Providing jobs  SMEs offer jobs to unskilled and inexperienced labour.
 Eg: 1990’s the trend of downsizing  the large number of people who
lost their jobs with large firms  started up small business of their
own (self-employed).
 Advance of technology  enable people to work at home  become
the owners of home-based businesses (SOHO- small office home
office)
2) Providing  Specialize in serving small markets operating costs are lowerstill
specialized goods make a profit
and services  To avoid direct competition with large companies
 Eg: specialize in selling over-sized clothing to people who is very fat.
5) Supporting large  Large firms subcontract some of their non-core activities (specific
companies tasks) to SMEs
 Large company  reduce workload, concentrate on core task
4) Introducing new  Innovative in development new products or services
products and  Indentifying new markets
services Eg: some bookstores in HK not only sell books but also provide
snacks and drinks
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(E) Differences between Small and Large Business

From Management Perspectives

SMEs Large businesses
Planning  Owners and managers make all  Managers of different levels and
decisions on their own in an departments make decisions in a
informal way. formal and systematic way.
 Plans are short-term and operational.  Plans are long-term and strategic.
 Goals and plans are not well defined.  Goals and plans are well-defined.
Organizing  Organization structure is small,  Organization structure is tall and
simple and not well-defined. complicated, with many divisions and
 Dominated and controlled by owners departments.
or managers in SMEs. It is well-defined and bureaucratic.
 Employees and owners each have to  There is clear division of work.
perform various duties.  Chain of command is formal and clear
Division of work is not clear. (unity of command is used).
 As they are mostly family-owned,  Complicated structure makes
job duties and relationship are communication difficult.
vague.
There may not be unity of command.
 Face-to-face communication makes
relationship between employees is
closer.
Leading  Owners are mostly autocratic.  Delegation is common
 Decision making power is  Often involve subordinates in
centralized. decision-making
 Decision-making process is simpler  Slow in making decisions
and faster.
Controlling  Rulers and regulations are fewer and  Rules and regulations are clear and
vague. well-defined.
 Control is rather loose and informal.  Internal control system and code of
 Without any systemic mechanisms conduct are established.
or processes  A department or unit (audit
 Mainly done by the owners committee) would be set up to
themselves coordinate all control tasks.

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From Business Function Perspectives
SMEs Large Businesses
Human  Difficult to offer attractive salaries  With good career advancement,
Resources and benefits to retain employees.  Nice job environment and
Management  Close to their employees, good team opportunities for training
spirit can be maintained.  Easier to attract and retain skilled
employees and professional.
Financial  Short-term plan  Long-term plan
Management  Ways to raise capital – own saving,  Various ways to raise capital –
friends or relatives. issue shares, bonus, loans…
 Difficult to get loan from banks.
 Limited source of capital
Operations  Owners may monitor the operation  Use technology to monitor the
Management process and product quality directly. operation process and product
 The costly technology system may quality.
not be easily afforded.  Maintain international quality
 Lower production capacity. management standards
 Higher production capacity
Marketing  Operate in a single market or limited  Dominant the market
Management range of market  Offering large range of products
(narrow markets / niche marketing) or services
 Offering limited products or services  Can minimize cost by economic
 Cannot minimize cost by economic of scale
of scale, they have to sell products at  Can afford large-scale advertising
higher prices. to attract targeted customers.
 Difficulties in keeping up with the  Decision making is not flexible
latest information and timely, slower response to
 Adopt innovative methods and have market changes
a quick response to market changes
Information  Rely on personal contact and  A technology information system
Management subjective judgments which gives reliable and timely
information.
Risk  Higher risk  Employ risk managers to avoid or
Management  Market is more vulnerable transfer risk to their parties.
 Rely too much on a few big
customers.
 Do not have required knowledge or
money to employ professional to
manage the risks.