Kingston University Master's Dissertation of Natalia Kalitenko

KINGSTON UNIVERSITY 

 

MSC INTERNATIONAL FINANCE 

 

NATALIA KALITENKO 

 

KU number: 0813053 

 

 

DISSERTATION TOPIC: 

EXPERIENCES OF SMES IN THE UK 

DURING THE RECESSION 2008/9. 

 

 

 

 

 

 

 

2009

EXPERIENCES OF SMES IN THE UK DURING THE RECESSION 2008/9

 

Abstract 

Most of small and medium sized enterprises (SMEs) in the UK have been severely
affected by the recession 2008/9. Different businesses were using different
techniques in order to survive. Therefore the purpose of the research was to identify
the impact of the recession on the activities of SMEs in the UK and, in particular, to
research their strategies in the last 12 months.

Under the interpretivist paradigm this study investigated the issue of SMEs in the
UK, their importance to the national economy, and what strategies the SMEs applied
during the 12 month prior to the research. Also it was investigated how the SMEs
coped with the hurdles of the economic situation and how they adapted their
strategies to the rapidly changing external environment. Using semi-structured
interviews, rich qualitative data were obtained regarding the business experience of
the six SME owners. These data were broad, and this facilitated an in-depth analysis
of the situation.

The key fact that was found during the research is that the more difficult the external
environment of SMEs is, the more creative they become. What is more, the more
challenging the external environment becomes, the quicker the businesses respond to
it and adapt to the needs of the market. Finally, five out of six studied businesses
were classified as growing SMEs. Using Ansoff’s (1987) classification of growing
firms, it was concluded that three studied firms chose Product development strategy,
whereas two other firms had Market development strategy.

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Declaration

I declare that this dissertation is all my own work and the sources of information and
material I have used (including the Internet) have been fully identified and properly
acknowledged as required.

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Acknowledgements

I would like to thank, first of all, my parents, who are always supporting me and
believe in me.

I am very grateful to my supervisor, Jill Collis, who has been not only a great mentor
and teacher, but also a great source of inspiration for me during my research.

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Table of contents

1  INTRODUCTION  1 

1.1  BACKGROUND TO THE STUDY  1 
1.2  STUDY AIMS  2 
1.3  STRUCTURE OF THE RESEARCH  3 

2  LITERATURE REVIEW  4 

2.1  THE RECESSION 2008/09  4 
2.2  PROBLEMS FOR SMES DURING THE RECESSION  4 
2.3  STRATEGY  7 
2.4  STRATEGY FOR SMES  9 
2.5  SUCCESSFUL STRATEGIES FOR SMES  11 
2.6  CONCLUSIONS  12 

3  METHODOLOGY  14 

3.1  INTRODUCTION  14 
3.2  PARADIGM  14 
3.3  RESEARCH STRATEGY  14 
3.4  DATA COLLECTION METHOD  16 
3.5  SAMPLE SELECTION  17 
3.6  INTERVIEW QUESTIONS  21 
3.7  DATA ANALYSIS METHOD  21 
3.8  DEALING WITH CONCEPTUAL ISSUES  22 
3.8.1  VALIDITY  22 
3.8.2  RELIABILITY  24 
3.8.3  ETHICAL ISSUES  24 

4  FINDINGS AND ANALYSIS  26 

4.1  INTRODUCTION  26 
4.2  PROFITS, NUMBER OF CUSTOMERS AND WORKING CAPITAL OF SMES  26 
4.3  CUSTOMER BASE  28 
4.4  EMPLOYEES  30 
4.5  PLANS FOR THE FUTURE  31 

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5  CONCLUSIONS  34 

5.1  DISCUSSION AND SUMMARY  34 
5.2  RESEARCH LIMITATIONS  37 
5.3  RECOMMENDATIONS FOR FUTURE RESEARCH  38 

6  REFERENCES  41 

7  APPENDICES  45 

7.1  CASE STUDY PROTOCOL  45 
7.2  INTERVIEW TRANSCRIPTS  48 
7.2.1  TRANSCRIPT OF THE INTERVIEW WITH INTERVIEWEE A  48 
7.2.2  TRANSCRIPT OF THE INTERVIEW WITH INTERVIEWEE C  51 
7.2.3  TRANSCRIPT OF THE INTERVIEW WITH INTERVIEWEE D  54 
7.2.4  TRANSCRIPT OF THE INTERVIEW WITH INTERVIEWEE E  58 
7.2.5  TRANSCRIPT OF THE INTERVIEW WITH INTERVIEWEE F  62 
7.2.6  TRANSCRIPT OF THE INTERVIEW WITH INTERVIEWEE G  66 

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1 Introduction 
1.1 Background to the study 

“There are some reasons for concern that this credit crunch may be worse than our
big last credit crunch in 1990-92, especially as it relates to small and mid-sized
companies” (Udell, 2009, p. 117). This quotation relates to the current recession,
which has had a huge impact on the world economy. Small and medium enterprises
(SMEs) have a big contribution to the UK economy. They contribute around 50 per
cent of turnover and employ more than 60 per cent of the working population in
2008 (Federation of Small Businesses, 2008).

A wide variety of definitions of an SME exists in different countries. For instance,
the European Commission has a set of definitions of SMEs that distinguish between
micro, small and medium-sized enterprises based on headcount, turnover and
balance-sheet value (Official Journal of the European Union, 2003). These
quantitative thresholds are important because they are used throughout the European
Union for policy purposes (Stokes and Wilson, 2006). However, the UK government
has another approach to the SME definition. In the UK, sections 382 and 465 of the
Companies Act 2006 define an SME for the purpose of accounting requirements.
According to this an SME is one that has a turnover of not more than £6.5 million, a
balance sheet total of not more than £3.26 million and not more than 50 employees.
A medium-sized company has a turnover of not more than £25.9 million, a balance
sheet total of not more than £12.9 million and not more than 250 employees.
However even within the UK this definition is not universal. Thus, the British
Bankers Association (BBA) provides another definition of an SME in the Business
Banking Code (2008). Here it is defined as sole traders, partnerships, limited liability
partnerships and limited companies with an annual turnover of under £1 million, as
well as associations, charities and clubs with an annual income of under £1 million.

Though there is no single definition for a SME either nationally or internationally, in
this research an SME will be considered as a business with less than 250 employees.

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SMEs have been a source of inspiration for many studies in the past century and
continue to be a topic for recent researches. The Bolton Committee was set up in the
late 1960s to determine the role SMEs play in the UK economy. According to Stokes
and Wilson (2006), SMEs have a big advantage compared to large companies: they
can be set up both in a growing economy and during a recession. When there is an
economic boom, the demand for goods and services goes up, innovations are needed,
and many innovators are small or medium firms. On the other hand, during a
recession, the rate of unemployment increases; therefore many unemployed people
may decide to launch their own business.

Significant evidence in the literature exists that supports the great importance of
growing businesses to the economy. According to Stokes and Wilson (2006), at both
micro and macro level it is essential to encourage new ventures to grow, as this, first,
optimises the chances of success for individual firms, and, second, helps to build a
strong economy in the future. Burns (2006) similarly outlines the importance of
high-growth businesses to national economies, as they create new jobs and
quantitatively benefit to the economy.

Management of an SME differs from management of a large corporation. All the
processes within an SME are usually individually tailored. Thus not everything
described or recommended in the literature, can be applied to an SME. Similarly,
formal strategic planning, which is generally an integral part of managing a large
company, is not necessarily common in the SME sector. There is a debate in the
literature whether formal strategic planning is beneficial for SMEs, as there are a lot
of arguments to support both opinions in this debate. However there is still no final
answer to this question.

1.2 Study aims 
The purpose of this research is to identify the impact of the recession on the activities
of SMEs in the UK. To obtain this purpose, the study will, firstly, research the
importance of a strategy for small and medium sized enterprises in the UK.
Secondly, this study will attempt to evaluate the impact of the recent recession on the

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SME sector in the UK. Finally, the study will investigate how SMEs cope with the
hurdles of the economic situation and how they adapt their strategies to it.

1.3 Structure of the research 
Chapter 2 provides an overview of the recent recession and its impact on the world
economy as well as on the SME sector in particular. This chapter will then present
different strategies suitable for large corporations and for small firms. Finally, the
chapter presents a number of strategies that are believed to help SMEs succeed. The
chapter concludes with a summary of current knowledge and presents the study’s
research questions.

Chapter 3 describes the methodology and presents reasons behind the choice of
rationale for the project, appraising the research design and justifying the choices
made regarding its paradigm, data analysis and interview techniques. Additionally,
the concepts of validity, reliability and ethics are discussed. In general, this chapter
will present the case for how the research project collected, analysed and interpreted
data in a methodical and systematic manner in order to answer the research questions
set out in the previous chapter.

Chapter 4 presents the picture that emerged after the collected data were analysed
and also presents answers to the stated questions. By bringing together the findings
from each of the six SME owners, the chapter provides a broad picture of the current
situation within small firms in the UK. Findings are categorized by theme and
analysed after each topic is presented. This chapter concludes with a summary of the
research findings.

Chapter 5 begins with a discussion of the findings given in the previous chapter,
presenting the contribution to knowledge this study has made and demonstrating how
the study has answered the research questions. The limitations of the study are
discussed and the chapter concludes with recommendations for future research.

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2 Literature Review 
2.1 The recession 2008/09 
The current economic crisis has arisen as a result of the US sub-prime mortgage
crisis which began to emerge in 2007. Mortgage lenders’ over-confidence in a
market where house prices seemed destined to rise in perpetuity, pumped excessive
sums of mortgage debt into the market (BBC, 2007). Inevitably, the bubble burst,
leading to plunging property prices, a slowdown in the US economy and billions in
losses by banks (BBC, 2007). This led to markets losing the key ingredients that
maintain their vibrancy and liquidity; confidence and trust. As a result, banks were
reluctant to lend to one another; instead they sought to repair their finances by
limiting credit to their customers. Borrowing became harder and more expensive to
arrange: the definition of a credit crunch (Elliot, 2008).

The economic downturn has affected a number of industries, particularly the building
industry with £15bn lost in share value in the year to June 2008 (BBC, 2007) and the
retail industry has had high profile causalities including Woolworths, as latest figures
from ONS (2008) show that three-monthly trends in retail sales volume shows no
growth.

Closely linked to these factors is unemployment which has risen from 0.4% to 6.0%
in the last quarter (HRM, 2008). One effect unemployment has on the economy is
diminishing consumer spending; when consumers spend less on goods and services,
demand decrease further leading to a diminishing GDP growth (HRM, 2008).

2.2 Problems for SMEs during the recession 
Small businesses are traditionally vulnerable to financial downturns (Griffin, 2008).
The recession 2008-2009 is not an exception. As Udell (2009) states, that this credit
crunch may be considered to be worse than the last big credit crunch in 90s,
especially as it relates to small and medium sized companies. According to the FSB
News Release (Federation of Small Businesses, 2009), the recent economic
downturn has significantly affected small and medium-sized businesses throughout
the UK. There are 1.26 million small-to-medium enterprises (SME) fighting the

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current recession through streamlining and adjusting the way they trade (Marketing
week, 2009). The survey of UK small businesses, published by the UK200 Group in
August 2008, reveals that 88 per cent of respondents admit their business levels have
been hit by the present recession, whereas 72 per cent were forced to reduce their
margins as a result. Though only half of the surveyed business owners are
experiencing greater difficulty in obtaining credit, more than 70 per cent face
delayed or late payment, which is one of the biggest threats to small firms (Evening
Chronicle, 2008). Hawkes (2009) names the problems most commonly cited by UK
SMEs, as the increased cost of raw material or fuel, decline in sales, and staff
redundancies. Rising costs, falling consumer confidence, and limited credit facilities
all add to the difficulties SMEs are facing (Skinner, 2008). In turn, Marketing Week
(2009) publishes that according to The British Culture Index research the current
climate is a good time for suppliers to target small businesses as they look for
alternative providers. What is more, the UK200 Group survey also found out that 98
per cent expect the credit crisis to adversely affect their business in the future. This
fact can explain why small and medium-sized enterprises in the UK must prepare for
possible financial difficulties if they either have already experienced difficulties or
may face them in the immediate future. Though the studies discussed above are
relatively recent and present some particular facts about SMEs in the recession, the
figures cannot be considered reliable, as private firms conducted them. What is more,
the surveys are not representative of all sectors, as they are primarily intended to
explore service, manufacturing and production sectors.

BIS SME Business Barometer is another source that provides rich data collected
from telephone interviews conducted in the UK quarterly. According to the latest
version of BIS report (2009), published in June this year, the current state of the
economy is named by SMEs as the main obstacle to their success. The report also
produces a good statistical picture of the SME sector, outlining changes in
businesses’ turnover, growth level, staff levels, which have predominantly negative
trend over the last 12 months. Though this report is considered to be one of the key
reports reviewing the state of the UK SME sector, this source tends to have
overgeneralization as it has lack of details on particular business cases.

Numerous sources around the UK tend to conclude that small and medium-sized
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enterprises have been severely affected by the credit crunch. A recent example is the
announcement from the FSB, stating that more than 120 small businesses are closing
on a daily basis across the UK due to the economic downturn. As it can be seen,
these assumptions are supported by figures from respective surveys and
questionnaires.

However, alternative opinions in the literature and periodical press can be found as
well. According to Yorkshire Press (2009), one in four small firms said they have felt
no noticeable effect from the recession, according to new research. A report from
Intuit, provider of QuickBooks financial management software, also said that 35 per
cent of small businesses felt the downturn had had a negligible impact. One in 20
businesses, however, feel their survival may be at risk. What is more, a report from
Intuit, provider of QuickBooks financial management software, states that only 23
per cent felt it had been easy to access outside help and many took the initiative
themselves.

According to Small Business, free online advisor for UK SMEs, 78 per cent
respondents stated that media coverage was responsible for worsening their outlook.
In turn, Marketing Week (2009), states that much of the doom and gloom has been
the result of heavy coverage of the recession in the mainstream media. The source
recommends SMEs be more careful than usual, but to look closely at what brings in
results and then focus on that.

Apart from the sources, commenting on the UK SMEs performance changes, there is
another one, which may represent some interest for this study. O2 company
conducted a research among its small business customers, who successfully steered
their businesses through the early 1990s recession. The aim of the research was to
find out what they did to get them through it. The top tip from O2 customers that
survived the early 90s recession was to get the basics right. In other words the
surveyed SMEs were having accurate financial reporting and stringent account
management processes that were crucial to secure business loans. Secondly, the
surveyed SMEs named cutting their costs in order to survive in tough times. Then
careful cash flow management and increased spending on marketing followed in the
most popular answers (Small Business News, 2009).
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Though the named above reports are recent, they were conducted by private
companies, which have had non-academic purposes for the research. It is not clear
from the surveys whether they were conducted in the UK or only in some regions.
Also there are no details about the size of the surveyed firms, though this study aims
to investigate experiences of small and medium firms in the UK. Therefore, the
information obtained from these surveys cannot be considered as fully relevant for
this research and this study intends to investigate the information that the literature
lacks.

2.3 Strategy 
Management of an SME differs from management of a large corporation. However, a
strategy and planning are integral parts of managing any business. What is more
these elements are core as well when managing a company in a crucial situation.
However, it is vital to differentiate strategy techniques for large corporations and for
SMEs. Therefore, a general explanation of a strategy and understanding of a strategy
by an SME is provided below.

The concept of strategy has different meanings in different contexts. Johnson et al.
(2008: 3) define strategy as “the direction and scope of an organization over the long
term, which achieves advantage in a changing environment through its configuration
of resources and competences”, whereas for Hofer (1975) strategy was about two
questions: “What businesses should we be in?” and “How do we compete in a given
business?”

Porter (1985) has worked out the three generic strategies that are believed to lead to
success. They are cost leadership, differentiation or focus. Hamel and Prahalad
(1994) suggest to a firm to focus on its core competences. As was proved in their
research, businesses should develop a common vision about the future, align staff
behaviour with a common purpose and delegate and decentralize decision-making.
All these actions help organizations succeed as they can create new products and
markets where they dominate. Ansoff (1987) suggests another approach to
classifying strategies for growing businesses. Ansoff’s product-market matrix aims

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to define where a company needs to focus on its product range and the market it
operates in. The matrix is shown below.

Existing product New product

Market penetration Product development

• Consolidation • Use existing

• Penetration (Increase market competences
Existing share; Increase product usage; • Develop new
market Increase frequency of use; competence
Increase quantity used; New
application)

• Restructuring

Market development Diversification

New • Geographic expansion • Related diversification
market • Target new market segments • Unrelated diversification

• New uses

Source: Based on Ansoff (1987)

Market penetration is a least risky strategy, which involves staying with the same
service or products, but selling them more to the same customers. It can also involve
finding new customers in the existing market. This option allows a firm to focus on
what it is doing and to do it better. In a growth market this strategy can benefit to a
business, whereas in a static or declining market it is much more difficult to pursue
this option (Burns, 2006).

Product development is associated with introducing new products or services into the
existing market. They might be completely new products or extension of existing
product portfolio. The justification for following this strategy is that a firm should
have a customer focus and good reputation. However, according to Burns (2006),
developing new products can risky and expensive. Thus the development must be

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firmly based on the needs of the market and should be balanced with other products
in the product portfolio.

Market development is the natural extension of market penetration. Any growing
firm needs to find new customers. And here market development offers geographic
expansion of a business. As Burns (2006) puts it, the lowest risk option in seeking
new overseas markets is to seek out the segments similar to those the firm already
sells to.

Diversification is the final growth option. It involves selling new products into new
markets, and thus can be considered a high-risk option. Therefore adoption of this
strategy requires careful justification.

Though all these suggested strategies look appealing, Burns (2006) concludes that
the common issue in these theories is that a strategy should emphasize something
that makes the firm as unique as possible and delivers as much value to the customer
as possible today and tomorrow.

2.4 Strategy for SMEs 
Existing strategy frameworks are designed for bigger firms with plentiful resources.
They should not be liberally borrowed and advanced as solutions for SMEs, who
face resource constraint. This very lack of resources impacts the competitive
strategies that are feasible to SMEs (Sheang et al., 2002). SME owners do not
usually formally articulate the business strategy or engage in any formal planning
(Carter and Jones-Evans, 2006). However, the lack of formal planning does not
imply the absence of strategic thinking.

Dryburgh (2009) gives some good reasons why SMEs need strategy as well as large
corporations. First of all, having a strategy saves management time. Secondly, SMEs
will avoid being railroaded by big customers. Thirdly, SMEs will know their sweet
spots. And finally, strategy in an SME is easier to do, as managing a small business
is simpler itself.

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Though there are many more numerous arguments in favour of adopting a formal
planning system for a small firm (Kinsella et al., 1993; Hay et al., 1993; Timmons,
1999), the reality of strategy making and planning in the small firm context is that it
is likely to be opportunistic and informal rather than formal (Burns, 2006).

There is a strong relationship between an SME owner and the strategy pursued by the
small firm. The strategy chosen by the owner-manager is likely to reflect the
personal priorities and goals of the owner-manager (Stokes and Wilson, 2006). Thus
this informal planning in a small firm can be perceived as an emergent strategy,
which, according to Stokes and Wilson (2006: 207) is “not conceived in advance but
emerge as a consistent pattern during the course of events”. Chittenden et al. (1993)
also state that small firms tend to have short-term business thinking, which can be
caused by poorly developed business skills and partly by their lack of power in the
markets for products, capital, labour and other resources. Stokes and Wilson (2006)
outline three types of emergent strategies that are very typical for SME sector. These
strategies are primarily in marketing approaches which are often on a reactive basis
until a pattern emerges; management strategies often emerge as an unplanned
reaction to previously unknown factors; and money strategies are sometimes difficult
to plan, except in the short to medium term.

Though there are many advantages of formal planning for SMEs, there has been a
debate that the act of planning itself cannot necessarily be correlated with the success
of a business venture (Robinson and Pearce, 1984). The contribution of planning to
small businesses cannot possibly be measured quantitatively. Similarly, the absence
of planning cannot be used as the sole explanation of business failure (Carter and
Jones-Evans, 2006).

To sum up, although there is a lot of proof to characterize the strategic management
process in a small firm as being more about adapting to the uncertainties of the
environment, rather than proactively predicting, planning and controlling it, the
research evidence to back this up remains unclear (Stokes and Wilson, 2006).

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2.5 Successful strategies for SMEs 
There is some evidence to suggest that some strategies are positively associated with
success in small businesses. However there is a big variety of opinions in the
literature on what is a success for a small firm.

According to Carter and Jones-Evans (2006), success of a small firm is typically
measured in terms of existing competitive position and the change in this position
over time, whereas Stokes and Wilson (2006) and Burns (2006) state that success of
an SME is inextricably linked to its growth. On the other hand, a number of studies,
conducted by Department of Employment (1990) and Open University (1991)
concluded that growth is not the main objective for business owners and that even
one third of owners wanted their small firms to stay at their present size. However,
this evidence is almost 20 year old and cannot be fully applied to the contemporary
conditions. As Stokes and Wilson (2006) conclude, growth may not be the key
objective of every small firm, but what is the common motive for SME owners is the
survival of the business itself, for a sufficiently long period to deliver the objectives
sought.

A determination of a successful strategy for a small firm has been also a concern in
the existing body of literature, where numerous authors suggest their own recipes for
success. For example, Sheang et al. (2002) recommend SMEs not to adopt the
niching strategy of supplying differentiated products, unless they can effectively
deter entries by bigger rivals. The current literature in SME strategy fails to take into
consideration potential competitive reactions from market incumbents in prescribing
competitive strategies for SMEs. By ignoring competitive reactions, the literature
therefore has no answers to questions about how bigger incumbent firms will
respond when the market niches served by SMEs grow to a substantial size or
become very lucrative. Nor does the current literature provide any strategic
prescriptions for SMEs as to how they could compete successfully against bigger
rivals who possess superior resources (Sheang et al., 2002).

On the other hand, Stokes and Wilson (2006) argue that survival of an SME depend
not a strategy at all, but rather on how nimbly and skillfully it can adjust to changes
in the business environment and particularly to conditions within its market sector.
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The authors also outline that there is some consensus over the areas critical to a small
enterprise’s chances of survival. The quality of management and marketing, the
quantity of money and the motives of the business owners are the key influences on
the ability of an SME to meet its objectives, which in turn can be a measure of the
business’s success. Nohria and Joyce (2003) obtained similar results in their study,
where they conclude that it does not matter which strategies SME owners apply but it
matters that they execute them flawlessly.

Drucker (1985) in turn argues that to obtain a successful development an SME
should meet the four requirements: focus on the market; have financial planning;
build a top management team before it is required; and finally define the founder’s
role in the enterprise.

On the other hand, Burns (2006) argues that SMEs should have a strategy. According
to his study, the entrepreneurial character, the business culture, company strengths,
business strategies and luck are the ingredients of success for an SME. Thus the
author asserts that a well-formulated strategy for a small firm is vital, as having no
business strategies can be just as disastrous as having bad strategies.

Finally, Karami (2007) concludes that much has been written in recent years about
the importance of strategic management within an SME. However much of it
remains conceptual in approach.

Though there is some skepticism in the literature for SME strategy research, this
study does attempt to outline features of strategic thinking within SMEs during the
recession and characterize them with a theoretical approach. Ansoff’s matrix (1975)
will be used to classify strategies of the surveyed growing SMEs. According to
Doole and Lowe (2008), this framework helps to identify core competences of an
SME and use its limited resources in one of the four directions, which will then help
grow the business.

2.6 Conclusions 
There have been numerous studies published that attempted to assess the prevailing

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economic situation in the UK and its impact on the SME sector. However, the main
literature sources fail to give a broad picture for the recession impact on the SME
sector in the UK and have no final answer to the question about how SMEs currently
approach strategic management process. Moreover, they tend to describe theoretical
frameworks and models that are more applicable for large corporations rather than
for SMEs.

Regarding recent academic studies, it can be concluded that they are primarily
conducted under positivist paradigm. Thus they aim to give generalizations and
present assumptions about the whole SME sector, which possess lack of insights
describing particular businesses.

Finally, the periodical press has little relevant information for academic purposes
describing the current situation with SME sector. What is more, it has lack of
theoretical justification of the information provided.

Thus this research intends to investigate the impact of the recession on SMEs in the
UK. Secondly, current approach to strategic management within a small firm will be
evaluated.

This dissertation proposes to research these particular aspects of SMEs planning and
management, since these areas have not been well researched during the current
recession.

In-depth interviews with business owners intend to provide valuable data which
could be analysed to provide a detailed picture of SME sector during the recent
recession and make contribution to knowledge.

The key research questions to be addressed:
- What strategies do the SMEs in the South of England follow?
- What were the opportunities and threats for the SMEs in the South of
England?
- How did they solve emerging problems during the recession?

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3 Methodology 
3.1 Introduction 
This chapter will provide a discussion of the chosen research design in order to
answer the research questions of this study. Conducting the research under the
interpretivist paradigm, I gained an in depth understanding of the experiences of
SME owners through case study interviews. The description of seven SME owners,
participated in the research, is provided in this chapter. Furthermore, the evaluation
of cross-case synthesis method, the method for data analysis in this research, is
given. Finally, the appraisal of conceptual issues such as validity, reliability and
ethics is presented is this end of this chapter.

3.2 Paradigm 
This research will be designed under the interpretivist paradigm, which is, according
to Collis and Hussey (2009), concerned with providing qualitative interpretation of
social phenomena within a particular context. This will contribute to the existing
body of knowledge, which is mainly based on survey data. It is important to
acknowledge that this research has two major constraints: the relatively short period
of time and the relatively short length of the dissertation. However it is necessary to
collect rich qualitative data to investigate the experiences of SME owners, which is
the core issue in this study. Thus the choice of the interpretivist paradigm for this
research is clear. As Kent (2007) puts it, the aim of this paradigm is to look at the
phenomena in a fresh way, which means providing researcher’s assumptions
regarding the phenomena being studied. The research will involve an inductive
process, where understanding of business’ current situation and possible problems
will be analyzed within the context of the present recession in the UK economy.

3.3 Research strategy 
Case study methodology will be used for this research. This is one of the main
methodologies associated with the interpretive paradigm. Yin (2009: 18) defines case
study as “an empirical inquiry that investigates a contemporary phenomenon in depth
and within its real-life context, especially when the boundaries between phenomenon

  14


and context are not clearly evident”. The present research investigates experiences of
SMEs in the UK during the last 12 months and most of the questions are ‘how’ and
‘why’ open questions. Thus case study is a logical choice for methodology. Though
the research under this methodology is very time-consuming (Collis and Hussey,
2009), has lack of rigor (Yin, 2009), the analyzed data, collected from the case
studies, will allow to obtain an in-depth knowledge in the area of management and
planning of UK SMEs during the recent recession.

Taking a case study approach, my research will investigate and interpret the
experiences of six business owners within the context of the above literature. The
vast majority of the literature surrounding the position of UK SMEs in the current
recession has been conducted in the form of surveys. According to Saunders et al.
(2009), though surveys have high reliability and generalisability compared to a case
study approach, this technique has lack of validity. As soon as the validity of the
research is brought into question, there can be a danger of misinterpretation of the
studies phenomena in the positivist studies (Collis and Hussey, 2009). Therefore, a
case study approach has been chosen for this research.

When designing this research it was determined that it will be cross-sectional rather
than longitudinal. A cross-sectional research is “a study of a particular phenomenon
(or phenomena) at a particular time” (Saunders et al., 2009, p. 148). In other words
the research will have a “snapshot” time horizon. Thus the present research will
employ a number of case studies investigating a particular period of 2008-2009.

The identification of a specific unit of analysis will enable to state the purpose of the
study clearly and succinctly (Collis and Hussey, 2009) and facilitate the feasibility of
the research (Yin, 2009). Kervin (1992) recommends selecting the unit of analysis at
as low a level as possible and at the level where decisions are made. The unit of
analysis in this research is the SME owners. This is explained by the main purpose of
the research, which puts business owners’ experiences as the focus of this research.

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3.4 Data Collection Method 
Interviews with business owners have been chosen as the method for collecting the
primary data for the research. Kvale and Brinkmann (2009) state that a qualitative
interview can provide well-founded knowledge about the conversational reality.
Thus research interviewing is a knowledge-producing activity.

According to Collis and Hussey (2009), the potential problems during interviews
may be, first, that the interviewees have multiple roles. Therefore, it is important to
differentiate their personal opinions and professional announcements. What is more,
due to possible certain expectations of the interviewees, their answers to the
questions may be unreliable. Gillham (2000) points out that the main drawback of
interviews is the time-cost factor. However, the interview method allows asking
complex and follow-up questions for clarification, taking into account non-verbal
communications (Collis and Hussey, 2009). In contrast, postal questionnaires have
very low response rate according to Collis and Hussey (2009), which is usually less
than 10%. This introduces the problem of sample bias, as the obtained responses may
be unrepresentative of the whole population. Though focus groups are often used by
interpretivists and positivists (Saunders et al, 2009), this method has not been
considered for this research. The reason for this is that all interviewees are based in
different parts of the country and it is unrealistic to gather them altogether so that the
time and the place of the meeting could fit all their busy timetables. Secondly, focus
groups may put confidentiality and anonymity of the participants at risk, and thus
make the interviewees feel reluctant to speak about particular issues. Therefore,
interviews have been chosen as a method for collecting primary data for the research,
as they enable to obtain rich and vivid material for the research, ask complex
questions and, finally, have a good chance to fit in the participants’ timetables.

In this research face-to-face interviews are an appropriate method for collecting
primary data, as according to Gillham (2000) interviews are suitable when small
numbers of people involved, and most of the questions are ‘open’ and require an
extended response with prompts and probes. According to Saunders et al. (2009) the
use of interviews can also help the researcher gather valid and reliable data that are
relevant to his/her research questions and objectives.

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Since this research is designed under an interpretivist paradigm, semi-structured
interviews will be conducted for this research. Kvale and Brinkmann (2009) give a
vivid explanation of a semi-structured interview. They state that the interviewer
introduces an issue, an area to be charted, or a problem complex to be uncovered,
then follows up on the subject’s answers and seeks new information about and new
angels on the topic. The semi-structured interviews for this research will involve a
number of open and follow-up questions that will be prepared in advanced, as well as
other questions that may arise during interviews. According to Saunders et al.
(2009), semi-structured interviews are useful when it is needed to gather data, which
are normally analyzed qualitatively. In this research this will be done as part of a
case study strategy. The data collected in semi-structured interviews will enable the
researcher to explore the reasons for the decisions that research participants have
taken, as well as to understand the reasons for their attitudes and opinions. Thus to
collect a rich and detailed set of data, and obtain answers to complex and open-ended
questions, qualitative interviews will be conducted.

3.5 Sample selection 
The aim of this interpretivist research is to collect rich and detailed insights of the
complexity of the surveyed phenomena, rather than to draw some conclusions about
an entire population, which happens in a positivist research. Thus, according to
Collis and Hussey (2009), a non-random sample is used for this research. I have
chosen my sample of seven owners on the basis of ease and availability. The
business owners, that agreed to be interviewed for the study, were found with the
help of researcher’s networks and contacts. Therefore, it can be classified as
snowball sampling or networking. According to Collis and Hussey (2009: 212), it is
“associated with interpretivist studies where it is essential to include people with
experience of the phenomenon being studied in the sample”. Furthermore, when
using snowball sampling, the researcher can extend the sample of participants by
pursuing new contacts that may arise during the research.

Five out of seven interviewees for this research were initially contacted in spring
2009, whereas the interviews were planned to be conducted in July 2009. This was
done in order to form the sample in advance and to allow the interviewees some time

  17


to put the participation in the research in their agenda, as most of them have very
busy timetable. However, it was also considered that some new participants might
appear during the research. When the five interviews were conducted in summer, it
turned out that one of them is irrelevant (Case study B) as the business was closed
down in December 2008, and this study is investigating the businesses that were
operating in the last 12 months. However, Interviewee B gave me the contacts of two
more business owners that meet all the requirements for this research and may agree
to participate in the research. Thus Mr E and Mr G were found with the help of
Mr B.

For an interpretivist study Kvale and Brinkmann (2009) recommend to interview as
many subjects as necessary to find out what is needed for the researcher to know. As
the authors state, in common interview studies, the number of interviews tends to be
around 5-25, which is due to a combination of the time and resources for the
investigation. Kent (2007) similarly recommends to choose a small sample of around
10. Therefore, it can be assumed that a sample of seven interviewees for this research
is the number that allows obtaining the answers to the research question within the
set limit of time for this study.

A brief description of business owners, participated in the research, and their
activities is presented below.

Mr A has been living in the UK for more than 16 years. He currently owns a private
limited company in Cambridge that provides business and accounting consulting
services around the UK. Mr A has been managing this business since 2002 and in
2009 employs five people.

Mr C in Milton Keynes is a partner of an import and sales business with 50 per cent
ownership in the business. Mr C has been managing the business for over five years.
The business has six employees in 2009.

Mr D has a private limited company in Ipswich providing agency cargo services
between the UK, Ireland and continental Europe. Mr D came to England in 2001

  18


because of the poor economic conditions in his country in Eastern Europe. In 2009
Mr D has five employees.

Mr E already had over 15 years of experience in catering business when he decided
to set up his own company in 2005. He found a partner and they launched their
mutual business in the area of event-making and outside catering. The business has
15 employees in 2009.

Mr F is the director of a biotechnology company in London. In 1993 his American
partners came to the UK to set up the first European branch of the company. Thus he
has been managing the business for more than 15 years. Now Mr F is managing the
office in London together with new-opened branches in Germany and France. In
2009 the combined number of employees of the business is 27.

Mr G is a managing director of a pizzeria chain in London. He has been working for
the company since 1998 when the business was set up by shareholders from Israel
and Russia. The business has slightly over 100 employees in 2009.

The general definition of an SME by the UK government is used in this research. It
states that an SME is one with under 250 employees. Therefore, these six
interviewed businesses can be classified as SMEs in the UK, as their numbers of
employees are less than 250.

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Legal Position of Number
Case Name of the
status of the Activity of
study interviewee
the firm interviewee employees

1 Ltd Owner Mr A Business 5
Consulting consulting and
accounting

2 Partnership Partner Mr C Importing and 6
Importing selling timber
doors and
windows

3 Ltd Owner Mr D Agent cargo 5
Transporting

4 Partnership Partner Mr E Event-making, 15
Catering outside catering
and patisserie

5 Ltd Director Mr F Biotechnologies 27
Biotech

6 Ltd Managing Mr G Pizzeria chain 100
director Pizzeria

Though the size of the surveyed businesses differs, they have several similarities.
Firstly, all businesses are located in South England and, secondly, they are in the
service sector. Presence of the common features makes it reasonable to compare the
businesses. This will be done in Findings and Analysis chapter of the research.

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3.6 Interview questions 
As Kvale and Binksmann (2009) recommend to prepare an interview schedule with a
guide, which for semi-structured interviews includes an outline of topics to be
covered. In this study the research questions were used to determine a set of issues to
be discussed during the interviews. Then a draft with the interview questions, which
sound in a simple language, was worked out.

There is a lot more to interviewing than asking questions. Opening the interview,
listening, testing and summarizing understanding, recognizing and dealing with
difficult participants, recording data – all these areas are listed by Saunders et al.
(2009) as other parts of an interview apart from questioning. Getting these elements,
including essentially how to manage an interview and make it work, under control is
of utmost importance before the real interviews (Gillham, 2000). According to Kvale
and Brinkman (2009), interview skills are learned by practising interviewing.
Therefore a pilot study is widely advised before the real interviews are conducted
(Saunders et al., 2009; Collis and Hussey, 2009; Gillham, 2000).

Due to time constraints, a full pilot case study has not been conducted in this study.
However, another supervisee and I tested our skills and questions through a role-play
with our supervisor. This method helped me polish my approach for opening the
interview, determine my approach to recording the data, and develop some probing
questions that might be helpful when asking interviewees complex questions. My
supervisor has written a feedback to me after the role-play, which in turn served to
help develop and improve my interview questions and put them in a more
appropriate order.

3.7 Data Analysis Method 
The essential point of any empirical research is clear understanding of how the data
will be analysed before the researcher collects them (Gillham, 2000). The primary
data for this study, collected in the seven interviews with SME owners, will be
analyzed with cross-case synthesis. As Yin (2009) suggests, this technique is
relevant if there are at least two case studies and where each individual case study
can be perceived as a separate study.

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After the interviews have been transcribed, May (2002) recommends to read
carefully all the transcripts in order to determine a set of categories for organizing
analysis. The transcripts of the interviews are shown in Appendix 2. Word tables will
be created then in order to display the relevant data. The word tables will reflect
concepts and categories in the first column and the names of business owners in the
first row. Then the comments on different aspects will be assigned to businesses
respectively. As Yin (2009) suggests, the examination of these word tables will rely
strongly on argumentative interpretation, but not numeric tallies. The author
highlights that the most challenging thing for the researcher there will be the ability
to develop strong, plausible, and fair arguments that are supported by the surveyed
data. The designed word table will enable the study to simply see some similarities
and differences between the surveyed businesses within the aspects of interest. This
observation can further lead to making cross-case assumptions within the posed
questions and clearly supported by the data from the table. Then it will be possible to
draw a number of theoretical conclusions, which primarily aim to answer the
research questions of this study.

3.8 Dealing with Conceptual Issues 
There are a number of issues that are concerned with accuracy and credibility of
research findings. The issues described below are validity, reliability and ethical
considerations. A number of tactics has been used in order to improve these issues,
and, therefore, to increase the quality of the whole research.

3.8.1 Validity 
According to Collis and Hussey (2009: 64), validity is “the extent to which the
research findings accurately reflect the phenomena under study”. As the authors
state, high validity is reached in studies under the interpretivist paradigm. This is due
to the fact that the aim of interpretivism is to obtain access to the knowledge and
meaning of those involved in the phenomenon.

According to Saunders et al. (2009) there is a number of biases that can occur during
the research when semi-structured interview method is used. Both verbal and non-
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verbal behaviours are very important during interviews, as they may result in
implications on the data interpretation. It is also important to build up credible
communications with interviewees. Otherwise, the value of the provided information
by interviewees may also be limited. Specifically to this research project, there were
some measures taken to reduce the risk of the interviewer bias. First of all, SME
owners, participated in the interviews, were found via friends or relatives in the UK.
They were contacted in advance and were told all the details of the research. Also the
aims of the research were explained to them. I also tried to explain to them why it is
important for me to interview particularly them. Participation in my research was
absolutely voluntary. I have been in touch with all the participants for a certain
period of time before interviews, informing them about the progress of my research,
and thus developing the trust of the interviewees. Finally, after interviews with SME
owners I sent them interview transcripts. Business owners were offered to correct
and comment on the transcripts if needed, which is, according to Daymon and
Holloway (2002), considered to help to check internal validity of a research. I have
received positive feedbacks from all the interviewees, which proved their satisfaction
with the transcribed information shared with me during the interviews. Their
feedbacks helped me reduce the risk of misinterpretation, and thus minimize the bias
of the interviewer.

As Saunders et al. (2009) state, another type of bias that may occur during semi-
structured interviews is non-response bias. This is concerned with sensitivity of the
discussed information during interviews, though the participants agreed to be
interviewed. The presence of this bias may lead to the situation when some areas are
not covered during interviews, though they represent valuable information for the
research. Regarding to this research, there has been an attempt to reduce the threat of
non-response bias. All the SME owners were sent the key questions in advance.
Then they were contacted and asked whether all the questions in the interview
schedule sent to them can be answered. Also the business owners were assured that I
would not be asking them for sensitive or confidential financial information. Thus
the interviews of this research were conducted with the people who confirmed that
they are able to share the information that I need for my research. This measure was
taken to minimize the risk of non-response bias occurrence during the semi-
structured interviews in this study.
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3.8.2 Reliability 
Reliability “refers to the absence of differences in the results if the research were
repeated” (Collis and Hussey, 2009, p. 64). In relation to qualitative research,
reliability is primarily concerned with whether alternative researchers would reveal
similar information (Easterby-Smith et al., 2002; Healey and Rawlinson, 1994).
According to Yin (2009), the goal of reliability is to minimize the errors and biases
in a study. As soon as this research is undertaken under the interpretivist paradigm,
reliability of the study will be relatively low. Below the justification of this fact is
given.

The low level of reliability during interviewing, transcribing, and analyzing is due to
the lack of standardization in semi-structured interviews conducted for this survey
(Saunders et al., 2009) and human subjectivity when interpreting results (Kvale and
Brinkmann, 2009), as it was proved by the authors that two different researchers
even transcribe the same interview in two different ways.

Though the reliability of this research is relatively low, a number of steps has been
done in order to improve it. As Yin (2009) and Daymon and Holloway (2002)
suggest, a case study protocol was used, which is considered to be a major way of
increasing reliability of a research. The protocol allows to deal with the
documentation problem in detail and it is essential to have it when doing a multiple-
case study. The content of the case study protocol for this research can be found in
the Appendix 2.

3.8.3 Ethical Issues 
Due to the fact that the present research is conducted with the use of face-to-face
interviews with business owners, it is important to assume some ethical issues that
have been taken into consideration.

In order to ensure that my study is ethical, all the participants were aware of the fact
that they will be subject of my research in terms of my university programme. Not
any interviewee was forced to take part in the research. Also any financial and
  24


material rewards for the participants were avoided. Otherwise as Collis and Hussey
(2009) explain, this may lead to biased results.

All the participants were contacted before the interview and provided with the
detailed information on the forthcoming meeting together with the interview
questions. Also the interviewees were informed about the approximate length of the
meeting and explanation of the purpose of the interview.

All the interviewees were assured of anonymity and confidentiality when conducting
interviews with them. As Collis and Hussey (2009) advise, this may encourage
greater freedom of expression and more open responses during discussions. To
ensure this, the SME owners’ names were changed into Mr A, Mr B and so on. All
the participants gave a permission to record them during the interview and were
assured that the recordings will be used only for study aims of the researcher.
Recordings were securely stored during the research and destroyed when they are no
longer of use. Any sensitive information is not disclosed within this dissertation.
Finally, SME owners and their businesses are not identifiable by the information
presented within the research.

3.9 Conclusions 
This chapter has discussed the relative merits of an interpretivist paradigm versus
positivism. It has been concluded that it is feasible to conduct the research under the
interpretivist paradigm, as rich qualitative data is needed. Further, it has been
decided to adopt a case study methodology that enables to obtain detailed data for
answering open and complex questions during semi-structured interviews for this
research. Though face-to-face interviews, which have been chosen for this research,
are very time consuming, they enable to obtain very rich and vivid illustration for the
study. It was justified that cross case synthesis method will be employed for data
analysis due to the presence of multiple cases in this study. Finally, it was stated that
a number of techniques has been adopted to improve validity, reliability and ethics of
this research. Though interpretivist studies are characterized by low reliability, a case
study protocol has been done for this research in order to increase it, and, therefore,
to increase quality of the entire study.

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4 Findings and analysis 
4.1 Introduction 
My research findings as stated below are ordered thematically by different issues
such as companies’ profits, number of customers and working capital; customer base
and company staff. This chapter will conclude with the companies’ plans for growth
in future covered.

4.2 Profits, Number of Customers and Working capital of SMEs 
Throughout the case studies, each owner described trends of profits, working capital
and number of customer of the business since the business was launched till the day
of the interview in July 2009. Also the SME owners were asked to name the period
with the maximum level of profits and number of customers.

Mr A Consulting states that company’s profits have slightly gone down since
summer 2008. Though the number of the customers has stayed at the same level
during the last 12 months, the volume of work has negligibly declined due to the less
number of orders. This caused a decline in profits of the business during the last
year.

Mr C Importing, Mr D Transporting and Mr G Pizzeria experience a similar situation
and say that the number of customers has not significantly changed since 2008.
However, the number of orders has slightly decreased, which caused a negligible
decline in profits.

Mr E Catering outlines different trends in profits of his two businesses: profits of the
event-making and outside catering business have tripled in the last 12 months,
whereas profits for the patisserie declined more than by 50 per cent. This can be
explained by the fact that the number of customers of the outside catering and event-
making business was not badly affected and continued to grow in the credit crunch.
However, the number of customers of the patisserie went down as, according to
Mr E Catering, “people in the recession cut back on eating outside and take-away
food”.

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Profits of Mr F Biotech’s business have not been affected by the economic downturn.
However the business is experiencing another problem – translation risk.

“As I already said, our growth of profits has not been affected by the credit crunch.
However, because of the currency fluctuations, the figures in our accounts did go
down. We consolidate the accounts of our German and French offices for financial
reporting purposes in the UK. Thus when we converted the profits of our European
operations in 2009 from the Euros into the British pounds, they were less than in
2008, though all the European and UK operations have constant growth”
(Mr F Biotech).

In summary, the majority of the studied firms have seen their profits reduced in the
last year. Thus ignoring the businesses’ seasonal variations, Mr A Consulting, Mr C
Importing, Mr D Transporting, Mr E Catering (only for his patisserie business, not
for event-making and outside catering) and Mr F Pizzeria have confessed that their
profits were negatively affected by the credit crunch during the last 12 months.

Furthermore, regarding major problems in the last 12 months, business owners have
named various threats to their businesses.

“Liquidity is our major problem now. We even have to delay our rent payments, as
we are currently run out of cash. Also the number of customers has decreased. Our
profits depend a lot on constructions, which are now frozen” (Mr C Importing).

This is how Mr A Consulting explains the major problem to his point of view.

“Not exactly my business has been affected. It is more about my clients. They have to
save on their expenses. Thus I have to be careful as well and should not overcharge
them now” (Mr A Consulting).

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To sum up the business owners have named such major problems, as the problem
with generating profits, retaining existing customers and keeping working capital at a
safe level, which proves that these issues deserve most of their attention these days.

According to Carter and Jones-Evans (2006), financial data, such as sales turnover
and profits, can not be considered reliable in the small firms, as in the UK all
unincorporated firms are exempt from annual financial reporting requirements. Thus
profits are not the key criteria of a small firm growth.

As demonstrated by the above examples, it is difficult to track changes in number of
customers for the small firms. However, five out of six SME owners have
acknowledged that the volume of work has declined, as the number of orders went
down in the last 12 months. Follow-up questions about attracting and keeping
customers are discussed further.

4.3 Customer Base 
The SME owners have been asked about their traditional ways of attracting new
customers and keeping existing customers. They were also asked whether they have
adopted new strategies during the last 12 months.

All surveyed SME owners are very concerned with the high quality of services or
goods sold they produce or sold. When the business owners started their businesses,
they used little advertising, which helped them to form an initial client base. Now the
most important way of keeping existing customers is the word of mouth. Thus all the
surveyed businesses are reputation-conscious.

“To be honest, out firm is known for excellent customer service and consistency with
ethics. Consequently, it strengthens our reputation and popularity both with existing
and new customers” (Mr F Biotech).

In general, all of the surveyed businessmen have experienced some negative changes
regarding the number of customers in the last 12 months. To increase sales or at least

  28


to keep them at the same level, all the businesses have tried something new to attract
new customers and to keep their existing customers. Also the businesses have
experienced the need for traditional advertising and promotion, which was mainly
used by the businesses at the start-up stage.

Mr E indicated that in the last 12 months they started sending some e-mails as
reminders of their services. Also the partners used an absolutely new way of rescuing
the patisserie business.

“And also in winter 2009 we published a small article in the local newspaper,
Stamford Mercury, that a lot of businesses are closing down now and the same can
possibly happen to us. Luckily our business went better in spring 2009 and we
published another article in the newspaper saying thank you to our customers who
supported us” (Mr E Catering).

Mr C Importing bought a database with all current constructions, as they contribute
the biggest proportion of their business revenue. However, this measure did not help
the firm, as most constructions are frozen now due to the lack of finance.

According to Carter and Jones-Evans (2006), a major challenge facing the growth-
oriented small business is to sustain the level of service provision to an existing
clientele while at the same time seeking to broaden its customer base.

In general, most of the surveyed business owners have expressed their worries about
the declining number of customers. In a recession purchasing power of the
population is decreasing putting down consumption as well. Some business
industries are affected more than others. Thus, Mr C Importing’s key customers
belong to the manufacturing industry, which is usually affected most of all in the
UK. This fact explains the very low number of orders currently together with the
declining profits of the business. On the other hand, Mr F Biotech’s firm operates in
the government health sector, which is one of the least affected according to the
director’s words.

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“I would not say that people are now buying less our products than usually. The only
think is that the people are purchasing products now in a different way - more
cautiously” (Mr F Biotech).

This demonstrates that it is important, first, in which industry a business is operating,
and, second, what promotional activities a firm is doing to attract new and to keep
existing customers. Mr G Pizzeria states similar point of view.

“Yeah, that was a difficult year. Even the number of loyal customers went slightly
down. Since autumn 2008 we have been regularly sending them leaflets with special
offers and I think it works” (Mr G Pizzeria).

4.4 Employees 
Regarding the company staff, the business owners have been asked to describe the
trend of changes in the number of employees since the beginning of the business,
highlighting the maximum and the minimum levels.

Five out of six SME owners have stated that the staff have not been affected by the
recession as the number of employees is at the maximum level now. All the business
owners say that the minimum level of employees was when they were starting their
businesses, when they themselves were the only company staff.

Mr A Consulting and Mr G Pizzeria have had a similar position indicating that the
number of employees in their businesses has not changed, though the number of
working hours has been slightly reduced due to the declined work volume.

“We had to reduce the number of working hours for some of our employees as
basically there is sometimes no work. Then some employees left us as their reduced
working hours included reduced salaries as well” (Mr G Pizzeria).

However, Mr E Catering has had to reduce the number of permanent staff himself.

  30


“Six months ago we had to reduce the number of our permanent employees and the
number of working hours in order to get some money for further expansion and…
basically now we need less people on permanent basis for our patisserie business.
For our outside catering and event-making business we prefer to hire occasional
staff” (Mr E Catering).

This picture is not consistent with the latest edition of BIS SME Business Barometer
(2009), which stated that over the 12 months prior to the April 2009 survey, 31 per
cent of SME employers have reduced staff levels, with 13 per cent now employing
more. According to BIS (2009), 36 per cent of SME employers have recruited any
new staff in the past 12 months, whereas in this study five out six owners have
employed new people during the last year.

It has been demonstrated in the number of studies that there is close correlation
between employment growth and sales growth in small firms over a long period of
time (Storey et al., 1987; Smallbone et al., 1995). This can be considered as a rule in
a stable economic situation. However, during a recession employment growth can
only help maintain sales at a regular level without significant growth.

4.5 Plans for the Future 
When being asked about plans for the future, all the SME owners stated that they
would like to expand sometime. None of the surveyed businesses acquired or
generated any new assets in the last 12 months. However, five out of six SME
owners have expressed a desire to expand their business in the next one-two years or
as soon as they have enough finance for the expansion, as self-funded expansion is
considered. Mr A Consulting is currently satisfied with the size of the business.

Interviewer: Would you like to expand your business in the future?

Mr A Consulting: I think I would, but not now.

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Though all other SME owners have particular plans for their expansions, only two of
them (Case studies D Transporting and E Catering) were expanding their businesses
during the last 12 months and other three businesses (Case studies C Importing, F
Biotech and G Pizzeria) are planning to expand in the next 12 months.

“We are also opening a new pizzeria in London in the end of this year [2009].
However, the opening may be delayed if we experience some financial problems”
(Mr G Pizzeria).

Mr E Catering, for example, mentioned that in January 2009 they opened a new
restaurant and in June 2009 they added a summer terrace for the restaurant.

“As I already mentioned it is a new service which we launched a couple of months
ago… We now offer a new service of transportation special goods in refrigerators,
which has a high current market demand” (Mr D Transporting).

This illustrates that five out of six businesses can be categorized as growing
businesses. This is consistent with publication in The Yorkshire Press (2009), where
it was stated that the second most popular step in the recession among the UK SMEs
was to introduce new products or services.

4.6 Conclusions 
The above findings suggest that the majority of the studied firms have seen their
profits reduced in the last year. The interviewed business owners have named such
major problems, as the problem with generating profits, retaining existing customers
and keeping working capital at a safe level, which proves that these issues deserve
most of their attention these days. Five out of six SME owners have acknowledged
that the volume of work (number of customers) has declined, as the number of orders
went down in the last 12 months.

Furthermore, all the surveyed businessmen have experienced some negative changes
regarding number of their customers in the last 12 months. To increase sales or at
  32


least to keep them at the same level, all the businesses have tried something new to
attract new customers and to keep their existing customers, which proves their
increased creativity levels. Also the businesses have experienced the need for
traditional advertising and promotion, which was mainly used by the businesses at
the start-up stage.

Additionally, five out of six SME owners have stated that their staff has not been
affected by the recession as the number of employees was at the maximum level
during the research.

Finally, when being asked about plans for the future, all the SME owners stated that
they would like to expand sometime. Though all other SME owners have particular
plans for their expansions, only two of them were expanding their businesses during
the last 12 months and three businesses are planning to expand in the next 12
months. Thus five out of six businesses can be categorized as growing businesses.

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5 Conclusions 
5.1 Discussion and Summary 
This study set out to provide a detailed picture of SMEs’ experiences during the
recession. This is illustrated by interviewed six SME owners operating in the service
sector in South England. The case study interviews were conducted in order to
answer the posed research questions. A brief summary of findings is provided below.

During the research the interviewed business owners have outlined a number of
major problems they experienced during the last 12 months. Among them are
difficulties with generating profits, retaining existing customers and keeping working
capital at a safe level. Moreover, the majority of SME owners have named a problem
of declined number of customers. In order to attract new customers and to keep their
existing customers, the SME owners have tried something new apart from the use of
traditional ways of advertising and promotion. It has been acknowledged by the SME
owners that their staff has not been affected by the recession. This is supported by
the fact that the number of their employees was at the maximum level during the
research. Finally, the surveyed SME owners stated that they would like to expand
sometime. Five out of six businesses can be categorized as growing businesses as
they were expanded during the last 12 months or will be expanded in the next 12
months.

Having analysed the interview transcripts, a number of conclusions has been drawn.
First of all, the study has shown that there were a number of opportunities and threats
for the SMEs in the South of England. The threats are primarily concerned with
generation of profits, retention of existing customers and keeping working capital at
a safe level, declined volume of work, and consequently decreased number of
customers. All the named difficulties have illustrated the key threat – profit
reduction.

Further, I have established that all the businesses have come back to some traditional
ways of advertising and promotion in order to attract new customers and to keep
their existing customers. This measure aims primarily to keep the business away
from the key threat, profit reduction. Moreover, all the SME owners would like to
  34


expand their businesses in the nearest future. They acknowledged that they want to
do so to increase their profits and to meet the needs of the market, which, they
expect, will be growing.

In addition, my analysis has given evidence in support of the fact that the more
difficult the external environment of a business is, the more creative SMEs become.
What is more, the more challenging it is, the quicker the businesses adapt to the
needs of the market and the quicker they respond to the changing environment.

Additionally, the study has outlined the strategies, which are currently followed by
the SMEs. To do this Ansoff’s (1987) classification of growing firms was used. The
theoretical description of the matrix was initially introduced in the literature review
of this study. The justification of the assigned strategies is presented below.
Strategies of the five businesses (Business case C Importing, Business case D
Transporting, Business case E Catering, Business case F Biotech, Business case G
Pizzeria) are classified, as only these businesses are perceived as growing.

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Existing product New product

Market penetration Product development:

• Consolidation C, D, E

• Penetration (Increase market • Use existing
Existing share; Increase product usage; competences
market Increase frequency of use; • Develop new
Increase quantity used; New competence
application)

• Restructuring

Market development: Diversification

F, G • Related diversification
New
• Geographic expansion • Unrelated diversification
market
• Target new market segments

• New uses

As Burns (2006) puts it, Product development strategy involves adaptation of new
products or extension of existing products. This is exactly what the owners of
Business C Importing (buying a van to deliver the goods), D Transporting (new
service of delivery in fridges), E Catering (opening a new restaurant and a summer
terrace) have done. According to Burns (2006), this works when business’s
customers are loyal, the demand is growing, and the business has good reputation
and goods with high quality. The advantage of this approach is that it is very cost-
effective to increase the volume of business. However development of new products
for existing customers can be expensive and risky. Thus the decision to stick to this
strategy must be based on the real demand in the market.

Market development strategy has been assigned to Business F Biotech (opening new
offices in Spain and Portugal) and G Pizzeria (opening a new restaurant in the new

  36


area of London). Burns (2006) states that the lowest risk option here is to seek out
segments similar to the ones the company already sells to.

Therefore, to sum up, strategies of Businesses C Importing, D Transporting and E
Catering have been classified as Product development, whereas Businesses F Biotech
and G Pizzeria have opted for Market development.

It is vital to acknowledge that there is a potential problem for the literature to
misrepresent the actual picture of small firms operating in the UK. Most of studies
discussed in the literature are conducted under the positivist paradigm and represent
descriptive studies. As Collis and Hussey (2009) put it, in a positivist study a survey
methodology is concerned with collecting data from a sample in order to analyse
them statistically and generalizing the results to a population. Thus these surveys
tend to provide generalizations and detailed pictures of a business are not available.
Consequently, there might be a risk of misinterpretation about a particular business
case in the literature, leading to incorrect assumptions.

Since this research is conducted under the interpretivist paradigm, it makes a detailed
investigation. Thus misrepresentation of views or experiences in this study is
minimized when compared to a positivist study.

This is the contribution to knowledge that my study has made. To conclude, I have
succeeded in assessing each investigated business case, compared the results with the
picture presented in the literature, and finally have answered my research questions.
Finally I have coped with main aim – to structure all the details collected for study
and to make it very up to date, which enables to obtain a valid picture of the studied
phenomena.

5.2 Research Limitations 
Though it is quite difficult to identify the scope of the designed interpretivist study
due to its explorative nature (Collis and Hussey, 2009), the limitations of the
research are as follows. The main constraint of this research is a lack of time and
financial support. Firstly, a small exploratory study is planned, as only 600 hours are

  37


allocated for the whole study within the Master’s Programme. Only a small number
of interviews can be conducted and a limited time provided for drawing the
conclusions, which will have tentative features. And secondly, due to the absence of
funds for the research, it is reasonable to make the research within a convenient
distance of where the researcher is based. According to Saunders et al. (2009),
various problems associated with access can emerge during primary data collection.
Interviewees may have different concerns about the sensitivity of information needed
for the research, as well as doubts about researcher’s credibility and competence.
Therefore, access to the sources of primary data, interviewees in this research, is the
main limitation of this study.

Apart from the main limitation, this research has a number of other constraints.
Though they have less problematic character, they should be nevertheless taken into
consideration. Since the purpose of the study suggests investigation of business
experiences in the UK, all the interviewed business owners and partners have
businesses located in England. Secondly, due to the definition of an SME, which
means a business with less than 250 employees, the selected firms for primary data
collection will meet this requirement. Finally, the interviews will be conducted with
experienced business owners, not at the start-up stage, as the expertise of having a
small or medium business is needed for discovering in this research.

5.3 Recommendations for Future Research 
Considering the vast impact that SMEs have on the UK economy, their performance
should continue to be monitored on a regular basis. I have some recommendations
for the future research. Due to the limitations of this research, it was possible to
conduct only a small number of interviews. Thus I would recommend a future
extension to this study with a bigger scope of primary data collection. This may be a
further research with a case study approach, but with more business owners
interviewed (e.g. over 100 interviewees). Furthermore, interviewees that represent all
sizes and areas of business should be studied, as this research investigated
experiences of the SMEs operating in the service sector only. I would also
recommend to track changes in businesses’ operations of the interviewed firms
during several years after this economic downturn in order to obtain profound

  38


understanding of the impact of the recession on the SME sector in the UK. Finally, it
can be of interest to track changes in strategic planning of the studied SMEs during
several years, and then analyse whether the opted strategies have brought success for
the businesses.

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Word count – 12,067.

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7 Appendices 
7.1 Case study protocol 

• Overview of the Case Study Project
This research is done within the Master’s Programme and aims to identify the impact
of the recession on the activities of SMEs in the UK. Due to the lack of information
on this topic in the existing body of literature it has been decided to investigate this
issue under the interpretivist paradigm. Interviews with SME owners are to be
conducted in order to obtain rich and detailed information on the topic being
investigated.

• Field procedures
The surveyed businesses are located in South England. It is planned that the
interviews with their representatives are to be conducted within the period of 10 July
2009 – 15 August 2009, so that the whole research is finished on time. Below are
some details of the interviews and the interviewees.

Position of the
Length of
interviewee, Date of the Place of the
Interviewee the
business activity interview interview
interview
and legal status

Mr A Owner of a business 13 July 2009 Cambridge 30 mins
Consulting consulting and
accounting firm, Ltd

Mr B Owner of restaurant, 17 July 2009 London 50 mins
Restaurant Ltd

Mr C Partner of an 18 July 2009 London 25 mins
Importing importing and selling
firm, partnership

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Mr D Owner of an agent 26 July 2009 Ipswich 35 mins
Transporting cargo firm, Ltd

Mr E Partner of an event- 4 August Stamford 25 mins
Catering making, outside 2009
catering business and
a patisserie,
partnership

Mr F Biotech Director of a 6 August London 40 mins
biotechnology firm, 2009
Ltd

Mr G Managing director of 10 August London 25 mins
Pizzeria a pizzeria chain, Ltd 2009

The interviews are to be conducted in the places, which are convenient for the
interviewees. Also the interviewees tell the researcher the date and the time that is
best for them for giving an interview.
It is planned that no more than one interview can be conducted per day in order to
avoid any delayed or cancelled interviews.
Interviews are conducted with the use of a recorder. Interviewees are asked the same
questions. The questions are sent to the interviewees in advance to allow them to get
acquainted with the questions and to ensure that all the questions can be answered.

• Case Study Questions
The key questions that the data collection should cover are listed below.
- Track the changes in business management within the surveyed SMEs.
- What strategies do the SMEs in the South of England follow?
- What were the opportunities and threats for the SMEs in the South of
England?
- How did they solve emerging problems during the recession?

  46

Kingston University Master's Dissertation of Natalia Kalitenko

Kingston University Master's Dissertation of Natalia Kalitenko

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