The Age of the SME
Several studies have been conducted to investigate whether the age of an entrepreneurial SME affects its success, and if so, how. Nunes, et. al. (2013) concluded that both age and size restrict the growth of young SMEs, yet do not seem to affect older SMEs in the same way. This is presumable because an older firm has grown in size since its inception and/or has acquired adequate management experience to navigate difficult times and environments.
This same study also identified two more factors that are limiting for young SMEs, yet not so for older enterprises. As one might expect, cash flow and the management of debt are more crucial for a young firm than for an old one. Over time, these activities likely become easier because systems are put in place to make continual adjustments as needed. Also, young firms rely more heavily on research and development (R&D) intensity when they are in a financial deficit, although this is felt most heavily in high-tech SMEs.
Interestingly, old SMEs rely more heavily on R&D for growth, and they also rely more heavily on workforce productivity. This is possibly attributed to the rapid growth that occurs in the early years of a startup when it first enters a market and begins to fill a gap for heretofore unserved customers.
Federico and Capelleras (2014) did a longitudinal study of a group of Spanish manufacturing companies between 1996 and 2010. They found that the pace of growth of a young firm had a positive effect on profits; however, the relationship did not hold up in reverse. In other words, profits did not have a noticeable effect on growth. The researchers explained this oddity as an artifact of the complex nature of the relationship between the age of a firm and its physical and financial resources. They also noted that the great variability among SMEs—even those in the same geographical market—made it difficult to draw broad conclusions about causes and effects. The young age of a firm means that the people working in the firm do not have the necessary experience to notice these small changes and take note of the slightest opportunities they may have. Also, much of the profit that a firm attains usually goes into paying the fixed and variable costs that were still outstanding when the profit was first calculated. Many SMEs also do not have very big ambitions so owners may sometimes choose to spend the money for personal things instead of reinvesting the money into their business. Therefore, lack of age hinders growth mostly because it equals to a lack of experience and knowledge of the industry.
In a study conducted for Journal of Operational Research Society, Antony, LAbib and Kumar came up with a number of strengths of SMEs. According to Antony et al. (2008) SMEs are fairly uncomplicated when it comes to organizational structures. They do not have layers and layers of management, and the communication process is short and fairly simple. Therefore, SMEs are very flexible and can make way for a change. The top managerial team is visible to the lower levels of management and they lead the process of change by example. Since SMEs tend to have high employee loyalty, it is likely that the workforce will be more receptive to change. This makes it easier for them to stay current and modern.
Additionally, the team believes that since managers are more visible, it is highly likely that they have direct contact with customers. They get to meet their consumers face to face due to which they get an idea about the customers’ thinking and what they want from the firm. Therefore, they can act upon these wishes much more quickly. The execution and implementation of decisions are much more rapid.
Antony et al. (2008) continue that SMEs usually support a culture of learning when it comes to training. Instead of forcing their employees to quit their jobs when new technology emerges, they tend to motivate them to learn the newest tricks of the trade. Therefore, they do not fire employees but tend to teach them, considering them an integral part of the team. Therefore, the employees have a better sense of loyalty.
Dependence on Foreign Labor and Capital
Unlike other developing countries SMEs, the Saudi SMEs have been consistently unable to create jobs for their Saudi nationals. The reason for this is partly due the fact Saudi SMEs built their economic bases on cheap foreign labor, and despite the current country's tough Saudization program, which planned to raise the jobs occupied by Saudi nationals 30% more by 2003 (Looney, 2004), most Saudi SMEs have only managed to make marginal progress of 2% on average (Otsuki, 2002). On the other hand as many Saudi SMEs also depend on foreign technology, they will also depend on foreign technicians in addition to foreign manpower. The Saudi youth is suffering from a rising problem of unemployment. According to Glum (2015), the unemployment rate for people between the ages of sixteen to twenty-six is nearly 29% in the country. This is especially bad news because nearly two-thirds of the Saudi population is under the age of thirty. According to CIA’s World Factbook, the Saudi youth lacks the skills required by most private companies that pay well. Many blame the education system and its lack of hands-on practice. This definitely counts as a major weakness of the country. Hence, many Saudi SMEs are continuously in search of foreign resources, which often compromise their performance.
Strategies of SMEs
According to Burke and Jarrat (2004), strategies of small and medium companies may be defined by the planned activities that they carry out to attain their targeted goals using their limited resources and capabilities. According to these authors, small and medium companies make their strategic decisions by exploring the economic activities of their competitors and enter the market after gaining ample information through entrepreneurial and personal networks. They develop their strategies by relying on five elements, namely: environmental interaction, competitors' interaction, resources interaction, market interaction and planned activity. Sharma (2011) argued that small and medium companies develop their strategies mainly by scavenging on bits of works that they subcontract from large companies.
SMEs strategic approach could be a kind of fueled growth. They use their small sizes as a competitive advantage in which case they can supervise their performance bit by bit and thereby outperform the big companies of the same industry. Direct supervision enables them to add more value to their products and services relative to their competitors (Chaharbaghi and Lynch, 1999). Their main three kinds of business strategies they use are cost differentiation and focus.
Many small and medium businesses use focus and niche strategies, which is a special type of focus strategy (Hong and Jeong, 2006). Focus strategy differs from other strategies because it is mainly directed to serve the needs of a mall customer group or a small segment. It limits its efforts to serving a special market niche, which is either a geographic region, some special type of customers or a product segment (Galvin &Haidar, 2007). Lee et al. (2001) noted that SMEs strategies in Saudi Arabia are mainly niche strategies in which they specialize and follow Kingdom-wide wherever it is available. They mainly address three types of strategies, which are substitution strategy, deterrence strategy, and free-riding strategy. By following the substitution strategy, Saudi small and medium companies try to offer a substitute for the products produced by other companies or target a market segment presently ignored by big companies where they specialize and excel.
Lastly, SMEs are particularly good at acting as subsidiary firms for larger businesses. The offer bigger firms complimentary services. These are services that the larger firm tends to outsource. It may include things like IT development or employee workshops, etc. SMEs are also good at absorbing the effects of a fluctuating economy. Their strategy is to not just learn from the changes but to absorb their effects and evolve in the process. By doing this, SMEs are benefitting the Saudi economy as well as the people working for them. (Sfakianakis, 2014)
4.2.1 A Story of Fast Food Success
Al-Baik Food Systems Company is a fast food company and a major seller of chicken that owns a chain of restaurants in the Kingdom of Saudi Arabia and mainly sells fried chicken with many types of sauce. The company has some 40 outlets in Jeddah, eight in Makkah, three in Al-Medina, one in Yanbu, and one in Taif.The Prince of Al Qaseem'smade a contract with Al-Baik'spresident to open two outlets in Buraidah, which will be the first outlet to be opened in a region other than the Western Region of the Kingdom.(McNulty, 2004).
The story of Al-Baik started in 1974 in Jeddah, Kingdom of Saudi Arabia, when the late Shakoor Abu Ghazala felt the need of the public for high quality fast food to be sold at reasonable prices, which will also be served in a clean and friendly environment as well as characterized by quickness and tact. To engage in such a project, he invested all his savings in order to enter into an agency with a foreign company that would allow him to know how to prepare some recipes using imported spices and equipment. He was the first to introduce the concept of fried chicken or what is known as "broast" in the Saudi market (Al-Baik, 2015).
22.214.171.124 Steps in Development
In 1974, Jeddah was expanding from the old city in the north direction. Abu Ghazala opened his first restaurant on the road to the Old Airport. The building was originally a warehouse that Abu Ghazala rented and converted into a restaurant to be the first fried chicken restaurant in Jeddah.
The second restaurant was opened in 1976 when Abu Ghazala found a suitable location for a full-fledged fried chicken restaurant in Al-Sharafiayhneighborhood at the intersection of Al-Medina Road and Palestine Street. After this humble beginning, Abu Ghazala went ahead and never looked back (Al-Baik, 2015).
With the sudden demise of their father, the two sons of Abu Ghazala, Ihsan and Rami, found themselves in a critical position: they had to discontinue their academic study and come to work in their father's project. Fortunately, Ihsan had just finished his studies at the University of Petroleum and Minerals in 1974, and hence he came to Jeddah to manage the operation of the restaurants. He had to start the work on a new basis, taking into account the new developments in the eatery field. First, to protect himself against principal-over-agent dominance, Ihsan entered into a new agreement with the principal, the owner of the recipes, that would allow him to be the exclusive agent for the principal in the Kingdom of Saudi Arabia, as well as make arrangements with suppliers to provide him with up-to-date materials and equipment. To do this, he had to sell part of the project's assets, as well as reorganize the work in order to cut on spending. On the other hand, when Ihsan took over, there emerged in Jeddah alone some 400 restaurants that were imitating Al-Baik in serving fried chicken or what is now known for restaurant goers as "Broast", hence Al-Baik has to find something that will set it apart (Al-Baik, 2015).
126.96.36.199 Down to the Basics
When Rami completed his university study, also in engineering, in 1982, he joined his brother in the operation of the restaurants in Jeddah. The two brother engineers started the design of their restaurant activities from scratch in order to live up to the latest developments in the field of the eatery. They were not well-acquainted with modern restaurant work, and hence they went through the operation from A to Z. While Rami worked on the preparation recipes, cleanliness and serving the customers, Ihsan went to Paris in order to learn about food technology.
When the brothers learned the basics of work, they started to discover the secrets of eatery that should guarantee high quality. So, the brothers managed in 1984 to develop their own recipes that used a total of 18 kinds of herbs and spices, which became internally known as Al-Baik secret recipes. The recipes were prepared in a secret place and then transferred to the central restaurant after installing all the necessary equipment and accessories in that restaurant, and gradually transferred the new system in other restaurants.
188.8.131.52 Spreading Out
In 1986, the two brothers felt that they have to establish themselves as a full-fledged company with all the elements of the trademark that included a special slogan and a logo that sets the company apart from others. In that same year, Al-Baik was registered as a trademark in the Kingdom of Saudi Arabia. Immediately after that, customers started to pour in the various outlets that covered all corners of Jeddah, and Al-Baik started to be known as the symbol of exquisite food items, as well has high quality and exceptional service and cleanliness.
In 1990, the first Al-Baik restaurant outside Jeddah was opened in Mecca, thus marking the first move towards expansion within the national borders. The success that was achieved in Jeddah had its impact on the expansion plans that were in the cards for a long time even before the establishment of the company and the trademark. As a matter of fact, Mecca was specially chosen because of it vicinity to Jeddah, and because the company was eyeing the Holy Shrines of Hajj pilgrimage as a potential seasonal expansion venues. The number of restaurants continued to grow in Mecca till it reached later (2015) seven outlets.
In 1994, several new chicken items were introduced including the roast chicken, grilled chicken and cheese chicken. All these chicken items were introduced based on proposals from customers. Al-Baik by now became a highly respected national trade mark that occupies a special place in the hearts of the members of the local communities. Ihsan and Rami rephrased this fact as a liability to the homeland and a debt to the society of which they are very proud to pay. By saying this, they are admitting that they are indebted to their clients who made of Al-Baik a reputable trademark and a great name in the world of eatery (Al-Baik, 2015).
In 1998, Al-Baik opened the first three seasonal restaurants in Mina to serve the Hajj pilgrims while they come to perform their Hajj rituals in this Holy Shrine. Ever since that time, Al-Baik is continually present during the Hajj season in the Holy Shrine of Mina in a non-profit framework to serve the worshipers the most savory items of food that they relish during this spiritual season.
In 2000, Al-Baik opened the Food Industries Factory, a sister company that was built in Jeddah Industrial Area on an area of 30,000 meters to be the main supplier of ready-made food items for Al-Baik restaurants.
In 2001, Al-Baik opened its first restaurant in Al-Medina. The restaurant was unique in its area (1500 m2) and capacity (500 chairs). In that year also, Al-Baik Express Restaurants were opened, a group of restaurants that feature quick service along with the feature of food items transportation to the customer's home.
In 2005, Al-Baik won the ISO 22000 certificate in appreciation of the high-quality safety food systems that it applies in its restaurants. By winning this certificate, Al-Baik became the first food seller in Jeddah to win this inspiring award.
In 2013 Al-Baik added the fish fillet item to its express food items, and in that year Al-Baik opened its first restaurant in Yanbu, thus raising the number of restaurants outside Jeddah to 13 outlets (7 being opened in Mecca and 5 in Jeddah).
This is just a part of the annals of the live success story of Al-Baik. It the story of a small enterprise that managed to make a name and rival big Saudi companies with no aid or just little aid from the outside world. Even though it began forty years ago, it has fifty-one distinct stores and their meals till cost thirty percent less than major international food chains like McDonald’s. Even though the firm does not release their numbers since they are privately owned, their MD says that they are profitable and thinking of opening four new restaurants at different locations every year. (Brian, 2004).
4.2.2 Elements of Success
Al-Baikhas by now achieved the highest fast food market share as well as customer loyalty relative to its competitors in Jeddah; and competitors here means international and world top brands including McDonalds, Kentucky Fried Chickens and Pizza Hut who are operating in Jeddah for a long time. In the following, we shed light on Al-Baik main elements of success (An Eye on Saudi Blog, 2015).
184.108.40.206 The Quality & Price
It has been widely claimed that Al-Baik is a living proof of a strategy combining both differentiation and price leadership. Despite the myriad of restaurants that serve fried chicken, the taste and quality of Al-Baik fast foods are definitely unique while prices are always below average.
The Trustworthy Brand
Al-Baik brand is a very strong one, both in terms of the restaurants’ products or the brand impact on the customers. Al-Baik brand sends strong messages of high quality, prices below average, fast service, convenience, and corporate social responsibility. Al-Baik management is always very smart to emphasize these attributes into the brand employing various methods of advertisements, publicity, and public relations, as well as spreading brand stories. The entrepreneurial story of Al-Baik's founder is well-known including the manner in which he struggled to instill the culture and values which he believes in, in the Saudi community awareness regarding eating out of doors which has till recently been very peculiar and strange to the Saudi culture. The story tells how Abu Ghazala used to work alone in his restaurant including preparation of food, serving it, chatting with the customers to build some sort of connection with them, and then cleaning the place, all of which was a peculiar demeanor to which restaurant goers of the time were not accustomed.
Superb Customer Service
In terms of both service design and restaurant environment cleanness, Al-Baik is providing superior services. Not only this, but Al-Baik is among the few restaurants that can be singled in terms of their dependence on items introduced to the menu based on customers’ suggestions.
Al-Baik marketers have shown that they are masters in the selection of restaurants locations. No Al-Baik outlet has ever been reported as lacking in numbers of customers. Despite the huge expansions in Jeddah, which were at first seen as too optimistic based on competitor power, customers quickly proved loyal to Al-Baik. For this reason, the higher management decided that wherever people live in Jeddah, there should be Al-Baik outlet within easy reach of all the residents.
Al-Baik is an enterprise highly committed to various corporate social responsibility (CSR) initiatives. Among the principles deeply rooted in the enterprise's plans is to launch unique social and educational programs that would strengthen a relationship of value and trust with the community. The programs of social responsibility in Al-Baik were established, in the words of Rami, chairman of the enterprise's board of directors "as a means by which Al-Baik management can express its gratitude to the community, the people of the area served by Al-Baik and the customers, we thank them in our way, because it is them he made Al-Baik what it is now."
Among the initiatives of Al-Baik CSR program is the sponsorship of the "Cheerful Science Show" that was launched in 1996 and hosted by Jeddah Center for Science and Technology. Another initiative is the "Future Scientists Program" which may be considered the first CSR program hosted in Al-Baik headquarters in order to encourage applied science teaching in collaboration with the private and public sectors in a cheerful atmosphere that also aims to increase awareness about the local environmental issues. Among the events of the program is the contest of the "Young Future Scientists" in collaboration with Coca-Cola company. In this program, young students compete in answering some scientific questions, and the winners get rewards.
In 2005 also, Al-Baik entered into another partnership with Coca-Cola to launch the local "Clean World" program guided by the recommendations of the UNDP (United Nations Developmental Program) and Jeddah Center of Science and Technology. As part of this program, the role of Al-Baik was to develop a strategy of environmental awareness through the introduction of two cartoon personalities, namely Nazih and Wartan. The partnership of Al-Baik also included dissemination of cleanliness principles as part of beautification of Jeddah initiative.
Al-Baik has a regular presence during Hajj pilgrimage seasons when it distributes free meals to Hajj pilgrims, as well as in other pilgrims wellbeing issues such as campaigning for pilgrims' health issues like banning smoking in Al-Baik restaurants. Al-Baik staff actively participated in the wake of Jeddah floods by distributing free meals to the people affected by the flood catastrophe which is an example to be followed by organizations while interacting with theirs.
However, Al Baik has received glaringly negative reviews on many online websites, such as Zomato, from their customers. One negative reviewer stated that that food is too salty and too oily. When customers were asked to compare their experiences with KFC or McDonald’s they stated that they believed the international fast food franchises were much better than AL Baik. On average, Al Baik had a user review rating of two starts out of five on Zomato. Additionally, many customers have complained of a lack of availability of sitting space – even in the chain’s largest restaurants. They have asked for better seating arrangements and quicker service. (Zomato, 2015).
4.2.3 Eyeing the Future
However, preserving one's place on the top cannot be an easy matter. Al-Baik management needs to deal with a myriad of issues in order to continue growing. Any Al-Baik staff member who happens to travel outside Jeddah can easily observe one of these vital issues; about how can a food business expand? Should Al-Baik consider opening new outlets in other Saudi places or cities Kingdom-wide? And what about becoming multinational or global?
Furthermore, how should Al-Baik respond vis-à-vis the growing concerns and issues raised by organic and healthy foods advocates, given the fact that Al-Baik is selling items such as fried chicken which depend on raw food, though healthy, but perhaps not organic? And more important, how can Al-Baik managers maintain the company's competitive edge and how can they further their current sustainability?(An Eye on Saudi Blog, 2015).
4.3.1 Internal Analyzes
Highest fast food market share and customer loyalty in Jeddah relative to international and world top brand competitors including McDonalds, Kentucky Fried Chickens (KFC) and Pizza Hut (An Eye on Saudi Blog, 2015).
Living proof of a unique customer attraction strategy combining both differentiation and price leadership (An Eye on Saudi Blog, 2015).
Superior services. Al-Baik is among the few restaurants in terms of dependence on items introduced to the menu based on customers’ suggestions.
A leader in the chicken segment in terms of number of outlets in KSA (35 outlets), exceeding the international Mc Donald (27) and KFC (8) (El-Asmar, 2008).
High presence during Hajj season as the main fast food company providing Hajj pilgrims with food (An Eye on Saudi Blog, 2015).
The Islamic roots of the firm give it authenticity and assures the customers that the firm makes sure its meat is halal. Customers are more likely to suspect the international fast food franchises to commit crimes against religious beliefs of the population, but they do not expect it from Al Baik. (Zomato, 2015).
Al-Baik experimented with ethnic cuisine and found the experiments successful given its large number of East Asian labor and customers (El-Asmar, 2008).
Al Baik has Saudi roots since it is firm started by one of the country’s own. Its customers see the restaurant as a symbol of national pride and superiority. Many prefer to buy “Saudi” and, therefore, purchase much of their fast food from Al Baik instead of foreign firms.
Distribution of outlets limited to Jeddah and a few other cities in the Western Region except for Buraidah in the Central Region (An Eye on Saudi Blog, 2015).
Difficulties with distribution even in the Western Region due to the sparse population of the region outside the main cities of Jeddah, Makkah, Medina and Taif (An Eye on Saudi Blog, 2015).
Difficulties with maintaining and furthering the current levels of sustainability (An Eye on Saudi Blog, 2015).
Some outlets of the firm have received negative reviews with customers claiming that the meat is either too salty or too oily. This is bad PR for the firm and will push away any health conscious customers.
4.3.2. External Analysis
Their lower prices help undermine the competition and bring in more customers each day. If this continues to happen, there is a high chance that Al Baik becomes the majority market share holder.
Bulk buying from firms will also allow them to get discounts from suppliers.
Being a Saudi company, Al Baik is perceived as a more “Islamic” restaurant. Since Muslims are very careful about the concept of “haram” and “halal”, AL Baik can use their Islamic roots as an opportunity to gain an edge over their competition in advertisements. This is more likely to work in the strongest and most Islamic country in the world.
Hajj pilgrims from other Islamic countries go back home and spread Al-Baik success story which offer opportunities to expand abroad (An Eye on Saudi Blog, 2015).
Lower costs resulting from recruiting cheap skilled East Asian labor offers opportunities to repeat the success story in these countries (El-Asmar, 2008).
Al-Baik success stories with East Asian ethnic cuisine may be repeated abroad especially in these countries (El-Asmar, 2008).
Al Baik built fame on the professionalism of its service and is today considered a reference in the industry, which will help the brand abroad (El-Asmar, 2008).
The firm hasn't yet crossed the boundaries of Saudi Arabia due to the tough competition in the fast food global market.
The fast food culture established by Al-Baik is unique to Saudi Arabia, and may not be replicable abroad.
Competing in the global fast food market depends on many of factors including the concept, the know-how, the investment, the location, the target, the brand, the staff training among other factors, all of which may not be possessed by Al-Baik (El-Asmar, 2008).
4.3.3. PESTLE Analyses
- Regulations are changing with respect to food standards and marketing techniques.
- The level of governmental stability in the emerging economies of the world.
- Global adaption to standards and techniques enforced by regulatory bodies.
- Staying aware of the level of inflation, income levels, expenses and market rates that keep changing.
- The ever increasing awareness in the consumer about price consciousness.
- Changing the cost of production of products due to volatility in rates of raw materials.
- The advent of health consciousness amongst people and an urge to defeat common diseases like diabetes and cholesterol.
- The ever changing ways of life and changing the attitude from home cooking to hostelling and vice versa.
- The adaption requirements with respect to the religions, languages and cultures of countries accessed.
- Setting of the image in the general public regarding the usefulness and friendliness of the company.
- Adaption to the new areas of product promotion and public addressing, i.e. social media and mass media.
- Availability of company networks and support for the general public on technologically advanced tools.
- Platforms and software in use for organizational management.
- More pressure of aiding by rules and regulation made by international bodies and their newer versions.
- The regulations are also changing continuously, always a challenge to keep up with them.
- Increasing expectations from the general public about contributions towards corporate social responsibilities and charity works.
- The concerns raised by environmental protection organizations about the sustainability of the environment and the role of the organization in keeping the environment safe.
Even though AL Baik is a major Saudi fast food chain and has come a long way in its short forty years, it still has a long way to go. The management of the firm must now take steps to take the firm abroad and grow beyond Saudi borders.
J, A. (2011). Journal of the Operational Research Society - Table 1 for the article: Gearing Six Sigma into The UK manufacturing SMEs: results from a pilot study. [online] Palgrave-journals.com. Available at http://www.palgrave-journals.com/jors/journal/v59/n4/fig_tab/2602437t1.html [Accessed 30 Jun. 2015].
Nunes, P., GonÃ§alves, M. and Serrasqueiro, Z. (2011). The influence of age on SMEsâ€™ growth determinants: empirical evidence. Small Bus Econ, 40(2), pp.249-272.
The Guardian, (2014). Efficient marketing strategies for SMEs. [online] Available at http://www.theguardian.com/small-business-network/2013/apr/19/effective-marketing-strategies [Accessed 30 Jun. 2015].