'Enterprise risk management' essential for survival and sustainable development of micro, small and medium enterprises

Reena Agrawal

doi:10.5937/intrev1602117a

Abstract

The part that Micro, Small and Medium Enterprises (MSMEs) play, both in developed and developing countries, cannot be over emphasized and therefore their existence and survival is a matter of concern not only for the policy makers but also for the researchers. Large number of MSMEs die the same year that they are established. The current research was taken up to understand how MSMEs manage their risk and whether enterprise risk management is essential for survival and sustainable development of MSMEs. The objective of the research was to (1) understand the peculiar nature of the MSMEs which make them vulnerable, (2) explore the various risks confronted by MSMEs, (3) understand how the MSMEs manage their risk, (4) understand 'Enterprise Risk Management' and its components and (5) explore the relevance of 'Enterprise Risk Management' for the survival and sustainable development of MSMEs. The results show that MSMEs by virtue of their size, inadequate resources and restricted know-how generally confront wide-ranging risks. In MSMEs the management of risk is concentrated in the hands of the owner-managers and there are no systemic linkages between the planning and risk management. Therefore, this study stresses the need for integrating an effective enterprise risk management system with planning and administration within the MSMEs, to avoid fatal consequences.

Highlights

According to Luper and Kwanum (2012), Micro, Small and Medium Enterprises (MSMEs) constitute 99 per cent of all enterprise in Singapore, 95 per cent to 99 per cent of business entities in Organization for Economic Co-operation and Development (OECD) countries
It may be righty said that Micro, Small and Medium Enterprises (MSMEs) play significant role in industrialization, economic growth and sustainable development of an economy (Ariyo, 2005)
Unlike large corporates where the decision making is based on pure analytics and objectivity, the decision making in MSMEs is majorly based on subjectivity and the judgment of the owner-managers

Summary

Introduction

According to Luper and Kwanum (2012), Micro, Small and Medium Enterprises (MSMEs) constitute 99 per cent of all enterprise in Singapore, 95 per cent to 99 per cent of business entities in Organization for Economic Co-operation and Development (OECD) countries. The plausible advantages which MSMEs renders to a countrys economy include: contribution in terms of production of goods and services, job creation with relatively small capital outlay, reduction in income disparities, development of skilled and semi-skilled labors and alleviation of poverty (Rogerson, 2001). They strengthen both forward and backward linkages amongst communally, financially and geologically diverse sectors of an economy, thereby integrating indigenous people in economic mainstream of the country and create prospects to cultivate and nurture entrepreneurial and managerial skills within a country (FSD, 2007). Berry et al, (2002); Laforet, Tann, (2006) stated that many micro, small and medium enterprises tend to flourish in difficult times due to closeness to their clienteles, openness to adapt change, malleability and agility, but several others become subject to external blows. Raghavan (2005) noted that MSMEs sectors usually have sole proprietorship and partnership lead by owner-managers. Schultz, (2001) said that MSME owner-managers need to be aware of potential risks, be conversant with risk identification and risk mitigation (Leopoulos et al, 2006), or else they can suffer catastrophic consequences. (Kirytopoulos et al, 2001; Banham, 2004) in their study found that MSMEs need to incorporate risk management into their day to day operations, to combat uncertainties in the business environment, safeguard desired yield and ensure survival and sustainability

Objective of the Study

Objective

Findings

Discussion & Conclusion