Manufacturing strategy in SMEs and its performance implications
| Published date | 13 July 2015 |
| Date | 13 July 2015 |
| DOI | https://doi.org/10.1108/IMDS-12-2014-0380 |
| Pages | 1004-1021 |
| Author | Olli-Pekka Hilmola,Harri Lorentz,Per Hilletofth,Jarmo Malmsten |
| Subject Matter | Information & knowledge management,Information systems,Data management systems |
Manufacturing strategy in SMEs
and its performance implications
Olli-Pekka Hilmola
Department of Industrial Management,
Lappeenranta University of Technology, Kouvola, Finland
Harri Lorentz
Turku School of Economics, University of Turku, Turku, Finland
Per Hilletofth
School of Engineering, Jönköping University, Jönköping, Sweden, and
Jarmo Malmsten
Turku School of Economics, University of Turku, Turku, Finland
Abstract
Purpose –West European manufacturing has been going through challenging times after the global
financial crisis of 2008-2009. Some countries (e.g. Sweden and Germany) have recovered from the crisis,
while in others problems and job loss still persist. One of these problem countries is Finland. The
purpose of this paper is to examine manufacturing strategy priorities and their performance
implications in this country.
Design/methodology/approach –During the spring of 2014, a web-based survey was conducted,
targeting Finnish manufacturing companies. In this study we focus on small- and medium-sized
(SMEs) companies and link survey responses to financial performance data, which is available in
audited annual reports.
Findings –Research results indicate that SME manufacturers in Finland put less emphasis in new
product development, broadness of product line and after sales service, while showing high priority in
delivery speed and punctuality. As the manufacturing strategy dimensions are connected to audited
financial data, regression analyses reveal that superior quality is at central place for achieving higher
revenuesand profits. Aftersales service has a positiveimpact on revenuesand new product development
ability is connected to higher profits. Managing quality to meet specifications (minimum quality level),
leads only intohigher employment. Someevidence is shown in supportof flexibility in terms of product
changes havingnegative impact on revenue, while volume flexibility isconnected to lower profits.
Research limitations/implications –This research is limited to a single country, and is cross-
sectional in nature. The primary data were combined with profit and loss statements in order to reduce
common method bias.
Practical implications –It is evident that SMEs may adapt their manufacturing strategy, with
emphasis on superior quality together with properly managed after sales service and new product
development activity. However, it is worrying that head count in manufacturing SMEs is not connected
to same factors, as are revenue and profit. It is suggested that flexibility in labour contracts and other
regulatory support measures are needed to support flexible manufacturing.
Originality/value –Advanced economies and their remaining manufacturing companies have been
receiving minor levels of interest in research. This is especially the case with SMEs, where this research
tries to fill important research gap.
Keywords Strategy, Financial performance, Finland, Manufacturing, Survey
Paper type Research paper
1. Introduction
The role of small- and medium-sized enterprises (SMEs) has increased during the recent
decades as large corporations have reduced their basic research budgets, while applied
product development and business acquisitions have been used instead as basis for
Industrial Management & Data
Systems
Vol. 115 No. 6, 2015
pp. 1004-1021
©Emerald Group Publishing Limited
0263-5577
DOI 10.1108/IMDS-12-2014-0380
Received 20 December 2014
Revised 15 March 2015
20 April 2015
Accepted 23 April 2015
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0263-5577.htm
1004
IMDS
115,6
growth. In other words, SMEs are no longer just a source of raw materials, components
or semi-finished items, but they increasingly serve as sources of new ideas, new
products and “complete package”subcontractors, with the original equipment
manufacturers’(OEM) brand put into the product. Therefore, requirements for price,
quality, delivery and flexibility have increased, and SMEs have to provide these with
advanced IT systems (Haug et al., 2011), development resources (Arrunada and
Vázquez, 2006; Hilmola et al., 2005) and financing ability (Ma and Hilmola, 2007). In the
recent decades, it has been difficult for pure manufacturing companies to make
significant profits, as services have taken a considerable share of the market growth
and final product prices for manufacturers have been weak due to pric e inflation
(Marquis and Trehan, 2010). Therefore, OEMs have been forced to use suppliers
for global delivery and concentrate on value capture, and service offerings (like Apple;
Haslam et al., 2013).
Based on recent empirical research conducted in Spain on companies of various size
(Minguela-Rata et al., 2014), it was shown that medium sized companies are the most
innovative, and that innovation takes place in a mode of collaboration with custom ers,
which are typically larger corporations. Also age appears to play an important role
as innovation is present most often in younger companies. It could be said that large
corporations are increasingly talking about innovation and seeking opportunities,
but these are sought after at stakeholders and through active technology licensing,
business acquisition and divestment activity. The phenomenon of open innovation is
one of the hottest topics within innovation discipline, and it does not only emphasize
collaboration between companies, but also with universities, research laboratories and
government (Naqshbandi and Kaur, 2014).
For the initiation of new companies, it is important that risk finance, as well as
markets for products and research and development funding (and organizations) are
available. Therefore, it is justified that growing GDP results in good environment for
establishing and sustaining SME (Kshetri, 2014). With SME serving manufacturing
sector or large tangible projects, it is important that share of imports and exports is
having high share out of GDP and imports and exports is growing (Kshetri, 2014). This
ensures manufacturing SMEs to have legisla tive (coupled together with low
bureaucracy) and financial support from government as well as from surrounding
financial sector. The supply of competence and resources from pool of labour is also
assured in such environment (as sub-sector grows).
Global financial crisis (GFC) was a tipping point for many advanced economies, and
continuing decline has been at the agenda in many economies, particularly in
Europe. Before the GFC, these countries were models for emerging economies, and the
country serving as the research context, Finland, was one of them. Finland has been
continuously at TOP10 positions in global competitiveness rankings of World
Economic Forum (Schwab and Porter, 2008; Schwab, 2011, 2013), and in the most
recent ranking it was as high as the fourth place (Schwab, 2014). However, development
of the manufacturing environment has been extremely sluggish in Finland after the
GFC, and is the weak part of the economy. Both export (Finnish Customs, 2014a) and
GDP (Statistics Finland, 2014a) were at the end of 2013 at the level of year 2006, and
showing significant decline from the pre-crisis peak level of 2008 (export declined
nearly 15 per cent and GDP declined more than 5 per cent). During the years,
employment at the manufacturing sector has also been severely hurt: based on official
statistics the decline has been some 15 per cent since year 2008, and nearly one-fourth
after year 2000 (Statistics Finland, 2014b). This all translates into significant challenges
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Manufacturing
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SMEs
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