Development and Learning in Organizations: An International Journal

Barriers to employee training and learning in small and medium-sized enterprises (SMEs)
Antonios Panagiotakopoulos
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Antonios Panagiotakopoulos, (2011),"Barriers to employee training and learning in small and medium-sized enterprises (SMEs)",
Development and Learning in Organizations: An International Journal, Vol. 25 Iss 3 pp. 15 - 18
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 Barriers to employee training and learning
in small and medium-sized enterprises
(SMEs)
Antonios Panagiotakopoulos
Downloaded by Edith Cowan University At 18:58 21 January 2017 (PT)
Antonios
Panagiotakopoulos is Head
of the HRM Division,
Mediterranean University
College, Athens, Greece.
DOI 10.1108/14777281111125354
he human resource development (HRD) literature has tended to focus on larger
T organizations in order to develop an understanding of workforce skills development.
However, it has been acknowledged that a healthy small business sector is
fundamental to every competitive economy. As such, it is important to explore the HRD
processes in this type of establishment, as they differ substantially from large organizations
(Westhead and Storey, 1997). Against this academic rationale, this paper critically reviews
the HRD literature in the small business context in order to identify the main barriers to
employee training and learning and recommend ways to overcome them.
In their discussion on barriers to training take-up by SMEs, Westhead and Storey (1997,
p. 63) highlight two main reasons: ‘‘market forces’’ and ‘‘ignorance’’. The ‘‘market forces’’
explanation refers to the different factors that influence the supply and demand of training.
This perspective rests on the view that small businesses offer a less than optimal level of
training due to their expectations that the returns to training would not exceed the costs of its
provision. Market forces highlight the problems of organizational constraints such as lack of
time and limited financial resources available for training provision. On the supply side,
delivery of tailored training programs is problematic especially when trainees come from
different small firms. The fixed cost of providing a training program is higher than that of a
standard package to managers in large firms. Also, dependence on one or two customers, a
common scenario among SMEs, is associated with relatively fixed management and
employee skills.
The ‘‘ignorance’’ argument refers both to the lack of awareness by small business owners
of the importance of training for skills development and of the training opportunities
available. The absence of empirical evidence on the direct link between workforce training
and small enterprise success contributes to this ignorance on the part of small firm owners
about the benefits of training. As Johnson (2002) argues, encouraging SMEs to provide
training and development opportunities is likely to be problematic owing to the absence of
empirical data to support a causal relationship between training and business success. Yet,
this lack of awareness of the values of training has wider implications for small business
development due to the adverse effects of skill shortages on competitiveness.
Small firm owners’ negative attitudes towards employee training and its importance for
business survival, as well as their attitudes towards short-term profitability, are also among
the barriers identified in the HRD literature (Hendry et al., 1995; Matlay, 1999). According to
the authors, most SME entrepreneurs are preoccupied by their active involvement in the
daily activities of the enterprise. They are driven by short-term business pressures and are
looking for quick and easy solutions that, very often, cannot be provided by some forms of
competence development. This problem is often aggravated by the owners’ awareness of
the failure risk of long-term investments in staff development.
SME entrepreneurs are very often reluctant to invest in people, bearing in mind the
possibility of skilled labor being ‘‘poached’’ (i.e. employees may move on, taking the value of
VOL. 25 NO. 3 2011, pp. 15-18, Q Emerald Group Publishing Limited, ISSN 1477-7282 j DEVELOPMENT AND LEARNING IN ORGANIZATIONS j PAGE 15
 ‘‘ SME entrepreneurs are very often reluctant to invest in
people, bearing in mind the possibility of skilled labour being
‘poached’. ’’

any training investment too) in imperfect labor markets, which in contrast may foster SMEs to
‘‘buy in’’ skilled employees rather than invest in developing their in-house competence base.
The business strategy adopted by an organization can also act as a key barrier to workforce
training. For example, if a small company is competing on the basis of low cost strategies
with little emphasis on product innovation, then employers are likely to demand few labor
skills. Therefore, they will have few incentives to offer their employees training and
development opportunities (Hendry et al., 1995).
Employees themselves may be a barrier to the upgrading of their competence levels. Due to
the low career development chances and the absence of a demonstrable link between small
firm employees undertaking training and their earning capability, employees in small
enterprises may show little enthusiasm for additional training. Finally, a significant obstacle
that limits the ability of small firms to engage in formal training activities is that SME
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entrepreneurs are often not able to diagnose their own competence needs effectively,
whereas they are often critical about the quality of external advice (Johnson, 2002).

Discussion
The review of the potential barriers to training and learning among small firms shows that
there are numerous factors preventing HRD provision in such organizations ranging from
conventional financial constraints, limited owner commitment and fear of poaching to more
eclectic arguments such as the role of individual uncertainties and potential
misunderstandings of the role of training (see the Appendix).
The available studies indicate that better access to information on the applicability and
usefulness of HRD to small firms can be crucial to overcoming the barriers to skills
development that exists among such firms. The analysis suggests that a key challenge for
policy makers in this area is to facilitate changes in owner attitudes, improve access to
training interventions and create the necessary institutional conditions to encourage SMEs to
move to high value added trajectories.
In terms of changes in owner attitudes, governmental initiatives may include the following:
B the development of ‘‘Information counters,’’ where a number of counters can be created
for the purpose of providing information and empirical evidence to small firm owners
around the importance of staff training for small firm survival and success; and
B the creation of e-learning centers along with the implementation of a series of formal
training seminars for SME owners in certified vocational training centers in order to raise
their awareness around the wider benefits of HRD to firm performance.
Regarding the improvement of SME access to training interventions, one way this could be
achieved is by facilitating SMEs’ access to funding. In particular, the creation of a ‘‘loan
guarantee scheme’’ for SMEs can cover a common market failure, which is connected to the
SMEs inability to provide the required guarantees to the lending institutions. This would be a
‘‘risk-sharing’’ mechanism between the state and the banks that would allow small firms to
self-finance their HRD activities. More specifically, for small businesses that need capital for
workforce skills development, there could be a government-backed scheme to make it
easier to borrow money. The loan guarantee scheme could be particularly useful for firms
that have been turned down for loans elsewhere, because they do not have enough assets to
secure the loan. Under this scheme, the government may guarantee up to 75 percent of the
loan amount, with the banks covering the remaining 25 percent.

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PAGE 16 DEVELOPMENT AND LEARNING IN ORGANIZATIONS VOL. 25 NO. 3 2011
 One such good example is the Enterprise Finance Guarantee (EFG) scheme, launched in
January 2009 in the UK as a response to the reluctance of banks to lend in the aftermath of
the global credit crisis. EFG was the government’s way of boosting lending to small and
medium firms through the recession in order to encourage enterprise development. The
scheme is open to businesses with a turnover of up to £25m and more than 7,600 SMEs have
participated in it. EFG is designed to enable firms to secure loans of between £1,000 and
£1m, repayable over ten years. The way it works is that the government guarantees 75
percent of the loan, with the banks covering the remaining 25 percent (Department for
Business, Innovation and Skills, 2010).
Similarly, the state could provide SMEs with financial incentives for their development. This
would constitute tax-exempt reserves from their profits to be used over a three-year period
for capital expenditure and staff development. This is the case in Greece, a country where
SMEs form about 99.55 percent of the total number of enterprises, where the Ministry of
Economic Affairs and Finance has laid down Law 3220/2004(3), which allows SMEs to use a
part from their profits for enterprise and employee development (Hellenic Organization of
Small and Medium Sized Enterprises and Handicraft, 2006).
Also, a number of state-funded training seminars could be implemented in various subject
areas in order to stimulate HRD in SMEs. In particular, a series of subsidized training
programs in certified vocational centers could be carried out by various chambers within
national economies (e.g. chambers of small and medium-sized industries, chambers of
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commerce). In this context, training seminars could be planned and held for their member
entrepreneurs running service and industrial businesses. For example, small firm owners
could be trained free of charge in the acquisition of the skills of safety engineers so that they
would not need external safety services in their businesses.
In the same manner, training seminars in IT skills could be designed for people working in
SMEs in order to help small firms to integrate information and communication technologies
in their business activities and improve their competitiveness. The ‘‘Integral Quality and
Modernization Program’’ (CIMO), for example, established by the Mexican Secretariat of
Labor, has proved effective in serving the training needs of SMEs. In all, more than
200,000 Mexican employees have benefited from such a training intervention (The World
Bank, 2010).
As for the necessary institutional factors that may encourage SMEs to move to high
value-added trajectories, these may include the creation of:
B a strong educational system that would produce a well-educated workforce capable of
supporting the innovation plans of small firms;
B a banking sector that would support the long-term planning of business activities of
SMEs; and
B strong trade unions that could push small firm owners to train and develop their staff; and
the creation of labor market regulations such as a higher national minimum wage, which
would increase labor costs and could push SMEs to adopt a ‘‘high-value’’ route to
competitiveness and profitability to achieve better profits.
The compelling reason behind SMEs’ willingness to exploit the aforementioned opportunities
lies in the fact that SMEs need to invest in innovation to face fierce national and international
competition and achieve an above average return. For example, rising labor costs in many
sectors of European industry (e.g. textiles, clothing, leather) prevent organizations from
competing on the basis of low-quality, low-cost goods. In contrast, new technologies

‘‘ Most SME entrepreneurs are preoccupied by their active

involvement in the daily activities of the enterprise. ’’

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VOL. 25 NO. 3 2011 DEVELOPMENT AND LEARNING IN ORGANIZATIONS PAGE 17
 Keywords: promise lucrative manufacturing applications, and thus small firms need encouragement to
Small to medium-sized innovate. It has been shown that the most successful organizations in such sectors are those
enterprises, companies that rely on innovation and the creation of unique brands. The latest surveys
Training, carried out by the observatory of European SMEs also reveal that two-thirds of SMEs in the
Learning, EU attempt to face increasing competition through the improvement of product quality.
Human resource However, productivity gains and innovation cannot be achieved on the basis of low-skilled
development, work. As such, SMEs need to invest in HRD in order to gain a sustainable competitive
Innovation advantage.

References
Department for Business, Innovation and Skills (2010), ‘‘Enterprise Finance Guarantee’’, available at:
www.bis.gov.uk/policies/enterprise-and-business-support/access-to-finance/enterprise-finance-
guarantee
Hellenic Organization of Small and Medium Sized Enterprises and Handicraft (2006), ‘‘The SMEs sector
in Greece’’, available at: www.eommex.gr/english/index.htm (accessed March 12, 2006).

Hendry, C., Arthur, M.B. and Jones, A.M. (1995), Strategy through People: Adaptation and Learning in
the Small-Medium Enterprise, Routledge, London.
Johnson, S. (2002), ‘‘Lifelong learning and SMEs: issues for research and policy’’, Journal of Small
Business and Enterprise Development, Vol. 9 No. 3, pp. 285-95.
Downloaded by Edith Cowan University At 18:58 21 January 2017 (PT)

Matlay, H. (1999), ‘‘Vocational education and training in Britain: a small business perspective’’,
Education þ Training, Vol. 41 No. 1, pp. 6-13.
Westhead, P. and Storey, D. (1997), ‘‘Management training in small firms – a case of market failure?’’,
Human Resource Management Journal, Vol. 7 No. 2, pp. 61-71.
(The) World Bank (2010), Innovation Policy: A Guide for Developing Countries, The World Bank,
Washington, DC.

Appendix. List of barriers to training and learning in SMEs

B Lack of time for training and learning activities.
B Limited financial resources for training provision.
B High cost of external training provision.
B Lack of external training programs tailored to the specific needs of SMEs.
B Small firm owners’ negative attitudes towards employee training (lack of awareness by
small business owners of the importance of training for firm success).
B Lack of awareness by small business owners of the training opportunities available.
B Fear of ‘‘poaching’’.
B A low-cost business strategy.
B Lack of employee desire for training and learning.
B Problematic training needs analysis.
B Poor quality of external training vendors.

Corresponding author
Antonios Panagiotakopoulos can be contacted at: apanagiotakopoulos@medcollege.
edu.gr

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PAGE 18 DEVELOPMENT AND LEARNING IN ORGANIZATIONS VOL. 25 NO. 3 2011
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