Case study: chapter 2Return to full list of case studies.
The following case study discusses the background of a number of individuals that have taken the step towards starting up their own enterprises and requires students to consider the contribution each of these very different businesses makes towards economic development.
Francis is a retired mechanic who has been an active volunteer in his local community over the years. Being so heavily involved in the community he is acutely aware of the severe employment problems in his local area that have left many young men from the ages of 16 to 25 looking for work in an increasingly competitive job market. The problem has been compounded by the fact that many of the youths that Frank talks to on a daily basis have neither the relevant qualifications nor the practical experience that is going to make them desirable to local employers. As a result many face a bleak outlook with few prospects. In order to combat this Frank, in cooperation with the local polytechnic, opens a workshop called First Stop that offers training, experience and eventually relevant qualifications to participants. First Stop is a social enterprise that takes individuals on as trainees and provides car services to the public at a discount due to that fact that jobs take an extra day or two to complete as the repair work is also a training exercise for trainees. All work is inspected by a qualified mechanic and all parts are locally sourced from a company called Micro Parts Ltd.
Having been with Micro Parts Ltd for all of his working life, Mike jumped at the chance to buy out the owners who had decided to phase out the car component manufacturing aspect of their business over the next few years. Despite profits being in decline over the past few years, Mike believed that with a minor recalibration of the machines he could open up entirely new markets to the business allowing them to expand in ways that the previous management had never thought possible. Although some of the processes were automated, the recalibration and anticipated increased workload will require the business to undertake a recruitment drive. The new market into which Micro Parts Ltd want to expand is the manufacturing of components necessary for the designing of computer software programmes and have been in preliminary talks with a company called Creative Solutions with the view providing them with their needs.
Darren had worked for a large IT firm for the past 10 years and having been offered a generous redundancy package had decided to start up his own business called Creative Solutions designing bespoke software solutions for small- to medium- sized businesses. It is a challenge that he has always enjoyed although because each programme was to be aimed at meeting the specific needs of each individual customer the products could not be mass marketed and hence were not offered by his previous larger employer. Rather than simply use the more standard and tested methods in the marketplace, Darren has always been keen to foster an atmosphere in his enterprise that encourages thinking outside the box and constantly looking for new and improved ways of doing business and meeting his clients' needs. In order to achieve this the company takes on a number of placement students each year and encourages them to contribute their own ideas and theories in order to facilitate fresh ways of thinking rather than relying solely on the more senior members of staff.
Mark and Paula both work full-time in recruitment and have a shared passion for creating arts and crafts which they sold through their company MP Arts. Having initially sold their products in the local market, the couple were approached by the head buyer of a chain of large department stores in the United States after a chance meeting when he discovered the couple's products while on holiday. What started as a small order to test if the market existed in the US turned into a runaway success with the chain placing repeat orders for all their department stores on the East Coast. The couple, although delighted with the popularity of their goods abroad, informed the department stores that they were unable to meet the order quantity as it was in excess of their operating capacity and so negotiated to deliver smaller batches at increasingly regular intervals. Despite being aware of government financial and logistical support for firms venturing into the export market, the couple have decided to keep their enterprise at near its current level.
- Consider the contribution to economic development that each of the above enterprises makes and briefly discuss the different motivations of each employer and their consequences for the growth of their enterprise.
Suggested SolutionsAll the above mentioned firms contribute to economic development in a number of ways. Perhaps the common theme that they all share in terms of economic development is the generation of employment and poverty alleviation. Small and medium sized businesses have traditionally played a significant role in the economic growth of developed and developing nations alike. Researchers have continuously emphasized the importance of the promotion of SMEs in order to provide primary and secondary sources of income and alleviate high levels of poverty particularly in developing regions (Tambunan, 2008; Cunningham, 2010). The importance of SMEs has been echoed outside the realms of academia where analysts and business representative bodies continue to advocate to policy-makers the development of the private sector using SMEs. MP Arts is a typical case in point which can help in the effort to address both social and economic deprivation.
There are a number of reasons as to why the development of SMEs is seen as being crucial to the generation of employment opportunities. Jyothi and Kamalanabhan (2010) highlighted how traditionally SMEs provide employment for, "more people per unit of investment as compared to large firms," due to the fact that they utilize more labour-intensive technologies such as that of Micro Parts Ltd. As highlighted by Islam et al (2011) for many developing nations in particular, SMEs account for the majority of employment in unskilled, labour-intensive sectors. In addition to providing employment, SMEs also provide an environment where the unskilled workforce can develop their skills to the advancement of society and the economy at large, as illustrated by the First Stop example (Hassan and Olaniran, 2011).
In addition to the alleviation of poverty and provision of employment, small- and medium-sized enterprises are also globally credited as being a key driving force for innovation in an economy (Potter and Proto, 2007). Studies have shown that smaller, more entrepreneurially-orientated enterprises have a positive impact on both innovation and growth (Harms et al, 2010). Innovation in turn has been identified as being a key driver both in social and economic growth (Clark, 2010) and therefore a vital consideration for all policy makers (Romero-Martinez et al, 2010). Indeed entrepreneurship in general has been at the forefront of developing new products and services and, as a result, has "acted as a vital tool for economic development and prosperity," (Ahmad, 2010). With this in mind it is clear to see how a company like Creative Solutions, with a focus on challenging the conventional ways of doing business, can be a positive source of innovation in an economy.
It is widely agreed that SMEs have a potentially crucial role to play in contributing to the GDP of nations in part due to their huge growth potential (Upadhyay and Dan, 2009). A number of studies exist that conclude that the formation and growth of SMEs in an economy will have a positive impact on their GDP (Beck et al, 2005; Mocnik, 2010). There are a number of reasons as to why this is. First of all in many developing countries, SMEs play a key role in terms of making a significant contribution to the GDP through export development (Tambunan, 2009; Ogunsiji and Kayode, 2010). In addition to the development and growth of import and export, SMEs also have the potential to contribute to a nation's GDP by providing governments with additional revenue streams by expanding a country's tax base (Agyapong, 2010).
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