The challenges facing Spanish SMEs today

Manuel Bermejo. Professor. IE Business School

5 January 2007

Today’s rapidly changing business environment poses an array of new challenges for SMEs.. As key economic players, SMEs must learn to clear new hurdles.

The changing business environment
Generalizing about small and mid-sized enterprises or SMEs often leads to misleading conclusions. For this reason, I want to state from the outset my admiration for the many entrepreneurs who stand out as examples of good management. An analysis of the current business environment would focus on what is known as the society of change. This society is characterised by growing competition, increasingly dynamic markets, constant technological change, the expanding influence of external players and interest groups over business management and the ever more powerful force of economic globalisation.

Pinpointing the challenges
Undoubtedly, this scenario highlights the most prevalent challenges facing Spanish SMEs today, which are the following:

-Attracting talent: Individuals are the key to business success. With a good, well-motivated staff, a company can go anywhere. Accordingly, SMEs need to find alternative formulas to attract talent, which has traditionally been lured by large corporations. Some of the policies that a SME can use to entice top-level executives should include attractive and aggressive salary policies, participation in the share capital and interesting life projects.

-Innovation: In an economy such as Spain’s, it is very difficult for companies to compete through price, which means that the small and mid-sized companies need to develop alternative strategies to gain competitiveness. In my opinion these strategies arise from an in-depth understanding of the sector in which each company competes. SMEs need to be capable of considering innovations at different levels so as to be able to offer value to their current and potential customers. What’s more, if the innovation contributes to the development of proprietary technologies, the entrepreneur will be laying the foundations for a solid competitive advantage.

-Presence in foreign markets: Today´s world is smaller than ever and the rapid mobility of people and services is seen by some SMEs as a threat, but it should be taken as a great opportunity. A company that successfully sells a certain product or service in Spain should make a point of entering foreign markets. For it is very likely the company also will find a market for its products outside Spanish borders. The initial effort is no mean feat, but the results can be rewarding, as we have seen in so many cases.

-Increased size: Today, in many commercial sectors, companies are required to have a minimum size in order to gain efficiency. Accordingly, SMEs pay increasingly more attention to formulas of association such as franchises, strategic alliances, etc.

New means of financing
In order to tackle some of the above-mentioned challenges, companies may require alternative sources of finance. I believe that SMEs should be up to date on all new financing schemes. For example, Spain has very interesting legislation regulating venture capital. Hopefully, more SMEs will be able to take advantage of this type of financing.

In short, I believe that Spanish SMEs have made an important contribution to the sustained period of economic prosperity we have enjoyed in recent years and for that they deserve our public praise. Due to the current dynamics of competition, however, it is of utmost importance that entrepreneurs stay alert and redouble efforts to maintain this upbeat atmosphere. I feel certain that our companies are well up to the challenge.


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