Which management strategies do Hungarian SMEs follow?
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Are they concerned with strategic management or strategic planning in terms of proactive strategy? How effective are their strategies? Should SMEs concentrate their resources on one strategy or on several? Whether regional location or company size play a role in performance-related strategy. To measure one dimension of strategic planning, proactive strategy as opposed to reactive strategy is employed in our study.
These questions are the basis for our hypotheses, which are then tested by quantitative methodology:. Hypothesis H1: For Hungarian SMEs, a combination of cost reduction and proactive strategies has a positive effect on the possibility of improving financial performance.
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In this respect, regional location is irrelevant. Financial strategy is one of the pillars of value creation in the company regardless of size - whether a large company or an SME. The potential to raise funds is determined by its ability to generate profit and positive cash flow. An SME with positive financial results will be able to raise funds more easily. Consequently, for a SME with a poor cash flow or low profitability, it will be more and more difficult to obtain credit from the banks, and so financing strategy determines the future of an enterprise — both its existence and its ability to grow.
Hypothesis H2: For the Hungarian SMEs, a strategy of applying for programme assistance could enhance the chances of improving results. The research uses binary logistic, correlation and linear regression methods on multiple models to test the hypotheses. To be able to build a significant model in which the indicator of strategies could affect the financial performance, attention was paid carefully attention to the selection of those questions that are in relation with generic strategies: differentiation quality-cost, differentiation niche, differentiation marketing.
Table 1. Variable description. Variable type. Variable name. Measure type. Dependent variable. Sales growth in Measures the relative growth in sales in , dividing the firms into two categories: positive or negative sales growth. Independent variable. Proactive Strategy.
Categorizes firms as following or not proactive strategies. If reactive strategy is chosen, the firm cannot follow at the same time, reactive strategy. Reactive Strategy. Categorizes firms as following or not reactive strategies. If reactive strategy is chosen, the firm cannot follow at the same time, proactive strategy. Market strategy: quality and reduction of cost.
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Categorizes the firms into following or not cost reduction strategies. If reactive strategy is chosen, the firm cannot follow in same time, differentiation, or niche strategy. Tender submission for assistance programs SubmitedTende r. Evaluates either the firm submitted tender for assistance program. Firm size. It measures the relative growth in sales in Its value positive or negative is discrete 0, 1 and not continuous - the reason for using logistic regression.
Seven models were proposed, based on their significance and representativeness in respect of our research. In Table 2 we show the results of running the logistic regression on the models presented before, the variables of models being described briefly in Table 1. Table 2. Logistic regression. Model 1. Model 2. Model 3. Model 4. Southern Transdanubia region. Central Transdanubia region. Model 6.
eclironuzzmon.ga Southern Great Plain. Model 7. Nagelkerke R Square. Model 7 has the smaller statistic 2 Log Likelihood which makes it better than the other models. Model 7 has the highest value of these pseudo-coefficients, followed by Models 2 to 6. T he probability of the Wald statistic was 0. This confirms the statement of the amount of change in the likelihood of belonging to the modelled group of the dependent variable associated with a one unit change in the independent variable, age. Standard Error SE values for all three models for beta indicate that there is no multi-collinearity among the independent variables.
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This component is set to the South Transdanubia region for model 4, to Central Hungary region in model 5 and to the Southern Great Plain in model 6. No evidence of numerical problems in the regression was observed. This helped us to conclude that hypothesis H1 and H2 are proved. Indeed, the combination of proactive and cost reduction strategies for the regional SMEs led to achieving better financial results for SMEs such as sales growth in see Model 2 , which is clearly expressed by hypothesis H1.
If SMEs also follow a strategy for applying for funds from programs available at regional level, the likelihood of better financial results is even higher see Model 3. Limitations and Further Research Questions. This study entailed various limitations that need to be dealt with in our future work. It is assumed that the questions formulated to investigate the strategy and those related to firm financial indicators were well understood and answered accordingly. Therefore our analysis could not employ entirely the information and should be confined to a lower scale.
Further research is needed to investigate such control factors as years of activity, membership of SME networks, innovation effect and field of activity. In Hungary, in recent years, SMEs have faced difficult times, their environment drastically changing. To be able to face increased competition, and to react quickly to changes in their environment, SME management needs to follow suitable strategies.
SMEs, however, have limited resources and adopting inadequate or multiple strategies could raise the costs of strategy implementation if SME management cannot share their resources efficiently. The research attempted - successfully - to find those strategies relevant for SME management and to performance. The study was carried out keeping in mind that only those strategies are worth analysing which has an impact on SME performance. The studied literature revealed that the relation between the strategy and performance of enterprises depends on the industry sector and also on the size of the enterprise.
The SME are encouraged to take the opportunity to develop strategies for niche or non-maturated markets which are more accessible and profitable. In addition, we found that SMEs should follow more than one strategy - in fact, a combination of strategies - which varies from author to author. As the outcome of this study partially in line with the findings of SME scholars, adopting combination of strategies is more efficient than relying on one only.
Firstly, the results demonstrated that, by adopting a proactive strategy, a market strategy of quality and cost reduction, Hungarian SMEs should improve the likelihood of achieving a positive growth in sales, which means also an increase in market shares.
Our findings support our clear conclusion that, if SMEs in the region adopt a combination of strategies, this may well have a great impact on their performance. Journal of Small Business Management, Vol. De Kluyver, C. Fundamentals of global strategy. Business Expert Press. Web page. Gunasekaran, A. Resilience and competitiveness of small and medium size enterprises: an empirical research. International Journal of Production Research , Vol. Hunger, D. Essentials of Strategic Management , 5 th Edition. Julien, P-A. Edward Elgar Publishing Inc.
Kaplan, R. The balance scorecard: translating strategy into actions.