ECONOMY

SMEs suffer technical, strategic deficiencies

Greece’s small and mid-sized manufacturing industry is in crisis; no one disputes that. The causes, however, are subject to interpretation, usually depending on the socioeconomic position of the observer; unions and employers are accustomed to trading blame without seeking a solution to the problem. The term «structure» is rarely heard in reference to the small and medium-sized enterprise (SME). It is true that its meaning is both complex and multifaceted. In this article, the structure of the Greek SME is evaluated on a comparative basis with similar enterprises in other advanced industrial countries. The lack of technologically advanced products and a low degree of productivity are the two main characteristics of the typical SME, with few exceptions. These two characteristics are considered in the context of a series of composite conceptual factors in the fields of industrial engineering and microeconomics, which can provide the basis for answers to the many problems that affect this category of enterprise. (a) Low degree of complexity in the production process. The making of finished mechanical products in the industrially developed world today tends to be based on subcontracting – a term conceptually identified with SMEs. The Greek SME has not, on average, reached the point in the production process to serve major European industries (an obviously valiant effort is being made in information technology in recent years). (b) The result of the lack of (a) above in both the engineering and chemical sectors is the limited capacity for producing sub-products (or even the efficient use of energy from all sources). This, among others, is a restrictive factor for the enterprise as regards its ability to tap economies of scale. This seems to be of little concern to Greek entrepreneurs. (c) Lack of organizational scheme (structure and process). It is generally acknowledged that the typical SME is either family-based or operates in a clearly paternalistic fashion. Both these forms lead, as a rule, to an organizational scheme dominated by personalities rather than functional executives. The usual result of this structure is that it neither allows nor encourages the growth of staff functions, which are a sine qua non in modern organizations in the domain of advanced technology. The lack of proper staff functions is reinforced by the high cost of their maintenance in relation to the physical or economic size of the typical business. Besides the organizational weaknesses of the Greek SME, it is not surprising to observe serious functional shortcomings in various processes that are key in today’s age of information technology, and in the rational behavior of an enterprise. A selection of these follows: (i) Cost accounting. An overwhelming percentage of Greek SMEs – and unfortunately, also of large enterprises – do not possess a mechanism for the continuous monitoring of production costs. As a rule, managers await the annual balance sheet for an overall picture of production costs; not a very reliable method considering the conditions of competition in the European Union. They do not understand that cost accounting today is primarily the job of the engineer, secondarily perhaps of the economist and last of the accountant. It is one of the most powerful tools that can help the average enterprise face the various market challenges. (ii) Quality control and scrap control. Requirements for these controls have multiplied since Greece’s incorporation into the EU. But for a manager to install control procedures, it is necessary that he or she create a set of production specifications. This is not a simple task, even for products requiring relatively simple processes. The ISO 9000-2000 quality control certificate can be a powerful tool for an SME, establishing its credentials in the market and the consumer public. (iii) Continuous monitoring of the market performance of competitors’ products. The usual practice is for the supplier or client to substitute for the market analyst, so that the typical businessman relies more on «gossip» rather than on statistical demand trends to make decisions, including those concerning investment. Is it possible to raise the productive sophistication of Greek SMEs and improve their organizational structure? The solution to the problem is a long-term one and requires an in-depth planning approach. The substitution of organizational planning by the government must be a priori excluded, as it is essentially a socioeconomic revolution of major significance; planning must be based on a broad number of reference points and include provisions for a number of alternative solutions. Such reference points may include: a. Sectoral studies for selective industries; b. Determination of possible types of mergers or partnerships in each sector, with the help of (i); c. Determination of the type (contents) of production and of raw materials used; d. Formulation of economic models for (iii) and ownership relationships, in parallel with the organizational scheme. Above all, those involved must understand that planning does not mean government involvement and that it not a sin. (The slogan «Planning is a Sin» was popular among laissez-faire adherents in the 1920s; it abated after the 1929 Wall Street crash.) (1) D. Petroyiannis is an economist.