Small and medium enterprises (SMEs) face a dynamic environment which challenges their survival. Although large and multi-national companies (MNCs) face the same challenges, their resource base cocoons them against the harshest of realities. However, looking to the future, it is this very lack of resources that will force SMEs to be more innovative than larger firms in products services, processes and business models.
These innovations will stem from SMEs having to overcome resource limitations to manage a contradictory relationship with larger firms, firms who in some instances are their customers and in other instances are their competitors. In order to compete with and/or sell to, larger firms, SMEs need to address three key issues (1) Keeping up with the Jones’s, (2) Trojan Horses and (3) Daisy Chains.
(1) Keeping up with the Jones’s: Many SMEs attempt to emulate larger firms thereby ‘keeping up with the Jones’s’, however, the systems and approaches used by larger firms were developed to suit larger firms, and literature has established that SMEs are not small large firms. Instead of accepting and adopting these systems and approaches, SMEs need to focus on identifying those aspects of their business which have a direct and proven impact on their performance – keeping them lean and agile. Once these key success factors have been identified SMEs need to innovate to maximise competitive advantage. This integration of innovation across all aspects of the SME will result in more successful new products and services being developed, more efficient processes being implemented and more effective business models being adopted.
(2) The Trojan Horses: Larger firms take a risk when they buy from an SME without a recognised international brand name. In order to reduce the purchase risk to their large firm customers SMEs need to mimic a ‘trojan horse’; instead of presenting themselves as a sales orientated firm interested in an asymmetrical relationship with the larger firm, the SME needs to engage in bilateral relationships, integrating itself into its large firm customers, In adopting this ‘corporate lego’ approach the SME embeds itself in the larger firms’ innovation processes, helping it to cultivate new products and services, while suggesting process and business model modifications which would make both the SME and its large firm customer more competitive.
(3) Daisy Chains: To help SMEs compete with larger firms, SMEs need to explore more innovative company structures to make themselves appear to a bigger company then they are. One such structural option would be to form a ‘daisy chain’, that is, a series of strategic alliances linking SMEs with similar size companies (e.g. key suppliers / distributors / customers / competitors). Such alliances would provide economies of scale, helping to combat the inequities posed by an SME competing with larger organisations for supplies and sales. In addition, the new perceived organisational size would reduce the perceived purchase risk for larger firms buying from SMEs.
Addressing these three issues around the large/small firm relationship will result in unusual and unique solutions and propositions, which in future will generate dynamic performance oriented SMEs embedded in symbiotic relationships with larger firms.