Introduction Of Small And Medium-Sized Enterprises (Smes) Are The Kind Of Businesses That Maintain Their Revenue, Assets, Liabilities, And Employees Up To A Certain Limit Assignment Sample
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Small and medium-sized enterprises (SMEs) are the kind of businesses that maintain their revenue, assets, liabilities, and employees up to a certain limit. Every country has its ways to describe what constitutes an SME, and also has different guidelines to define what a SMEs business is across sectors. SMEs play a very important role in the economic growth of the country, provides employment opportunities, and bring innovation to the country (Moeuf et. al. 2018). Governments also help in encouraging SMEs by providing incentives, favorable tax concessions, and better loan facilities. These SMEs can be part of any industry, they came up with new and innovative ideas that require fewer workforce, smaller capital, etc (Rizos et. al. 2016).
This report discusses the different factors which are required to be taken into consideration for SMEs. The report will provide information related to development, growth, sources of investments, and several other factors. The report is divided into two parts in which the first part will discuss knowledge related to growth opportunities and business plans for SMEs, by evaluating options and pathways for growth and risk. The second part involves the exit strategy for SMEs, it will also include a coherent and detailed business plan that will show how to achieve business objectives. For explaining above mentioned points this report will be considering CafePOD as the case company, a SMEs operating in London, UK.
PART 1:- The key considerations SMEs should consider when evaluating growth opportunities.
Growth opportunities for small and medium enterprise
SMEs are playing an important role in adding value to the economy of the country, by providing various benefits. By providing Employment opportunities, bringing innovation to the industry, providing qualitative products, helping in increasing the standard of living of people, and by leading the country towards growth and development (Tambunan, 2019). SMEs are building a different culture among the countries.
On the same path, a UK-based SME caféPOD is a coffee company, found in 2010 in London by three friends with a vision of changing coffee. The company is still fully focused on working towards its goals of producing high-quality, great-tasting, and easy-to-prepare coffee at home for its customers. CaféPOD is offering products like Nespresso-compatible pods, ground coffee, and whole bean (CaféPod, 2022).
Companies to grow in the market need to look out for opportunities available as it is known that there is very high competition in this industry. There are different big companies like Starbucks, Costa coffee, and Tim Hortons which deal in providing the best coffee to their customers (Kim and Park, 2021). For cafépod to reach the level of these companies there are different methods and models which the company can use for identifying the core strengths and opportunities for growth perspective. Different methods suggested for the company to be used in analyzing its core competencies and strength are the pestel model, Product line expansion, porter's five force model, and Ansoff matrix. This model will help the company to know its strength, factors affecting the growth of the company, various opportunities available for the company, and different competitive advantages. Following is a detailed description of the models and their benefits for the company:
PESTEL analysis is a strategic method commonly used for evaluating the business environment in which the company operates. This analysis involves six factors that affect the growth of a company, factors are political, economic, legal, social, technological, environmental, and legal. This framework is applied by managers in the company to analyze their growth strategies and for risk planning (Pan et. al. 2019). It also helps in developing innovative products which further helps the company to reach every customer base of the market by understanding the needs and demands of customers. Key factors of PESTEL analysis are as follows:
Political Factors – political factors are factors affected by the government's policies and actions, but the steady political environment of the UK is a supportive factor for the company. It supports the company in leading towards growth factors (Matovic, 2020). The government of the UK is providing all SMEs with various incentives and tax relief that supports the company to work hard. The government of the UK is offering various benefits for SMEs, which provide companies to grab opportunities and plan on growth strategies.
Economical factors – the developing economy of the UK supports all SMEs which provides a great opportunity for the company to grow. The growth of SMEs like cafépod help in economy of the country to develop, this small enterprise helps in generating employment and bringing innovation to the market by launching new products (Saha, 2021). All these factors provide growth opportunities for the company.
Social factors – social factors examine the ethical, demographical, and cultural aspects which further affect the demand of SMEs (Naradda Gamage et. al. 2020). The company should focus on things that attract the new generation's customers with help of that demand for the product will increase in the market. the company should also focus latest trends of society like lifestyle, growing urban population, working culture, etc. SMEs should also focus on social issues that are important for the growth of the company like buying habits of customers, health awareness, education, age distribution, lifestyles, and safety.
Technological factors – these are the factors that affect how an SME brings its products or service into the market. Technological factors help a small business evaluate the current status of the technology company is using. It includes aspects like research and development activity, rate of technological change in the company, and technological lifecycle (Nguyen et. al. 2016). These changes can also be done in the products which the company is offering in the market, the products the company is selling should be unique and innovative.
Environmental factors – These factors include the ecological and environmental factors that have big impacts on SMEs like geographical location, weather, climatic change, and waste management. Nowadays awareness about climate has changed a lot, people are more aware and secure about healthy environmental conditions. To overcome these factors company should focus on using organic and sustainable products which also protect the environment and will provide a healthy product to its customers.
Legal factors – these factors involve all the rules and regulation that positively or negatively impacts the SMEs (Rameshbhai and Solanki, 2021). These factors affect the profitability and business operations of the company. If a company is looking for establishing a new branch in another country or state, it needs to follow all the legal aspects and regulations of that state or country. SMEs should look out for every aspect of labor laws should be effectively implemented, including employee engagement programs. And should focus on encouraging employees and workers to focus on following all the legal aspects.
Another growth model that helps the company is product line expansion
Product line expansion
This method will help SMEs increase their market reach and target customers with very fewer efforts in preparation and development. For a coffee company, this method provides great benefits to building their overall strategy for development (Acemoglu et. al. 2018). It is a marketing strategy that is used in establishing a good position for the company for introducing new products into the market. These new products should be innovative, environment friendly, and should be able to gain customers' attention. For caféPOD product extension is will help the SME to acquire a large market share which will further help in the growth of the company. There are two ways in which a company can expand its product line:
- Horizontal – horizontal product line extensions are that kind of extension method that keeps the quality and price of the new product similar to those which are already in the market. But these new products have a different specification which makes them different from the product which already exists in the market (D’Cruz, 2018). These products may have different flavors, textures, packaging, purity, etc. which make these products unique and different from existing product and their competitors. For SMEs like caféPOD, it's a very beneficial method to launch its products in markets as the company has all the different flavors of coffee which its competitors do not have.
- Vertical – vertical product line extension refers to a change in the price of products, by increasing or decreasing the price or quality of products. These methods help the company to make its product more luxurious and available to potential customers only (Chung and Lee, 2017). These kinds of products are created for targeted customers only who can afford the expensive price-quality. An example of vertical expansion is products packed more delicately which attracts customers, and products that include expensive and rich ingredients which are more organic. For SMEs like cafépod vertical expansion can help to attract rich customers by providing them with quality products.
The SMEs can also consider porter's five forces model to analyze the key competition of a company in development and growth. The model works as follows:
Porter’s five forces model
- Threats of new entrants – cafe pod coffee limited have a moderate risk of new entrants and also has very limited barriers to entry in the market. SMEs require very limited investments to start a business as they are small enterprises, so there are very low barriers to new entrants in the market (Bruijl and Gerard, 2018). Here company by producing different and innovative products can enjoy the power to set prices and large market share. Based on their product quality cafe pod company can have access to new markets.
- The threat of substitutes – there is a high risk for the cafepod company as there are so many different substitute companies that are selling similar products in the market. In this coffee industry availability of substitutes is very easy and which company gains a more competitive advantage by gaining customers' satisfaction ( This threat will further help in maintaining the trust and loyalty of customers towards the brand.
- Bargaining power of buyers – the bargaining power of buyers is very low as all the buyers are individuals who purchase a small number of products (Öneren al. 2017). Buyers in the case of the cafepod company do not hold any influence as the consumers are finding the best quality at great prices in the market.
- Bargaining power of suppliers – bargaining power of suppliers is moderate as the company depends on the best quality raw material which produces the best quality coffee. The bargaining power of suppliers is affected by the number of suppliers of goods, how different and unique goods they are providing and how much will it cost the company to switch to new suppliers. As in the case of cafepod, they are using their own produced raw material which leads them to quality products.
- Competitive rivalry – there are so many different companies in the market selling coffee leading brands like Starbucks, costa coffee, etc have to cover a large market. There are various SMEs also who are producing coffee and providing quality products in the market, therefore cafepod has so many competitors (Abosede al. 2016). To overcome the competitive rivalry company has worked on various strategic planning to spread its products to the global market and by focusing on quality and prices company can gain loyalty from its customers.
Ansoff’s growth matrix
This matrix has four strategies that further lead the company to higher platforms. Ansoff's growth matrix is a very effective model to find the best growth strategy for the company (Loredana, 2016). For copepod, this model will help in planning growth strategies. The four strategies of Ansoff's model are as follows:
in this, the company should focus on increasing sales in the existing market. The main focus of this strategy is to increase the sale of products by attracting customers and offering them quality products. This will help the company to expand its market share and also in the growth and development of the company.
- Market development – market development refers to market expansion for the company, here the company should work on strategies that will help to enter into a new market. Here new market refers to the market of different states or countries, the company should focus on global expansion.
- Product development – this growth strategy focuses on producing new products and services in the market, as it is discussed above in the product expansion strategy (Kurniawan al. 2020). The company should focus on launching new products which will help in attracting customers from every class.
- Diversification – diversification refers to entering a new market by launching a new product, it is a very risky growth strategy for SMEs like cafepod. This growth strategy is very risky but very highly rewarding, it offers the opportunity of achieving new revenue by reducing the company's dependence on a single product. But in the case of cafepod, it is not a very appropriate option right now, a company should focus on its existing products and market.
The various methods through which organizations access funding.
SMEs are mostly owned by small teams of entrepreneurs or an individual, who are driving the force in job creation and economic development. These SMEs provide essential goods and services for small and middle-class communities (Berisha and Pula 2015). Financing small and medium size enterprises is a very challenging task for all financial institutions for various reasons. But the main reason behind these challenges is lack of information makes it difficult and expensive to assess and serve these sectors.
Numerous factors affect the funding of SMEs. Developed countries take a capitalistic perspective with very less government incentives for SME financing (Muriithi, 2017). On the other hand, developing countries use government guarantees and other various measures to decrease risks and costs.
In this changing and emerging economy, most SMEs are funded from various sources outside the formal financial sectors, which are quite expensive for enterprises. For the expansion of business, the company needs more funds. There are different funding methods from which the case company can choose the best method of sourcing the funds. The funding methods are as follows:
- Bank loans – this is the easiest method of funding. The company can choose loan options from banks with an agreement to pay interest at a fixed rate along with the capital amount on the pre-agreed date in the future (Bouazza al. 2015). The main drawback of this case is that sometimes interest rates are quite high than expected which makes it expensive for SMEs.
- Venture capitalists – In this method of funds are sourced from venture capitalists, in return for interest on their investments. This is a very common method of funding, various investors in the market always look for opportunities to invest in companies and earn profits in return for their investments. The venture capitalist invests only when the project is worthy of investment and will provide expected returns.
- Crowdfunding – rather than depending on a bank loan or venture capitalists, the company can raise funds from the public. Nowadays crowdfunding is a great method of funding, not even small enterprises but also for charitable trusts. This company can raise funds from the public by offering them various benefits like social development, environmental protection, etc.
- Government funding – government always take initiative to fund these kinds of SMEs, because the development of SMEs helps in the economic development of the country. Government launches a lot of schemes that provide funds and growth opportunities for small enterprises. Government offers resources like property, loans, tax benefits, etc (Karadag, 2015). But this method of funding has a big drawback which is getting funds from the government is a very tough task, it required lots of legal formalities and eligibility to be approved for government funding.
Recommendation on selecting the best source of funding for the case company
Selecting the appropriate source of funding for an SME like cafepod coffee is a very important task. As it is mentioned in the above report there are different methods of funding and the company has to choose the best option from it for its future development. In the case of cafépod, it is recommended that the company should consider taking a loan from the bank or can opt for investment from venture capitalists (Radas et. al. 2015). Both options are suitable for the cafepod coffee company, as this company is a growing company and will also get benefits that SMEs company gets from banks. And also its main aim is to cover a large market area and also to attract rich people, which will further help the company to get investment from venture capitalists because these are people from high-income groups. It will not that difficult for the company to pay back the loans and interests as the company has a good market reach and is on the path of covering the large market sector.
Developing a business plan
A business plan is a very important part of any company, without a business plan a company will never be successful. But it is seen that many small enterprises do not consider preparing a business plan which is not good for their company (Abosede et. al. 2016). A business plan should not be time-consuming, it should easily understandable and clean plan that should directly focus on the goals of the company. For cafepod the recommended business plan is as follows:
Executive summary – this section includes the summary of business plans for the company. It includes market segmentation, marketing strategies, objectives and aims of the company, pricing strategies, sales strategies, etc.
Objectives – The main objective of the company is to focus on growth and development by generating high profits. The company should focus on providing high-quality products to its customers at reasonable prices which will attract the customer towards buying the products of the company. For the growth and development of the cafepod, the company needs to focus on its aims to increase its customer base and cover a large market share. The further objectives of the company are:
- To increase its market share and customer base by fulfilling the demand of its customers in the upcoming future.
- To develop high-quality products which are 100% organic, taste great, and are easy to prepare at home.
- To increase sales of its existing products by 20% in upcoming years.
About Company – Cafepod coffee company is a UK-based SME, found in 2010 in London by three friends with a vision of changing coffee (Craft, 2022). The company is still fully focused on working towards its goals of producing high-quality, great-tasting, and easy-to-prepare coffee at home for its customers.
Products – the company is offering various coffee products in various regions of the UK. CaféPOD is offering products like Nespresso-compatible pods, ground coffee, and whole bean. The company is also offering coffees in different flavors with great taste.
Market segmentation – it is an important part of the business plan for every company, in the case of cafepod coffee is operating in a highly competitive market. Here two market segmentation strategies are used by the company to achieve its goals. There are different methods for market segmentation like demographic, geographic, and psychological segmentation, company can use the best option from it.
Sales strategy – focusing on sales of the company is the most important part of a business plan, company can use a market penetration pricing strategy. The company can also offer various discounts, promotional offers, and free samples to their customer to attract them.
Profits and loss – focusing on profits and losses is an important task for any company. Cafepod is looking forward to earning revenue more than in previous years and also considering controlling abnormal losses that are affecting the company's profit.
PART 2:- The various ways a small business owner can exit the business and the implications of each option
Developing an exit plan for SMEs
The exit strategy outline the company's owner's plans on selling their investment in the market. These strategies can help the company owner in selling or closing the business. The manager must create an exit plan in advance before starting their business operations. All business needs exit strategies in the future to grow their business (Ridwan Maksum et. al. 2020). It means transferring ownership of the company cafePOD needs strong market exit strategies in their small start-up business. It gives the business a way to reduce its stake or make substantial profits.
Effective strategies will help SMEs like cafePOD to limit their losses. The owner should consider the time and financial situation of the company. Planning of exit strategy will help the company to make better decisions and support the company to exit eventually.
There are different exit strategies that the company can consider which are as follows:
- Liquidation: in this business can sell their assets and shares to other companies. It happens when the business becomes insolvent and cannot able to pay its obligations and dues. Small business can sell their goods at a lower price than the actual cost. It is the simplest exit strategy that the cafePOD can adopt to exit their bunnies.
- Merger: a merger is the combination of two or more businesses into a single existing company. This exit strategy can help small enterprises in increasing their market value. The merger is mainly of 5 types depending on the size and goals of the company which include vertical, conglomerate, horizontal, market extension, and product extension (Y?lmaz, and Tanyeri, 2016). By applying this strategy the company can gain market share, expand the business, reduce costs, increase revenue and increase sales.
- Acquisition: in this strategy, the company's owner can sell their business to other existing companies. This exit strategy will help the company to purchase most of the shares of another business share to gain control. If the company buys more than fifty percent of the share of cafePOD share then it gains control of that company. There are mainly 2 types of acquisition, the first one is friendly in which the company agrees to be acquired by a large existing company. The second one is hostile in this the company does not agree to be acquired.
- Initial public offering: Unlike a private firm, public businesses give up a part of their possession to stockholders from the general public which tends to be huge. They generally go through a high-growth period by offering the business in public. IPO can be difficult for a small business like cafePOD as it costs a huge amount of money and time. This exit strategy also has some pros and cons. IPO can be the best option for the company to gain a profit advantage. It is a long procedure and quite expensive to adopt for small businesses.
- Selling the business to manger or employees: by applying this exit strategy the small business can improve its operation by establishing the business with an acquainted (DeTienne et. al. 2015). Offering a takeover over the long term can create more faithfulness among employees. They can become very motivated to work harder to ensure the company is successful.
- Selling the business to another company: It can be profitable to position a small business like cafePOD as a wanted acquisition. The company can purchase other businesses for various purposes like the use of newly acquired companies; removing competition and adding balancing business activities that can generate synergies. This will help the company to gain the advantage of exiting its business operations. This will also benefit the company to increase its sales and revenue.
Recommendation for exiting the business
The company should focus on selecting the most suitable existing plan so that the business is not affected. The case company has a very good market position and brand value, which will make it easy for the owner of the company to sell its business, it is recommended that the company should opt for a merger with another company as the best option. This strategy will not affect the company's reputation and position in the market.
In the above report it is concluded that the case company, Cafépod coffee company is an SME that covers a very small market sector. The report discusses the various growth strategy the company can use for evaluating growth opportunities by applying various models and methods like PESTEL analysis, product expansion, porter's five force model, and Ansoff matrix. The report further discusses the various methods through which organizations access funding and how to develop a business plan which helps in achieving the aims and objectives of the company. At last, the report includes the various ways a small business owner can exit the business and the recommendation on which growth strategy is best for the case company and which exit plan is suitable for the company.
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