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The New Small and Mid-Sized Business: Problems and Recommendations
Posted By Ceci On 25 June, 2010 @ 10:27 pm In Entrepreneurship,Edition 33 | 2 Comments
By: Rogerio Domenge and Imanol Belausteguigoitia
It is widely known that in Mexico and elsewhere in Latin America, small and mid-sized businesses play a significant role in economic activity (Kantis & Ishida, 2002) and social dynamics. According to the National Institute of Statistics and Geography (INEGI, 2007), in Mexico 95.5 percent of manufacturing, retailing and service organizations are micro-sized businesses, while 3.5 and 0.8 percent are small and mid-sized companies, respectively. These employ 30.8 percent of all the workers in the country. Just 0.2 percent of the companies are large firms. At the same time, it is estimated that nine out of every ten organizations in Mexico are family owned, and only one in three of them is passed down to the next generation (Belausteguigoitia, 2004).
Given that, in theory, there are reasons that family-owned small and mid-sized businesses do not survive (Maza Pereda, 1997)–which range from problems in the business climate or external problems (market, financing, taxes); structural or internal issues (poor administration and planning, inefficient resource management and poor control systems); to family problems–it is an essential to determine how entrepreneurs themselves perceive the problems they face and their relative importance. It is also useful to hear what proposals they suggest for resolving these difficulties.
In order to identify the main practical problems that the new small and mid-sized businesses faces in Mexico, we took a sample of 126 new companies, meaning those with an average life of 10 years, 36 percent of which were family-owned (Delgado, et.al, 2006; Domenge, 2008). We found that, on average, three family members work in each company, out of an average total of 21 employees. The breakdown of family-owned businesses incorporated in this study by economic activity was 29 percent manufacturing, 31 percent retailing and 40 percent services.
To identify the difficulties that new family-owned businesses face, we asked an executive in each company to rate the areas of greatest internal, external or family conflict in the company. The problem areas are shown, by order of perceived importance, in table 1.
Table 1. Internal problems identified in new family-owned small and mid-sized businesses
The internal problems identified coincide with the scheme laid out by Maza Pereda (1997), which can be identified, effectively, as poor administration and planning, inefficient resource management and poor control systems.
Apart from the abovementioned internal problems, we find issues with family order and succession, commented on by Belausteguigoitia (2004): lack of family members’ commitment to the company, confusion of family and business matters, lack of personal development and career plans for family members, lack of professionalism and planning.
With respect to problems in the external business climate, Table 2 shows the main problems perceived by entrepreneurs in the new family-owned small and mid-sized businesses
Table 2. External Problems Identified in New Family-Owned Small and Mid-sized Businesses
The main recommendations offered by executives of the new family-owned small and mid-sized businesses are shown below. These can be divided into internal, external and family, according to the scheme introduced above.
Recommendations on internal management of the small and mid-sized business
Recommendations on factors in the business climate for small and mid-sized businesses
Recommendations associated with the family dimensions of the company
The new family-owned small and mid-sized business in Mexico faces a tremendous number of internal, external and family challenges. The internal and family problems can be mitigated through appropriate training, both of the company’s directors and its employees in general. The external challenges, on the other hand, can be reduced if entrepreneurs and the government work together on defining and establishing laws and policies aimed at systematically overcoming these obstacles.?
References.
Belausteguigoitia Rius, Imanol. (2004). Empresas Familiares: Su dinámica, equilibrio y consolidación. México: McGraw-Hill.
Delgado Arredondo, Laura Paulina; Ramírez Figueroa, Cynthia Guadalupe y Anaya Gutiérrez, Ingrid Patricia. (2006). Factores financieros de éxito y fracaso involucrados en la creación de empresas. Tesis profesional. México: ITAM.
Domenge, Rogerio. (2008). Éxito y fracaso en México: PyMEs. Contaduría Pública. 37:434. México: Instituto Mexicano de Contadores Públicos.
INEGI. (2007). Micro, Pequeña, Mediana y Gran Empresa. Estratificación de los Establecimientos. Censos Económicos 2004. México: INEGI.
Kantis, Hugo e Ishida, Masahiko. (2002). Empresarialidad: este de Asia y América Latina. Empresarialidad en economías emergentes. Banco Interamericano de Desarrollo, BID. División de Micro, Pequeña y Mediana Empresa.
Maza Pereda, Antonio. (1997). Reflexión sobre las causas de mortandad de la micro y pequeña empresa. Compilado por Leonel Corona Treviño. (1997). Pequeña y Mediana Empresa: del diagnóstico a las políticas. México: UNAM.
Los autores son profesores-investigadores del Departamento académico de administración y contabilidad del ITAM. Belausteguigoitia es, además, director del Centro para el desarrollo de la empresa familiar del ITAM.
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