1

Table of Contents
Introduction……………………………………………………………………….…………….…3
Open innovation as the new model of
innovation……………………............................................3
SMEs……………………………………………………………………...……………………….3
Sector in which SMEs operate……………………………….
………….........................................3
Products and Services offered by
SMEs………………………………...........................................4
SMEs vs MNEs……...………………………………………………….…....................................4
Challenges and Barriers faced by SMEs in Domestic
Market……………………………………...6
Challenges and Barriers faced by SMEs in International
Market…………......................................7
Conclusion…………………………………………………………………...................................
9
i. How the open innovation helps to overcome the barriers and to enhance their innovation
performance………………………………………………………………………….……
9
ii. Findings………………………………………………………….......................................
9
iii. Recommendations………………………………………………………………………. 10
References……………………….………………………….…………………………...…….....11
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Introduction
Small and medium-sized enterprises (SMEs) are critical to a country's prosperity; governments
all over the world identify their national development with a robust, thriving SMEs sector.
Furthermore, SMEs have a high potential for launching domestic-led growth and reinforcing the
economy's strength at a moment of intense competition. To establish a globally competitive
industry capable of reviving the country's economy, a comprehensive action plan and continuous
efforts are required. The purpose of this study is to analyze how different the techniques used by
SMEs and MNEs are. SMEs account for a significant portion of global economic value creation
and differ significantly from MNEs in terms of organizational features, behavioral guiding
principles, financial and human resources. The purpose of this assignment is to provide an
understanding of the challenges that small and medium-sized enterprises (SMEs) face when
operating in domestic and global markets, as well as how SMEs stand to gain from trying to
adopt open innovation techniques to overcome limitations and obstacles and enhance their
innovation performance.
Open Innovation as the new model of innovation
One of the most important parts of a company's existence is its ability to innovate. Firms use
product and process innovation to respond to the competitive environment and obtain a
competitive edge by making R&D investments and generating new concepts. However, studies
(Nobakht et al., 2021; Battisti et al., 2015; Chesbrough and Crowther, 2006) reveal that
businesses can no longer rely entirely on R&D and their own ideas/knowledge to succeed. The
conventional type of innovation is an internally oriented activity that has become antiquated, and
organizations are becoming increasingly inclined to adopt the new open innovation (Battisti et al.
,2015). Open innovation stimulates and examines a diverse range of internal and external sources
for innovative potential, combines that investigation with company skills and resources, and
extensively utilizes those prospects through many platforms. Open innovation has two
characters: The underlying principle of open innovation IN is that ideas come into firms from
many sources (crowdsourcing).
SMEs
SME is an abbreviation for small and medium-sized companies. These are often small, locally
owned companies. An SME is often larger than a start-up but smaller than a multinational
corporation. SMEs may also earn substantially less earnings than a multinational corporation.
Small and medium-sized businesses are essential to the domestic economy because they
frequently recruit local workers and employees, which helps to minimize unemployment rates.
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They also drive innovation in their cost-cutting efforts. Governments may provide SMEs with
advantageous tax policies or incentives to assist them in growing and developing.
Sectors in which SMEs Operate
Over than half of SMEs' employment is concentrated in the Services sector (63.3%), which is
followed by the Manufacturing sector (16.4%) in 2020. SMEs employed in agriculture accounted
for 10.7 percent of total employment, a modest rise from 10.6 percent in the corresponding year.

SMEs Products and Services

Following are the products and services offered by SMEs:
Karobar Loan
Karobar Loan is a solution for quick access to the funds needed to expand your business. It is
specifically developed for small and medium-sized businesses with goals for company growth
and development. Karobar Loan is offered against your property's mortgage, including
household and industrial properties.
Sahulat Loan
Sahulat Loan allows you to build and grow your business, fulfil your financial requirements,
and/or finance business assets while retaining and increasing your savings. Sahulat loans are
accessible in exchange for bank accounts and government securities such as DSCs, SSCs, and
RICs.
Smart Cash Loan
Smart Cash Loan allows you to build and grow your business, fulfil your cash flow needs, and/or
finance business assets while keeping and increasing your funding / cash reserves in chosen
Mutual Funds. 
Rice Husking Loan
Small and Medium Enterprise (SME) clients can apply for a rice husking loan. It is specifically
intended for rice husking units operating as sole proprietorships, partnerships, and private limited
corporations with seasonal business development in mind. Rice Husking is accessible to acquire
paddy from producers and/or the open market in exchange for a mortgage on the Rice Husking
Mill.
Wheat Financing for Flour Mills
Wheat financing is offered for small and medium-sized businesses. It is specifically developed
for flour mills operating as sole proprietorships, partnerships, and private limited corporations
with seasonal business development in mind. Wheat finance is provided to acquire wheat against
new crop from producers and/or open market against Flour Mill mortgage.
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Fleet Financing
Boost your business using. Fleet Financing allows you to obtain commercial cars for your
company as well as personal automobiles for your employees. We also provide funding for
commercial vehicle body construction.
SMEs VS MNEs
Small enterprises face quite different commercial environments and problems than large
organizations. When compared to doing business in global settings, operating a firm that targets
a smaller, local market necessitates different techniques. Despite having to fight an uphill
struggle at times, smaller firms have advantages in competitive sectors.
 Capital
SMEs must concentrate on obtaining funds in order to start and survive, but MNEs already have
a huge budget or credit to get financial resources in order to develop further, therefore focusing
on boosting current income streams. Because MNEs have access to finance, they may participate
in scaling activities that need capital, such as acquisitions of other enterprises.
 Business Model
The main difference is that SMEs appear to focus on market penetration through business model
dissemination, whereas MNEs appear to focus on market penetration via business model
replication, expanding operations, and M&A. A distinction that might be explained by the
tremendous capital of MNEs.
 Location
Geographical differences are an important beginning point in separating these two company
models. Small firms operate on a much smaller, more local scale, frequently in a single city,
territory, state, or part of a country.
A multinational enterprise is one that operates in a number of countries. Their market is larger
and more diverse, which provides potential for more customer access but challenges in
advertising and marketing.
 Strategy
The scale of your firm has an impact on several aspects of business strategy. Small firms often
emphasize local market strengths and community relationships. To attract target customers, they
frequently employ product specialization and individualized methods.
Multinational corporations frequently have distribution, efficiency, and aggressive marketing
capabilities. They must determine whether to utilise a global business and marketing strategy or
to tailor offers to each country.
 Budget
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Budget requirements and availability fluctuate significantly between small and large businesses.
Small firms have fewer funds and resources to devote to operations such as marketing. They may
have advertising expenditures ranging from Rs. 5,00,000 to Rs. 10,00,000.
Multinational firms require and often have greater funds to invest in market expansion, product
research & innovation, and marketing. They do, however, have a larger market to approach with
their assets.
 Human Resources
The management of personnel in multinational firms is more complicated than in local
businesses. A small organization often has a smaller employment base. This facilitates the
establishment of a specific workplace culture and an interpersonal workplace.
Multinational corporations must find out how to apply human resource systems across several
nations and cultures while keeping a uniform corporate environment.
 Products and Services Diversification
When it comes to increasing the offer/service with a social effect, SMEs tend to prioritize
product development, whereas MNEs prioritize diversification as a scaling approach.
 Number of employees: An MNE often has more personnel than a SME.
 Annual revenue: Typically, a multinational company earns more income than a SME.
 Number of departments: An Multinational enterprise often has more departments than a
SME.
Challenges and Barriers faced by SMEs in Domestic Market
1. Human Resource Barriers: Deficiencies in human resource management in the context
of globalization.
 Inadequate management time to cope with internationalization: Managers'
unwillingness to dedicate enough time, money, and attention to selecting, entering, and
growing into global markets, developing marketing strategies, and conducting business
with abroad clients.
 Inadequate and/or untrained employees for globalization: Problems resulting from a
lack of personnel to handle the additional effort involved by multinationals, as well as a
technical knowledge and competence within the corporate to deal with global corporate
tasks such as data handling, value chain, and communicating with foreign clients
(including knowledge of foreign languages, cultures, and hands-on export experience).
2. Difficulties in directing immigrant workers: A shortage of skilled managers to employ
and manage foreign labor to fulfil worldwide firm activities such as operating in overseas
markets.
3. Financial Barriers: In terms of internationalization, there is a shortage or inadequacy of
funding.
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 Inadequate funding for capital expenditure: Devoting and/or rationalizing sufficient

funds for researching global markets, visiting foreign consumers, and implementing
international marketing strategies.
 Lack of cash for internationalization investment: Challenges in budgeting and/or
financing the resources to begin or develop overseas operations.
4. Product and Price Barriers: External factors' demands on changing components of the
company's product and price plan.
 Difficulties in creating unique items for international markets: Incapacity,
insufficiency, or reluctance to design wholly new goods to meet the demands and desires
of unique foreign markets.
 Problems in modifying product design or style: Inability, difficulty, or reluctance to
adapt the corporation's product design or style to the unique characteristics of each
worldwide market.
 Difficulty in fulfilling the international standards: Inability, discomfort, or refusal to
adapt products as a result of legal and non-legal variations in quality requirements and
preferences across international marketplaces.
 Difficulty in providing clients with reasonable rates: Higher unit costs as a result of
restricted manufacturing runs; additional costs associated with changing the commodity,
container, and/or service; various hierarchical, technical, and shipping costs; additional
taxes, levies, and fees charged; and larger sales and marketing costs.
 Transportation, Operations & Promotional Challenges: In overseas markets, there are
difficulties related with distribution, logistics, and promotion.
 Difficulties in developing and utilizing distribution channels in international
markets: Difficulties involved in adjusting distribution methods to foreign market
variances and peculiarities and/or problems associated with gaining access to distribution
channels in foreign markets.
 Difficulty in building trust relationship: Difficulties in finding dependable overseas
representation who meets the exporter's configurations (regional news reporting,
cashflow, roads and bridges nature), operations and support (item availability, supply -
chain frameworks, processing facilities), and psychosocial (market position, state links,
collaboration attitude) specifications and is not only just participating by a rival company.
 Difficulty in providing technical/after-sales support: Postpones and price hikes caused
by geographic spacing in between business and its world economy; establishing servicing
operations in key positions; stockpiling mass amounts of repair parts; and changing the
after-sales service technique to respond to changing use situations, competitive pressures,
and geography is the study.
 International Challenges and Barriers
1. Procedural Barriers: The operational features of dealings with international consumers
provide hurdles.
 Unacquainted with export process: Understanding & handling documents, freight
schedules, and other export requirements can be complex.
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 Difficulty interacting with international clients: Due to vast physical and

psychological barriers between consumers and sellers, as well as weak communications
infrastructure, limited & Customer communication is rare.
 Slow payment recovery process: It is hard to procure funds from elsewhere on time
because of the absence of direct connection with emerging economies, transnational
buyers pushing credit line, the use of agents to join a customer base, and/or severe
currency limitations set by the overseas economy's lender of last resort.
 Governmental Barriers: Difficulties stemming from national and international
governments' acts or inaction toward indigenous enterprises and exporters.
 Inadequate state benefits: Government agencies provide little or limited assistance
and/or encouragement to SMEs for export and internationalization operations.
 Undesirable domestic laws and regulations:
 Limitations on foreign ownership: The forex Limits imposed by the respective
governments on native manufacturers include restrictions on shipping of either
components or completed goods to hostile countries, as well as restrictions on items of
domestic security or multilateral security value.gn government limits the amount of stock
that foreign corporations can hold.
 User and Non - resident Rival Restrictions: Challenges related to the firm's worldwide
clientele and competitors that may have an effect on its overseas markets.
 Distinctive international client habits/attitudes: Altering the company's strategy to fit
variances in consumer behaviors and beliefs induced by differences in geographical and
climatic circumstances, family size and structure, degree of technological expertise,
average income and distribution, customs and clients, and literacy levels.
 Fierce rivalry in international marketplaces: Due to more sophisticated and intense
competitive circumstances, it is more difficult to sustain a competitive edge in
international markets. 
 Business Environment Barriers: Barriers related to the economic, democratic, and
social economic environments of the external market(s) in which the firm works or wants
to operate.
 Low-income global economic conditions: Erratic buyer behaviour caused by economic
implications such as enormous lending, rising interest rates, and high rates of
unemployment in global market, all of which reduce their people' purchasing power and
influence their purchasing habits.
 Differences in verbal/nonverbal communication: Problems connected with
comprehending spoken and written parts of a foreign language, as well as nonverbal
features like as body movements and time comprehension, to interact both vocally and
nonverbally.
 Shortage of e-commerce framework: Structures (e.g., infrastructure, programming,
safety, and telecommunications) that are in place to enable the delivery, sale, acquisition,
marketing, and maintenance of items or services via digital circuits such as the Internet
and other networked computers are non-existent or primitive.
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2. Tariff and Non-tariff Barriers: Barriers related with export and internationalization

limits imposed by foreign government policies and legislation.
 High tariff barriers: The cost of an excessive tax levied on foreign goods to deliberately
raise import costs and shield native businesses from external competition.
 Inadequate protection for property rights: Issues stemming from an inadequate
structure to safeguard owning, access, access, gain, transmission, or sale including both
physical and intangible property, notably intellectual property. 
 Tariff categorization and reclassification based on arbitrary criteria: Problems and
costs related with Customs administrations' practices of categorizing commodities in
ways that violate globally agreed tariff classification norms and standards.
 Negative quotas & international sanctions: Unjustified limits on the quantity of certain
items imported into certain nations or unreasonable prohibitions on commerce and trade
with that country.
Conclusion
The overall assignment can be concluded in three parts:
1. How the Open innovation helps to overcome challenges and barriers
Hundreds of studies (Ortiz-Villarosa, 2014) have found a link between company innovation and
survival. Any company's survival depends on its ability to innovate. According to Gaynor
(2002), the major driver behind the existence and longevity of enterprises is innovation; it
enables the industry's expansion and development as well as its future happiness. Several studies
have sought to explain this relationship by highlighting specific factors essential to both
innovation and business survival. A competitive advantage, for example, is both a result of
corporate innovation processes and a critical pillar of its survival (Helmers & Rogers, 2010).
Schumpeter (1942) claimed that businesses cannot live and thrive unless they are inventive.
However, survival also occurs from overcoming crises caused by the external environment
(Kanter & Brinkerhoff, 1981). Furthermore, SMEs can overcome these constraints by
implementing open innovation initiatives. As a result of the open innovation policy, there are
several opportunities to obtain access to expertise from outside the organization. As a result, the
key goal of generating creativity through an open innovation approach is to build business
networks and collaborate in order to produce pools of ideas (Chesbrough, 2004).
2. Findings
One of the most vital areas of a company's survivability is its ability to innovate. Businesses
cannot thrive without innovation. As can be seen, Multinational enterprises and SMEs are both
working in the same environment, but in quite different ways. Multinational enterprises do not
lack resources, but they must contend with internal bureaucracy as well as a lack of closeness in
the external world. SMEs, on the other hand, are highly flexible in implementing their decisions
and have a very good "contact" with the external world, but they lack resources and frequently
base their decisions on personal sentiments, company revenue, friends and family. Multinational
enterprises have a fundamentally distinct framework for making strategic decisions, which are
mostly centered on global societal concerns. The strategic decision making of SMEs is mostly
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dependent on environmental considerations, however these criteria are not always the
cornerstone of Multinational decisions. These obstacles can be overcome by implementing
various innovative approaches.

3. Recommendations
Following are some suggestions for SMEs:
i. Seed capital, leasing, private equity, and investment capital: It is essential to improve
several elements of SMEs' financial services, such as seed capital, leasing, venture
capital, and investment finance. Long-term loans are scarce; interest rates are expensive;
guarantee/security concerns, currency hazards, and so on. All of these factors impede the
growth of SMEs. Finance, both short and long term, should be made available at market
rates of return.
ii. Seeking International Financing: Various foreign donor agencies/banks lend to SMEs
via National Development Financing Institutions (NDFIs). They are discovered to be
underexplored. The method of such donor agencies/banks for loans to SMEs via NDFIs
may be revised, as well as the terms and conditions, in order to make foreign funding
more affordable to SMEs.
iii. Ongoing Specialist Regular Training for Local entrepreneurs: Professional training
courses for SMEs' technical employees should be scheduled on a regular basis.
Furthermore, training in small business administration and effective marketing can be
offered.
iv. Establishment of a Research and Development Centre for Enterprise and Business
Creation: A distinct institute for enterprise and entrepreneurship development, training,
and research should be formed in a nation like Pakistan, where entrepreneurial initiative
is rare and shy. It should be created in collaboration with educational institutions,
business organizations, appropriate government entities, commercial research agencies,
and individual consultants with experience in SMEs development to become a "center of
excellence" in SMEs development.
v. Implementation and Monitoring of Policy Measures for SMEs: Only proposed policy
will not enough if it is not executed in a timely and effective manner through various
means.
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