Hong Kong Manufacturing SMEs: Preparing for the Future

105Strategies to Deal with InternalManagement ChallengesThe vast majority of SMEs that are startedaround the world fail. The main reasons for thesefailures are not challenges posed by the externalenvironment, but rather shortcomings in internalstrategies, management, operations, and financialcontrols. In many cases, these shortcomings aredue to limited resources, stretched managementpersonnel, and incomplete strategies or businessplans. Some of the main internal challenges SMEsface:• Selecting businesses in which to compete• Formulating compelling strategies or businessplans• Understanding customers• Understanding competitors• Developing clear competitive advantages• Financing operations and financial management• Administering and Managing the firm• Keeping up to date on market, technological,and managerial developments• Marketing and selling to existing and potentialcustomers• Reducing dependence on individual customersand suppliers• Additional challengesSelecting BusinessesSMEs sometimes get into new businesses becauseof an apparent opportunity without thinkingthrough exactly how they will succeed in thebusiness, or in fact whether it is possible to succeedin the business. The following are steps that can betaken to select businesses in which to compete:• Link to the knowledge and skill set of theSME owner and managersFor SMEs, the advice is to “do what you know.”Since the firm often depends on the knowledgeand skill set of a small number of people, it isimportant to understand what this knowledgeand skill set is and in what businesses they maybe leveraged. Sometimes the knowledge couldbe very narrow and appropriate for only a singleindustry or even a single segment in a singleindustry. In other cases, the knowledge and skillsmay be more broadly applied.• Understand the ease of entryEasy entry in terms of minimal capital costs,licence restrictions, and special qualificationsor approvals may mean that it is easy for theSME to enter, but it also means that otherSMEs can enter as well. The best situation is anindustry that is difficult to enter in general, butin which the SME has particular knowledge,skills, resources, or relationships that make iteasier for the particular firm to enter. The key isunderstanding the potential asymmetries thatmight give the firm an advantage in the newbusiness.• Understand where the firm can be uniqueA good business to enter will be one in whichthere is something distinctive about the firmthat gives it a unique advantage in terms ofcreating value for customers while beating thecompetition. By definition, it is impossible to gainan advantage versus competitors by copying theirstrategies or by having strategies and resourcesthat are easily copied, bypassed, or substituted.Thus firms need to understand or develop uniqueattributes that are hard to copy, bypass, orsubstitute for.