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Background

​Scope of Studies and Current and Future Development

In recent years, small and medium enterprises abbreviated as (SMEs) begin to gradually replace large scale conglomerate businesses. This is due to the considerable impact SMEs had on economic life and society. It played a significant role in economy's ability to compete and to continue revitalization. However, in early stages, very few if any economic and managerial studies have paid attention to the particularities and meaning of companies and entrepreneurs behind SMEs growth. But this has changed recently, and the subject of entrepreneurship is now widely studied and applied for examining SME's. Both Entrepreneurship and SME development paradigm now have gained an increasing political, scientific attention which reflects how they have become a driving force of modern economic systems and have helped massively reduce unemployment rate, and poverty level, and provided many with social benefits.  

(SMEs) Contributions in Economy Growth

In the United States, the SMEs contributed significantly to the development and growth of efficiency especially in the areas of innovation, job generation, and international competitiveness. This well-known fact was quoted by U.S. Bureau of the Census, the U.S. Small Business Administration (SBA), and US international Trade Commission Investigation (USITC)No. 332-508 USITC Publication 4125 of January 2010.  SEMs contributions was evident in the following

Economic Activities

Bureau reported that between the years 1998 to 2004, SMEs accounted for 50 percent of nonagricultural gross domestic product (GDP). It also accounted for 30 percent of known U.S merchandise exports between the years 1997 to 2007. The total U.S SME exports amounted to $304.6 billion. The growth of SME merchandise exports was largely attributed to the increase of net new market entrants. By the year 2004 SMEs contributed $4.7 trillion to the U.S economy which makes about 50% of its private nonagricultural GDP. The two sectors: wholesale and retail trade combined accounted for largest share of SME GDP 15.30 %. Second was real estate which formed 11.5%. Professional, scientific, and technical services follow by 11.1%. Fourth came the manufacturing and mining sectors which formed 11.0%. Finally, the construction sector amounted for 10.0 of SME GDP in 2004.

Number of Firms

Majority of SMEs are firms with fewer than 20 employees. Census reported that in year 2006 SMEs accounted for 99.9% of the 27 million employer and non-employer private nonfarm businesses in the United States. Census also states SMEs roughly employed half of the 120 million nonfarm private sector workers in the United States in 2006. The growth in construction sector and services sector fueled employment within SMEs and larger firms by comparable rates between the years 1998 to 2006.

Innovation

More than larger firms, SMEs are an important source of innovations in terms of processes, products, or services. They can also be more efficient in production.Entrepreneurial opportunities SMEs created significant opportunities for US citizens to develop skills of entrepreneurship.

Entrepreneurial opportunities

It is inarguable that SMEs have great potential to promote domestic-led growth in new industries and existing one as well. SMEs also strengthens the resilience of the economy in a competitive and challenging environment. The economic growth in development countries such as Japan, Korea, Taiwan and many others was largely generated by SME, according to Department of Statistics of Malaysia. The contribution percentage of SMEs to Gross Domestic Products (GDP) total value was founded to be 60.0 percent in China, 57.0 % in Germany, 55.3 % in Japan and 50.0 5 in Korea, and 47.35% in Malaysia. To evaluate SMEs contributions three main sectors are evaluated: manufacturing sector, services sector, and agriculture sector which reflects that small and medium enterprises have been the backbone of economic growth and driving industrial development. Several factors were behind the SMEs role in promoting endogenous sources of growth. These include: SMEs sheer numbers, SMEs size, and nature of operations. They strengthen the infrastructure for accelerated economic expansion and development. There is also a close relationship between SMEs and franchise sector which have led to the further expansion of SMEs.

Intertwining of Entrepreneurs, SMEs and Franchise Sector

In contemporary business, there is an interrelation between SME growth and entrepreneurship and franchise businesses. In numerous contexts across the world, franchising is used as development and growth strategy that functions as an entry to expansion mode and competitive advantages. In developing countries regional development bangs have highlighted franchising in development of businesses small and micro especially in the social sector. In USA only, franchising was behind 760,000 businesses18 million jobs, 14% of the private sector employment, and over $500 billion in payroll with an estimated $1.3 trillion in sales.

The International Franchise Association reported this study by the year 2010. Same growth trend is apparent in Europe. Sales in the UK for example, have grown more than ten times from £ 0.9 in 1984 b to £ 9.6 b in 2004. It reached almost £ 10b mark in early 2006. BFA/NATWEST survey in 2006 shows that there are 718 franchise systems and 28,500 franchisees. It shows that this sector is responsible for employing more than 29.34 million people in USA, UK, France and Germany.

The median gross annual income (before taxes) of franchisees was found between the $75,000 to $124,000 range. Above 30% of franchisees were earning over $150,000 per year. The Department of Commerce in the united states reported that after 10 years 90% of franchises are still operating in contrast with 18% of other forms of small business. This report illustrates the significance of franchise role in SMEs growth and development as stimulus for economic growth and reducing unemployment.

Overview of Entrepreneurship, SME's and Franchise Sector in Saudi Arabia

Unemployment numbers in Saudi society are very high. Thus, many institutions including the government initiate a various activities and project to promote employability and local talent employment.  The scope of entrepreneurship development in Saudi Arabia is evident by primary industry. It is involved in the extracting natural resources and collecting them, and farming and fishing activities. They contributed largely to the growth of economy of Saudi as primary industries tends to make larger portion of developing countries than they do in developed countries.

Entrepreneurial activities remain with the major groups and business houses as Saudi is a consumer society. These companies and entrepreneurs own and operate various businesses in hotel, catering, processing, retail, automobile and related, imports and distribution, education, restaurants, real estate, private airlines and banks, investment houses, shopping centers and high-rise buildings, oil, agriculture, and fast-moving consumer good manufacturing and processing. International franchise is also included ranging from United Colors of Benetton to PepsiCo and McDonalds for example. These have master franchisee mode of business which cannot generate mass entrepreneurial activity or Saudization as the individual franchisee does not come into play. While the kingdom hosts almost all international franchise brands in hotel, fast food, clothing, fashion, restaurant, etc. it still needs to feed the economy by manufacturing and specialized service alongside the primary sector. This will help massively in generating employment opportunities and stimulating economic activities that can trigger mass Saudization.

The Gap

Currently there is limited knowledge of academia, mangers and practitioners in the domain of entrepreneurship especially leadership, SME's, sustainable development and their relations to the Middle East.  However, there has be an improving attention of stakeholders to this area of the world due to its strategical importance. Academic and applied journal output will contribute to bringing this gap between limited knowledge now available and importance for the Middle East.  


Dr.Muhammad Rahatullah Khan

Editor

 

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