The Changing Role of SMEs in Global Business: Volume II: Contextual Evolution Across Markets, Disciplines and Sectors [1st ed.] 9783030458348, 9783030458355

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PALGRAVE STUDIES IN CROSS-DISCIPLINARY BUSINESS RESEARCH, IN ASSOCIATION WITH EUROMED ACADEMY OF BUSINESS

The Changing Role of SMEs in Global Business

Volume II: Contextual Evolution Across Markets, Disciplines and Sectors Edited by Alkis Thrassou · Demetris Vrontis Yaakov Weber · S. M. Riad Shams Evangelos Tsoukatos

Palgrave Studies in Cross-disciplinary Business Research, In Association with EuroMed Academy of Business

Series Editors Demetris Vrontis Department of Marketing University of Nicosia Nicosia, Cyprus Yaakov Weber School of Business Administration College of Management Rishon Lezion, Israel Alkis Thrassou Department of Marketing University of Nicosia Nicosia, Cyprus S. M. Riad Shams Newcastle Business School Northumbria University Newcastle Upon Tyne, UK Evangelos Tsoukatos Department of Accounting and Finance Hellenic Mediterranean University Heraklion, Crete, Greece

Reflecting the growing appetite for cross-disciplinary business research, this series aims to explore the prospects of bringing different business disciplines together in order to guide the exploration and exploitation of scholarly and executive knowledge. Each book in the series will examine a current and pressing theme and consist of a range of perspectives such as management, entrepreneurship, strategy and marketing in order to enhance and move our thinking forward on a particular topic. Contextually the series reflects the increasing need for businesses to move past silo thinking and implement cross-functional and cross-disciplinary strategies. It acts to highlight and utilize the emergence of crossdisciplinary business knowledge and its strategic implications across economic sectors, geographic regions and organizational types. Published in conjunction with the EuroMed Academy of Business, books will be published annually and incorporate new scientific research works developed specifically for the book or based on the best papers from their conferences. Over the last decade EuroMed have developed a cross-disciplinary academic community which comprises more than 30,000 students and scholars from all over the world. Each submission is subject to a proposal review and a double blind peer review. For further information on Palgrave’s peer review policy please visit this website: https://www.palgrave.com/gp/book-authors/ your-career/early-career-researcher-hub/peer-review-process. For information on how to submit a proposal for inclusion in this series please contact Liz Barlow: [email protected]. For information on the book proposal process please visit this website: https://www.palgrave.com/gp/book-authors/publishing-guidelines/ submit-a-proposal More information about this series at http://www.palgrave.com/gp/series/15956

Alkis Thrassou Demetris Vrontis  •  Yaakov Weber S. M. Riad Shams  •  Evangelos Tsoukatos Editors

The Changing Role of SMEs in Global Business Volume II: Contextual Evolution Across Markets, Disciplines and Sectors

Editors Alkis Thrassou Department of Marketing University of Nicosia Nicosia, Cyprus

Demetris Vrontis Department of Marketing University of Nicosia Nicosia, Cyprus

Yaakov Weber School of Business Administration College of Management Rishon Lezion, Israel

S. M. Riad Shams Newcastle Business School Northumbria University Newcastle Upon Tyne, UK

Evangelos Tsoukatos Department of Accounting and Finance Hellenic Mediterranean University Heraklion, Crete, Greece

ISSN 2523-8167     ISSN 2523-8175 (electronic) Palgrave Studies in Cross-disciplinary Business Research, In Association with EuroMed Academy of Business ISBN 978-3-030-45834-8    ISBN 978-3-030-45835-5 (eBook) https://doi.org/10.1007/978-3-030-45835-5 © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2020 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Cover illustration: Daniele Levis Pelusi via Unsplash.com This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Contents

1 Editorial Introduction: Contextual Evolution of SMEs across Markets, Disciplines and Sectors  1 Alkis Thrassou, Demetris Vrontis, Yaakov Weber, S. M. Riad Shams, and Evangelos Tsoukatos 2 The Impact of Digitalization and Sustainable Development Goals in SMEs’ Strategy: A Multi-Country European Study 15 Belyaeva Zhanna and Lopatkova Yana 3 Business in a Foreign Country: A Contextual Analysis of Immigrant Entrepreneurship and Their SMEs 39 Ozgur Ozmen and Raluca Mariana Grosu 4 Defining the SME: A Multi-Perspective Investigation 61 Stefano Montanari and Ulpiana Kocollari 5 To Fail or Not to Fail: An Algorithm for SME Survival Prediction Using Accounting Data 83 José Manuel Pereira, Humberto Ribeiro, Amélia Silva, and Sandra Raquel Alves v

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6 Dynamic Capabilities and System Thinking: The Role of Networking Capabilities to Foster Innovation in SMEs109 Demetris Vrontis, Gianpaolo Basile, Mauro Sciarelli, and Mario Tani 7 The Influence of Social Vision, Social Networks, and Financial Return on Social SME Sustainability133 Sunday Adewale Olaleye, Emmanuel Mogaji, Josue Kuika Watat, and Dandison Ukpabi 8 Prediction of Viticulture Farms Behaviour: An AgentBased Model Approach155 Aníbal Galindro, João Matias, Adelaide Cerveira, Cátia Santos, and Ana Marta-Costa 9 Digitalization of SMEs: A Review of Opportunities and Challenges179 Alkis Thrassou, Naziyet Uzunboylu, Demetris Vrontis, and Michael Christofi 10 Financing and Innovativeness of Small and Medium-Sized Enterprises: The Case of Poland201 Tomasz Kusio and Barbara Siuta-Tokarska 11 Italian Furniture Sector SMEs: Sustainability and Commercial Ethics225 Guido Migliaccio and Luigi Umberto Rossetti Index261

Notes on Contributors

Sandra  Raquel  Alves is Professor at College of Technology and Management, Polytechnic Institute of Leiria, Portugal. She has a Doctorate in Business Sciences from the Faculty of Economics of the University of Porto, Portugal; A Master in Accounting and Auditing, Open University; A Degree in Business Management, College of Accounting and Administration of Coimbra. She is a Chartered Accountant, researcher at the Information Systems and Technology Management Lab, São Paulo, Brazil; A member of scientific and professional associations. Former Manager, and Auditor Assistant. She has been visiting professor at several universities, is a scientific conferences organizer, reviewer at journals and conferences, and author of numerous publications, including books, book chapters and scientific journals. Gianpaolo Basile  got his PhD in Communication Science in University of Salerno (Italy). He is Professor of Destination Management and Economy and Management of innovation in Universitas Mercatorum (Italy) and from 2010 is Adjunct Professor of a Business Management PhD course in Vitez University (Bosnia-Herzegovina). He is author of numerous published articles and books and board member in a number of international journals. He is founder and President of Business Systems Laboratory (www.bslaboratory.net). His main research interests are: vii

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Systems Thinking Approach, Place Marketing and Management, Innovation and Competitiveness, Corporate Social Responsibility. Adelaide  Cerveira received her PhD in Statistics and Operations Research from the University of Lisbon, Lisbon, Portugal, in 2006. She is currently Associate Professor in the Mathematics Department of the Science and Technology School at the University of Trás-os-Montes and Alto Douro. Her current research interests include statistics data analysis, combinatorial optimization and applications, especially modeling and optimization of problems in the vineyard sector, in forest management, network design, lot sizing and scheduling. Michael  Christofi  holds a PhD in Business Administration from the University of Gloucestershire Business School, Cheltenham, UK. He is Senior Research Fellow in Marketing Strategy and Innovation at the University of Nicosia in Cyprus, having previously served from various R&D, sales and marketing positions within large organisations. His research spans across the fields of corporate social responsibility, causerelated marketing, strategic marketing, product innovation, strategic agility and organisational ambidexterity. His work has appeared in the Journal of Business Research, International Marketing Review, Journal of Services Marketing, and Marketing Intelligence & Planning, among others. Aníbal  Galindro  has a degree in Economics and a double MSc in Economics and Applied Mathematics, he is currently a research fellow at the University of Aveiro involved in the project P-RIDE.  The project intends to improve and develop the Portuguese decision support systems using a broad set of interdisciplinary researchers. He was also involved previously in the project INNOVINE & WINE which intended to improve and develop the Portuguese wine-making process in the Douro region. His work compiles optimal control, dynamical systems, binary optimization, maximum entropy estimation, forecasting and machinelearning methods. The previously mentioned work was developed mainly in Python, R, Matlab, Netlogo and Gretl. Raluca  Mariana  Grosu, PhD  is Lecturer of Entrepreneurship at the Bucharest University of Economic Studies in Romania. She was visiting scholar at the University of Amsterdam, the Netherlands; the University

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of Bari Aldo Moro, Italy; and the University of Seville, Spain. She is part of the Romanian Regional Science Association Board and member of European Regional Science Association, Regional Science Association International and Association for Innovation and Quality in Sustainable Business and is part of the editorial board of Amfiteatru Economic and Romanian Journal of Regional Science scientific journals. Her main general research areas cover entrepreneurship, regional science and demographics, focusing mainly on relationships between entrepreneurship, migration, aging and local and regional development. Ulpiana  Kocollari is Associate Professor in Management and Accounting at the Marco Biagi Department of Economics and Management of the University of Modena and Reggio Emilia where she teaches Business Ethics and Corporate Social Responsibility, Management and Accounting. She has taken part in numerous national and international research projects in collaboration with other Universities and Research Centres funded by EU and other institutions. Her research activity has been developed mainly on the following topics, producing several publications on: Corporate Strategy, Innovative Startups and SME, Social Entrepreneurship and Crowdfunding. Tomasz  Kusio, PhD is Assistant Professor at Cracow University of Economics (CUE), researcher at the Department of Economic Policy and Development Programming, College of Economics, Finance and Law. He is also member of the European Research Center at the CUE. His research interests are primarily focused on innovativeness, entrepreneurship and commercialization. He has authored and co-authored more than 100 publications nationally and internationally, he has been strongly engaged in national and international projects and is also a member of thematic networks. Ana  Marta-Costa holds a PhD in Agri-social Sciences and she is Assistant Professor at the Department of Economy, Sociology and Management of University of Trás-os-Montes and Alto Douro (Portugal). She is a full member of CETRAD—Centre for Transdisciplinary Development Studies, where develops research on the sustainability assessment and planning of the farming systems. She has participated in

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funded research projects and published several papers and books on these fields. She is the Director of the Agribusiness and Sustainability Doctoral Program and member of the Direction of APDEA—Agrarian Economy Portuguese Association. João Matias  is Associate Professor of Numerical and Statistics Methods at the University of Trás-os-Montes and Alto Douro, Vila Real, Portugal, and holds a PhD in Applied Mathematics, an MSc in Informatics and a DSc in Mathematics. He is a member of the CMAT Mathematics Center at the University of Minho and collaborator in the Vine and Wine Innovation Platform project  – INNOVINE & WINE.  His research interests include nonlinear modeling and optimization. Guido Migliaccio  is Associate Professor of Business Administration and Accounting at the University of Sannio. He received his PhD in Public Sector Management (2007) and another PhD in Marketing and Communication (2010) both awarded by the University of Salerno, Italy. He has written many books and articles. Emmanuel  Mogaji holds a PhD in Marketing and is Lecturer in Advertising and Marketing Communications at the University of Greenwich, Fellow of the Higher Education Academy (HEA) and a Certified Management & Business Educator (CMBE). He has published several peer-reviewed journal articles and presented his work at numerous national and international conferences. He has also coedited books on marketing higher education in Africa published by Routledge and Springer Nature. He received the 2019 Emerald Literati Highly Commended Paper Award. Stefano  Montanari is Associate Professor in Management and Accounting at the Marco Biagi Department of Economics and Management of the University of Modena and Reggio Emilia, where he teaches Accounting and Business Evaluation. His research activity has been developed mainly on the following topics, producing several publications on: Family Business, Corporate Strategy and Accounting. Sunday Adewale Olaleye  received his Master of Science in Information Systems from the Abo Akademi University, Turku, Finland; MBA from

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the Lapland University of Applied Sciences, Tornio, Finland; NMS iICT Certificate, Innovation and Entrepreneurship from the Nordic Master School of Innovative ICT, Turku Centre for Computer Science (TUCS), Turku, Finland; and Certificate of Leadership and Management in Health from the University of Washington, USA. Currently, he is doing his postdoctoral research at the University of Oulu, Finland. He has presented papers at conferences and published in academic journals. His research interests are emerging mobile technologies, entrepreneurship, tablet commerce, mobile commerce, circular economy and mobile apps. Ozgur Ozmen, PhD  is Assistant Professor of International Trade at the Nevsehir HBV University. He completed his master’s and PhD in Bucharest University of Academic Studies in Romania after he graduated from industrial engineering BA at Marmara University in Istanbul. He worked as founding assistant professor of international trade departments in several universities of Turkey. His publication record includes many book chapters, articles, proceedings and abstracts at the international dimension, covering international trade, entrepreneurship, immigration economy and entrepreneurship, EFQM/Total Quality Management and innovation management. He barely turned back to academia in 2019 after long years due to some political problems with the government. He is also an international entrepreneur in business life and owns some companies in the EMEA countries. José  Manuel  Pereira is an accounting professor at the School of Management, Polytechnic Institute of Cávado and Ave (IPCA). He has a PhD in Accounting from Vigo University, Spain; an MSc in Accounting and Auditing from the University of Minho, Portugal; degree in Business Management from the University of Beira Interior, Portugal. He is a researcher at the CICF—Research Center on Accounting and Taxation from IPCA; Chartered Accountant; member of several scientific and professional associations; reviewer of journals and conferences; and author of numerous publications. Humberto  Ribeiro  is Professor at the University of Aveiro, ESTGA, and Researcher at GOVCOPP, Portugal. He has a PhD in Business and Management Research, Leicester Castle Business School, DMU, UK; an

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MPhil in Quantitative Methods Applied to Economy, Santiago de Compostela University, Spain; Master’s and PGD in Accounting and Corporate Finance; and a BSc in Economics. He is a Certified Economist and Chartered Accountant, member of the Social Responsibility Research Network, and other scientific and professional associations, former Operational Manager and Certified Investing Advisor, and visiting professor at several universities worldwide. He is an Academic and Scientific Conferences organizer, member of editorial boards, reviewer of journals and conferences, and author of numerous publications. Luigi Umberto Rossetti  received his PhD in Management and Local Development at the University of Sannio (2012). He is a professor of Business Administration, member of EFT—MIUR and also business consultant. He is an independent researcher, member of the research group of Prof. Guido Migliaccio at the University of Sannio, Department of Law, Economics, Management and Quantitative Methods. He has published some studies, above all on the furnishing sector in which he has many years of experience. Cátia  Santos  has a degree in Biology, an MSc in Ecotoxicology and Toxicology and a PhD in Agronomic and Forest Sciences. She has participated in different projects as a research fellowship. Her research activity and interests are focused on by-products valorization, waste management, sustainable agriculture, soil fertility, composting, biofertilizers, ­circular economy and sustainability. She also participated in a study on the productive efficiency of viticulture in north of Portugal. Her research work has been published in international conference proceedings, books and journals. Currently, she is Project Officer on Circular Economy area at CoLAB VINES&WINES at ADVID. Mauro  Sciarelli is Full Professor in Business Management and Coordinator of Business Management Course (University of Naples Federico II). He is in the Board of BS-LAB (Business Systems Laboratory). Member of AIDEA (Accademia di Economia Aziendale), SIMA (Società Italiana di Management), GBS (Gruppo di studio sul bilancio sociale). He holds a PhD in Business Administration from the University of Venice Ca’ Foscari. He is a visiting Scholar at the Fisher College of Business,

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Ohio State University, Columbus (1998). His main research topics are related to: Strategic management, Corporate Social Responsibility, Sustainability, New venture creation, Tourism management, Business ethics, Facility management. He has authored/edited four books, numerous articles in scientific journals and contributions in international handbooks. S.  M.  Riad  Shams is a lecturer at the Newcastle Business School, Northumbria University, UK. He worked in academia and industry in Australia, Bangladesh and Russia. He pursues research in entrepreneurship, social business, CSR, business sustainability, strategic management, and stakeholder relationship management and marketing, and has published eight edited books, contributed articles to top-tier international journals, and guest-edited for various reputed journals, including the Journal of Business Research, Journal of International Management, International Marketing Review, Management Decision, European Business Review, Journal of Social Entrepreneurship, Journal of Operational Risk, Journal of General Management, Tourism Management Perspectives, Journal of Hospitality and Tourism Research, and EuroMed Journal of Business. He is the founding editor of the International Journal of Big Data Management, and has led a number of international academic conference tracks. Amélia  Silva  is Assistant Professor at Porto Accounting and Business School, Polytechnic Institute of Porto. She teaches Cost Accounting, Management Accounting and Strategic Management Accounting. Since 2011, she holds a PhD in Accounting from the University of Vigo, Spain. Her research interests are accounting and management control in healthcare, accountability in public organizations, and business failure prediction. She supervised several Master’s dissertations and PhD theses. She has participated in international conferences and national and international projects. She also has several scientific publications and collaborations as peer reviewer in international journals. Barbara Siuta-Tokarska,  PhD, DSc, is Associate Professor of Cracow University of Economics (CUE). She is Deputy Director of the Institute of Management, member of Management Sciences and Quality, and a research and didactic worker in the Department of Economics and

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Organization of Enterprises at CUE. Her research interests are primarily focused on the problems of functioning and development of SMEs not only in Poland but also around the world, as well as sustainable development. She is an author and co-author of four books and over 120 international and domestic research publications. Mario Tani  is Lecturer at the University of Naples Federico II. He holds a PhD in Business administration defending a thesis on Knowledge Flows in Short Food Supply Chains in February 2010. His main research topics are Stakeholder Management, Innovation and Social Innovation, Social Enterprises (mostly focused to Fair Trade Organizations). He has published several articles in scientific journals and chapters in books. He has attended many conferences presenting papers that have been selected several times to be published as chapters in books or in special issues of scientific journals. He received the award of “Best Paper from Young Researchers” in the XXXIII Convegno AIDEA. Alkis Thrassou  is a professor at the School of Business, University of Nicosia, Cyprus, EU. He holds a PhD in Strategic Marketing Management from the University of Leeds, UK, and is also a chartered marketer and fellow (FCIM), a chartered construction manager and fellow (FCIOB), a chartered management consultancy surveyor (MRICS) and a senior research fellow of the EuroMed Academy of Business (SFEMAB/ EMRBI). He has extensive academic and professional/industry experience, and has undertaken significant research in the fields of strategic marketing, management and customer behaviour. He has published over 120 works in numerous internationally esteemed scientific journals and books, and he retains strong ties with the industry, acting also as a consultant. Evangelos  Tsoukatos  teaches management at the Hellenic Mediterranean University, Greece, and is an adjunct faculty at the University of Nicosia, Cyprus, and Hellenic Open University. He holds a BSc in Mathematics from the Aristotle University of Thessaloniki, Greece, a postgraduate diploma and an MSc in Operational Research and a PhD in Management Science from Lancaster University Management School (LUMS), UK.  He has authored and edited books and journal

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special issues, published in scholarly journals, and presented in academic conferences. He is Associate Editor of the EuroMed Journal of Business (EMJB) and an editorial board member in a number of international scholarly journals. Dandison Ukpabi  is a PhD in the Marketing Department, University of Jyväskylä, Finland. He did his master’s degree programme at the University of Plymouth, United Kingdom, in Marketing Management and Strategy. His most recent publication appeared in Telematics and Informatics. He has also presented papers in reputable conferences such as ENTER e-Tourism conference, Bled eConference and the European Marketing Academy Conference (EMAC). His research interest focuses on e-tourism, digital marketing and social media, relationship marketing and marketing strategy. Naziyet Uzunboylu  holds a BA in Events Management from Manchester Metropolitan University and a MBA in Marketing from the University of Nicosia (Cyprus). She is a second-year doctoral student in the School of Business at the University of Nicosia. Her research area covers social media marketing, user-generated content, digitalisation and brand selfies. Recently, her paper was published in Qualitative Market Research: An International Journal. Demetris  Vrontis  is the Vice Rector for Faculty and Research at the University of Nicosia, Cyprus. He is the Editor in Chief of the EuroMed Journal of Business and the Associate Editor of International Marketing Review. He is also the Founder and President of the EuroMed Research Business Institute. He has widely published, in over 200 refereed journal articles and 40 books. He is a fellow member and certified Chartered Marketer of the Chartered Institute of Marketing and a Chartered Business and Chartered Marketing Consultant. He also serves as a consultant and member of the board of directors to a number of international companies. Josue Kuika Watat  is Digital Advisor for several rural municipalities in Cameroon. He holds a master’s degree in Information Systems and two bachelor’s degrees in Computer Science and Management Economics. He is passionate about economic policy and e-governance in Africa. He

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is the author of several scientific papers published in major conferences in Information Systems such as AMCIS and EMCIS. His work focuses on e-governance/e-participation in sub-Saharan Africa, Artificial Intelligence, ICT4D, social media adoption and human behavioral change. He strongly believes in the power of science to reach the SDGs in Africa, reduce poverty and increase prosperity. Yaakov Weber  is Professor and Director of the Research Unit, School of Business Administration, College of Management, Israel. His publications received many thousands of citations, he received the Outstanding Author Award, and one of his papers was included in the lists of the most important works published in International Bibliography of Sociology. He has served in various editorial positions in leading journals such as California Management Review, Journal of World Business, Human Resource Management and British Journal of Management. He is the founder and president of the EuroMed Research Business Institute and EuroMed Academy of Business. He also consults large international companies, start-ups, industrial associations and others. Lopatkova  Yana is Assistant Professor at Ural Federal University (Russia), has a double master’s degree in International Management from Ural Federal University and Lille-1 University (France). She is currently doing her PhD in International Economics. The scope of her research interest is the development of a sustainable economy in the framework of digitalisation. She has published over ten refereed articles in national and international journals. Belyaeva Zhanna, PhD  is Associate Professor at Ural Federal University (Russia), Academic Director of Graduate School of Economics and Management. She works as EPAS Accredited BA “International Economics and Business” Programme Director. She has corporate experience in Russia, Switzerland and Sweden, helps to integrate economics and businesses issues into study curriculum and research projects. During different periods of her career, Prof. Belyaeva worked as a visiting professor in Russia, Canada, Italy, France and Cyprus to practice and explore

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different education techniques. She also leads the research unit for Global Social Responsibility Excellence and International Business, which contributes to proactive involvement of younger researchers. She has undertaken significant research in the fields of international business and economics, corporate social responsibility. Her research works have appeared in numerous internationally esteemed scientific journals and books.

List of Figures

Fig. 3.1

Middle Eastern immigrant entrepreneurs and their SMEs in Romania: opportunities and challenges Fig. 5.1 Publication year in web of science about survival analysis in the field of bankruptcy Fig. 5.2 Word cloud resulting from content analysis Fig. 7.1 Tested hypotheses conceptual framework Fig. 7.2 Result of simple mediation analysis Fig. 10.1 Share of innovative industrial and service enterprises in Poland by size class for each period from 1998 to 2017 (in % of the total for each period from 1998 to 2017). (Source: Own elaboration)

56 87 93 144 146

208

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List of Tables

Table 2.1 Table 2.2

SDGs and SMEs nexus SDGs and SMEs business model directions in Western and Eastern European SMEs Table 5.1 Main goal and methodology of the papers examined Table 5.2 Variables in the equation Table 5.3 Survival function table Table 7.1 Result of tested hypotheses Table 8.1 ABM variables formulation, description and initial conditions (IC) Table 8.2 Northern, centre and alentejo survival rates and surviving farms’ area, in function of different financial incentives Table 8.3 Northern, centre, and alentejo farms survival rate and surviving farm area in relation to different increasing rates in labour costs Table 10.1 Share of innovative enterprises of the SME sector in Poland and in the EU in selected years in the period 2006–2018 (in %). Table 11.1 Comparison between organized large-scale distribution, traditional stores, and online stores Table 11.2 Research outcomes: Accredited Italian companies

23 29 88 98 99 145 161 168 169 209 239 245

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1 Editorial Introduction: Contextual Evolution of SMEs across Markets, Disciplines and Sectors Alkis Thrassou, Demetris Vrontis, Yaakov Weber, S. M. Riad Shams, and Evangelos Tsoukatos

1.1 Book Context and Theoretical Foundations Small to medium-sized enterprises (SMEs), like most organizations across the typological spectrum, have substantially and visibly been affected by the wider (r)evolution that has transformed the business context A. Thrassou (*) • D. Vrontis Department of Marketing, University of Nicosia, Nicosia, Cyprus e-mail: [email protected]; [email protected] Y. Weber School of Business Administration, College of Management, Rishon Lezion, Israel e-mail: [email protected] S. M. R. Shams Newcastle Business School, Northumbria University, Newcastle Upon Tyne, UK e-mail: [email protected] © The Author(s) 2020 A. Thrassou et al. (eds.), The Changing Role of SMEs in Global Business, Palgrave Studies in Cross-disciplinary Business Research, In Association with EuroMed Academy of Business, https://doi.org/10.1007/978-3-030-45835-5_1

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internationally. The well-established, albeit undefined and unpredictable combination of forces, such as information and communication technologies, sociocultural and political changes, economic crises and rising consumer bargaining powers, have reshaped the very foundations upon which SMEs traditionally grew and competed. And though change in itself has diachronically been a constant in business contexts, its current extent, nature and pace leave few lessons to be learnt from past experience. SMEs, thus, struggle to find their position and role in this new world, and to do so they first need to understand it. This book presents scholarly and executive readers alike with a collection of independent works that are mutually joined by their contribution to our understanding of these changing conditions that ultimately shape the business context of SMEs, providing, along the way, valuable information of both scientific and practicable worth. The chapters cover topics such as SME digitalization, sustainability, immigrant entrepreneurship, contextual dynamic capabilities and innovation, survival predictability, social effects, industry contextualization and contemporary ethical questions. SMEs constitute the basis of economic development of any given country (Janda et al. 2013; Koudelková and Svobodová 2014; Belas et al. 2015; Simionescu et al. 2017; Ruchkina et al. 2017) and contribute to a large extent to national economic development (Stefanovic et al. 2009) by creating jobs, forming the economic capital and providing investment opportunities and economic growth (Ongori and Migiro 2009). Especially in developing countries, SMEs generate the vast majority of businesses (Genc et al. 2019). There is no doubt that the changing needs and demands of consumers (Christoforou and Melanthiou 2019), the globalization of markets and the advancement of technology force the nature of competitive paradigms to change continuously (Ocloo et  al.

E. Tsoukatos Department of Accounting and Finance, Hellenic Mediterranean University, Heraklion, Crete, Greece e-mail: [email protected]

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2014). These changes compel SMEs to compete and evolve throughout different dimensions (Chen and Liu 2019) such as adopting technological innovation to designing, developing and producing new products (Kriemadis 2018), developing appropriate marketing strategies (Bresciani et al. 2013) and accessing communication technologies such as smartphones (Oreku et al. 2009; Chimucheka and Mandipaka 2015). Furthermore, globalization processes, such as advancements in transportation, technology and communication, have declined barriers to trade (Oviatt and McDougall 1994; Genc et  al. 2019) and generated changes in the global value chains (Coviello and Munro 1997; Young et al. 1989; Genc et al. 2019), resulting in a growing number of SMEs trying to take advantage of new environmental conditions (Chimucheka and Mandipaka 2015), that is, expanding to international markets (Covin and Miller 2014; Acosta et  al. 2018). Globalization makes it easy for SMEs to enter different geographic markets (Ng and Kee 2017) and thus creates new structures and new relationships (Hafsi 2002; Harvey and Novicevic 2002; Ocloo et al. 2014) and reinforces the competitive atmosphere around the world (Thrassou and Frey 2017). When the recent and ongoing wave of globalization combined with technological advances (especially in ICTs) (Barba-Sanchez et al. 2007), unprecedented opportunities emerged for SMEs to become partners in international strategic alliances (Cenamor et al. 2019), participants in cross-border mergers and acquisitions (Thrassou and Vrontis 2008), members of globalized informal networks (Karimi and Walter 2015; McIntyre and Srinivasan 2017; Cenamor et al. 2019) and specialized suppliers to multinational enterprises (Singh et al. 2010). Such arrangements can offer any of a variety of benefits for SMEs including more efficient coordination of research (Belyaeva 2018), access to financial and tangible resources (Knight and Kim 2009), product development (Thrassou et al. 2018) and wider distribution channels (Tallot and Hilliard 2016). SMEs faced increased competition in their home markets, especially after the arrival of foreign competitors (Dana et  al. 1999; Zahra and George 2002; Genc et al. 2019), which placed a strong pressure on SMEs (Ocloo et al. 2014) to develop good-quality and innovative products in order to outperform their competitors (O’Dwyer et al. 2009; Rosenbusch et al. 2011; Genc et al. 2019). Therefore, SMEs need to innovate in order

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to cover both product and process improvements (Karagouni 2018) since it is observed that SMEs with greater innovation have superior productivity and profitability as compared to less innovative firms (Geroski et al. 1993; Roper and Hewitt-Dundas 1998; Genc et  al. 2019). When the innovation process is enhanced by the flexibility of SMEs (Knight 1995; Rothwell 1994; O’Dwyer et  al. 2009), these can quickly develop new products (Rosenbusch et al. 2011; Bagheri et al. 2019) and easily customize them to niche markets (Cenamor et al. 2019). Thus, SMEs are qualified to be successful innovators (Verhees and Meulenberg 2004; Ng and Kee 2017), despite facing resource limitations (Mort and Weerawardena 2006; Terziovski 2010; Bagheri et al. 2019). In such a demanding environment, it is no longer possible for SMEs to be successful without their presence in international markets (Tallot and Hilliard 2016) and/or having a good appreciation of global competition (Jones 2001; Oakey and Mukhtar 1999; O’Cass and Weerawardena 2009; Bagheri et al. 2019). Stronger participation by SMEs in international markets can strengthen their contributions to economic development (Stefanovic et al. 2009) and social well-being (Barba-Sanchez et al. 2007), and create opportunities to expand, accelerate innovation, facilitate technology and enhance productivity (Vrontis et  al. 2006). Furthermore, the unique characteristics of SMEs, such as greater flexibility and capacity to customize and differentiate products (O’Dwyer et al. 2009), provide them a competitive advantage in international markets (Barba-Sanchez et al. 2007), as they are able to respond quickly (Ocloo et al. 2014) to changing market conditions. Consequently, some niche international markets and larger multinationals often become partners with innovative SMEs (Shams 2018) in serving new markets and developing new products (Kriemadis 2018). In addition, the introduction of digital technologies, like social media and big data, has offered revolutionary changes in SMEs such as more rapid internationalization (Tallot and Hilliard 2016) and access to the same capabilities as large companies. Digital technologies have changed how SMEs create and capture the value (Bharadwaj et al. 2013; Lucas et al. 2013; Bouwman et al. 2019) and have allowed them to improve their market intelligence (Ulas 2019) and access global markets and knowledge networks at relatively low cost (Singh et  al. 2010). Social

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media, for instance, is changing the way SMEs interact with customers and deliver their services (Christoforou and Melanthiou 2019). The use of these technologies also eases SMEs’ access through better job recruitment sites (Ongori and Migiro 2009), outsourcing and a range of financing instruments (Baporikar 2014), as well as connection with partners (Ocloo et al. 2014). In fact, changes in the global economy and being constantly faced with a dynamic fast-paced competitive global landscape drive SMEs to evolve and proactively reconsider both their internal and external interactions (Kiel et al. 2016; Bouwman et al. 2019). As a result, there is plenty of evidence that not only have SMEs thriven in domestic economies (Belyaeva 2018), but that their international presence has grown as well (Tallot and Hilliard 2016).

1.2 Book Content and Structure The book presents ten works, in addition to this chapter, which have been selected considering their quality, their relatedness to the book theme, the significance of their contribution to knowledge, the degree to which they complement the central questions of SME contextualization, as well as their country and industry focus. The result is a collection of scientific works that provide a multi-perspective outlook on the factors and forces affecting contemporary SME business, through a number of different market and industry contexts. Chapter 2, ‘The Impact of Digitalization and Sustainable Development Goals in SMEs’ Strategy: A Multi-Country European Study’ by Belyaeva Zhanna and Lopatkova Yana, focuses on the global economy evolution under the influence of Industry 4.0 and sustainable development which builds a relatively new framework embracing the instrumental linkage of entrepreneurship, digitalization and sustainable development in the context of SMEs. The chapter particularly attempts to compare the role of SMEs under the framework of sustainable development goals (SDGs). The authors base their discussion on the results of their own research conducted among SMEs operating in six Western and Eastern European countries. Qualitative and quantitative analyses reveal that digitalization has the potential to positively affect the social and environmental

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dimensions of sustainable development. However, the overall sustainability of digitalized business needs more attention, in order to better understand this potential, and avoid rebound effects. Subsequently, Chap. 3, ‘Business in a Foreign Country: A Contextual Analysis of Immigrant Entrepreneurship and Their SMEs’ by Ozgur Ozmen and Raluca Mariana Grosu, aims to raise awareness about the opportunities and challenges faced by immigrant entrepreneurs and their own SMEs, active in a foreign country. Based on a complex field research and following an evolutionary approach, from past to present and, very daringly, into the future, the chapter focuses on SMEs initiated and developed by Middle Eastern immigrant entrepreneurs in Eastern Europe. From a multi-perspective approach, Chap. 4 ‘Defining the SME: A Multi-Perspective Investigation’ by Stefano Montanari and Ulpiana Kocollari, analyses the definitions of an SME.  Because less is known about the difficulty that researchers face in coming up with a precise definition of “SME”, the chapter aims to present the definitions of SME in both legal and business terms, with the awareness that the application of quantitative criteria alone will present a very heterogeneous set of businesses, and therefore it is only by identifying recurrent qualitative characteristics that one can define SMEs’ shared organizational and management features. The literature has provided a large number of quantitative parameters for measuring different aspects of SME and many qualitative variables that make the definition of SME more comprehensive and their classification more accurate. Nevertheless, there is no one solution suitable for all purposes. Chapter 5, ‘To fail or Not to Fail: An Algorithm for SME Survival Prediction Using Accounting Data’ by José Manuel Pereira, Humberto Ribeiro, Amélia Silva and Sandra Raquel Alves, examines the very significant negative effects of the financial crisis, in particular on micro and small and medium-sized enterprises (SMEs). The issue of corporate bankruptcy has been, and continues to be, a topic of significant interest to a broad set of economic agents. The chapter proposed an algorithm that has been constructed for predicting the survival likelihood of a corporation, using financial accounting data. Furthermore, due to the more common fragility of SME, the authors consider this algorithm as a

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possible tool for assessing their financial condition, providing an immediate insight into their survival odds and therefore helping the management to better justify their decision-making processes, namely the critical ones, driven to avoid business failure. Overall, the results suggest that the proposed algorithm is reliable while forecasting the survival likelihood of SMEs, based on their financial accounting reported data. In the innovation context, Chap. 6, ‘Dynamic Capabilities and System Thinking: The Role of Networking Capabilities to Foster Innovation in SMEs’ by Demetris Vrontis, Gianpaolo Basile, Mauro Sciarelli and Mario Tani, investigates the relationship between exploitation, exploration processes and firm performance in the ecosystem of the Italian sharing economy in the face of change. Their research results show that the propensity to adapt dynamically to the environment is significantly higher for companies that are aware that they belong to a network. This fundamental question has engaged scholars from disciplines as disparate as management, strategy, organizational, sociology, psychology, and economics that contributed also to redefining the firm concept. With these considerations, the firm in this chapter is considered to be a complex and adaptive system composed of tangible and intangible components in an interaction to achieve survival by creating and maintaining dynamic relations with numerous and heterogeneous stakeholders. The relational capabilities identify the firm as a dynamic component of a supra system (place/ territory, industry, district) influenced by the other social and economic systems in direct or indirect relationships between them. These interactions, due to the great level of interrelatedness of system parts, introduce the nonlinearities concept in the dynamics of the system. The no-linear condition shows that relationships between systems create inputs and outputs that will not be strictly plannable but stochastically predictable. Chapter 7, ‘The Influence of Social Vision, Social Networks, And Financial Return on Social SME Sustainability’ by Sunday Adewale Olaleye, Emmanuel Mogaji, Josue Kuika Watat and Dandison Ukpabi, explains the phenomenon from an entrepreneurial perspective and focuses on entrepreneur sustainability. The data for this work were collected at the firm level with questionnaires through the Qualtrics online survey platform. The structured questionnaires target the social micro, small and medium-sized enterprises (SMSMEs) in Nigeria. This chapter

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provides a fundamental understanding of structural relationships that exist between the social vision, social network, financial return, innovation and SMSME sustainability and contributes to the literature by deepening the concepts of social entrepreneurship in developing countries, where social and economic conditions are not stable. Chapter 8, ‘Prediction of Viticulture Farms Behaviour: An Agent-­ Based Model Approach’ by Aníbal Galindro, João Matias, Adelaide Cerveira, Cátia Santos and Ana Marta-Costa, intends to predict the wine firm performance of three of the most relevant Portuguese regions, by resorting to available data on the Portuguese Farm Accountancy Data Network (PTFADN, 2001–2015). The existing social, economic and environmental parameters allowed the work to be performed using MATLAB, in order to obtain information about the variable’s behaviour. Through the agent-based model (ABM) simulations, it is possible to realize that, in general, the Alentejo region is substantially well prepared to deal with negative scenarios when compared with the northern and central regions. Adding to the digitalization aspect of SMEs, Chap. 9, ‘Digitalization of SMEs: A Review of Opportunities and Challenges’ by Alkis Thrassou, Naziyet Uzunboylu, Demetris Vrontis and Michael Christofi, undertakes a comprehensive review of extant scientific works to identify the range and nature of opportunities and challenges faced by SMEs in contemporary business in the context of digitalization and information and communication technology developments. The chapter suggests that SMEs have seen drastic changes in their their identity and position against large companies and customers due to the information technology revolution of the past two decades. This period has partly weakened them because of competition from large global companies, but it has also armed them with competencies and opportunities to do things and reach customers that were unimaginable in the recent past. Chapter 10, ‘Financing and Innovativeness of Small and Medium-­ Sized Enterprises—The Case of Poland’ by Tomasz Kusio and Barbara Siuta-Tokarska, indicates the problems in the Polish economy related to both the level of innovativeness of the surveyed entities by their size classes and types of activity, as well as access to external sources of financing for innovative activities. Long-term analyses provided an opportunity

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to show changes, but also trends in this area. Conclusions from the analysis for the Polish economy are also presented in the chapter. The final chapter, Chap. 11, ‘Italian Furniture Sector SMEs: Sustainability and Commercial Ethics’ by Guido Migliaccio and Luigi Umberto Rossetti, centres on the Italian furniture supply chain to explain the changes in the production and distribution of furniture; describes the environmental and sustainability risks typical of the production and marketing of furniture; presents ethical principles that can improve the production processes of furniture and the relationships between sellers and customers, fostering transparent and mutually convenient business relationships. To the theoretical development are added some deep considerations deriving from many years’ experience in the furniture sector of one of the chapter authors, Luigi Umberto Rossetti. Many considerations expressed, therefore, can be considered derived from a multi-year qualitative survey based on the daily presence in the Italian market, certainly representative of wider Western markets that are in constant relation with the Eastern ones. To the direct experience is added a study related to some choices of primary Italian companies compared to the ethical certification. The analysis taken from the Italian industrial and commercial reality is particularly useful for the theoretical development. This book does not claim to offer any definitive or conclusive answers to the questions of the state, conditions and effects of the SME business context. The subject is too wide, too deep and too complex for any individual work, or collection of works, to deal with. It does, however, offer a contemporary comprehensive view of the situation, and acts as a reminder of the changes that have already taken place and as a foresight of things to come. We hope and trust it shall make interesting reading for business scientists and managers, and that it shall set the foundations for further research to develop.

References Acosta, A. S., Crespo, A. H., & Agudo, J. C. (2018). Effect of market orientation, network capability and entrepreneurial orientation on international performance of small and medium enterprises (SMEs). International Business Review, 27, 1128–1140.

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Bagheri, M., Mitchelmore, S., Bamiatzi, V., & Nikolopoulos, K. (2019). Internationalization orientation in SMEs: The mediating role of technological innovation. Journal of International Management, 25, 121–139. Baporikar, N. (2014). Innovation strategies in SME: Global perspective. In C. Machado & P. Melo (Eds.), Effective human resources management in small and medium enterprises: Global perspectives (pp. 315–341). Hershey: Business Science Reference. Barba-Sanchez, V., Martinez-Ruiz, M.  D. P., & Jimenez-Zarco, A.  I. (2007). Drivers, benefits and challenges of ICT adoption by small and medium sized enterprises (SMEs): A literature review. Problems and Perspectives in Management, 5(1), 103–114. Belas, J., Bilan, Y., Demjan, V., & Sipko, J. (2015). Entrepreneurship in SME segment: Case study from the Czech Republic and Slovakia. Amfiteatru Economic, 17(38), 308–326. Belyaeva, Z. (2018). Business environment challenges and trends for contemporary SMEs in Europe. In The sustainable marketing concept in European SMEs (pp. 13–28). Bingley: Emerald Group Publishing. Bharadwaj, A., El Sawy, O., Pavlou, P., & Venkatraman, N. (2013). Digital business strategy: Toward a next generation of insights. MIS Quarterly, 37(2), 471–482. Bouwman, H., Nikou, S., & Reuver, M.  D. (2019). Digitalization, business models, and SMEs: How do business model innovation practices improve performance of digitalizing SMEs? Telecommunications Policy, 43, 1–18. Bresciani, S., Thrassou, A., & Vrontis, D. (2013). Change through innovation in family businesses: Evidence from an Italian sample. World Review of Entrepreneurship, Management and Sustainable Development, 9(2), 195–215. Cenamor, J., Parida, V., & Wincent, J. (2019). How entrepreneurial SMEs compete through digital platforms: The roles of digital platform capability, network capability and ambidexterity. Journal of Business Research, 100, 196–206. Chen, J., & Liu, L. (2019). Customer participation, and green product innovation in SMEs: The mediating role of opportunity recognition and exploitation. Journal of Business Research, 1–12. https://doi.org/10.1016/J. JBUSRES.2019.05.033 Chimucheka, T., & Mandipaka, F. (2015). Challenges faced by small, medium and micro enterprises in the Nkonkobe municipality. International Business & Economics Research Journal, 14(2), 309–316.

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Christoforou, T., & Melanthiou, Y. (2019). The practicable aspect of the omni-­ channel retailing strategy and its impact on customer loyalty. In A. Thrassou et  al. (Eds.), The synergy of business theory and practice (Palgrave studies in cross-disciplinary business research, in association with EuroMed Academy of Business) (pp. 239–260). Cham: Palgrave Macmillan. Coviello, N., & Munro, H. (1997). Network relationships and the internationalisation process of small software firms. International Business Review, 6(4), 361–386. Covin, J.  G., & Miller, D. (2014). International entrepreneurial orientation: Conceptual considerations, research themes, measurement issues, and future research directions. Entrepreneurship Theory and Practice, 38(1), 11–44. Dana, K.  J., Van Ginneken, B., Nayar, S.  K., & Koenderink, J.  J. (1999). Reflectance and texture of real-world surfaces. ACM Transactions on Graphics (TOG), 18(1), 1–34. Genc, E., Dayan, M., & Genc, O. F. (2019). The impact of SME internationalization on innovation: The mediating role of market and entrepreneurial orientation. Industrial Marketing Management, 82, 253–264. Geroski, P., Machin, S., & Van Reenen, J. (1993). The profitability of innovating firms. The Rand Journal of Economics, 24, 198–211. Hafsi, T. (2002). Global competition and the peripheral player: A promising future. In S. Fawzy (Ed.), Globalization and firm competitiveness. Washington, DC: The International Bank of Reconstruction and Development. Harvey, M., & Novicevic, M. M. (2002). The hypercompetitive global marketplace: The importance of intuition and creativity in expatriate managers. Journal of World Business, 37, 127–138. Janda, K., Rausser, G., & Strielkowski, W. (2013). Determinants of profitability of polish rural micro-enterprises at the time of EU accession. Eastern European Countryside, 19, 177–217. Jones, M. V. (2001). First steps in internationalization: Concepts and evidence from a sample of small high- technology firms. Journal of International Management, 7, 191–210. Karagouni, G. (2018). The role of dynamic entrepreneurial capabilities and innovation in intergenerational succession of family firms. In D.  Vrontis et  al. (Eds.), Innovation and capacity building (Palgrave studies in cross-­ disciplinary business research, in association with EuroMed Academy of Business) (pp. 31–54). Cham: Palgrave Macmillan.

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Oakey, R., & Mukhtar, S. (1999). United Kingdom high-technology small firms in theory and practice: A review of recent trends. International Small Business Journal, 17, 48–64. Ocloo, C. E., Akaba, S., & Worwui-Brown, D. K. (2014). Globalization and competitiveness: Challenges of small and medium enterprises (SMEs) in Accra, Ghana. International Journal of Business and Social Science, 15(4), 287–296. Ongori, H., & Migiro, S. O. (2009). Information and communication technologies adoption in SMEs: Literature review. Journal of Chinese Entrepreneurship, 2(1), 93–104. Oreku, G.  S., Li, J., Kimeli, K., & Mtenzi, F. (2009). State of Tanzania e-­ readiness and e-commerce: Overview. Information Technology for Development, 15(4), 302–311. Oviatt, B. M., & McDougall, P. P. (1994). Toward a theory of international new ventures. Journal of International Business Studies, 24, 45–64. Roper, S., & Hewitt-Dundas, N. (1998). Innovation, networks and the diffusion of manufacturing best practice. NIERC report series, 14. Rosenbusch, N., Brinckmann, J., & Bausch, A. (2011). Is innovation always beneficial? A meta-analysis of the relationship between innovation and performance in SMEs. Journal of Business Venturing, 26, 441–457. Rothwell, R. (1994). Towards the fifth-generation innovation process. International Marketing Review, 11(1), 7–31. Ruchkina, G., Melnichuk, M., Frumina, S., & Mentel, G. (2017). Small and medium enterprises in the context of regional development and innovations. Journal of International Studies, 10(4), 259–271. Shams, S. M. R. (2018). The evolution of marketing as an innovative knowledge stream: The evolving role of stakeholder causal scope. In D.  Vrontis et  al. (Eds.), Innovation and capacity building (Palgrave studies in cross-disciplinary business research, in association with EuroMed Academy of Business) (pp. 151–166). Cham: Palgrave Macmillan. Simionescu, M., Bilan, Y., Smrcka, L., & Vincurova, Z. (2017). The effects of European economic integration and the impact of Brexit on the UK immigrants from the CEE countries. E & M Ekonomie a Management, 20(1), 29–47. Singh, R. K., Garg, S. K., & Deshmukh, S. G. (2010). The competitiveness of SMEs in a globalized economy: Observations from China and India. Management Research Review, 33(1), 54–65.

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2 The Impact of Digitalization and Sustainable Development Goals in SMEs’ Strategy: A Multi-Country European Study Belyaeva Zhanna and Lopatkova Yana

2.1 Introduction The linkage of business, Industry 4.0 and sustainable development is a subject of great interest nowadays, as society strives to achieve sustainability (Kardos, 2012). Various studies suggest that a key factor in achieving sustainable development is by implementing corporate social responsibility and sustainability in the private sector. Most of the research in this area is based on large businesses studies. However, there is a separate pool of scientific research that takes up the special issues of change processes in SMEs in general, and the particular topic of transforming the business model of SMEs towards social, environmental and economic sustainability (Hörisch et  al., 2015; Jansson et  al., 2017; Revell et  al., B. Zhanna (*) • L. Yana Graduate School of Economics and Management, Ural Federal University, Ekaterinburg, Russia e-mail: [email protected]; [email protected] © The Author(s) 2020 A. Thrassou et al. (eds.), The Changing Role of SMEs in Global Business, Palgrave Studies in Cross-disciplinary Business Research, In Association with EuroMed Academy of Business, https://doi.org/10.1007/978-3-030-45835-5_2

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2010). Nevertheless, the current research stream does not specify the nature and drivers of sustainable development at small and medium business levels (Lopatkova and Belyaeva, 2019). It remains unclear how the private sector can operate and achieve the sustainable goals through the changing business model including using digital technology. The chapter focuses on SMEs, as they are the largest group of market entities (EU Commission, 2019; Masroor and Asim, 2019). The strategic importance of SMEs is to enhance sustainable development by ensuring employment, reducing income inequality, and fostering innovation (Belyaeva, 2018; Elhalek, 2019). SMEs have to be aware of the consequences of market changes and adapt emerging trends including sustainability and digitization processes (Belyaeva et al., 2020; Lopatkova and Belyaeva, 2019). The latest literature posits that the integration of sustainable goals by changing the business model can help businesses achieve the following benefits: competitive advantage, company value, good image and reputation (Adams et al., 2012; Evans et al., 2017). On the other hand, there are some concerns for SMEs: cost of sustainable changes and returns on investment, lack of resources, knowledge and time (Johnson and Schaltegger 2016; Morioka et al. 2018). At the same time, existing studies argue that digitization has a twofold impact on sustainable development. From one point of view it can provide the necessary tools to ensure the development and integration of economic, social and environmental aspects as well as to ensure and improve performance, transparency of operations and efficiency of systems worldwide (Kardos, 2012; Pucihar et al., 2019). Moreover, information and communication technologies (ICT) provide new challenges for traditional businesses of any size. Digital technologies appear to pose potential threats such as cybercrime, financial crime, and loss of individual and organization privacy (Seele and Lock, 2017). This chapter thus seeks to contribute to the knowledge within this novel growing sphere of the impact and necessity of digitalization and sustainable development goals (SDGs) allocation in SMEs. For this purpose, the following research questions have been identified: (1) to review relevant research literature to identify the conceptual constraints in implementing digitalization and utilizing a sustainable development framework for SMEs; (2) to examine SMEs in the food and beverages

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industry in selected European countries to empirically identify the l­ inkage of digitalization and sustainable development in SMEs using qualitative and quantitative; (3) to provide implications for SMEs facing constraints related to changing the business model due to such externalities based on empirical results; and finally (4) to summarize, in line with the chapter objectives, the current state of the art in the field of sustainability and digitalization linkage in SMEs.

2.2 Milestones of Sustainable Development The globalization of socio-economic processes, the creation of a single information space, technological pressure on the environment and the depletion of the planet’s natural resources lead to the concept of sustainable development. In the development of this concept, representatives of the academic government and business agreed that sustainable development is focused on three interdependent pillars: economic growth, social development and environmental protection. The authors consider the stages of sustainable development in order to reveal its essence and its relationship with business processes. According to the ecocentric approach of human development, maximum population and economic growth could lead to catastrophic consequences such as irreversible climate change (Meadows et al., 1972). Thus, during the 1950s–1980s, environmental pollution, limited natural resources and overpopulation (Michael and Claas, 1995) generated a gap between economic development and environmental degradation; multinational corporations were pushed to cover this gap institutionally. The concept of a contemporary approach to sustainable development received a global Brundtland Report release by the World Commission on Environment and Development in 1987. Sustainable development was defined as development that meets the needs of the present without compromising the ability of future generations to satisfy their needs (Eustachio et al., 2019). In the 1990s the emphasis shifted to social and market orientation. A formal institutional approach was reflected in the economically advanced countries which, along with environmental regulations, stimulated a social market orientation campaign at the end of the 1990s. A sustainable

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economy includes sustainable businesses; therefore, understanding the drivers and measurement of the success in a firm’s transition to sustainability is necessary (Delmas et al. 2019). There is a constant symbiosis between the three elements of people (social aspect), planet (environmental aspect) and money (economic aspect), so these must be included in the core business process and corporate report of the company (Elkington, 1998). One of the important stages in the formation of business sustainability is standardization. Standards serve to unify non-financial reporting and to assess the contribution of companies to the sustainable aspects (ISO, GRI, etc.) (Ransburg and Vágási, 2007). On the other hand, the wave of the economic fraud of giant companies that occurred during this period brought about an understanding of the changing infrastructure of the global economy. United Nations Conference on Sustainable Development “Rio+20” (2012) came as an important milestone that generated the agenda of reaffirming the commitment to the Millennium Development Goals, which were the precursors to the SDGs formed in September 2015 (Eustachio et al., 2019). Thus, the UN formalized the indicators (17 goals and 169 targets) of global sustainability (UN, 2015). It is important to note that the evolution of sustainable development shifts from the traditional scientific view inherited from moral and ethical principles of the ancient world towards an integrated perspective that facilitates the understanding of the complexity of the modern status (Eustachio et al., 2019). The role of SMEs in stimulating the integration of social, environmental and economic aspects at the state, government, business and society levels was underestimated in the course of the Millennium (Sustainable) Development Goals statement. Alongside the introduction of the SDG agenda 2030 in 2015, the world bank research shows that SMEs account for an overwhelming majority of private sector business and economic activity in both developed and developing countries (Kamal-Chaoui, 2017). According to the World Bank and the OECD, there are multiple reasons why SME development is critical for achieving the sustainable goals: (1) SMEs play an important role in most national economies; and (2) SMEs contribute up to 45% of total employment and up to 33% of gross domestic product (GDP) in emerging market economies (Lessidrenska, 2019). Despite their increased global commitment to

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growth, SMEs still face challenges, including limited access to finance, a lack of capacity and knowledge, especially regarding business development, and insufficient marketing and strategic management skills (Belyaeva et al., 2020). So the holistic period would need to see the transformation of SMEs during the SDGs era of decision making in an institutionally adjusted economic climate. The review of research in the field of sustainable development revealed that in the last decade there has been a shift from big corporations’ impact towards new SMEs’ outcomes for sustainable development. Hence four dimensions—economic, environmental, social and holistic sustainability development patterns—are to be explored to produce a transformational strategy for SMEs. The authors seek to explore whether sustainable development actually brings about any difference to small companies in Western and Eastern Europe.

2.3 S  MEs Allocation in Sustainable Development Map From the 1990s to the present aspects of sustainable development, including enablers and barriers of implementation, tools, practices and strategies for SMEs, have been increasingly addressed in academic literature and business forums (Thompson and Smith, 1991; Prashar and Sunder, 2020). Small and medium businesses have a crucial role to play in building a sustainable future and there is a proven business case to do so (Kromjong et al. 2016); thus SMEs have to adapt their business model considering heightened stakeholder scrutiny (Hong Ia., 2018, Leonidou et al., 2018), growing importance of intangible business assets, increase in the level of competition, development of information and communication technologies, changing regulations on environmental protection and labour rights (Belyaeva et al., 2020). The SMEs’ sustainable strategies and tools are not the same as those for large firms and are not viable because SMEs have fewer resources and different profiles than large companies (Loucks et al., 2010). Johnson and Schaltegger (2016) reveal that different business models between SMEs and large companies may be derived from internal shortcomings, which include disposed resources,

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the level of awareness and knowledge on sustainability issues compared to large organizations. A sustainable business model includes proactive multi-stakeholder management, creating long-term monetary and non-­ monetary value (Geissdoerfer et al., 2016). A sustainable approach should be embedded into core business, its processes and culture (Bocken et al. 2014; Jorgensen and Pedersen, 2018). SMEs’ representatives can raise awareness on social and environmental issues among the local population and educate employees on the sustainable and responsible principles and actions by implementing a sustainable business model. The SMEs may cooperate with partners or other firms that act positively to obtain sustainability. SMEs may improve their image and promote the development of responsible practices on events, meetings and special conferences. Furthermore, the principles and actions related to sustainable and responsible values have to be considered when writing the firm’s mission, vision and strategy (Tonis, 2015). A sustainable mission statement should be translated into specific sustainable goals that the company will strive to achieve. The environmental and social goals are considered as an integral part of the economic logic of the business. Frameworks such as the SDG targets help SMEs to understand the scope of the global sustainability issues while providing practical fulcrum that help companies improve their economic, social and ecologic performance (Kromjong et  al., 2016). Because of SMEs’ role and place in national and global economies, these companies are taking a lead in helping to meet most of the economy-related SDGs, including promoting inclusive and sustainable economic growth, increasing employment opportunities and decent work, especially for the poor, advancing sustainable industrialization and innovation, and creating a positive push for a higher quality of life, better education and good health for all. According to an International Trade Centre report “SME Competitiveness Outlook” (2019), SMEs can contribute to improving the SDGs through four channels: employee impacts (Goals 1, 2, 3, 8), business practice impacts (Goals 5, 8, 9, 10, 12, 13, 14, 15, 16), sectoral impacts (Goals 2, 3, 4, 5, 7, 9, 11) and national economy impacts (Goals 1, 8, 9, 10, 17). Moreover, this report shows that SMEs can contribute towards 60% of the sustainable development targets (ITC, 2019). Experts reveal that SMEs play a

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key role in achieving the economic SDGs: for instance, promoting inclusive and sustainable economic growth, employment and decent work for all (Goal 8), as well as promoting sustainable industrialization and fostering innovation (Goal 9) (Kamal-Chaoui, 2017; Karlstorm, 2018). In addition, SMEs can improve the health and well-being level (Goal 3) and reduce income inequalities at the local level (Goal 10) by providing goodquality jobs and working conditions. SMEs are extremely important for poverty reduction, especially in rural areas and amongst women and other socially disadvantaged groups. Also, small businesses are represented by an increasing number of women entrepreneurs (Leadem, 2016), so SMEs inequalities can contribute to the level of gender inequality (Goal 5). Furthermore, SMEs can promote sustainable thinking among consumers and green production patterns (Goal 12) by conducting a simple audit, using alternative sources of energy, recyclable packaging, producing environmental-friendly goods and developing a waste reduction plan (Kamal-Chaoui, 2017; Lessidrenska, 2019; Tonis, 2015). Thus, the first step for SMEs’ sustainability is identifying the two or three main SDGs that are close to the business industry and also via which channels SMEs can contribute to SDG targets to create long-term value (ITC, 2019). Sustainability strategies can create many synergistic effects for SMEs as well as systemic benefits for multiple stakeholders. Moore and Manring (2009) outline that there are different incentives for SMEs to optimize sustainability: (1) Become valuable investment targets for larger firms. Large firms wishing to venture into new sustainable business segments will find it less expensive to enter new sustainable markets and/or to venture into sustainable business segments through investment or acquisition of SMEs. Multinational enterprises can more quickly evolve technologies and markets can adopt new sustainable strategies, through SMEs. This strategy can move larger firms towards a new paradigm that addresses and strengthens an open-system approach to global sustainability. (2) Create highly competitive networks of sustainable SMEs. SMEs networking should help in generating progress and providing financial and organizational efficiency towards sustainable development, if stable business communities are formed. (3) Become highly efficient suppliers in global supply chains by implementing sustainable practices. Networks will

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remain essential for dealing with the systemic issues that underlie industrial ecology, enterprise resilience and global sustainability. The changes can only be achieved through coordinated global efforts and collaborative participation from public, private and non-­governmental organizations (Moore and Manring, 2009). On the other hand, SMEs face multiple challenges, including limited access to finance, a lack of capacity and knowledge, particularly regarding business development, and insufficient marketing and strategic management skills (Lessidrenska, 2019). The UN Global Compact asks companies to first do business responsibly and then pursue opportunities to solve societal challenges through business innovation and collaboration. The Compact recommends that businesses utilize an SDG compass to measure the progress and alignment of your business operations with the SDGs. The SDG compass guide is developed with a focus on large multinational enterprises. SMEs and other organizations are also encouraged to use it as “a source of inspiration and adapt as necessary.” SMEs can use the goals and targets to assess their current operations by identifying, assessing and measuring how they contribute to each goal. Given the overwhelming influx of information available and the general lack of expertise compared to larger companies, it’s easy to see why SMEs would struggle to identify how they should contribute. The classification of sustainable dimensions and SMEs business model directions and their choice is justified by literature reviews (Edwards, 2018; Kamal-Chaoui, 2017; Karlstorm, 2018) (Table 2.1). According to the Organization for Economic Cooperation and Development (OECD), SMEs account for the majority of private sector business and economic activity in both developed and developing countries. The classification in the table provides a simple understanding of possible SDG mapping to verify SME allocation; the empirical results obtained from 750 SMEs in Western and Eastern European countries are projected considering the digitalization effects. Digital model transformation might be useful to carefully develop a strategy to overcome the constraints. However, the digital transformation also seems to be “terra incognito” for many SMEs.

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Table 2.1  SDGs and SMEs nexus Sustainable dimensions

SDGs

Social

No poverty

Social

Social

Social

Social

Environmental

Social Economic

SMEs business model directions

Set and enforce strict non-discriminatory policies Recruit and train, employ local community members and integrate them in your value chain Zero hunger Support and encourage small-scale farming, practise sourcing from local entities Demonstrate transparency in the agricultural supply chain Good health and Offer employees healthy and safe well-being working conditions Make investments in health a priority in business operations Work Life Balance Quality education Create programmes (e.g., internships) that give students earlier access to the corporate environment Provide employees with opportunities to improve job skills Provide employee training in social and environmental activities Gender equality Pay equal remuneration, including benefits, for work of equal value Establish a zero-tolerance policy towards all forms of violence and physical abuse Clean water and Prioritize water efficiency by installing sanitation technologies for water conservation Prohibit the use of chemicals that can be detrimental to water quality if improperly disposed Affordable and Pursue the certifications clean energy Light, heating, and cooling preservation Decent work and Ensure the work of local people economic growth Foster entrepreneurial culture Install a firm policy against unfair recruitment practices (continued)

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Table 2.1 (continued) Sustainable dimensions Economic

Economic

Social

Economic

Environmental

Environmental

Environmental

Social

Holistic

SDGs

SMEs business model directions

Establish standards that ensure company projects are sustainably managed Promote innovation by giving all stakeholders the opportunity to offer creative solutions to sustainability challenges Reduced Invest in business-driven poverty inequalities activities Create networks with society to provide education and entrepreneurial skills training Sustainable cities Jointly participate in a sustainable and communities community that brings together relevant stakeholders to act on urban sustainable development Optimize logistic processes Reduce negative manufacturing impacts Responsible by implementing lean production consumption and (saving energy, water, raw materials, production etc.) and reducing waste Disclose information on material usage within products packaging Climate action Understand climate risk and build resilience into the company’s assets and supply chain Life below water Track the life cycle of products and materials to understand how they are disposed and which products could likely find their way into marine environments Life on land Measure, manage and mitigate impacts on ecosystems and natural resources Scale up best practices for land-use planning and management Peace, justice and Comply with laws, write down ethical strong institutions principles, and seek to meet international standards; require and support business partners to do the same Partnerships for Take part in SDG-related partnerships the goals and locally based sustainability initiatives Industry, innovations, infrastructure

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2.4 D  igital Influence on SMEs Model in Sustainable Targets Generally contemporary business models’ innovation fails to cover the sustainability goals. At the same time, sustainability can be reached by innovative and/or circular business models with transparent multidimensional indicators (França et  al., 2017; Rossi et  al., 2020). Ulas (2019) outlines that the classic business models are disappearing and are substituted by flexible business models using tools of Industry 4.0. Business digital transformation is the functional use of the Internet in business operations (manufacturing, marketing, selling, etc.) SMEs should change the organizational structures and business-making process to achieve productive digital transformation. Many SMEs face challenges, for example, a limited number of (qualified) employees, lack of knowledge, skills and tools for business model innovations (Pucihar et al., 2019). Ulas (2019) distinguishes the key elements for SMEs in order to carry out successful business transformation. Digital transformation must be initiated and led by a company’s owner or manager. Also the owner or manager should detect the gaps in digital knowledge and raise digital awareness among employees. Moreover, decision makers need to define a roadmap of business goals in the framework of digital transformation. The mission statement serves to give a sense of identity to an organization’s members, enhance the stability of the social system and direct the managers’ attention to important activities (Rudawska and Belyaeva, 2018). It is necessary to share the idea of business model transformation with employees to help them understand how each of them individually contributes to the success of a company. Motivation and ability of employees to participate in the innovation process is also extremely important for achieving results (Saunila and Mäkimattila, 2018). SMEs need external support due to unpredictable behaviour in terms of ICT investments. For SMEs it is important to collaborate with SME helpers, innovation labs or research institutions for being guiding through current trends and to see demonstrations of best-practice and real-life cases. On the other hand, SMEs’ digital transformation should be highly supported by governments. Government interventions include provision

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of the legal and regulatory framework, which enhances digital transformation. In addition, the government may provide incentives to SMEs through government agencies that are already established to assist SMEs (Ulas, 2019). The innovativeness of SMEs has a positive impact on overall business performance and market competitiveness (Pucihar et al., 2019); moreover, innovative SMEs are part of the support system for sustainable development (Kardos, 2012). The emergence and growth of innovative firms is crucial for structural change towards sustainable development (Kardos, 2012). Bringing digitalization and sustainable practices together should be strategic thinking for any size of business as a way to gain long-­ term viability (Naujok et al., 2018). Saunila et al. (2019) discover that for SMEs smart technologies do not have a direct influence on environmental or social sustainability, but corporate sustainability strategy fully mediates the relationship between smart technologies and corporate sustainability in the case of environmental sustainability and social sustainability. Malaquias et  al. (2016) found positive and significant relationship between IT use and the four categories of CSR: economic, legal, ethical and discretionary responsibilities in SMEs in Brazil. Moreover, IT affects people who work in these enterprises. IT resources create unique capabilities for small firms (Lopatkova and Belyaeva, 2019; Malaquias et al., 2016); thus, CSR obligations and IT investments should be combined to improve competitive advantage through the interaction of technology and people. The paper by Niehoff and Beier (2018) shows that digitalization can have a positive impact on the environmental dimension of sustainable development. On the other hand, the authors highlight a possible rebound effect regarding material and energy efficiency. The connection between the overall sustainability and digitalized private sector (SMEs) has to receive more attention from both researchers and companies, in order to understand and quantify this potential and avoid the rebound effects (Niehoff and Beier, 2018). Cornel and Dolf (2012) present the implications of the use of ICT for CSR activities in tourism businesses in emerging markets and of the relationship between e-sustainability and competitiveness. ICT-based services can improve the efficiency of processes and systems for multiple

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stakeholders (Santoro, et  al., 2018). Lakatos et  al. (2015) outline the strategic (improved customer relation), tactical (improved contract administration) and operational (improved data management) sustainable benefits that SMEs can gain by using ICT tools. Thus, ICT can help to make CSR information more easily available to stakeholders and create new possibilities of linking information on company impacts with other sources, providing easier access to information through the Internet which can be used to develop sustainable awareness (Cornel and Dolf, 2012; Cortado and Chalmeta, 2016). Although Industry 4.0 presents opportunities to address the sustainable challenges, it also has the capability to accelerate the environment’s degradation. People must ensure that ICT aligns with humanity’s and the environment’s values. Moreover, businesses should ensure that their digital strategies will optimize the ICT effect on new business opportunities as well as sustainable goals (Naujok et al., 2018). According to the literature analysis presented earlier the authors seek to explore whether Industry 4.0 in SMEs actually affect sustainable development.

2.5 Methodology Overview and Results The empirical basis is a survey of 750 European SMEs in the food and beverage industry which operate in Western European countries (Great Britain, Germany and Spain) and in Central and Eastern Europe (Poland, Croatia and Russia). The study includes the following methodology: (1) online questioning among representatives of SMEs; (2) statistical analysis and econometric analysis; and (3) comparative analysis of results in Western and Eastern European countries. The questionnaire consists of four parts: the place of socially responsible strategies in the overall business strategy; level of manager’s awareness in CSR (understanding of terminology, difficulties and benefits of introducing a socially responsible strategy); using the tools of a socially responsible strategy based on SDGs; and descriptive statistics of companies: firm size, turnover from sales, period of operation, using ITC and so on (Lopatkova and Belyaeva, 2019). The participation of SMEs from different countries makes it possible to conduct broad analyses for obtaining empirical research results

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regarding the degree of the enterprises’ orientation towards sustainability when implementing business models. The study implies descriptive research and probit regression. In order to evaluate the influence of externalities affecting the change of business model, the authors chose factors currently relevant in the business environment. Among the analysed externalities, the surveyed SMEs attribute the greatest importance to three factors: (1) increased importance of intangible business assets, such as image or long-term relationships with customers; (2) increased level of competition; and (3) development of ICT. Such factors as regulations on environmental protection and labour rights, growing bargaining power and pressure from the company’s stakeholders also influence the business strategy and process generally. The main obstruction to the implementation of the sustainable strategy in SMEs is additional costs ( X = 3.59). The biggest concern for SMEs is return on investment; therefore, it is very important to recognise that interventions that reduce a business’s negative impact can create long-term value as well as save cost (Karlstorm, 2018). Another factor that may impede the application of sustainable strategy is lack of time ( X = 3.38). Moreover, the big challenge for SMEs is lack of skills and knowledge on this subject ( X = 3.23). Despite these obstacles both Western and Eastern SMEs can distinguish the benefits of implementing sustainable tools and CRS strategy. The surveyed SMEs allocated such benefits to increase stakeholder loyalty and brand strength ( X = 4.1), improvement in staff motivation ( X = 3.98) and enhancement of financial indicators and sales ( X = 3.93). There are some differences in the perceived benefits between Western and Eastern European SMEs. Western European companies experienced an increase in loyalty of internal stakeholders, while representatives of Western European companies noted improved relations with the local community and increased investor perceptions (external stakeholders). In addition, for Eastern European SMEs the financial indicators are more essential compared to Western European businesses (Belyaeva et al., 2020). The classification of SMEs business model directions and their choice is justified by scientific research and the SDGs framework (Table 2.2). An approach for sustainable strategies in Western and Eastern European countries is structured around the social and economic SDGs. Both

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Table 2.2  SDGs and SMEs business model directions in Western and Eastern European SMEs European SMEs, Average rating ( X ) (1–5)

U Mann– Whitney

SMEs business model directions

SDG Eastern

Western Z

P

High-quality products with minimal impact on the environment Full information about the origin of the product components on the packaging Lean production (saving energy, water, raw materials, etc.) Obtained certificates and management standards Written down the principles and cooperation with business partners based on ethical principles Communicate about SMEs’ commitment to the socioecological activities to stakeholders Employee training in social and environmental activities Healthy and safe working conditions Ensuring the work of local people Work Life Balance

12

3.8

3.92

2.496

0.0126

12

3.85

3,94

2.330

0.0198

12

3.77

3.96

4.060

0.0000

16

3.22

3.38

2.662

0.0078

17

3.91

3.30

−6.571 0.0000

11

3.59

3.41

−1.871 0.0492

4

3.56

3.35

−2.203 0.0276

3.8 1.8 3

4.27 4.02 3.22

4.48 4.12 2.93

3.594 0.0003 2.312 0.0208 −2.897 0.0038

Western and Eastern European SMEs contribute to good health and well-being (Goal 3) by providing healthy and safe working conditions (Western SMEs) and encouraging Work Life Balance (Eastern SMEs). The research reveals that SMEs from Western Europe are more active in responsible consumption and production (Goal 12) compared with Eastern countries. Western European companies implement lean production to save resources, produce high-quality products with minimal impact on the environment and provide full information about the origin of the product components on the packaging. Moreover, Western European SMEs strive to reach peace, justice and strong institutions (Goal 16) by seeking to meet international standards and obtaining certificates on management standards. At the same time, Western European SMEs attach greater importance to recruit and train local community

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members (Goals 1, 8). Eastern European SMEs set the written-down principles based on ethical principles on cooperation with business partners. Eastern European SMEs train their employees and customers in social and environmental activities and encourage them to participate in sustainable activities (Goal 4). Eastern SMEs also communicate about their commitment to the socioecological activities to stakeholders and try to engage them (Goal 11). The probit regression (Formula 2.1) was used to measure the impact of digital factors on sustainable development. The independent factors (presence of a mission; knowledge and awareness; number of persons, turnover; origin of SME; ICT; GDP per capita) and their choice is justified by theoretical research. The dependent variable takes one of two values 0 (no) or 1 (yes) (“Does the company use a sustainable strategy?”). Formula 2.1   practice   F 0  1  mission  2  term  3  staff   4  turnover  5  origin  6  ict  7  gdppc



The probability of using sustainable strategies by SMEs increases if the following conditions are fulfilled: (1) presence of a mission (coef. 0.678***); (2) knowledge of CSR and SDG terminology (coef. 0.849***); (3) origin (coef. 0.241***). It is more likely that older companies apply to sustainable practices; (4) use ITC and provide sales through the Internet (coef. 0.235***); (5) increase countries’ GDP (coef. 0.013**). The findings indicate the positive relationship between the social responsibility strategy and ICT used by SMEs in six countries of Western and Eastern Europe. Thus, if the concept of digitalization can be an effective factor of sustainable development, it should be embedded into the SMEs. The descriptive and econometric analysis indicates that the redefinition and rethinking of the fundamentals of SME principles, in terms of mission, sustainable development awareness, strategy and ITC application, affect the socioeconomic scale and environmental achievements.

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2.6 Conclusion and Discussion SMEs are the biggest group of enterprises all over the world and they originate and operate within Industry 4.0, which is recognized as a driving force for achieving sustainable development. The empirical research confirmed that a diverse mix of emerging externalities (e.g., constantly changing and increasing needs of stakeholders, ICT development and global sustainable orientation) forms a special environment for the development of sustainable business models in the food and drink industry of SMEs in Western and Eastern Europe. There are many possibilities including tools of Industry 4.0 for companies to update and innovate strategies that will open new opportunities for business development as well as impact social and environmental performance. Thus, it is essential to understand and monitor the transformations and rethinking of the fundamentals of SME principles towards sustainability. The representatives of SMEs need to change their way of doing business if they are going to tackle the environmental and social challenges. Engaging with the SDGs can provide a road map to business improvement and offer a way to stand out in the global arena. The sustainability perspective of SMEs is to identify the two or three main SDGs that are close to the business industry. The empirical research reveals that the sustainable approach in Western and Eastern European countries is structured around the social and economic SDGs (1, 3, 4, 8, 11, 12, 16. 17) excluding environmental goals. The main differences were found in implementing lean production technologies (Goal 12) and obtaining certificates on management standards (Goal 16) by Western European SMEs and in communicating and engaging stakeholders in the socioecological activities (Goal 4, 11) by Eastern European SMEs. The literature review and empirical research disclose that the concept of digitalization can be an effective factor of the sustainable development in SMEs. ICT-based services can improve the efficiency of business processes. SMEs can provide easier access to information about CSR and sustainability through the Internet, which can be used to develop sustainable awareness among locals. The connection between the overall sustainability and digitalized SMEs has to receive more

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attention because SMEs face multiple challenges, including limited access to finance, a lack of capacity and knowledge, particularly regarding business development, and insufficient strategic management skills (Lessidrenska, 2019). In addition, it should be noted that nowadays representatives of academia, business and politics recognize that there are significant gaps in achieving the SDGs by 2030 (Filonenko 2019; Milovantseva et al., 2018; UN, 2019). Achieving the SDGs requires a much more responsible policy and a much stronger public consensus (Sheng and Geng, 2017); thus, collaboration and dialogue with all stakeholders (including government, business and civil society) is essential (Filonenko, 2019). The authors of this chapter consider engaging SMEs to tackle sustainable issues at the local level can increase global sustainability. SMEs can contribute about 60% of the sustainable development targets (ITC, 2019). The study has several limitations, which provide opportunities for further research streams. The first limitation is cross-­sectional data and for that reason it is impossible to observe changes relating to the implementation of the sustainable and digital concepts among SMEs. Thus, future research could focus on longitudinal studies. Another limitation refers to the fact that the present research focused of the food and beverage industry in six Western and Eastern European countries, and therefore the results obtained cannot be transmitted to all SMEs. Further research could appeal to specifications of implementation of sustainability in business models in different segments to develop integrative theories and practical recommendations of sustainability management that can effectively contribute to sustainability. Moreover, it seems interesting to conduct further detailed research on the components of business models for sustainability related to the implementation of specific digital tools, identification of sustainable development directions within the framework of the SDGs, disclosure of a new revenue stream and structure of the costs associated with implementation of these business models.

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3 Business in a Foreign Country: A Contextual Analysis of Immigrant Entrepreneurship and Their SMEs Ozgur Ozmen and Raluca Mariana Grosu

3.1 Introduction In the actual social, economic, cultural, and political contexts, migration raises many questions on policymakers’ agenda, being at the same time an interesting and challenging research topic for scholars. Managed in a proper way, migration might become an important generator of positive outcomes for both the sending and receiving regions. Highly

O. Ozmen (*) Department of International Trade and Logistics, Faculty of Economics and Administrative Sciences, Nevsehir HBV University, Nevşehir, Turkey e-mail: [email protected] R. M. Grosu Department of Business, Consumer Sciences and Quality Management, Faculty of Business and Tourism, The Bucharest University of Economic Studies, Bucharest, Romania e-mail: [email protected] © The Author(s) 2020 A. Thrassou et al. (eds.), The Changing Role of SMEs in Global Business, Palgrave Studies in Cross-disciplinary Business Research, In Association with EuroMed Academy of Business, https://doi.org/10.1007/978-3-030-45835-5_3

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acknowledged in the scientific literature as a key driver of economic growth and welfare at both national and regional levels (Audretsch 2018), entrepreneurship represents one of the most adequate management tools for enhancing migration’s positive impacts. In this particular case, immigrant entrepreneurship, usually found in the scientific literature as ethnic entrepreneurship or minority entrepreneurship, referring to immigrants who start and develop businesses in the host country (Basu 2006), contributes, especially through small and medium enterprises (SMEs), to the local and regional dynamism, thus becoming a key source for economic and social cohesion (United Nations 2018). This is mainly accomplished through new jobs generation, a decrease in unemployment, and so on (Grosu 2015). Furthermore, from an individual perspective, immigrant entrepreneurship also translates into a perfect strategy for immigrants’ socio-economic integration (Sharbek and Grosu 2018). At international level, immigrant entrepreneurship is well studied, especially in countries like the United States of America (USA), or the United Kingdom, the Netherlands, and Germany in Europe. A prominent scientific literature can be found on immigrant entrepreneurship in developed countries, with strong market structures. The topics approached are very diverse: policy implications; business orientation and performance; profile of the immigrant entrepreneur; comparisons with native/ local entrepreneurs; and entrepreneurial intentions to name a few (Kitching et al. 2009; Kloosterman 2010; Ilhan-Nas et al. 2011; Baycan et al. 2012; Neville et al. 2014; Dinu et al. 2015; Kerr and Kerr 2016; Bolzani and Boari 2018; De Luca and Ambrosini 2019; Jones et  al. 2019). However, when referring to developing countries, with emerging markets, the range of available studies is not so vast. In a more particular case, taking Romania as a research area, immigrant entrepreneurship is an under-researched topic. The few studies that can be found mainly approach the entrepreneurial endeavour and process in a descriptive way: characteristics of immigrant entrepreneurs, religion’s influence on business performance, gender aspects (Constantin et  al. 2008; Grosu and Saseanu 2014; Grosu 2015; Sharbek and Grosu 2018). Studies focused on special features related to immigrant SMEs in Romania are in an incipient stage, as is all the literature on immigrant entrepreneurship. This is an area worth researching, especially when taking into

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consideration that businesses usually started and developed by immigrant entrepreneurs are SMEs. In such a context, from a theoretical perspective, this paper aims to fill the identified gap. Based on a complex field research and using an evolutionary approach, this paper addresses the opportunities and challenges the SMEs owned by Middle Eastern immigrant entrepreneurs in Romania faced in the past, are facing in the present and will (probably) face in the future. On the other hand, considering more practical implications, the paper aims to raise awareness about the opportunities and challenges immigrant SMEs are facing in Romania, especially amid policymakers. The paper can represent a starting point in the design of coherent, adequate policies for fostering immigrant entrepreneurship in Romania. To reach these objectives, we structure the paper into five main parts. After this introductory section, we outline the research context, mainly focusing on practical aspects, especially related to the SMEs sector and to the migration phenomenon in Romania. Then, we present the research methodology, followed by the main research results referring to the opportunities and challenges specific to the investigated SMEs. We end the paper with a series of final considerations.

3.2 Theoretical Foundation and Context The poor representation of studies on immigrant entrepreneurship in Eastern Europe—focusing on Romania—in the scientific literature comprised one of the premises of our paper, especially when referring to the theoretical context, as already emphasized in the introductory section. When approaching the context from a more practical perspective, with a special focus on entrepreneurship and international migration in Romania, various aspects can be outlined. Referring to the SMEs sector as a fair representation of the entrepreneurial phenomenon in Romania, this emerged within the 1990s, immediately after the fall of the communist regime, favoured mainly by major legal and institutional reforms, and fundamental regulatory and legislative changes that redefined ownership rights (Welsh et al. 2019). During that time, the Romanian SMEs sector faced a fluctuating evolution,

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being strongly influenced by the transition from a centralized to a market-­ oriented economy, Romania’s membership in the North Atlantic Treaty Organization (NATO) and in the European Union (EU), the economic crisis, and so on. For example, if a brief statistical analysis of data provided by the National Institute of Statistics (2019) on a ten-year time span (2008–2017, considering the most recent available data, including also the crisis period) is accomplished, important facts arise. First, a sharp decrease in the number of economically active SMEs between 2008 and 2011, from 553,089 to 450,401, can be observed. This outlines the negative effects the economic crisis had on business demography in Romania. However, a slow, but organic, recovery of the SMEs sector followed that period. Thus, the number of economically active SMEs increased by over 20% between 2011 and 2017, more precisely, from 450,401 to 552,057. In terms of its structure, the SMEs sector represents more than 99.6% of the total number of economically active enterprises in Romania, highlighting its key role in supporting the Romanian economy. In what regards the share of enterprises by size in the SMEs sector, micro enterprises are the most representative (over 87%). In terms of their regional distribution, taking into consideration the eight development regions in Romania and 2017 (the most recent year with available data) as a reference, the highest share of SMEs (almost a quarter) is concentrated in the Bucharest–Ilfov region. This capital–city region, with an extremely dynamic business environment, is the most developed, being comparable with other developed European regions. Referring to the international migration phenomenon, Romania along with countries like Bulgaria, Estonia, Latvia, Lithuania, and Poland is highly acknowledged as an important provider of immigrants, especially within the EU (Grosu and Dinu 2016; Davidescu et al. 2017). With a very pronounced emigration side, the Romanian migration phenomenon can also be approached through the perspective of its immigration side. Romania represents an attractive host country, especially for non-EU citizens, considering both temporary and definitive migration. People coming from the Republic of Moldova are the most important community of immigrants in Romania. However, other immigrants, from both outside (China, Israel, Middle East, etc.) and inside (Austria, France, Germany, Hungary, Italy, etc.) the EU can also be found in Romania, especially in the Bucharest–Ilfov region.

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3.3 Methodological Aspects This paper is developed based on a part of the results specific to a complex field research we carried out between July 2017 and December 2018. Following the “mixed embeddedness” approach (Kloosterman et  al. 1999), our multi-method qualitative field research aimed to provide a comprehensive image on the Middle Eastern immigrant entrepreneurship phenomenon in Romania. In order to raise awareness, especially amid policymakers, about the importance and complexity of this phenomenon, our research targeted its analysis considering social, economic, political and institutional contexts. Our investigated sample was composed of 97 immigrant businesses owned by Middle Eastern immigrant entrepreneurs in Romania: 3 big companies and 94 SMEs. Out of the SMEs, over 86% (respectively 81 enterprises) were micro. It is worth mentioning that, from now on, as SMEs are the subject of this paper, only they will be considered and only their associated results are outlined. As an accurate evidence on immigrant entrepreneurs is lacking from the official registers in Romania, it was impossible to get access to a sort of database with relevant information. Considering this aspect, plus the high level of reluctance of immigrant entrepreneurs to take part in such research, we approached the ‘snowball’ and the ‘networking’ sampling techniques to construct our sample. We have chosen the Bucharest–Ilfov region for our investigation as this is ‘home’ to most of the immigrants and to most of the economically active SMEs in Romania, implicitly to the ones owned by immigrant entrepreneurs. The methods we have used to collect data are face-to-face semi-­ structured interviews with the immigrant entrepreneurs, observations and informal discussions with the customers and/or employees of the investigated SMEs. The face-to-face semi-structured interviews we carried out with the immigrant entrepreneurs were, in most of the cases, formal, lasting for around 40 minutes, each. If, in most of the cases only one interview was enough, in others, two or three interviews were carried out with the immigrant entrepreneurs. The interviews were based on an interview guide developed in accordance to our research’s aim and objectives that was primarily debated with scholars interested in entrepreneurship and tested on three immigrant entrepreneurs in order to get their

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feedback. This process led to an improved version of the interview guide that was used in our research. However, the number of questions and the order in which they were addressed varied from one interviewee to another, considering each interview’s own way of development. Interviews were held in Romanian, but also in Turkish or Arabic, with the presence of a translator being mandatory in the latter case; the number of persons involved in the interview varied from two to four, depending on the case. Usually, the interviews took place at the immigrant enterprise and they were not disturbed by external factors. However, in some of the cases, interruptions translated in clients entering the place (store, restaurant, warehouse, etc.), employees entering the immigrant entrepreneur’s office, phone calls, and so on. Furthermore, it is worth mentioning that during the process of reaching the interviewees many obstacles were encountered, mainly deriving from their high level of reluctance to take part in such research. Although one of the authors is known by the society of the mosques, some of the immigrant entrepreneurs didn’t want to participate in the research, claiming that they don’t have enough time, they can’t understand Romanian well, they urgently need to go somewhere else, and so on, because they were suspicious that the research was organized by Romanian Secret Services for tagging the immigrants. Authors have been in several Turkish and Arabic mosques in Bucharest for conducting interviews. Observations took the form of complete observations. Our role was that of complete observers, observing consumers’ behaviour within the grocery stores, in other retail stores, in restaurants, and other such places, but also the behaviour of employees, along with the entire activity of the analysed business. Usually, observations were carried out before having the interviews with the entrepreneurs, and before developing the informal discussions with the employees and/or customers. Our informal discussions with the customers and/or employees of the analysed SMEs took place during our visits to the investigated immigrant SMEs, lasting for around five minutes with each individual. However, it is worth mentioning that the qualitative methods of data collection both through ‘observations’ and ‘informal discussions’ were not employed in all the investigated businesses. During the interviews, observations and informal discussions,

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we took notes mainly referring to the provided information, but also related to our own feelings and thoughts about the research’s way of development, gestures and feelings we associated to each of the investigated entities through various methods, and so on. All this information was analysed, with the present chapter presenting just those bits referring to the opportunities and challenges the investigated immigrant SMEs faced in the past, face in the present and are expected to face in the future.

3.4 F indings and Discussion: Middle Eastern Immigrant Entrepreneurs and Their SMEs in Romania 3.4.1 D  escriptive Information Specific to the Investigated Sample The investigated SMEs were owned by Middle Eastern male immigrant entrepreneurs in Romania originating from Turkey, Syria, Jordan, Iraq, Kuwait, and Lebanon. The years of immigration specific to the investigated sample vary widely, starting from 1978—part of the communist period—and continuing with more recent periods like 2015. If, generally, Arabs immigrated to Romania, especially for studies during the communist period, afterwards deciding to settle in Romania, marrying a Romanian woman and becoming entrepreneurs immediately after the fall of the communist regime, the investigated Turks immigrated with a clear business purpose. There were also respondents who first came to Romania as tourists, liked the place and decided to make it their host country, or respondents who perceived it as an easy and safe passage to other European countries—especially the case of those who migrated in more recent times. Some other reasons for migration referred to skipping the army enrolment or avoiding the war and other political issues they faced in their country of origin. Generally, Romania was chosen as a destination country mainly because of its status as an EU member, its safety, its

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geographical position and even its business environment—the latter two aspects are specific to the investigated Turkish immigrant entrepreneurs. I came to work. Romania is freer compared to other EU member states. Here I have freedom, security and safety. (Turkish entrepreneur) I came in a visit and I liked it so much as I decided to stay here. (Turkish entrepreneur) Romania is very close to Turkey and doing business here is easier. (Turkish entrepreneur) I came to Romania as a tourist, to have easier access to Europe. I wanted to go to Italy from Romania, but, at the end, I stayed here. (Arab entrepreneur)

Their reasons for migration, correlated with their immigration years, are reflected also in the years when they started up the businesses. If many of the investigated immigrant entrepreneurs started their business in the same year when they immigrated to Romania, there were also entrepreneurs who started their business one, two, and up to 12  years, after immigration. In what concerns the industries their SMEs are active in, Turkish entrepreneurs were mainly oriented towards commerce, production and the HORECA industry, while the investigated Arab entrepreneurs were oriented to construction and real estate. However, Arab entrepreneurs also own SMEs active in commerce, especially in wholesale, and in the HORECA industry. However, no matter the industry they were active in, the challenges they face or the opportunities they exploit are quite common and can be approached in an integrative manner. Focusing on an evolutionary approach, from past to present and into the future, these are tackled in the following sections. ‘Past’ is associated with the period immediately after the fall of the communist regime, until the research was developed. ‘Present’ reflects the moment when the research was carried out, especially when data were collected through field research, respectively in 2017 and 2018. In such a context, ‘future’ refers to the period after carrying out the research, relating especially to 2019 onwards.

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3.4.2 Faced Challenges and Opportunities: Past The period immediately after the fall of the communist regime, especially 1990–1992, was perceived, by all the investigated entrepreneurs as being full of entrepreneurial opportunities, and thus worth exploiting. This is also the period when many of the investigated entrepreneurs initiated a business in Romania, even though, in many cases, this did not survive on the market for a long period of time. Entrepreneurial opportunities were exploited, especially by the investigated Arab immigrant entrepreneurs, even during the communist regime, but in a more unethical/illegal way, connected somehow to the shadow economy. For example, the investigated Arab immigrant entrepreneurs who followed a university degree in Romania were selling to their Romanian colleagues, cigars, perfumes, and other products that were inexistent on the market at that time. Due to their possibility to travel (a hard-to-obtain right for Romanians in that period) to their country of origin, this way getting access to markets full of products, the investigated entrepreneurs could bring into Romania products that Romanians did not have access to and were eager to buy. Many entrepreneurial activities could be observed in the Romanian student dorms in that period. This is how strong social networks were developed and many of the investigated entrepreneurs maintained important friendships with many of their colleagues from university. In some cases, they also helped the investigated immigrant entrepreneurs in their entrepreneurial process. On the other hand, some Turkish entrepreneurs started businesses into industries in which they had no previous experience, when they realized that there was a missing supply of the related goods while they were looking for them for their own needs. Taking advantage of the fact that the Romanian market was like a ‘black hole’ and any type of business was guaranteed success, the investigated immigrant entrepreneurs simply exploited all the entrepreneurial opportunities the market was offering. At that time, doing business was extremely easy; no market research was necessary before starting a business, and no business or feasibility plans/studies were needed either. Competition was poor and consumers, just emerging from communism, were willing to try out and buy any type of products/services they

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were offered. In that period, consumers had money, but they could not spend it on anything, as goods were not easy to find and were barely available. So, from an economic perspective, the demand was not met by the supply, as in other parts of the world. During 1990–1992, the investigated immigrant entrepreneurs did not perceive any type of business challenge. Nonetheless, the transition from a centralized to a market-oriented economy was not a smooth process. Even if the changes in the regulatory framework somehow supported the emergence and development of entrepreneurship—an inexistent phenomenon in a centralized economy where all the companies were owned by the state—spurring the SMEs sector, the lack of experts in the field, the lack of financial resources, the negative attitudes of the post-revolutionary policymakers, and the unclear, ever-evolving legal and institutional frameworks were important challenges that entrepreneurs generally faced (Welsh et al. 2019). However, the investigated immigrant entrepreneurs did not face so many challenges during this transition period, especially in terms of financial resources. In most of the cases, the investigated immigrant entrepreneurs did not have any problems in terms of financing their business; their own savings, money from their country of origin, from their relatives, or from their friends were some of the most mentioned financing sources. Also, in what concerns the unclear legal and institutional frameworks, the investigated immigrant entrepreneurs knew how to turn most of the uncertainties of the legislation into opportunities. Interestingly, the corrupt climate was also helping immigrant entrepreneurs to get rid of audit problems—especially with government and local institutions. Generally, most of the investigated immigrant entrepreneurs did not perceive strong challenges related to their business in the period immediately after the fall of the communist regime, or during its subsequent short-term transition. Moreover, there are studies advocating the “significant contribution of Turkish entrepreneurs to the success of transition to a market economy, as well as to economic recovery, in post-1989 Romania” (Constantin et  al. 2008, p.  51). However, Romanian language and cultural norms were a challenge for the investigated immigrant entrepreneurs.

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When I started the business, in 1991, the market was free of competition. This was a great opportunity for me. […] I had exclusivity on the market. (Arab entrepreneur) It was excellent to start a business back then [in 1991–1992] … any type of business was worth it. (Arab entrepreneur) I remember when I first brought blue-jeans from Turkey to sell them to Romania. In two days, I run out of stock. … It was amazing how Romanians were buying! (Turkish entrepreneur) Travelling quite often to Syria when I was a student in Romania during the communist period, I had access to all kind of products Romanians did not. I remember that I was bringing some perfumes from Syria to my Romanian colleagues. They simply loved them. I was selling them exactly in the moment when I was entering the student dorm. They were actually ‘fighting’ on my perfumes. (Arab entrepreneur) I always saw in Romania a good country for doing business. I was owning some businesses in Turkey before coming to Romania. I was very interested in all the news related to the fall of the communist regime that were presented in Turkey, especially in December 1989. When the regime fell, after some months, I’ve gone directly to Romania, knowing exactly what business to start. (Turkish entrepreneur)

In addition, ‘past’ is marked by two key/reference events. Becoming a member of the NATO (in 2004) and of the EU (in 2007) translated into many opportunities for doing business in Romania. Especially, Romania’s membership in the EU resulted in gaining access to the single European market which represented an important argument for migration and business start-up, for some of the investigated immigrant entrepreneurs, especially Turks. The low-paid Romanian workforce, especially when compared to the Turkish one, Romania’s proximity to Turkey, its status of an EU member, easy access to the single European market represented some of the main opportunities the investigated immigrant entrepreneurs, especially the Turkish ones, and their SMEs took advantage of, in more recent times. On the other hand, free movement of

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goods in the EU encouraged Turkish immigrant entrepreneurs to invest in Romania in order to supply goods and services to the Turkish diaspora located in Western and Central European countries, especially in Germany. Becoming a member of the NATO and of the EU also translated into important entrepreneurial opportunities for the investigated Arab immigrant entrepreneurs who saw the access to the single European market as an easy way to sell their products in other EU member countries as well. Furthermore, access to other products from the single market, such as raw materials, of a higher quality and at more affordable prices, along with the rise of a more stable, regulated business class, which also meant more trustworthy business partners, represented other important perceived opportunities by the investigated Arab immigrant entrepreneurs. These periods and events, however, along with the mentioned opportunities, also brought many challenges for the investigated immigrant entrepreneurs and their SMEs. Most of these are related to the competition on the market; changes in legislation; the rise of new commercial agreements, which, somehow, hindered the development of their businesses, especially through high imposed taxation levels; the development of new labour agreements between Romania and other EU members which resulted in a massive emigration of Romanians, especially of those able to work; restrictions imposed by the EU; and increase in the cost of labour and/or other resources such as raw materials. Also, Romanian language and cultural norms remained an obstacle in the entrepreneurial path of the investigated immigrant entrepreneurs. I chose to come to Romania to start a business after this became a member of the EU. (Turkish entrepreneur) I’ve been in Romania for many years and my enterprise managed very well on the market. I had previous entrepreneurial attempts, especially in years close to the fall of the communist regime, like 1994–1995, before running this business. Back then it was easier to do business in terms of the market, especially when referring to competition and to customers, but a big positive change of the business environment I felt after Romania became a member of the EU. (Arab entrepreneur)

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Having access to the single European market meant a lot for my businesses. My partner and I took only advantages of this situation. (Turkish entrepreneur) I had a lot of problems with the fact I did not know the language. […] Until I met my wife, she helped me a lot in my business; she became my business partner. (Arab entrepreneur)

3.4.3 Faced Challenges and Opportunities: Present Some of the previously outlined opportunities and challenges the investigated immigrant entrepreneurs and their SMEs faced were also valid in present times, if ‘present’ is addressed as the moment when the research was carried out, especially when data were collected, respectively in 2017 and 2018. Thus, most of the opportunities and challenges the investigated entrepreneurs perceived at the moment when the research was carried out were mainly deriving from Romania’s status as an EU member. In what concerns the opportunities the investigated immigrant entrepreneurs exploited through their SMEs, these refer to access to the single European market, more facile access to capital, or lower start-up capital, especially when compared to the ones in their country of origin. Other perceived opportunities resulted from Romanian’s geographical position, its safety and stability, and its culture, and were mainly translated into easy access to the markets of Romania’s neighbouring countries, import of good-quality raw materials at low prices, especially from neighbouring countries, easy-to-satisfy clients, open to trying/embracing new products and/or services, and low-paid workforce. Furthermore, the low prices associated with means of transport, especially to destinations related to their country of origin, represented an important opportunity for the investigated immigrant entrepreneurs. For example, some of them, especially those who were active in the HORECA industry, flew very often to their country of origin to bring special ingredients—usually spices—to use in the dishes they prepared to ensure the final meal had exactly the same taste as in their country of origin. Another important opportunity the investigated immigrant entrepreneurs highly acknowledged as a best

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practice of the Romanian government was related to the decrease in the income tax in 2018, from 16% to 10%. One of the challenges the investigated SMEs needed to face when our research was carried out referred to competition, which was perceived as very severe. If, for example, no business plan or feasibility study was needed when starting a business in the period immediately after the fall of the communist regime, such an approach was extremely obsolete when we carried out our research. The investigated immigrant entrepreneurs were convinced that developing a business based only on empirical research or, even more so, just on intuition was not a solid approach in the current market in which they were struggling to succeed. Developing a business without a strong, real feasibility study and a coherent business plan was equal to failure in the respondents’ opinion. Other challenges were related to labour issues such as dealing with untrustworthy employees, or with a high fluctuation of the workforce, especially correlated with the continuous emigration of Romanians to more developed Western countries. Romanian language and cultural norms, along with the lack of support from the Romanian authorities for developing a business— mainly associated with high bureaucracy; difficult fiscal and taxation systems; quite an unstable, ever-changing legislative framework, with a high degree of interpretability; various government regulations with direct negative impact on the whole SMEs sector, especially the passing on social contributions to employees from employers in 2018 and the increase in the minimum wage with 450 LEI (meaning approximately 100 EUR) in 2018, compared with 2017; and corruption—as well as problems with obtaining a visa and even discrimination represented other important challenges the investigated immigrant entrepreneurs and their SMEs were facing when our research was carried out. Challenges derived from the fiscal and taxation systems, focusing on accountability procedures, were mainly perceived by the investigated Arab immigrant entrepreneurs, as these are completely different than the ones in their country of origin. However, these issues, along with those related to bureaucracy and language, were overcome with the help of their partners, friends, Romanian wife (who, in many cases, was a partner in the business), or specific persons hired especially for this job, mainly accountants and legal advisers. On the other hand, the investigated Turkish immigrant

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entrepreneurs did not perceive any obstacles related to the accountability procedures, as these are very similar to the Turkish ones. However, the Romanian fiscal code is different compared to the one in Turkey and this raises many difficulties for Turkish entrepreneurs. Furthermore, controls in Romania were assessed as being more complex and frequent than in Turkey. The bureaucracy is high, and it is very difficult to obtain the documents necessary for your business. For example, the document for attesting the payment of the VAT is very difficult to obtain. (Turkish entrepreneur) The regulatory frame is not adequate for developing business. The Romanian laws are not encouraging entrepreneurs; they are not good for doing business. (Arab entrepreneur) The Romanian authorities do not protect, support, promote immigrant nor foreign entrepreneurs. You feel discriminated in many situations. (Arab entrepreneur) Many of my employees were stealing and were rude. (Arab entrepreneur) Clients are easier to satisfy in Romania, compared to the ones in Turkey. (Turkish entrepreneur) Doing business in Romania is easier as, in case of my business, you do not need too much capital for start-up. For example, if in Romania you need 10,000 euro for starting-up a business, the same business ‘costs’ you 100,000 euro in Turkey. (Turkish entrepreneur) In Romania, there are a lot of taxes and many of them are very high. It is so different than in Jordan. (Arab entrepreneur) For Arabic people, Romania is another world; people have different mentalities. (Arab entrepreneur) It is very good doing business in Romania. Salaries in Romania are much lower compared to Turkey and Romania is part of the EU. (Turkish entrepreneur)

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Compared to Syria, Romania is better for business as it is more developed, and it has a very good geographical position. You have access to its neighbouring countries and, also to other EU members. However, the business environment is very stressful for entrepreneurs. The legal framework is very fluctuating, and it changes rapidly. In Romania, the business environment is stricter and more controlled than in Syria where it is more accessible. (Arab entrepreneur)

3.4.4 Faced Challenges and Opportunities: Future When addressing the ‘future’, a series of both opportunities and challenges can be predicted for the investigated immigrant SMEs active on the Romanian market. These predictions are mainly drawn from our research, especially from the interviews we had with the investigated immigrant entrepreneurs focusing on the topic related to where they envision their SME in five to ten years, and from our own observations of their businesses, correlated with the future opportunities and challenges for SMEs predicted by business specialists. The development of globalization and new disruptive technologies, implicitly the expansion of the digital economy and Industry 4.0 (Kaufmann et  al. 2019), the increasing concern towards sustainability and circular economy, and the expansion of the longevity/silver economy, will generate both opportunities and challenges for the investigated immigrant entrepreneurs and their SMEs. On the one hand, opportunities are mainly related to the appearance and development of new devices, technologies, especially of Artificial Intelligence, and so on that will ease the work in the investigated SMEs and, at the same time, will increase their efficiency, efficacy, and performance; the development of more intelligent vehicles/transport means that will reduce the costs the investigated SMEs might have with transport and delivery; the increase of online/digital marketing practices, especially on social media; the development of the online division of the investigated SMEs, mainly translated through online selling of the products produced/commercialised by the investigated immigrant entrepreneurs; development of products/services especially designed for ageing customers; retaining ageing

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employees who are an important source of talent, experience, knowledge, and skills; development of strong partnerships with trustworthy business partners to achieve common goals, especially related to sustainability; and application of sustainability practices, especially related to the circular economy, which will increase business performance and will reduce business costs. On the other hand, challenges refer to the high prices of the previously mentioned devices, technologies, and so on; the high investment in training employees to use the new devices/technologies the investigated immigrant entrepreneurs might implement in their SMEs; the activity of maintaining up-to-date technological equipment of the business; cybernetic attacks; and issuing of new regulations aiming to support the development of the Romanian circular economy which are difficult to comply with. Other opportunities the investigated immigrant entrepreneurs might take advantage of and exploit through their SMEs might be the increase and diversification of financing sources; the development of special programmes financed through European funds for SMEs’ development; the increase in the number of collaborators/partners and the decrease in the number of employees; increase in the externalization of special activities, especially accountability; development of the investigated SMEs through the application of the ‘blue ocean’ strategy to address new market niches. Other challenges that SMEs might face are related to: the political instability in Romania which might translate into legislative incoherence; the Eurozone instability, especially when taking into consideration the BREXIT context; the lack of specialized, well prepared workforce, correlated with the high expectations, especially in terms of financial and working conditions of the highly specialized workers; hard-to-manage processes of working more with partners/collaborators/contractors and less with regular full-time employees; hard-to-achieve business innovation; great, powerful competitors, hard to compete with; and an increasing number of customers with higher expectations, sometimes, hard-to-satisfy. I am planning to develop my business in the online commerce. (Turkish entrepreneur)

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My business does not have a high degree of digitalization. I do not know what will happen to it in the near future and what strategies I will apply. (Turkish entrepreneur) My restaurant faces important challenges associated to food waste. We need to find solutions for this problem as soon as possible. (Arab entrepreneur)

3.5 Final Remarks 3.5.1 Conclusions Based on part of the results of a complex and comprehensive field research, our study aimed at outlining, focusing on an evolutionary approach, the opportunities and challenges specific to 94 SMEs owned by Middle Eastern immigrant entrepreneurs in Romania. These are briefly summarised in an illustrative way in Fig. 3.1. Figure 3.1 reflects opportunities in the upper box and challenges in the lower box. Considering time spans, ‘past’ is associated with the period immediately after the fall of the communist regime, respectively 1990, until the research was developed, and is reflected in the first part of the figure. ‘Present’ reflects the period when the research was carried out

- After 1990: no/low competition ; customers willing to buy everything; unclear legal and institutional frameworks . - After EU membership : low-paid workforce; access to the European single market; rise of a more stable, regulated business class.

present

• After 1990: Romanian language and cultural norms. • After EU membership : competition; changes in legislation; the rise of new commercial agreements ; imposed high taxation levels; development of new labour agreements ; restrictions imposed by the EU; increase in the cost of labour and/or other resources; Romanian language and cultural norms.

Access to the single European market; access to capital; low start-up capital; Romanian’s safety and stability; easy access to neighbouring markets; easy-to-satisfy clients; low-paid workforce; low-price transport; decrease in the income tax by 6%.

• Very severe competition; untrustworthy employees ; personnel's high fluctuation; Romanian language and cultural norms; high bureaucracy; difficult fiscal and taxation systems; quite unstable, everchanging legislative framework, with a high degree of interpretability ; government regulations with direct negative impact on the SME sector; complex and frequent controls from authorities ; corruption; problems with obtaining visas; discrimination .

future

Innovative technologies ; smart transport means; digital marketing; online activity/selling ; development of products/services for ageing customers; retaining aging employees ; sustainability practices, especially related to circular economy; diversification of financing sources; special programs financed through European funds for SMEs; increase in the number of collaborators/partners and decrease in the number of employees; externalization of special activities .

• High investment related to new technologies implementation ; maintaining up-to-date technological equipment ; cybernetic attacks; new regulations related to sustainability hard to comply with; political instability in Romania; Eurozone instability ; lack of specialized, well prepared workforce; hard-to-manage processes of working more with partners/ collaborators/ contractors and less with regular employees ; hard-to-achieve business innovation; powerful competitors; hardto-satisfy customers.

Fig. 3.1  Middle Eastern immigrant entrepreneurs and their SMEs in Romania: opportunities and challenges

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(2017–2018) and it is illustrated in the middle of the figure, while ‘future’ refers to 2019 onwards, and it is outlined in the last part of the figure.

3.5.2 Implications From a theoretical perspective, our study aims to fill a gap identified in the scientific literature, addressing the opportunities and challenges immigrant entrepreneurs and their SMEs face in Romania, a poorly investigated region in immigrant entrepreneurship literature. We hope our study will contribute to the expansion of the literature and to a better understanding of this phenomenon in Romania. In such a context, from a more practical perspective, our study aims to raise awareness about the opportunities and challenges immigrant SMEs face in Romania, especially amid policymakers. Our study might represent an important starting point in the design of coherent policies for supporting and promoting immigrant entrepreneurship as a proper economic growth generator and also as an adequate strategy for immigrants’ social, economic and cultural inclusion. Ever since the fall of the communist regime, Middle Eastern immigrant entrepreneurs represented important players on the Romanian business arena; they were even considered key actors in the transition process from a centralized to a market-oriented economy. If in the past most of their activity was based on ‘import’, in more recent times, it shifted towards ‘export’, when approaching the issue from an ‘international trade’ perspective. Nowadays, they are exporting to regions all over the world, especially to their home countries and to more developed European countries. They have brought and still bring an important contribution to the development of Romanian industries and, at the same time, to the broadening of Romania’s business horizons by building commercial bridges between Romania and their home countries and/or other European countries home to their diaspora. Furthermore, they have added and still add value by increasing Romania’s international competitiveness, especially through capital and know-how infusion.

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3.5.3 Limitations and Future Research Approaching just the Middle Eastern immigrant entrepreneurs and their SMEs in Romania in our study represents an important limitation. However, this becomes an opportunity if regarded from the perspective of replicating the same type of research on other immigrant entrepreneurs and their SMEs in Romania and in other countries, especially in Eastern Europe, with a similar background and a similar socio-economic status as Romania. In the same vein, future research directions might envisage comparisons with local entrepreneurs (and their SMEs) and/or between countries.

References Audretsch, D. B. (2018). Entrepreneurship, economic growth, and geography. Oxford Review of Economic Policy, 34(4), 637–651. Basu, A. (2006). Ethnic minority entrepreneurship. In M. Casson, B. Yeung, A.  Basu, & N.  Wadeson (Eds.), The Oxford handbook of entrepreneurship (pp. 580–600). New York: Oxford University Press. Baycan, T., Sahin, M., & Nijkamp, P. (2012). The urban growth potential of second-generation migrant entrepreneurs: A sectoral study on Amsterdam. International Business Review, 21(6), 971–986. Bolzani, D., & Boari, C. (2018). Evaluations of export feasibility by immigrant and non-immigrant entrepreneurs in new technology-based firms. Journal of International Entrepreneurship, 16, 176–209. Constantin, D. L., Goschin, Z., & Dragusin, M. (2008). Ethnic entrepreneurship as an integrating factor in civil society and a gate to religious tolerance: A spotlight on Turkish entrepreneurs in Romania. Journal for the Study of Religions and Ideologies, 7(20), 49–79. Davidescu, A.  A. M., Strat, V.  A., Grosu, R.  M., & Zgura, I.  D. (2017). Determinants of Romanians’ migration within the European Union: Static and dynamic panel gravity approaches. Amfiteatru Economic., 19(46), 621–639. De Luca, D., & Ambrosini, M. (2019). Female immigrant entrepreneurs: More than a family strategy. International Migration, 57(5), 201–215.

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Dinu, V., Grosu, R. M., & Saseanu, A. S. (2015). Romanian immigrant entrepreneurship: Utopia or reality? An overview of entrepreneurial manifestations of Romanian immigrants in Andalusia, Spain. Transformations in Business and Economics, 14(1(3)4)), 48–64. Grosu, R. (2015). Dynamics of immigrant entrepreneurship in Romania. Economy of Region, 2, 172–182. Grosu, R.  M., & Dinu, V. (2016). The migration process of Romanians to Andalusia, Spain. Focus on socio-economic implications. E & M Ekonomie a Management., 19(2), 21–36. Grosu, R. M., & Saseanu, A. S. (2014). Immigrant entrepreneurship – A challenge to commodity science in the age of globalization. In A.  Chochol & J. Szakiel (Eds.), Commodity science in research and practice – achievements and challenges of commodity science in the age of globalization (pp.  119–130). Krakow: Polish Society of Commodity Science. Ilhan-Nas, T., Sahin, K., & Cilingir, Z. (2011). International ethnic entrepreneurship: Antecedents, outcomes and environmental context. International Business Review, 20(6), 614–626. Jones, T., Ram, M., & Villares-Varela, M. (2019). Diversity, economic development and new migrant entrepreneurs. Urban Studies, 56(5), 960–976. Kaufmann, H.  R., Paraschaki, M., Tsoukatos, E., Sanchez Bengoa, D., & Czinkota, M. (2019). Curative international marketing, corporate and business diplomacy: A triple application for migration. In A. Thrassou, D. Vrontis, Y.  Weber, S.  M. R.  Shams, & E.  Tsoukatos (Eds.), The synergy of business theory and practice, Palgrave studies in cross-disciplinary business research, in association with EuroMed academy of business (pp. 261–283). Cham: Palgrave Macmillan. Kerr, S.P., & Kerr, W.R. (2016, July). Immigrant entrepreneurship. Harvard business school. Working paper 17-011. NBER working paper series, no. 22385. https://www.hbs.edu/faculty/Pages/item.aspx?num=51304. Accessed 22 Sept 2019. Kitching, J., Smallbone, D., & Athayde, R. (2009). Ethnic diasporas and business competitiveness: Minority-owned Enterprises in London. Journal of Ethnic & Migration Studies, 35(4), 689–705. Kloosterman, R.  C. (2010). Matching opportunities with resources: A framework for analyzing (migrant) entrepreneurship from a mixed embeddedness perspective. Entrepreneurship and Regional Development, 22(1), 25–45.

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Kloosterman, R., van der Leun, J., & Rath, J. (1999). Mixed embeddedness: (in)formal economic activities and immigrant businesses in the Netherlands. International Journal of Urban and Regional Research, 23(2), 253–267. National Institute of Statistics (2019). Enterprises Statistics. http://statistici.insse. ro:8077/tempo-online/#/pages/tables/insse-table. Accessed 6 Nov 2019. Neville, F., Orser, B., Riding, A., & Jung, O. (2014). Do young firms owned by recent immigrants outperform other young firms? Journal of Business Venturing, 29, 55–71. Sharbek, N., & Grosu, R. M. (2018). Entrepreneurship: Nurturing self-esteem in a new generation of immigrant Arab women in Romania. Romanian Journal of Regional Science., 12(2), 70–91. United Nations (2018). Policy guide on entrepreneurship for migrants and refugees. https://unctad.org/en/PublicationsLibrary/diae2018d2_en.pdf. Accessed 10 Nov 2019. Welsh, D. H. B., Dragusin, M., & Grosu, R. M. (2019). Romania’s ageing population: Entrepreneurship opportunities and challenges. In M.  Backman, C. Karlsson, & O. Kekezi (Eds.), Handbook of research on entrepreneurship and aging (pp.  327–351). Cheltenham/Northampton: Edward Elgar Publishing Limited.

4 Defining the SME: A Multi-Perspective Investigation Stefano Montanari and Ulpiana Kocollari

4.1 Introduction The fact that small- and medium-sized enterprises have always been the backbone of the world economy is well known, and has been regularly confirmed at every census. In fact, according to the OECD, small- and medium-sized enterprises (SMEs) represent 99% of all businesses, generate about 60% of employment and produce between 50% and 60% of value added in the OECD area and are the main drivers of productivity in many regions and cities (OECD 2019). However, fewer people are aware of the difficulty economists have in coming up with a precise definition of an “SME” which clearly establishes the difference between a “small- or medium-sized” and a “large” enterprise (Gibson and Van der Vaart 2008). Although the concept may appear self-explanatory, in fact its application in practice can be quite complicated when factors above and beyond mere size are considered and an archetype that defines an S. Montanari (*) • U. Kocollari Marco Biagi Department of Economics and Management, University of Modena and Reggio Emilia, Modena, Italy e-mail: [email protected]; [email protected] © The Author(s) 2020 A. Thrassou et al. (eds.), The Changing Role of SMEs in Global Business, Palgrave Studies in Cross-disciplinary Business Research, In Association with EuroMed Academy of Business, https://doi.org/10.1007/978-3-030-45835-5_4

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“SME” in organisational and functional terms is sought (Hashim and Abdullah 2000). To overcome these problems, the literature has provided a large number of parameters for measuring every aspect of SMEs (Loecher 2000): these parameters are both quantitative, such as turnover or invested capital, and qualitative, such as the complexity of the organisational structure or its degree of overlap with the owner family. Quantitative parameters provide a definition of a “small-  and  medium-sized enterprise” which may be open to improvement but is still clear, easily measurable and objective in its results. With qualitative variables, the definition of a “small- and medium-sized enterprise” becomes more comprehensive and the results are more accurate in identifying the phenomenon, although the boundaries between the firms to be included and excluded become more blurred, due to the high degree of subjectivity involved (see Bolton Report 1971). Therefore, there is no one solution suitable for all purposes. Obviously, the needs for certainty and verifiability intrinsic to legislation require the use in this context of quantitative solutions which are easily to calculate, and, above all, objectively applicable. On the other hand, research which sets out to study the behaviours of an economic phenomenon needs to define it by means of shared characteristics and common behaviours, and due to their simplicity, quantitative limits alone are unable to achieve this (Carter and Jones-Evans 2006). It therefore seems appropriate to cover both approaches, since this will enable us both to distinguish between a “small-  and  medium-sized” and a “large” enterprise and to analyse the distinctive features companies defined as SMEs are expected to share. Below, we will present the definitions of SME in both legal and business approach terms, in the awareness that, in view of their breadth, the application of quantitative criteria will present us with a very heterogeneous set of businesses, and that therefore it is only by identifying recurrent qualitative characteristics that we can define this category’s shared organisational and management features.

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4.2 Legal Definitions of an “SME” In most of the world’s economies, small- and medium-sized enterprises enjoy special treatment in both legal and economic terms, since they are viewed as a vulnerable category which deserves protection. The many regulatory measures addressing SMEs generally have two aims: to simplify bureaucracy and to provide fiscal or financial benefits (Berisha and Pula 2015; Hashim and Abdullah 2000). The reasons for the simplifications which national states generally grant smaller-sized companies basically derive from their limited economic resources and scope. While on the one hand, these prevent them from maintaining complex administrative organisations, on the other, they mean that if the business encounters financial difficulties or goes bankrupt, the social impact will not be major. Therefore, in general smaller firms are authorised to use simplified accounting systems, enjoy a significant lightening of the fiscal and welfare burden and also have fewer obligations with regard to disclosure and auditing. With regard to financial benefits, the national state or, more and more often, the supranational regulator to which the state belongs, such as the European Union, steps in to provide smaller companies with financial support, to facilitate their capital consolidation in general or to pursue specific economic policy objectives. The forms of funding offered to SMEs may be of various kinds, from grants to low-interest loans, tax credits or tax breaks. While the underlying objectives are more or less constant across the various states worldwide, the criteria by which SMEs are identified are very different. In fact, the size thresholds used to define SMEs differ, although the main parameters used are staff headcount, turnover and invested capital (Kushnir et al. 2010; Kushnir 2010; Gibson and Van der Vaart 2008; Bloem 2012). According to the OECD data (OECD 2010), the classification of the SMEs across different countries when the number of employees is considered is mainly registered in groups from 1 to 9 employees for micro firms and from 10 to 49 for small ones, except for the US small firms (from 10 to 99 employees). For classifying the medium firms in EU countries and in Japan, the number of employees considered goes from 50 to 249, which is lower compared to

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the number of employees counted in medium firms in the US (from 100 to 499) and in Canada (from 50 to 499). In its Recommendation 96/280/EC dated 3 April 1996, the European Union was already responding to the need to achieve a precise, standardised definition of the concept of an SME, since different definitions in the various states might cause problems of discrepancies in economic policies, with the risk of seriously distorting competition. Therefore, in its Recommendation 1442 of 6 May 2003, which came into force on 1 January 2005, the Commission provided a framework for definition with which not just the member states but also the European Investment Bank (EIB) and the European Investment Fund (EIF) were required to comply. Under the definition established, an autonomous entity can be defined as: • a medium-sized enterprise, when it employs fewer than 250 persons and has an annual turnover not exceeding 50 million euros, and/or an annual balance sheet total not exceeding 43 million euros; • a small enterprise, when it employs between 10 and 50 persons and has an annual turnover and/or an annual balance sheet total not exceeding 10 million euros; • a microenterprise, when it employs fewer than ten persons and has an annual turnover and/or an annual balance sheet total not exceeding 2 million euros. As well as meeting the need to provide a more precise definition of the category of small enterprises by introducing the microenterprise class, this definition also considers the degree of autonomy the enterprise must have, in order to avoid forms of evasion or abuse of the limits set. To achieve this, it considers group structures in which entities are linked to other enterprises. Companies controlled in a variety of ways by other entities are defined as linked enterprises, while enterprises in which the linking holding amounts to at least 25% of the capital and is held either solely or jointly by one or more linked enterprises are defined as partner enterprises. For this purpose, the User Guide to the SME Definition (latest edition 24/02/2016) explains that the size parameters of the linked

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enterprises upstream or downstream of the SME must be added in their entirety to those of the SME itself, while the size parameters of partner enterprises must be added in proportion to their percentage stake. To conclude, the definition of a group does not apply in the case of stakes of less than 50% held by institutional investors (such as private equity or venture capital funds or business angels) or public sector bodies (such as universities, research centres, local authorities or publicly owned investment firms). In fact, if these stakes were to be considered in full even the smallest companies (microenterprises) would no longer enjoy the benefits of SME status (Evaluation of SME definition, final report, 2012). With regard to the activities of the EIB group, consisting of the European Investment Bank and the European Investment Fund, the EIB Group Report on Activities Supporting SMEs 2011 indicates that with regard to economic operators resident in member states and in states which are candidates for EU membership, the bank “defines autonomous enterprises which have fewer than 250 employees as SMEs, and autonomous enterprises which have fewer than 3,000 employees as Mid Caps”. Elsewhere, it defines microenterprises as entities with no more than 10 employees and enterprises with fewer than 500 employees as “small Mid Caps”. With regard to funding granted to entities registered in neighbouring or allied states, the banking group does not use a standardised definition of an SME, since it works through the local credit institutions and adopts their definitions of a small- and medium-sized enterprise. To conclude, although all regulatory measures are forced to adopt quantitative parameters when defining SMEs, there is no uniformity in either the choice of parameters to be used or the setting of their value thresholds. However, over the years awareness has grown of the demand for common standards also at the international level, since ever-increasing economic globalisation is highlighting the need for shared frameworks of reference, both for supranational economic policy measures and to allow the analysis of a phenomenon which would otherwise be too heterogeneous in its many and varied aspects.

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4.3 S  mall- and Medium-Sized Enterprises in Business Studies Business studies has not yet arrived at a universally accepted definition of what constitutes an SME. Some authors even theorise that it is not possible to set an objective definition of enterprise size, since it “simultaneously embraces four aspects  – quantity, quality, space and time  – for which there are no objective parameters capable of synthesising the various aspects referred to” (Ricci 1967, p. 5). Unlike in legislation, where the definition of an SME is intended to separate some entities from others as objectively as possible, for business studies academics the purpose of size categories is to identify the subject of the research as precisely as possible, so that its characteristics will be uniform to the highest possible degree. This is an essential prerequisite for any subsequent attempt to produce generalised findings. However, this aim comes up against the fact that a company system is made up of a set of correlated features and functions which may generate an undefined number of different combinations, in terms of structure, modes of operation and interactions with the environment. Therefore, every attempt to simplify the size characteristic into a single concept inevitably reduces the degree of uniformity of the phenomenon observed, since it is always possible to come across enterprises which are similar in terms of size but have very different characteristics on the purely qualitative level (organisation, corporate governance, relations with the sector or the market, etc.). Further complicating factors for the definition of company size arise if the concept is not considered in absolute terms but is set in context with regard to time and space. With regard to time, size becomes dynamic, dependent on the operation of the entire system, while in terms of space, a company’s size is considered in relation to the dimensions of its market. In fact, in the final analysis the dimensions of the market itself can be considered to determine the size of the company’s organisation (Nanut 1984). Traditionally, the main parameters used to define company size subdivide into quantitative and qualitative characteristics. The former are expressed through numerical values, while the latter generally consist of

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descriptive characteristics common to smaller firms (Bolton Committee 1971; Julien 2018). In order to examine the parameters to be used to identify and describe a business’s size, we must first define its borders. It must be remembered that sole proprietorships, companies or corporate groups are not the only forms in which business projects can be conducted. In more and more cases, we are seeing forms of association in which the bonds between individuals and companies are weaker than ownership rights (Confalonieri 1998), including consortia, networks of companies, clusters and subcontractor networks (Airoldi et  al. 2005; Wincent 2005). This growth in complexity in the definition of the borders of an enterprise has seriously weakened the concept of size, which is increasingly demoted to a relative factor, which varies depending on the purposes for which it is being measured. Therefore, for the purposes of legislation an enterprise’s size might be defined by the borders established by ownership rights only, but these borders might be widened (formal or informal associations of companies) or tightened (business units) depending on the object of the observation (Cortesi et al. 2004; Julien 2018).

4.4 Quantitative Parameters for the Definition of an SME As already explained in the previous sections, quantitative parameters have the advantage of objectivity, since their numerical nature means that a scale of values can be obtained directly, with no need for subjective assessment by the researcher. Moreover, in most cases these are financial figures which can be obtained directly from, or easily calculated on the basis of, companies’ financial reports. They are therefore the preferred option whenever SME status has to be precisely assigned to specific enterprises, and thus mainly for legal or statistical purposes (Chittithaworn et al. 2011). In business studies, the quantitative parameters for measuring companies’ size are mainly used for empirical research, especially when data for sample groups of large numbers of companies are processed. However, this simplicity is countered by the inability of

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quantitative data to fully reflect businesses’ high degree of heterogeneity, both within and across sectors (Loecher 2000). Moreover, defining a specific class of enterprises by means of threshold values may prevent their contextualisation in time and space. In fact, different economic contexts imply different thresholds, and values also require adjustment to reflect changing historic backgrounds. Although generally set in absolute terms, in fact threshold values inevitably refer to a relative approach, where the dividing line between large and small is set in relation to a specific context (Aremu and Adeyemi 2011; Gibson and Van der Vaart 2008). Therefore, in extremely pulverised industries or small market niches, entities which are relatively small in absolute terms may be considered large, while, on the contrary, in highly concentrated industries, operating on global markets, such as the automotive and aviation sectors, even the smallest firms must have quite impressive quantity parameters in terms of turnover, invested capital and staff headcounts (Di Lorenzo 2009). Quantitative parameters are usually classified on the basis of the following parameter categories (Confalonieri 1998; Loecher 2000; Haake 1987; Theile 1996): • structural parameters, relating to the company’s productive and organisational structure; • operational parameters, relating to the quantities the structure has actually produced; • external relations parameters, referring to the company’s relative position with regard to its market or industry.

4.4.1 Structural Parameters Structural parameters “are based on the assumption that companies of different overall size will have different quantitative operating structures which, since they reflect key aspects of operations, can also be considered as indicative of the company’s size” (Nanut 1984, p. 7). In other words, the size of the enterprise’s production capacity, in terms of both investments made and staff employed, may provide a worthwhile indicator of the business’s organisational complexity and thus of its organisational

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behaviours and the operating resources it requires. The most commonly used indicators are invested capital, staff headcount and installed production capacity. –– Invested capital has the advantage of being the figure most easily obtained even for an observer outside the business, since it is the same as the total net assets in the financial statement. The fact that it is expressed in monetary terms is an undeniable advantage but is also its main drawback. As well as its accessibility, this figure is also easy to measure and compare, but on the other hand it has all the limitations deriving from the accounting standards applied and the inflationary effects of currency. However, with regard to comparability between companies, it must be borne in mind that volumes of invested capital depend both on the sector and on the entrepreneur’s choice of a more or less labour-intensive model (Gibson and Van der Vaart 2008). Therefore, invested capital is rarely used on its own; it is generally combined with the staff headcount to ensure the balanced assessment of alternative situations in which capital or labour is predominant in the production process (Cortesi et al. 2004). –– Number of employees is another widely used parameter. Like invested capital, it has the advantage of being numerical, and thus enabling measurement and comparison between different sectors, although it is not always available from public sources, since not all forms of financial reporting with which smaller business are forced to comply include this heading (Stokes et  al. 2010; Bloem 2012; Gibson and Van der Vaart 2008). However, the fact that it is not expressed in monetary terms overcomes all the limitations set out above with regard to the assessment process. Like invested capital, the number of employees is unable, on its own, to express the distinctive features of the production process in cases where capital or labour predominates and, as already explained, it is thus generally combined with invested capital (Loecher 2000; Pleitner 1981). –– The third and final structural indicator is installed production capacity (Loecher 2000). This industrial indicator has the advantage of providing an incontrovertible figure, since it is based on technical characteristics of the company’s production organisation, but it has major

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limitations in terms of obtainability and comparability (Suárez-Ortega and Álamo-Vera 2005). In fact, since this is a technical figure which can only be determined via precise calculations, it is not externally available. Moreover, since the processes undertaken are measured using different units of measurement (e.g. Kwatt/h, pcs/h, kg/h, bottles per  annum, etc.), this figure cannot be used to compare companies operating in different sectors.

4.4.2 Operating Parameters Compared to structural parameters, operating parameters aim to measure what the company does at a given time or within a given interval of time, rather than what it is capable of doing. “In particular, parameters which aim to indicate the ‘actual activity undertaken’, such as output, sales, known as ‘turnover’, or, even better, added value, are adopted” (Confalonieri 1998, p. 8; Corticelli 1992, pp. 128–129). The underlying assumptions of the use of operational parameters are the same as those for structural parameters, since the volumes-complexity-size correlation still applies: in this case, the higher the volumes produced or sold and the greater the complexity and scope of the economic combinations, the larger the company’s size will inevitably be. The most widely used parameters are turnover, value of production, production volumes and added value. –– Turnover. This is the parameter most widely used to measure the size of a company, since it has many advantages: it is very easy to understand, since it provides an initial approximation of a company’s commercial strength; it is simple to obtain, since it is found in all “public” financial statements and is thus also available to people outside the company; and finally it is easily comparable, since it is expressed in monetary terms. However, these undeniable benefits come hand in hand with important drawbacks: the instability of the relative values over time, especially for entities subject to significant demand and price oscillations; the parameter’s inability to reflect differences between industries in which the goods handled have different unit

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values (for the same turnover, a company with lower unit prices is more complex, since its sales in volume terms are higher) and the inability to reflect the differences related to the degree of vertical integration of production (for a given turnover, more integrated companies are more complex than their less integrated equivalents) (Johnson et al. 2001; Stokes et al. 2010; Berisha and Pula 2015; Gibson and Van der Vaart 2008). –– Value of production. Since this parameter measures output instead of sales, it could provide a way of overcoming the instability intrinsic in turnover values. In fact, production for stock is able to compensate physiological fluctuations in demand. The drawback of this parameter is its subjectivity: the value of production is obtained by adding turnover, measured without the need for any personal assessments, to change in inventories, the calculation of which is inevitably a subjective process. –– Physical indicators of volume. These are quantitative parameters such as the volumes of output produced or output sold (Loecher 2000; Theile 1996). These parameters are able to overcome the problems related to variations in prices, and those arising when comparing sectors with different unit prices. However, they do not resolve the difficulty of the parameter’s instability due to fluctuations in demand, are unable to express the degree of vertical integration of production and do not allow comparisons outside the sector of reference, since the units of measurement used for this parameter vary from company to company. –– Added value. This is calculated as the difference between the value of production and the cost of the goods and services purchased from third parties and used to produce it. A large number of studies consider it to be “the most meaningful, consistent criterion for classifying the size of enterprises” (Cortesi et al. 2004, p. 23; see also Nanut 1984; Saraceno 1967; Lagacé and Bourgault 2003). Unlike the other parameters listed above, it is able to reflect the company’s degree of vertical integration, since a more integrated production process should generate more added value. The drawback of this parameter, on the other hand, is the influence of the business’s profitability on the result of the measurement, which means that a company generating a higher return

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will appear to be larger than a company with low or even negative profitability.

4.4.3 External Relations The last class of parameters identified by some researchers concerns relations with the outside world, and in particular with the relevant market and industry. (Storey 2016; Bolton Committee 1971; Gaedeke and Tootelian 1991; Julien 2018). The main indicator which measures this, competitive positioning, is identified by general agreement as market share, sometimes only in relation to the company’s core business and sometimes also including the markets for secondary product lines. SMEs are thus defined as those entities which have small market shares and thus very little power to influence their competitive context, unlike large enterprises, which can use their economic strength to shape the competitive dynamics of the sectors where they operate (prices, products, technology, etc.). In contrast with all the other parameters examined so far, market share has the undeniable advantage that it reflects the relativity of the concept of size, since the company is measured in comparative terms, in relation to its market (Abor and Quartey 2010; Lee-Ross and Lashley 2009). Its limitations relate above all to the difficulty of accurately defining the borders of the market or sector of reference (a company’s competitive arena may be even much smaller than the whole market to which it belongs), and secondly to the risk that significant changes in the size of the core relevant market may trigger differences in the measurement of the company’s size even if its economic combinations remain unchanged (Nanut 1984; Gibson and Van der Vaart 2008).

4.5 Q  ualitative Parameters for the Definition of an SME From the above points, it appears clear that quantitative parameters alone are not sufficient for the identification of a class of enterprises which share the same organisational behaviours and operational needs (Cattaneo

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1969; Bolton Committee 1971; Confalonieri 1998; Berisha and Pula 2015; Stokes et al. 2010; Loecher 2000). To increase the efficacy of this process, some of the literature suggests supporting quantity parameters with quality parameters to descriptively represent factors connected or potentially connected to the concept of company size which, although they cannot be measured in quantitative terms, and thus cannot be included in a specific applicational model, still provide interesting, significant pointers that can help to define the phenomenon (Julien 2018). In effect, the basic limitation of qualitative parameters derives from the fact that they cannot be measured, and thus reflect characteristic aspects of entities with different structures and sizes. In fact, no author has proposed models capable of making the quality characteristics suggested operational, and all authors have drawn up more or less complete lists of the recurrent features of small enterprises, without specifying whether all these characteristics have to be present simultaneously for the firm to be classified as an SME, or whether the presence of even just one of these features is sufficient. The received opinion amongst business economics specialists is that the characteristic features of SME include the following (Cortesi et al. 2004): • • • • • • • •

legal form; degree of autonomy; owner-management; institutional overlap between family and business; organisational structure; size of management team; forms of funding; competitive behaviour.

4.5.1 Legal Form The use of the enterprise’s legal form as a dimensional characteristic derives from a legal approach which implies that the companies with the most complex legal form, and specifically joint-stock companies, are the ones which engage in the largest-scale business activities, while sole

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proprietorships and partnerships are smaller operations. Currently, the across-the-board reduction in thresholds for access to limited liability company status means that in practice this legal form is affordable by all. Therefore, while it is still true that most sole proprietorships and partnerships are small enterprises, the converse no longer applies for share companies, which may be of virtually any size.

4.5.2 Enterprise’s Degree of Autonomy The enterprise’s degree of autonomy is correlated to size, since it defines the borders of the firm, and is therefore fundamental for any other quantitative or qualitative assessment (Bolton Committee 1971; Abor and Quartey 2010). If links to other enterprises are of a legal nature, because they derive from ownership rights, provisions of the articles of association or contracts, the enterprise is no longer defined as an autonomous entity, but rather as part of a group (see EU definition of SME—European Commission 2015). However, if the links implying subsidiary status are weak or not publicly available, the company’s autonomy or possible membership of a larger economic group must be verified before any further assessment of its size is made (Wincent 2005).

4.5.3 Owner-Management Owner-management is a characteristic often found in enterprises in the smallest size category (Bolton Committee 1971; Whittaker 1999; Hashim and Abdullah 2000; Loecher 2000), although it may also occur in large companies. In the smallest firms, operating organisations are simple, staff numbers are low and resources are limited: in this context, the entrepreneur or partners are directly involved in running the business, and are able to cover all its management and control needs (De Vries 1977; Theile 1996; Loecher 2000). However, even when the business expands, creating more space for the creation of new managerial roles, the firm’s organisation does not necessarily undergo what would seem to be the logical “managerialisation”. In fact, the inability to delegate is one

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of the main factors which explains why SMEs find it so hard to grow (Churchill and Lewis 1983; Aremu and Adeyemi 2011). On the other hand, the growing interest of private equity and venture capital funds in investments in SMEs and start-ups has also produced cases where the opposite is true: businesses definitely small in size, which, however, are no longer owned by the original entrepreneur.

4.5.4 Overlap Between Family and Business The final institutional feature often found amongst SMEs is the overlap between family and business: in other words, the situation where the main inputs for the company’s production operations, especially the capital and labour required, are supplied by the owner family (or families) (Lansberg 1983). This situation profoundly affects the company’s behaviour, influencing, for example, access to top managerial positions, forms of funding, generational handover and organisational culture (Tagiuri and Davis 1996). In general, the degree of overlap between the owner family and the business is high in smaller firms, and should decrease as the business grows in size. In fact, there are other factors apart from size which tend to increase or reduce the family-firm overlap. These include, for example, the size and structure of the families involved, the business culture of the individuals concerned, the profitability of the business, the social status which the firm provides, and so on. All these factors lead to a wide array of different situations. There are some small businesses where the family and the firm operate in separate, clearly distinct areas, and firms of large size where there is a complete overlap with the owner family and the dominating position of the latter in the business seriously restricts its strategic choices and operational management (Gersick et al. 1997).

4.5.5 Organisational Structure Another feature often linked to small size is the lack of formal organisational structures and, often, the absence of complex operational systems, especially HR and financial management functions (Corbetta 2000;

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Chittithaworn et al. 2011; Julien 2018). In fact, it is fairly obvious that to a great extent organisational complexity will increase as the business grows, if only because some levels of operation are not possible without it; however, apart from the extreme examples of very small or very large firms, where complexity of organisation is strictly correlated to operational needs, there is a middle ground of small- or medium-sized enterprises within which situations may vary widely. Amongst enterprises of more or less the same size, we may find some whose organisational structures are little more than embryonic and, alongside them, others with cutting-edge organisational and managerial formulae. As already mentioned, many entrepreneurs find it very hard to delegate, and this tends to lead to highly centralised, authoritarian management styles. In these cases, if there is an organisation, its only function is to implement the boss’s decisions. Other factors may derive from family considerations, where the formal establishment of a hierarchical organisation, with explicitly defined roles and responsibilities, would generate discontent or jealousy within the family or the business (Corbetta 2010). Therefore, in many cases, in small- or medium-sized enterprises, the organisational structure does not depend on the extent or complexity of the economic combinations, as should theoretically be the case, but on reasons very different from the company’s size, which often have nothing to do with the company and its business at all.

4.5.6 Size of Management Team Some authors consider the size of the management team as one of the main factors which distinguishes between small- and medium-sized enterprises (Lappalainen and Niskanen 2009). In a small business, “the underlying strategic approach and strategies depend to a great extent on the ideas, attitudes and abilities of one or a very few people, who provide the lion’s share of the key competences necessary for the enterprise’s success. Normally, the management team revolves around an entrepreneur who is a specialist-technician” (Corbetta 2000, p. 33). This characteristic is considered to limit the company’s growth in size, since the lack of

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competences and time of the people “at the helm” means that the simultaneous development of all competitive aspects is not possible (Cortesi et al. 2004). However, in some competitive contexts this assertion does not apply: companies with a management team consisting of just a few individuals usually adopt a leadership strategy within a small competitive context, and this may enable them to grow even to considerable size (Corbetta 2010).

4.5.7 Forms of Funding Another characteristic considered useful for the identification of SMEs is the forms of funding used. In fact, since SMEs traditionally have only limited access to capital markets, banks represent virtually their only source of funding (Nanut 1984; Degryse et al. 2012; Chittithaworn et al. 2011; Barrow 1998; Ashton and Keasey 2005). However, this paradigm has also gradually lost value, as capital markets are showing more and more interest in smaller enterprises. All the world’s stock markets have created segments specifically for small firms (e.g. AIM, Euronext Growth, S-DAX), and private equity funds, venture capital companies, merchant banks and closed-end funds have also been very active in this area (Capizzi et al. 2011). However, while on the one hand the supply of venture capital has led to a considerable reduction in the size threshold for accessing it, the same cannot be said on the demand side. The factors which discourage entrepreneurs from opening out their companies’ capital to third parties, even if they still retain a majority holding themselves, are still very much present. However, these factors, which are largely of a cultural rather than an economic nature, influence the owners of firms of all sizes: in other words, leaving aside very small enterprises, the diversification of sources of finance and the offering of equity to outsiders are becoming increasingly common even amongst SMEs, but at the same time it is still common to find large businesses which, still totally controlled by the owner family, absolutely refuse to consider sources of funding other than banks (Cassar and Holmes 2003).

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4.5.8 Competitive Behaviour One final distinctive characteristic which business economists assign to SMEs is their competitive behaviour, or rather their influence on the market. Traditionally, an SME is defined as a firm unable to significantly affect trends on its core market, whose main strategy is to focus on niches and to compete within the fissures left in the market by larger companies (Penrose 1959). As the empiric findings built up by a large number of studies undertaken in recent decades reveal, the picture which emerges is much more complex and depends basically on the characteristics of the sectors in which SMEs operate (Tully and Berkeley 2004; Venkataramanaiah and Parashar 2007). Leaving aside large sectors without fragmentation, where it is true that SMEs are forced to find the small gaps left vacant by large firms, in all other competitive contexts it is quite common to find SMEs that have developed leadership strategies intended either to satisfy differentiated demand from customers or to profit from their own flexibility and ability to change and adapt fast. This means that competitive behaviour or a company’s ability to influence the formation of prices and control of the qualities traded on a specific market are also ineffective as discriminating factors for establishing company size, since they are more closely linked to environmental parameters such as the characteristics of the sector or the size of the market.

4.6 Conclusions Even though defining small- and medium-sized enterprises is relevant for many purposes, across sectors and countries, our analysis shows that there is still no widely accepted definition. There is no agreement for a common definition even among institutions and organisations both national and international. The different criteria that are adopted for defining SMEs have been reviewed and adjusted over time and represent a process that is under continuous evolution. This fact shows that the SMEs, being an expression of the economic trends and development in which they operate, require the adoption of dynamic tools for capturing and

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evaluating their main characteristics. The criteria that are used for defining an SME, both quantitative and qualitative, should be contextualised in the business and economic realm in which the SMEs is examined. For this purpose, a mix of different features that are selected in accordance with the main issues that SMEs deal with at a given moment in time can better capture their perimeter of activities and measure the value they produce. In fact, for determining and monitoring the impact of SMEs’ activities, researchers and institutions should have clear the main patterns of features and issues that these enterprises are mostly exposed to. The use of Big Data analysis can foster and facilitate this process if it is guided by a clear objective of the measurement process. Posing the right question on the dimensionality that is going to be measured can be useful in detecting the adequate criteria of evaluation and individuate the multidimensional data that should be analysed for the definition of the size of the business activities.

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5 To Fail or Not to Fail: An Algorithm for SME Survival Prediction Using Accounting Data José Manuel Pereira, Humberto Ribeiro, Amélia Silva, and Sandra Raquel Alves

5.1 Introduction The unbalanced environment that economies across the globe faced during the great recession enhanced the occurrence of the corporate insolvency phenomenon. Insolvency and bankruptcy occur on a daily basis.

J. M. Pereira IPCA-Polytechnic Institute of Cávado and Ave, CICF, Management School, Barcelos, Portugal e-mail: [email protected] H. Ribeiro (*) GOVCOPP, ESTGA, University of Aveiro, Aveiro, Portugal e-mail: [email protected]; [email protected] A. Silva CEOS.PP, Polytechnic Institute of Porto, Porto, Portugal e-mail: [email protected] © The Author(s) 2020 A. Thrassou et al. (eds.), The Changing Role of SMEs in Global Business, Palgrave Studies in Cross-disciplinary Business Research, In Association with EuroMed Academy of Business, https://doi.org/10.1007/978-3-030-45835-5_5

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However, from a long-term view, corporate insolvency tends to be cyclical and to peak during recession periods. The overleveraged spillover effects from the most recent financial crisis were very significant at the corporate level and even led to the collapse of very large “too big to fail” corporations. Nevertheless, such negative impacts were even more clear and significant on micro and on small and medium-sized enterprises (SMEs). Similarly, one can argue that this financial crisis, to a greater or lesser extent, affected almost every sector of activity. Nevertheless, despite the broad effects across the economy, some particular industries suffered the most, as is the case of financial services and construction-related activities. The enormous importance of SMEs to the economy is widely recognised (Altman and Sabato 2007; Ayranci 2014; Bantscheff and Britzelmaier 2019). Their impact on employment rates, social unity and economic growth is acknowledged by all political ideologies (Pereira et al. 2017). It is natural for enterprises to have periods of success and failure. However, when a temporary negative period becomes chronic, then it usually leads to bankruptcy (Dengleri et  al. 2019). Insolvency, bankruptcy, or business failure, are critical phenomena that attract the public’s and researchers’ interest for a long time, leading to the development of models for business failure forecasting, the pioneering papers of Beaver (1966) and Altman (1968) being noteworthy. They would be soon be followed by a profusion of related research, with successive methodological improvements and the use of various innovative techniques. Within this framework, and considering more recent methodologies on business failure, such as Pereira (2014), an algorithm that has been constructed for predicting the survival likelihood of a corporation, using financial accounting data, is proposed in this book chapter. Furthermore, due to the more frequent fragility of SMEs, the authors of this book chapter consider this algorithm as a possible tool for assessing their financial condition, providing an immediate insight about their survival odds and therefore

S. R. Alves CIC.DIGITAL; ESTG, Polytechnic Institute of Leiria, Leiria, Portugal e-mail: [email protected]

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helping management to support their decision-­making processes, namely, the critical ones, that is, the one which may prevent business failure. In order to test the feasibility of the proposed tool, an algorithm, which was based on an empirical study comprising a set of insolvency proceedings in Portugal involving SMEs, was subjected to a major testing process, with the research being focused on non-financial sectors only. Overall, the results suggest that the proposed algorithm is reliable while forecasting the survival likelihood of SMEs, based on their reported data on financial accounting. Therefore, the authors believe that this algorithm can be regarded as a powerful tool for SME managers to monitor the corporate performance and the outcome of their managerial decisions, particularly with regard to the survival chances of their organisations.

5.2 T  he Use of Survival Analysis Methodology in Mainstream Literature The main application of survival analysis in accounting research has been in the area of bankruptcy prediction and the related literature that employs this statistical technique has increased in recent years. Lane et al. (1986) were the first to employ the Cox model to predict bank failure, using a sample of 130 banks that failed between January 1978 and June 1984, and another sample of 334 non-failed banks. The survival time for each failed bank has been defined as the time (in months) since 31 December of the year considered for the calculation of financial ratios to the date of bankruptcy. Their results indicated that the overall accuracy of the Cox model was similar to the one obtained by using discriminant analysis; however, type I error was lower in the Cox model. Following these findings, many other authors contributed towards the dissemination of this technique in the field of bankruptcy. For instance, Luoma and Laitinen (1991) applied survival analysis while predicting business failure. These authors used a sample of 36 failed companies (24 from industrials and 12 retailing firms) each paired with a not failed company belonging to the same business and of similar size. The results were

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compared with models developed from discriminant analysis and logistic regression. The percentage of correct classifications were 61.8%, 70.6% and 72.1%, for survival analysis, discriminant analysis, and logistic regression, respectively. The authors explained the lower accuracy of the model based on survival analysis with the different failure processes found in the data. Another reference research in this area is the one of Shumway (2001). This author draws attention to the need to include multiple observations for each firm by using a discrete time hazard model in the prediction of financial distress and uses an accelerated failure time survival analysis model that outperformed the traditional techniques used in this strand of investigation. Likewise, Lee (2014) used survival analysis to find the main indicators which could explain the business bankruptcy phenomenon in Taiwan. The sample employed included companies listed on the Taiwan Stock Exchange that were under financial distress between 2003 and 2009. Lee’s research suggested that one does not need to use many ratios to be able to anticipate a potential business bankruptcy. Finally, it is also noteworthy to mention Gémar et al. (2016) who used survival analysis techniques applied to the Spanish hotel industry. Their findings suggest that the hotels’ survival likelihood depends on their size, location, management and opening timing (preferably in a time of prosperity). Although some selected research was highlighted in this book chapter, it is important to note that the use of the survival technique can also be observed in many other studies that can be found in recent academic literature. Accordingly, a systematic literature review on the topic was performed in order to assess the most recent contributions in the field. As for the outset, one should be aware that the medical sciences were the first to develop a systematic literature review, based on the survival methodology used to predict the likelihood of patient survival. Due to the necessity to integrate clinical evidences from different studies, that is, Evidence Based Medicine, meta-analysis became very popular in medicine. More recently, this methodological approach has been increasingly applied to the social sciences. Regardless of the required adaptations, this methodology allows the grouping of a huge volume of literature and the

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integration of the different contributions in a field of knowledge. The Clarivate’s Web of Science search engine was selected to perform this review. The following research query was applied: • Topic: (“survival analysis”) AND Topic: (bankruptcy) • Publication years: (2019 OR 2014 OR 2010 OR 2018 OR 2013 OR 2017 OR 2012 OR 2016 OR 2011 OR 2015) • Document types: (ARTICLE) The search was performed on 30 November 2019, with 32 papers being gathered initially. In order to assess the relevance of each paper, the title and the abstract of each of these papers were examined. From the 32 papers, only one paper was excluded because it dealt with personal bankruptcy and was related to the physical conditions of the individual. The remaining 31 papers were included in the sample and were distributed by years as shown in Fig. 5.1. In Table 5.1, we summarise the goal of each paper reviewed, ranked by year of publication. It is interesting to note that, despite the novelty of the introduction of new variables in some studies, most papers use accounting-driven ratios as predictor variables. In the selected sample of collected papers, one could find studies from many different countries around the globe. 8 7 6 5 4 3 2 1 0 2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Fig. 5.1  Publication year in web of science about survival analysis in the field of bankruptcy

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Table 5.1  Main goal and methodology of the papers examined Year

Authors

2010

Hazak and Männasoo (2010)

2011

2011

2011

2012

2013

2013

2013

Propose and methodology

– Contribute to the research on the indicators that provide a warning of company failure by employing micro and macro variables within a framework of survival analysis – Sensitivity of the results is checked using two complementary event definitions, that is, bankruptcy and negative equity – Propose a new survival tree method for discrete Bou-Hamad, time survival data with time-varying covariates Larocque – Accommodate simultaneously time-varying and Bencovariates and time-varying effects Ameur (2011) Du Jardin and – Show how a Kohonen map can be used to increase Séverin (2011) the forecasting horizon of a financial failure model – Develop a new way of using a Kohonen map to improve model reliability Moon and Sohn – Improve a scorecard model to help organisations (2011) decide whether or not to grant loans to applicant firms – Propose a survival model that considers not only the time to default but also the total perception scoring phenomenon – Apply a discrete transformation family of survival Ding, Tian, Yu models to corporate default risk predictions and Guo – Adopt a class of Box-Cox transformations and (2012) logarithmic transformations – Use survival analysis to determine how early the Alali and indications of bank failure can be observed Romero (2013) – Show that the reduced-form entrepreneurial Carvalho, J., equilibrium and profit-maximisation Divino, J. A., entrepreneurial equilibrium, as defined by Magill and Orrillo, J. and Quinzii (1996), are equivalent. In addition, we (2013) find an inverse relationship between the economy real interest rate and the probability of default – Propose a Cox proportional hazards model with time-dependent covariates for a sample of sole proprietorships’ unsecured credit operations in the Brazilian economy – Propose a Cox regression Criteria used for Mokarami and corporate governance are size of Board of Motefares Directors, percentage of non-Executive Directors, (2013) Chief Executive Officer (CEO) change and major ownership (continued)

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Table 5.1 (continued) Year

Authors

Propose and methodology

2013

Mokarami and Motefares (2013)

2014

Dang (2014)

2014

De Leonardis and Rocci (2014)

2015

Alves and Dias (2015)

2015

Kim and Partington (2015)

2016

Lado-Sestayo, Vivel-Búa and OteroGonzález (2016)

– Propose a Cox regression considering corporate governance – Criteria used for corporate governance are size of Board of Directors, percentage of non-Executive Directors, Chief Executive Officer (CEO) change and major ownership – Apply a competing risks approach and an event time dynamic estimation framework to identify the characteristics underlying different insolvency resolutions incurred by US property-casualty insurers during 1998–2010 – Hazard model relates the time-varying probability of a specific insolvency outcome to insurers’ characteristics and macroeconomic conditions – Develop a cure model for analysing default time data where two groups of companies are supposed to coexist: those which could eventually experience a default (uncured) and those which could not develop an endpoint (cured) – The probability of being uncured is estimated with a binary logit regression, whereas a discrete time version of a Cox’s proportional hazards approach is used to model the time distribution of defaults, accomplished by replacing the discrete time baseline function with an appropriate time-varying system level covariate, able to capture the underlying macroeconomic cycle – Score the credit risk of a financial institution’s clients – General framework of survival mixture models (SMMs) that addresses the unobserved heterogeneity of the credit risk of a financial institution’s clients, containing specific cases of aggregate and immune fraction models – Investigate dynamic probability forecasts use of time-varying variables in forecasts from a Cox model – Forecast accuracy is evaluated using receiver operating characteristics curves and the Brier Score – Assess the determinants of survival of Spanish hotel firms

(continued)

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Table 5.1 (continued) Year

Authors

2016

Dellana and West (2016)

2016

2016

2016

2017

2017

Propose and methodology

– Investigate to what extent differences in legal systems affect cross-border insolvency, that is, What is the relationship between multinational status and firm death rates? To what extent can the legal system affect the pattern of firms’ death across countries? How can the cross-border insolvency legal rules produce firms’ death or survival through corporate restructuring and bailout? – Propose a survival method and estimate a discrete time hazard model, looking for the effect of foreign ownership on firm death, controlling for firm- and industry-specific covariates Gémar, Moniche – Analyse survival in the Spanish hotel industry – Propose an econometric analysis of survival, using and Morales the non-parametric Kaplan-Meier estimator of (2016) constructed variables, in order to detect the particular influence of each variable – Semi-parametric regression was done with the Cox proportional hazards model Kim, Ma and – Propose a Cox proportional hazards model to Zhou (2016) predict turnaround probability for a distressed firm to remove the Special Treatment cap – Enrich the understanding of the determinants of Pittiglio, foreign-owned firms’ survival in Italy and highlight Reganati and the important role assumed by the countries’ legal Tedeschi environment (2016) – Develop a survival model that considers the differences between Common Law countries and Civil Law countries and how it affects cross-border insolvency – Estimate the causal impact of restructuring aid Heim, granted by the European Commission between Hüschelrath, 2000 and 2012 on the survival and financial Schmidtviability of aided firms Dengler and Strazzeri (2017) – Assess the influence of retail operations Patel, Guedes characteristics on the survival of new retail and Pearce II ventures (2017) – Develop a survival model specific for retail ventures (continued)

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Table 5.1 (continued) Year

Authors

2017

Shin, Park, Choi and Choy (2017)

2017

2018

2018

2019

2019

Propose and methodology

– Investigate internal and external factors affecting the survival of SMEs (small and medium-sized enterprises) in the biotechnology industry in South Korea. Cox hazards model was employed to perform a robust estimation in survival analysis – Incorporate a dynamic view on bankruptcy into Volkov, Benoit bankruptcy prediction modelling and Van den – Introduce variables based on the Markov for Poel (2017) discrimination (MFD) model – Test if economic recession and distressed financial Dendramis, conditions as well as political instability constitute Tzavalis and the key factors for mortgage default Adraktas – Propose an extension of the discrete time survival (2018) analysis model which allows for a structural break in its baseline hazard function and a unique set of individual loan accounts Gupta, Barzotto – Demonstrate that the failure rate of SMEs varies across micro, small and medium-sized categories and – Estimate univariate hazard models and report Khorasgani average marginal effects (AMEs) for each variable (2018) to facilitate the specification of the later multivariate model – Estimate multivariate discrete time durationdependent hazard models with logit link across size categories (for SMEs, micro, small, and medium firms, respectively) for bankruptcy and financial distress, respectively – Investigate the determinants of bankruptcy Ayadi, Lazrak protection duration of Canadian public firms, and and Xing also investigate the duration for various (2019) bankruptcy outcomes including the liquidation and re-emergence of bankrupt firms – Apply duration and survival analyses – Extend a semi-parametric proportional hazards Beretta and cure model to time-varying covariates and propose Heuchenne a variable selection technique based on its (2019) penalised likelihood – Use a mixture cure model to separate the factors with an influence on the susceptibility to default from the ones affecting the survival time of susceptible banks (continued)

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Table 5.1 (continued) Year

Authors

2019

Coccorese and – Test the different definitions of “book-value Santucci (2019) distance to default” (BVDD) to assess whether using downward assets volatility provides some advantage to the index performance or produces adverse impacts on its effectiveness – Develop a Cox semi-parametric hazards model where the BVDD is built as a function of a parameter theta, which indicates the percentage of upward assets volatility incorporated in its calculation so as to compare its success in predicting banks’ distress over different levels of theta Djeundje and – Discuss how survival analysis can be enhanced Crook (2019) using generalised additive models (GAMs) – Show how GAMs can be used to improve not only the application, behavioural and macroeconomic components of survival models for credit risk data at the individual account level, but also the accuracy of predictions – Propose parametrised GAMs for credit risk data in terms of penalised splines, outline the implementation via frequentist and Bayesian MCMC methods, apply them to a large portfolio of credit card accounts – Examine variables influencing resort hotels’ Gémar, Soler survival in Spain which had not been analysed and Guzmanpreviously. In this country, determining whether Parra (2019) the reasons resort hotels close are different from why other hotels close could be imperative to resort hotels’ survival – Develop Cox’s semi-parametric proportional hazards regression to determine which variables influence hotel closure and how much each variable increases risk of closure – Demonstrate that the design of the privatisation Ivanović, process in Serbia allowed rent-seekers to conserve Kufenko, their privileges through asset-stripping, which Begović, explains the failure Stanišić and Geloso (2019) – Analyse the determinants of liquidation, merger and bankruptcy of privatised firms

2019

2019

2019

Propose and methodology

(continued)

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Table 5.1 (continued) Year

Authors

Propose and methodology

2019

Li, Xu, Li and Xu – Investigate the symptoms of failure in public (2019) corporations with multiple hospitality businesses and examine whether a new case-based deep-layer predictive analysis methodology is more appropriate than conventional approaches to failure analysis – A case-based deep-layer predictive analysis of multi-business hospitality failures was conducted using an independently incremental process, a dependent retrieval process, a pre-early-warning process and an early-warning process

Fig. 5.2  Word cloud resulting from content analysis

However, the majority were from European countries. One evidence coming from this literature review is that a sound theoretical approach that may explain corporate bankruptcy broadly is still under development. Figure 5.2 summarises, in the form of keywords, the content of the abstracts of the 31 articles analysed, using a Word Cloud Generator software. Despite the limitations that this analysis model may present, one can, nevertheless, highlight the predominance of the empirical approach, rather than the use of a theoretical approach to explain the bankruptcy phenomenon.

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5.3 The Proposal of a Predictive Model 5.3.1 The Cox Proportional Hazards Model According to Collett (1994), the current survival time of an individual t can be regarded as the realisation of a random variable T, which may assume any given non-negative value. Therefore, T indicates the time to failure of a firm. T is thus associated with survival time and follows a given probability distribution. T being a continuous probability distribution, and assuming f as the underlying probability density function, the function of distribution is then given by t



F  t   P T  t    f  u  du 0

(5.1)

which represents the probability of the survival time being inferior to a given value of t. The survival function S(t) is defined as the probability that a firm will survive longer than t times units, being equal or higher than t, and assumes the following notation:

S  t   P T  t   1  F  t .



(5.2)

The survival function may therefore represent the probability of the survival time of an individual to exceed a given value of t. The hazard function describes the evolution over time of the immediate rate of “death” of a firm. To obtain the hazard function, we assume the probability that the random variable associated with a survival time T is between t and t + δt, subject to a T value greater than or equal to t, which can be shown as

P  t  T  t   t |T  t  .



(5.3)

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The hazard function h(t) is then the limit of that probability divided by the interval of time δt, with δt tending to zero as we can verify below:  P  t  T  t   t |T  t   h  t   lim  .  t 0 t  



(5.4)

The hazard h(t) is the probability of failure in the next period, given that the firm was alive at time t (Lane et al. 1986). The survival function, S(t), can be obtained from the following equation: S  t   exp  H  t ,





(5.5)

where t



H  t   h  u  du. 0

(5.6)

The function H(t) is called the cumulative hazard function.

H  t    log S  t 



(5.7)

The model that can be used as a base for application in this book chapter is the proportional hazards model proposed by Cox (1972), which is also known as the Cox regression model. The definition of the model is as follows. Assuming that the hazard of “failure” for a given time period depends on the values x1, x2, …, xp of p explanatory variables X1, X2, …, XP , the set of values of explanatory variables in the proportional hazard model will be represented by the vector x, so x = (x1, x2, …, xp)′. We designate h0(t) as the hazard function of a company for which the values of all variables that make the vector x is zero. The function h0(t) is called baseline hazard function. The hazard function for i companies can then be written as:

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hi  t     xi  h0  t  ,



(5.8)



where ψ(xi) is the function of the values of the vector of explanatory variables for i companies. The function ψ(xi) can be interpreted as the risk over time t for a company whose vector of explanatory variables is xi on the risk for a company whose x = 0. Since the relative risk ψ(xi) cannot be negative it should be written as exp(ηi), where ηiis a linear combination of p explanatory variables in xi. Therefore

i  1 x1i   2 x2 i    p x pi ,

(5.9)



which is equivalent to

i   j 1  j x ji .

(5.10)

p





where β is the vector of coefficients of the x1, x2, …, xp explanatory variables in the model. The quantity ηi is called the linear component of the model, also known as risk score or prognostic index for i firms. The proportional hazard model can generally be expressed as follows:

hi  t   exp  1 x1i   2 x2 i    p x pi  h0  t  .



(5.11)

5.3.2 Proposed Model Taking into consideration the models offered by the literature, but also employing a specific set of variables that the authors of this book chapter find appropriate to test using a survival function, the proposal of a predictive model of corporate failure follows below.

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5.3.2.1  Variables Used In this research, several economic and financial indicators were used to construct a set of independent variables. Similarly to the procedure used in diverse studies devoted to predicting business failure, the selection of the independent variables was based on its popularity, measured by its use in previous studies. The 22 selected indicators that were collected from the balance sheet and from the income statement of the companies included in the sample are listed below: X1 (Current assets − current liabilities)/Total liabilities X2 Current assets/Current liabilities X3 Equity/Total assets X4 Equity/Liabilities X5 Cash flow/Current liabilities X6 Cash flow/Liabilities X7 Financing charge/Operating gains X8 Cash/Total assets X9 Cash/Current liabilities X10 Bills payable/Total assets X11 Working capital/Total assets X12 Operating gains/Current assets X13 Operating gains/Operating costs X14 (Net profit before tax + depreciation expense + provisions)/ Financing charge X15 Net profit/Total assets X16 Net profit/Equity X17 Net profit/Liabilities X18 Net profit/Operating gains X19 Net profit/Sales X20 Sales/Cash X21 (Net profit before tax + financing charge)/Sales X22 Net profit before tax/(Net profit before tax + financing charge)

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5.3.2.2  The Companies’ Sample In order to adjust the model, it was necessary to collect a sample of companies where the event of insolvency occurred. Based on the information provided by insolvency administrators it was possible to obtain a sample of 14 companies, whose survival times were known and which could therefore be classified as belonging to the group of failed companies. The survival times for the 14 companies were as follows: 2 companies with 3 months, 1 company with 4 months, 4 companies with 5 months, 2 companies with 6 months, 4 companies with 8 months and 1 company with 10 months. Concurrently, we obtained a sample of 14 companies that did not fail, with survival times obtained from SABI, a database from Bureau Van Dijk, a Moody’s Analytics company. Taking into consideration the survival times, it was possible to split each company into three sets of observations, which resulted in a group of failed companies with 42 observations, and a group of companies that did not fail with 42 observations as well. Each observation is regarded as a company. To illustrate this situation, one can consider the data from a company that was active until six months after the latest year for which we have data records. Since we collected data for three consecutive years, it was possible to have data for 6, 18 and 30 months prior to the time of business closure. This procedure was repeated for every 28 companies included in the testing sample. The selection method of the explanatory variables followed Collett’s (1994) procedure, and the testing was performed using SPSS software. The explanatory variables that contributed significantly to the reduc L are shown in Table 5.2. tion of statistics −2log Table 5.2  Variables in the equation X1 X2 X5 X22

B

SE

Wald

df

Sig.

Exp(B)

0.452 −1.269 −0.393 0.229

0.199 0.335 0.219 0.061

5.137 14.317 3.210 13.863

1 1 1 1

0.002 0.000 0.003 0.000

1.571 0.281 0.675 1.257

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5.4 The Survival Algorithm In Table 5.3 are shown the values of the survival function relative to the average of the variables’ values. The survival analysis provides quantitative information about the probability of a company failing at the end of a time period t and not only whether it will, or will not, fail. The compiled data, shown in Table 5.3, made it possible to develop an algorithm using Matlab, which allows to deliver a company’s performance forecast and a survival function value for the time considered. The time period considered for the study was 12 months. The values of the survival function, for each firm, were based on the respective figure for the nearest time frame obtained in the survival model developed earlier (ten months). In order to calculate the forecast for each company, a cut-off point of 0.5 was used, that is, the model considers 1 for a company when the likelihood to survive is greater than 0.5, and 0 otherwise. The combination of these criteria and data allowed to produce the algorithm, which is show below in italic. Table 5.3  Survival function table At mean of covariates Time

Baseline cum hazard

Survival

SE

Cum hazard

3 4 5 6 8 10 15 16 17 18 20 22 27 28 29 30 32 34

0.018 0.074 0.112 0.192 0.276 0.345 0.373 0.461 0.523 0.653 0.793 0.908 0.997 1.291 1.506 2.016 2.685 3.275

0.994 0.978 0.966 0.943 0.918 0.899 0.891 0.867 0.851 0.818 0.783 0.756 0.735 0.672 0.629 0.537 0.437 0.364

0.006 0.011 0.014 0.019 0.024 0.027 0.028 0.032 0.035 0.039 0.044 0.047 0.051 0.058 0.063 0.067 0.069 0.069

0.006 0.023 0.035 0.059 0.085 0.106 0.115 0.142 0.161 0.201 0.244 0.280 0.307 0.398 0.464 0.621 0.828 1.010

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Algorithm  Survival function and forecast’s description function survival %estimated values of the coefficients b1=0.452; b2=−1.269; b5=−0.393; b22=0.229; %for ten months H0=0.345; %read table from excel T = xlsread(‘table.xls’); d=size(T,1); for k=1:d es(k)=exp(b1*T(k,3)+b2*T(k,4)+b5*T(k,5)+b22*T(k,6)); en es=es’; H=es*H0; %survival function ST=exp(-H); %forecast (0 or 1) for k = 1:d if ST(k)>0.5 result(k)=1; else result(k)=0; end end

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result=result’; for k=1:d fprintf(‘Company %g at 10 months: survival function = %g, forecast = %g\n ’,T(k,1),ST(k),result(k)); end A=[T(:,1) ST(:,1) result(:,1)]; save forecast A-double As the authors had the information for the last year before the failure of 72 companies in the sample, another sample of 72 non-failed companies was collected from the SABI database. With the sample of failed companies, it was verified that the survival function value for the considered time was higher than expected (type I error) in four situations. With the sample of non-failed companies, the survival function value was less than expected in two cases (type II error). Based on these results the type I error was 5.55%, and the type II error was 2.86%. An extract of the algorithm output can be seen below, showing the algorithm running commands and output for a number of selected companies in italic. According to the algorithm, using this selected sample, only six companies were forecast to survive. Algorithm  Survival function and forecast’s output Command Window >> survival Company 6000 at 10 months: survival function = 1.51142e-12, forecast = 0 Company 6003 at 10 months: survival function = 0.417195, forecast = 0 Company 6009 at 10 months: survival function = 0.437352, forecast = 0 Company 6016 at 10 months: survival function = 0.537961, forecast = 1 Company 6002 at 10 months: survival function = 0.0969574, forecast = 0 Company 6015 at 10 months: survival function = 0.568619, forecast = 1 Company 6007 at 10 months: survival function = 0.764383, forecast = 1 Company 6008 at 10 months: survival function = 0.121495, forecast = 0

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Company 6014 at 10 months: survival function = 0.241082, forecast = 0 Company 6018 at 10 months: survival function = 0.00191624, forecast = 0 Company 6004 at 10 months: survival function = 0.592384, forecast = 1 Company 6012 at 10 months: survival function = 0.945657, forecast = 1 Company 6017 at 10 months: survival function = 0.786941, forecast = 1 Company 6019 at 10 months: survival function = 0.308932, forecast = 0

5.5 Conclusions Small and medium-sized enterprises are the bulk of any economy. Nevertheless, they are mostly vulnerable and are prone to face several constraints that often result in some relevant issues that may even lead to insolvency proceedings. Besides being more susceptible to the surrounding environment, SMEs often lack control and quality information, which could eventually prevent them from being involved in dramatic failure processes. In this book chapter, the very significant negative effects of the financial crisis were examined, in particular on micro and small and medium-sized enterprises (SMEs). The issue of corporate bankruptcy has been, and keeps being, a topic of significant interest for a broad set of economic agents. Accordingly, an algorithm that has been constructed for predicting the survival likelihood of a corporation, with a particular focus on SMEs, was proposed here. On the one hand, this chapter focused on examining SME data in order to perceive whether a sample of these companies could be facing serious financial difficulties, but, on the other, it focused on trying to understand whether they could have benefited from an early diagnosis in order to try preventing business failures with proper monitoring, together with some other eventual support. Taking into account recent data, this research examined insolvency processes, involving SMEs, that have taken place recently in Portugal. A specific tool was constructed and proposed: a survival algorithm that was based on financial accounting data from a set of SMEs. The reliability of this tool was subject to testing, while employing an empirical study comprising a set of insolvency proceedings.

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Overall, the results of this research suggest that the proposed algorithm is reliable while forecasting the survival likelihood of SME, based on financial accounting data. Decisions need to be based on reliable information and sound forecasting tools. Therefore, the authors believe that this algorithm can be regarded as a powerful tool for SME managers to monitor both the corporate performance and the outcome of their managerial decisions, particularly with regard to the assessment of the survival chances of their organisations. Current economic conditions, driven by the Covid-19 pandemic containment measures and uncertainty, are certainly very challenging for corporations. SMEs, as usual, continue to be the main victims of the negative economic cycles. Despite the massive support that is being offered by governments and monetary authorities to ensure the survival of corporations, the fact of the matter is that, in general, SMEs are not attractive enough or financially sound to be able to capture such support, as financial institutions often prefer backing large companies. As many SMEs will likely be forced to continue to manage their financial issues on their own during the Covid-19 pandemic period, it is believed that the tool presented in this chapter may effectively help managers, while supporting their decision-making processes, particularly with regard to critical decisions that may, ultimately, result in the future success or failure of the organisation. SMEs cannot fully rely on bailouts from governments and financial institutions. They lack size and mediatic importance, so they can be easily disregarded, forgotten even. They are “too small to save”. Survival is a matter of fate. Not a matter of faith. To fail, or not to fail: another Shakespearean drama that perhaps can be unveiled with an algorithm. Acknowledgement  This work was financially supported by the research unit on Governance, Competitiveness and Public Policy (UID/CPO/04058/2019), funded by national funds through FCT – Fundação para a Ciência e a Tecnologia.

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6 Dynamic Capabilities and System Thinking: The Role of Networking Capabilities to Foster Innovation in SMEs Demetris Vrontis, Gianpaolo Basile, Mauro Sciarelli, and Mario Tani

6.1 Introduction Innovation is today seen as something that is not limited only to the internal structure of the organization as companies, even the small and medium enterprises (SMEs) (Taylor and Pandza 2003), are more and more embedded in a complex network of relationships (Yli-Renko and D. Vrontis Department of Marketing, University of Nicosia, Nicosia, Cyprus e-mail: [email protected] G. Basile (*) Department of Economics, Universitas Mercatorum, Rome, Italy M. Sciarelli • M. Tani Department of Economics Management and Institutions, University of Naples Federico II, Naples, Italy e-mail: [email protected] © The Author(s) 2020 A. Thrassou et al. (eds.), The Changing Role of SMEs in Global Business, Palgrave Studies in Cross-disciplinary Business Research, In Association with EuroMed Academy of Business, https://doi.org/10.1007/978-3-030-45835-5_6

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Autio 1998; Rothaermel and Hess 2007). These networks create a new “locus of innovation” (Powell et al. 1996; Cantner and Graf 2006) leveraging the logics of relational economics (Powell and Grodal 2005) as the main source of the firm’s competitive advantage (Dyer and Singh 1998). Building on the Chesbrough concept of Open Innovation (Chesbrough 2003, 2006), Laursen and Salter (2005) found out that many innovative firms have changed their way to search for new ideas, by adopting open search strategies that involve the use of a wide range of external actors and sources that help them in achieving and sustaining innovation. This is particularly true for SMEs as each one of them has a smaller endowment of resources, so participating in a network can be seen as beneficial to foster exploration activities (Jørgensen and Ulhøi 2010). This paradigm change (Chesbrough et al. 2006) helps firms to focus their efforts in developing, and implementing, new mechanisms to share their knowledge with the other network actors as a way to create new, common, knowledge to leverage their activities. These networks have been found to be effective as the continuous interaction between the various actors helps managers to access not only the explicit knowledge of the partners, but even their tacit one (Polanyi 1966) thanks to new knowledge transfer processes (Grant and Baden-Fuller 1995; Tamer Cavusgil et al. 2003) developed leveraging specific capabilities (Teece et al. 1997). Moreover, leveraging the broader set of shared knowledge, firms can become more effective at both the exploitation and the exploration processes at the same time (March 1991; Levinthal and March 1993). On the same page several authors (Day 1994; Lambin et  al. 2007) highlighted the need to develop several specific sets of “capabilities” (inside-­ out, outside-in, and spanning) needed to help the organization to co-evolve according to the change in their environment, and to help their partners in becoming an effective source of competitive advantage. At the same time, some authors (Burt 2004, 2009; Zaheer and Bell 2005) have highlighted that not all the firms in the network have the same potential in getting the most out of the whole network as some of them are not able to locate the needed knowledge and/or they are not able to reach the owner for a lack of specific relational capabilities. On the same page Jørgensen and Ulhøi (2010) hold that SMEs are usually better at exploiting the network when they enter it quite early.

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The relational capabilities identify the firm as a dynamic component of a supra system (place/territory, industry, district) influenced by the other social and economic systems in direct or indirect relationships between them (Yolles 1999; Barile et al. 2018). On these considerations, in the present work the firm will be considered as a complex and adaptive system composed of tangible and intangible components interacting to achieve survival by creating and maintaining dynamic relations with numerous and heterogeneous stakeholders (Golinelli 2010; Barile 2009; Barile et al. 2012; Sciarelli and Tani 2013; Basile et al. 2016, 2018).

6.2 Exploration, Exploitation, and Dynamic Capabilities In order to be effective innovators, firms must be able to become ambidextrous (Lin et al. 2007) in order to achieve, at the same time, both the exploration processes and the exploitation ones (March 1991). Exploitation capability focuses on utilizing what firms have already known; it uses and refines existing knowledge technologies and products, and has more certain and proximate benefits (March 1991). An exploitative orientation relies on the assumption that the firm has complete information about external opportunities and internal capabilities. Exploitative firms expect to work within well-established problem-­ solution frameworks, under which problems and solutions can be clearly defined. Organizational attention is focused on existing or grown businesses or existing ways of doing businesses and on employing available information and capabilities to achieve short-term organizational goals and market positions. Exploitation involves low levels of uncertainty and has high rates of success (Chen 2017). Exploration centers on the belief that firms may not have reached their maximum capabilities, so they search for new knowledge, need to stretch their existing capabilities (Wang and Chen 2018), transform existing capabilities (Teece 2007), or develop new capabilities (Capron and Mitchell 2009).

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Unlike exploitation, exploration consumes resources in the short run and its returns are uncertain, distant, and delayed (Arend and Chen 2012). It creates new possibilities, but it often produces early failures and results in temporary performance declines. Exploration uses unfamiliar technologies, and creates products with unknown demand, involving high levels of uncertainty; it does not produce reliable and quick revenue and it has low rates of success (Chen 2017). An innovation is more explorative when the firm has less advance knowledge to assess the probability of successfully developing the innovation and launching it in the market. Looking at the effects of these dynamic capabilities on performance, Takehiko et  al. (2004) revealed that exploitation relates more positively to operational efficiency than exploration, and, conversely, exploration to strategic performance, such as technological innovation and new product development, than exploitation, concluding that exploitation and exploration have different effects on firm performance, and that neither activity is independent or mutually exclusive, although exploration tends to be enhanced by exploitation. On the same page, Levinthal and March (1993) argue that companies should focus on identifying how to balance these two processes in a coherent whole as over-exploitation results in focusing on more and more obsolete competences and in the inability to catch the new opportunities (Sciarelli 2017), while over-exploration results in smaller returns from new ideas. This has been found to be particularly difficult for SMEs as they lack the slack resources big companies can use to address the ambidexterity, while they must be able to leverage the capabilities of their Top Management to address these processes (Valkokari and Helander 2007; Li et al. 2014). Moreover, as dynamic capabilities are defined as processes, rather than a rent-generating asset, the management of the interaction between exploitation and exploration is critical for the development of sustainable competitive advantage (Eisenhardt and Martin 2000). According to several studies (Christensen 1997; Takehiko et al. 2004; Esposito and Ferri 2018) becoming proficient at both these two processes is particularly difficult for a single firm as both the previous experiences and the existing procedures drive the firms toward the exploitation but, at the same time, they hinder the exploration processes as the organizations adopt a simplification-specialization approach (Levinthal and

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March 1993) limiting their potential in becoming aware of the changes in the external environment (Andriopoulos and Lewis 2009). This has been found to be a relevant topic even for small and medium enterprises (SMEs) (Voss and Voss 2013). According to several scholars (March 1991; Lin et al. 2007; Morgan and Berthon 2008; Junni et al. 2013) in order to carry on these two processes at the same time, firms can leverage their external relationships as a faster path to get access to a more various, and potentially more valuable, set of resources when combined with the internal ones in order to foster innovation-based strategies (Hamel and Prahalad 1996; Ireland et al. 2002). According to Grant (1996), the firm’s ability in effectively using the broader set of knowledge resources available in their relationship network depends on its management capability in developing, and managing, two processes: knowledge integration and knowledge transfer. The first one is needed to effectively combine the knowledge resources they have got access to according to their effectiveness, broadness, and flexibility, while the other one is used to continuously innovate the knowledge endowment and it requires that the company get the right organizational tools to be really effective. These processes can help an SME, cooperating with its partners, to develop a Dynamic Competitive Process as a way to continuously redefine its own products/services to create a stronger position in the market (Johannessen et al. 1997). Eisenhardt and Martin (2000) argued that these capabilities are not only part of the correct way of managing alliances, but they should become manifest even in the other management processes, as product development and/or strategic decision-making, as they are needed to effectively re-arrange the resource base the firm can exploit. Teece et al. (1997: 516) argued that firms need specific abilities that will enable them to integrate, build, and reconfigure internal and external competencies to adapt to rapidly changing environments. Sulistyo (2016) proved that for SMEs these capabilities were a relevant predictor of innovative behavior. Bessant et al. (2012) have shown that the development of specific capabilities is a needed factor in dealing with the support of innovation development process in peer-to-peer networks. Kale et al. (2002) found that these capabilities were more effective when they were embedded in a specific organizational unit (i.e. the alliance function) with the

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specific task of dealing with external partners. On a similar page some scholars (Day 1994; Lambin et  al. 2007) hold that in turbulent times firms have to be able to develop several specific sets of “capabilities” needed to help the organization to co-evolve according to the change in its environment, and they help in developing a faster, and more flexible, answer to the context changes (Dyer and Singh 1998; Hamel and Prahalad 1996). On the other side these scholars agreed that in order to become effective in enacting the right knowledge set useful for a given relationship in a given moment in time, companies should not define an “alliance function” but they should create a specific organizational climate driving each player in the organization to actively support the integration of the new knowledge resources both at the individual and at the organization level (Bharadwaj and Menon 2000; Deshpandé and Farley 2004; Hafer and Gresham 2008). In SMEs these two opposing perspectives may be re-joined as these tasks are the results of the efforts by the SME’s Top Management and they are at the same time the “organizational units” in charge of the relationship management and the one creating the internal climate (Li et al. 2014). On the same topic Teece (2007) holds that a specific set of dynamic capabilities is needed to read the various requests of the external environment in order to address the strategic decision-making processes and the requests of the other actors, even those not strictly related to the “business”. Several researchers have highlighted in their studies that companies can increase their dynamic capabilities looking at their partners as they can manifest both at the internal and at the external organizational levels (Wang and Ahmed 2007; Helfat and Martin 2015; Ambrosini and Bowman 2009; Zhang and Wu 2017; Grigoriou and Rothaermel 2017; Stoyanova 2018; Teece 2018). It follows that the relationship network has a strategic relevance in balancing exploitation and exploration processes as they help organizations with insufficient capabilities, such as SMEs (Taylor and Pandza 2003), to explore new opportunities can obtain them from the outside with alliances (Cattani 2005; Beckman et  al. 2004; Lavie and Rosenkopf 2006; Jørgensen and Ulhøi 2010; Ngugi et al. 2010). The effect of these networks on the innovation processes has been found to be so strong that some authors have defined them as the new “locus of innovation” (Powell et al. 1996; Castaldo and

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Verona 1998; Tidd et al. 2005; Cantner and Graf 2006; Tidd and Bessant, 2019). And according to Rullani (2011), networks give their actors, even SMEs, the opportunity to create a knowledge system that makes their knowledge resources more productive as every agent can get access to all the resources diffused in the network. Sharing this knowledge has been found to be a network success factor for all the agents (Baum et al. 2000; Wincent et al. 2010; Dezi et al. 2019), even if sometimes only some of them are really able to capture it.

6.3 Innovation and the Complex Adaptive Systems The previous paragraph has highlighted how innovation is today often created, outside of the single organization, and that eliciting interactions with partners can be a powerful way to innovate as they let managers get access to the whole set of knowledge resources the other actors have, even the tacit ones (Polanyi 1966), which can be seen as the founding stones for the development of the more explicit ones (Brown and Duguid 2001). On the other side the boundaries of the modern corporation are vaguer and vaguer as the companies are in continuous interaction with their stakeholders in a reciprocal relationship where each actor is open to the other requests and needs and may influence each other’s satisfaction (Freeman 1984; Schwarz 1994; Rowley 1997; Freeman et al. 2010; De Gooyert et al. 2017) while it is embedded in a complex network of relationships composed of the interaction between several classes of different stakeholders creating an effective multi-stakeholder network (Roloff 2008; Goldstein and Butler 2010; Reypens et al. 2016). As such, all the different actors internal to the organization should participate in the management of the external relationship according to their competences and to their relationship with the other actors inside the organization (Bharadwaj and Menon 2000; Deshpandé and Farley 2004; Hafer and Gresham 2008). Accordingly, the firm can be seen as a system of both tangible and intangible components that need to effectively integrate in order to survive and build dynamic relations with

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various heterogeneous stakeholders (Beer 1979; Sciarelli and Tani 2013; Jaaron and Backhouse 2018; García et al. 2018; Ferraris et al. 2019). It follows that the firm can be considered as one of the agents in a complex and adaptive system composed of tangible and intangible components interacting to achieve survival by creating and maintaining dynamic relations with numerous and heterogeneous stakeholders (Golinelli 2010; Barile 2009; Barile et al. 2012; Basile et al. 2016, 2018). Complex and adaptive systems are part of the System Thinking perspective, a general label that has been used to encompass several theories from its beginning in the 1950s (Ackoff 1971; Bar-Yam 1997; Golinelli 2012). This perspective has been roughly following the guidelines defined in the famous von Bertalanffy’s “General System Theory” (Von Bertalanffy 1968), where the Austrian biologist posed the foundations to build a general model that could be used, in various fields of knowledge, to represent the systems and their dynamism (Gell-Mann 1994; Holland 1995). The flexibility of this perspective, and its ability to help a common set of languages to emerge, has proven to be useful in understanding the behavior of agents in several disciplines, such as business (Beer 1972, 1979; Sterman 2000), clinical care (Ellis 2010), economics (Boulding 1970; Allen 2000), organizations (Senge 1990; Senge and Sterman 1992; Dooley 1997), political science (Kickert et al. 1997; Meek et al. 2007), sociology (Luhmann 1995). As highlighted by Dominici and Levanti (2011), the logic behind the various systemic approaches was an attempt to go beyond the traditional reductionist-analytical methodology adopted to analyze complex phenomena by taking into consideration the effect emerging out of the interactions between heterogeneous autonomous parts. The systemic approach has a bottom-up approach as it focuses on the system as a dynamic whole, taking into account the dynamic interactions at the micro level—that is, among the various agents, in order to understand how the system properties can emerge naturally giving a holistic perspective on the paths of system evolution (Batty and Torrens 2001; Stacey 2002). Among the various system theories, we refer to the Complex System Theory as one of its various main streams, as highlighted by Dominici and Levanti in their interpretative framework (Dominici and Levanti 2011). Complex

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systems have some specific properties (McCarthy et al. 2000) that can be useful in trying to understand the dynamics in innovation networks: • Co-evolution, adaptation, and learning: Agents have to adapt to each other and even to external stimuli, in order to operate their semi-­ autonomous strategies, (Anderson 1999; Lewin and Volberda 1999; Volberda and Lewin 2003). • Emergence: The behaviors, the relationships, the evolution, and the general properties for the networked systems are the result of the spontaneous interactions among agents (Goldstein 2011). • Operational closure and thermodynamic openness: The system can be considered as an autonomous entity and it can be identified as a whole in each space-time momentum regardless of its specific structure (Bertschinger et al. 2006). • Path dependence: The historical roots of the system, and its evolutionary paths, can affect its overall structure and the behavior of its agents. The overall behavior of the complex system depends on the stimuli received and the structural elements of the system which, in turn, derive from past stimuli and behaviors (Arthur 1989). • Self-Organization: The internal dynamics of the system help an unplanned creation of augmented order to emerge out of the various learning processes, their variation, and their tuning and improvement (Kauffman 1993). This class of systems is basically multilevel—that is, the interaction between the agents can take place, and be studied, at different levels—so they can be divided into meaningful sub-systems (McKelvey 1997). At the same time, as highlighted by Anderson (1999), these systems have “tangled composite” structures so it is possible to study them at several, different levels highlighting a number of semi-autonomous systems. In each level, the agents will operate and interact even with those at a different level in order to co-evolve and adapt (Anderson 1999). As a result of the endogenous and exogenous large number of interactions, complex adaptive systems (CASs) react showing “emergent properties” as organization behaviors in a dynamic context (Cohen 1984; Morel and Ramanujam 1999). In particular, looking at the firm with this

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perspective, the firm can be identified as a dynamic component of a complex system (place/territory, industry, district) influenced by the other social and economic systems in direct or indirect relationships between them (Yolles 1999; Barile et al. 2018). These interactions, due to the great level of inter-relatedness of system parts, introduce the nonlinearities concept in the dynamics of the system (Anderson 1999). The nonlinear condition shows relationships between systems create inputs and outputs that will in general not be strictly plannable but somehow stochastically predictable. In this context, the authors consider that firms, in order to survive, must self-organize, reducing the environmental information variety, demonstrating capabilities to adapt themselves through strategies and politics aimed at dealing with circumstances and to anticipate future events aimed to create sustainable relations with relevant stakeholders (Ashby 1991; Wheelan 1996). These authors identified as important preconditions cross-functional R&D teams, new product development routines, quality control routines, and certain performance measurement systems. This new configuration highlights the adaptation of the competence system representing a qualitative change in the form at some level of consideration, and this accompanied by a change in the patterns of its behavior (Yolles 1999; pp. 136–164).

6.4 R  elationship Network Structure and Innovation Even if some authors (Brown and Duguid 1991; Chesbrough 2003) have already defined the positive effect of the network of relationships on the innovation processes, some authors (Cohen and Levinthal 1990; Rullani 2011) have highlighted the need to identify how the structure of the network itself can affect the firms’ capability to become more effective. The effectiveness of the network on the innovation potential is linked to its capability to help the knowledge transfer and the knowledge integration processes (Grant 1996). These processes will become more effective if the network respects two main conditions: the network is somehow

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stable over time to help the agents interact along the various relationships over and over again so as to become normal (Laursen and Salter 2006) and the various agents have to be close (Rivera et al. 2010). Being able to create a stable network can help in sharing the knowledge resources, and leverage the whole set in the innovative processes, as it makes it easier to transfer the tacit knowledge thanks to the continuing interaction between the various agents (Almeida and Kogut 1999). Moreover, the network structure may help the creation of new ties among the various agents even in different sub-systems (Lorenzoni and Lipparini 1999; Basile et  al. 2016), and it can be used to reduce the threats of opportunism by other agents (Tsai and Ghoshal 1998). They help in creating a specific kind of trust, usually known as deterrence-based trust (Burt and Knez 1995), as each agent is driven to behave correctly in each one of the relationships in the system in order to avoid the negative effects on all the other relationships in the same system, and in those connected to them. The other needed factor to leverage the network in the innovation processes is the closeness between the system agents. When the agents are “close” they have a more homogenous culture helping the knowledge socialization (Cohen and Levinthal 1990; Nonaka 1994). At the same time, to get the expected benefits out of the agents’ closeness , the effective position that the agent has in the network as a whole is relevant (Kirkels and Duysters 2010). The more central the actor is in the network, the higher the chances that it will be able to locate the needed resources in the system he needs (Borgatti 2005; Jackson 2010), and/or influence the evolutionary path of the system (Bunker Whittington et al. 2009). At the same time, these actors have the opportunity to leverage their position to connect other parts of the network that are not normally connected and get the related benefits (Burt 2009). Moreover, as the actors in the system do not have the same characteristics, some of them can act to maximize the value of the network (Rullani 2011). Moreover some actor may leverage its specific knowledge assets to reach a more profitable position in the network brokering the combination with the other competences and, as a consequence, to be proactive in influencing the system’s evolution even if their own resource endowment is not really rich (e.g. an agent with marketing competences linked to

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other agents with more scientifically oriented capabilities) (Kirkels and Duysters 2010). Another option to get advantages out of the network structure is to leverage the weak ties (Granovetter 1973), those ties that are used only less frequently and that are able to link each actor to other actors with a different set of knowledge assets. The opportunity to leverage these ties is linked to a higher network centralization (Scott 2011) with a core-­ periphery structure (Everett and Borgatti 1999)—that is, the network may be divided in two parts, a core, made of the more central actors linked by intense and redundant relationships, and the periphery, with many more actors but more loosely connected. Another advantage of a centralized network is that it is less affected by the occasional decision of some agent to move out of the system (Watts 2003; Albert and Barabási 2002). Additionally, Powell and Grodal (2006) have highlighted that the network structure can have even some negative effects as it can drive the agents to develop group thinking that would limit the network’s innovative potential and its strategic flexibility.

6.5 Conclusions The literature review presented in this chapter highlighted how SMEs can get the maximum out of their innovative processes should not only focus on developing a good set of relational and dynamic capabilities as they are embedded in a complex set of relationship with many different classes of stakeholders that can influence them. These networks can be particularly useful in the innovation processes as they help the companies to leverage a far broader set of resources than what they would be able to activate otherwise. Small and medium enterprises should be able to acknowledge that these relationships can be modeled as a complex and adaptive system so they should be aware of the need to focus on maximizing the interaction and the flexibility of developing the exploration processes activating several parts of the systems in order to leverage these systems’ properties of emergence and co-evolution, adaptation, and learning. At the same time as these systems have the property of self-organization, the companies

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should not yield to the temptation of trying to force the direction of the system innovation processes but they should, instead, leverage their flexibility. Moreover, we have to acknowledge that in these systems not all the players are born equal as the opportunity to become an active part in the system has been found to be linked by two other properties: the stability of the network over time and its consistency and the actor’s ability to seize an advantageous position. The stability makes the network stronger and less prone to opportunism, and the positions help the actor in mediating the learning processes and, as a consequence, the evolution of the system as a whole. Further, this theoretical framework highlights the need for companies to focus on the SMEs’ relational capabilities as the opportunity to get advantages out of the system’s relationship structure is linked to being in the core of the network, the part that is more tightly linked to the other players, or in a position to broker the other player competences. Finally, the Complex Adaptive System shows an ability to adapt itself through the emergent dynamic characteristic and self-organization. Self-­ organization is the result of the inter-dependency, networking capability and the isomorphism processes, highlighting the obsolescence of internal and external capabilities classification that was found in the first approaches to dynamic capabilities theory.

References Ackoff, R.  L. (1971). Towards a system of systems concepts. Management Science, 17(11), 661–671. Albert, R., & Barabási, A. L. (2002). Statistical mechanics of complex networks. Reviews of Modern Physics, 74(1), 47. Allen, D. (2000). A set of core principles and tools? Journal of Industrial Ecology, 4(4), 1–2. Almeida, P., & Kogut, B. (1999). Localization of knowledge and the mobility of engineers in regional networks. Management Science, 45(7), 905–917. Ambrosini, V., & Bowman, C. (2009). What are dynamic capabilities and are they a useful construct in strategic management? International Journal of Management Reviews, 11(1), 29–49.

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7 The Influence of Social Vision, Social Networks, and Financial Return on Social SME Sustainability Sunday Adewale Olaleye, Emmanuel Mogaji, Josue Kuika Watat, and Dandison Ukpabi

7.1 Introduction Social Micro, Small, and Medium Entrepreneurship (SMSME) is a growing global trend. The proposed research is very timely and crucial for the efficient renewal and outstanding performance of the SMSMEs. İrengün and Arıkboğa (2015, p. 1187) defined social entrepreneurship as a sustainable and revolutionary problem-solving approach led by an

S. A. Olaleye (*) Department of Marketing, Management and International Business, Oulu Business School, University of Oulu, Oulu, Finland e-mail: [email protected] E. Mogaji Department of Advertising and Marketing Communications, University of Greenwich, London, UK e-mail: [email protected] © The Author(s) 2020 A. Thrassou et al. (eds.), The Changing Role of SMEs in Global Business, Palgrave Studies in Cross-disciplinary Business Research, In Association with EuroMed Academy of Business, https://doi.org/10.1007/978-3-030-45835-5_7

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entrepreneur who understands social issues. The idea is to explain the phenomenon from an entrepreneurial perspective and focus on entrepreneur sustainability and business renewal. Despite the novelty of the extant studies on SMSMEs, there is still a gap in understanding the effects of social vision, financial return, innovation, social networks on sustainability. Iwueke and Nwaiwu (2014) press for a better understanding of entrepreneurship relationship with national development and find in their study that low creativity and innovation are affecting sustainable development in Nigeria as social entrepreneurship contribution to sustainable development is not yet feasible. The earlier study examined both SMEs and SMSMEs. Prabawani (2013) reviewed the literature on SME’s sustainability and proved that the sustainability concept has been misused due to its broader scope and highlighted the danger of the ignorance of environmental hazards. Ebitu, Glory, and Alfred (2016) also itemized the significant factors that cause setbacks on SMSMEs as finance, lack of managerial and marketing skills, research, development, innovation, and lack of paying attention to the minutest details. Innovative entrepreneurship education assessment, tax policies and entrepreneurship sustainability, and factors that are responsible for SMEs internationalization were examined by Sanusi et al. (2017), Aribaba et al. (2019), Adebayo et al. (2019), Gbadegeshin et al. (2019). Thus, the present study attempts to answer the following three questions: What are the effects of social vision and social networks on SMSME sustainability, and what lessons can we learn from SMSMEs sustainability and business renewal relationship? This study employs structural equation modeling to analyze data collected from SMSMEs. This chapter shows social vision, social networks as the factors that are responsible for social

J. K. Watat AMBERO Consulting GmbH, Yaounde, Cameroon D. Ukpabi Marketing Department, Jyvaskyla School of Business and Economics, University of Jyväskylä, Jyvaskyla, Finland e-mail: [email protected]

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entrepreneurship sustainability, and the mediation role of financial return. The result of this project has the potential to transform sustainable business practices. This study has the potential for turnaround and managerial implications for Nigerian society. Overall, the renewal of SMSMEs will catalyze economic growth and a surge in productivity through a new generation of entrepreneurs. The research discusses the theoretical and managerial implications and proposes future research. Section 7.1 introduces the subject of investigation, Sect. 7.2 chronologically reviewes earlier literature on social entrepreneurship, Sect. 7.3 discusses Social Entrepreneurship Dimensions, Sect. 7.4 explains the methodology adopted for the chapter while Sect. 7.5 presents the results in details, and explains theoretical, managerial implications, limitations, and suggestions for future studies.

7.2 Social Entrepreneurship Work on social entrepreneurship has been evolving for more than a decade. The concept of social entrepreneurship, taken in a global aspect, has been interpreted in several equally unique ways: The first studies that examined the concept of social entrepreneurship took it as a management of several scenarios as seen from the creation of social value (Boschee 1998; Austin et  al. 2012). Secondly, other studies came to add to the previous work by seeing social entrepreneurship as the concrete result of socially responsible enterprises because of their desire to maintain the sustainability of actions and activities (Deakin and Allwinkle 2007; Sagawa and Segal 2000). Later, studies like Alvord, Brown, and Letts (2004) and Daskalaki, Hjorth, and Mair (2015), which pointed out that social entrepreneurship is a measure of social problem solving, leading any entity to a sustainable social transformation complements previous works. Several studies have discovered the links between some terms that define entrepreneurship. Therefore, we have the industrial, the exemplarity, the transformation, and the development with the direct consequence of creating social value (Mair and Noboa 2006; Ukpabi et al. 2019). In light of this, social entrepreneurship and its socio-technical components,

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such as internal processes and expected results, contribute to a clear discernment of entrepreneurship. Thus, social entrepreneurship is therefore a description of the works of social organizations and enterprises working for social rather than lucrative ends. British humanitarian organizations such as Victorian private hospitals are among the forerunners of the social entrepreneurship movement (Shaw and Carter 2007). During the eighteenth century, when the real understanding of social entrepreneurship took shape, the owners of powerful companies were very worried about the well-being of their employees in view of the difficult living conditions they faced: poor working conditions, poor educational situations, and even gloomy cultural environments. Social entrepreneurship has therefore taken on another facet by integrating into several sectors and areas of everyday life: education, community development, social economy, and even the church (Rey-Martí et al. 2016). This is how the so-called social enterprise has therefore identified itself as a potent weapon capable of solving social, economic, and cultural problems since it is devoted to social and societal development. The advent of the third sector marked a turning point in the evolution and popularization of social entrepreneurship. Non-profit organizations realized that they needed professional and effective management skills and efficient business to achieve their goals. Thus, new laws and regulations have emerged to define the functioning and regulations that govern so-called social enterprises. The aim here was to provide assistance to unemployed people with below-average professional standards (Borzaga and Santuari 2003; Nyssens 2007). In the United States, foundations and business schools have revived the social entrepreneurship movement. This is the case of the prestigious Harvard Business School, which was the initiator of the successful “Social Enterprise Initiative” movement in 1993 and intended to highlight perennial ideas and social change, with considerable long-term impact. Mair and Noboa (2006) reveal in their work that social entrepreneurs are driven by a desire to positively change the society in which they live. This change is due to the several existing incongruities which would prevent the blossoming of their social vision. This is not the case for profitoriented entrepreneurs where the environment of a capitalist society encroaches on the social character. Eckhardt and Shane (2003) made a

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discovery that social entrepreneurs categorize each social value to the different social opportunities associated with it. In the entrepreneurial social environment, the importance of any social opportunity implies the set of values and gains associated with the initiative.

7.3 Social Entrepreneurship Dimensions 7.3.1 Social Vision To be an agent of social change, the social entrepreneur needs social vision to see opportunities beyond the present and to extend the stewardship arm to the needy (Barendsen and Gardner 2004; Dees 1998; Keogh and Polonsky 1998). The social vision differentiates social entrepreneurship from other types of entrepreneurship (İrengün and Arıkboğa 2015). Many factors serve as an influencer of the social vision of an entrepreneur. Significantly, it is the personal and previous experience of the social entrepreneur and their distinct personality characteristics that define their behaviors/actions (Nga and Shamuganathan 2010). These defined behaviors connect to transformative events (Barendsen and Gardner 2004), which shape the attitude towards meeting social needs. Moen et  al. (2004) found that a parent’s education and fathers’ occupation has a significant relationship with entrepreneurial attitudes as these individuals see a need to be met. Perrini and Vurro (2006) also noted that being exposed to multicultural contexts or directly experiencing a social challenge can further motivate an entrepreneur’s social vision. These experiences make an entrepreneur to begin to see possible areas to change in the social system (Perrini and Vurro 2006) through the application of their knowledge to chart a different course from the existing situation (Dees et al. 2001). From a developing economy point of view, recognizing the challenges in starting and sustaining a business in Nigeria and the experience of the entrepreneur, the social vision of such an entrepreneur will be essential in seeing opportunities and meeting a need in the society. Nga and Shamuganathan (2010) noted that these formed values are based on personality and experiences and play an essential role in driving social

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entrepreneurial decision making. Thus, personality traits may influence the intentions and the way the individual acts. It is therefore hypothesized that: • H1: Social vision as a social entrepreneurship dimension positively relates to SMSME sustainability. The intersectoral nature of social entrepreneurship and the challenges in being a sole social entrepreneur caught the attention of researchers, and Prabhu (1999) identified the importance of networking and cooperation with different stakeholders to ensure that the vision of the enterprises is achieved. Social entrepreneurs need a strong ability to establish and manage multiple relationships (Perrini and Vurro 2006). The ability to build and maintain external relations is also critical to establishing legitimacy and credibility for the enterprises (Prabhu 1999). Importantly, the context of social entrepreneurship is also worth considering. Wheeler et al. (2005) found that the active network and unity towards a common purpose achieved through local enterprise networks found to facilitate the generation of sustainable outcomes in developing countries. Alvord et al. (2004) further concluded that making an effort to build capacity and extend networks can positively influence the success of the social enterprise. Findings from (Nga and Shamuganathan 2010) also show that agreeableness, as a personal trait of the entrepreneur, which connotes helpful, trustworthy, and affectionate agreeable people who prefer cooperation over competition (İrengün and Arıkboğa 2015), positively influences the success of the social entrepreneurship. This situation, therefore, puts the responsibility on the social entrepreneur to reach out, identify and build networks to achieve the social vision. It is hypothesized that: • H2: Social vision as a social entrepreneurship dimension positively relates to social networks.

7.3.2 Financial Return For organizations like social entrepreneurs that use business methods to achieve social goals, financial viability is a challenge (Mayer and Scheck

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2018). The financial perspective for social entrepreneurship is shaped by the need to seize opportunities and compete for scarce resources to generate economic returns (Nga and Shamuganathan 2010). Even though social enterprises are not profit-oriented, it is essential to be mindful of the financial viability of enterprises to achieve the enterprises’ social vision. Flockhart (2005) suggested that social enterprises ought to find a way to improve their financial return to be suitable for better partnerships and new sources of social finance. Achleitner et al. (2014) analyzed the financing structure of social enterprises. The study found that social enterprises have a strong financing structure, a diversified financing structure which often promises stability in terms of cash flows to the business was recognized, this, however, can result in conflicts which either originate from the capital providers’ different return requirements or the design of financing instruments. Not surprising therefore to see Perrini and Vurro (2006) asked perhaps social enterprises can take up not for-­ profit ventures to sustain their vision and Brown (2006) suggesting the possibilities of equity finance for social enterprises through liquidation rights, income rights, appreciation rights, voting rights, and transfer rights. Provided the financial return is guaranteed by generating enough revenue and attract enough investment to cover expense, there are prospects of filling the social needs gap. It is therefore hypothesised that: • H3: Financial return as a social entrepreneurship dimension positively relates to SMSME sustainability.

7.3.3 Innovation Social innovation unlocks value by creating a platform where capabilities, products, processes, and technologies are synergized via sustainable solutions (Auersweld 2009; Phills et  al. 2008). The innovative ability to explore the social need gaps represents the starting base for an entrepreneur to innovate and be sustainable (Perrini and Vurro 2006). Moen et al. (2004) noted that the essential characteristics of a successful entrepreneur depend on the imagination ability, highlighting the value of innovation in remaining commercially, showing innovativeness of the

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idea and to evaluate social impacts (Perrini and Vurro 2006). This innovation also adds credibility to the enterprises as there is a recognized fit between opportunities and social need (Shaw and Carter 2007). This ability to innovate involves “intentionally identify[ing] a solution to a specific problem or need because of diverse motivations, including financial rewards” (Dorado and Haettich 2004, p.  6). Prabhu (1999) also argued that the motivation to improve societal values is the driving force for innovation, exploring ways to penetrate unconventional “bottom of the pyramid markets” which may not be served by the bigger and more commercially focused companies (Nga and Shamuganathan 2010). They are motivated to improve the social system by tapping into unmet social needs; these individuals can recognize a social need and stimulate entrepreneurial ideas and innovations to make a social impact (Perrini and Vurro 2006). Social Entrepreneurs innovate processes and technologies to create a social and strategic fit for products and services. In the context of a developing country like Nigeria, it is anticipated that social entrepreneurs will make innovative efforts to reach out and engage with the underdeveloped and unchartered markets. This study therefore hypothesized that: • H4: Innovation as a social entrepreneurship dimension positively relates to SMSME sustainability.

7.3.4 Social Networks and Sustainability From the structural perspective, social networks provide a system whereby the mission of the entrepreneur is embedded and disseminated. Network ties enable a vibrant sharing of information and knowledge to create more innovative and relevant solutions to service the benefit of the wider community (Chen and Wang 2008; Nahapiet and Ghoshal 1998; Shaw and Carter 2007; Thompson and Doherty 2006). The network enhances the social capital of the entrepreneur which has been described as “the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit” (Nahapiet and Ghoshal 1998, p.  243).

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Accordingly, Nahapiet and Ghoshal (1998) posited three interrelated dimensions of social capital: structural (the overall pattern of connections between actors), relational (the kind of personal relationships people have developed with each other through a history of interactions), and cognitive (those resources providing shared representation, interpretations, and systems of meaning among parties). The active participation in networks induces collective learning and fosters a better understanding of social community norms (Nga and Shamuganathan 2010) which can create a platform for sustainable solutions through a synergistic combination of capabilities, products, processes, technology, and human resources (Dwivedi et al. 2019; Auersweld 2009; Nga and Shamuganathan 2010). Engaging with a social network is crucial to entrepreneurs as they can benefit from valuable information being shared, work source, innovation, financial, and personal support (İrengün and Arıkboğa 2015). A social entrepreneur should be able to tap into their social network and explore the combination and exchange of intellectual and social capital (Littunen 2000). Taking into consideration that when the communication channels between the social entrepreneurs are open, the trust amongst themselves increases, the social needs can be openly and easily stated, and resolutions can be found out (İrengün and Arıkboğa 2015) and, therefore it is hypothesized that: • H5: Social networks as a social entrepreneurship dimension positively relates to SMSME sustainability.

7.4 Methodology 7.4.1 Questionnaire Adaptation This research started with a literature review and adapted the scale for social vision, social networks, financial return, innovation, and sustainability from Nga and Shamuganathan’s (2010) study. It utilized 5-point Likert Scales, 1 = disagree through to 5 = strongly agree. These validated scales comprise multiple items. The single item measures have the limitation of building a robust model and advancing the model performance,

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but the multiple-items model can positively influence the model’s reliability. The SMSME sustainability demographics centers on education, size of entrepreneurship, contact person position in the company, starting a business, year of establishment, income, number of employees, and barriers. Simultaneously, the Likert Scale focuses on social vision, financial return, social networks, innovation, and sustainability variables with multiple items under each construct. This study utilized Statistical Package for the Social Sciences (SPSS) version 24 to run frequency analysis for data cleaning and demography statistics and SmartPLS version 3.2.8 for Partial Least Square data modeling for measurement, structural equation modeling, and hypotheses testing with Bootstrapping.

7.4.2 D  ata Collection Procedure and Demographic Analysis The data for this chapter was collected at the firm level with questionnaires through the Qualtrics online survey platform. The structured questionnaires target the SMSMEs in Nigeria. Similar research has used the SMSMEs survey in Nigeria (Ogbo et al. 2019; Aribaba et al. 2019). The type of SMSMEs that is relevant for this study was indicated in the questionnaire and used conditional statement with Qualtrics Skip Logic to exclude those that did not meet the set criteria. For the sake of privacy, the participants were asked to click a consent button to ensure that this study has the participant’s permission to their information. Thirty-Seven (37) SMSMEs participated in the survey, and the data was collected between August 27, 2019 and October 2, 2019. Peng and Lai (2012) confirmed that the data collected at the firm level could be a minimum of 20 participants. The participants in this survey are well educated. The higher percentage of them were bachelor’s degree holders (49%), master’s degree holders (32%), high school/diploma (14%), and Ph.D. (5%). Regarding the entrepreneurship size, small entrepreneurship dominates the study (62%), medium-sized entrepreneurship (24%), and micro (14%). Concerning the positions of the survey participants, the owner and manager had the highest frequency (70%), seconded by the owners (16%),

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and participants at managerial level (14%). The reasons for starting SMSMEs are independence (16%), trying out an innovative idea (38%), higher earning potential (11%), other reasons (5%), and lack of a job (3%). The most frequent year of establishment of MSME is 4–6 years (41%), 1–3 years (24%), above 11 years (19%), less than one year (11%), and 7–10 years (5%). The average year of establishment is 7 years, which indicates that the SMSMEs that participated in the survey are well experienced. Annual revenue of SMSMEs between 501,000 and 1,000,000 had the highest frequency (49%), followed by less than 500,000, and the least is more than 1,000,000 (16%). The present exchange rate is 1 USD = 362 NGN. In the Nigeria context, the margin SMSMEs is based on the number of employee(s) they have. For instance, 1–9 employees represent micro-entrepreneurship, 10–49 depicts small entrepreneurship, while 50–249 employees are the determinant of medium entrepreneurship. The number of employees in SMSMEs that participated in this study is less than 5 (70%), one employee (16%), less than 10 (11%), and 10–49 (3%). The micro- and small-, medium-sized entrepreneurship dominate this study. From the opinion of the SMSMEs in this study, the main barriers to starting a business in Nigeria are finance (51%); bureaucracy (27%); language, knowledge and skills, with the same frequency (8%); legal barrier and others (3%).

7.4.3 Quality Criterion of Measurement Model The study examined the quality of the measurement and structural model based on the proposition of the existing authors. This study benchmarks the factor loadings criteria of Fornell and Larcker (1981). All the items loaded well on their corresponding construct and loaded between moderate and very strong (0.63–0.95). The reliability of the measurement of the study utilized was examined with composite reliability, and the values were above the thresholds of 0.70 (Bagozzi and Yi 1988). In addition, the Average Variance Extraction (AVE) met the standard of 0.5 (Heir et al. 2011). This study data analysis shows discriminant validity as the constructs utilized and supposedly not to related are unrelated.

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7.4.4 Evaluation of Structural and Mediation Model This chapter formulated five hypotheses and tested it with SmartPLS through Bootstrapping and confirmed the variables that are responsible for MSMEs sustainability. Will social vision positively relate to SMSME sustainability that is, social vision -> SME sustainability (Beta  =  0.16, t = 0.55, p > 0.05) and will social vision positively relate to social networks, (Beta = 0.46, t = 3.00, p  0.05) and innovation positively relate to sustainability (Beta = 0.37, t = 1.34, p > 0.05). Lastly, the social networks positively relate to sustainability, (Beta  =  0.33, t = 2.11, p  Sustainability 0.17 0.28 0.55 0.580 Social Vision -> Social Networks 0.46 0.15 3.00 0.003 Financial Return -> Sustainability 0.22 0.18 1.20 0.231 Innovation -> Sustainability 0.37 0.28 1.39 0.181 Social Networks -> Sustainability 0.33 0.16 2.11 0.035 Mediation Tested Hypotheses H6b Social Vision -> Sustainability (Direct) 0.56 0.20 2.87 0.004 H7 Social Vision -> Financial Return 0.51 0.16 3.18 0.001 (Indirect) H8b Financial Return -> Sustainability 0.33 0.18 1.83 0.068 (Indirect) Sustainability Relationship Direct effect Indirect Total Model effect effect H6b Social Vision -> Sustainability 0.56 0.17 0.73 H7 Social Vision -> Financial Return 0.51 H8b Financial Return -> Sustainability 0.33 A-B 0.56

Note: OS – Original Sample; SD – Standard Deviation

construct between social vision and sustainability to create a mediating effect as proposed by Hair, Hult, Ringle and Sarstedt (2016). The study used a bootstrapping approach to test the proposed hypotheses. It was hypothesized that social vision relates positively to sustainability through the intervention of financial return (H6b) Social Vision -> Sustainability (Beta = 0.56, t = 2.87, p  Financial Return (Beta = 0.51, t = 3.18, p  Sustainability (Beta  =  0.33, t  =  1.83, p > 0.05). The intervention was not significant, and the result indicates partial mediation. The coefficient of determination of the mediation model for sustainability is 61%, while the financial return is 26%. The R2 falls between moderate and weak criteria (Table 7.1 and Fig. 7.2). The direct relation in the intervention model (0.73) is stronger than the indirect relationship (0.56). This relationship shows that financial return partially mediates the effect of social vision on sustainability.

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Fig. 7.2  Result of simple mediation analysis

7.5 Discussion Though social entrepreneurship is one of the catalysts of poverty reduction and sustainable development, its impact on developing countries is not rapid in comparison to traditional entrepreneurship. Between 1985 and 2019, the Nigerian poverty rate has been undulating and has emerged as one of the leading countries globally where about 90 million people, who constitute 45 % of the entire population, find it difficult to have access to basic needs of life such as balanced diet food, portable healthcare, less expensive education, and sanitation (Abdullahi 2019). Poverty has become a sui generis challenge, and it was listed as number one on Sustainable Development Goals (SDGs). According to Abdullahi (2019), investment in girls’ education, health, and wellbeing, enhancement of economic opportunities, and technology integration are ways to end poverty in developing countries, among others (Muhammad 2019). Social entrepreneurs’ intervention is crucial to the SDGs’ objectives to end poverty. The essence of this chapter is to examine the relationship of the latent variables of social vision, social networks, financial return, and innovation with sustainability based on the suggestion of Valle et al. (2018) to further examine the interconnection of five dimensions of social entrepreneurship. This chapter reveals that social vision is the highest predictor of social networks. The ability to identify the social needs of the people

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necessitates social networks through knowledge sharing and caring to improve the social strata of the lower class in the welfare hierarchy. Social networks significantly relate to social entrepreneurship sustainability. The result indicates that combining efforts of different social entrepreneurship can foster sustainability. Hence, the ecosystem of social entrepreneurs is crucial. The mediation of financial return makes the relationship of social vision and sustainability significant, which was insignificant in the general model, though the financial return is not the main goal of social entrepreneurship. Nevertheless, an intervention of financial return can influence the relationship of social vision and sustainability. The mediation of financial return between social vision and sustainability can facilitate the business renewal of social entrepreneurs.

7.5.1 Theoretical Contributions This chapter provides important theoretical contributions. First, it provides information on new methods for understanding the factors that contribute to understanding the effects of social vision and social networks on SMSME sustainability. Second, it provides an essential understanding of structural relationships that may exist between the social vision, social network, financial return, innovation, and SMSME sustainability. Third, it contributes to the literature by deepening the concepts of social entrepreneurship in developing countries, where social and economic conditions are not stable. From previous results, social vision, along with social network, financial return, innovation constructs, contribute to the formation of the SMSME sustainability variable at 72%. Indeed, the sustainability of a business, whether micro, small or medium, is highly subject to the fact that it can see the opportunity in a futuristic dimension, with prospects for social change around the business. This result is related to the work of Brooks (2009). In addition, SMSME sustainability supports social networking strongly, be it relational, structural, or cognitive. The work of Chen and Wang (2008) reinforces this to the extent that it demonstrates that an enterprise designed via social networking contributes to dissemination and sharing of information, which can, in turn, create innovative

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and ingenious solutions for the benefit of communities. The study also provides information on the importance of the structural relationship that exists between the social and social network vision. Indeed, the social vision positively influences social network, which is also proven in the work of (Nga and Shamuganathan 2010). It is, therefore, an essential predictor of SMSME sustainability, which itself is densified and solidified by the creation of active social networking.

7.5.2 Managerial Implications From a managerial perspective, the current study recognizes the influence of social vision, social networks, and financial return on social entrepreneurial sustainability and offers implications for stakeholders. First, for a prospective social entrepreneur, those thinking of starting a social entrepreneurial venture, it is essential to identify a social need to be met, ensuring it is unique and innovative enough to guarantee its sustainability. It is not just about having the social vision and zeal to start a venture but having a bigger picture of its prospects right from the beginning. Second, for those that are running a social enterprise, the social vision is essential and should remain relevant. It should be the motivating factor to carry on with the innovation. No doubt, the financial return may not be coming as anticipated. It is, therefore, vital to make use of social capital and rely on the network. This further highlights an implication for an entrepreneur to build their social capital and ensure they remain innovative. Third, for the social entrepreneur at large, the need for a support group is proposed. This development will serve as an avenue for prospective and present social entrepreneurs to engage, share ideas, and support each other. It will be a platform to share innovative ideas and build social capital. Importantly members can come together and help themselves in times of need. They can share ideas, skills, and resources like a trade association which will represent the interests of social entrepreneurs. This association builds on the theory of social capital as a form of social network for ensuring sustainability. Lastly, policymakers have a role to play in ensuring sustainable social

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enterprises in the country. While this is not just limited to the government, they can significantly contribute by providing a sustainable environment for entrepreneurs. These social enterprises are meeting social needs. The right support mechanism should be put in place as a policy to support them. This mechanism could mean having access to discounted resources such as office space, technical equipment, or opening a bank account.

7.5.3 S  tudy Limitations, Plan for Future Study, and Conclusion This study creates an opportunity for future researchers to extend the dimensionality of social entrepreneurship, but the study is not without limitations. The chapter only focuses on social entrepreneurship in the context of a developing country, but since the poverty scope is beyond a single country, there will be a need for future researchers to extend this study to other African countries. Researchers can use the multigroup analysis technique to compare demographics variable based on five entrepreneurship dimensions. The mixed methodology will also add additional flavor to social entrepreneurship dimensions study.

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8 Prediction of Viticulture Farms Behaviour: An Agent-Based Model Approach Aníbal Galindro, João Matias, Adelaide Cerveira, Cátia Santos, and Ana Marta-Costa

8.1 Introduction The wine industry has a high business volume and adds value to the economy and, above all, it presents a positive rate in its trade balance. Portugal is one of the main wine producers worldwide, ranking 11th in the World Ranking and 5th in the European Producer Group Ranking, with a production of approximately 6 million hectolitres, corresponding to 2.2% of the world’s production in 2018 (OIV 2019). The wine sector’s

A. Galindro Research Unit on Governance, Competitiveness and Public Policies (GOVCOPP), University of Aveiro, Aveiro, Portugal e-mail: [email protected] J. Matias Department of Mathematics, Center of Mathematics (CMAT), University of Trás-os-Montes and Alto Douro, Vila Real, Portugal e-mail: [email protected] © The Author(s) 2020 A. Thrassou et al. (eds.), The Changing Role of SMEs in Global Business, Palgrave Studies in Cross-disciplinary Business Research, In Association with EuroMed Academy of Business, https://doi.org/10.1007/978-3-030-45835-5_8

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relevance goes way beyond its commercial and economic value, since it also plays an important role in tourism and environmental conservation purposes. The extensive vineyards in the northern region of Portugal are not only responsible for premium wine production but also for a set of appealing wine-growing landscapes, which may be regarded as a potential resource for tourism development (Rachão and Joukes 2017). However, as the viticulture activity relies on scarce natural resources, there is a major concern with the trade-off between intensive production and the activity’s environmental impact (Marta-Costa et al. 2012). This premise fits entirely into the sustainability notion which is usually defined as a three-dimensional concept, interconnecting the environmental, economic and social dimensions (Marta-Costa et al. 2012; Mencarelli and De Propris 2014). Sustainability should be seen as a long-term strategy linking these dimensions, and it is therefore imperative to simulate trends in the wine industry behaviour. In this sense, this work intends to simulate the interconnection of these components in three of the main premium wine-growing regions of Portugal—Northern, Centre and Alentejo. The Northern Region is characterized by the prominent steep

A. Cerveira Department of Mathematics, Institute for Systems and Computer Engineering, Technology and Science (INESC-TEC), University of Trás-os-­ Montes and Alto Douro, Vila Real, Portugal e-mail: [email protected] C. Santos CoLAB VINES&WINES at ADVID, Vila Real, Portugal Centre for Transdisciplinary Development Studies (CETRAD), Vila Real, Portugal e-mail: [email protected] A. Marta-Costa (*) Department of Economy, Sociology and Management, Centre for Transdisciplinary Development Studies (CETRAD), University of Trás-os-­ Montes and Alto Douro, Vila Real, Portugal e-mail: [email protected]

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mountain’s viticulture, while the Alentejo stands apart from the North’s entrepreneurial layout since it is based on plain field viticulture. The most central region of the country also encloses the quality-oriented Dão wine and holds the last place on the podium as the third most important Portuguese DOP wine region, besides the two formerly referred regions (Northern is the first and Alentejo the second, IVV 2018b). The three Portuguese regions are characterized by very small farms, which increase their production area as they move south of the country (Alentejo). However, the opposite is true with regard to the labour required, due again to the existing topographic conditions. Taking into account only farms engaged in the production of quality wine, the database available by PTFADN for 2015 presents as average values for the 208 farms in its sample, a representative of 6943 farms of the Northern, Centre and South, an average agricultural area of 8.98, 11.67 and 22.90 hectares; 2, 1.8 and 1.27 units of annual workers; and a total agricultural production of 29730, 23785 and 30230 euros per farm, respectively. To simulate the behaviour of the viticulture farms, the ABM methodology was chosen due to the agriculture’s complexity of wine production, considering the multiple scales of interactions (including the natural ecosystem) and the strong influence of human decision-making (Bert et  al. 2014). These conditions make the econometric approaches less applicable (Heckelei and Britz 2005), while ABM approach maps the real-world interactions between entities (e.g. farm) and their virtual representations (Rounsevell et  al. 2012). As stated by An (2012) and Magliocca et  al. (2015), this is a suitable tool for improving the understanding of farmers’ behaviour in response to changing environmental, economic, or institutional conditions, particularly at the local level. Regarding the institutional conditions, it should be emphasized that the European Union (EU) strongly promotes sustainability in agricultural practices and supports it through government funding programs for farming such as the Common Agricultural Policy (CAP) and through other European-level policy schemes. In fact, one of the main characteristics of European agriculture is its high level of subsidization (Swinnen 2015) and the EU’s funding policies have an influence on the farmer’s decisions (Bithell and Brasington 2009; Huber et al. 2018).

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This article follows up on these assumptions by accounting for three core variables (environmental, economic and social), and taking into account the institutional conditions, which may be used to explain the long-term sustainability of the featured regions (Alentejo, Centre and North). To replicate the inner regional dynamics, MATLAB R2017a software was used to fit the data of those three regions into periodical functions. Afterwards, the ABM software (NETLOGO) was selected and used to simulate the following 100 years of grape production, by taking into account the real data-based dynamics previously ascertained. This chapter is divided into 5 sections. After a brief introduction of our working concept and major goals for this study, Sect. 8.2 presents the methodological’s literature review. Section 8.3 explicitly presents the ABM formulation while Sect. 8.4 dives into the numerical simulation with shifting initial conditions. The overall conclusions are finally presented in Sect. 8.5.

8.2 Literature Review Agent-based models are particularly valuable for systems that are not understood well enough to build an equation-based model (e.g. differential equation system). Those models display such simplicity that An et al. (2017) considers the ABMs as “middle-ware” investigatory objects that can select abstracted representations of real-life that seem too complex for formal traditional mathematical analysis. Another interesting feature is that the event bundle created by the author may generate unforeseen results and inform him about patterns and relationships that he wasn’t aware of previously (emergence) (Grimm et al. 2005). In order to counter the ABM criticism due to its lack of mathematical evaluation tools, Lorek and Sonnenschein (1999) and Grimm et al. (2006, 2010) proposed a set of ABM generic format rules that intend to create a standard basis for those models. The main purpose of “Overview, Design Concepts, Details” (ODD) is to make the ABMs writing and reading easier and more suitable for replication. The way that the individuals respond to external circumstances in a mapped landscape can be modelled in detail with the ABM approach

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(e.g. DeAngelis and Mooij 2005; Grimm et  al. 2005; Railsback and Grimm 2012). With a broad range of possibilities and heterogeneous representation, the ABM methodology presents itself as a perfect contender for Ecology or Biology studies (Santos et  al. 2017; Sibly et  al. 2012; DeAngelis and Mooij 2005). The main ABM features also reveal themselves useful to describe social dynamics, with fruitful applications on the social sciences such as Economics or Psychology (Smith and Conrey 2007; Kohler and Gumerman 2000; Bonabeau 2002; Conte et al. 1997). By coupling together the human-based dynamics, heterogeneity and decision-­making process in this methodology, it not only presents a deliberate invitation to Economic modelling but it may also be used as the main tool to solve latent economic problems (Farmer and Foley 2009). Concerning more specific economics applications, ABM methodology has been used to describe the Keynesian model of income distribution alongside credit and fiscal policies (Dosi et al. 2010, 2013), financial incentives in market-oriented policies such as those described by Sierzchula et  al. (2014) and Shafiei (2012), or analyse threats to the financial stability (Bookstaber 2012). Regarding agricultural economics, the use of ABM for modelling agricultural systems and the impacts of policies has been progressively increasing in the last years (Happe et al. 2005; Happe et al. 2008; Nolan et al. 2009; Balke and Gilbert 2014; Groeneveld et al. 2017; Kremmydas et al. 2018). Freeman et  al. (2009) applied the ABM based on real data to investigate the progress of financial structure and farm size in Canadian prairie agriculture. Through this model, it is possible to assess the influence of government’s agricultural funding policies along the history of the country, the contributions of entrepreneurship, and the factor allocation on the evolution of farm structure. Besides, the study proves the ability of ABM to simulate farming on a medium to large scale. Bert et al. (2011) developed an ABM model called Pampas model (PM) for the agricultural systems of the Argentine Pampas, motivated by changes that occurred on that area such as the increasing dominance of soybean production, the reduction of active farmers in the region and the increasing amount of land used by tenants. Later, in 2014, the same authors presented guidelines for the validation of this model, concluding that PM is a reasonable, valid and reproducible model.

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With the aim of exploring the effect of different factors (such as environmental, economic and social factors, as well as subsidy adoption) in farmer’s decision-making, Murray-Rust et  al. (2014) presented a new ABM framework. This methodology merges different developments in ABM. Focusing on the European agricultural sector, Huber et al. (2018) reviewed twenty ABMs with different and heterogeneous decision-­ making methods. They intended to identify the most relevant elements of farmers’ decision-making process from a farm-system’s perspective and supply the underdeveloped research areas with useful tools that allow for forthcoming opportunities in modelling decision-making. Marvuglia et  al. (2017) applied the ABM to simulate forthcoming crop patterns under a pre-defined scenario that deals with the insertion of a “green consciousness” factor in the decisions of Luxembourg farmers’, in opposition to an approach based only on profit maximization.

8.3 Methodology Since we want to evaluate the overall sustainability of the wine farms by considering their heterogeneity, each farm should account for a set of variables that illustrate their current entrepreneurial status. As referred in Sect. 8.1, the goal is to avoid farm bankruptcy and allow the subsistence of such an important Portuguese production sector. The model premise is based on a set of inner characteristics of each farm (see Table 8.1) such as area, financial balance, overall management quality, productivity (size-­ dependant) and location (Northern, Centre or Alentejo). These characteristics were generated according to the available data of PTFADN (2001–2015). In each period, the farm produces and sells their grapes (for wine production) based on their own productive capacity and foreign market prices: grape selling value, cost of labour, intermediate consumption, among other factors. Afterwards, the financial balance is updated and a trigger is settled to ascertain if the farm is sustainable and is able to proceed with their activity or if it has to halt the production. To attain a simulation-like environment and further apply our featured methodology (ABM), the available data on the PTFADN database

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Table 8.1  ABM variables formulation, description and initial conditions (IC) Variable

Northern (IC)

Alentejo Centre (IC) (IC)

Equation (8.3) Size productivity (V) Area (A) ~N (8.98, ~N (11.67, 5) 5) Random Quality (Q) Random number number (0–1) (0–1)

Brief description Productivity of each farm considering its size

~N (22.9, 5) Random number (0–1)

Individual farm area (ha)

Inner farm conditions (management, terrain, vineyard structure) that can undervalue the production (0–100%) Bank balance A*B’, B’ ~N A*B’, B’ ~N A*B’, B’ ~N Initial bank balance from each farm (€) (40000, (40000, (B) (40000, 20000) 20000) 20000) Production Equation Equation Equation Grape production (kg/ha) (Y) (8.4) (8.5) (8.6) Labour (L) Equation Equation Equation Labour costs that the (8.7) (8.8) (8.9) farm needs to support in order to produce (€/ ha) Environment Equation Equation Equation Bundle of intermediate (E) (8.10) (8.11) (8.12) consumption that each farm expends in order to produce (€/ha) Investment (I) Equation Equation Equation Yearly investment value (8.13) (8.14) (8.15) by the producer (€/ha) Subsidies (S) Equation Equation Equation Subsidies value that each (8.16) (8.17) (8.18) farm receives from the government per period (€/ha)

Data Source: PTFADN (2001–2015)

(2001–2015) was used to model deterministic functions that describe the behaviour of Northern, Centre and Alentejo’s farms in respect to social, economic and environmental aspects. Unfortunately, the available data in the PTFADN for the Centre region spanned a shorter period of time, between 2013 and 2015. Nonetheless, it is still possible to establish the conditions for this region, since the Centre region combines features from Alentejo and Northern. The unknown values for certain variables of the Centre Region, pertaining to the period between 2001 and 2012,

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were obtained by performing a backtracking procedure which used annual growth rate data from the other two regions. However, we consider the estimated values of the last three years based on observed values, and the estimated values of the previous years were obtained by combining the growth rate of the other regions and their estimated values. Considering Yˆct and Yct to be, respectively, the estimated values and the observed values of the variable Yc in period t, the procedure is described as follows:

= Yˆct Y= 2013, 2014, 2015 ct , for t Yˆct 1 





Yˆc t , for t  2013,, 2002 Tn  Tat 1 t 2

(8.1) (8.2)

Where Tnt and Tat denote, respectively, the observed annual growth rate of variable Y in the Northern and Alentejo at period t relatively to year t−1. Thus, the data of the Centre region corresponding to the period between 2001 and 2015 was generated. Considering the available data on the PTFADN (2001–2015) for Northern and Alentejo regions and the generated data for Centre region from 2001 until 2015, we collected the values of subsidies (euro per ha), investment (euro per ha), production (ton per ha), labour costs (euro per ha) and finally, an environmental bundle variable which compiles the data about electricity, fuel and lubricant, fertilizers, crop protection and water usage (all specified in euro per ha). Each variable compiles a short-­ term time series from 2001 until 2015, hereafter fit into the equation using the MATLAB fitting tool. It is also important to consider that the farm productivity generally improves with larger areas due to the increasing returns in a scale production (Sellers and Alampi-Sottini 2016). To obtain a function that relates the farm size and productivity we used the Galindro et al. (2018b) methodology which offers a productivity coefficient per farm size. To perform the fitting, we gathered average values from Galindro et al. (2018b), bundling the three sub-regions productivity into one and considered the average value proposed by these authors.

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The size productivity function V(A) is now obtained (Eq. (8.1), see Table 8.1) per farm area A:

V  A   1.1813  0.0224 A  0.0007 A2

(8.3)



For each region, the model variables Production (Y), Labour (L), Environment (E), Investment (I), Subsidies (S) and Productivity by Size (V) were obtained to best-fit Fourier functions to the data from 2001 to 2015. These functions were used to describe evolution in subsequent years, from 2015 (t = 15).













Yn  t   2962.0  572.2 •cos  w1t   5.0 •sin  w1t  509.2 •cos  2 w1t   53.4 •sin  2 w1t   173.3 •cos  3w1t  116.4 •sin  3w1t   182.3 •cos  4 w1t   31.0 •sin  4 w1t  Yc  t   1910.4  330.9 •cos  w2 t   228.1 •sin  w2 t  82.6 •cos  2 w2 t   329.7 •sin  2 w2 t  193.9 •cos  3w2 t   133.1 •sin  3w2 t 

Ln  t   523.5  3.6 •cos  w4 t   193.6 •sin  w4 t  100.3 •cos  2 w4 t   160.1 •sin  2 w4 t  52.2 •cos  3w4 t   68.1 •sin  3w4 t  La  t   135.5  34.9 •cos  w6 t   107.1 •sin  w6 t  82.1 •cos  2 w6 t   63.7 •sin  2 w6 t  47.5 •cos  3w6 t   60.1 •sin  3w6 t 



(8.8)



(8.9)



En  t   284.9  6.2 •cos  w7 t   11.5 •sin  w7 t  5.9 •cos  2 w7 t   17.8 •ssin  2 w7 t   5.6 •cos  3w7 t  13.2 •sin  3w7 t 

(8.6)

(8.7)



Lc  t   212.1  155.7 •cos  w5 t   68.8 •sin  w5 t 

(8.4)

(8.5)



Ya  t   1828.5  947.7 •cos  w3 t   1111.8 •sin  w3 t  40.0 •cos  2 w3 t   974.5 •sin  2 w3t 





(8.10)

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Ec  t   315.8  55.2 •cos  w8 t   7.6 •sin  w8 t  11.4 •cos  2 w8 t   30.6 •sin  2 w8 t   13.9 •cos  3w8 t  26.4 •sin  3w8 t  Ea  t   145.5  22.7 •cos  w9 t   19.4 •sin  w9 t  29.0 •cos  2 w9 t   0.64 · sin  2 w9 t   21.0 · cos  3w9 t  5.0 · sin  3w9 t   20.5 · cos  4w9 t   11.4 · sin  4 w9 t 

I n  t   513.3  92.9 •cos  w10 t   101.8 •sin  w10 t  90.9 •cos  2 w10 t   54.6 •sin  2 w10 t   84.3 •cos  3w10 t  115.9 •sin  3w10 t 











(8.11)





(8.13)



I c  t   256.3  21.1 •cos  w11t   161.4 •sin  w11t  26.7 •cos  2 w11t   42.0 •sin  2 w11t 

(8.14)



I a  t   328.6  235.2 •cos  w12 t   202.9 •sin  w12 t  80.1 •cos  2 w12 t   256.8 •sin  2 w12 t  156.2 •cos  3w12 t   109.1 •sin  3w12 t 

(8.15)



Sn  t   279.3  30.9 •cos  w13 t   113.9 •sin  w13 t  43.6 •cos  2 w13t   12.8 •sin  2 w13t   9.7 •cos  3w13t  22.3 •sin  3w13t  Sc  t   278.8  109.3 •cos  w14 t   96.3 •sin  w14 t  27.3 •cos  2 w14 t   5.8 •sin  2 w14 t 

(8.12)



(8.17)



Sa  t   159.2  47.5 •cos  w15 t   60.1 •sin  w15 t  58.2 •cos  2 w15 t   9.8 •sin  2 w15t   59.9 •cos  3w15t  37.3 •sin  3w15t   10.1 •cos  4 w15 t   62.4 •sin  4 w15 t 

(8.16)



(8.18)

Where t represents the simulation time-period, in which t  ϵ  {15, 16, …, 115}. Equations (8.4), (8.5) and (8.6) represent the Production (Y) in Northern, Centre and Alentejo, respectively; Eqs. (8.7), (8.8) and (8.9) are the Labour (L) in each region; Eqs. (8.10), (8.11) and (8.12) represent the Environment (E); Eqs. (8.13), (8.14) and (8.15) represent

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the Investment (I); Eqs. (8.16), (8.17) and (8.18) represent the Subsidies (S) (see Table 8.1). The values obtained for the constants are given by: w1  =  0.3258, w2  =  0.3498, w3  =  0.3871, w4  =  0.2546, w5  =  0.1719, w6  =  0.4454, w7  =  0.3924, w8  =  0.5435, w9  =  0.6572, w10  =  0.5979, w11  =  0.3634, w12 = 0.4036, w13 = 0.3498, w14 = 0.2653, w15 = 0.3678. In addition to the time limitation of available data, namely for the Centre region, the scarcity of information on other characteristics of the productive systems and its context conditioned the model outlined. This situation didn’t allow to consider other variables that could influence the dynamics and behaviour of the sector. This is the case, for example, of the age of the farmer, the age of the vineyard and the availability of labour in the region.

8.3.1 Modelling Procedure The description of the model follows up on the suggested specifications of the standard protocol ODD (when applicable) to describe ABMs, proposed by Grimm et  al. (2010). NETLOGO 6.0.3 software (Wilensky 1999) was used to perform the simulations and to calculate the several model outcomes. For the sake of simplicity, both Northern, Alentejo and Centre farms will be simply referred as “wine-farms” since most of the concepts are analogous between them. The model simulates the subsistence of Northern, Centre and Alentejo farms and emulates three separate landscapes (one per region) overshadowed by distinctive global variables since the problem formulation doesn’t take into account spatial interactions among the agents. The location of wine-farms on the created patched grids is arbitrary. The global variables that surround the agent’s production function and supply the program with values pertaining to several available features are stated in Table  8.1. Furthermore, the model contains three groups of variables (also displayed in Table 8.1): the patches (unit cells) which form the virtual landscape and split the studied area into three different regions. The generated wine-farms, which are able to produce at each period, own a certain initial area (in ha) normally distributed through the use of

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parameters approximately equal to the average values of the real data collected from the PTFADN (2001–2015), a management quality status, an initial bank balance and a size productivity value, both taking into account the farm size. The farm production is the core procedure of this model. At each period the farms perform their activity and gain or lose money according to the production function Ri(t), given by Eq. (8.19), where i represents the farm index from the set of farms F = {1, …, 1500} with area Ai. At each period the farm bank balance Bi(t), given by Eq. (8.20), is updated, which enables us to evaluate if the farm is sustainable and able to proceed with its activity (bankruptcy procedure). Ri  t    GP · Yk  t  · V  Ai  · Qi  · Ai  Sk  t  · Ai

 E k  t  · Lk  t  · I k  t 



l 1



Bi  t   Bi   Ri  l  t

(8.19) (8.20)



Wherein k ∈ {n, c, a} is dependent on the region—Northern, Centre or Alentejo, where the farm i is located. Since our goal is to evaluate the sustainability of the wine farms, the bankruptcy procedure checks each farm bank balance and performs an “if ” condition, where farms with bank balance below zero (euro) are removed from the model.

8.4 Simulation and Results The initial model tries to attain information about the evolution of 1500 farms (500 per region). It contains a settled seed to entangle the initial stochastic generation of each farm area (A), quality (Q) and financial balance (B). Since the variable’s global evolution is previously given by the interpolated functions, the initial model outcome is purely deterministic.

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The grape price is settled to start at five different values, € 0.16, € 0.36, € 0.56, € 0.76 and € 0.96, and incremented by 1.04% per year (to acquaint the price standardization (INE 2001–2015)). The values considered are based on the available information of IVV (2018a, b) and PTFADN (2015) for 2015. The lowest value (€ 0.16) corresponds to the price in the Alentejo region, the two highest values correspond to the price in the other regions—€ 0.96 in the Centre and € 0.76 in the North. The other two values—€ 0.36 and € 0.56—were considered in order to test intermediate values. The prices were also standardized according to INE data (2001–2015), considering 2015 as the base year. The main goal is to avoid an outcome where many farms undergo bankruptcy within the next 100 years. Tables 8.2 and 8.3 present the computational results. For each scenario the model runs for ten times and the values presented in the tables are the average values. It was considered the average rate of 1.04% for the price standardization for all monetary variables, according to INE data (2001–2015), and by considering 2015 as the base year. Table 8.2 displays the farm survival rate (SR) depending on different financial incentives for the different grape prices (GP). A financial incentive of 0% corresponds to the same dynamic observed in the past. The other values represent the hypothetical change in the subsidies: positive (25% and 50%) and negative (−100% and −50%). The financial incentives in the model appear to have a direct influence on each farm’s financial balance, and we assume that the government is able to increase this direct aid. As an example, through the use of computational tests with ABM software it is possible to improve our benchmark scenario and ensure the complete survival of almost all of the Alentejo’s farms (90.3%, see Table 8.2) with an increment of 50% of financial incentives, considering the highest grape price. The results show that the Alentejo region is, in general, more resilient to any of the simulated scenarios. Without subsidies (−100%), the survival rate of farms is between 0.0% in the Northern and 79.2% in the Alentejo region. If subsidies increase by 50% relatively to the projected by the Fourier function (50%), the survival rate ranges from 0.4% to 90.3% in the Northern and Alentejo, respectively. However, considering the grape price scenarios which better describe the reality of the regions

C

GP = 0.16

N

A 27.7 44.0 62.0 70.2 77.4 27.8 44.2 62.0 70.5 77.3

8.2 18.7 30.4 34.5 42.9 9.7 20.1 31.8 36.0 43.9

C

GP = 0.36 N

42.0 52.6 63.9 69.1 74.1

42.1 52.9 64.1 69.3 74.3

A

41.3 47.0 55.8 59.0 62.4

40.2 45.9 54.4 58.2 61.6 53.3 63.4 74.9 80.7 85.1

53.1 63.2 74.9 80.8 84.7

C

GP = 0.56 N

Data Source: Own results. N – Northern; C – Centre; A – Alentejo regions

Survival rate (%)/Grape price (€/kg) −100% 0.0 0.2 3.0 −50% 0.0 3.9 11.0 0% 0.0 19.8 24.3 25% 0.1 36.2 32.5 50% 0.4 53.1 42.8 Remaining area (%)/Grape price (€/kg) −100% 0.0 0.2 2.9 −50% 0.0 4.2 11.0 0% 0.0 20.1 24.1 25% 0.0 36.5 32.1 50% 0.4 54.0 42.7

Financial incentives

64.9 70.0 77.0 79.5 83.9

64.9 70.0 76.9 79.5 83.9

A

56.5 63.3 66.9 69.2 73.7

56.2 62.3 66.4 68.7 73.7

N

66.0 74.8 82.2 85.4 90.3

65.4 74.1 81.8 85.1 90.3

C

GP = 0.76

72.9 77.0 83.4 85.7 88.3

73.0 77.2 83.4 85.8 88.2

A

64.9 69.2 73.9 76.7 78.3

64.9 69.2 73.3 76.4 78.2

N

72.6 79.5 85.2 88.7 91.7

72.3 79.1 85.3 88.8 91.7

C

GP = 0.96

78.9 82.7 86.1 88.9 90.2

79.2 82.6 86.1 89.1 90.3

A

Table 8.2  Northern, centre and alentejo survival rates and surviving farms’ area, in function of different financial incentives

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N

C

A 62.0 60.1 57.5 56.7 53.3 62.0 59.9 57.8 57.7 54.1

30.4 26.6 24.0 21.9 19.1 31.8 27.3 25.7 23.3 20.4

63.9 65.3 62.4 61.5 60.2

64.1 65.2 62.4 61.6 60.3 55.8 55.0 53.3 50.2 49.3

54.4 54.1 52.7 49.7 47.9 74.9 75.3 73.2 72.3 69.7

74.9 74.8 73.2 72.5 69.3

C

N

A

N

C

GP = 0.56

GP = 0.36

Data Source: Own results. N – Northern; C – Centre; A – Alentejo regions

Survival rate (%)/grape Price (€/kg) 0% 0.0 19.8 24.3 5% 0.0 18.3 22.4 10% 0.0 16.6 20.8 15% 0.0 15.4 18.3 25% 0.0 11.9 16.3 Remaining area (%)/grape Price (€/kg) 0% 0.0 20.1 24.1 5% 0.0 18.9 22.0 10% 0.0 16.9 20.7 15% 0.0 15.8 18.3 25% 0.0 12.2 16.2

Financial incentives

GP = 0.16

77.0 76.6 77.6 73.9 73.4

76.9 76.7 77.4 73.6 73.5

A

66.9 56.0 66.7 64.0 62.0

66.4 65.1 66.2 63.5 61.0

N

82.2 71.9 80.8 79.5 77.8

81.8 81.4 80.8 79.4 77.8

C

GP = 0.76

83.4 72.0 82.9 81.2 80.1

83.4 82.2 82.9 81.4 80.0

A

73.9 73.1 71.4 72.3 70.5

73.3 72.1 71.5 71.9 70.2

N

85.2 85.0 84.8 83.3 83.6

85.3 85.1 84.8 83.1 83.5

C

GP = 0.96

86.1 86.6 85.9 85.0 85.0

86.1 86.6 86.0 85.1 85.0

A

Table 8.3  Northern, centre, and alentejo farms survival rate and surviving farm area in relation to different increasing rates in labour costs

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under analysis, it can be seen that without subsidies (−100%), only 3.0% of farms in Alentejo survive (price 0.16  €/kg), while in the Northern these values reach 56.2% (price 0.76  €/kg) and in the Centre 72.3% (price 0.96 €/kg). Table 8.2 displays the percentage area of the surviving farms based on financial incentives for the different grape prices (GP). The results reveal a similar behaviour to the obtained data relating to the survival rate. Its analysis shows that the beneficial grape price measure overshadows the subsidies impact on all the regions under study. The main reason for this may be connected to the fact that this incentive directly benefits the production’s function outcome, allowing roughly productive farms to withstand. While the subsidies are not related to the farm production, the beneficial grape price directly influences operational capabilities, generating a multiplicative income effect that increases the survival rate (SR) of the farm substantially. The results are quite impressive, according to our model’s conditions and assumptions; for example, on the Alentejo it is possible to save 40% of this region’s farms with a € 0.20 benefit on price (from an initial price of € 0,160 and 0% level of financial incentive) and only 18% of the farms if the subsidy increases in half, close to an additional government expenditure of € 250 per hectare (PTFADN 2015). On the other hand, with the same amount of expenditure, 4% and 2% of the Northern’s and Centre’s farms, respectively, would also be preserved, considering the initial prices for both regions (€ 0.76 and € 0.96, respectively). Table 8.3 displays the farm survival rate in function of the rise in labour costs. An increase in labour cost by 0% corresponds to the same dynamic observed in the past. The other values, namely, 5%, 10%, 15% and 25% represent hypothetical increases in the labour costs. The labour shortage and subsequent wage overpricing can be a consequence of unfavourable demographic dynamics, such as the population aging (Fuchs et  al. 2017) as well as migration towards urban areas (Jan van der Laan 2016). In general, the interpretation of the results present in Table  8.3 is maintained when considering changes in surviving farm area due to shifts

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in labour costs. A cost increase of around 15% results in a survival rate between 40.1 (Northern) and 96.5% (Alentejo). The effects of less substantial changes in labour costs are more impactful on farm survival rates than the tested subsidy swings (see 25% scenario). This confirms the heavy dependence of the sector on labour costs, as exposed by Galindro et al. (2018a), Rebelo (2018) and Santos et al. (2018a). The first observation to be made from our results is the almost innocuous effect from increasing labour costs in the farms of the Alentejo region (an average loss of 4%), followed by the Centre region (5%). On the other hand, the Northern region suffered substantially with the introduced randomness and increasing labour costs, losing about 7% more farms than in the initial simulation (0%) and 11% in the worst-case scenario. There are two possible explanations for this phenomenon: the first is that the Northern regions require more labour-intensive procedures than Alentejo’s farms, and subsequently the impact ought to be greater (PTFADN 2001–2015). The second explanation lies with the higher productivity levels of Alentejo farms, explained by their larger areas (PTFADN 2001–2015). Such advantages may lead these farms to better deal with negative and unexpected (random) scenarios.

8.5 Conclusions and Implications In this chapter, three distinctive Portuguese wine-producing regions— Northern, Centre and Alentejo—were analysed. After a brief presentation about this sector’s relevance on the Portuguese economy, sustainability analysis of the studied regions was selected as the major goal of this study. To emulate the wine farm’s activity from the chosen regions and further simulate alternative scenarios, the ABM methodology was used. This model relies on some general assumptions: random generation, and fitted time-dependent functions which are based on real data, which also account for the productivity per farm area variable. The initial simulation, comprising 500 generated farms per region, displayed an alarming scenario by the end of our timeframe (after 100 years), with a survival rate of only 78.3, 91.7 and 90.3% of the Northern, Centre and Alentejo

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farms respectively, in the best predicted scenario. Governmental policies such as subsidies and the grape-selling benefits were analysed and compared; the results showed that the latter may overperform the subsidies impact on both regions. Considering our model formulation and assumptions, a simple governmental grape-selling benefit of €0.20 on the Alentejo region may avoid the extinction of 40% of the farms. Finally, some additional threats to the wine sector were also considered, such as rising labour costs and environmental costs, alongside model stochasticity. The results show that the Alentejo region is generally well prepared to deal with such negative scenarios, in opposition to the Centre and Northern region, which both saw a severe depletion of farm survival rates during this experiment. The reason behind the resilience to negative scenarios of the Alentejo farms in comparison with the Centre and the Northern farms might be explained by their less intensive human-labour approach (higher mechanization) and better productivity levels derived by their larger areas. The chosen methodology (ABM) for this study showed that the Centre and Northern region farms sustainability on the forthcoming future is under threat but governmental measures such as the grape-selling benefit may play an important role to ensure the sustainability of both regions. The price of the grape at the producer may be at the origin of the expected dynamics, since this value does not cover, in many cases, the total costs with grape production and leading to the bankruptcy of the activity (Santos et al. 2018b). The low price of the final product (wine), despite its good quality, helps to worsen the situation, often not allowing the possibility of a more equitable price upstream of the sector. On the other hand, the evolution observed in the availability of labour in areas with low population density has been worsening, as is the case of the regions under study, which accentuates the need for a higher cost with this factor, again limiting the sustainability of the business (Rebelo 2018; Santos et  al. 2018a). In this sense, the development of policies that directly or indirectly support the profitability of the farms may help to reverse the problem, allowing higher production costs but also greater availability in the limiting resources. However, it should be noted that the loss of farms, which comes from a production sector characterized by small size, can be perfectly recovered

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by farms with a larger vineyard area, reconfiguring the production sector in the regions and in the country under study. In future studies, in order to make the model more accurate, we intend to use primary data of individual farms to include more analysis parameters and introduce others variables such as the weather conditions. Different results can be produced by changing the initial conditions of the model and alternative scenarios can be performed in order to develop overall governmental policy recommendations, so as to ensure the sustainability of the three regions while taking into consideration their heterogeneity. Acknowledgement  This work is supported by national funds, through the FCT – Portuguese Foundation for Science and Technology under the project UID/SOC/04011/2019.

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9 Digitalization of SMEs: A Review of Opportunities and Challenges Alkis Thrassou, Naziyet Uzunboylu, Demetris Vrontis, and Michael Christofi

9.1 Introduction SMEs have always been hailed as economic drivers and the major employer, across industries and nations. And though receiving, perhaps, less attention than they deserve compared to their larger counterparts, their attributes, role and style have always intrigued business scholars. SMEs, however, have seen their identity and position against large companies and customers change drastically over the information technology revolution of the past two decades. A period that has partly weakened them against competition from large global companies, but which has

A. Thrassou (*) • N. Uzunboylu • D. Vrontis Department of Marketing, University of Nicosia, Nicosia, Cyprus e-mail: [email protected]; [email protected]; [email protected] M. Christofi University of Nicosia, Nicosia, Cyprus e-mail: [email protected] © The Author(s) 2020 A. Thrassou et al. (eds.), The Changing Role of SMEs in Global Business, Palgrave Studies in Cross-disciplinary Business Research, In Association with EuroMed Academy of Business, https://doi.org/10.1007/978-3-030-45835-5_9

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also armed them with competencies and opportunities to do things and reach customers that were unimaginable in the recent past. This chapter undertakes a comprehensive review of extant scientific works to identify the range and nature of opportunities and challenges faced by SME in contemporary business in the context of digitalization and information and communication technological developments. During the last three decades, small and medium enterprises (SMEs) have been very important players in all the economies of the world (Mira 2006; Ongori and Migiro 2009). SMEs are considered as the main developing force of economic growth in all countries (Jutla et al. 2002; Singh et al. 2010). Many researchers have noted SMEs make a significant contribution to the development of the economy (Grandon and Pearson 2004; Bollweg et al. 2019) and continue to act as a catalyst for the growth of new industries and also sustain the existing ones (Ormazabal et  al. 2018). Even though the size and market share of SMEs is relatively small (Pavitt et  al. 1987; Paul et  al. 2017), with very limited resources and accessibility to information (Stockdale and Standing 2004), they represent the majority of all the enterprises (Dana et  al. 1999; Genc et  al. 2019) and serve as drivers of economic entrepreneurship innovation (Bresciani et al. 2013) competitiveness, and future growth (Bharati and Chaudhury 2009). Most economies in both developed and developing countries have recognized the role and importance of SMEs (Chimucheka and Mandipaka 2015) in creating social cohesion, generating employment and stimulating growth (Ocloo et  al. 2014; Chimucheka and Mandipaka 2015). Consequently, the future development of countries (Vrontis et  al. 2006) depends greatly on the development of SMEs (Bruque and Moyano 2007; Peres and Stumpo 2000; Genc et al. 2019). Since the world has become a global market place where national boundaries turn totally open to everyone(Pasricha 2005), SMEs face an ever-increasing competition not only at the domestic level but also at the global level (Coviello and McAuley 1999; Paul et  al. 2017). In such a demanding environment, where large multinationals operate in all parts of the global market (Ocloo et al. 2014), SMEs are obliged to be more competitive and determine the important critical success factors for the efficiency of firms (Denis and Bourgault 2003; Singh et al. 2010). Thus, sustained competitiveness represents the top priority for SMEs in the era

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of globalization (Belyaeva 2018). When globalization is combined with the advancement in technology (Knight and Kim 2009), the opening and exposure of the people and the firms become more prominent than ever before (Ocloo et al. 2014). According to Levitt (1983), a powerful force heads the world toward a converging association and that force is technology (Muhammad et al. 2010).

9.2 T  he Role of Information and Communications Technologies (ICT) Evolution in SMEs In the era of globalization, SMEs find themselves in an environment where the nature of competitive paradigms change continuously with technological advancement (Amankwah-Amoah et al. 2018). In order to sustain their business position (Arshad et al. 2014), compete and grow (Joensuu-Salo et al. 2018; Chege and Wang 2020), and even lead in the market (Amankwah-Amoah et al. 2018), SMEs need to be more creative and innovative (Hassan et  al. 2018) to differentiate themselves among their global competitors (O’Dwyer et al. 2009; Rosenbusch et al. 2011; Genc et al. 2019). Accordingly, they need to deploy new techniques and up-to-date technologies (Gupta and Barua 2016; Bagheri et  al. 2019) that rapidly respond to the new market dynamics (Covin and Miller 2014; Acosta et al. 2018). Therefore, SMEs head towards Information and Communications Technologies (ICT)-based systems that mobilize and deploy digital technologies (Joensuu-Salo et  al. 2018; Chege and Wang 2020). In fact, ICT has become a catalyst to support business activities (Ng and Kee 2017), a fundamental source of competitiveness Bharati and Chaudhury (2009) and an essential tool to enhance economies (Barba-Sanchez et al. 2007). In today’s digital economy, it is recognized that the development and widespread use of ICT-based systems offer numerous opportunities to both individuals and organizations (Steinfield et  al. 2012; Deraz and Gebrekldan 2018). As such, literature has indicated that the development of ICTs has influenced businesses at many points (Consoli 2012; Tarute and Gatautis 2014), for example, Ongori and Migiro (2009) have

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claimed that ICT evolution has changed the way businesses operate in three ways, changing the industry structure and affecting the degree of competition among businesses, creating a competitive advantage for those businesses who adopt ICT in their business operations and affecting directly business operations. With these changes, businesses have recognized the opportunities (Morgan-Thomas 2015) which is brought by ICTs to compete in the global market (Manochehri et al. 2012; Tarute and Gatautis 2014). Furthermore, many studies have suggested that ICT innovations can boost efficiency and effectiveness (Bharati and Chaudhury (2009); Krajnakova et al. 2015) and it is considered fundamental to economic growth (Ng and Kee 2017) and as a critical factor for the competitiveness (Pavic et al. 2007). Because of their size and nature, SMEs have unique features that help them to compete with large enterprises (Ng and Kee 2017), such as that of being more flexible (Stefanovic et al. 2009) and quickly responding to changes in the environment (Ballestar et al. 2020). Owing to these characteristics of SMEs, the adoption of ICT tools is becoming fundamental (Baporikar 2014). A wide range of research proves the significance of ICTs in SMEs (Tarute and Gatautis 2014; Deraz and Gebrekldan 2018; Morgan-Thomas 2015) and emphasizes the rapid growth in SMEs when they integrate ICTs in their business processes (Barba-Sanchez et  al. 2007). Furthermore, a significant link between ICT tools adoption and businesses’ growth, their performance, new products and expansion is proven by Tarute and Gatautis (2014). Following this, it has been discussed that deploying ICTs at the core of business strategies also provides many opportunities for SMEs in international markets, such as increasing global collaboration (Cenamor et  al. 2019; North et  al. 2019), enhancing awareness and image (Imgrund et al. 2018) and forming new relationships with business partners and customers (Grandon and Pearson 2004; Bollweg et al. 2019). It is apparent that the competitive environment that SMEs face today (Dumcius and Skersys 2019) has encouraged them to harness opportunities offered with ICTs (Coviello and McAuley 1999; Bagheri et al. 2019) to improve their innovativeness (Bouwman et al. 2019) and hence competitiveness Bharati and Chaudhury (2009). ICT tools, available for organizational use, are ranging from basic technologies to more complex (Rahman and Ramos 2010) and advanced IT capabilities (Ormazabal

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et al. 2018) including the internet and web-based technologies (O’Dwyer et al. 2009; Wu and Deng 2020). In this respect, researchers have examined the adoption of different ICTs in different business areas and specific country and industry contexts (Vrande et al. 2009; Cenamor et al. 2019) over recent decades. Though most of these researches examined ICTs within the context of operational rather than strategic (Child et al. 2017; Bagheri et al. 2019), ICTs could be seen as a strategic weapon for SMEs to reach a wider market and compete with large enterprises (Ongori and Migiro 2009) as they offer a widened market reach for SMEs (Nordman and Tolstoy 2016) and let them participate beyond their local market (Odlin 2019) and move into more distant markets without having a physical presence (Nordman and Tolstoy 2016; Child et al. 2017). With the development of new ICTs and making them widely available (Tarute and Gatautis 2014), research into their adoption and usage by SMEs tends to follow (Morgan-Thomas 2015). Specifically, deploying and using ICT tools in business operations may enhance performance efficiency of SMEs by improving market orientation and task management through advanced market knowledge (Melville et al. 2004; Cenamor et al. 2019; North et al. 2019). However, in practice, SMEs may face several challenges like the cost of investment required, and thus, they may avoid adopting ICTs (Yunis et al. 2018; Cenamor et al. 2019). According to Iacovou et al. (1995), compared to large enterprises, SMEs need more financial support because of their structural characteristics, such as lack of the necessary resources and skills, weakness of market power, and so on (Bharati and Chaudhury (2009); Krajnakova et  al. 2015). On the other hand, Dixon et  al. (2012) observed that cost is a significant influential factor in the implementation of ICTs by many SMEs.

9.3 Digitalization as a Phenomenon Given the continuing developments in ICT (Morgan-Thomas 2015), a broader range of cost-effective and less complex forms of technology have emerged, such as the internet and web-based technologies (Amankwah-­ Amoah et al. 2018). The integration of these technologies into daily life (Chege and Wang 2020), also known as digitalization, have caused revolutionary changes in the ICT field (Bouwman et al. 2018) in terms of

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communication and interaction (Thrassou and Vrontis 2006). According to Cöster and Westelius (2016) to digitalize something is to bring it to a digital from a physical format. Today, every kind of information become digitalized (Dumcius and Skersys 2019). In this sense, digitalization has come to broadly refer to the reconstruction of social life of individuals and business environment (Ballestar et al. 2020) around digital communication and media infrastructures (Deraz and Gebrekldan 2018). In fact, the term digitalization has been coined to describe processes of deploying and using digital technologies (Imgrund et al. 2018) in wider organizational, individual and societal contexts (Ngugi et al. 2010). The importance of digitalization is increasing day by day (Vadana et al. 2019) as it is intensely utilized in many fields of economic and social life (Sultan and Tsoukatos 2019). It has significantly modified the nature of human habitats, activities (Bollweg et al. 2019) and interactions (Christoforou and Melanthiou 2019) and altered the structure and the functioning mechanism of markets (Singh et  al. 2010) and the operation of businesses (Thrassou and Frey 2017), and thus the determination of businesses’ performance (Mulhern 2009; Brodie et al. 2007; Steinfield et al. 2010; Quigley and Burke 2013; Steinfield et  al. 2012; Coviello and Joseph 2012; Deraz and Gebrekldan 2018). The literature also suggests digitalization has been more than a stimulant for companies (Bouwman et al. 2019); it is a changing context in which new technologies arise and new capabilities are required (Dumcius and Skersys 2019). The positive effect of business digitalization on economic growth has been discussed at several settings (Dumcius and Skersys 2019) including employment as such and particularly new working conditions and training for employees (Imgrund et al. 2018) aimed at raising their competences and opportunities in the labour market (Lergner et al. 2017) and innovation and competition in markets (Bresciani et al. 2013). With changing market dynamics and the rising impact of digitalization (Lergner et  al. 2017), businesses gravitate towards investing more and more on digital technology (North et al. 2019) in order to achieve innovation and gain competitive advantage (Thrassou et  al. 2018b). Accordingly, understanding the relationship between a business’s digital technology strategies and thier outcomes, has effected much exploration, both by practicing managers and academic scholars (Acosta et al. 2018).

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From a managerial standpoint, it has become vital for managers to understand the role of digital technology and its link with organizational outcomes in a business environment (Shams 2019) where digital technology creation and diffusion is rapid (Amankwah-Amoah et al. 2018) as a competitive tool (Krajnakova et  al. 2015). From an academic perspective, recent studies have challenged the impact of adapting digitalization on firms’ performance (Bollweg et al. 2019). A broad range of scholarship has analysed how digitalization shapes the contemporary world and some of these scholars have focused on the rise of globalization through digitalization (Lee et al. 2019); however, others have analysed digitalization in three broad streams (Bouwman et al. 2019) which are industrial management perspective (Shams 2018), marketing perspective (Deraz and Gebrekldan 2018) and access to knowledge resources perspective (Ballestar et  al. 2020). Tiago and Verisimo (2014), for example, illustrated that the digitalization of business models supported by ICT offers firms a number of advantages, including cost reduction, a broader selection of products, richer and participative information, efficiency and sufficiency (Deraz and Gebrekldan 2018). Leeflang et  al. (2014) further highlighted that as a consequence of the age of digitalization, firms need to reconsider their B2C marketing strategies (Deraz and Gebrekldan 2018) in order to respond to changing consumer behaviour. In keeping with this understanding, digitalization can directly or indirectly generate competitive advantages in the digital economy (Bollweg et  al. 2019). Although a great deal of attention has been focused on the benefits digitalization provides, little attention has been paid to the challenges companies are facing while going digital. Furthermore, it is somewhat unexplored with SMEs.

9.4 Digitalization in SMEs To remain competitive in the twenty-first century, SMEs have to continue to innovate, adopt the latest technology (Bagheri et al. 2019) and be creative and risk-taking in their operations (Genc et  al. 2019). Throughout the planning and decision-making strategies of business owners’, digitalization’s role in determining a SME’s competitive

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advantages (Dumcius and Skersys 2019) and its relationship with various resources and capabilities are crucial (Knight and Liesch 2016; Acosta et al. 2018). In addition to resources and capabilities, international business scholars have also started showing increased curiosity to explore the digitalization’s role in internationalization, especially in the context of entrepreneurial SMEs (Ojala et al. 2018; Stallkamp and Schotter 2019; Vadana et al. 2019). In order for SMEs to reach international markets (Child et  al. 2017) and accelerate their internationalization (Coviello 2015), it is important to understand how digitalization is transforming the ways of operating in international markets (Joensuu-Salo et al. 2018) since it makes firms less culturally and physically constrained compared to traditional methods (Luo et al. 2005; Vadana et al. 2019). Within this, the role of the Internet and web technologies (known as Web 2.0 tools) in enhancing the internationalization of SMEs is supported by lots of scholars, such as Poon and Jevons (1997), Knight and Liesch (2016), and Etemad and Wright (2003). The literature also suggests that adoption of these internet and web technologies in SMEs is no longer an option (Arshad et  al. 2014) but a requirement (Chege and Wang 2020). According to previous empirical studies, digitalization is facilitated by the advancement of internet and web technologies (Hartmann et al. 2016; Bouwman et al. 2019) and has created unpredictable opportunities (Lee et al. 2019) as well as challenges for SMEs (Lergner et al. 2017).

9.5 Digitalization as Opportunity and Challenge for SMEs According to Autio (2000), digitalization, with the emergence of new forms of web-based applications and their significant acceptance by people around the world (Child et al. 2017) has offered opportunities for businesses to proactively reconsider both their internal and external interactions. From an SME perspective, these applications have beat a path to gain potential benefits, such as extending, enhancing, and enriching boundary spanning interactions with customers (Leonidou et al. 2018), image and product development (Kriemadis 2018), leveraging sales and

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revenues (Singh et  al. 2010) and expanding to international markets (Coviello and Munro 1997; Young et  al. 1989; Genc et  al. 2019). Digitalization facilitates knowledge acquisition (Ballestar et al. 2020) and enhances business networking, that which empowers SMEs to interact more widely (Rivza et al. 2019) and intimately with others such as customers, investors, local authorities, business partners, suppliers and multinational enterprises (Vadana et al. 2019) to create sustainable competitive advantages (Krajnakova et al. 2015). In contrast to the positive showcases of digitalization, SMEs experience challenges when trying to digitalize their business operations (Lergner et al. 2017). Manochehri, Al-Esmail and Ashrafi (2012) and Tarute and Gatautis (2014) found that lack of innovation culture and financial resources, limited time and managerial and human capital resources are major barriers for successful digitalization within SMEs (Thrassou et al. 2018a). Furthermore, SMEs often fail to fully realize the consequences of digitalization (Rivza et al. 2019) for the organizational structures, operations and strategies (Thrassou and Frey 2017), and therefore, have difficulties to identify the right tool that suits their business needs (Bouwman et al. 2019). The communication technologies, such as internet and web technologies, facilitate information exchange between SMEs and their business partners (Thrassou and Vrontis 2008). Today, they can swap product information (Thrassou and Vrontis 2006) through digital communication tools like website and social media (Bouwman et al. 2019) instead of face-to-face meeting. Thus, digitalization shrinks distance among SMEs and their business partners and helps to maintain close relationships with them (Vadana et  al. 2019). Digitalization has not only influenced the domestic market of SMEs (Rivza et al. 2019), but also foreign markets (Bagheri et al. 2019). Since customers have been capable of to reach various sellers around the world through a website or social media (Christoforou and Melanthiou 2019), exporting worldwide is growing (OECD 2002; Genc et al. 2019). Thus, digitalization increases the export propensity of SMEs while expanding their operations beyond the national borders (Joensuu-Salo et  al. 2018) and significantly reduces the costs within international operations (Singh et al. 2010). It creates a business environment in which SMEs can achieve early and rapid internationalization (Stallkamp and Schotter 2019; Vadana et al. 2019). Under the

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foundation of technological changes, the international business environment is favourable for SMEs to evaluate resources and to improve their firm’s competences for internationalization (Brennen and Kreiss 2016; Vadana et al. 2019). For instance, an SME that operates on a digital platform can promote and sell its products internationally at an affordable transportation cost (Lee et al. 2019); however, without online customers, it will be forced to follow the traditional way of business networking (Cenamor et al. 2019) through major investment for trade and face-to-­ face meetings (Lee et al. 2019). Digitalization, therefore, has become a wealth opportunity for SMEs to enter the international markets (Bouwman et al. 2019). Yet, SMEs have not taken full advantage of digitalization (Vadana et al. 2019). They get into the several difficulties, from accessing market (Deraz and Gebrekldan 2018) to fully profiting by public and private finance (Ongori and Migiro 2009), as well as to cope with both cyber threats and data management (Ormazabal et al. 2018). Digitalization does not only help SMEs to commence to internationalize but also helps to sustain a strong position in foreign markets (Bollweg et al. 2019) through such activities as more efficient coordination of production, marketing and selling around the world (Vadana et al. 2019). In fact, the Internet gives SMEs a wide range of opportunities, such as creating, sharing and disseminating contents (Chimucheka and Mandipaka 2015), having a connection with people all around the world (Ormazabal et al. 2018) and gaining and searching information on a limitless number of topics and staying up to date (Morgan-Thomas 2015). Because it is characterized as a user-friendly, widely accessible and low-cost technology (Ormazabal et  al. 2018) which mostly needs minimal service provider support (Morgan-Thomas 2015), it has been a central part of SMEs’ business strategies (Thrassou et  al. 2018a). Overall, the Internet offers SMEs opportunities to overcome limitations (Vadana et al. 2019) that come together with ICT uptake (Barba-Sanchez et al. 2007). Conversely, the ignorance of the opportunities offered by digitalization would have a severe effect on SMEs (Lergner et  al. 2017) and lead to a competitive disadvantage (Rivza et al. 2019). Furthermore, the authors also acknowledge that one of the main opportunities that followed through these technologies is that it is an ideal platform for SMEs to trade in the global market (Barba-Sanchez

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et al. 2007), thanks to the flexibility of the Internet (Chimucheka and Mandipaka 2015) and its characteristics of non-proprietary network (Ocloo et al. 2014), accessing information with low cost (Stockdale and Standing 2004) and its capability to reach a global audience (Karagouni 2018). The Internet offers an open platform for SMEs for exchanging information (Joensuu-Salo et al. 2018) amongst all businesses as well as individuals (Vadana et al. 2019). The Internet cannot be viewed as a tool that only provides information (Chege and Wang 2020), albeit of a richer nature than in the traditional marketplace (Morgan-Thomas 2015), but is also an environment for carrying out transactions (Belyaeva 2018), potential channels for actually delivering the service or product to the consumer (Amankwah-Amoah et al. 2018) and a mechanism for communication (Lergner et al. 2017). Further, it has been suggested that the use of Internet enables SMEs to convey and receive data in a simple, inexpensive and easy manner (Tarute and Gatautis 2014). Henceforth, SMEs began adding Internet as a universal infrastructure (Ongori and Migiro 2009) to their business model where global communication (Ormazabal et  al. 2018) and transfer of data holds great promise for SMEs (Arshad et al. 2014). On the other hand, while Internet and web technologies provide competitive advantages for SMEs (Chege and Wang 2020), this can also be risky like resisting the adoption of these technologies (Tarute and Gatautis 2014) given the amount of investment required in R&D (Ng and Kee 2017). Furthermore, SMEs are known to be risk opposed and have limited capacity to take risk (Genc et al. 2019). Foroudi, Gupta, Nazarian and Duda (2017) also found that digitalization has a positive influence on the marketing capability of SMEs. SMEs can promote their services and sell their products to the world (Odlin 2019) by leveraging web-based applications, such as Alibaba e-commerce and Google search engine (Cenamor et al. 2019). Nevertheless, the cost of traditional marketing has been significantly lowered through digitalization (Shams 2019). In addition to this, social media applications, such as Facebook, Instagram, Twitter, and so on. (Tiago and Verisimo 2014) have also become a turning point due to their literal opportunities, such as time saving, engagement with customers, cost effectiveness and instant interaction with customers (Lergner et al. 2017). However, lack of the necessary skills, resources and commitment may cause SMEs to face

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challenges in implementing these web-based and social media applications where a better understanding of these issues is necessary (Tarute and Gatautis 2014). Although SMEs face different framing conditions on the way to digitalization, scholars and researchers argue that they have opportunities at the utmost to adopt new technologies because of their characteristics (Chege and Wang 2020). Investing in digitalization not only affects the speed of internationalization for SMEs (Lee et al. 2019) but it is, indeed, a profitable investment that sustains a competitive advantage (Ballestar et al. 2020). Because of their unique characteristics, SMEs access and easily implement new technologies in their business operations (Abdullah et al. 2014; Ng and Kee 2017). Their size and nature enable them to have more flexible and simpler organizational structures compared to large firms (Tarute and Gatautis 2014), which allows them to adapt to changes better (Cenamor et al. 2019) and be more innovative in their response to changes in the environment (Tarute and Gatautis 2014; Damanpour 1991; Genc et al. 2019; O’Dwyer et al. 2009). Accordingly, SMEs can now attain the same capabilities as large companies (Cenamor et  al. 2019). Advantages of Internet with its open (Morgan-Thomas 2015) and extendable network structure (Hassan et al. 2018) have become a crucial element in communication and information-sharing (Morgan-Thomas 2015), enhancing efficiency (Cenamor et al. 2019), increasing global collaboration and commerce (Acosta et al. 2018) and enhancing visibility (Chege and Wang 2020). Indeed, literature propounds that financial constraint has been offered as the primary reason that limits the implementation of ICT (inherently digitalization) in SMEs and hampers SMEs from investing to get new forms of ICTs (Tarute and Gatautis 2014). Consequently, they are prone not to invest in expensive tools (Cenamor et  al. 2019). With respect to financial limitations, the advent of cost-­ effective technologies may allow SMEs to overcome at least some of their resource limitations (Chege and Wang 2020) as they are less able to take risk (Genc et  al. 2019) to adopt new technologies despite large enterprises. Bouwman, Nikou, Molina-Castillo and Reuver (2018) observed that digitalization with the internet and web-based technologies overall became important for firms and clearly have an impact on their international paths in the future of SMEs (Dumcius and Skersys 2019).

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9.6 C  oncluding Remarks and Future Research Avenues Digitalization and information and communications technologies (among others) are gradually and most visibly closing the gap between SMEs and large firms in terms of competencies and market access. Internationalization, information, strategic alliances, knowledge, technology itself (that used to be too expensive for SMEs) and other resources and abilities, that were predominantly the ‘inherent’ legacy of large firms have spread to the masses of smaller firms. And though large firms are still better at these resources and abilities, SMEs also have the flexibility, adaptability and creativity to survive and thrive against larger competition and successfully undertake business ventures that larger companies are too slow and rigid to do. This is by no means the century of the SME, nonetheless. But it is the century when the role and very nature is being redefined. In this context, future research is called upon to define and refine the scientific foundation on which the rising new form of SMEs has already started to grow. At the micro-foundational level, scholars need to understand better how new forms of SMEs are arising. SMEs are technology based, without necessarily an office space or even country, and with management and employees potentially scattered across the world and coordinating remotely. Scientists need to identify the quantitative and qualitative limits of growth of such companies and understand how they adapt, internally, to fit into the wider business landscape, both at industry and market levels. At the macro-foundational level, researchers still need to understand the interrelationships and synergies involved between these companies and the various other stakeholders, but also in-­between themselves. Finally, widening the spectrum of questions, we still need to understand how digitalization and other technological advancements of SMEs are reshaping our world in its larger social contexts and across economies and borders.

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10 Financing and Innovativeness of Small and Medium-Sized Enterprises: The Case of Poland Tomasz Kusio and Barbara Siuta-Tokarska

10.1 Introduction The level of innovativeness in Europe is increasing, however the Polish situation is rather poor in this context. The rankings show that Poland is in one of the last positions. Forecasts of improvement in the level of innovation in Europe are estimated at +6% over the recent years with the best results reported by Sweden. This should allow for a better position in this respect than China, although Europe is still lagging behind the economies of, among others, the USA and Japan. Innovation in Europe, Poland

T. Kusio (*) College of Economics, Finance and Law, Cracow University of Economics, Krakow, Poland e-mail: [email protected] B. Siuta-Tokarska College of Management and Quality Sciences, Cracow University of Economics, Krakow, Poland e-mail: [email protected] © The Author(s) 2020 A. Thrassou et al. (eds.), The Changing Role of SMEs in Global Business, Palgrave Studies in Cross-disciplinary Business Research, In Association with EuroMed Academy of Business, https://doi.org/10.1007/978-3-030-45835-5_10

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especially, is a necessity, given that it has been the driving force behind the EU economy for decades, and intensive Innovativeness seems to be a must (Vrontis et al. 2017; Vrontis et al. 2018; Thrassou et al. 2019). However, venture capital (VC) is underdeveloped, which puts the financing of innovation in Europe in poor light, and more so in reference to Poland. The situation of financing innovations seems to be particularly complicated in Poland, and despite this, domestic SME are characterized by the fact that they plan to invest in technological development, but expect tax incentives (Smart Industry Polska 2018). What prompts enterprises to implement innovations are, among others, improvement in the quality of products and services, increase in productivity of employees and reduction in costs. According to Polish small and medium entrepreneurs, the lack of financial resources is the biggest barrier to long-term innovative activity. However, research in the field of innovation, in the context of cooperation between science and business institutions, indicates that facilitators and drivers have a greater impact on innovativeness than barriers (Davey et al. 2017a, b). This leads to the directions of activities in the field of building innovativeness. However, regardless of the main determinants of innovation, the financial factor refers to Both barriers, facilitators and drivers. In a network economy, which Poland intends to be the part of, the capacity to create innovation should be developed through measures such as (Klimek 2013): • Orientation towards expected vision of an organization through the future prediction design. • Using the creativity of individuals in innovation by selected teams. • Ensuring partnership and cooperation. Most innovations are the result of team efforts which implies movement from competition to cooperation. • Digital competence resulting from present difficulty to develop innovation without appropriate competences and well-thought-out involvement in the field of ICT. • Provision of adequate resources and support such as ‘open space, technology, access to information and knowledge’.

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• Hiring educated staff. Self-education and self-leadership are becoming very important for competence development, while education plays a key role in ensuring the development of innovation-related competences. Regardless of the above indications, it should be noted that the innovativeness of small and medium enterprises in Poland differs significantly from the average for these enterprises in the European Union. This indicates an urgent need to undertake intensive searches for opportunities to improve the operations of enterprises in the SME sector, focused on innovation, and in particular open innovation, taking into account their innovative potential. Polish enterprises spend on R&D a total of 28% of all expenditures made in the country (PLN 3.3 billion, i.e. equivalent to 0.23% of GDP), in the overwhelming part financing it from their own resources (with no significant tax reliefs) and in 9/10 conducting research on their own. The second noteworthy difference is the very low level of R&D expenditure incurred by companies with foreign roots. This distinguishes Poland from its neighbors from the CEE (in the Czech Republic and Hungary, the ratio of investments borne by foreign companies to GDP is 4–6 times higher than in Poland, which gives a poor testimony to the quality of Polish industrial policy in relation to the inflow of Foreign Direct Investments, FDI). In the case of domestic firms, Poland is clearly losing out compared to all the countries surveyed. Finally, the third point concerns the very low level of BERD in the Polish SME sector. The ratio of R&D expenditures to GDP in the SME sector in Poland is 6–8 times lower than in the Czech Republic and Hungary, 5–7 times lower than in Germany and France and 9–14 times lower than in highly innovative economies. This stands in contradiction to popular judgments about the expansion of the Polish SME sector, testifying rather to its conservatism and simple (based on cost advantage) development strategies. Studies, therefore, indicate that it is important to finance innovation and market research based on business capital. On the other hand, a small and residual share of business sector expenditures on research by universities has an impact on a low level of innovativeness.

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The aim of the chapter is to present the state of SME innovative activities in Poland and to review the possibilities of financing innovation in the national context.

10.2 Research Context The notion of innovation and innovative actions can be understood differently, which results from the fact that two emerging currents of their understanding arise, i.e. as a process (a specific sequence of activities) and as a result, i.e. new solutions, including not only for the enterprise itself, but also for other stakeholders (Borowiecki and Siuta-Tokarska 2017; Franco et  al. 2019; Kleinhans et  al. 2019; van Helden and Reichard 2019). For the purposes of research and analysis in the scope of innovativeness of enterprises, the OECD recommendation is often used, in which innovation is defined as implementation of a newly or significantly improved product (product or service), process, marketing and/or organizational method. In addition to the classification of the breakdown of innovation, the growing importance of social innovation may be observed (Brändle et  al. 2019; Kern et  al. 2019; Lim et  al. 2019), which is of particular interest to stakeholders, given its importance as a society, and this should also be borne in mind. Social groups, apart from being in many cases stakeholder groups, in some cases also decide on the financing of innovative activities—crowdfunding (Leonidou et al. 2018; Barbi and Mattioli 2019; Eiteneyer et al. 2019; Thies et al. 2019). Innovation issues are not decreasing in their importance, but are still substantive topics in terms of knowledge economy or sharing economy (Kusio 2019). Innovation-based business models will be developed in the future and especially this refers to process innovations at companies and business organizations. This is due to the need for improving quality and effectiveness of business performance (Arsovski et  al. 2018). Innovations in terms of processes is also important due to the need of effectiveness and economic growth of organizations. There is why product innovations as well as organizational innovations, which are of

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process nature, will also be present. Product innovations are usually referred to newly created start-ups and especially those offering technological improvements, whereas other types of innovations are referred to as more often implemented in mature industries (Stawasz 2017; Kusio 2019). The technological orientation of product innovations are materialized usually in the form of techno-starters, which are small or even micro-­ sized companies and their appearance is often a result of adjusting to clients’ requirements. This could obviously not be possible without entrepreneurial attitudes of the owners who need to be able to have the adequate perceptions of what market requires. Although the process of setting up a company in an administrative way is not so complicated, more discursive may become the methods of scaling the microenterprise performance both in an internal and external dimension, which is strongly correlated with innovations, taking into account scaling in terms of production, processes, market expansion or generally improving internal entrepreneurial performance. Microenterprises do not usually possess appropriate resources in order to proceed or even start scaling processes, which is again the issue of possible open innovativeness and obviously budgeting. As it might be said that this depends on the individual and unique characteristics of an enterprise, another issue is that most micro-entities face problems of resources shortage. There is a need for external services of knowledge for these companies quite often. The need for resources, which is one of the important elements in the functioning of micro-, small- and medium-sized companies, positively determines the need for cooperation and at the same time the openness of the company. This openness could be characterized as both individual and institutional due to the nature of relationships. There is a need therefore for an organizational cooperation to support organizational innovative capabilities and as a result to impact chances of survival and prolongation of organizational life cycle. Polish micro-, small- but also medium-sized companies are more and more often looking outside in order to obtain necessary resources for product improvements or generally ideas for new products. The need for

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changes as has been indicated, originating from customers’ needs and may be more widely defined as arising from the surroundings. In a very large scale there are also globalization factors which more and more strongly influence the processes of necessary and expected changes. The need for positive changes in terms of added value for product or process may be referred to as the imperative. This results from its obligatory nature whether the company expects to survive and successfully operate. The globalization effect is that it determines to a higher extent the need for competitiveness. At the same time it allows to access the wider range of markets with foreign customers or geographically distanced potential clients. Globalization, to a stronger extent, may be observed in a national dimension in influencing open innovations in Poland. An interesting and at the same time surprising phenomena, in the national context, has been unveiled where the entities competing have started to cooperate. The perspective of a relational surplus may be the explanation of this unexpected organizational behavior. The opportunity to gain and achieve out of relations have overcome the barriers which competitive activities had created. This underlines and confirms the rationale for the definition of imperative in terms of networking. The companies understand that the relational profit of the cooperation with their competitors is more important than threats from the competition. This could be also described as overcoming perception of competition with the relational profit perception. This coopetitional behavior phenomena is therefore observed in Poland. In the aforementioned circumstances of functioning of enterprises, the openness of innovation processes is present, but at the same time barriers referring to the shortage of resources in terms of innovation implementation. From that perspective, Poland, being listed as a moderate innovator (Eurostat), compared to other European countries, is yet a country with a very low level of innovativeness. Still, in terms of open innovations, Poland could be described as a country with even lower level of innovativeness, which results from the low level of cooperational ties between business and science. This is, to a huge extent, the reason for the low level of entrepreneurial culture as well as the still underestimated innovation budgeting. The lack of financial resources seems to be the cause.

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10.3 T  he State of SMEs Innovativeness in Poland According to reports (KPMG 2014) for almost half of the Polish enterprises innovativeness is the strategic objective in business performance, and almost 80% of medium- and large-sized companies are in progress with innovative activities. Almost half (44%) of the Polish companies are afraid of loss and investment risk and this refers to multifunctional innovative activities. Most Polish companies (80%) plan to increase the range of innovative activities. According to the results of a survey of domestic academic firms, among the determinants that led them to innovativeness, the issues of bank financing opportunities, venture capital funds and business angels were generally assessed in a similar way to those of other determinants such as: academic incubators, legislative conditions, access to infrastructure, etc. The most important determinant of innovative activities was the level of the sector’s competitiveness (over 80% of indications), the second factor was venture capital funds and loan funds and business angels (69.80% of indications). Generally most “financial” determinants have been indicated by above 60% of companies in comparison to other remaining “non-financial” determinants of innovative activities. The financial factor is therefore considered as a strong incentive for innovative activity, but not as strong as the threat of competition in the sector. Innovative activity conducted by enterprises in Poland is characterized by a higher share of innovative industrial enterprises than service enterprises; see Fig.  10.1, where data are presented in this respect for the period 1998–2017. The data in Fig. 10.1 shows that the share of innovative enterprises in Poland increased with the growth in their size class in the whole period analyzed, both among industrial and service enterprises. Taking into account the particular years of the analysis, it was shown that: • Among small service enterprises the share of innovative enterprises decreased in total until the years 2009–2011. In later periods a slight increase in their share was observed and in the years 2014–2016 the share of innovative small enterprises constituted 11.2% of their total, and in the years 2015–2017: 11.3%.

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%

Industrial enterprises 70 60 50 40 30 20 10 0

small enterprises

medium enterprises

big enterprises

%

Service enterprises 70 60 50 40 30 20 10 0 2001-2003 2004-2006 2007-2009 2009-2011 2011-2013 2013-2015 2014-2016 2015-2017 small enterprises

medium enterprises

big enterprises

Fig. 10.1  Share of innovative industrial and service enterprises in Poland by size class for each period from 1998 to 2017 (in % of the total for each period from 1998 to 2017). (Source: Own elaboration)

• Among medium-sized industrial enterprises a similar dependence was shown as follows in small industrial enterprises, with a share of 33% in 2014–2016 (similarly, in 2015–2017: 32.3%). • Among small service enterprises, the share of innovative entities decreased from 18.3% in 2001–2003 to 9.1% in 2009–2011, and in 2015–2017 it constituted only 7.1%. • Among medium-sized service enterprises, the share of innovative entities also significantly decreased from 37.1% in the years 2001–2003 to 17% in 2013–2015, it increased to 23.6% between 2015 and 2017.

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Within the innovative activity of SME sector enterprises, one can distinguish those entities that implement product and/or process innovations, as well as marketing and/or organizational innovations, and also those that cooperate in the scope of innovation. Data in this respect obtained by enterprises of the SME sector in Poland in comparison to EU SMEs are presented in Table 10.1, taking into account selected years in the period 2006–2018. The data presented in Table 10.1 show that in the years 2006–2009 the shares of SME implementing innovative activity in Poland increased accordingly, and then in subsequent periods they systematically decreased and it concerned both: • SME enterprises introducing their own innovations (from 17.2% in 2009 to 8.3% in 2018) • SME cooperating with other market entities (from 9.3% in 2009 to 3.5% in 2018) • SMEs introducing product or process innovations (from 20.4% in 2009 to 13.3% in 2018) • SMEs introducing marketing or organizational innovations (from 29.1% to 11.4% in 2018) Table 10.1  Share of innovative enterprises of the SME sector in Poland and in the EU in selected years in the period 2006–2018 (in %). Description Enterprises in the SME sector introducing their own innovations in their total number SME sector enterprises cooperating in the field of innovation in their total number SME sector enterprises introducing product or process innovations in their total number Enterprises in the SME sector introducing marketing or organizational innovations in their total number

2006 2007 2009 2013 2016 2018 PL 12,5 EU 21,6

13,8 17,2 11,34 10,1 8,3 32,4 30 31,83 28,7 28,8

PL 9,1 EU 9,1

9,1 7,7

9,3 9,5

PL – EU –

– –

20,4 14,36 13,1 13,3 33,7 38,44 30,6 30,9

4,15 3,9 3,5 11,69 10,3 11,2

PL 19,3* 19,3 29,1 19,95 14,2 11,4 EU 34,0* 48,1 40,0 40,30 36,2 34,9

Source: Own elaboration *The data refer to enterprises conducting organizational innovations.

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It is worth noting, however, that the NBP (National Bank of Poland) survey results indicate a much higher percentage of innovative enterprises in Poland defined as mature entities, among small, medium and large entities, which would indicate a stronger position of mature entities in this respect against the background of newly established or young ones, with an unstable position on the market of SME sector entities. It should be stressed, however, that there is a clear difference in the scope of shares of SME implementing innovative activity in Poland in relation to the total number of SMEs in comparison to the EU average (SME in the EU), which is expressed by significantly lower results of SMEs in Poland (about 2–3 times). Among the main reasons for the lack of introduction of innovation, entrepreneurs of entities inactive in Poland pointed to: costs of innovations being too high, inability to finance them from internal sources, difficulties in obtaining public grants or subsidies for innovations, and legal regulations creating uncertainty and additional burdens. Therefore, the results indicate the unfavorable situation of SMEs in Poland in this respect and the need for changes, because the implementation of innovative activity contributes not only to the increase in productivity of enterprises, but also promotes a rapid growth of these entities in terms of employment and income. Also worrying are the indicators illustrating the results of the implemented innovative activity, expressed, e.g., by the number of patent applications or the share of exports of goods, the so-called high technology, which in comparison to other EU countries are significantly weak. Moreover, it is indicated that the activities of Polish enterprises are generally imitative (according to data for 2014, only 2.2% of enterprises from Poland introduced a new product innovation on a global scale and this was the lowest result among the EU countries). This is evidenced taking into account the low level of percentage of Polish companies that introduced product innovations related to those which introduced product imitations. The European situtation in this context— comparison between product innovations and product imitations—is much better. A similar situation is observed in the area of process innovations. In enterprises of the SME sector in Poland, a significant heterogeneity of their entities is observed, which has an impact on the specificity of

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their innovative behaviors (some of them implement them through internal activities, others through cooperation or complicated connections) with other market entities. Low level of expenditures on R&D and cooperation with scientific and research centers and institutions supporting the development of regional entrepreneurship influences the result of participation of small enterprises in Poland conducting internal R&D activity at the level of 23% of the total number of innovative companies. Barriers to knowledge in these entities are related to the frequent lack of appropriate competences of the owner or managerial staff, which implies the lack of separate R&D units, regardless of financial issues in this respect. Limitations concerning knowledge of SME managers result in the lack of proper use of appropriate tools and modern management methods, including in the scope of innovation, and moreover, the functioning of enterprises in the SME sector, especially the smallest units, is oriented on operational activity, often without determining the level of risk and lack of scenarios of the state of the environment and development strategy. Data presented on the innovative activity of enterprises of the SME sector in Poland show the need for active changes in this area not only at the EU level (EU programs and funds), but above all at the national level, because external conditions clearly affect the transformation of the existing sources of competitiveness of enterprises and indicate the need for implementation of development based not only on investments but also on innovation.

10.4 F inancial Opportunities to Support Innovations in Poland The financing of innovative activities may be considered both from the point of view of financing the phase of innovative solutions and the phase of implementing them. What seems to be particularly interesting from a national perspective is the fact that innovative activities are concentrated in large companies. It seems that such a specificity, which may not only concern Poland, but also from the perspective of the country, seems to be much more ‘acute’. This may be a result of the generally high level of

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possibilities of financing development by large enterprises, which have sufficient financial means to do so. According to the results, the majority of investments are still made by enterprises from their own resources. The specificity of financing development activities is closely related to innovation, and investments are correlated with innovative solutions. From the perspective of mature industries, as was indicated, financing is mainly about activities aimed at organizational, process and marketing innovations, and in new and emerging start-ups these are mainly product and service innovations. The issue of financing innovative actions can also be seen from the perspective of whether the financing concerns public or non-public units. In case of innovations financing it is possible to classify financing the creation of ideas and financing the implementation of ideas. The level of funds needed, for an individual, to implement the ideas is much higher than in case of their creation. This does not mean, however, that the phase of creating innovative solutions is a small financial burden for the enterprise (Tylżanowski 2016). The Polish case has a uniqueness when financing innovations is concerned. For years the economy has been centralized and the level of innovativeness, though its existence was observed, has not been high enough. The financial issues were the general problems, but also the issue of entrepreneurial culture, which had existed, but at the very low level. The stage of implementation of innovative solutions was a serious barrier also due to bureaucratic obstacles. Centrally oriented processes in economy were drivers in every aspect of economic processes which caused many problems. This generated long-lasting negative experiences and difficult-to-overcome challenges for the future. This may be observed now and financing should be the supportive instrument. On the other hand, the categorization of financing for public and non-­ public entities concerns the enterprise sector, not only because of the division into enterprises in which the state’s participation is significant, but also because of the financing of interdisciplinary consortia comprising entities from the public and private sectors (Kusio 2019). The issue of consortia creation is the reason for the need for open innovations. They, being largely discussed within Europe, are also the subject of research interest in Poland, even though the need for them could be described as much more significant. Open innovations, from the point of view of

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previous centrally planned negative Polish experiences, seem to be a promising solution, to an extent higher than even other EU countries. The consortia issue should therefore be given a special level of importance. Financing of innovative projects can be categorized according to the criterion of the need to return funds to: • Repayable: borrowing financial resources from various institutions, including financial institutions such as banks • Non-repayable, including venture capital recapitalization or EU grants Although in the case of funding of a nature that can be defined as non-­repayable, the organization obtaining the funds is not usually obliged to return them, it is not possible to speak of a total nonrepayability in this case. The condition for obtaining financing from funds of a subsidy nature is the necessity to prove innovation or the obligation to make available the results of a given innovative project. In a sense, therefore, an organization brings a return which may be of a social nature, i.e. in line with the nature of the financial resources it has obtained. The characteristics of the division of repayable and non-repayable financing are related to the specificity of institutions providing co-­ financing. The main criterion is the objectives of these organizations, i.e. those that are financially or socially oriented. Financing innovations is connected with their specificity. The higher the level of social effects caused by the implementation of innovations, the greater the chances for a higher level of non-returnable co-financing. Both venture capital (VC) and private equity (PE) are of special interest from the national perspective due to the fact that they are investing in companies that are not listed on the stock exchange (Ignatiuk 2014). VC funds are an alternative instrument for financing the activities of unlisted SME sector companies, which have at their disposal an innovative product, production method or service unverified by the market. Lack of market verification means high investment risk, but also the possibility of a significant increase in the value of invested capital (Ignatiuk 2014). Private equity (PE) investments are made by private investors in order to develop a new product or technology, increase working capital, improve

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the balance sheet or other larger expenses and for scaling micro-­companies this is of special need in the Polish case. VC concerns investments in the early stages of development and in the expansion phase. VC is considered to be a variety of PE. The current level of PE investment in relation to GDP in Poland is 0.13% per annum and is three times lower than the situation in the Scandinavian countries (Rokosz 2019). Financing through VC may be preceded by financing by business angels, but also by EU or non-EU subsidies. This applies to a financing period of up to one or even two years after the start of operations. Grant funds, which belong to the non-returnable form of granting support, also include consultancy, i.e. non-financial forms, supporting entrepreneurs starting their business activity. The creation of project consortia may also be attended by persons conducting sole proprietorship, i.e. natural persons conducting business activity. Focusing on the national dimension on the offer of subsidy financing at the stage of setting up a business is related to the issue of low level of economic innovation in the country, which is identified, among others, with underfunding of innovative activity (Rokosz 2019). Other problems indicated are: lack of synchronization of particular programs of active innovation support policy, lack of defined metrics and lack of monitoring of progress in implementation of given assumptions. The problem of financing innovation relates mainly to microenterprises and start-ups, although the lack of adequate financing also concerns companies from the small sector (10–49 employees), as well as those employing more than 250 employees. From the point of view of open innovations, the creation of which is based on solutions outside the entity and refer to the consortial projects, financing may also concern the entire consortium. The purpose of consortium constitution is in this case of creation and implementation of innovative solutions. Consortia implementing innovative solutions include both public and non-public institutions and those which are more oriented towards creating concepts as well as those oriented towards implementing concepts. In public programs financing implementation projects with a strong innovative accent, the interdisciplinary level is obligatory and it seems that a similar mode of decision on financing should be further deepened. The Polish participation in international consortia, which are constituted in the EU level in order to obtain

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financial resources for R&D activities is generally limited to partnership, not as the leader but as the member and there are not as many entities as could be expected and included within applying teams (KPK 2019). The participation of companies from the SME sector, which are perceived in consortia as implementing units of innovative and unique results developed during the project, is of great importance here. The need to achieve financial and material effectiveness determines the uniqueness of an innovative initiative. The attractiveness of joining the consortia, from the Polish SMEs perspective, results from, among others, the donative nature of the funds. The large variety of financial mechanisms in a form of financial programs—funds available at the Polish level as well as European level— indicates that there are financial opportunities for companies. Small and medium-sized companies are the ones towards which the supportive activities are directed by a variety of institutions. The financial perspective may seem prospective due to the wide range of financial Polish and EU programs. The ability to utilize those funds is however another issue. Polish companies, especially the small ones, often cannot meet the requirements easily in terms of obtaining external funding. The wide variety of financial sources for innovation financing is less problematic than the barriers to use those opportunities. One main institutional support comes from the Polish National Center for Research and Development—the ministerial-level body with strong direction towards financing of innovation-related activities. The Polish name is Narodowe Centrum Badań i Rozwoju (NCBiR) and the main domain of the institution is to support the initiatives leading to the development of the Polish economy. The mission of NCBiR indicates the supportive role of the institution in terms of both companies and research units. The support refers directly to the institutions and development capabilities to create and utilize solutions based on research results in order to support furthermore Polish economy and Polish society. As the mission clearly states, the Center supports both sectors: business and science, this is also clearly referred in financial programs being offered by the Center. Within the Center, a variety of financial opportunities is directed to Polish enterprises. What is also important with reference to NCBiR is that it is the national and public body whose domain is

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supporting innovations, but based on research, and preferably high-quality research, coming from class universities. The Center represents the national level of support and it supports innovative solutions both at the conceptual as well as the implementation stage.

10.5 O  pen Innovations Financing as a Perspective for Poland Financing of open innovations, one of the less discussed sources of financing in the national perspective and especially directed towards open innovations, is the PFR Open Innovations FIZ. The program is dedicated to small and medium-sized companies that implement innovative initiatives in the formula of open innovation. Capital raised with the help of funds allows for certification of R&D results, creation of prototypes or development of further R&D works and their development. In order to obtain financing from PFR Open Innovations FIZ, an own contribution of 40% is required, the investment period lasts from 2018 to 2023. Another source of national financing for initiatives aimed at creating innovations in the open formula is the Open Innovation Network established by the Industrial Development Agency. It is an EU project which, in the form of an instrument such as open innovation, aims to transfer technology to small and medium-sized enterprises. Within the Open Innovation Network it is possible to obtain co-financing for the purchase of such innovative solutions as know-how, patents, utility models or industrial designs. The value of the project cannot be lower than PLN 100,000, but the maximum amount of funding that can be obtained is up to PLN 200,000. National programs aimed at improving the use of the potential of SMEs, including human and material resources, include, inter alia, the HORIZON 2020 program, the Operational Programme ‘Intelligent Development’—at the national level, ‘Regional Operational Programmes’—at the regional/local level. The Ministry of Economy formulated the Innovation and Economic Effectiveness Strategy ‘Dynamic Poland 2020’ (SIEG), of which the Enterprise Development Programme 2020 is the executive program. The main objective of SIEG is a highly

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competitive economy (innovative and efficient), based on knowledge and cooperation. One of the most interesting and probably most promising possibilities of financing interesting ideas, their development and implementation is crowdfunding, which can also be defined as social financing. It consists of collected funds from Internet users for a specific initiative, not necessarily the business one. In the context of innovation, collections concern the development and creation of unique products usually. The beginnings of social financing are connected with the creation of the ‘Indiegogo’ platform in 2008, and then with the ‘Kickstarter’ platform in 2009, which is currently considered to be the most popular platform of this type for raising funds from Internet users. At the turn of 2014 and 2015, the market grew by 140% to the value of €30 billion, and according to forecasts in 2025, the value of the social finance market can oscillate around €100 billion. Awareness of the crowdfunding concept itself is not yet sufficiently widespread among the Polish society; research indicates that about half of Internet users know this English language term (Kowalczyk and Dudycz 2018). What is interesting is Polish Internet users are most likely to recognize foreign platforms rather than domestic ones: ‘Kickstarter’ was recognized by the largest representation of respondents, and only later were native crowdfunding platforms indicated, such as ‘Polakpotrafi.pl’ or ‘Wspieram.to’. The willingness to participate in social financing campaigns results, among others, from the expectations of certain preferences connected with the future purchase of new products. Unfortunately, the barrier to joining crowdfunding actions is a long period that must elapse in order to obtain an innovative product. A significant barrier is also the risk associated with decisions to transfer funds, although as much as 80% of indications refer to an amount below PLN 100 declared for the willingness to join a social financing campaign. It seems that the explanation for this issue is that Internet collections are not only a business goal. Collections often concern various initiatives, including social, cultural and charitable ones. For organizations financing the transfer of financial support for a specific project, it is tantamount to obtaining a guarantee of increasing the potential of the institution for which support is granted. Network cooperation, which results in innovative solutions, including actors

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representing science, business and public administration, promotes mutual learning from at least different points of view, which representatives of these sectors have. Divergent views, which can even be described as clashes or discussion conflicts, often lead to effects of a compromising nature, which means benefits that will be obtained during the implementation of a given project will be able to be shared by public, scientific and business beneficiaries Ejdys et al. (2012). The tendency to join community financing is connected with the expectation of obtaining unique values. Therefore, it seems that the higher the level of expected benefits from an innovative product, the higher the declared level of funds paid to the campaign should be. Forecasts of a very dynamic development of the crowdfunding market confirm not only the growing saturation of Internet access, but also the growing tendency to participate in such campaigns. It is a very positive perspective for companies and individuals whose aim is to develop and implement innovative solutions.

10.6 Conclusions, Implications and Further Research The issue of innovativeness in the Polish case is of special importance. From the time perspective, the economy suffered due to centrally planned activities within the country and this has caused many present disadvantageous results as has been indicated. Still Polish enterprises differ significantly from those European and especially SMEs. Research on the innovativeness level shows still underdeveloped innovative activities of national companies. And yet when discussing Polish innovativeness there is even a stronger need to improve due to the need for adequate adjustment to the current innovative level of SMEs performance. That is where acceleration in terms of innovativeness support is needed. The increase in the need to support innovation in the country implies new challenges in the policy sphere at the national, but above all regional, level given the importance of smart specialization. Current innovation processes in Poland resulting from changes in the organization’s environment are increasingly of a supra-local nature. This

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is influenced by internationalization and globalization, and in particular by European integration. One of the key factors describing innovative processes is the necessity of their dynamization and intensification, which results from the need to maintain a competitive position. The greater the range of the organization’s activity, the higher the level of dynamization and intensification of innovation. The possibility of meeting the innovation requirements is the openness of innovative processes, which is determined on one hand by the need for access to external resources and on the other hand by the tendency to share their resources. This implies, on the part of enterprises, the need to pay attention to appropriate knowledge management within the company. Enterprises, especially domestic ones, being part of the SME sector may not notice, but also be unaware of, the possessed knowledge capital; however, it is a potential subject of research for the future. Taking into account the need to dynamize innovative processes, directly related to openness to access to shared knowledge, as well as to making it available, one should also pay attention to the characteristics of the level of innovativeness. The organization should be characterized by an internal tendency to implement innovation, the ability to implement innovation, and readiness to take risks inherent in the implementation of new ideas, concepts, ideas and inventions, the origin of which is largely due to human capital (Pichlak 2014). Innovative capacity is what influences the development of innovation to a large extent and determines the possibilities of creating innovative solutions. The ability of the national economy or enterprises to innovate is the basis for achieving a higher level of development and a higher level of creativity and readiness for innovative development. The innovative capacity determines the level of innovativeness of all business units, in particular those with a high innovative potential, e.g. spin-off companies or newly established innovative enterprises. Innovative capacity is defined as that relating to research, intellectual, creative and technical activity, which indicates its reference to the nature of the enterprise’s functioning. Innovative capacity of individual organizational units, such as SME, is of special importance in a regional context. As Varga and Szerb pointed out (2002) in his studies, there are dependencies between the expenditures on scientific research in a given center or centers, and the effectiveness of

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economic development in the territory where these investments are located. The results of the observations indicate (Feldman 1994) that the mere funding, even at a high level of scientific research, without a ‘critical mass’ of high technology enterprises and lack of production facilities, venture capital and entrepreneurship culture, means that there is no ‘spillover’ effect, i.e. the phenomenon of extrapolation. However, the spatial concentration of high technology production and business-related services gives a definitely positive effect together with the intensive local knowledge flow of academia-business. Equally noteworthy is the relationship between the costs of knowledge transmission and increasing the distance in the geographical sense. This dependence, at a later stage, affects the direction of the desired impact of the research entities. The local environment, if it develops in the field of high technology production and is accompanied by the concentration of business-related services, should have a very positive impact on the development of the region. This implies the significance of EU-based financing instruments towards smart specialization support. The results of supporting regional development through the concept of smart regional specialization can certainly be an interesting subject for research. The main obstacles in innovation financing in Poland is the level of costs—for SMEs. Also what has been indicated are generally high innovation costs, key limited possibilities of innovation financing from the internal sources of the enterprises and difficulties in obtaining finances from public sources, such as public grants or innovation subsidies, but due to own limited resources, of which contribution is a must. Other obstacles were considered legal regulations, which lead to uncertainty and additional difficulties. Innovation leads to growth in terms of enterprises’ productivity, their growth in employment, but also incomes and yet it is a key factor in regional development. The use of a specific financing source depends on the specificity of a given undertaking, the level of the expected budget for an innovative project and the extent to which it is adequate to the financial offer of various institutions, such as public or non-public. Moreover, depending on the type of funds obtained, the type of investments undertaken Banaszak et al. (2016) by a consortium or a single enterprise will also depend on the type of funds obtained. Open innovations as closely correlated with the consortia formula of

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innovativeness increase may be for the Polish case an opportunity which seems not to be properly perceived. This implies the need for further research on the level of engagement of Polish SMEs not only in the innovative activities but especially open-innovative activities. What should also be fruitful in the Polish case is the reference to other European SMEs in terms of open innovations.

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11 Italian Furniture Sector SMEs: Sustainability and Commercial Ethics Guido Migliaccio and Luigi Umberto Rossetti

11.1 Introduction In the past, furniture was an expression of a familiar social and national culture (Trabucco 2017). Each piece of furniture was designed in collaboration with the customer and was created by skilled artisans, true artists; consequently, many small and medium-sized enterprises were set up. The choice of furniture was important since it was significant; this

The paper is the result of collaboration between the authors. However, the following paragraphs can be attributed mainly to Luigi Umberto Rossetti: ‘The Wood-Furnishing Chain and its Environmental Impact’; ‘Furnishing Sector and its Recent Evolutions’; ‘Commercial Ethics and Eco-Marketing’; and ‘Italian Experiences’. The other paragraphs can be attributed mainly to Guido Migliaccio.

G. Migliaccio (*) Department of Law, Economics, Management and Quantitative Methods (DEMM), University of Sannio, Benevento, Italy e-mail: [email protected] L. U. Rossetti Independent Researcher, Benevento, Italy © The Author(s) 2020 A. Thrassou et al. (eds.), The Changing Role of SMEs in Global Business, Palgrave Studies in Cross-disciplinary Business Research, In Association with EuroMed Academy of Business, https://doi.org/10.1007/978-3-030-45835-5_11

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means that the pieces of furniture should last in time and so they had to be solid, resistant, classic, and steady as resembling family stability. In contemporary societies, mass consumption has standardized furniture production, favoring functional furniture at lower prices, and furniture often lost their characteristic as durable goods. They are intended to be used for short periods and then scrapped, creating understandable ecological problems. Modern customers’ attitudes seem to be compulsive and unstable, which is a sign of a prevailing mood on things that led people to change or replace objects they bought instinctively, without thinking through it. This has also changed the complicated relationship between the design and the economy (Trabucco and Ricci 2017). This different role of furniture also depends on the new social arrangements and especially on the disaggregation of families in many countries (Cerrelli and Invernizzi 2017). The temporary nature of living together means that many families are not willing to invest large sums in furniture. In this social context, both the manufacturing sector and the furniture trade are looking for a dimension based on new values, such as respect for the environment and sustainability principles, which have become an important point of reference for the global market. As the sector is growing, also considering the positive trend of the international economy, the production and sale of eco-friendly furnishings based on an ethical market becomes a “must” today. The global trade of products, in particular, has risen 4,9% and, in this area, the commerce of furniture has increased, on average, by 3%; some of the global players of the world market are China, India, and the United States. Italy is one of the main exporters thanks to its products being esteemed especially for their design, despite the Chinese competition. (Migliaccio and Rossetti 2018). Therefore the objectives of the chapter are: • To explain the changes in the production and distribution of furniture • To describe the environmental and sustainability risks typical of the production and marketing of furniture • To present ethical principles that can improve the production processes of furniture and the relationships between sellers and customers,

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through the development of clear and mutually advantageous business relationships • To outline some business cases taken from the Italian context useful in international ones This Italian sector is a typical example of production through SMEs (www.mondopmi.com; Dell’Era et  al. 2018): it shows a prevalence of 99% of micro-, small- and medium-sized enterprises, with less than 250 employees and a turnover of less than 50 million euros. The sector is characterized by 79% of micro enterprises and 17% of small ones. The medium-sized ones are only 3%. The aims of this chapter will be achieved through some considerations based on an updated conceptualization of literature reviews and references. Some evidence is provided for theoretical development, derived from the long experience in the furniture sector of one of the authors of this chapter, Luigi Umberto Rossetti. Many of our considerations, therefore, can be thought of as the result of a multi-year qualitative survey based on the daily presence in the Italian market. It is certainly representative of wider Western markets that are in constant relation with the Eastern ones. A study has been implemented, drawing it from direct experience; it is related to some choices of primary Italian companies regarding the ethical certification. The analysis of the Italian industrial and commercial reality will be particularly useful for the theoretical development and for the conclusion that will be generalized to the internal context.

11.2 L iterature Review, Hypotheses and Research Questions Regarding the main aims of this chapter, we can distinguish the most relevant scientific contributions related to three fields: firm size problems, considering that in Italy, as in other countries, production takes place in SMEs; sustainability and the relations with the ethical principles of

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environmental protection; marketing, in particular ethical marketing that safeguards the relationship between supplier and customer.

11.2.1 Firm Size In Italy, as in many other countries, especially in developing countries, the economy is characterized by SMEs. International literature has focused on the strengths and weaknesses of structures that can be classified in the first or second group according to investments, turnover, employees, etc. (González-Benito et al. 2016; Robinson and Stubberud 2015; Gray and Mabey 2005; Camuffo 2003). In small businesses, the entrepreneur continuously contacts the employees and encourages collaboration among them. In the big ones, however, the depersonalization of human relationships and the fragmentation of work can cause frustrating and sometimes conflicting situations. In small businesses, entrepreneurs centralize their decisions and directly control employees. The deliberative process is extremely fast. In big businesses, however, decisions are decentralized and sometimes bureaucratized and paralyzed, so the control is also more complex. Furthermore, small business have no economies of scale in supply and sales. The bigger ones, on the other hand, get raw materials at lower prices and therefore can sell at competitive prices. Small companies can, therefore, only be competitive by offering a better nonstandardized quality. Similar problems arise in financial resources involving also large companies that face a lower cost of money as well. Some specialized studies about the furniture sector precisely focus on this topic. SMEs have greater difficulties, for example, in making use of artificial intelligence (Seseni and Mbohwa 2018a). Similar conclusions are reached by the same authors (2018b) with respect to the use of big data. Similarly they do that with empirical investigations in the same area of South Africa. Therefore, they conclude (2018c) that SMEs, operating in the furniture sector, can hardly take advantage of the typical benefits of the fourth industrial revolution under way: the problems, which SMEs face, range from lack of skillful employees to safe financing. There have still been some surprising results from the African continent (Tanzania). Isaga et  al. (2015)

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analyzed the relationship between the motivation to start an own business, on the one hand, and the firm’s growth on the other hand. Three indicators of growth, namely, employment, sales, and assets, were used for measurement. The results suggest that pull factors are more important in order to start the businesses than push factors. Furthermore, the study found out that pull factors are positively related to the firm, whereas push factors are negatively related to firm growth. Related studies have also been developed in Indonesia. Patria et  al. (2019), for example, analyzed the issue of sustainability by examining companies that are able to survive the challenge of limited timber material sources and other constraints. Likewise, in Indonesia, empirical models describe the relationship between the industrial competitive pressure, the capability of management, the competitive strategy, and the company performance (Omsa et al. 2015). Furthermore, empirical evidence from Indonesian furniture SMEs allowed to examine the relationship between knowledge stickiness and a firm’s innovative capability (Indarti 2012). In Europe, the studies concerned Turkey (Kepenek 2013, who analyzed socio-technical issues in youth employment in SMEs) and Italy, also compared with Spain and Finland on the theme of innovation and performance in SME furniture industries (Otero-Neira et  al. 2009). The research confirms that innovation positively affects business performance. Still in the Italian context, the study by Balocco et al. (2008) on the diffusion of e-Business applications in SMEs of Italian industrial districts, and the most recent one by Dell’Era et al. (2018), analyzed collaborative practices between SMEs and designers in the Italian furniture industry. The outsourcing of some services, like designers, allows significant savings. Therefore over 80% of the product portfolio is conceived by external designers.

11.2.2 Sustainability First of all, considering sustainability is relevant in decision-making related to furniture industry due to its raw material deriving from forests, a very important feature for people due to its economic, social, and

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environmental benefits (Putri et al. 2014). Suppliers have to evaluate and analyze some alternative decisions associated with harvest and/or conservation of forests. Decision-making becomes complex, because it depends on flexible forest age classes, variable demand, tree life cycle, and the uncertainty of illegal logging. However, it may be facilitated by using multicriteria decision-making method, particularly useful to evaluate sustainable development of the wooden furniture industry (Azizia et al. 2016). Decision-making is also affected by modern techniques, such as IT, as pointed out by Murmura and Bravi (2018). De Mello and De Mello (2018) suggest a detailed analysis of the practices of social responsibility and sustainability as strategies for industrial companies in the furniture sector, through case studies on companies located in Brazil. The results highlighted the importance of social responsibility and sustainability once these themes became part of these companies’ values. Concerning the importance of ethical principles, we can refer to China’s children furniture market that presents a high-end, niche segment with potential growth for both furniture producers and wood material suppliers (Wan and Toppinen 2016). In recent years, the opportunities for eco-friendly furniture market have increased in Greece and Cyprus. Papadopoulos et al. (2014) investigated the demand for ecological furniture, business strategy, and the planning of the introduction of eco-furniture products. However, the attention given to sustainability and customers by individual entrepreneurs is not sufficient. According to Pinch and Reimer (2015) the government must play a more central role in this process. The theme of sustainability has been borne out by specialized studies about the condition of continents like Asia (Ratnasingam and Ioras 2003) or about specific nations. In Thailand, for instance, the analysis by Thipsri and Syers (2013) shows that learning the orientation of companies positively affects innovation advantage and firm sustainability. Malaysia is one of the countries in which there is a great concern about the conservation of woody plants, used especially for producing rubber. Furthermore, even though it is not strictly related to furnishing, the contribution by Hromatka and Savage (2010) is useful to examine alternative ways of preserving forests by developing alternative sustainable techniques. Conversely, Australia, is looking for wood waste management practices

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and strategies in order to increase sustainability standards in its wooden furniture manufacturing sector. The main aim is to avoid wasting wood by favoring recycling. This can reduce costs and increase the turnover at the same time. Other ways to achieve this goal can be using the Geographical Information System for connecting the producer of wood waste with buyer, improving green supply chain management (Susanty et al. 2016). The Italian context requires particular attention, especially considering the importance its furnishing industry has achieved from an economical point of view (Gargiulo and Zoboli 2007; Gargiulo et  al. 2004; Dal Bosco and De Martin 2011). As shown by sustainability reports (Borga et al. 2009), the production of furniture mainly developed in small and medium-sized companies progressively tends to follow the logic of sustainability. Research refers to a wider and comprehensive sector about the “green” value chain practices in the furniture industry (Handfield et al. 1997). Eco-efficiency in “extended” supply chains can be understood and measured (Michelsen et  al. 2006), as well as the sustainable strategies (Iritani et al. 2015). Sustainability can also characterize the modularity of products (Caridi et  al. 2012), especially to furnish places like offices (Carter and Zhang 2006; Anjum et al. 2005) and classrooms (Cornell 2002) where there is a great concern about creating a healthy and ergonomic environment.

11.2.3 Marketing A concise analysis of the literature on marketing and furniture market trends must begin from the study by Grod (2010). It ideally fits into a strand of studies started a few years earlier (Bumgardner et al. 2000). It follows the original proposal by Tunitskyi (2009) who describes the peculiarities of using the “ROMI” methodology regarding the efficiency and determination of the investments in the marketing of furniture enterprises-­importers. The literature of the following years multiplies the analysis of the furniture sector marketing with clear references to specific countries. For example:

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–– Asikhia (2009) offers reflections on a case study of furniture making business, focusing on marketing decisions and small businesses in Lagos state –– Petersen and Pham (2011), instead, focus on the Vietnamese furniture sector, with the following research question: does export marketing engagement by manufacturers pay off? –– Pongpearchan and Mumi (2013) investigate the effects of strategic human capital by focusing on the marketing innovation and the success of 779 furniture export businesses in Thailand. –– Nupus et al. (2016) study the effect of social capital on the product innovation and marketing performance in Indonesian SMEs –– Pangemanan and Walukow (2018) outline the marketing strategy analysis for SMEs in the furniture industry in Leilem, the Regency of Minahasa Recent studies focus on common issues: the dominant theme in globalization is the advent of e-commerce and its effects on broader marketing strategies. With reference to the furnishings, some reflections proposed by Ismail et  al. (2017) are useful: this study, based on Actor Network Theory (ANT), highlights that internet marketing is a means that links buyer and seller. Olšiaková et al. (2017) propose the possibility to use new, innovative forms of marketing communication in furniture industry, such as Guerilla Marketing, Viral Marketing, Content Marketing, and many others that allow to gain a competitive advantage in the furniture market. Only recently some marketing logics have been linked to the broader theme of sustainability and the principle of clear relationships with customers. We can point out the essay by Namsawat and Rugwongwan (2020) about the application of environmental marketing to the furniture sector. The research shows that consumers from Thailand have awareness of environmental impact and are willing to purchase environment-­friendly furniture. The idea of a product service system that aligns with environment-friendly furniture is a new concept that should spread everywhere. In this new perspective it is also necessary to update the mix of marketing communication tools as recently proposed by Loučanová et  al. (2018) with reference to an empirical research in

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Slovakia: a mix of marketing communication can decrease the costs for competition in the market and it can share the message more effectively. A brief note must be made on the packaging of furniture, in regard to the protection of the products and communicative effectiveness through the labels, which identify the pieces of furniture and their characteristics. However, ecological problems relating to disposal are also highlighted. Literature has often focused on packaging resistance testing (Connolly et al. 2003), or even on the use of the latest products such as polyphenols and many other products used in furniture (Sherman 2014). Although they are marginal, there are also some papers that explain the ontological themes related to the packaging, for example, the essay by Tacla et al. (2007).

11.2.4 Hypotheses and Research Questions This study aims to investigate the relationships between consumerism and the furniture sector, mainly focusing on ethical aspects and linked to the broader theme of sustainability, above all in SMEs. The furniture supply chain has a significant impact on environmental sustainability considering the origin of raw materials, and the need to dispose packaging and used furniture. The research hypotheses are: Hypothesis One: the production and distribution of durable products has suffered the effects of consumerism, which has changed its original characteristics. Hypothesis Two: the sector of furniture production and trade is the emblem of consumer mutation that has affected the production and distribution of durable products. Hypothesis Three: the production sector of furniture trade needs to adapt its behavior to the ethical standards that safeguard the environment and create constructive, transparent, and respectful relations with customers. Therefore, some research questions arise:

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Research question One: What are the relationships between culture, society, and furniture? Research question Two: What is the new role of furniture? Is furniture still a durable product for the consumer? Research question Three: What ethical problems does furniture production pose? In particular, is the production of furniture coherent with the ecological requirements of conservation of natural resources? Research question Four: Do furniture and its packaging comply with the ethical standards of ecology, considering the disposal needs? Research question Five: Is it possible to design furniture in compliance with the ethical principles that combine efficacy, efficiency, profitability of industrial and commercial companies, and also environmental sustainability? Research question Six: What role did Italy play in the production and trade of furniture, and what role does it play today?

11.3 T  he Wood-Furnishing Chain and Its Environmental Impact The wood-furniture production chain, often made up of small and medium-sized companies, includes the “upstream” sectors (wood industry for furniture and construction, semi-finished and furnishing components) and “downstream” of the furniture industry (consumption of furniture for use of lighting equipment and furnishing accessories) (Gargiulo et al. 2004). The production is characterized by a complex cycle because it consists of many parts that often use different materials in terms of composition and nature. In the supply chain the following phases can be identified (Sala and Castellani 2011): 1 . Acquisition of raw materials 2. Production 3. Packaging 4. Transport 5. Assembly 6. Maintenance

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7. Disposal or recycling Within the supply chain it is difficult for the same company to manage all the processes: some SMEs, in fact, focus on the typical phases of production, others focus on the assembly phase. Each phase causes a different environmental impact that depends mainly on the used materials. The most relevant ones related to the theme of sustainability are analyzed below.

11.3.1 Raw Materials and Their Production Among the most commonly used raw materials are: wood, wood-based panels, paper, plastics, metals, upholstery materials, leather, glass-fiber fabrics, granites/marbles, compounds. The furniture of industrial production is generally made of: • Panels of wood particles, such as chipboard, are manufactured from pressed wooden shavings that are bonded with resins and glues (Ferrante 2008). They can have different thickness. Panels can be finished with laminated or veneered materials. • Honeycomb, on the other hand, is a frame structure made of solid wood supports, on which the veneer is attached (Giordano 1999). This structure makes the piece of furniture light and non-deformable and it is mainly used for medium-high-level wardrobes. • Medium-density fiber-board (MDF) is made of waste woodworking materials which are processed in ground. It is widely used because it is consistent, easy to shape, and water resistant. • Blockboard or multi-layer wood is a panel produced from the union of strips or solid wood glued and pressed panels. It is used for the construction of high-quality furniture. The risks for environmental sustainability are already connected to the first phase of the acquisition of the above-described raw materials that may lead to the cutting of forests (Piccardo 2015) and the consumption of energy. There are also some problems related to the

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production of the various components and their disposal at the end of the life cycle. The impacts during their use are less relevant. The materials used for furnishing have a more or less strong environmental impact in relation to the context they are part of, and they also depend on the correctness of their use. However, all the components must have two specific requirements necessary for the protection of the environment and human health: • Suitability for use without risks • Recyclability and easy eco-disposal For wood and wood panels, we can identify the following critical environmental issues (Davoli 2001): emission of woody dust; polluting effects derived from gluing and painting often made of formaldehyde, halogenated compounds, and solvents; water waste poisoning coming from paint—spraying booths; noise pollution produced by the companies; environmental degradation from processing or packaging waste. All mechanical workings with removal materials, carried out with machine or manual tools, produce wood dust derived also from accessory operations such as dusting of processing pieces and workwear; emptying of containers; cleaning of purifiers, machines, and places; displacement of materials, etc. Formaldehyde is a colorless gas characterized by a strong, pungent odor. It has long been used in the production of building materials and also for household products. Its presence in pressed wood, like in honeycomb, plywood or fiber panels, glues, printing fabrics, and insulating coverings, has been widespread for long. Its fumes are dissolved quickly in air and in water.

11.3.2 Packaging Packaging allows the movement of the product in time and space: its main function is therefore to contain, protect, and allow handling and delivery of any goods. In some cases, it is also a “means” to communicate with the user (packaging). In the furniture sector, the “operational” functions have priority over the “communicative” functions, although they

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are significant. The primary (for sale), secondary (multiple, which groups several products), or tertiary (for transport) packaging of furniture must meet specific requirements and technical standards that in some continents are specifically regulated1: • The parts of primary packaging must be separable to facilitate their differentiated disposal. Propellants must not be used. The plastic parts must be eco-sustainable. • The paper, cardboard, or plastic packaging should mainly consist of recycled material. • Producers and users are responsible for the correct and effective environmental management of packaging and packaging waste that must be disposed, also through specialized companies.2 In some countries, the specific departments of the public administration organize separate waste collection systems for recycling, forbidding disposal into landfills. The furniture seller has an ethical duty, sometimes also imposed by the regulations, to collect all the packaging and to properly handle and dispose of it. If the internal staff deal with the delivery, collection and disposal are freely made by the seller. If we have recourse to third parties, it is subject of bargaining. Disposal taxes are explicitly or implicitly charged to the customer. Packaging waste can produce an environmental impact. First of all, it can be dangerous or no longer widespread (Di Maro 2016). Among the most used materials (Pravisano 2008) there are: polyethylene, protective films, polystyrene, bubble wrap, cardboard, paper, adhesive tape, pallets, nylon bags, etc. Another classification identifies packaging to be disposed in relation to risks in water, air, soil, fauna and flora, the landscape and in relation to the risk of noise pollution.

11.3.3 Disposal The furniture must be designed in a way that in can be dismantled at the end of its life cycle, so that its components can be re-used, recycled, or recovered. All the parts, in particular aluminum, glass, plastic, and steel,

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must therefore be separable from the wood. Concerning products such as sofas, chairs, armchairs, and in general those containing fabric covering, the minimum environmental criterion of textile products is applied. The same parameter is applied to polyurethane padding; it must respect ethical and environmental principles regarding the substances contained in the foams. The used furniture to be scrapped is freely collected by traditional sellers while large-scale retail trade (LsRT) requires a financial contribution, sometimes in relation to the place of collection (Ikea 2018). So, waste storage becomes expensive while waiting for disposal into authorized centers, as it is in Italy (Pierobon 2012). The conditions of the rejected wood must be checked for the possibility of recycling. Even plastic parts, if possible, must be recycled. Particular attention must be paid to varnished products, which are potentially polluting, and similarly glues and adhesives, which should not exceed certain limits.

11.4 F urnishing Sector and Its Recent Evolutions The furniture market has never been homogeneous and constant because it depends on the needs and income of consumers, as well as on fashion trends. Over time, external appearance, design, and modality of construction are changed, but the functions aimed at satisfying the primary needs are always the same. In fact, bedrooms, children bedrooms, living rooms, modular kitchens, entrances, tables, chairs, beds, mattresses, etc., have always been produced. Currently, for example, there are some recognized “styles” in furnishing sector (Castrignano 2014), they are: minimal, shabby chic, classic, underground, pop and young. In recent decades, industrial production has led to the abandonment of unique handcrafted productions, even if safeguarding excellent quality products: however, above the functionality often prevails over aesthetic. Standardized mass production, compared to handcrafts, presents a few imperfections and can also be sold through e-commerce at low prices. In recent years, the international economic crisis has encouraged low-cost purchases at outlets, neglecting quality, durability, and aesthetic appearance. However, there are still rarer handmade productions with unique,

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exclusive pieces of furniture, made of precious raw materials that guarantee excellent resistance. Moreover, they are produced through manufacturing processes with low environmental impact, obviously in the face of high prices. The spread of industrial production has also changed the distribution channels where small traders endure at the side of dominant large-scale distribution. The former are more flexible and dynamic, even if they tackle higher management costs. Consumers, therefore, can choose among different information and supplying channels: social media, newsletters, online sites, portals, reviews, and “physical” shops, which are still the only ones which let check the quality of products directly. Therefore, the low-cost online distribution has reduced the product catalog of classic retailers that are focused on complex or qualitatively superior furniture arrangement. e-Commerce allows, in some cases, the direct relationship between producer and consumer, avoiding the transition through sale stores, so that prices can be reduced further. Online purchases are therefore constantly growing (De Luca et al. 2015): even in the furniture sector we can note the widespread tendencies of the younger generations who prefer modern, comfortable, and fast digital channels Table 11.1  Comparison between organized large-scale distribution, traditional stores, and online stores LsRT

Traditional shop

Online shop

Investments for products in exposition Investments in communication Internal personal use in deliveries Personal training for sales Technical training of personnel Separate transport and assembly costs Standard quality products Customer service Disposal of products

High

Medium/high

Absent

High No Yes Low Always

Medium Some Yes High In some cases

Low No Absent Absent Always

Low Low Absent

Medium/high High Almost always

Disposal of assembly residues

For a fee

Free

Low/medium Absent Not expected Not expected

Source: (our elaboration)

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(Stone et al. 2005). Table 11.1 shows the comparison between organized large-scale distribution (LsRT), traditional stores and online stores. For the purpose of reacting to the online challenge, the traditional warehouse-showroom with pieces of furniture exhibited in different departments is evolving: it cannot be just an exhibition center, but a store organized to provide advanced services. Small entrepreneurs will be able to endure the combined challenge of LsRT and the web by providing specialized services.

11.5 Commercial Ethics and Eco-Marketing 11.5.1 A New Professionalism in Sales The recent economic crisis has reevaluated the commercial profession of the seller, despite the evolution of the digital reality that allows the consumer to acquire information about products and markets. The seller has become significant in a furniture market that has also suffered from a “crisis of distrust” (Vespasiano and Simeoni 2013). Regenerating trust between buyer and seller has been the main objective in various sectors and also in the furnishing one where it has been necessary to restore the relationships on ethical principles. For a long time, trust, reputation, and ethics have been considered marginal for the success of a sale. Following the transition from a financial and industrial crisis to a political and social one (Aleo and Alessandri 2014; Crivellaro et al. 2012), ethics has assumed a strategic role and has imposed the shift from short-term profit to long-­ term business economy (Passeri and Mazzi 2013, Farinet 2015), through a management characterized by conscious and morally perfect attitudes. Initially, the Western companies with their well-known brands have enhanced their image, underlining the quality and prestige of their products that justified a higher price. However, these policies have not been sufficient, forcing operators to transform ethics into a powerful sales and commercial differentiation tool. This was an alternative to a competition based only on the material aspects of the product (price and functional characteristics) that has underestimated intangible elements such as

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communication, customer relationship, and values that a brand or a product can express. The seller’s activity has always been considered as an individual skill for communicative and experiential talent, rather than as a professional competence (Aleo and Alessandri 2014). It has always been judged suspiciously by consumers because of its notoriety for opportunistic or even illicit behavior. Even in the furniture sector, some companies have rejected ethical principles, but today they are revaluated considering that customers pay more attention to environmental impacts and above all to the interlocutor’s reliability, which is a necessary condition to protect the corporate image, in order to obtain competitive advantages and, therefore, to retain the consumer.

11.5.2 A New Function of the Labels Among the ethical principles, greater clarity about the quality of the product can be obtained from its label. Also in the furnishing sector, labels are used to certify environmentally friendly manufacturing, following socially responsible criteria and supporting through this way conscious purchases (Colletti 2017). This type of label is subjected to controls by external certifiers that verify the respect of strict pre-established rules. Furniture, therefore, can be characterized by environmental labels, typical of special products or even of product brands and social certification, or aimed at a correct disposal. Environmental labels can be mandatory or optional. Mandatory labels are typical of potentially dangerous products, such as some packaging and appliances included in modular kitchens related to their consumption to encourage savings, reducing polluting emissions (Capra 2010). For example, the optional eco-labels, according to the European legislation, can be classified into three types (Ispra 2018): • ISO 14024, assigned by independent external certifiers that control all phases of a product’s life cycle (Life Cycle Assessment) fixing some minimum performance levels to be respected • ISO 14021 (self-declared environmental claims) made by producers, importers, or distributors in self-declaration on the environmental value of their products, hoping for truthful and verifiable information

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• ISO 14025 (Environmental Product Declarations) finally contains all the environmental information and potential impacts (conception, manufacture, use, disposal) Furniture sector is also characterized by further exclusive labels. Wood and wood-based materials, in fact, must be made respecting the traceability identifying their origin. For this verification, for example, there are the following labels (Oberti 2014): • Chain of custody certificates (e.g., Forest Stewardship Council, Program for Endorsement of Forest Certification or equivalent) • Internationally recognized certifications issued by certification bodies or by government authorities (Origine et Legalite des Bois, Smartwood) • Government attestations proving the traceability of the supply chain (management licenses or approved management plans) • Forest Law Enforcement, Governance and Trade legal certification issued to fight the illegal cutting of trees and its associated trade (German et al. 2010) Other additional specifications: • Ecological panel (made from 100% recycled wood chipboard, pallets, shavings, or even old furniture, tree pruning, packaging, manufacturing residues and fruit crates, in compliance with the rules for energy saving) • Leb ecological panel (it has a higher guarantee for consumer health because it is 100% made of certified recycled wood material with a lower emission of formaldehyde) • Idroleb ecological panel (it had lower formaldehyde emissions and it is water resistant) • Real wood (it distinguishes wood from the imitations) • Made in Italy—Italian furniture (it identifies products and production processes, verifying their compliance with the requirements of the reference technical standards, in addition to the “Italian origin” of materials and semi-finished products)

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11.6 Italian Experiences The Italian furniture system is characterized by the prevalence of SMEs operating in industrial districts and by the high degree of outsourcing that makes the specialized subsupply an important link in the production chain. The recent increase in turnover of large-scale retailers has introduced new environmental problems: land consumption, paper waste for catalogs, exploitation of underpaid workers (especially immigrants), etc. With the goal of lowering the costs for making furniture available to everyone, globalization has introduced important commercial policies aimed at a process of global aggregation, imposing systemic standards that damage important productive and cultural identities. The Italian furniture industry is one of the sectors most affected by globalization (Vignoli 2018). In Italy, the market has always been segmented, offering products of low quality and price and, on the other hand, of refined design and excellent quality. The current growth of the market is the result of a progressive restructuring that has led the wood companies to implement less and less strategies based on cost containment and flexibility, increasingly oriented towards quality and service, with attention for an exigent and aware consumer. In Italy, also in compliance with strict national or European regulations, the productions have been directed towards natural materials and technologies: non-­ tropical woods coming from sustainable crops, treatments and paints that are not harmful to health, and non-toxic glues, above all. However, the degree of diffusion of ethical values and especially of the principles of environmental sustainability among the main manufacturing companies is not yet clear (Verde 2017). A symptom of this diffusion could be the acquisition of labels, ecological brands, or certifications that are obtained complying with certain standards being common to European Union countries. They can be divided into three groups: • Quality certifications. They are obtained by implementing the UNI EN ISO 9001: 2008, which is offered to every business process of any sector and size, manufacturing or services.

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• Environmental certifications gained respecting the ISO 14001 voluntary compliance rules, applicable to any company (D’Incognito 2004), easily integrated with other environmental compliance verification systems (ISO 9001, BS OHSAS 18001, ISO 50001). In order to obtain the certification, a depth environmental analysis investigating the impact of all emissions and assessing if the company policies are truly geared towards environmental protection is necessary. • Certifications related to health and safety at work gained according to the BS OHSAS 18001 standard, applicable to any company (Fantini and Giuliani 2015). The standard specifies the requirements for an optimal Occupational Health and Safety Management System (SGSSL), which is also useful for improving company performance. The agencies that certify the compliance with the rules are independent and included in a list managed by Accredia (Italian accreditation body). Then, we carried out a sample empirical analysis to quantify the number of companies which have these certifications. The first fifteen Italian companies, with turnover volumes in 2017, were the subjects of the survey (Pambianconews 2018). The results of the empirical research are shown in Table 11.2, which also specifies the accredited company that issued the certification and also the certificate number. The quality certification ex UNI EN ISO 9001, despite being the most widespread, is in possession of only four companies. Only five companies have opted for an environmental certification UNIENISO14001; four of them for the BS OHSAS 18001 certification. The results are therefore very worrying: in Italy few companies invest in certification, inspection, or environmental testing systems, although the phenomenon is growing slightly (Mandurino 2017). From a first exploratory survey to be formalized and completed, however, the number of companies that implement and communicate voluntarily second- and third-level certifications is high. Among the most widespread ones are: ISO 50001 (Energy management systems), Ecological Panel F **** (Panel systems with lower formaldehyde emission), FSC or PEFC (certifies the implementation of sustainable forest management methods), and CSQA (certifies that the product complies with the technical document).

 2 Poltrone Frau Group  3 Poltrone Sofà  4 Molteni Group  5 Scavolini  6 Gruppo B&B Italia  7 Lube  8 Poliform  9 Veneta Cucine

 1 Natuzzi

N. Company

–

200919

–

– 93324-2011-AQ-ITAAccredia IT17/0779 SQ164081-ICILA

– SQ174239-ICILA 50 100 3599 Rev.006

Bureau veritas Italia –

–

Dnv

Tuv Csi Tuv

Sgs Csi

Tuv Italia

Certificate number

– – Tuv

Sgs –

Dnv

–

Certification body

Certification body

– – 50 100 11052 Rev.003

107867-2011-AE-ITAAccredia IT04/1333.01 –

–

–

50 100 12316 Rev.003

Certificate number

UNI EN ISO 14001

UNI EN ISO 9001: 2008

Table 11.2  Research outcomes: Accredited Italian companies

Tuv – –

Sgs –

–

–

Tuv Italia

Certification body

– – –

(continued)

IT18/0017 –

–

–

50 100 14114 Rev.001

Certificate number

BS OHSAS 18001

11  Italian Furniture Sector SMEs: Sustainability and Commercial… 

245

31360/14/S –

SQ174272-ICILA – SQ153919-ICILA SQ184350-ICILA

Rina –

Csi – Csi Csi

Certificate number

– – – Csi

– –

– – – SGA17266-ICILA

– –

Certificate number

Certification body

Certification body

Source: (our elaboration from Accredia.it)

10 Giessegi 11 Luxury Living Group 12 Calligaris 13 Minotti 14 Stosa 15 Estel

N. Company

UNI EN ISO 14001

UNI EN ISO 9001: 2008

Table 11.2 (continued)

– – – Csi

– –

Certification body

– – – SHS150042-­ ICILA

– –

Certificate number

BS OHSAS 18001

246  G. Migliaccio and L. U. Rossetti

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11.7 Recommendations and Future Research Directions All that is described in this chapter is based on a new awareness in production and consumption that should always be more respectful toward the environment and the real needs of people. This awareness, however, contrasts with the dominant greed, materialism, and prevailing consumerism. There are, therefore, antithetical forces facing each other: the described situation in the sector, however, also highlights some moral principles that can protect the conservation of natural resources and support transparent relations between the protagonists of the renewed globalized economic scenarios. A renewed economic culture can contribute to the affirmation of ethical values which, in safeguarding the legitimate profit, trains new generations by constantly soliciting the reflection on the principles of fairness and justice. The education sector and scientific research should play a fundamental role in the development of sensible consciences, encouraging the ways inspired by such logics. Also, the countries and therefore public policies and related legislative functions must direct their action toward sustainable objectives, perhaps by encouraging correct behaviors with fiscal facilitations or other benefits. Even trade associations should affect the actions of their members, encouraging right behaviors. The arguments expressed were based on the prevalent Italian experience, as a symptom of a more complex global reality. However, it would be desirable to compare Italian trends with those of other countries that are similar in terms of company size and production tradition and ethical values. So, it would be interesting to compare the supply chain characterized by SMEs, with supply chains made up mainly of large companies. International competition must also be monitored with special attention, especially that deriving from emerging countries in which economic logic prevails over ethical principles. Today, the affirmation of ecological processes and of clear commercial relations seems the main achievement of economically developed nations with widespread wealth. It would be also useful to add empirical analyses to verify, in detail, the productive and commercial behaviors of the main multinational

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companies that can influence the choices of small entrepreneurs. This occurs both in the production phase and in the marketing phase. The relations with end consumers are, in fact, strongly oriented towards e-commerce channels that could hide the dangers of transparency principles. The regulation of the web is still lagging, often regulated by local laws, while it should be managed by global agreements.

11.8 Conclusion The arguments proposed provide some answers to the research questions originally formulated, obviously referring to further studies that are certainly appropriate for a sector in constant evolution. Research Question One  What are the relationships between culture, society, and furniture? The furniture meets a primary need and, possibly, also a secondary one. Certainly, it has a functional role in the life of every person allowing to carry out the ordinary tasks of everyday life. Standardized production, typical of large enterprises, has reduced costs and therefore consumer prices. Even the poorest social classes can thus buy essential but useful furnishing. At the same time, however, especially the upper classes can combine the exigence to satisfy aesthetic needs with the answer to the basic needs. The design responds to this secondary need with innovative and aesthetically pleasing products. The most widespread “styles” in furnishing today are: minimal, shabby chic, classic, underground, pop and young (Castrignano 2014). There are still high-quality craft products reserved for the wealthiest consumers. Therefore, the best production should be an almost exclusive feature of SMEs that can take care of the smallest details, also responding to specific requests from wealthy customers. The selling of design furniture should also include the responsibility of SMEs for the care they demonstrate in customer relations.

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Research Question Two  What is the new role of furniture? Is furniture still a durable product for the consumer? The globalization of economies and societies has given a new economic, social, and cultural role to furnishing. It has improved the living conditions of families. Economic furniture derived from the standardization of processes have supported social equality. Unfortunately, products of this kind are also of poor quality and, therefore, must be frequently replaced by setting environmental issues. On the other hand, valuable furniture, often produced in specialized SMEs, can be considered durable products. Research Question Three  What ethical problems does furniture production pose? In particular, is the production of furniture coherent with the ecological requirements of conservation of natural resources? The furniture supply chain poses significant sustainability problems. First of all, the consumption of raw material that must be oriented towards ecologically sustainable supplies, avoiding the use of polluting substances that deplete the forests. The need to reduce consumer prices could lead to the use of waste materials, affecting environments negatively. On the other hand, public authorities must favor the supply of ecological materials by tracing the different stages of the supply chain and punishing incorrect behaviors. Recycling of materials derived from decomposed furniture could be a valid solution to the problem. SMEs, devoted to quality production, should not be the cause of ecological problems, esteeming the best quality of raw and auxiliary used materials. However, they must deal with the problem of the disposal of processing residues, which is rather expensive, especially considering SMEs’ small size. Research Question Four  Do furniture and its packaging comply with the ethical standards of ecology, considering the disposal needs? Packaging of furniture raises the same issues, considering the risks deriving from its disposal. The significant size of the product and its fragility requires the use of resistant packaging that is not always recyclable. It would be necessary to use packaging of natural origin that can dissolve or be reused without damage. SMEs devoted to quality productions are

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probably facilitated in the use of natural packaging, with low environmental impact: basically, higher prices should cover higher costs, because generally the wealthier clientele could be more sensitive to ethical problems. Research Question Five  Is it possible to design furniture in compliance with the ethical principles that combine efficacy, efficiency, and profitability of industrial and commercial companies and also environmental sustainability? The recent evolution of the sector, which highlights the importance of sustainable production, makes it possible to apply ethical principles in this sector. Ethics also imposes transparent relationships in the furniture chain. Clear communications and accurate information must characterize the promotional messages and also the labels of each product. Obtaining appropriate certifications by impartial third bodies as a result of strict checks could be a promotional element of sales, esteeming the greater sensitivity of the population to environmental issues. The advent of large-scale retail distribution that concentrates sale proposals in a smaller number of operators can be a useful vehicle for increasing customer sensibility and applying moral principles in commercial behaviors. Small traditional retailers should specialize in consultancy services, devoting more time and energy to wealthy customers, being attentive to quality rather than price. Research Question Six  What role did Italy play in the production and trade of furniture, and what role does it play today? Italy has always played a prominent role in the sector that has suffered significant consequences from globalization. In recent years there has been a growth in turnover resulting from a restructuring of the sector, which also affected the sales network in which daily large operators are in contact with traditional smaller-sized sellers. However, the scarce presence of certifications is worrying. Future surveys could provide more analytical answers by extending the field of observation. In any case, Italy remains, at least for now, an exemplary model regarding the production and commercial chain for furniture trade in which SMEs have a fundamental role.

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11.9 Implications Some practical implications for SMEs can also arise from this study. The analysis drives the authorities to re-evaluate the role of these companies that, better than others, have guaranteed employment even in times of recession. Subsidized financing, therefore, finds a further justification in the modest size of these companies, which often cannot have sufficient equity. This credit can also reduce the differences between geographical macro areas: in Italy, as in other countries, the distribution of companies is not homogeneous. In fact, there are richer areas where productive activity is facilitated by system economies, and poorer areas in which the activity of SMEs is more difficult. Only state financial incentives can promote a more equitable distribution of wealth in different areas of a country. The analysis also provides useful arguments to promoters and managers that can better play their role as trainers of new generations of managers and entrepreneurs. Even university courses, focused on SMEs management, can benefit from this type of investigation that integrates traditional manuals used for the transfer of knowledge to new generations. Finally, this study stimulates quantitative research on the economic and financial balance of SMEs in the furniture supply chain, with particular attention to the contribution margin (Rossetti and Migliaccio 2015). Considerations focused only on managerial dynamics characterized by ethical principles are not enough. In fact, these principles must necessarily apply to companies that also respect the rules of the optimal balance between balance sheet assets and liabilities, in addition to having a high and constant profitability. The management, according to ethical principles, must not represent a specific trait of an individual company, but must always be a shared practice with the general production system, the society, and the environment; in this way, all these components can benefit from the ethical management principles. Acknowledgments  Hans Rüdiger Kaufmann (University of Nicosia). Centro Cucine R.M. (Apice, Benevento, Italy). Albagamma Formazione (Benevento, Italy).

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Thanks to Laura Perchinelli and Angela Maria Vitale (English Language Teachers) and Pietro Pavone (PhD student, University of Sannio) for their invaluable help in translating the original text of this chapter from Italian into English.

Notes 1. In Europe, for example, the following provisions apply: • UNI EN 13427: 2005 Imballaggi—Requisiti per l’utilizzo di norme europee nel campo degli imballaggi e dei rifiuti di imballaggio; • UNI EN 13428: 2005 Imballaggi—Requisiti specifici per la fabbricazione e la composizione; • UNI EN 13429: 2005 Imballaggi—Riutilizzo; • UNI EN 13430: 2005 Imballaggi—Requisiti per imballaggi recuperabili; • UNI EN 13431: 2005 Imballaggi—Requisiti per imballaggi recuperabili sotto forma di recupero energetico; • UNI EN 13432: 2002 Requisiti per imballaggi recuperabili attraverso compostaggio e biodegradazione.

2. In Italy: Conai—National Consortium Packaging.

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Index

A

C

Accounting-driven ratios, 87 Accounting research, 85 Adaptation, 117 Agent-based models, 158 Algorithm, 84 Alliances, 113

Certify environmentally friendly manufacturing, 241 Challenges, 41 Classic retailers, 239 Co-evolution, 117 The communist period, 45 Community financing, 218 Competitive behaviour, 73 Competitiveness, 211 Complex and adaptive system, 111 Contextualised, 79 Coopetitional behavior, 206 Corporate insolvency, 83 Corporate performance, 85 Corporate social responsibility, 15

B

Bankruptcy, 84 Bankruptcy prediction, 85 Boundary spanning interactions, 186 Business failure forecasting, 84 Business renewal, 147

© The Author(s) 2020 A. Thrassou et al. (eds.), The Changing Role of SMEs in Global Business, Palgrave Studies in Cross-disciplinary Business Research, In Association with EuroMed Academy of Business, https://doi.org/10.1007/978-3-030-45835-5

261

262 Index

Cox model, 85 Cox regression model, 95 Crowdfunding, 204

Evolutionary approach, 41 Exploitation, 110 Exploration, 110 External relations parameters, 68

D

Degree of autonomy, 73 Developing countries, 40 Digital communication, 184 Digital economy, 181 Durable goods, 226 Dynamic capabilities, 111–115 Dynamic Competitive Process, 113 Dynamic component, 118 Dynamic tools, 78 E

Ecocentric approach, 17 e-commerce, 239 Economic opportunities, 146 Ecosystem of social entrepreneurs, 147 Emergent properties, 117 Emerging markets, 40 Entrepreneurial culture, 206 Entrepreneurial performance, 205 Entrepreneurship, 40, 211 Entrepreneur sustainability, 134 Environmental certifications, 244 Environmental, economic and social dimensions, 156 Environmental impact, 156, 234–238 Environmental labels, 241 Environmental marketing, 232 Environmental sustainability, 235 Ethical principles, 30 Ethnic entrepreneurship, 40 European Union (EU), 42

F

Failed companies, 98 Farm survival rate, 167 Financial crisis, 84 Financial incentives, 167 Financial resources, 213 Financial return, 139 Financial support, 217 Financing innovations, 202 Food and beverage industry, 27 Forms of funding, 73 Furniture, 225 Furniture industry, 234 Furniture trade, 226 G

Globalization, 17, 181, 219 Global trade, 226 Government, 149 Grape price scenarios, 167 H

Hazard function h(t), 94 I

Immigrant entrepreneurship, 40 Industry 4.0, 15 Information and communication technologies (ICT), 16, 181–183

 Index 

Innovation, 109, 201 Innovation budgeting, 206 Innovative projects, 213 Insolvency, 98 Intensive innovativeness, 202 Internal sources, 210 Internationalization, 219 International migration, 42 Investments, 211, 214 IT, 26 IT investments, 26 K

Knowledge, 110 Knowledge acquisition, 187 Knowledge sharing, 147 Knowledge transmission, 220

Multi-method qualitative field research, 43 Multi-stakeholder network, 115 N

Network, 110 Non-linear condition, 118 O

Online distribution, 239 Open innovations, 212 Operational parameters, 68 Opportunities, 41 Organisational structure, 73 Owner-management, 73 P

L

Labour costs, 170 Lean production, 29 Legal definitions of “SME” 63–65 Legal form, 73

Patterns of features, 79 Policy, 149 Policymakers, 148 Polish enterprises, 218 Portugal, 155 Predictor variables, 87 Public grants, 210

M

Managerial decisions, 85 Manufacturing sector, 226 Mass consumption, 226 MATLAB, 158 Mediation model, 144–146 Middle Eastern immigrant entrepreneurs, 41 Minority entrepreneurship, 40 Mixed embeddedness, 43 Models, 84

Q

Qualitative Parameters, 72–78 Quality certifications, 243 Quantitative Parameters, 67–72 R

Ratios, 86 Relational surplus, 206 Romania, 40

263

264 Index S

Scaling, 205 Self-Organization, 117 Shared knowledge, 219 Size of management team, 73 Small and Medium-sized Enterprises (SMEs), 40, 84 SME sector, 203 Social enterprises, 139 Social entrepreneurship, 134 Social entrepreneurship dimensions, 135 Social Micro, Small, and Medium Entrepreneurship (SMSME), 133 Social networks, 141 Social vision, 137 Stakeholders, 27, 148 Start-ups, 214 Structural parameters, 68 Subsidies, 210 Survival analysis, 85 Survival function S(t), 94 Survival likelihood, 84 Survival rate (SR), 170 Survival time, 94 Sustainability, 156

Sustainable business, 135 Sustainable business model, 20 Sustainable development, 15 Sustainable development goals (SDGs), 16, 146 System Thinking, 116 T

Technology, 181 Trade-off, 156 U

UN Global Compact, 22 V

Viticulture activity, 156 W

Web-based technologies, 183 Wine industry, 155 Wine’s industry behaviour, 156 Work Life Balance, 29