SMEs in Europe: Case Study

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Introduction

There has been a special consideration for start-ups and the growth of SMEs in the United Kingdom. Shanker and Astrachan (1996) have investigated the importance of SMEs in wealth and job creation in the UK, USA, and mainland Europe. SMEs and small start-ups were responsible for the creation of more than half a million jobs in the United Kingdom, between 1987 and 1989 (Department of Employment, 1991). Around the world, SMEs and small start-ups have not played a proportionate role in the generation of jobs in between the 1970s and 80s (Stanworth & Gray, 1991). This means that SMEs and small start-ups are very crucial for the UK economy. It is widely recognized in the UK that the health and growth of SMEs are crucial for the generation of desirable economic wealth. This means that the success of SMEs and small start-ups are very crucial to the government of the United Kingdom.

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There has been the development of the appropriate policies which are necessary to maintain the job generation trend shown by the SMEs.

Today’s business environment is very competitive. This makes it necessary for every company, big or small, to develop strategies that are important for success. Small enterprises are not left out in this race. Globalization has resulted in the need for small companies in very local markets to have a marketing and competitive strategy, as a result of the opening up of markets. Opening up of local markets and the linkage of markets has given an upper arm advantage to international firms over domestic firms because the latter are better versed and armed with survival tactics to excel in the global market.

The large companies have enough resources to avail goods to the domestic markets at cheaper prices, unlike the small enterprises which do not even have enough resources to launch effective promotion campaigns.

Larger companies are able to provide goods at lesser prices as a result of the advantages of economies of scale. In the recent marketing scenario, SMEs have not been exempted in the development of aggressive strategies to seek more customers in the international and the global scene. For every business to be successful, it requires effective management.

Family businesses such as Jool Edge have sprouted as large and small enterprises in all countries around the world. Studies have revealed that these ventures have been on the increase in the United Kingdom (for instance Welch, 1991 and Donckels and Frohlich, 1991). Family business is managed by family members and may be run differently from any other type of business. It has been posited that differences exist between family and non-family businesses. These differences exist in terms of long-term and short-term profit goals (family businesses focus more on long-term) as well as management. Family businesses may adopt less-formal styles of management and employ more people from families as compared to non-family businesses. Management of family businesses is mainly by family members as compared to non-family businesses.

The strengths, weaknesses, opportunities and threats of any firm are an important consideration analysis in order to develop an efficient marketing strategy. Identification of the various strengths existing within a company can help in the identification of resources available that can be used in the development of a competitive strategy. The company is able to marshal the available resources and strategically employ it at its advantages as well as in an optimum manner.

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Weakness identification allows the company to gain an overview and depth understanding of the areas it is prone to fail or where it needs to improve on to avoid failure dangers or losses. Opportunities identification helps any business to strategize to win more markets, expand, win more profits, win more customers and where, how and when to direct its resources (and what resources to direct) in order to achieve a maximum advantage of the situation or a given objective. Threat identification allows firms to know where there is danger from the outside and how to counteract it.

This paper considers such SMEs business management literature and compares it with a real life case of Jool Edge. It seeks to find whether the case study meets the evidence of the literature reviewed.

Jool Edge is a Small Enterprise company based North West London. The company specializes in consultancy for marketing and design. Apart from being a small enterprise, the company is also owned by a family partnership. In this paper, the strength, weaknesses, opportunities and threats facing Jool Edge will be focused upon.

The paper will review the case and link the management, start-up, operations and other aspects of the company with what exist in the literature and draw some conclusions about this linkage. The paper will draw upon various theories and literature to analyze the case study and competitors. Applying a critical review, the paper will seek to identify the areas needing improvements and propose a set of recommendations.

History

Small companies as a venture have a very long history. They are businesses that employ few workers or run by the owner, are relatively small, and control small size of market and few resources. Jool Edge is a consultancy family business which was established oly recently by Oliver Bolland and his brother Josh. Josh and Bolland had web development and design skills (Hiscox, 2011). The two brothers set up the busienss with the hope of combining the two set of skills. Having an advantage of being born in one family, they both understood each other, and they would naturally combine to work together. The business would be run by people who understood their partner’s weaknesses and strengths as well as enable naturing of honesty and trust.

The two investors had hoped that the business will benefit their whole family. The confession agree with the findings by Donkels and Frohlich (1991), who posited that family busienesses tended to be ‘inwardly directed’. This study was based on interviews to more than 1, 000 firms in the European countries. All the firms has lesser than 500 employees. It is likely that the firm will also benefit from owner management.

The company has since ventured into the design of websites, logos, flyers and banners. It deals with consultancy, initial design, development. It also helps customers in printing and marketing their products (Jool Edge, 2010). In addition to designing websites, the company deals with website development and maintenance.

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Analyses of enterprise

Strength

Jool Edge is a strategic company which has ventured in the area of Information Technology, in the event of high interest for companies seeking to involve Information Technology to develop their own businesses. Information Technology has been applied in a variety of areas to drive business performance.

Many small and large companies now employ e-commerce, which is based on website. Such websites require proper development for linkages and intuition. Many companies are seeking for website development and design services, and want to render projects to knowledgeable consultants, who are able to link their needs with the available technology. Thus, Jool Edge can be termed as a strategic company which has come at the right time of high IT demand in the market.

Family management for Jool Edge is likely to positively influence the company management. The commercial goals of the company are likely to be linked to family commercial goals. Also, the company may differ with non-family businesses in terms of direction of human resources as well as control of ownership.

These sentiments have been indicated through the research investigation by Stoy (1989). The research investigation involved small and large businesses. They find that family firms have remarkable performance. It is likely that the business will end-up in succession, which may imply that it will be taken care of. In the United States, Family Business Index was found to exceed Standard & Poors Index for all years except 1974, meaning that running a business as a family was likely to carry good performance benefits (Stoy, 1993).

The likelihood of more success from family-run businesses is likely to result from a number of things according to literature. These include the likelihood of management to have a longer view of business as compared to short term view. In this case, the businesses have little pressure to perform in the short-run as compared with the long-run. In addition, the family businesses were likely to result in fewer take-over bids, meaning that they would be more consistent in terms of their operations. Family businesses were also likely to perform well as a result of increased focus and concern for the business longevity which would be ensured by adopting a conservative approach to risks.

Family-run SMEs are likely to have a culture which stresses on great responsibility towards the society and workers. This may imply that these businesses may be better as far as management of employees is concerned. It is also likely that these workers’ and community policies will work for and not against the company.

Criticism has however been focused on the credibility of the research study by Stoy, indicating that family-run businesses may carry performance exceptionalities. The study was doubted regarding its validity, and following unwarranted degree of generalization, since it did not contain information regarding respondents and the response rates.

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According to Astrachan (1993), such a generalization is less innovative and complacent. However, there is need for continued investigation to understand more the linkage between family-run small businesses and their likelihood of bringing exceptional performance advantages.

Opportunities

One of the greatest opportunities for Jool Edge small business is ability for growth and expansion. As a small company, there are certain disadvantages such as small economies of scale. Expansion means that the business would capture more markets as well as internationalization. It is however important to measure and determine the growth rate of various sectors within the business.

As can be seen, the Jool Edge business incorporates a number of services even in design, including website design, logo and logo design among others. Not all of these sectors are likely to present growth opportunities for Jool Edge. Hence, identification of the actual rate of growth for each sector is of greater importance at Jool Edge. Growth is likely to occur in the Information Technology sector, as more and more companies adapt to e-commerce. Website development and design is at the heart of efficient e-commerce application, meaning that more and more companies will be looking for such related services. Some of the areas the Jool Edge business can expand in include search engine optimization, which is a real concern for companies venturing in e-commerce today. Growth opportunities also exist for Jool to expanding in other countries. However, this may present other challenges such as competition in international market, meaning that they may be at a disadvantage since they have not many resources to compete in the international market, and against giant competitors.

Weaknesses and Threats

Threats are evident for every company seeking expansion into the international market or remaining in the domestic markets. One of the threats for Jool Edge is competition. Among the competitors of Jool Edge in the current are the small and large scale web designer company and graphic design and related companies. Some of these companies have been in operation for 30 years or are well established than Jool Edge. For instance, Indent Design is a company that is working for clients in various sectors, including education and government sectors. It is based in London (n.d.). It also offers branding and print services. The company has been in business for more than 35 years. The large client base and reputation for this company may be a threat for Jool Edge in the future.

Another competitor for Jool Edge is Chalfont Web Design firm, which has been in business since 1996. The company also runs website promotions. It also offers website design advice and consultancy services as does Jool Edge (Chalfont Web design, n.d.). These have also served customers in the market and their experience could be a threat in the future. Another competitor is WebcreationUK Ltd, which controls a client base of 6000. The company offers such services as search engine optimization and development of e-commerce websites. Although it is a SME, this company is well organized with support staff, project managers and designers, as compared to Jool Edge which relies on family labour input (WebcreationUK, 2011). All the above competitors appear to have well developed company websites than that of Jool Edge, which is not interactive. They appear to be better placed than Jool Edge in terms of resources (such as workers) to taking the opportunities available in the market at present and in the future than Jool Edge.

It is likely that with more increase interest among many companies in e-commerce operations, more competitors will sprout in this sector to avail e-commerce and website development and design services. In fact, already a number of well established companies are already running this business apart from those mentioned above. Well established and large companies have more resources to promote and develop their businesses as compared to small entities. Bigger firms are more likely to retain customers through loyalty programs than small firms.

Increased interest in ecommerce among firms has also led to increased need for security of transactions through online operations. This means that companies will be looking forward to contracting those firms which are familiar and excellent in website security technology. Innovation plays a very great role for this. By nature, small companies have the resources which can only support small number of employees. Large companies are likely to invest more in talent to have innovation competitive advantages over small firms.

Innovation is also crucial in the area of technology and ecommerce technologies, since the technologies are dynamic. It requires companies to invest a large pool of resources in order to come up with innovative team. Unfortunately, small businesses continue to be disadvantaged in this area, since they apportion only a few resources on innovation. However, prior research has identified that the management is likely to adopt internally goals which link with family goals, which may limit expansion of ideas and experience. In addition, it has been shown that these firms are likely to be less profit and growth oriented than non-family businesses, meaning they will be more stable as compared to being dynamic and progressive (Donckels and Frohlich, 1991).

Marketing and Marketing Research

Small firms usually do not invest a lot in marketing research, although there is compelling evidence that marketing research is important to business strategy formulation. While market research would enable them to identify customer interests in the market, strength of competitors, available opportunities and risks for their businesses, and identification of customer behaviour, small businesses sometimes do not perform it.

For small companies like Jool Edge, it would be necessary to concentrate on local markets because of their small nature, rather than spending a lot on marketing research. However, all companies identify the need for marketing their products. Definition may focus on the role of family members or whether owners include family ties as far as management, development or operation of the business is concerned (Leach, 1994; cited in Fletcher, 2008). There has been a focus on how household influences small business activity while differentiating between businesses where spouses are employed by owners and those business where owners involve children or relatives in the business (Baines and Wheelock, 1998; cited in Fletcher, 2008). It would be expected for Jool Edge that influences would be eminent from family members as the company sources labour and capital from them. Various family members may be expected to be trusted with a variety of roles, with the direct owners likely to taking the direct financial control roles.

Start-up strategies

Interests of family firms are likely to be controlled by family members. In addition, great part of management for Jool Edge would be expected to come from the family (Dunn, 1996). In some cases, like can be observed with Jool Edge, the family members come together in view of the exceptionalities, talents or skills they have, and combine these skills for their mutual benefit. Other start-up strategies include marshalling resources from family members and impacts of family take-overs and buy-ups to own already existing businesses.

Family Business

A number of businesses are run or owned by family members for a variety of reasons. There are however, many definitions for a family business. It is considerable that family-owned businesses may constitute of a family interest majority in various forms. These include being started by family members who purely own the business, being managed by families after buy-ups, as well as constituting a majority of owners being family members.

Finance, including sources of start-up finance

Several family businesses and management have a sense of responsibility towards the wealth of the family, which is invested in the business. This may be regarded as one of the motivation making people remain in family businesses. According to Dunn (1996), many family run businesses look forward to strategizing for long term payback as compared to short-term returns. This makes SMEs such as Jool Edge shift more focus from wider geographical expansion, in favor of incremental and regional expansion. Some small firms owned by families use borrowed earnings for share purchases to redeem shares diluted by other family members in the past. Again, source of capital varies for small businesses, including contribution from family members, borrowing, and wealth inheritance. It is not clear where family members who started Jool Edge got its finances, but it is expected that the two initiators played a great role in marshalling finances for the business. For family owned small businesses, it was found that there was preference for self-funding for growth as compared to borrowing funds (Dunn, 1996). Retained profits may be utilized for the purpose of buying back family shares or paying taxes as compared to financing growth activities. This may be seen as a hindrance for business for some family-run businesses. This is in comparison with non-family businesses which were likely to use retain profits to fund future activities.

Branding, sales and selling

Branding strategy is of great necessity for every firm. Such branding manifest in terms of product development, pricing, promotion and market. Branding may be necessary to evoke trust from customers (Munusamy & Wong, 2008). In addition, brand equity influences customer loyalty to the products (Kabadayi, Inci and Cigdem, 2007). Jool Edge appears to have a mixture of services, which is important to capturing a variety of customers. Specialization appears to yet totake place in the company, just as an example of the many small businesses who are trying a variety of altrenatives as compared to large organziation, before settling on one service or commodity.

However, Jool Edge management appear to aknowledge the fact that promotion of business if of greater importance to success of the company. Like any other small eneterprises which are now adopting newer strategies of promotion of their business, the company promotes itself through a company website and advertsiements. However, much is yet to be done as far as optimizing the usability of the website is concerned, including building a sales website, and an interractive website. It appears ironic that such a company supporting others in the design and development of websites runs only a basic website with only a few features. However, other strategies such as hiring of family members to retain a family brand are also evident within small businesses. Various companies diffeentiate themselves from competitors through product stretegy and small companies need to follow suit (Ferrell, 2005; cited in Munusamy & Wong, 2008). Efficient brand awareness and image (Ramos et al. (2005; cited in Kabadayi, Inci and Cigdem, 2007) may benefit small firms too.

Networking

Small businesses are likely to use networking strategies for various reasons, including marketing, staffing, supplies and management experience. Sourcing of market is important for these firms which are likely to face stiff competition from larger firms. Where the small business hires family members, since family members who run the business previously have interests, they may be crucial for future success and strategizing. These firms may restrict management to family members.

Solo self employed

Single employee businesses are very many in small business arena. There are many factors which cause this, including lack of enough capital to finance more labour, less number of roles and responsibilities because the business is small, and restricting management to sole ownership to avoid external influences and necessitating of direct control and owner-interest in business management.

Research has found that over a fifth of small businesses employ a family member (Hiscox, 2011). One of the reasons for hiring a relative was a downturn in business. In addition, according to this research, businesses would benefit by hiring a family member. These study findings were from an investigation by Hiscox, a company which deals with SME insurance. Trust and knowledge that a family member would work hard were posited as the aspects of hiring a family member into a small business. Others included family members having the relative experience and reliability (Hiscox, 2011). This is true for the case of Jool Edge. The brothers know each other’s weaknesses and are able to trust each other. Small businesses are sometimes run by a few people, and owners, because of the need to minimize expense on labour. In addition, these firms do not have many responsibilities which would necessitate the employment of many workers. In addition, hiring family members in small businesses has also been necessitated by the tough economic climate according to the investigation by Hiscox (2011).

Management problems, turnarounds and corporate failure

Family values are expected to enter and influence the busieness arena as far as family businesses are concerned. There has been interest in literature how family values can influence family businesses (Dunn, 1996). It would be expected that family values are likely to influence these businesses right from the start; the reason and circumstances sorrounding the formation of the business. For family firms, the management is likely to be placed on the hands of family members. It has been found that sometimes, job is considered as a birthright for family members as far as ownership and control of business is concerned. The philosophies of family-run and family-owned businesses has deviated from practice in some areas, including how these owners deal with and manage conflict, openness on plan for business succession and clear outlined roles and responsibilities for various members. In addition, these businesses were more concerned about having “internal” control and avoid “exteral” control, according to Dunn (1996).

A research finding by Hiscox also found that family businesses were likely to be affected by family politics (2011). A number of participants expressed fear of working with family members as well as the trend where owners are their own bosses.

Conclusion

SMEs play an important role in the economy. In particular, they have assisted citizens in having jobs as well as improving their economic returns. Small businesses are influential in the economy; hence, there has been development of policies to maintain their contribution.

Small businesses may carry a variety of advantages over large businesses as well as challenges. When run by family members, they save on labour investments and can leverage on the family talents to win markets. They are however disadvantaged in that they cannot have large economies of scale like the large firms. Large firms are more likely to invest in talent and innovation, beating small businesses.

When run as family businesses, small businesses deviate from the usual practice since they restrict themselves to internal as compared to external influences. The management may limit its goals and link them with family economic goals. In addition, the management is likely to be influenced by family values. The businesses may concentrate more on ‘inward looking’ and not prioritize financial and growth benefits. When they focus on financial benefits, the focus is on the long-term returns rather than short-term returns.

Recommendation

As seen earlier on, it is important that small businesses are disadvantaged as far as competition is concerned. They lack enough resources to invest in talent and recent technology in the face of dynamic markets. However, it is necessary for companies like Jool Edge to use tools such as e-marketing and ecommerce. These are less expensive means of reaching customers. Outsourcing of talents and labour such as website designers, computer programmers is another way of minimizing expenses on talents. As mentioned earlier on, small firms have less resources to invest in concentrate on marketing research, in order to identify strength of competitors, customer preferences and purchase behaviours, as well as business risks. It is important for small firms to invest in recent technologies that allow them to carry less-costly marketing researches. Small companies such as Jool Edge need to adopt less costly means of branding rather than neglecting branding strategies altogether.

References

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Dunn, B. (1996) Family enterprises in the UK: A special sector? Family Business Review, 9(2), 139-155.

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Shanker, A. and Astrachan, H. (1996) Myths and realities: family businesses’ contribution to the US economy: a framework for assessing family business statistics. Family Business Review, 9(2), 107-123.

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