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The Financial Support for the SMEs - Research Proposal Example

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This paper 'The Financial Support for the SMEs' tells us that in comparison to the other countries in the Gulf region, the SMEs in the Kingdom of Saudi Arabia has contributed in a low proportion to the economic development of the country. This has led the Saudi policymakers to launch programs on financial support…
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The Financial Support for the SMEs
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Research proposal Contents Contents 2 Literature review 4 Introduction 4 Defining the concept of small and medium enterprises 4 Importance of SMEs incontext to economic development 5 Factors influencing the growth of SMEs 6 Financial support for the SMEs in Saudi Arabia 7 Development role of SMEs in Saudi economy 9 Conclusion 10 Research Proposal 11 Abstract 11 Introduction 11 Significance of research 12 Proposed Research Methodology 13 Proposed Data Analysis 14 Expected Results 16 Ethical Statements 17 Timeframe of study 18 References 19 Literature Review 19 Research proposal 22 Appendices 23 Literature review Introduction The aspect of financial support for the SMEs in the economy of Saudi Arabia and the developmental role played by the SMEs in the development of Saudi economy are important areas of study for this research work. The Saudi economy has been dominated by the petroleum sector that has resulted in the subdued focus on the SMEs in the economy of Saudi Arabia. In comparison to the other countries in the Gulf region, the SMEs in the Kingdom of Saudi Arabia have contributed in a low proportion to the economic development of the country. This has led the Saudi policy makers to launch programs on financial support under the administrative powers of Saudi Industrial Development Fund so that loan guarantees are offered to the Saudi banks to engage in feasible lending to the SMEs. The initiatives for providing financial support to the SMEs in Saudi economy have been presented as follows. Defining the concept of small and medium enterprises The small and medium enterprises are such organizations that are comparatively smaller in size and whose employee strength falls below a certain number as designated by the authorities. The categorization of small and medium enterprises have been decided by the authorities like the World Bank, World trade Organization, etc. In the Kingdom of Saudi Arabia, the small and medium enterprises are categorized according to specified criteria designed by the Saudi Industrial Development Fund (Burke and Jarratt, 2004, p.126). The enterprises that earn revenues less than Rls 20 million on an annual basis could be termed as small and medium enterprises in the Kingdom of Saudi Arabia. In order to standardize the criteria for classifying entities as small and medium enterprises, the World Bank has taken responses from the commercial banks in order to remove the differences in classification criteria in several countries. The standardized range that is followed for classifying entities in the category of small enterprises is that the annual sales of the entity should fall with the bracket of Rls 1 lac to Rls 5 million with employee strength of 2 to 49 people. The entities that have annual revenue earnings of Rls 5 million to Rls 50 million and employee strength of 50 to 200 people fall in the category of medium enterprises (Achoui, 2009, p.36). Importance of SMEs in context to economic development The small and medium enterprises play an important role in the context to economic development. The small and medium enterprises are large in numbers as compared to the large business houses. Although the number of employees employed by the small and medium enterprises is low, the cumulative employment offered by the small and medium enterprises is quite large in number (Barney, 1991, p.120). Thus SMEs play an important role in improving the income level of the society and stimulating the demand in the economies. The SMEs also provide an opportunity for entrepreneurship and innovation (Villa and Antonelli, 2008, p.48). The owners of the small and medium enterprises generally are self reliant and are ready to take initiatives and risk in the business for achieving high business returns. The small and medium enterprises also undertake innovative practices that increase the level of competition for the good of the economy (Hayes, 2009, p.84). The business of the SMEs are easy to start as the requirement of the resources, start up cost is comparatively low along with less complications in legal regulation. This leads to rise in business investment which has a positive influence on the economic development (Baron, A. and Armstrong, M. 2007, p.115). Factors influencing the growth of SMEs The factors that influence the growth of SMEs in the economy are crucial considerations for the governments in order to take full advantage of the potential of the SMEs. The most important factor for the growth of SMEs is the availability of financial support in the economy. The other factors that influence the growth of the small and medium enterprises are the quality of management, efficiency and expertise of the owners in taking advantage of the available infrastructural resources and opportunities, sector specific demand for the products and services offered by the enterprises, etc (Chaharbaghi and Lynch, 1999, p.46). It has been observed that the large companies and the multinational business houses which operate on big scale and undertake high amount of investments in the economy, acquire the major share of finances provided by the financial institutions (Espinoza, Fayad and Prasad, 2013, p.93). This provides the small and medium enterprises with scarce economic conditions with very small amount of financial support available for funding their business requirements (Boswell and Boudreau, 2001, p.860). It has been observed that in the absence of inadequate financial support, the SMEs have not been able to grow in their business as per the expected outcomes. The demand of the product and services in the economy, expertise of the owners, quality of management, forecasted growth prospects are the important factors that have influenced the degree of financial support received by the SMEs (Fischer and Reuber, 2000, p.56). The governments all over the world have focussed on establishing favourable factors for the small and medium enterprises in order to encourage their positive role towards economic development. Financial support for the SMEs in Saudi Arabia The review of the literature suggests that the contribution of the SMEs in the economy of Saudi Arabia have been much below their potential as compared to the contribution in the economic development in other countries like France, Canada, Spain, Australia, US, etc. This is due to the lack of the focus of the government in funding the small and medium enterprises in the Kingdom of Saudi Arabia (Galvin and Haidar, 2007, p.74). It has been observed that the countries in the Gulf Co-operation Council have undertaken the strategy of providing sufficient financial support to the SMEs in order to enable sustainable economic development in terms of creating employment opportunities, increasing trade, developing the culture of entrepreneurship and investment and driving the economy in the danger of decline in the production and supply of oil and gas. On the other hand, the slow approach of delivering financial support to the SMEs in the Saudi economy could be explained from the theory of economics (Hallberg, 2000, p.43). The Saudi economy is the largest supplier of petroleum which represents 55% of the GDP of the country. The petroleum sector has historically produced 92.5% of the revenues earned by the government of Saudi Arabia. Almost 90% of the export earnings are from the state run petroleum sector of Saudi Arabia. Due to the huge reserves of the petroleum and its potential to run a sustainable economic growth in future has reduced the focus on the SMEs as compared to the other countries (Harvie1 and Lee, 2002, p.62). However, the rise in the price of oil, global financial meltdown and efforts from the international economies to diversify their economy with the encouragement to the SMEs have influence the Saudi policy makers to adapt to the changes in the international economic scenario (Harvie2 and Lee, 2005, p.71). Looking at a scenario when around five lac SMEs in the kingdom represent 93% of the total number of enterprises, the total workforce employed by the SMEs constitute only 24% of the total employment of the country with a negligible share of contribution to the country’s GDP. This has increased the focus on provision of adequate financial support for the SMEs in order to fulfil the vision of enabling the SMEs to contribute 50% of the economic development of Saudi Arabia in the coming five year period. The Khalifa program launched in the Kingdom of Saudi Arabia saw the establishment of the Saudi Industrial Development Fund (Hj, Mohd and Bakar, 2000, p.17). The objectives of this fund have been to offer commercial lending and finances to the SMEs in order to fund their business operations. The programs also requires the fund to offer loan guarantees to the SMEs in order to support them financially for further acquiring funds required for consolidating their business in the business sectors (Hong and Jeong, 2006, p.295). The support in the form of loan guarantee have helped the SMEs to resolve the problems faced in obtaining loans and credits for funding their business in various sectors like manufacturing, construction, hotels, social services and others (Information Resources Management Association, 2013, p.28). In order to provide the required financial support to the SMEs in the Saudi economy, the Finance ministry of Saudi Arabia have launched the Kafalah program in collaboration with the banks of Saudi Arabia (International Monetary Fund, 2012, p.31). The main objective of the program is to finance the business of the SMEs in Saudi Arabia in order to help them expand their business and engage in potential investment opportunities. The program is run by the Saudi Industrial Development Fund with a capital amount of Rls 200 million. The program aims to encourage the banks and the financial institutions for engaging in feasible lending to the small and medium enterprises and also cover the risk of default on the part of the SMEs through provision of loans guarantees under the Kafalah program (Levy and Powell, 2004, p.40). About 1668 loan guarantees amounting Rls 644 million were offered under the program that has generated loans to the small and medium enterprises to the amount of Rls 1.6 billion. About 1113 SMEs in Saudi Arabia have been benefitted from the financial support provided to the SMEs under these two above mentioned programs in Saudi Arabia (Motwani, Levenburg and Schwarz, 2006, p.475). The Saudi Arabia Credit and Savings Bank, Centennial Fund and Abdul Lateef Jamil’s Finance program have also provided financial support to the SMEs in Saudi Arabia that has benefitted them in the areas of obtaining credit loans for investment in their respective business (Shalaby, 2004, p.51). Development role of SMEs in Saudi economy The review of literature suggests that the SMEs have played a significant role in the economic development of the countries. In case where SMEs have received financial assistance due to the strategic policies of the government, the SMEs have made use of advanced technologies in the start up stages and have shown entrepreneurial qualities of driving innovation and business trade. The major sectors in which the SMEs have played a crucial role in the Saudi economy are the hotel and hospitality sector, construction sectors, manufacturing, social service and others (Sharma, 2011, p.187). The financial support provided to the SMEs in the Saudi economy has witnessed notable growth of this sector. The small enterprises with an employee base of below five people form a major share of the SME sector in Saudi Arabia forming about 45.5% of the total SMEs in Saudi Arabia. The enterprises with employee base of 5 to 59 employees from 42% of the total SMEs. Apart from the financial support, the deregulation of the Information and Communication Technology sector has also supported the development role of SMEs in the Saudi economy (International Monetary Fund, 2012, p.96). The SMEs in Saudi Arabia adopted the technological platforms for operating their business and were able to fund their investment requirements due to the loan guarantees offered by the Saudi Industrial Development Fund (OECD, 2006, p.37). The expansion of the SMEs has increased the employment opportunities in the economy. The increasing share of the SMEs in the Saudi industries has improved the income level and purchasing power of the people (Ramady, 2010, p.57). Thus SMEs have played the developmental role in stimulating the economic demand which has stimulated the GDP growth rate and the economy of Saudi Arabia. Conclusion The small and medium enterprises have a crucial role to play in the development of the economy of the countries. The financial support provided to the SMEs has been a catalyst in fuelling the role of the SMEs in the economy of Saudi Arabia. The small and medium enterprises have been able to fund their business requirements with the help of loan guarantees granted to them under the Khalifa and Kafalah programs launched by the government. Due to the financial support received by the SMEs, they have increased their presence and the business operations have flourished. This has led to the increase in employment, income level and purchasing power of the people that have stimulated the economic demand. Due to the rise of the economic demand, the production volume has increased that led to rise of GDP growth rate in the economy. Thus SMEs have played a developmental role in the Saudi economy. Research Proposal Abstract The proposal for this research work deals with the study on the importance of financial support provided to the SMEs in the Saudi economy for enabling them to play a developmental role in the country’s economy. In order to conduct this research, the concept and the economic theories related to the contribution of SMEs in the economic development has to be studied. The review of literature and the case studies on the role of the SMEs, their status in relation to the Saudi economy has been studied. This is followed by the study on various programs undertaken in Saudi Arabia to boost the SME sector. The importance of financial support and various forms of financial assistance provided by the Saudi government to the SMEs have been studied under the literature review. In order to address the research question, the primary research methodology has been followed. The designed questionnaire has been proposed to collect the required data and information. This is followed by the research analysis and findings to produce conclusive findings on the research topic in the designed time frame. Introduction The enterprises which fulfil the standardized criteria of having employee strength less than 200 people and an annual sales revenues below Rls 50 million have been categorized as small and medium enterprises. The financial support provided to the SMEs is a major factor for influencing the growth and development of the SMEs in the economy. The small and medium enterprises in the start up stage lack in the areas of funding requirement for the expansion of the business in the respective economic sectors. The inabilities for funding the business requirements have pulled back the SMEs in the economy of Saudi Arabia. This has been witnessed in the reduced contribution of the SMEs in various sectors of the Saudi economy. In order to stimulate the growth of the SMEs, the programs have been designed by the Saudi policy makers for providing financial support to the SMEs. The various ways in which financial support has been provided to the SMEs in the economy of Saudi Arabia are important areas of consideration for the researcher. Due to the financial support provided to the SMEs, the differences in the potential development of the SMEs and their contribution to the economic development of the country could be noted. Significance of research The significance of this research work could be explained in the light of hurdles faced by the SMEs for undertaking economic investments. The small and medium enterprises being large in numbers and employing huge part of the population has a significant role in the economic development of the country. The financial support provided to the SMEs by the government is, therefore, an important area of discussion for this research work. In context to the Saudi economy, the SMEs which represent more than 90% of all the enterprises have played a subdued role in the economic development of the nation with weak share of contribution to the GDP of the Saudi economy. The Saudi policy makers have, therefore, adopted the policy of financial supporting the SMEs in their business investments and growth process. The research is significant in showcasing the various steps taken by the government to stimulate the growth of the SMEs in Saudi Arabia, the importance of financial support to the growth and development of SMEs in Saudi Arabia and the developmental role played by the SMEs in stimulating the growth of the Saudi economy. The significance of this research has been addressed through the research question which states, “Explain the importance of financial support in stimulating the growth of the SMEs. Comment on the developmental role played by the SMEs in the Saudi economy.” Proposed Research Methodology This particular research is been conducted based on various methods and data. Methodology is the process of systematic and theoretical analysis for a particular topic been chosen. Different methods are been used to analyse the acquired data. The data for this particular topic is gathered from both primary and secondary method (Kumar, 2010, Pp. 87-95). The data acquired from the primary method includes questionnaire which has open end questions which are been asked to different governmental authorities and also general public of the country over the impact and importance of the SME’s in the growth and development of the country Saudi Arabia. Apart from questioners, data is also obtained from the focus group interviews and also surveys from the market on the amount of impact that SME’s does create in growth of the country. This process helps to get data on the ground level and also in a wide level which can help to analyse the topic easily and also get the results out of the analysis (Bhattacharyya, 2009, Pp. 87-96). Apart from these processes secondary methods can also be used like gathering information from various case studies (Goddard and Melville, 2004, pp. 76-82). Studying various journals and articles related to the countries performance and development process can also provide important data related to the importance of SME’s. Different annual reports of various SME’s in the country also help to know the performance of the companies and the amount of growth they are achieving over years (Daniel and Sam, 2011, Pp. 98-102). These reports also give clear indication of the ways it gets financial help from the government and other sources. The journal’s, annual reports, case studies and articles does gives clear data for the growing nature of the SME’s which has direct impact over the countries growth and also in the development of the country’s economic conditions. A target of 30 company heads are been asked the questionnaire which will help them (Khanzode, 2004, Pp. 123-126) Proposed Data Analysis As per the question 1 it can be seen that 24 of the company heads have agreed to the fact that the support has helped their company to improve while 5 has shown No and 1 said that there is no impact. Based on the second question it is seen that 25 of the head official say that they have received help from the government while 3 says from the banks and 2 of them don’t have any idea. Form the question 3, 27 heads of company have said that the growth has helped them in proving their condition of life style while 2 said there is no impact and 1 said don’t know Form question 3 it is seen that the 28 heads have agreed that this has helped them in improving the employability in the country, and 2 said no. The question 5 shows that 26 people agreeing to fact that it has helped in improving economic conditions and 3 says no while 1 says don’t know. Expected Results The expected result for this topic of the financial support for the SME’s from the Saudi Arabian government which also has great impact in the development of the country’s economic condition is that the financial support to the SME’s has helped the company’s to grow in a big way as a result of which their process has improved and also they have increased the number of job opportunities and also provided more GDP for the company. The growth of the SME has helped the country to develop and come up with new products and also facilities in the country to give citizen’s better condition for livelihood which has also helped them to improve the living conditions of people across the country. It has also helped to increase the exports from the country to other countries which has helped the country to bring more money in their bank as a result the economic condition of the country has improved in big way. The results obtained from the data is expected to show the impacts that the SME’s have created in the growth and development of the country’s overall performance and conditions from all aspects like economic condition, lifestyle of people, employability, heath conditions etc. These all factors are majorly dependent on the [performance of the SME’s in the developing countries. Thus the financial support given to theses small scale companies give them a lot of opportunities to grow and improve the condition of the country along with the people. Ethical Statements This research is been conducted very ethically taking all the points into considerations. The data collected is been very ethically collected without any biasness and the data is collected taken from the heads of 30 SME’s company in the country and also the data has been collected from 30 heads of companies from carious different fields without any biasness based on region or area or even the commodity to which the company is related. The data is also collected without any biasness based on the caste and also without any racial; discrimination. This research data is very ethical and genuine based on the way it is been collected from various parts of the country from various companies towards the impact the support has helped in development of the SME’s and also resulted in the development of the country’s economic condition in the overall run. The data being collected using the questionnaires is directly from the people and these data is not been manipulated nor been taken from the people by forcing them. This way the data collected is very genuine and every aspect is taken into consideration so that the response from the people is very clear without any force or biasness towards anything. Timeframe of study The time frame for this research work has been represented below in the form of a table. The major activities of the research process include designing a research question followed by the review of literature on the research topic. The activities of the research process are well distributed and a total of 9 weeks are required for completion of the research process. The literature review is followed by the activities of data collection, analysis and findings which are conducted within equally spaced time intervals for efficient6 performance of the research activity. References Literature Review Achoui, M. 2009. Human resource development in Gulf countries: an analysis of the trends and challenges facing Saudi Arabia. Human Resource Development International. 12(1), pp. 35-46. Barney, J. 1991. Firm resources and sustained competitive advantage. Journal of Management. 17(1), p. 99-120. Baron, A. and Armstrong, M. 2007. Human capital management: achieving added value through people. London: Kogan Page. Boswell, W. R. and Boudreau, J. W. 2001. How leading companies create, measure and achieve strategic results through “line of sight”. Management Decision. 39(10), p. 851-860. Burke, G. and Jarratt, D. 2004. The influence of information and advice on competitive strategy definition in small- and medium-sized enterprises. Qualitative Market Research: an International Journal. 7(2), pp.126-138. Chaharbaghi, K. and Lynch, R. 1999. Sustainable competitive advantage: towards a dynamic resource-based strategy. Management Decision. 37(1), pp.45-50. Espinoza, R. A.,Fayad, G. and Prasad, A. 2013. The Macroeconomics of the Arab States of the Gulf. Washington D.C.: International Monetary Fund. Fischer, E. and Reuber, R. 2000. Industrial Clusters and SME Promotion in Developing Countries. London: Commonwealth Secretariat. Galvin, P. and Haidar, A. 2007. Strategic Management: An Integrated Approach, 2nd ed. Australia: Jon Wiley & Sons. Hallberg, K. 2000. A Market-oriented Strategy for Small and Medium Scale Enterprises, Volume 63. Washington D.C.: World Bank Publications. Harvie1, C. and Lee, B. 2002. The Role of SMEs in National Economies in East Asia. Cheltenham: Edward Elgar Publishing. Harvie2, C. and Lee, B. 2005. Sustaining Growth and Performance in East Asia: The Role of Small and Medium Sized Enterprises. Cheltenham: Edward Elgar Publishing. Hj, M. A.,Mohd, A. and Bakar, I. H. 2000. Small and Medium Enterprises in Asian Pacific Countries: Roles and issues. New York: Nova Publishers. Hong, P. and Jeong, J. 2006. Supply chain management practice of SMEs: from a business growth perspective. Journal of Enterprise Information Management. 19(3), pp.292-302. Information Resources Management Association. 2013. Small and Medium Enterprises: Concepts, Methodologies, Tools, and Applications. Hershey: Idea Group Inc (IGI). International Monetary Fund. 2012. Saudi Arabia: Selected Issues. Washington D.C.: Andrews McMeel Publishing. Levy, M. and Powell, P. 2004. Strategies for Growth in SMEs: The Role of Information and Information Sytems. Burlington: Butterworth-Heinemann. Motwani, J., Levenburg, N. and Schwarz, T. 2006. Succession Planning in SMEs. International Small Business Journal. 24(5), pp.471-495. Shalaby, N. 2004. SMEs Developments Saudi Arabia. Dammam, Saudi Arabia: Third national SMEs Forum, Eastern Province Chamber of Commerce and Industry. Sharma, G. 2011. Do SMEs need to Strategize?. Business Strategy Series. 12(4), pp. 186-194. International Monetary Fund. 2012. Saudi Arabia: Financial System Stability Assessment – Update. Geneva: Washington D.C.: International Monetary Fund. OECD. 2006. The SME Financing Gap (Vol. I) Theory and Evidence: Theory and Evidence. Paris: OECD Publishing. Hayes, G. 2009. A Practical Guide to Business Valuations for SMEs. Australia: CCH Australia Limited. Villa, A and Antonelli, D. 2008. A Road Map to the Development of European SME Networks: Towards Collaborative Innovation. America: Springer. Ramady, M. A. 2010. The Saudi Arabian Economy: Policies, Achievements, and Challenges. Berlin: Springer. Research proposal Bhattacharyya, D. 2009. Research Methodology. India: Excel Books India. Daniel, P. and Sam, A. 2011. Research Methodology. India: Gyan Publishing House. Goddard, W. and Melville, S. 2004. Research Methodology: An Introduction. London: Juta and Company Ltd. Khanzode, V. 2004. Research Methodology. New Delhi: APH Publishing. Kumar, R. 2010. Research Methodology: A Step-by-Step Guide for Beginners. London: SAGE. Appendices Q1. Has the financial support helped in the growth of your company? Yes No Unknown Q2. From which source has your company received financial support? Government Bank Don’t Know Q3. Has the growth of your company helped you in having a better life style? Yes No Don’t Know Q4. Has this financial support lead to increase in employability? Yes No Don’t Know Q5. Has the growth of your company helped in the development of the country’s economic status? Yes No Don’t Know Read More
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