Risk determinants of small and medium-sized manufacturing enterprises (SMEs) - an exploratory study in New Zealand

Ariful Islam,Des Tedford

doi:10.1186/2251-712x-8-12

Abstract

The smooth running of small and medium-sized manufacturing enterprises (SMEs) presents a significant challenge irrespective of the technological and human resources they may have at their disposal. SMEs continuously encounter daily internal and external undesirable events and unwanted setbacks to their operations that detract from their business performance. These are referred to as ‘disturbances’ in our research study. Among the disturbances, some are likely to create risks to the enterprises in terms of loss of production, manufacturing capability, human resource, market share, and, of course, economic losses. These are finally referred to as ‘risk determinant’ on the basis of their correlation with some risk indicators, which are linked to operational, occupational, and economic risks. To deal with these risk determinants effectively, SMEs need a systematic method of approach to identify and treat their potential effects along with an appropriate set of tools. However, initially, a strategic approach is required to identify typical risk determinants and their linkage with potential business risks. In this connection, we conducted this study to explore the answer to the research question: what are the typical risk determinants encountered by SMEs? We carried out an empirical investigation with a multi-method research approach (a combination of a questionnaire-based mail survey involving 212 SMEs and five in-depth case studies) in New Zealand. This paper presents a set of typical internal and external risk determinants, which need special attention to be dealt with to minimize operational risks of an SME.

Highlights

In the dynamic and highly competitive business environment, manufacturing industries are under tremendous pressure due to the free market economy, rapid technological development, and continuous changes in customer demands (Islam et al 2006)
As a disturbance creates undesirable consequences that are obviously detrimental to a business performance, we refer to a disturbance as a ‘risk determinant’ on the basis of its significant presence in the system and its consequential negative impact on business and operational performance
Based on the findings related to the question, we have identified a set of key internal and external operational disturbances, which are eventually highlighted as ‘risk determinants’ based on their occurrence and consequential effects on the business performance of sized manufacturing enterprises (SMEs)

Summary

Introduction

In the dynamic and highly competitive business environment, manufacturing industries are under tremendous pressure due to the free market economy, rapid technological development, and continuous changes in customer demands (Islam et al 2006). The absence of a key machine operator may have no impact on any of these three elements, but it has the potential to develop financial risk to the organization in terms of loss of production; the impact might be severe for a small business if the absence is prolonged. All potential disturbances and their consequential losses should be considered in the risk management of SMEs because they can be both time-consuming and costly. We believe that this type of disturbance should be studied under the umbrella of risk management. A disturbance represents all types of hazards as well any other unwanted setback that can produce uncertainty or a loss for an organization

Methods

Findings

Discussion

Conclusion