Strategic Management of Small Firms in UK: A Study of Growth Strategies and Competitive Advantages

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STRATEGIC MANAGEMENT OF SMALL
FIRMS IN UK
Khalid Abdullah Al-sayari
MA Management and Finance
Bangor Business School, Bangor University
Supervisor: Dr Azhdar Karami
2013/2014

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Acknowledgements
I would like to acknowledge my supervisor Dr Azhdar Karami for his valuable advice
and directions through this project. I want to thank him for encouragement, support
and rich information that he provided me throughout this study. Special thanks to
Bangor business school Administrative staff for their support.
I would like to appreciate the financial support from The Higher Education Ministry
in The Kingdom of Saudi Arabia.
Finally, many thanks must go to my family specially my wife and children who
supported me through my studying.

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DECLARATION
This work has not previously been accepted in substance for any degree and is not
being concurrently submitted in candidature for any degree.
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Date ……………………………………………..
STATEMENT 1
This thesis is the result of my own investigations, except where otherwise stated.
Where correction services have been used, the extent and nature of the correction is
clearly marked in a footnote(s).
Other sources are acknowledged by footnotes giving explicit references. A
bibliography is appended.
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Date …………………………………………….
STATEMENT 2
I hereby give consent for my thesis, if accepted, to be available for photocopying and
for inter-library loan, and for the title and summary to be made available to outside
organisations.
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Date …………………………………………….
NB: Candidates on whose behalf a bar on access has been approved by the
University should use the following version of Statement 2:
I hereby give consent for my thesis, if accepted, to be available for photocopying and
for inter-library loans after expiry of a bar on access approved by the University.
Signed …………………………………………… (candidate)
Date ………………………………………………

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Contents
Acknowledgements ........................................................................................................ii
DECLARATION ......................................................................................................... iii
Abstract ........................................................................................................................vii
Chapter 1: Introduction .................................................................................................. 1
1.1 Introduction .............................................................................................................. 1
1.2 Research background ............................................................................................... 3
1.3 Research questions and objectives ........................................................................... 7
Segmentation differentiation strategy ........................................................................ 9
Focus strategy .......................................................................................................... 10
Sources of competitive advantages in SMEs ........................................................... 10
1.4 Research rational .................................................................................................... 11
1.5 Research methodology ........................................................................................... 12
1.6 Dissertation structure ............................................................................................. 13
Chapter 2: literature review ......................................................................................... 15
2.1 Introduction ............................................................................................................ 15
2.2 Definition of SMEs ................................................................................................ 16
2.3 Small Firm Growth Theory.................................................................................... 17
2.4 The SMEs’ growth Strategies: ............................................................................... 18
2.4.1. Porter’s Generic Strategies ................................................................................ 22
2.4.2. Innovation Strategy ............................................................................................ 23
2.4.3. Network and Cluster Strategy ............................................................................ 24
2.4.4. Flexibility Strategy............................................................................................. 25
2.5 Competitive Advantage ......................................................................................... 26
2.5.1. Definitions of Competitive Advantage .......................................................... 26
2.5.2. Balanced Scored Card .................................................................................... 27
2.5.3. Porter’s Diamond ........................................................................................... 28
2.5.4. From Diamond to Clusters ............................................................................. 29
2.5.5. Porter’s Five Forces Model ............................................................................ 30
2.6 Relationship between SMEs strategy and growth ................................................. 31
2.7. Obstacles to Business Growth .............................................................................. 32
2.8 Chapter summary ................................................................................................... 33
Chapter 3: Research methodology ............................................................................... 34

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3.1. Introduction ........................................................................................................... 34
3.2. Research approach ................................................................................................ 35
3.2.1. Quantitative Research Approach: .................................................................. 36
3.2.2. Qualitative Research Approach: .................................................................... 37
3.2.3. Inductive & Deductive Research Approach: ................................................. 38
3.3. Research design .................................................................................................... 39
3.3.1 Exploratory study: ........................................................................................... 40
3.3.2 Casual Research:........................................................................................ 41
3.3.3 Descriptive Research: ..................................................................................... 41
3.4. Source of data and sample .................................................................................... 42
3.5 Data collection ....................................................................................................... 43
3.5.1 Primary data: ................................................................................................... 43
3.5.2 Secondary data: ............................................................................................... 44
3.6 Sample Selection .................................................................................................... 45
3.6. Questionnaire ........................................................................................................ 45
3.7. Data analysis plan ................................................................................................. 47
3.8. Chapter summary .................................................................................................. 48
Chapter 4: Result and discussion ................................................................................. 49
4.1 Empirical Findings and Data Analysis .................................................................. 49
4.1.1 Number of Employees Employed by the Companies ..................................... 49
4.1.2 Year of Companies’ Registration.................................................................... 52
4.1.3 Annual Turnover of the Companies in the Previous Year .............................. 54
4.1.4 Companies’ Growth Strategy.......................................................................... 55
4.1.5 Major Reasons for the Success of SMEs Companies ..................................... 57
4.1.6 What makes Companies’ Product/Service Different from Competitors......... 59
4.1.7 Delivered Value and Customer Buying Expectation ...................................... 60
4.1.8 Value that Company Provide to the Customer ............................................... 61
4.1.9 Capabilities and Resources that Companies have to Deliver Distinct Customer
Value Proposition..................................................................................................... 62
4.1.10 Changes in the number of Employees in the Past Three Years .................... 64
4.1.11 Market Segmentation to Increase Market Share ........................................... 65
4.1.12 Resources that Companies Invest in each Market Segment to Generate
Growth ..................................................................................................................... 67
4.1.13 More profit part in the companies:................................................................ 68
4.1.14 Change in the Size of the Companies the Last Three Years ......................... 69
4.2 Discussion .............................................................................................................. 70
4.3 Summary ................................................................................................................ 73

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Chapter 5 Conclusion ................................................................................................... 75
5.1 Chapter purpose ................................................................................................ 75
5.2 Overview of result and recommendation ............................................................... 75
5.2.1 Working hypothesis one (WH1) - SMEs strategy for fast growth.................. 75
5.2.2 Working Hypothesis Two (WH2)- SMEs Sources of competitive advantages
.................................................................................................................................. 78
5.2.3 The validity of the Framework ....................................................................... 79
5.2.4 Research questions .......................................................................................... 80
5.3 Suggestions for Future Research ........................................................................... 85
Appendix 1: Questionnaire .......................................................................................... 87
Appendix 2: Top 100 SMEs in UK 2014 listing by profit ........................................... 90
References: ................................................................................................................... 92

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Abstract
Background:
In the European countries a major portion of employment opportunities are provided
by these small and medium sized firms. At the beginning of 2005 there were around
4.3 million organizations that had started off in UK. The majority of these
organizations were small and medium sized firms, which contributed towards the
employment in the private sector by 47% in UK. The small and medium sized firms
can be considered as an important engine that drives economic growth of any country.
In the present situation, it is very essential that these small firms in UK act
strategically so that they are able to compete in the emerging economy in order to
grow as well as survive. For a long term performance it is very much essential that
small sized firms should not only be focused on financial performance and return on
investment for short period of time but should be efficient enough to develop
strategies.
Purpose:
This research concerns with unravelling the sources of comparative advantage among
SMEs firms. Comparative advantage regards having the ability to satisfy a market in
the best way than any other firm. In addition, the paper shall evaluate how strategic
management influences SME’s.
Method:
In order to provide more valid and reliable information this research will adopt the
primary research strategy to do an intensive analysis. An electronic version of
questionnaire will be sent the top 100 SMEs in UK listing by profitability according
to Yorkshire post (February 4, 2014) to get at least respondents from 30 companies.
Accomplish detailed analysis point by point was done in order to give clear discussion

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to readers. The aim is to draw accurate conclusions based on theoretical background
and empirical findings.
Conclusion:
According to the results extracted from the study, it is revealed that most of SMEs use
the operational strategy of introducing new products, service or technology to the
market as their growth strategy where very few organizations have the perception that
they do not want to grow or they do not have growth strategy. Mulling over to the
aspect of resources used by organizations to invest in the market segments to attain
competitive advantage, it can conclude that the use of technology, the expertise of the
employees, customer satisfaction and skilled manpower/staff are some of the
resources.