Analysis : Resources And Failures Of Smes

Decent Essays
Both Ropega (Ropega, 2011) and Williams (Williams, 2014) outlined the fact the although the current research cannot agree on what to call a business that fails, they do agree that it happens, and frequently – about 50% within the first few years. Ropega outlined five possible reasons for failure, with the most obvious being lack of cash. Other factors include a drop in sales and profit, liquidity, market share and an increase in operating costs. As well, nonfinancial indicators were considered to be subjective and should be used in conjunction with the financial indicators in order to identify and correct problems early on (Ropega, 2011).

In Williams paper “Resources and Failures of SMEs: Another Look,” he studied the possible reasons for failure by analyzing failed companies. This was a unique approach to that of previous research that looked at failure from successful firm’s point of view, where he hypothesized several possible areas of concern (networks, location, age and size). He determined that spending too much time on developing and maintaining networks (formal and informal) led to a negative return on investment (ROI). As well, firm size, measured by export sales, growth, profitability and internationalization, concluded that large firms are less likely to exit the market. They have the ability to achieve economies of scale (competitive advantage) because they have the ability to absorb fixed costs. Although, there is research to support the fact that
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