Dr Adam Kałowski
Dr Jacek Wysocki
Jacek.Wysocki@sgh.waw.pl
Cathedra of
Innovation Management
Warsaw School of
Economics
Poland
Competitiveness of Polish small and medium businesses
on the EU markets
Introduction
The
present situation of world economy and fears of possible recession in Polish
economy forces to take extraordinary steps in order to compensate effects of
the global crisis in our country. Small and medium businesses (SMB) growth is one
of such methods. The functioning of this group is desirable in view of national
economy since it stabilizes the economic processes and underlies the economic
growth, which in the face of current crisis is extremely important.
Small
and medium businesses proved to be useful in times of recession because they
have significantly mitigated the economic transformations in Poland in the
beginning of 1990s by filling the gaps in economy caused by the bankrupt
national companies. In addition, small and medium businesses may effectively
operate in wake of global crises, so called “financial”, above-all owing to the
simplified finance management system (predominance of internal financial
sources in the investment processes) and focus on the local market. On the other
hand, small and medium businesses are forced to operate within the
circumstances of open European market, that is to say greater competition. In
such case it is extremely important to build completely new competitive
advantages which would enable the businesses to compete on such demanding
market. The capacity to compete, especially in long term is determined by
applying sustainable competitive advantages since only sustainable competitive
advantage enables to earn profits above average.
This
article aims at presenting the key sources of competitive advantage within
Polish small and medium businesses present on the European market, the fact
which seems to be extremely important in the event of circumstances to face in
running the economic business in the beginning of the XXI century.
The sources of competitive advantage in business
The
recognition of sources of competitive advantage and especially their position
within or outside the business is a starting point in assessing its
competitiveness. Nowadays, the sources of competitive advantage in business are
not referred strictly to the trade but mainly to capital flows, technological
innovation, institution quality and management, and their influence on
productivity factors and factual income growth per capita.[1]
In the conditions of present competitiveness, the sources of competitive
advantage become less significant including those which are connected with:
copyrights, property, brand, patents, technological knowledge, the marketing
management knowledge, computer science and the ability to its application in
order to achieve additional benefits (f. inst. offer of new products which have
high income flexibility of demand). Global competitiveness causes that one of
the methods to create competitive advantage have become individualization and
high level of processed products from the customer point of view and
development of cooperation with other companies, by making technological
alliances which enable to develop new competences, technologies, products and
services.[2]
The possibility of business segmentation on the market and adaptation of its
own product offer is the source of advantage.[3]
Knowledge
of the sources of competitive advantage and their influence on the advantage
character requires careful examination of both theoretical conceptions
concerning this issue and also familiarity with differences appearing thereof.
Research on the sources of competitive advantage became more relevant in the
beginning of 1990s as a result of strong increase of national and international
competitiveness and also progressive process of economy globalization. The
transformations in these period started to create new possibilities for
business development and created new kinds of competitive activities which
remarkably influenced the change of approach to the impact of competitive
advantage on business competitiveness. The most leading concepts formulated in
1990s are: M.E. Porter’s idea about sources of competitive advantage of
businesses and nations, concept of core competence of G. Hamel and C.
Prahalada’s corporation, the company resources concept by J. Barney, the
concept of distinctive capabilities of J. Kay, time-based competitiveness
concept by G. Stalk and the conception of learning organizations by P. Senge.[4]
The above mentioned concepts of business competitive advantage had a great
impact on understanding the essence of competitive advantage, but also how its
sources were perceived and searched. These concepts contributed to create
theory on sources of competitive advantage based on the market factors and its
resources. Moreover, on their basis there were developed new concepts, f. inst.
the concept of knowledge-based enterprise, concept of virtual business and
competitive concept based on information and computer systems.
What sheds a completely new light on the
creation of advantage in today’s businesses is departure from approved
framework and recognition that the sources of competitive advantage may in
parallel be elements within the business but also in the market surrounding,
and related herewith distinctive capabilities and strategic resources, time,
information, information technology, knowledge and learning. In present
economic circumstances the reasonable solution seems to be accepting the
assumption which says that building the sustainable competitive advantage
requires first and foremost to carry out a detailed analysis of resources and
capabilities of business, completed with analysis of external surrounding. At
the same time, this situation reveals that there is no universal model showing
the way, time and place to build sustainable competitive advantage. It turns
out that this process is strongly connected with the conditions of business
operation and depending on circumstances, the main source of competitive
advantage may be either proper resources and skills or conditions imposed by
the competitive surrounding. Consequently, the competitive advantage becomes
the derivative of new resources and skills development or responsiveness to
changing external conditions.
Contemporary
reflections on the issue of sources of competitive advantage refer to the
concept of resources and indicate the importance of sources of competitive
advantage lying within the business, especially to real capital and skills which
create exceptional and unique relations according to its elusiveness,
difficulty of imitation and relation to knowledge. This relates to the rapid spread of all
innovative and individualized solutions. The reason being that more and more
businesses have a free access to new technologies and each product may be
easily copied. The grounds of today’s business competitiveness are real
capital, such as: human resources, market resources, and administrative and
technological resources and skills, including design, research and development,
technological and productive skills, marketing and logistic skills, human
management skills, finance management skills and learning skills, knowledge and
information management skills. Within their activities the businesses have to
strictly apply knowledge management, care about employees and their
development, provide conditions for creative work and aim at mastering
effective learning skills quicker than competitors. Nowadays human resources
and related with it knowledge is the significant source of innovative ideas and
new technologies, in the case of which even the capital becomes only a
derivative. In the foreground have been activities encouraging business and
connected with it employees to constant learning and improving their skills in
the field of activities which are difficult to imitate. From the very beginning
of business establishment, businesses shall strive to be “intelligent organizations”, since learning increases the ability to
respond to the incentives coming from surrounding and significantly influence
the results obtained during running the business. No less important seems to be
the desire to leave behind the market rivals by increasing the technological
distance and being innovative and rationalistic. In the attempts to gain
competitive advantage, the business must understand the relation between
sectors, which is defined on the basis of skills, technology and products and
the market, specified according to the customers and their needs. The sector
type which the business belong to has a considerable impact on skills
development and organization of the activities in respect of added value, hence
the market on which the business wants to work and customers’ needs together
decide upon business final success.[5]
In the
age of progressive intensity of competitiveness and complication of mutual
relations between businesses, the competitiveness depends mainly on the
persistence and time of acquired advantage over the competitors. Consequently,
every current business has to endeavour to gain competitive advantage, which
will be sustainable, noticeable and considerable for the customer. Such
advantage shall be built on the basis of knowledge and experience, always by
satisfying specific customer requirements more effectively than the
competitors. As a priority the businesses shall rebuild their organizational
structures in order to adjust them to the most possible effective way to take
advantage of their own power and also constantly changing circumstances. This remains
to be necessary to create universal internal structures which would enable to
perform extraordinary tasks and achieve the intended objectives, then
structures of high learning capabilities, fast mode of action and
responsiveness to extensive changes, highly qualified skills of perception and
developing new skills. In order to survive and achieve success on the
contemporary highly competitive market, it is no longer sufficient only to
identify the sources of competitive advantage. One shall respectively follow
them, that is to discover, develop them and in the right moment “render” into the market competitive
advantage. Only well-considered planned business activities according to their
resources and skills and its knowledge-based configuration and precise
experience, in view of selected market and respective time allow to gain
successful competitive advantage.
Undoubtedly
one may claim that efficient operation and further business development depends
on the manner of development, including efficient responsiveness and
simultaneous surrounding shaping, in which the business exists. Though,
resource-based concepts seems to be more useful from the point of view of key
sources identification of business competitive advantage, one shall remember
about the remarkable role which plays position approach and make efforts to
take advantage of the conclusions coming from all considerations to this issue.
Sources of advantage within Polish small and medium
businesses on the EU market
Poland’s
membership to the European Union have opened tremendous opportunities for all
Polish businesses to develop, hence the issue of finding such sources of
competitive advantage that could compete on the international markets became
extremely important. In fact, success of Polish businesses was determined by
the flexibility to changing micro and macroeconomic conditions and elimination
of weak points, such as: unsatisfying product and service quality compared with
competitors, inadequate supply of financial capital and real capital, low level
of marketing management knowledge, lack of experience and strategy of action or
low level of investments. Polish businesses acquired direct access to the
respective Member States markets which launched into sales growth, the quality
improvement, search for strategic investors, improvement of own efficiency and
acquisition of new technologies, capital or supply sources. One shall not
forget that EU market is very demanding and does not allow to operate on
without due level of competitiveness.
As a
result, Polish small and medium businesses should continuously strive for
improving and developing new elements which contribute to their success on the
market. Operation in the age of all-European recession is even more challenging
than ever before and requires increased efficiency.
In the
attempt to assess the competitiveness of Polish small and medium businesses
against international surrounding there can be used thesis quoted in literature
saying that the competitiveness of Polish economy depends on the adaptability
to fast implementation of innovative technological, technical, manager, and
organizational solutions.[6]
In the case of small and medium businesses, the reflection of competitiveness
level, expressed mainly by: changes within the scope of administration of
innovative technological, technical, manager and organizational solutions is
also the internationalization level of these businesses. It is believed that
small businesses fail to succeed in this field. Most researches of SMB sector
carried out before Poland’s accession to the European Union indicate the
following key factors of this situation: focus on local market, at best on
national market and poor economic and financial situation. These two reasons
still constitute major barriers to international operation of these businesses.
On the other hand, low level of internationalization in current circumstances
decide upon their strength. Poland’s integration with the European Union
significantly facilitated the opportunities of operation on European markets,
especially for small and medium businesses which as opposed to large entities
do not have adequate personnel and capital resources of this kind.
Small
and medium businesses from the European Union considered quality and manner of
customer service as their prevailing competitive advantages.[7]
Price competitive advantage and localization were placed only on the third
position. However, as W. Szymański claims: Polish enterprises, especially
small and medium businesses have based their competitiveness mainly on
traditional, easily-imitable competitive advantages which include: relatively
low costs of labour force and raw materials due to lowered price of Polish
currency.[8]
Seldom have small and medium businesses competed on the grounds of more distinctive
features such as non-price elements, examples being punctuality and high
quality of order execution, uniqueness of the service, product etc. Reliance of
competitive strategies of Polish small and medium businesses on higher factors
enables to compete on the market only in short or medium-term plans since
capability to compete in long-term demands from small and medium businesses
application of advantages of the higher order.[9]
The
College of Strategic Management of SGH [Warsaw School of Economics] carried out
the research that revealed changes in the approach of businesses from small and
medium businesses sector to the issue of competitiveness, especially those
which decided to sell their products and services on the European market.[10]
Among the businesses participating in the
questionnaire, more than 44 per cent used the strategies based on cost
leadership, about 15 per cent strategies based on special relations with
customers, 12 per cent strategies involving time-based advantage, 11 per cent
competed on the basis of products brand and company reputation and only 7,5 per
cent have built their competitiveness on quality-based advantage.[11]
However, amongst all sources of competitive advantage which were considered as
an essential elements of competitiveness, the competitive cost of labour was
mentioned most frequently – confirmed by 70 per cent respondents.
Passing
on now to respective groups of SMB sector, it was noticed the following
dependences. In the small business group, amongst the sources of competitive
advantage the first place according to the frequency of ratings took (nearly 13
per cent) originating competitive
technology, the second position (11,5 per cent) belonged to competitive labour costs in Poland, though
on the third position was (10 per cent) special
human relations inside the company (illustration 1).
Illustration 1. Incidence of
competitive advantage sources on the market within the group of small
businesses.
Source:
Own elaboration based on the questionnaire research carried out under the
project:„Czynniki sukcesu polskich przedsiębiorstw na rynkach UE”,
[Factors of Polish businesses success on the EU markets] The College of
Strategic Management of Warsaw School of Economics, Warsaw 2005
Within
the group of small business, which awarded all sources of competitive advantage
jointly with 1500 points of note, the first place ranking according to the
obtained number of points earned originating
competitive technology (328 points), the second place competitive labour costs in Poland (199 points), and the third one capabilities to learn respondents’ preferences and behaviours (134 points).
Analysed
small businesses hardly ever did indicate such sources of competitive advantage
as: production in the countries of very
cheap labour force (no ratings) and advantage
in marketing skills, non-originating competitive technology, imported patterns
or components and other sources of advantage (with the frequency of
ratings: 1,3 per cent). The least
points were granted to the following sources of competitive advantage: production in low-cost labour countries (0
points), imported patterns or components (8 points) and other sources of advantage (10 points).
Within
the medium businesses the leading places occupied the following sources of competitive
market advantage according to the number of ratings: competitive labour costs in Poland (13,4 per cent), capabilities to learn respondents’ preferences and behaviours (19 per cent) and originating competitive technology, high
integration of marketing with production, supply, etc. and capabilities to learn new technologies (8,5
per cent ) (Illustration 2).
Illustration 2. Incidence of potential competitive advantage sources on
the market within the group of medium businesses.
Source:
Own elaboration based on the questionnaire research carried out under the
project:„Czynniki sukcesu polskich przedsiębiorstw na rynkach UE”,
[Factors of Polish businesses success on the EU markets] The College of
Strategic Management of Warsaw School of Economics, Warsaw 2005
Within
the group of medium businesses which granted to all indicated sources of
competitive advantage totally 2700 points in the research, on the first
position were: competitive labour costs
in Poland (540 points), second place took originating competitive technology (295 points), and the third one careful selection of market expansion fields
and their flexible changes and
capabilities to learn
respondents’ preferences and behaviours (265 points). The least frequently
were indicated such sources of competitive advantage as: others, not included in the advantage source questionnaire and imported pattern or components (no
ratings) and production in the countries
of very cheap labour force (with the frequency of ratings below 1 per
cent). The sources of competitive advantage which obtained the least points
within the group of medium businesses turned out to be respectively: imported patterns or components (0 points), others, not included in the advantage source questionnaire (0
points) and production in the countries
of very cheap labour force (20 points) and application of orders inside the company (35 points).
In the
Polish medium businesses’ opinion the most important source of competitive
advantage, favourable to succeed on the EU market were low costs of labour
force in Poland which still enable to compete with foreign companies. However,
apart from the mentioned source, medium businesses indicated also the urge to
use the originating technology in building sustainable competitive advantage, capabilities
connected with the selection of market expansion fields and their flexible
changes, capabilities to learn respondents’ preferences and behaviours,
capabilities to learn new technologies and integration of marketing steps with
productive and logistic strategy.
In the
group of small business the most important source of competitive advantage
according to the activities on the European Union market was competitive
originating technology, and then competitive labour costs in Poland, careful
selection of market expansion fields with their flexible changes and
capabilities to learn respondents’ preferences and behaviours.
In the
case of small and medium business one shall very positively remark high ranking
of originating technology application as a source of competitive advantage. The
fact that determines the success of Polish small and medium businesses in this
field is that businesses sell mainly (80 per cent for small and 67 per cent for
medium businesses) private label brand products and services (table 1). In the case of small
businesses it happens even more frequently than in the group of large
enterprises. This conclusion proves also that least remarkable or even
meaningless sources of competitive advantage are considered similarly like in the
case of ratings and assessment of respective sources: imported patterns and
components, production in the countries of very cheap labour force and
non-originating competitive technology playing the least important role.
Table 1. Product
and service sale of Polish businesses on the EU market according to the
business size and brand.
|
No |
Specification |
Small |
Medium |
Big |
|
Ratings in per cent |
||||
|
1 |
Private label brand products and services sale on the EU market |
80 |
67 |
79 |
|
2 |
Products and services sale on the EU market under the foreign brand |
20 |
33 |
21 |
|
3 |
Total |
100 |
100 |
100 |
Source:
Own elaboration based on the questionnaire research carried out under the
project:„Czynniki sukcesu polskich przedsiębiorstw na rynkach UE”,
[Factors of Polish businesses success on the EU markets] SGH, Warszawa 2005
The
carried out researches show that Polish small and medium businesses start to
notice the key role of their own internal resources and skills of building
sustainable competitive advantage over other participants of market play.
Polish entrepreneurs begin to perceive the mechanisms between respective skills
and need of their usage, whereas the effectiveness of actions based on internal
sources of competitive advantage will require from managers a great creativity.
The usage of originating technology, being recognized in the case of small
businesses as a most important, and in the case of medium businesses as a
second one amongst the most important competitive advantages decides upon
change of strategic orientation amongst those businesses, that is a change from
short-term to long-term orientation. The choice of this factor as one of the
main competitive advantage shall be correlated with the fact that majority of
the questioned businesses export private label products. Adapting such strategy
confirms also the change of attitude towards business management among Polish
entrepreneurs.
Change
in strategic orientation while entering into the European Union market is
especially seen in the case of entry forms on these markets. Analyzing the
methods of Polish small and medium businesses entering on the European Union market, it can be
additionally noticed the differences in internationalization progresses of
these groups (table 2). The fundamental method of entering the European market
for small and medium businesses is direct export, allowing to acquire
experience of operation on the international market. Approximately half of the
questioned businesses exports directly into the EU market (small businesses –
48 per cent, medium – 52 per cent, big – 42 per cent). This is an extremely
significant fact proving that Polish businesses, including small and medium
businesses, operating on the EU market want to control their sale regardless of
taking greater risk than in the case of indirect export. This form enables
gaining knowledge and experience in operation on foreign market. This element
is especially important for businesses from SMB sector, since small and medium
business as opposed to the large ones indicated in the research many years’
tradition of running the business on foreign markets. Gained experience on the
international market may form the basis of international business development,
including establishment of their subsidiaries or branches which may be seen in
the case of these companies. The above mentioned research allows to conclude that
every four company of SMB sector decided to invest in subsidiaries or branches
on the EU territory or is sub-distributor of EU companies in terms of their
long-term contracts.
Table 2. The method
of entering into the EU market taking into consideration the criteria of
company’s size.
|
No |
Specification |
Small |
Medium |
Big |
|
Ratings in per cent |
||||
|
1 |
Export indirect |
26 |
24 |
29 |
|
2 |
Export direct |
48 |
52 |
42 |
|
3 |
Branches or foreign subsidiaries |
9 |
8 |
10 |
|
4 |
Sub-distributor under long-term EU contracts with EU companies |
17 |
16 |
19 |
|
5 |
Total |
100 |
100 |
100 |
Source:
Own elaboration based on the questionnaire research carried out under the
project:„Czynniki sukcesu polskich przedsiębiorstw na rynkach UE”,
[Factors of Polish businesses success on the EU markets] The College of Strategic
Management of Warsaw School of Economics, Warsaw 2005
Direct
investments of Polish small and medium business most often cover the market
which is the closest from the point of geography, that is German market. This
tendency gives evidence of forming among the best functioning Polish businesses
the need of entry on higher level of business internationalization. The
traditional model of business internationalization starts from the export stage
through licenses, joint venture and finishes with setting up own business
abroad. Progressive process of globalization causes the increase number of
cases infringing harmony of hitherto models of business internationalization.
The example of such companies are enterprises operating on the strength of
Internet, thanks to which even small business may in short-time operate around
the world without forming the “physical” distribution canals abroad.
Generally
speaking, less and less companies use the form of entry on the foreign markets
through indirect export. It means that these companies want to directly control
product and service sale on the international market. What is noticeable is the
high rate of small and medium businesses establishing subsidiaries in the European Union countries. This is
the highest level of business internationalization.
Conclusions
The
ongoing changes in the attitude towards sources of advantage and foreign market
entry modes and progressive but still noticeable companies shift in real
capital and skills as shown in the research, shall be treated as a turn into
the right direction and chance of competitiveness growth in Polish companies on
the European
Union
market. It undermines prior thesis saying that small and medium businesses base
their competitiveness entirely on traditional, easily-imitable competitive
advantages, at least in the case of companies present on the European Union market. At the
same time, it may be said that for this narrow sub-group the application of
competitive advantage of higher order enables to compete in long-term
prospects.
While
taking actions connected with competing on common European market, Polish
companies must first and foremost aim not only to gain profits but also to
focus on company’s value growth and create values for customer. They shall also
resign from building development policy based on cost leadership which in
long-term does not allow to retain uniqueness of actions for the benefit of
pursuit of own competitive advantage among reserve sources of competitiveness.
While deciding on real capital development and own key skills, likewise it
emerges in developed countries, Polish companies shall gain the possibility of
not only maintaining but also improving their own competitiveness on the
European market. In this case the most important role shall play the business
capabilities of effective management and joining own resources and skills in
respective configurations. The latter allows to create so called “key skills”,
which are distinctive features of given company, but enabling for instance:
application of unique and difficult to be implemented by competitors productive
technology, introduction of innovative management systems, flexible
responsiveness to changing market circumstances, performance of joint venture
in cooperation with other companies, outsourcing application with simultaneous
concentration on key business kind for enterprise, focus on high quality and
its individuality or taking diversification actions with regard to create
values for customer.
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