Diversification in Small and Medium Enterprises

¶ … conditioned the key decisions and behaviors of individuals and groups within National United Group (NUG) as these forces relate to strategic diversification. Synergies resulting from an early merger resulted in a firm better able to address the demands of an expanding market. Importantly, the merger enabled diversification beyond spare auto parts distribution.

Domestic labor markets in Iraq are governed by traditional practices that are regionally idiosyncratic and that permit considerable leeway in local decision-making. International automotive firms signaled interest in NUG's products and services, but Iraq's fractious social-political environment generated substantive security challenges and disruption in their distributorship and marketing arrangements, impacting its ability to meet both domestic and international market demands. NGU's decentralized management has failed to understand changes to the local market dynamics in the post-war recovery period, which resulted in business opportunity cost and jeopardized the firm's financial viability and sustainable growth.

Chapter 4 provides a conceptual framework for the research design and summarizes the research methodology. The conceptual framework provides that multiple research methods, a hybrid of quantitative and qualitative approaches, will facilitate exploration of the interaction between an organization's strategic orientation, the conditioning power of its environment, and the diversification strategies it employs as a means of addressing the demands of a changing market. The single Iraqi firm known as National United Group (NUG) is the unit of analysis and, as such, lends itself to exploration using a case study approach. Content analysis of accounts provided by senior management regarding their experience in planning, managing, and/or implementing strategic diversification at NUG supports the component of the conceptual framework that addresses perceptions about past strategic decision-making. The analysis of NUG's financial statements and reported accounts supports the component of the conceptual framework that addresses key participants' rational justification of corporate and division actions against the background of the perceptions and opinions and observations conveyed in the surveys and interviews.

The main aim of this research, as discussed in Chapter 5, was to explore the interaction between the strategic orientation and environment, and the subsequent impact on the diversification strategies as adopted by NUG, an example of a firm that would be in the category of small and large enterprise (SME). To have a competitive and sustainable enterprise, a firm must work to ensure strategy-environmental fit. A number of major strategies are available to firms in order to cope with the challenges of a post-war environment. This study sought to assess the impact of these strategies in general, and the effectiveness of diversification as a means to improve strategy-environmental fit, in particular.

Most managers agreed that NUG benefitted from its diversification strategies which enabled it to grow the firm long-term, and that a firm should respond to changes in environmental factors by making changes to its existing strategic orientation. Some differences among responses were found regarding the expansion of NUG's business to new markets, with certain managers focused on strengthening the NUG core business in Baghdad and certain other managers agreeing that expanding the business to other regions in north and south Iraq to be a viable approach to dealing with uncertainties in the business environment.

Employee survey responses were mixed with regard to the adoption of diversification strategies by NUG; some employees agreed that NUG had to make the changes it did to counter the uncertainties in the business environment, while others agreed changes were made to achieve huge growth over the entire enterprise. Employees were in agreement that the war had badly impacted the business environment, particularly for SMEs. Employees agreed that changes were needed to effectively meet the changing demands and expectations of customers, and that a strategic orientation is essential for a firm to deal effectively with the changes in the business environment. Diversification into the international market as a coping strategy to deal with a changed business environment was not a strategy that all employees agreed to. An emphasis on core business was expressed by both managers and employees. All employees agreed that the political scenario of the country had a dilatory effect on small and medium sized enterprises.

Collectively, the findings from research with managers and employees indicate that diversification is an essential step undertaken by a firm to effectively deal with uncertainties, complex demands and constraints of a changing business environment. The archival document review indicated that NUG has been effective in its strategic orientation and implementation of diversification plans. Net profit, assets, and cash flows have all increased, and expenses have increased only slightly during the period reviewed.