The Impact of Enterprise Systems on Small and Medium-Sized Enterprises in the Kingdom of Bahrain

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ABSTRACT

The study explored the benefits of Enterprise Resource Planning systems to small and medium enterprises in the Kingdom of Bahrain on improvement in decision-making ability, employee performance monitoring, resource management, cost reductions, cycle time reductions and organizational benefits empowerment and achievement. Data collected through survey questionnaire from 48 SME's, of which 36 had implemented Enterprise System. The study found significant positive relationship between ERP implementation and improved decision-making ability, improved employee performance monitoring, the achievement of cost reductions and the achievement of cycle time reductions improved decision-making and performance monitoring. Thus, it is perceived, a wider adoption of Enterprise Systems by SME's in Bahrain can help them to expand and achieve business growth, thus contribute to the economic growth of Bahrain, in line with the ambitious goals of the Bahrain's economic vision 2030.

JEL: N85, Q55

KEYWORDS: ERP, SME, Bahrain Vision 2030, Bahrain

INTRODUCTION

Small and medium-sized enterprises (SME's) are a diverse group of businesses, active in various sectors and using varying levels of skill and technology (Lukács, 2005). From a statistical point of view, the definition of SME's varies from country to country, and the definition is usually around criteria of number of employees, annual turnover or balance sheet size. The most commonly used criterion is number of employees, as it is the most readily available metric. For instance, the EU countries collectively define SME's as having fewer than 250 employees (European Commission, 2005), while the US defines SME's as having fewer than 500 employees (United States Small Business Administration, 2011). In Bahrain, the SME definition closely mirrors that of the EU, with businesses employing 11 to 250 employees defined as SME's (Ministry of Industry and Commerce, 2010). It is worth noting that the EU and US definition of SME's does not impose of lower limit on number of employees, as opposed to Bahrain, where any enterprise with 10 or fewer employees is classified as a microenterprise.

The contribution and importance of SME's in economic development has been recognized since the mid20th century, as evidenced by the establishment of SME agencies and targeted policies by governments, such as in Japan in 1948, in the US in 1953 and India in 1954 (Organization for Economic Co-operation and Development (OECD), 2000). To quantify their contribution to the economy, a useful metric is SME's contribution to Gross Domestic Product (GDP). On a global level the contribution of SME's to a country's GDP varies from 16% in low-income economies to 51% in high-income economies (Ayyagari, Beck, and Demirgüç-Kunt, 2005). At the level of the Middle East and North Africa region, SME's are estimated to contribute 28% of GDP and represent 71% of private sector employment. SME's in Bahrain represent over 99% of active companies, they were responsible for 73% of private sector employment and they accounted for 28% of Bahrain's GDP (Dubai Media Incorporated, 2011).

Enterprise Systems were originally designed to integrate fragmented information in large enterprises that maintained separate information systems for their various functions and store large amounts of data. Before the introduction of Enterprise Systems this data was stored in various computer systems in their respective business units, geographic locations, factories or offices causing problems and inefficiencies due to lack of integration of various business functions. Enterprise Systems, also referred to as Enterprise Resource Planning Systems ("ERP Systems"), are software systems that integrates all functions and processes of a business, encompassing finance, accounting, human resources, supply chain management, inventory control, sales and logistics. The modular nature of an Enterprise System means that a company can choose which module it would like to implement. …