HOW SMES IN BAHRAIN CAN LEVERAGE DIVERSIFICATION STRATEGIES TO INCREASE THEIR GLOBAL COMPETITIVENESS AND MITIGATE GROWTH TRAPS
Introduction
In 2018, Bahrain was ranked as the 45th most competitive country globally out of 140 nations by the Global Competitiveness Report published by the World Economic Forum. While Bahrain has caught up significantly on ICT adoption and sound infrastructure, it still lags within the Gulf Cooperation Council (GCC) countries in which it is ranked the 4th most competitive after the UAE (25th position), Qatar (29th position), and the Kingdom of Saudi Arabia (36th position) (Schwab and Sala-i-Martín, 2016, p. 78). As such, small and medium-sized enterprises (SMEs) in Bahrain do not enjoy the strategic market position enjoyed by these three countries in the global market. Although the GCC countries predominantly rely on oil resources for their national income, they are now coming into terms with the grim reality as these oil sources are dwindling. Like other GCC members, Bahrain is now actively pursuing new policies aimed at diversifying its economic growth and increasing future sustainability. While the kingdom sought to diversify its economy as early as the 1970s and 1980s, most of the efforts focused on establishing the nation as a leading regional financial centre in the Gulf. For example, during Lebanon’s civil war, the country’s well-established regulatory system encouraged different banks seeking stability and safety to relocate and set up base in Manama, Bahrain’s capital city. However, for the country to further reinforce its global competitiveness, it must shift its focus to SMEs to help them diversify and compete with other global companies. Consequently, one of the primary strategies through which SMEs in Bahrain can increase their global competitiveness involves adopting a diversification strategy to mitigate growth traps. The proposed study will examine the issues related to profitability, balanced teams, and increased operational and financial efficiencies within the global market. It is expected that the literature reviewed will evidence that these factors will play a crucial role in driving success within SMEs in Bahrain. Thus, it is necessary to conduct a study aimed at examining the different strategies that SMEs in the country can implement to reinforce their global competitiveness while embracing diversification to mitigate the growth traps related to profitability, balanced teams, and operational and financial inefficiencies
Problem Statement
The primary problem under study involves the five most common growth traps affecting SMEs in Bahrain as identified by previous research. They include problems with cash flow and seed funding, the lack of resilience for success, inability to build a profitability business idea, problems with developing balanced teams, lack of operational and financial rigour, and the inability to make the initial sales (Suzuki, Hasan, and Pramono, 2018, p. 78; Subochev and Yurkevich, 2018, p. 65). While these issues are more predominant among the GCC countries, little studies have been conducted to examine how they can be mitigated. As such, there is an inherent literature gap which needs to be bridged. It is inherently difficult for SMEs to thrive in these economies unless their core business is oriented towards the energy industry. Thus, it is necessary to identify novel ways in which these growth gaps can be mitigated to increase the future sustainability for Bahrain’s SMEs as well as enable them to compete at a global level.
Purpose of Research
The purpose of the study is to establish how Bahrain can utilize diversification to help its SMEs become more globally competitive.
Significance of Research
This study is significant because, within the global market, profitability, balanced teams, and increased operational and financial efficiencies are important drivers of success. As such, a study aimed at examining the various ways in which SMEs in Bahrain can increase their global competitiveness by embracing a diversification approach aimed at addressing the growth traps related to profitability, balanced teams, and operational and financial inefficiencies is significant in achieving global success.
Literature Review
Numerous studies have highlighted how SMEs are important agents of development across the world. Almajdoub (2018, p. 43) notes that promoting Bahrain’s SME sector plays an essential role in maintaining high employment and income generation and is perceived as being critical in ensuring the country’s sustainable growth and global competitiveness. However, these studies need to be continued to help SMEs owners and business executives understand how they can utilize diversification strategies to mitigate the inherent growth traps. The following three major themes emerged from the literature reviewed. They include growth traps, global competitiveness amidst COVID-19, and a diversification strategy.
Growth Traps
Al-Beraidi (2018, p. 63) notes that like most SMEs in other countries, those in the GCC region are faced with major growth stalls most of which are a result of neoliberalism. The author’s work is significant because it is based on responses gathered from participants within the GCC including Bahrain. The results gathered suggest the lack of cash flow and seed funding as some of the major growth traps undermining growth among SMEs. Angilella and Mazzù (2015, p. 545) further add that SMEs often find themselves stuck in a growth loop due to the lack of sufficient financial resources. However, a diversification strategy that leverages the right team and financial advisors are often viewed as a cheaper alternative to seeking additional funds to save the business (Nassr and Wehinger, 2016, p. 56). Although Ahmed, Al-Hashimi, and Hamdan (2019, p. 34) study focuses on identifying the impact of public support programs on SMEs’ growth, the results generated suggest that businesses that lack resilience for success are at a higher risk of failure irrespective of the amount of public support they receive. As such, the lack of a clear and realistic vision can be viewed as major growth trap among SMEs and may be more complicated to address because it is the leaders who are tasked with the responsibility of solving growth-related problems. Thus, it is essential for business executives to have a clear vision of where their organizations are headed and communicate this vision to all stakeholders.
Blanco, Janauskas, and Ribeirinho (2016, p. 89) note that SMEs leaders must possess the skills and capabilities necessary to overcome low-productivity, especially during construction operations. One of the most common problems identified among portfolio managers involves how they screen for relative value based on price measures (Blanco, Janauskas, and Ribeirinho, 2016, p. 89). Such approaches often make SME managers susceptible to the value trap whereby the businesses is evaluated without the necessary quality and momentum overlays. According to Gharaibeh (2015, p.301), gross profitability can suffer from similar fallibility, especially when SME managers favour the businesses or projects with the highest levels of gross profitability as a proxy for high future earnings. In such cases, such managers become susceptible to the gross profitability growth trap.
Other growth traps identified from the literature reviewed include the inability to create and maintain balanced teams, operational and financial rigour, and sales. Elseoud, Sayed, Kreishan, and Ali’s (2019, p. 98) study on SMEs in Arab nations shows that most co-founders and businesses executives often have both the authority and resources needed to complete projects on their own. However, this level of control undermines the balanced needed to help teams thrive. As such, it is slightly more difficult for SMEs in the GCC to maintain balanced teams made up of an autonomous group of people with a variety of skills and perspectives. Such teams are necessary as they can support each other towards a shared goal. With regards to operational and financial rigour, most start-ups are filled with possibilities and an entrepreneur often has an initiator mindset which often results in back-office chaos. Cheng, Goh, and Kim (2018, p. 1102) add that SMEs can utilize part-time executive directors to ensure such rigour is placed into good use from the start and can be easily scaled.
Global Competitiveness amidst COVID-19
The 2020 SME Competitiveness Outlook released by the International Trade Centre (2020, p. 3) highlights the overall impact of the COVID-19 pandemic on small firms at the global level. The projections provided indicate that micro and small businesses experienced a significant decline in businesses activity compared to the medium and large firms, a trend that is expected to continue. These findings are significant in the current study because SMEs in Bahrain must take into consideration the sustainability issues likely to undermine their global competitiveness. Bartik et al. (2020, p. 67) note that businesses were having a difficult time adjusting to COVID-19 and their global competitiveness had dropped by over 50 percent. These findings are not surprising most of Bahrain’s micro and small businesses halted operations due to their inability to implement preventative health measures (International trade Centre, 2020, p. 3). For example, most businesses within the hospitality industry were unable to provide on-site lodging for employees while sanitizers and handwashing equipment for customers were limited during the initial stages of the pandemic.
Moreover, most of the preventive measures implemented by the Bahrain government in an attempt to curb the spread of the virus resulted in an increase in operating expenses for SMEs that stayed open. As such, a majority of micro and small businesses, especially those within the service sector predicted that they would close within the next quarter if the pandemic persists and the current restrictions upheld (Bartik et al., 2020, p. 67). On the contrary, the majority of the medium and large firms do not foresee closure.
Diversification Strategy
Nakibullah (2018, p. 90) acknowledges the fact that countries such as Bahrain that rely extensively on oil resources are faced with the grim reality of their resources running out. As such, these countries must focus their efforts on diversifying their economy. Albassam (2015, p. 112) defines economic diversification as the key element of economic development whereby countries move to a more diverse production and trade structures. The author warns that the lack of economic diversification in countries such as Bahrain risks increasing the level of vulnerability to external shocks that can potentially undermine prospects for longer-term economic growth. El-Radhi (2018. p, 32) examines the Bahrain, Oman and Qatar’s government efforts to diversify their economies to reduce public expenditure and reinforce non-oil economic growth. The author’s analysis concludes that oil remains one of the primary economic drivers in Bahrain’s economy. However, the country’s SMEs global competitiveness is greatly undermined by the lack of an effective diversification strategy. As such, the Bahrain government needs to fully consider economic diversification as a tool for mitigating growth traps and increasing global competitiveness.
Research Methodology
The primary research problem involves mitigating the five most common growth traps identified in the literature review using a diversification strategy. It is important to alleviate these traps because they undermine the global competitiveness of SMEs in Bahrain. The theoretical and conceptual framework has been employed as the primary research methodology to examine the most effective strategies through which SMEs in Bahrain can increase their global competitiveness. The methodology was employed because it helps researchers in explaining the various paths of a study and grounds it firmly in theoretical constructs. According to Adom, Hussein, and Agyem (2018, p. 438), the overall objective of the two frameworks is to make research findings more meaningful as well as acceptable to the theoretical constructs in the research field. Also, the research approach ensures the generalizability of the results gathered. The authors further add that the research methodology helps in stimulating research while ensuring the extension of knowledge because it provides both direction and impetus to the study inquiry.
They also enhance the empiricism and rigour of research. Thus, it is no exaggeration for Eldridge et al. (2016) to argue that both the conceptual and theoretical frameworks add life to research. The conceptual research framework adapted for the proposed study combines previous researches and associated works in global competitiveness and diversification strategies to explain the occurring phenomenon in the context of Bahrain. The research approach is significant because it systematically explains the actions needed in the course of the study based on the knowledge obtained from the present literatures and other researchers’ point of view on the subject matter of global competitiveness. The following are the three steps that will be undertaken in conceptual research. They include data gathering from the relevant literature, identifying the specific variables under study, and generating the conceptual framework.
Data Gathering
The first step involves gathering data from the relevant literature. Data will be collected around the research topic identified for the study. This is considered as one of the most significant steps since much of the study is dependent on the data collected here (Eldridge, 2016, p. 182). Also, conceptual research is mostly based on information gathered from previous researches. Thus, collecting reliable and relevant literature is one of the keys to completing the proposed research. The following inclusion criteria were selected for the study. Firstly, all research materials used must be derived from scientific and peer-reviewed journals. Secondly, all research papers must be published by well-known scientist and business researchers. Finally, they must be exploring issues related to global competitiveness within the context of Bahrain.
Identifying the Specific Variables
This is also an important step as it involves finding the specific variables related to the study topic. The following variables were selected based on the research topic which states strategies through which SMEs in Bahrain can increase their global competitiveness by adopting a diversification strategy to mitigate growth traps. Firstly, the growth traps and the global competitiveness are the dependent variables while the diversification strategy is the independent variable. These variables were selected because they provide the scope for the study and also help in putting the study topic into perspective.
Generating the Framework
Finally, the researcher will start developing the needed framework using the mix of variables from the scientific articles as well as other relevant materials. The problem statement identified in the study proposal will become the research framework. As such, the researchers attempt to respond to the study problem forms the basis of the final research. The current study will help in reducing the existing knowledge gap and make available more relevant and factual information with regards to SMEs in Bahrain and their overall global competitiveness.
Ethical Considerations
The primary ethical issue likely to arise involves copyright problems. This issues often arise when researchers fail to cite properly the articles used in their studies. Firstly, the intellectual property will be analysed and discussed frankly. As such, all works used will be properly cited. Ketefian (2015, p. 164) notes that academic research often generates key insights that come from gaining perspectives and developing a better understanding from other people through what is read. As such, any form of academic work must show its readers who and what led to the conclusions made. Thus, it is not only essential to document the people who contribute to the study but also it is crucial to ensure the sources are authoritative.
Conclusion
The proposed study is significant because it examines the issues related to profitability, balanced teams, and increased operational and financial efficiencies within the global market. The literature reviewed shows that these factors are essential drivers of success. As such, it is necessary to conduct a study that investigates the different statues in which SMEs in Bahrain can reinforce their global competitiveness by embracing a diversification approach aimed at addressing the growth traps related to profitability, balanced teams, and operational and financial inefficiencies is significant in achieving global success.
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