THE SIGNIFICANCE OF COMPETITIVE SMES FOR SUCCESSFUL REGIONAL CLUSTERS.

Author:Stefan (Iftimie), Ionela Georgiana
Position::Small and medium sized enterprises - Report
 
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  1. Introduction

    Over the last decade there has been considerable interest among regional science researchers in SMEs and clustering and their concomitant link to regional development, due to the increasing competition at regional, interregional and international level, the shortcomings of traditional regional development theories, models and policies, and the emergence of successful clusters of enterprises in many regions. In the world economy, with a trend towards globalization, the SMEs sector is seen as playing a key role in initiating and sustaining regional economic growth and development.

    In order to respond to the increased pressures of the globalization process and benefit from global market opportunities, to sustain regional development, SMEs have to face two main challenges (Karaev et al., 2007, cited in Zeinalnezhad, Muriati, & Shahnorbanun, 2011): to transform themselves and increase their individual competitiveness, and due to their limited size, they have to take advantage of the synergy effects created by entering into cooperative relations with other firms and related institutions. "Porter's Diamond" model suggest a complex interaction of several factors for the economic success of both SMEs and region, such as: demand, business strategy and competition, factors of production, supply chains and horizontal integration. Innovation is also a prerequisite for economic growth and competitiveness of enterprises.

    These aspects led to the "triple helix" model, where a cluster brings together representatives of: businesses, universities and research institutes and local or regional authorities (Guth and Cosnita, 2010). In Romania, experience has shown that these three partners does not communicate or cooperate appropriately, so that the "triple helix" model has been adapted into the "four clover" model, the fourth actor being represented by catalyst organizations, such as consulting firms.

    Taking into account these considerations, the paper has a theoretical approach and focuses on three different impacts: competitive SMEs on regional clusters, regional clusters on the competitiveness of SMEs, and regional clusters and competitive SMEs on sustainable regional development.

  2. SMEs' Characteristics and Challenges in Enhancing Competitiveness

    Small and medium enterprises are regarded as one of the main important factor for regional economic development, stimulating entrepreneurship and entrepreneurial skills (Gadenne and Sharma, 2009), providing a means for the efficient use of a country's resources, and for sustaining growth, dynamism and employment (Thassanabanjong et al., 2009, cited in Zeinalnezhad et al., 2011). SMEs employ the largest percentage of the workforce in a region and are responsible for the major income generation opportunities (Singh et al., 2010, in Zeinalnezhad et al., 2011), also playing an important role in absorbing redundant workforce as a consequence of the privatization process carried out by governments, in alleviating poverty and assisting disadvantaged categories, such as youth or women, who are not always able to have a meaningful contribution to the economic development of a region. Developing the SMEs sector promotes democracy and a civil society and stimulates entrepreneurs to participate in the economic, political and social system of the country (UNIDO, 2003, cited in Zeinalnezhad et al., 2011).

    One of the major characteristics of the SME sector is having a considerable comparative advantage over large enterprises due to their flexibility and innovation, which enable them to adapt more rapidly and efficiently to the increasing changes in global trends. The majority of SMEs have simple systems and procedures, which allows flexibility, immediate feedback, short decision making chain, better understanding and quicker response to customer needs than larger organizations (Singh et al., 2008). But their potential role as a driving force for regional development is often not fulfilled mostly because of the size related problems characterizing SMEs.

    Individually, SMEs face the inability to capture market opportunities where large production quantities and regular supply are required or to achieve economies of scale in the purchase of inputs, such as equipment, raw materials, finance, consulting services, etc. (UNIDO, 2003, cited in Zeinalnezhad et al., 2011). Small size can prevent the development of functions such as training, logistics and technology innovation--important requirements for firm dynamism and competitiveness, or the achievement of specialized and effective internal division of labor. In their continuous endeavor to preserve their narrow profit margins, small-scale entrepreneurs are often unable to implement innovative improvements to their products and processes or technologies (Zeinalnezhad et al., 2011).

    SMEs can address their size related problems and improve their competitive position through clustering and networking. They can benefit from being linked into national, regional and global networks of firms and value chains and overcome the limitations with regard to economies of scale, division of labor and innovative improvements imposed by their size and they can be in a position to help each other, to collaborate and to compete more effectively in the global marketplace (UNIDO, 2003, cited in Zeinalnezhad et al., 2011). The cooperation between SME can take many forms as outlined below:

    * Horizontal cooperation. All SMEs have the same position in the value chain and can collectively achieve economies of scale in purchasing inputs, in the use of technology and pool together production capacities to satisfy large-scale orders (Pyke, 1992, cited in Ceglie and Dini, 1999).

    * Vertical cooperation. Other SMEs as well as large-scale enterprises are positioned along the value chain, and enterprises can specialize on their core business and give way to an external division of labor (Marshall, 1990, cited in Ceglie and Dini, 1999).

    * Inter-firm cooperation. Ideas are exchanged and developed and knowledge is shared between "invisible colleges" in a collective attempt to improve product quality and occupy more profitable market (Best, 1998, cited in Ceglie and Dini, 1999).

    * Networking among enterprises. Entrepreneurial strategies can be enhanced by creating a local development vision shaped by providers of business development services and local policy makers (Ceglie and Dini, 1999).

  3. Cooperation through Clusters for Enhancing Competitiveness

    According to Mason et al. (2008), clusters have become attractive due to their ability to concentrate economic activity in a particular location, the term of clustering, in its broad sense, referring to a geographical concentration of certain economic activities. A cluster also includes the government institutions, business associations, and providers of business services and agencies that support clustered enterprises in fields such as product development, technology, marketing information and production process improvement.

    The subject of clustering is more and more perceived as a means to enhance economic growth and competitiveness of enterprises, as well as improving their productivity and innovation. In most industrialized countries cluster promotion is one of the key factors for national competitiveness policy...

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