This section firstly considers and reviews the definition of SMEs. Secondly, the advantages of SMEs and the difficulties they face are discussed. Then, the section highlights why SMEs seem to not cooperate, as it would be expected. There then follows a review of the importance of the location and the role of owners/managers in the context of SMEs.
2.4.1 Definition
It is difficult to define SMEs, not only because the definition may change with time but also because the definition varies from country to country and involve different size ranges (Atkins and Lowe 1997; Storey 2000). As an example, the term SMEs has been used not only for describing small and medium sized businesses, but also micro-sized businesses (Commission of the European Communities 2003; Fuller 2003). Nevertheless, a key issue in the definition of
SMEs is their size (Storey 2000). Business size can be measured according to different criteria or dimensions (Gibson and Cassar 2002), namely the number of employees, gross sales, estimated value of the business, and the number of national and total business locations (Romano et al. 2001). According Romano et al. (2001) the three most commonly used criteria are sales, the number of employees and net assets. Nonetheless, the literature provides several studies in which the number of employees is used as the only measure of size (Rice and Hamilton 1979; Goode and Stevens 2000; Gibson and Cassar 2002; Dholakia and Kshetri 2004; Fernández and Nieto 2005; Papadakis 2006; De Jong and Vermeulen 2006).
Size is also the measure used in this research to characterize SMEs and the definition adopted is the one recommended by the European Commission (Commission of the European Communities 2003), based on which businesses with less than 10 employees are classified as micro, those with more than 10 but less than 50 employees are considered as small businesses and those with more than 50 employees but less than 250 are categorized as medium businesses.
2.4.2 The advantages and difficulties of SMEs
SMEs make an important contribution to economic growth, employment and social development (Thomas 2000; Hanna and Walsh 2008), accounting for 99.8 % of the number of businesses in Europe (European Commission 2003) and employing a substantial part of the private workforce (Urbano and Yordanova 2008). These businesses have, in particular, an advantage when it comes to providing lower volumes of products or specialized products, as is evident in the tourism sector, where businesses have to respond to very specific requirements (Novelli et al.
2006). Also, SMEs are more flexible and can better respond to demand and technological changes than larger businesses (European Commission 2003).
However, and despite recognition of their importance (European Commission 2003; Hanna and Walsh 2008), SMEs have to struggle to develop their business activity and to become competitive, mainly due to their characteristics. For example, SMEs are characterised by having gaps in competences or resource
portfolios (due to lack of substantial investments) (Dennis 2000), weak infrastructures, small establishments, local ownership, lack of information and certain skills (Morrison 1998; European Commission 2003), and lack of know-how (Schermerhorn 1980). Moreover, another commonly recognized characteristic is that SMEs have scarce resources (e.g. human, financial and material) (Morrison 1998; European Commission 2003), and are, in some cases, dependent upon external sources for scientific and technological information (Morrison 1998).
Besides, SMEs experience substantial difficulties with obtaining resources (e.g.
financial), employee recruitment, accessing appropriate training courses (Dennis 2000), market knowledge, overseas contacts, business opportunities and, therefore, in achieving organizational viability for developing their business (Tang 2011). All these characteristics make SMEs especially vulnerable (Hanna and Walsh 2008), particularly when they have to struggle not only with their size, environmental characteristics (e.g. rapid economic, technological and social changes, globalization), but also with their location.
2.4.3 The location of the business
One of the assumptions identified in the literature is that the process of business creation and management is influenced by the geography of the area in which it takes place (e.g. Burrows and Curran 1989; Keeble and Tyler 1995; Storey and Wynarczyk 1996; Ritsila 1999; Smallbone et al. 1999; Patterson and Anderson 2003). Location determines the access to the necessary resources, namely physical components, and access to markets (Katz and Gartner 1988; Stearns et al. 1995) and, traditionally, distinction is made in the literature between urban and rural settings (e.g. Curran and Storey 1993; Anderson 2000). In fact, and although businesses implemented in rural settings can have diverse opportunities (e.g.
natural resources, landscape), they can also have to face different constraints to their activity (e.g. Keeble and Tyler 1995; North and Smallbone 1996; Stathopulou et al. 2004).
When SMEs are located in rural areas the difficulties associated with their smallness are exacerbated. Competitiveness is particularly influenced by the
quality of the transport infrastructure, the availability of suitably skilled and professionally trained staff, and external trade factors (Patterson and Anderson 2003). To survive in remote rural areas, SMEs need to be adaptable, and this can result in them being more innovative in some respects than businesses elsewhere (Patterson and Anderson 2003; North and Smallbone 2004). That innovativeness can consist of the adoption of different means by which they can keep in business and be competitive. The establishment of cooperation relationships/initiatives comes at the forefront of the list of options that can be adopted by SMEs operating in rural areas to overcome some of their location-related difficulties and enhance their performance (Smallbone et al. 2002). Some researchers (e.g. Jack and Anderson 2002; Zontanos and Anderson 2004) have acknowledged though, that in rural areas, formal organisational networks are not so frequent and much harder to access. When located in isolated or remote areas SMEs will also be discouraged to cooperate because in such places there are fewer partners available with whom to cooperate (Schermerhorn 1980). In such conditions, as will reinforced in later sections, the owners/managers personal contacts and social networks play an important role in the provision of resources (Silva 2012) and in the introduction to new business opportunities (European Commission 2003), which are critical to the achievement of the objectives of SMEs.
2.4.4. SMEs and inter-business cooperation
The potential importance of inter-business cooperation to the survival and success of SMEs, particularly for those located in rural areas, has therefore been acknowledged. However, in spite of its acknowledged potential benefits, SMEs do not engage in inter-business cooperation as much as would be expected. Research has demonstrated that the level of cooperation between SMEs is more limited than suggested in the vast majority of the literature. Not only do many SMEs have little knowledge about, and show a weak tendency towards, cooperation as a means to overcome their natural weaknesses (e.g. European Commission 2003; Ussman and Franco 2000; Hoffman and Schlosser 2001, Correia et al. 2007), but also they have struggle to reconcile the desire to follow their own interests with cooperation with other businesses (Fyall and Garrod 2005). Thus, it seems that the same
characteristics that strengthen cooperation relationships/initiatives may simultaneously represent a hindrance to it.
It seems this tendency is particularly evident in the Portuguese context, where, according to the European Commission (2003), less than one in six SMEs engage in cooperation. In Portugal, within specific economic sectors, cooperation amongst SMEs is not considered as widespread. Cooperative agreements seem limited in scope, often restricted to subcontracting activities, and not addressing the key issues Portuguese businesses are facing (Ussman and Franco 2000). Given the above, one of the objectives of this study is to build upon the existing, although limited, knowledge about this matter and, consequently, to build upon established theories, which advocate and take for granted the willingness and advantages of SMEs to cooperate.
2.4.5. The role of the owner/manager
Within SMEs decisions are very often made by one single decision maker, normally the owner and/or manager of the business (Schmidli 2008; Sommer 2010) with a high degree of autonomy (Baillette 2001), who often tend to be generalists rather than specialists (Gilmore et al. 2001).
The literature clearly identifies the key role of SMEs’ owners/managers in all decision-making levels (Rice and Hamilton 1979; Lloyd-Reason and Mughan 2002; Fillis et al. 2004), including the definition of the strategic orientation of their businesses (Becherer et al. 2005). Given the smallness of the businesses, owners/managers have to deal with almost every situation from day-to-day to long-term activities, that is, at strategic, tactical and operational decision making levels (Rice and Hamilton 1979; Kotey and Meredith 1997; Greenbank 1999; Fillis et al.
2004; Schmidli 2008; Liberman-Yaconi et al. 2010; Sommer 2010).
Based on their personal skills and experience (Baillette 2001), owners and/or managers have to deal personally with a wide range of issues and make decisions in several and different areas of specialisation (e.g. finance, marketing, and human
resources), generally without the support of specialists or the benefit of their specialized knowledge (Kotey and Meredith 1997; Pineda et al. 1998; Becherer et al. 2005; Liberman-Yaconi et al. 2010). Moreover, the involvement of owners and managers in decisions is also due to the fact that they take into account their personal priorities/objectives when responding to opportunities and circumstances (Gilmore et al. 2001). The level of involvement is also related to potential consequences of decisions not only to the business and its future, but also to the owner/managers’ personal wealth for example (Baillette 2001).
Because of their strong involvement in the owning, managing and making decisions, owners/managers have also to deal with the limitations of their businesses, e.g. limited resources (Schmidli 2008, Liberman-Yaconi et al. 2010), the lack of necessary skills in some cases, experience, time and/or opportunity to analyze the relevant data to fully evaluate the alternatives (Rice and Hamilton 1979). It is also dependent on the owner/managers to find ways to overcome these limitations, to make the necessary decisions, and evaluate its consequences. As mentioned earlier, cooperation is often considered and implemented by owners and managers of SMEs as a means by which to overcome some of these difficulties.
Owners and managers of SMEs bring to the business their personal networks of contacts and acquaintances, with whom they often end up establishing cooperating initiatives, based on personal trust and confidence. Owners/mangers’ personal social networks thus become a key component in the success of their business, giving access to relevant resources. This has been conceptualised as social capital (Burt 1997; Uzzi 1997; Nahapiet and Ghoshal 1998; Davidsson and Honig 2003;
Anderson et al. 2005; Jack et al. 2008).
2.5 FACTORS INFLUENCING THE DECISION IN