Attached.

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How managerial decisions support SMEs to generate more revenue and how VAT facilitate
dynamic governance of SMEs.

Student’s Name:

Title of Course:
Instructor:
Date:

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Table of Contents

Contents
Executive Summary ................................................................................................................... 4
Chapter One: Introduction ......................................................................................................... 6
Introduction ................................................................................................................................ 6
Background of the study ............................................................................................................ 7
Statement of Problem ............................................................................................................... 11
The aims of the research .......................................................................................................... 12
Objectives of the study............................................................................................................. 12
Research Questions .................................................................................................................. 13
Assumptions of the research .................................................................................................... 13
Significance of the Research .................................................................................................... 14
Limitations of the research....................................................................................................... 16
Delimitation of the study ......................................................................................................... 16
Definition of terms ................................................................................................................... 16
Organization of the research .................................................................................................... 17
Chapter 2 - Literature Review.................................................................................................. 20
Introduction .............................................................................................................................. 20
SMEs Overview ....................................................................................................................... 20
The Strategy Phenomena ......................................................................................................... 21
Strategic Management Practices .............................................................................................. 23
The Organizational Performance ............................................................................................. 26
Levels of competition .............................................................................................................. 28
Business Strategy and Competitive Advantage ....................................................................... 30
Firm Resources (People, Process and System) ........................................................................ 31
SWOT Analysis of SMEs ........................................................................................................ 33
Macro-environmental Analysis/PESTEL Analysis ................................................................. 34
Porter's Theory of Competitive Advantage ............................................................................. 40
Resource-Based View or Model (RBV) .................................................................................. 49
McKinsey 7S Model ................................................................................................................ 52
The SMEs Performance ........................................................................................................... 54

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Various managerial decisions and practices of strategic management embraced by the SMEs
.................................................................................................................................................. 54
Characteristics of Entrepreneur and the SMEs performance ................................................... 56
Characteristics of the Business Characteristics and SMEs Performance................................. 60
Impact of Strategic Management Practices on Performance of SMEs .................................... 61
VAT Facilitates Dynamic Governance for SMEs in Saudi Arabia ......................................... 66
Chapter 3 - Research Methodology ......................................................................................... 69
Introduction .............................................................................................................................. 69
The Research Design ............................................................................................................... 69
Methodological Position .......................................................................................................... 70
Epistemological Position ......................................................................................................... 71
The overview of the research to meet the objectives of the project......................................... 72
The research population ........................................................................................................... 73
Sample and Sampling techniques ............................................................................................ 73
Methods of Data Collection ..................................................................................................... 73
Reliability and Validity of Study ............................................................................................. 75
Data Analysis ........................................................................................................................... 76
The possible ethical Problems ................................................................................................. 77
Chapter 4 - Data Analysis ........................................................................................................ 78
Introduction .............................................................................................................................. 78
Demographic Information ........................................................................................................ 78
Figure 4.1 the Respondents Age .............................................................................................. 78
Figure 4.2: Education Level ..................................................................................................... 79
Table 4.1: Operation Duration of the Business ........................................................................ 80
Table 4.1 Operation length of Company.................................................................................. 80
Table 4.2: The organizational size ........................................................................................... 81
Table 4.3 External Aspects Contribution to New Strategies Business Adoption .................... 82
Table 4.4 Practices and Performance of Strategic Management ............................................. 83
Figure 4.3the level of the managerial decisions adopted have enhanced the business
performance ............................................................................................................................. 85
Practices of Strategic Management and Competitive Advantages and Revenue of the SMEs 86
Table 4.5 Practices of Managerial Decisions Competitive Advantages .................................. 86
Correlation Analysis ................................................................................................................ 87
Chapter 5 - Research Findings ................................................................................................. 88

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Introduction .............................................................................................................................. 88
Findings.................................................................................................................................... 88
Chapter 6: Research Conclusion and Recommendations ........................................................ 90
Research Conclusion ................................................................................................................ 90
Recommendations .................................................................................................................... 91
References ................................................................................................................................ 93
APPENDICES Appendix 1: Questionnaire ............................................................................. 99

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Executive Summary

Strategic management, managerial decisions and their execution have become the major
attention in the Small-Medium Enterprises (SMEs) due to their roles in the economic revenue
generations and generation of profits. Even, there are various strengths to utilize managerial
decisions, there are still different firms of SMEs which resist the use of strategic
management, because of the enterprises may imagine that this process is mainly important for
large corporations and they do not realize that it is also so useful for the whole SMEs. The
aim of this research was to determine how managerial decisions support SMEs to generate
more revenue and how VAT facilitate dynamic governance of SMEs. The explanatory crosssectional study approach was adopted for the study. For this research, the target population
was the best a hundred SMEs in Saudi Arabia in 2018 since is concentrated with many SMEs
and rich area. From the population target of 100 potential participants by taking a fifty
percent target population sample in every stratum, the sample was selected. Therefore, the
size of the sample for the thesis was fifty executive managers in the Small-Medium
Enterprises that were randomly selected. As the primary instrument of data collection, the
researcher applied the use of questionnaires. The questionnaire gathered quantitative and
qualitative data. The questionnaires were delivered via drop and pick technique to the CEOs
and executives in the chosen the Small-Medium Enterprises. The responses from the
questionnaires were organized, cleaned, classified into different groups and fed in the SPSS
software to carry out calculation and analysis applying descriptive data. To summarize the
information and data from participants, frequency distribution table were utilized. For ease of
analysis and comprehension, the evaluated and interpreted data was presented in tables,
graphs, and frequency distribution tables.
The research determined that in the past most of the SMEs have embraced managerial
decisions and management strategies. To a very great extent, the study further found that

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external factors led to new strategies adoption. Internal factors such as organizational features
and behaviours, the resources of the business, the ability of the top managers to design
effective strategies, and organizational structure also influenced the new strategies adoption
as the firms seek to remain competitive in the dynamic markets and industry and therefore
earn more revenues and profits. To great extent, the research also established that most of the
SMEs adopted different techniques to accomplish competitive edge such as customer service
strategies, product and service innovations, the product quality, technology, control of cost,
pricing of product, differentiation of clients and products, reputation of goods, and market
strategy. The research concludes that managerial decisions have direct correlation with the
organizational competitive advantage that promotes more sales and therefore enable the
business earn more profits. The SMEs adopted the initiatives to accomplish competitive
advantages. The study recommends that management should positively rethinks towards the
managerial decisions use and have the needed resources. The strategy or business triumph
relies majorly on the energy, skills of top executives, and value judgement as well as the
strategic execution within the parameters and contexts of ambiguity and uncertainty of the
business environments subjected to volatilities. To enhance the performance of the employees
in the SMEs, strategic education needs to be provided to all them. Management of SMEs
need to undertake a detailed research, managerial decisions, and strategic managements’
adoption in each and every area and aspects of its concerns so as to repositions, re-engineers,
restructures, and synergies its functions and therefore improving performance and
competitiveness.

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Chapter One: Introduction

Introduction

Globally, there have been increased interests in the SMEs roles in the economic growth and
creation of job1. The sector of SMES is increasingly being appreciated as the major driver for
economic growth and developments in both developed countries as well as developing
nations. It is a prime source of technological advancement and innovation, generation of
revenue, and employment within the economy. SMEs therefore have become main assets in
driving the economic growth and development in Saudi Arabia. In the recent years, the
economic dependence level on SMEs has increased in Kingdom of Saudi Arabia as a
developing economy. The economic development is determined by individual performances
of every enterprise. Nevertheless, there are less systematic studies in this field that back the
different policies in SMEs support, majorly due to lack of information as well data. SMEs are
significant for improving economic efficiencies of a nation. They are reproductionfields for
inventions, innovation, and entrepreneurship and therefore employment reservoir2.
Sustainable job opportunities generate revenues that in turn minimize the poverty level.
Studies to managerial decisions, strategic management, how VAT facilitate dynamic
governance and their execution has gained a lot of attention in Small and Medium Enterprises
due to their major roles in the generation of economic wealth. Nevertheless, there is a major
suggestion about whether Small and Medium Enterprises should create a strategic program3.
1

Andreasen, Alan R., Philip Kotler, and David Parker. Strategic marketing for nonprofit organizations.
Upper Saddle River, NJ: Pearson/Prentice Hall, 2008.
2

Al Ghamdi, Salem M. "The use of strategic planning tools and techniques in Saudi Arabia: An
empirical study." International Journal of Management 22, no. 3 (2005): 376.
3

Brinckmann, Jan, and Sung Min Kim. "Why we plan: The impact of nascent entrepreneurs' cognitive
characteristics and human capital on business planning." Strategic Entrepreneurship Journal 9, no. 2
(2015): 153-166.

7
Some authors have proposed that prescribedplanned procedures of management are
specifically not appropriate for Small and Medium Enterprises which have neither the
financial resources nor management to participate in strategic and elaborate techniques of
management. Even though, there are still discussions of strategy application in Small and
Medium Enterprises in many studies, many researchers have indicated that there are positive
impacts of applying managerial decisions and strategic management as an approach to
accomplish competitive and sustainable edge that enable the SMEs to generate more revenues
that cannot be assumed.

Background of the study

Small enterprises are small business types, usually registered, requiring initial capital of not
above $ 35,000 and having five or fewer workers. The term is applied to mean a firm having
up to twenty workers and a single owner-operator4. The E.U describes micro-enterprises as
those which achieve two of the following three criteria, turnover below EUR 2 million, fewer
than ten workers, and balance sheet total below EUR 2 million. Depending on the nation, the
term small enterprise means different sectors and entities. In developing economies such as
Saudi Arabia, microenterprise consists of the large majority of the sector small business for
the poor and resulting from the lack of jobs in the formal sector. The business people run the
small business out of necessity but not by choice. In developed nations, microenterprises
consist of smallest small business sector end by size.
SMEs are significant for improving the country’s economic efficiency. They are the grounds
of breeding for inventions, entrepreneurship, and innovation and therefore employment

4

Byrch, Christine, Markus J. Milne, Richard Morgan, and Kate Kearins."Seeds of hope?Exploring
business actors’ diverse understandings of sustainable development." Accounting, Auditing &
Accountability Journal 28, no. 5 (2015): 671-705.

8
reservoir. It creates sustainable job opportunities that generates incomes for the entrepreneurs
and minimize the poverty level. The challenges face by SMEs in Saudi Arabia is insufficient
skills and knowledge, most SMEs’ managers in the county do not have sufficient education,
and they lack enough information with respect to managerial skills and knowledge5. They do
not have managerial training. SMEs more often than not create operational strategies through
trials and errors mechanisms. Their managerial methods majorly concentrate on operational
initiatives instead of strategic programs of their firms. Moreover, these techniques of
management are not standard with those of management of well-established organizations.
Subsequently, SMEs managers are unable to sufficiently deal with problems facing the
businesses.

Evolution of technological changes poses a great threat to the SMEs growth and expansion.
Most of these businesses are unable to cope up with new technologies because of high initial
costs as well as installation costs. Furthermore, more often than not, these new technologies
do not match the requirements of these firms. For instance,SMEs situated in rural areas may
not benefit from the full internet connection profits because of lack of electrification.
Adoption of new technologies has also been hindered by the slow economic growth rate in
the country.

Inadequate funding and sources of capital have also hampered the growth and development
of most of the SMEs especially in the developing economies such as Saudi Arabia. They are
not able to access big loans and credit facilities to finance the activities of the enterprises
particularly from financial institutions like the commercial banks6. This is due to the
5

Burns, Alvin C., Ronald F. Bush, and N. Sinha. "Marketing research (Vol. 7)." (2014).

6

Chen, Ming-Kuen, and Shih-Ching Wang. "The critical factors of success for information service
industry in developing international market: Using analytic hierarchy process (AHP) approach." Expert
Systems with Applications 37, no. 1 (2010): 694-704.

9
conditions of lending placed to them like the loan collateral that they may not have. These
businesses may be unable to offer security such as fixed assets because of their small base of
assets. Subsequently, most of these firms opt to borrow from relatives and friends.
Nevertheless, this finance types are not enough to meet all the requirements and demands of
the SMEs7. Because of this, inadequate finances force the managers to resort to the use of
local and cheap technologies that in many occasions are not appropriate.

Another aspect that the operations of the SMEs face is the new regulations and laws. The
state and other authorities continue to introduce new laws and regulations for enterprises and
industries in the nation. In a bid to regulate the operations of the business, new regulations
and laws are being endorsed. The new regulations also aimed to promote sustainable
economic growth and development in the economy. Nevertheless, certain laws at times pose
remarkable threats to SMEs in the country; this is because some of the regulations are too
strict.

Various aspects are determined as limiting access of the market to SMEs in the country and
include: imperfect markets, weak capacity for e-commerce, narrow product diversity, limited
market analysis and research, weak promotional and advertising capacities, poor connections
with export markets, market spaces and premises, poor access to physical markets, and lack

7

Chen, Xiao-Ping, Xin Yao, and Suresh Kotha. "Entrepreneur passion and preparedness in business

plan presentations: a persuasion analysis of venture capitalists' funding decisions." Academy of
Management journal 52, no. 1 (2009): 199-214.

10
of market information8. Stiff competitions because of globalization, concentration of
activities in a few areas that make vulnerable to competition and risks, poor systems, distance
markets, and high costs of transactions because of inefficiency are additional factors
identified as limiting the growth of the SMEs in the Kingdom of Saudi Arabia. Most of the
SMEs do not have the essential information in industry and market opportunities that limit
them in narrowing to local markets. They also lack necessary information on market demand
and customers because of lack of market research resulting in dealing with saturated products
of low demands.

Many SMEs generate services and commodities without considering the needs of customer
and the market and subsequently they are unable to penetrate and break-even in the market.
Another challenge for SMEs in Saudi Arabia is lack of physical market frameworks leading
to illegal hawking of their products in the town streets and road side resulting in the running
battles with the government officials. The costs of transaction remain a major challenge
among the SMEs influencing access to the market9. Minimized transactional costs are vital in
marketing and in improving the access to market according the theory of transactional cost.
The high costs originate because of asymmetry of information, poor infrastructure, and
inefficiencies of the market. Stiff competitions because of liberalization and globalization bar
SMEs from accessing most of the domestic and foreign markets. They are not able to
compete efficiently because of limited product diversity, unconducive pricing, skewed
preference of client, and poor quality of goods. Most SMEs in the world demonstrate weak

8

Choi, Nia, and SatyajitMajumdar. "Social entrepreneurship as an essentially contested concept:

Opening a new avenue for systematic future research." Journal of business venturing 29, no. 3
(2014): 363-376.
9

Chernev, Alexander. The marketing plan handbook.Cerebellum Press, 2015.

11
connections to the consumers in contrast to the theory of relationship marketing which argues
that good relationships of the customers are necessary for effective marketing and
advertising.

Statement of Problem

The sector of the SMEs has a crucial responsibility to play especially in developing
economies such as Saudi Arabia in creation of jobs, alleviation of poverty, and economic
development. However, the sector faces various challenges particularly in technology and
training as well as accessing markets and finance. Even though there are various strengths to
use managerial decisions and strategic management, there are still different firms of SMEs
which resist the use of managerial decisions, because of the enterprises may imagine that this
process is mainly important for large corporations and they do not realize that it is also so
useful for the whole SMEs10. Furthermore, there are fewer studies that have been carried out
in the world on impacts of managerial decisions and practices of management on the SMEs.
When considering the growing managerial decisions and strategic management importance in
SMEs and their contributions to the economy of Kingdom of Saudi Arabia, it is clear that
there is an increasing demand for studies offering comprehension on the managerial decisions
role. One may argue that the requirement for such details will be more significant as the
competitions are increasing than ever before, because of many new SMEs are entering into
the sector and industry.

SMEs are the main vehicle of employment and economic growth and they provide skills
training at low cost to the community, foster the development and utilization of domestic
technologies, utilize majorly domestic resources, and result in increased indigenous people
10

Chernev, Alexander. The marketing plan handbook.Cerebellum Press, 2015.

12
participation in the growth of the economy. Studies observe that the entire economy health
has strong connections with nature and health of the SMEs11. Nevertheless, irrespective of the
efforts of the government in Saudi Arabia to support service delivery of the SMEs, judging
by the informal sector performance, little progress appears to have been accomplished. The
profitable employment expansion opportunities in SMEs are limited when the macro
economy state is less conducive. Very few small businesses are able to grow into medium
scale and eventually into large scale firms to greatly contribute to economic growth and
creation of employment. The aim of this research was to determine how managerial decisions
support SMEs to generate more revenue and how VAT facilitate dynamic governance.

The aims of the research

The aim of this research was to determine how managerial decisions support SMEs to
generate more revenue and how VAT facilitate dynamic governance. For this research,
explanatory cross-sectional study design was adopted.

Objectives of the study

For achieve the aim the researcher outlined the following goals:

The general goal of the research was to determine how managerial decisions affect and
support the performance of SMEs in Kingdom of Saudi Arabia12. The research was also
expected to outline other significant fields of research which need further studies.

The specific objectives included:
11

Cohen, William A. The marketing plan.John Wiley & Sons, 2005.

12

Burns, Alvin C., Ronald F. Bush, and N. Sinha. "Marketing research (Vol. 7)." (2014).

13
•

To establish how the characteristics of entrepreneur influence the SMEs performance.

•

To determine how the characteristics of the business and managerial decisions
influence the SMEs performance.

•

To establish how strategic management such as ICT adoption influence SMEs
performance.

•

To assess how the finance availability influence the SMEs performance.

Research Questions

The following research questions guided the researcher in accomplishing the objectives of the
study:
•

In what way do the characteristics of entrepreneur influence the SMEs performance?

•

How do the characteristics of the business and managerial decisions influence the
SMEs performance?

•

How does strategic management such as ICT adoption influence the SMEs
performance?

•

To what extent does the finance availability influence the SMEs performance?

Assumptions of the research

Assumptions refer to the events or conditions which the investigator assumes even though
they might have impacts on the findings and outcomes of the study13. These may be ideas or
beliefs which an individual holds to be facts without proof and hence, the research took for
granted that: The chosen sample was a true representation of the population of interest that
13

Chen, Ming-Kuen, and Shih-Ching Wang. "The critical factors of success for information service
industry in developing international market: Using analytic hierarchy process (AHP) approach." Expert
Systems with Applications 37, no. 1 (2010): 694-704.

14
cooperated and complied with regulations outlined on the interview schedules and forms of
questionnaires which offered adequate time to acquire responses from the tools of the
research.

Significance of the Research

The research was anticipated to be of higher value because of the following reasons:

The research would offer insights to bodies and agencies of the government on the way they
create foundations for enhancing or helping the SMEs growth14. Furthermore, the research
would be guidance to the governmental authorities on the way they can enact regulations and
rules that support the growth of the SMEs and regulate the businesses. The governmentwould
be able to make sure that the rates of tax are conducive to the SMEs in creating the national
policies.

In selecting the SMEs, the Development Financial institutions can support with their
resources such as the capacity constructions, grants, and capital that is willing to provide the
Small SMEs with bank loans, the thesis would also act a guideline to the financial
institutions.

The sector of the SMEs plays an important role in the social and economic development of
the country. As such, the state expects the industry to provide various strategies of
development with respect to industrialization, eradication of poverty, and creation of
employment. This needs the SMEs sector to remain competitive in delivering its goods and

14

Chen, Xiao-Ping, Xin Yao, and Suresh Kotha. "Entrepreneur passion and preparedness in business

plan presentations: a persuasion analysis of venture capitalists' funding decisions." Academy of
Management journal 52, no. 1 (2009): 199-214.

15
services15. It is of the essence that the different challenges to competitiveness of the industry
particularly access of the market are successfully handled if the industry is to remain
competitive in the economy. Information and Communication Technology is taking central
stage in the competitiveness as well as growth of all industries internationally and there is
need to use Information and Communication Technology in improving the competitiveness
of the SMEs and finance associated issues

Financial institutions and banks which advance loans and other facilities of credit to the
SMEs will be in better positions of reviewing their policies of lending and adjusting them to
the SMEs needs where necessary. By examining the opportunities provided by the
Information and Communication Technology to enhance the access of market in the SMEs,
this research offers the essential knowledge needed for enhancing the competitiveness of the
sector to allow it deliver to the expectations of the state16. The information is vital for the
managers of SMEs, scholars, other researchers as well as the policymakers. The thesis has
indicated that the SMEs in the world either grow at the very low rates or collapse prematurely
because of finance associated constraints. A research that investigates into the SMEs
influence on the service delivery improvement was essential to improve business at proprietor
or individual level. The research could be utilized as a point of future reference on
completion of this document by investigators who are interested in studying the SMEs. Any
individual reading this study gains current status of the SMEs performance in the Kingdom of
Saudi Arabia.

15

Al Ghamdi, Salem M. "The use of strategic planning tools and techniques in Saudi Arabia: An
empirical study." International Journal of Management 22, no. 3 (2005): 376.
16

Al Ghamdi, Salem M. "The use of strategic planning tools and techniques in Saudi Arabia: An
empirical study." International Journal of Management 22, no. 3 (2005): 376.

16
Limitations of the research
Because of the fear of ensuring that the details and data remained confidential and high level
of privacy was observed, the investigator had challenges in accessing the participants because
of the regulations and rules of their the SMEs17. The respondents’ perception and point of
view also made validity and reliability of the research to be endangered due to their attitudes
towards investigators from outside. The process of data collection was met by certain level
suspicion, hostility, and rebellion particularly from the participants who were sceptical about
the intention of the research. The scepticism of the respondents divulged crucial details and
data because of the suspicion. However, the research reassured the participants that the study
was confidential and purely academic that mitigated the challenge.

Delimitation of the study

The researcher delivered the questionnaires which were taken back after a stipulated period
time. To maintain confidentiality and privacy, the respondents were not needed to write their
names on the interview schedules as well as the questionnaires18. The investigator provided a
release letter from the university/college to prove that the research was being carried out for
academic purposes and the data collected would remain highly confidential. The researcher
also attempted to create the base from the start of the dissertation.

Definition of terms

17

Chen, Ming-Kuen, and Shih-Ching Wang. "The critical factors of success for information service
industry in developing international market: Using analytic hierarchy process (AHP) approach." Expert
Systems with Applications 37, no. 1 (2010): 694-704.
18

Chen, Xiao-Ping, Xin Yao, and Suresh Kotha. "Entrepreneur passion and preparedness in business

plan presentations: a persuasion analysis of venture capitalists' funding decisions." Academy of
Management journal 52, no. 1 (2009): 199-214.

17
SMEs: Refer to business organizations or enterprises that employ between 1 and 50
employees. They include the dynamic businesses and self-employment enterprises operating
a large array of activities both in the urban and rural areas.

Characteristics of the Entrepreneur: Involves the observable business owner features like
level of education, gender, age, initiatives, among others.

Characteristics of business: Involve the observable business features such as location,
business nature, number of employees, and size among others.

Information Communication Technology: It is a term which focus on the role of integration
of telecommunications, unified communications, computers, and essential audiovisual
systems, storage, middleware and software that allows users to manipulate, transmit, store,
and access information.

Finance: Involves the money sources to begin, operate and grow the business and the
accessing ease of capital from the source of money and other credit facilities.

Organization of the research

The aim of this research was to determine how managerial decisions support SMEs to
generate more revenue and how VAT facilitate dynamic governance. Chapter one presents
•

Introduction to the study

•

Background of the research

•

The statement of the problem

•

The research aim

•

The Objectives of the study

•

The questions of the research

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•

The value and significance of the study

•

Limitation of the researc...