Magazine article Journal of Services Research

Sources of Small and Medium Enterprises Excellent Business Performance in a Service Oriented Economy

Magazine article Journal of Services Research

Sources of Small and Medium Enterprises Excellent Business Performance in a Service Oriented Economy

Article excerpt

(ProQuest Information and Learning: ... denotes formulae omitted.)


Under the paradigm shift from an industrial economy to a service oriented economy that emerged in the 1990s, while Japanese economy has been experiencing long lasting economic stagnation, certain manufacturing industries such as electrical machinery and automobile have been maintaining their competitiveness. Not only larger enterprises (Acs and Audretsch, 1987) but also small and medium enterprises (SMEs) have been making a significant contribution to this competitiveness.

While SMEs generally incorporate comparative disadvantage to larger enterprises in management resources such as capital, human resources, information and technology, the dramatic advancement of information technology (IT) has been shifting SMEs to more advantageous position in terms of organizational flexibility and efficiency (Xiang et al., 2001; Larsen and Lomi, 2002; Izushi, 2003. Furthermore, not a few SMEs have been demonstrating excellent business performance through efficient and effective technological innovation in a mega-competition (Acs and Audretsch, 1987). This excellent performance can be attributed to their strategies aiming at maximum utilization of external knowledge (Lester, 1998; Freel, 2003).

To date, number of studies have identified the significance of technological innovation in improving SMEs' productivity thereby overcoming their comparative disadvantage with respect to larger enterprises (Small and Medium Enterprises Agency, 2003; Freel, 2003. In addition, there are studies that have suggested the potential comparative advantage in flexibility in institutional change and exploring a niche market (Kelly and Amburgey, 1991; Marten, 2001.

However, none of these studies have identified the sources inducing effective R&D in SMEs leading to excellent business performance in a service oriented economy supported by a dramatic advancement of IT, and its contribution to improving SMEs assimilation capacity for maximizing the effective utilization of external knowledge.

This paper attempts to demonstrate these points. First, on it the basis of an empirical analysis of the electrical machinery firms in Japan, attempts to demonstrate that effective R&D is essential for SMEs as well as larger enterprises to maintain excellent business performance and that the R&D activities in outstanding SMEs are more efficient than in larger enterprises. Secondly, it identifies the sources that enable SMEs achieve better performance than larger enterprises in a global competitive market under a service oriented economy. Third, based on the case analyses of technological innovation strategies taking three Japanese SMEs that achieved excellent business performance in the late 1990s, the significance of tie-ups with external institutes for assimilating external knowledge to improve their service value is demonstrated.

The paper also reviews the SMEs dynamic performance based on their technological innovation. The paper highlights SMEs comparative advantage in a service oriented economy. The research introduces case analyses demonstrating SMEs success in improving their assimilation capacity for effective technological innovation. Finally the findings are summarized and policy implications supportive to SMEs technological innovation in a service oriented economy are suggested.

Dynamic Performance of SMEs and Technological Innovation

SMEs in the Electrical Machinery Industry in Japan

In order to analyze the current situation of SMEs in Japan, an empirical analysis focusing on the electrical machinery industry which holds the highest share of sales in the Japanese manufacturing industry is attempted. While this industry has been maintaining the strongest competitive position in the world, larger enterprises in this industry have been shifting their manufacturing operation to overseas since the late 1980s. Therefore, SMEs in Japan's electrical machinery industry have been facing structural problems and endeavoring to overcome such problems. …

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