SMEs in developing countries and institutional challenges in turbulent environments: the case of Algeria

Abstract

Introduction The environment in developing countries has undergone significant changes both in macroeconomic and microeconomic terms. At the microeconomic level, SMEs have been affected severely by competitive and mode of governance transformations (Habaradas, 2008; Benzing et al. 2009). Mawardi et al. (2011) see SMEs as engines of economic growth and main contributors to the creation of sustainable jobs and the generation of added value. Zahra and George (1999) argue that SMEs in developing countries must respond to their environment, both economic and institutional. They are exposed to a turbulent institutional environment and to severe international competition. Algerian firms are affected by an open and intense environment. The objective of this work is to present the context and the reality of the SME sector in developing countries in general, and in Algeria in particular, with an emphasis on the institutional challenges in a turbulent environment. An understanding of these challenges would help national authorities and SME managers meet them and hopefully succeed. The first section begins with definitions and general information on SMEs in developing countries. In the second section we give a brief presentation of the context and environment of SMEs in Algeria, and recent statistical data on the development of the SME sector. The third section focuses on the contribution of neoinstitutional theory of organizations to explain the challenges faced by SMEs and suggests that they need to be overcome. In the fourth section we highlight six macro factors and five micro factors that can help reduce the challenges facing SMEs. These would constitute the background for any strategic response on the part of governments or firms. The chapter ends with a few concluding comments and implications for SMEs and policy makers.