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Micro and small business units: A few facts
Small businesses require push and pull factors to take them to threshold level. The push factor is reducing their risk aversion by effective entrepreneurial training. The pull factors include popularising their products for creating new demands
APART FROM other support, small business units require a set of push and pull factors to take them to threshold level for their easy and early take-off. The most important push factor is: reducing their risk aversion, say by effective entrepreneurial training programmes. The pull factors may include popularizing their products for creating new demands. If the micro and small enterprise sector has developed beyond a certain stage, the support strategy must have a different focus, and should include policies encouraging reward systems, strategic partnering, and merger mania. We will have a brief look at each one of these:
 
1. Reward systems: These relate both to monetary and non-monetary motivations and incentives. There are a number of reward variables that have been used in various empirical surveys of reward practices, especially in high-technology firms. Some of the monetary reward variables are: salary, small sum awards, variable bonuses, fixed bonuses for milestone achievements, and royalty; and the non-monetary reward variables are: increased recognition, accelerated promotion, more autonomy and increased research budget. There is good amount of literature on entrepreneurship and motivational theory, especially in the context of developed countries, which reveals mixed evidence on the effectiveness of the various types of reward systems on creativity and innovation, particularly with regard to technicians and professionals, such as scientists and engineers. It is found that in the case of small firms, non-monetary rewards are invariably ineffective.
 
2. Strategic partnering: There has emerged a recent trend, especially in the context of developing countries, pertaining to strategic (predominantly technology based) partnerships between large, established firms and new technology based firms (NTBFs). Theoretically speaking, the combination of a small firm’s know-how with a larger firm’s resources opens opportunities for synergies that can contribute to both firm’s competitive advantage and to the creation of regional growth potential. Such partnerships are concerned with technological and marketing relationships between large and small firms. Segers (1993) has developed a highly sophisticated theoretical model (based on multiple case study design) to assess the impact of strategic partnering on NTBF - Survival and Growth in Belgium. He has followed Glaser’s and Strauss’ (1967) recommendations for the development of “grounded theory”, which lets theory, emerge from the data. He has very well validated three hypotheses as mentioned below:
Hypothesis 1: Belgian NTBFs in their survival or growth phases gain from entering into strategic technology partnership with large established firms.”
Hypothesis 2: A number of potential partnership pitfalls can be identified. Therefore, a successful strategic technology partnership constitutes an optimization of the potential synergies and the dynamic complementarities between large, established companies and small- new technology based- firms.”
Hypothesis 3: Strategic technology partnerships enable NTBFs to successfully commercialize their innovations and products and to significantly expand their future viability in terms of growth potential.”
 
3. Merger Mania: It is believed that small firms have average or superior performance, and large firms typically takeover smaller firms. This is what is termed as “merger mania”. There is no doubt that mergers may yield to efficiencies, but they also reflect chance, management optimism, nonprofit maximizing behaviour, and other unproductive tendencies. There are many hypotheses on why small firms outperform large firms, which challenge the conventional view that economies of scale and scope require large firm size. Small firms outperform large firms essentially in terms of value added and employment. This is so because they often become more vertically integrated, and hence tend to raise their employment to sales or value added to sales ratio. Such a vertical integration is fully supported by Stigler’s life-cycle interpretation (1968) of Adam Smith’s hypothesis that ‘division of labor is limited by the extent of the market’. According to Stigler, “firms tend to vertically integrate in their earlier part of the product life cycle when industry is growing and supply sources or distribution outlets are unavailable, and then disintegrate as the industry matures and nonintegrated establishments become available.”
 
The above-named strategies apply essentially to the developed countries, but they can very be applied to the ‘growing’ developing countries too.
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