Characteristics of the SMEs and their life cycles

Stable independent survivors. A higher percentage of SMEs in this cluster than in the others operated in the service sector, representing one fifth of the SMEs (21%). A higher proportion of SMEs here than in the other clusters operated in business services, printing industry, food industry, and mechanical woodworking industry.

More SMEs in this cluster than in the others had stayed near to their original business:

over the years, only 14% of these SMEs had changed their original business significantly.

The proportion of SMEs with one establishment was higher than in the other clusters, three quarters of them having only one. The firm’s growth in turnover had been moderate, and almost half had not grown or their turnover had even fallen during the last decade. The development of turnover had typically been stable (77%), and in 16% of the SMEs it could be characterized as fluctuating. In this cluster, problems related to the firm’s management, or difficulties related to a big customer, were more commonly causes of a fall in turnover.

These SMEs were also older than those in the other clusters. A higher proportion of the founders of these firms than of those in the other clusters were from Northern Savo. On the other hand, almost two thirds of the SMEs in which none of the founders was still involved in the business (64%) were in this cluster. The most typical ownership structure of the firm was 2-5 main owners with more or less the same share of ownership. In this cluster, however, the proportion of SMEs led by an entrepreneurial team was the lowest. More than half (56%) were family firms, a clearly higher proportion than in the other clusters.

There were fewer changes in the principles and practices of management and the ways of doing business than in SMEs in the other clusters. Typically, growth was not a primary goal for these firms. In addition, these firms’ goals and objectives guided decision making in the firms, but they were not specified explicitly. These firms were further in their life cycle than those in the other clusters: 60% were in the stage of expansion (stage 3/5).

The typical causes of threat were economic troubles suffered by a big client, or bankruptcy and credit losses. Another cause of threat especially characteristic of these firms was managerial mistakes and wrong decisions. Cost minimizing was more common as a way of adaptation. Other ways of adaptation typical of these firms we re greater personal inputs into the firm’s development by the entrepreneur, or change of management. The SMEs in this cluster could be divided into three almost equal groups in terms of the recent changes in demand in the markets. For some of the firms, demand had grown slightly, for others it had stayed stable, and for still others demand had fallen.

Entrepreneurs in this cluster thought that their firms had succeeded as well as their main competitors. However, twice as many as in the other clusters thought that their firms had not succeeded as well as their main competitors. Also, a higher proportion than in the other clusters were not satisfied with their firm’s success. More than one quarter of the entrepreneurs (26%) in this cluster were not satisfied with the firm’s business success. The main characteristics of stable independent survivors are presented in Figure 6.4.

• a higher percentage of SMEs than in the other clusters operated in the industry sectors dependent on the demand of local markets

• no significant changes in turnover

• problems in management and difficulties related to a big customer were more commonly causes of a fall in turnover and causes of threat

• firms were older than in the other clusters

• a small proportion of firms was led by an entrepreneurial team

• a high proportion of family firms

• few changes in principles and practices of management and the ways of doing business

• the most unspecified goals and objectives

• non-growth-seeking firms

• business ideas were at a further stage of development

• minimizing all possible costs, cutting down the firm’s scale of operation, greater personal input by the entrepreneur into the firm development, or change of management were more commonly used ways of adaptation

• no significant changes in demand

• business success was thought to be as good as that of their main competitors Figure 6.4 Characteristics of stable independent survivors and their life cycles

Innovators with continuous growth. A higher proportion of SMEs in this cluster than in the other clusters were producers of electro-technical products and optical devices, furniture, machines and devices, or operated in tourism. Analysing the significant changes in turnover (at least 20% annual change), the significant changes had been growth periods only in two thirds of the SMEs (66%). Investments in marketing, cooperation arrangements, and investments in production and the development of production were more commonly growth factors in this cluster than in the other clusters.

During the previous decade, turnover had grown, and almost half of the SMEs had experienced rapid growth. However, compared with networkers with leapwise growth, these firms’ growth had been slightly slower. For almost all of these SMEs (94

%), the development of turnover had been stable.

On average, the SMEs were younger than those in the other clusters. SMEs led by an entrepreneurial team were more common in this cluster (87%). Growth was a primary goal for all the SMEs, and they were typically in the stage of growth (stage

2/5), indicating that they were in an earlier life cycle stage than SMEs in the other clusters.

Most of these firms (62%) had never been threatened. Highly cluster-specific causes of threat were under-developed markets, and lack of skilled personnel. Another cause, big investments, was slightly higher among the SMEs in this cluster. The cluster-specific ways of adaptation were interfirm cooperation, strong reliance on survival, focusing on the core business, and respite in payments. Early reaction to problems and ope nness and speed in problem solving were seen as crucial for their survival when the firms had faced problems. During the previous decade, growing demand in the markets was characteristic of the environment of these firms. Nine out of ten of these SMEs had operated in markets with growing demand.

Three quarters of the entrepreneurs thought that their firm’s success was better than that of their most important competitors. Hence, innovators with continuous growth were the most successful SMEs according to the entrepreneurs’ own evaluation. Moreover, one quarter of the entrepreneurs in this cluster assessed their firm’s business success to have been clearly better than that of their most important competitors. In addition, the proportion of those who were fully satisfied with their firm’s business success was the highest in this cluster (23%). The main characteristics of innovators with continuous growth are presented in Figure 6.5.

• a higher percentage of SMEs than in the other clusters operated in growing industry sectors

• significant and stable growth in turnover

• typically, the periods of significant change in turnover were growth periods only

• investments in production and marketing as growth factors in particular

• the youngest firms

• growth-seeking firms

• business ideas were at the earliest stage of development

• typically never been threatened

• growing demand

• success better than that of their competitors

• entrepreneurs were the most satisfied with their firm’s success

Figure 6.5 Characteristics of innovators with continuous growth and their life cycles

Networkers with leapwise growth. Altogether 91% of the SMEs in this cluster operated in manufacturing. A higher proportion of SMEs here than in the other clusters operated in production of metal articles, non-metallic mineral products, machines and devices, mechanical woodworking, and tourism.

Most firms were bigger than their counterparts in the other clusters in terms of the number of employees. However, characteristic of this cluster was high variation in terms of firm size. In this cluster, acquisitions and purchases of production units, founding a new establishment and expanding an old one, expansion to new geographic

market areas, or big single random orders, were more commonly growth factors. The firms’ turnover had grown rapidly during the last decade. Growth had been leapwise for nine of ten firms. Characteristic of the firms were acquisitions and mergers: almost half (43%) had made acquisitions or mergers. More frequently than in the other clusters the general economic recession was considered to be the cause of the fall in turnover: this was characteristic of three quarters of the SMEs (77%).

In this cluster, increasing interfirm cooperation, and investments in marketing and sales were more commonly changes in the ways of doing business. In general, these firms had changed their ways of doing business more frequently than those in the other clusters. A higher proportion of SMEs here than in the other clusters had consciously defined and specified goals and objectives. Typically, the SMEs were growth-seeking: growth was a primary goal for more than three quarters of the firms (77%). Clearly more SMEs than in the other clusters were in the mature stage of development (stage 4/5).

The proportion of threatened SMEs was the highest in this cluster: altogether, 62% had been threatened. The only slightly more common cause of threat in this cluster was stiff competition and excess capacity in the field. Typical ways of adaptation were financial arrangements and additional financial inputs by the owners, and additional efforts in marketing and export activities. The personnel’s flexibility, good network relations, and new customers were of great importance for the survival of these SMEs. Demand had grown in the markets during the previous decade, but it had been slower than in the cluster of innovators with continuous growth.

A higher proportion of the SMEs in this cluster than in the others were classified as the “top firms” in the region. Entrepreneurs thought that their firm’s success had been better than that of their most important competitors, though there was much variation among these evaluations. The main characteristics of networkers with leapwise growth are presented in Figure 6.6.

• almost all firms operated in the sectors of manufacturing

• firms were bigger than in the other clusters

• rapid leapwise growth in turnover

• acquisitions and purchases of production units were more commonly growth factors

• the general economic recession was more commonly a cause of the fall in turnover

• the ways of doing business had changed more frequently than in firms in the other clusters

• firms were the most goal-oriented, mainly growth-seeking firms

• the highest proportion of threatened firms

• financial arrangements and additional financial inputs by the owners were more commonly a way of adaptation

• growing demand

• the success of the firms was somewhat better than that of their most important competitors

• the highest proportion of firms classified as the “top firms” in the region

Figure 6.6 Characteristics of networkers with leapwise growth and their life cycles

The major statistical differences in the characteristics of the SMEs and their life cycles between the clusters were found in (1) growth in turnover (p<.0005); (2) the nature of the growth in turnover (p<.0005); (3) goals for growth (p<.0005); (4) the growth in demand in the main markets (p<.0005); (5) firm size in terms of number of personnel (p<.0005); and (6) business success compared with competitors (p=.005). In addition, there were statistical differences between the clusters in (7) firm’s age (p=.012); (8) number of realized acquisitions and mergers (p=.014); (9) family business (p=.033);

(10) entrepreneur’s satisfaction with business success (p=.035); and (11) the life cycle stage of business (p=.036).

6.5 Strategic choices