Defining the Organizational Culture that Drives Strategic Innovation in Micro, Small and Medium Enterprises in Egypt.

Author:ElKhouly, Sayed


Micro, small and medium sized enterprises are considered to be an integral part of the Egyptian economy, no doubt since they constitute a large percentage of the private sector establishments in Egypt, at 75%, and they employ 75% of the workforce (Al Said, El Said, & Zaki, 2014). It is thus essential to understand all the factors that enhance their growth. There is no unified definition for M/SMEs in Egypt. This paper depends on the definition of M/SMEs according to the number of employees, as shown in Table 1, included in the Ministry of Finance's "Profile of M/SMEs in Egypt" Update Report submitted by the Environmental Quality International in October 2005.

M/SMEs in Egypt have reportedly faced hurdles that have impeded their development, despite the many attempts of governmental and non-governmental institutions to solve them. A major hurdle that has been reported is the lack of information available about these enterprises, as well as lack of information accessible to these enterprises to assist in their growth (Moukhtar, n.d). Since M/SMEs provide the best setting for creativity and innovation to take place, given their naturally limited resources and their smaller size, they rely more on intangible resources to strategically innovate (Abraham & Knight, 2001). This calls for learning more about these enterprises and what stimulates their strategic innovation.

Significance of the Study

Much of the research that has been done on M/SMEs in Egypt address the issue of finance as the major obstacle to their development (Micro, Small and Medium Enterprises in Egypt, 2014), which indeed is a crucial precursor to their growth. However, it is important to investigate other drivers of development. The intangible resources that M/SMEs extensively use have not been investigated and since, according to Abraham and Knight (2001), such resources are considered to be the drivers of innovation and creativity, investigating these resources and what drives them to innovate is considered crucial for M/SME success. An examination of intangible resources, such as the organizational culture climate of the organization in M/SMEs, would definitely contribute to the body of literature on enterprises in Egypt and consequently improve their performance and the health of the economy as a whole.

The aim of this study is to examine how the Egyptian cultural fabric on the macro level, which is reflected on the micro organizational level, impacts the strategic innovation capability of M/SMEs in Egypt. To operationalize the organizational cultural impact, Hofstede's cultural framework, as described by the different cultural dimensions of uncertainty avoidance, power distance, individualism/collectivism, assertiveness focus, is tested against the strategic innovation capability of micro, small and medium sized enterprises in Egypt.

The first part of the paper covers the literature, which provides an overview of M/SMEs in Egypt, i.e., organizational culture, strategic innovation, and relates the concepts together and poses the hypotheses accordingly. The second part of the paper covers the methodology, sampling design, tools of data collection and procedures for carrying out the research. The final part includes the results, discussion and future recommendations.


Micro, Small and Medium Enterprises in Egypt

M/SMEs have embedded features that allow them to innovate, such as their limited resources which force them to rely more on creativity, their simple structure, their relatively low risk (Abraham & Knight, 2001; Subrahmanya, 2015). Despite the importance of micro, small and medium enterprises for the Egyptian economy, research shows that they face many hurdles. Moukhtar (nd.) summarizes these hurdles into four major ones: their inability to find suitable funding; the administrative details and confusion in having to deal with multiple governmental institutions to get things done; their lack of managerial and marketing experience; and the lack of information available for and about these enterprises. Despite the multiple sources of finance available for these enterprises, such as the Social Fund for Development (SFD), in addition to governmental and non-governmental programs, only 5% of M/SMEs are able to benefit from such attempts. This is related to administrative obstacles that they face when trying to apply for funds. M/SMEs have to go through the Ministry of Social Affairs, the Ministry of Municipal Development, the Ministry of Finance, the Ministry of Foreign Affairs, NGOs and the Social Fund for Development in order to get anything officially and legally done. Moreover, given that most entrepreneurs of these enterprises have limited education, they lack the marketing and managerial knowledge that would serve their development. Finally, the obstacle of not finding the necessary and accessible information about these enterprises, so as to better serve them, and even making information available to them is considered to be a dire problem related to Egyptian M/SMEs (Milagrosa, Loewe, & Reeg, 2015; Moukhtar, n.d.).

Milagrose, Loewe and Reeg have determined the success factors that drive a small enterprise to upgrade, innovate and grow into a medium or larger one, based on an empirical research that was done in Egypt, India and the Philippines. Findings have shown that in all three countries, educated employees, investing in their skill development and involving them in strategic decisions, investing in R&D and market research, having their own financial resources, such as personal wealth are all success factors that have stimulated the growth of SMEs (2015). It is clear that understanding the dimensions of the organizational culture that drives strategic innovation contributes to the body of literature, which is much needed in Egypt.

Organizational Culture

Shane, Venkataramant and Macmillan have quoted Hofstede's definition of culture as "the collective programming of the mind which distinguishes the members of one human group from another...the interactive aggregate of common characteristics that influence a human group's response to its environment" (1995). Organizational culture is what defines the organizational fabric of M/SMEs and is considered an essential intangible resource that can be directed towards strategic innovation. Shane, Venkataramant and Macmillan differentiate between different cultures, which can be that of a nation, a gender, a generation and an organization (1995). Hofstede's Cultural framework will be used in this research to operationalize...

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