Many an SME enters its respective industry full of technique geared for bridging the gap. Applying this same sense of inventiveness has proven taxing in the latter phases of business development when facing off with a decline in investment and the surprising obstacles of accomplishment.

SMEs are largely defined by their ability to innovate. Despite the resilience with which small and medium sized enterprises have come to embody, a glaring challenge SME innovation faces as of late is a growing shortage in financing. Malaysian SME property developer Encomas for one, continues to cope with the economic crisis head on most notably due to the credit crunch, which occurred as a result. A third generation construction family, Encomas designs and sells property in the burgeoning Malaysian market. And despite the company’s triumphs in the space since 2000, Managing Director Rick Cheng like similarly positioned SME executives, must perpetually contend for a pool of capital. While businesses the world over likewise manage the results of mortgage lending blunders in faraway lands, the concerns related to a lack of funding and the innovation this hinders, are one of many persistent challenges faced by small and medium-sized enterprises.

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Cycle of success

SMEs are duly lauded as the backbone of economies from the EU to as far adrift as Southeast Asia. The agility smaller enterprises allow whilst providing the majority of many nations employment opportunities have long amounted to the limitless value of the SME presence. SMEs have occupied a uniquely flexible space based on the startup nature of smaller enterprises. By existing in a manner conducive to market shifts, SMEs have proven particularly adept at adjusting during a company’s formative years. The level of innovation required during the foundational period of a company’s growth is generally in abundant supply where SMEs operate. With success, however, the very innovative thinking, which catapults SMEs to the forefront, begins to wane as some companies grow steadfast in clinging to the original vehicles with which they have ascended.

As technology becomes the de facto messenger for commerce globally, the innovation needed to sustain a technological takeover from the competition has become increasingly evident. Germany is a stronghold for SMEs, “Mittelstand” in local phrasing, having long been credited with catalysing a German economic boom in the early 20th century. The Mittelstand landscape now provides nearly three-quarters of private sector employment and though many predicted that the credit crunch would cripple the SME landscape, it has not. The more evident worry in Germany is how best to stave off larger technologically savvy enterprises with entire departments designated for innovation. Movie rental chain Blockbuster Video’s decline is an oft-repeated tale of missed opportunity due to technological innovation. Launched in the U.S. in 1985 Blockbuster revolutionised the home video market by growing from an SME represented solely in Texas to a global chain, which spawned a mass of copycats. Early on, Blockbuster customised store offerings around the local community’s demographics and won a groundbreaking lawsuit against Nintendo, which paved the way for video game rental alongside the films already present.

Competing rental service Netflix offers a mail-in video rental service, which significantly contributed to Blockbuster’s rapid decline and ultimate bankruptcy filing in 2010. Netflix additionally allows its paying subscribership to stream films from the internet. Blockbuster while still at its peak in the early 2000s, reportedly failed to merge with Netflix on numerous occasions. Blockbuster’s failing to innovate offers a cautionary tale to SMEs who neglect to recognize the advancing surge of technological innovation.

The makings of SME innovation

The SME cycle bears a process, which often times works in a sequence of counter production. The company originates as an ardent upstart, which uses every innovative edge to its advantage. In the early going every risk is necessary and the swiftness with which the enterprise can adjust to voids in the market is what defines its worth. The very measures which amount to an emboldened SME reaching the top are too often shelved in favour of avoiding any innovation that may bear too large a risk. With a decrease in monies available, a resistance for taking a risk that may compromise an existing strategy now includes an ever larger financial cost, which many SMEs have speedily shied away from.

The challenges of SME innovation, though supported by a range of mitigating circumstances, are often a result of an enterprise’s success. Innovation, however, often amounts for a substantial percentage of an SME’s DNA, as smaller companies come into existence based on the pioneering service and flexible offering they provide to the market. Though the EU is still weathering the crisis, global markets are gradually rebounding and soon the necessary capital will return to an awaiting array of SMEs eager for all that lies in the downturn’s wake.

Tharawat Magazine, Issue 18, 2013