Challenges and Strategies for UK SMEs: Internal and External Analysis

This essay examines the challenges faced by Small and Medium Enterprises (SMEs) in the UK, focusing on their internal environment and strategies for interacting with the external environment, particularly during the COVID-19 pandemic. It highlights issues such as lack of leadership, ineffective technology utilization, funding shortages, and difficulties in creating a positive corporate culture. The essay also explores strategies employed by SMEs to navigate external factors like government lockdowns, technological advancements, and economic pressures, including employee safety measures, digital marketing adoption, and compliance with regulations. Furthermore, it details the UK government's support schemes, such as loan programs, grants, and employment support measures, aimed at stabilizing SMEs during the crisis and promoting long-term growth. The essay concludes by emphasizing the importance of supporting SMEs to stabilize the UK economy.

Individual Essay

In UK, small and medium sized enterprises are enterprises that consist of less than 250
employees. SMEs are divided into three parts based on number of employees- medium
enterprises having employees up to 250, small enterprises having employees up to 50 and micro
enterprises having employees up to 10. The major earning of UK is from SMEs as it covers 99%
of all businesses in UK. This essay highlights the challenges faced by small scale organizations
which are impacting their internal environment. A detailed discussion about strategies used by
organization to interact with the external environment during last two years will be done. The
major role played by UK Government to support SMEs during covid-19 will be shown.
Internal environment consists of elements that are within the organization that can affect
decisions of organization. There are many challenges faced by SMEs that impact its internal
environment. Leaders play a major role in growth and smooth functioning of organization's
operations. There is a lack of proper leadership in SMEs as there are no academic qualifications
to become a leader (Akpan and et al., 2022). This affects the operations of organization as there
is no proper allocation of work and no one would be accountable for their work. This creates
demotivation among employees which will affect their efficiencies. Technology plays a vital role
in the growth and expansion of business. Most of the organizations face problem in effective
utilization of IT resources as there is no proper IT team. Small scale organizations face many
problems like system are not up to date, network downtime and server failure this impact the
potential of business.
One of the major challenges faced in business is lack of funds. For expansion of business
and making improvements in system there is need of large amount of funds. Generally
organization makes mistakes by making unnecessary expenses which leads to shortage of funds.
This impact the growth and expansion of SMEs (Mustafa and Yaakub, 2018). Corporate culture
acts as a binding agent in success of company's workforce. Company culture gives employees a

sense of belonging which motivates them to work effectively. Small scale organization faces
problems in creating an effective work culture. This has impacted the performance of employees
as there is lack of employee satisfaction and motivation (Eggers, 2020). This is due to lack of
proper leadership in SMEs. For smooth functioning of business it is necessary to make a proper
business strategy. Some organization faces problem in building a proper business planning. If
there is a proper business plan organization needs to make sure that it is well executed.
Marketing is an important function that helps in selling products and earning profit. In
this competitive world every organization needs to promote their products to attract the
customers. SMEs faces challenge to bring their product in knowledge of customers due to lack of
proper marketing. There are many aspects that impact marketing strategy of small scale
organization. As there is limited budget for organization they are unable to properly utilize the
technology for the purpose of marketing (Syntia and Mulya, 2018). Lack of leadership has lead
to lack of proper marketing strategy and its execution. There are solutions by which SMEs can
overcome all these challenges. The main challenge is lack of fund. There are many ways through
which organization can get their required funds. If there is required amount of funds then
organization can overcome other challenges. A good and qualified leader needs to be appointed
so that their may be proper allocation of work, who can create a good work culture among
employees and motivate employees so that they can work as per their potential.
External environments are factors or conditions that are outside the organization but
affect it in some extent. There are many factors that affects business environment. During the
pandemic phase of two years the business of SMEs has been affected because of external factors.
SMEs used many strategies to interact with external environment in last two years. The external
environment includes political, technological, social, economical, legal and environmental
aspects. Government of UK announced lock down in all over the country which impacted the
supply of employees, raw materials, etc (Strategies used to interact with external factors, 2022).
This has also affected the demand for the products. Due to lock down income of consumers were
also affected there was shortage in income. Organization engaged an effective management team
to plan and prepare strategies to interact with external environment. The very first priority of
organization during pandemic was the safety and well-being of their employees. Employees
were not able to concentrate on their work as their well-being was on peril.

Effective communication was made with the employees to raise awareness, enforce
policies and familiarize them with tools and resources available with organization. During lock
down employees were doing their work from home this ensured their well-being and also
decreased the cost to company (Klein and Todesco, 2021). Thereafter, lock down organization
took corrective measures to ensure the health of their employees so that employees can join
organization without any fear and can work effectively. By using this strategy SMEs could
interact with government action. Organization had an opportunity of advanced technology as it
took help of technology to sell their products. Due to pandemic, employees were required to stay
at home and to do work from home. Company invested in technology so that employees can
work remotely and collaborate virtually. This has increased the scope for online business and to
connect with their customers virtually.
It was important for organization to ensure retention of their customers and adoption of
digital marketing helped in retaining the customers. Organization needs to comply with the rules
and regulations that are being enforced by the Government. Company established a
communication strategy and channels to effectively engage with local and national authorities.
This ensured company to effectively comply with the rules and regulations enforced by
Government for covid pandemic. As there was a major loss of business during pandemic
organization needed to ensure that there was no loss of customers. To ensure this organization
had to do promotional activities by offering discounts and other offers. Organization had applied
product differentiation strategy to compete with the competitors and to ensure that there was no
decrease in demand (Wardati and Mahendrawathi, 2019). Pandemic period had asserted more
pressure on existing resources, infrastructure and technology which had resulted in significant
decrease in products and services.
As there was lack of resources, organization had to prioritize the delivery of products that
were essential for the customers. All the activities were revisited to understand the activities that
must be de-prioritized to allow effective repositioning of available resources. Due to pandemic,
Government has implemented various rules and regulations that may affect the functioning of
organization. SMEs are very flexible to adopt new changes in the environment. SMEs had built
strategies to comply with the rules and regulations enforced by Government during the
pandemic. As there is an increase in globalization, employees recruited are of diverse culture and
background (Adam and Alarifi, 2021). Organization has implemented training and development

programs so that employees can be aware of every culture to avoid conflicts among employees.
Teamwork is being implemented in organization to enable effective communication among
employees to build trust among them. Training and development program would also boost the
morale of employees and they will work effectively.
An economic recovery strategy was implemented in UK and small business support was
the most prioritized component of this strategy. UK Government had announced various
schemes to support the SMEs during the pandemic. The government guaranteed loans to provide
liquidity to businesses across the country to prevent insolvencies. Government had offered grants
to businesses which were used to mitigate operational expenses. Coronavirus business
interruption loan scheme (CBILS) was introduced which provided loans to SMEs with condition
that organization must be UK based, and they must have borrowing proposal which would have
been accepted if there was no pandemic. The scheme initially targeted relatively healthy small
firms undergoing cash flow difficulties. There was one more loan scheme named Bounce back
loan scheme (BBLS) that ensured easy access to loan through simple application process. The
eligibility criteria was same as that of CBILS. The organization needs to give self declaration
that they have been adversely effected by this pandemic (Park, Lee and Kim, 2020). This scheme
covered first year interest repayments, no repayment of loan was required in first year and rate of
interest on loan was also low. Business could not use both the schemes i.e. CBILS and BBLS
simultaneously to finance their business or to mitigate cash flow pressure.
Government announced coronavirus package for innovative businesses future fund for
organization to focus on research and development programs to come out with innovative ideas
and unique products. Restart grants was announced by Government for non-essential retails,
hospitality and leisure businesses. All these scheme had eligibility criteria which needs to be met
before applying for these schemes. The most notable criteria was profitability prior to pandemic
and negative impact of pandemic on business. Many employment support measures were taken
by government (Role of UK Government in supporting SMEs during covid-19, 2022).
Coronavirus job retention scheme(CJRS) was introduced by Government. The aim was to
lighten the burden of paying wages in organization to support them financially. The scheme
applied to all employees who were asked to stop working but were kept on pay roll basis. This
scheme was launched to ensure quicker and smooth recovery by preventing lay-offs and
supporting wages.

Additional grant was provided to cover the cost of Employer National Insurance and
pension contribution. Self employment income support scheme was launched which provided a
taxable grant to self-employed individuals. This scheme was only for those who earn majority of
income from self- employment. Statutory Sick pay costs were met by Government in full for up
to 14 days per employees (Collier and Mayer, 2020). Government also provided taxation support
measures to give some relief to businesses on tax paid. All businesses with outstanding tax
liability were eligible to receive support for their tax affairs through HMRC's time to pay
services. The Government had deferred value added tax (VAT) payments for three months.
However, quarterly returns were to be filed and HMRC paid VAT refunds and reclaims on
normal basis to provide cash flow for business. It also reduced rate of VAT for hospitality
business.
Self assessment payments were deferred and there were no penalties or interest for late
payment of tax (Calabrese, Cowling and Liu, 2022). Government gave relief to retails,
hospitality and leisure business not to pay business rates. Government announced temporary
changes in insolvency to provide relaxation to companies. The changes were suspension on
application of wrongful trading and new restructuring regime known as business rescue
moratorium. This prevented creditors from taking enforcement actions and permitted business to
continue supply of goods and services to continue trading. All these government schemes had
helped SMEs to stabilize their business during the pandemic and has contributed towards the
positive investment intention and employees well- being resulting into potential growth and
increase in productivity in long run.
This essay brings out that SMEs have experienced unforeseeable hardship during the
pandemic. SMEs were not ready for this but have build certain plans and strategies to interact
with this period. There was a detailed discussion about the challenges faced by organization and
their impact on internal environment. Government played a vital role in supporting organization
to interact with the pandemic period and to mitigate the losses that were incurred during this
period. As majority of income of UK depends on these organizations it is necessary to promote
them to stabilize the economy of country.

REFERENCES
Books and Journals
Adam, N. A. and Alarifi, G., 2021. Innovation practices for survival of small and medium
enterprises (SMEs) in the COVID-19 times: the role of external support. Journal of
innovation and entrepreneurship. 10(1). pp.1-22.
Akpan and et.al., 2022. Small business awareness and adoption of state-of-the-art technologies in
emerging and developing markets, and lessons from the COVID-19 pandemic. Journal of
Small Business & Entrepreneurship. 34(2). pp.123-140.
Calabrese, R., Cowling, M. and Liu, W., 2022. Understanding the dynamics of UK Covid‐19
SME financing. British Journal of Management. 33(2). pp.657-677.
Collier, P. and Mayer, C., 2020. Reforming the UK financial system to promote regional
development in post-COVID Britain. Oxford Review of Economic Policy.
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Eggers, F., 2020. Masters of disasters? Challenges and opportunities for SMEs in times of crisis.
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Klein, V. B. and Todesco, J. L., 2021. COVID‐19 crisis and SMEs responses: The role of digital
transformation. Knowledge and Process Management. 28(2). pp.117-133.
Mustafa, H. K. and Yaakub, S., 2018. Innovation and technology adoption challenges: impact on
SMEs’ company performance. International Journal of Accounting. 3(15). pp.57-65.
Park, S., Lee, I. H. and Kim, J. E., 2020. Government support and small-and medium-sized
enterprise (SME) performance: The moderating effects of diagnostic and support
services. Asian Business & Management. 19(2). pp.213-238.
Syntia, R. and Mulya, M. B., 2018. The Effects of Internal and External Environment on SMEs
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Wardati, N. K. and Mahendrawathi, E. R., 2019. The impact of social media usage on the sales
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Online
Role of UK Government in supporting SMEs during covid-19, 2022. [Online]. Available
through: <https://www.bdo.co.uk/en-gb/insights/tax/corporate-tax/covid-19-government-
support-for-individuals-and-businesses>
Strategies used to interact with external factors, 2022. [Online]. Available through:
<https://www.gartner.com/smarterwithgartner/8-macro-factors-that-will-shape-the-
2020s>