international Business Review Vol. 3, No. 2, pp.

165-178, 1994
Copyright 0 1994 Elsevier Science Ltd
Pergamon 0969~5931(94)EOOOS-6 Printed in Great Britain. All rights reserved
0969-5931194 $7.00 + 0.00

Performance of
Factors Influencing the SME Food
Processing
Performance of SME Food Companies

Processing Companies Within the

Single European Market
R. Brickau, I. Chaston and T. Mangles
The Management Centre, The Business School, The University of
Plymouth, Plymouth PLA &A, UK

Abstract - The creation of the post-1992 European single market represents a significant
change in the business environment confronting firms throughout Europe. Although there is
extensive literature available on appropriate strategic responses to the single market scenario,
very few of these writings contain guidance specifically related to the situation facing smaller
firms. The objective of this study was to gain further understanding of which factors are likely
to influence the performance of firms in the small and medium-size enterprise sector. This was
achieved through a comparative study of approximately 200 UK and German small food
processing firms. The major difference between UK and German companies are that the latter
(i) identified a much broader range of factors which they believe will influence their
performance and (ii) have adopted a strategic orientation towards managing those internal
competencies necessary to sustain market performance over the longer term. In contrast UK
owner/managers are mainly concerned with factors likely to affect short term financial
performance. Viable strategic options for UK food processing companies seeking survival
within the single market are discussed. It is concluded that these firms will need to adopt a
strategy which places greater emphasis on the development of new, innovative products
offering tangible differentiation based upon superior product performance. One possible way of
implementing such a strategy is to create strategic alliances with other firms which can enhance
internal capability and/or market management competency. A model is presented which might
be utilised to determine how a strategic alliance could be used to improve a firm’s strategic
management capability within the post- 1992 European market environment.

Key Words - European Single Market, Strategic Responses, Food Processing Firms, Small-
and Medium-Size Enterprise Sector, UK and Germany.

Introduction
On February 7th 1986, the 12 member states of the European Community
signed the European Single Act. This was intended to achieve greater
economic, social and political co-operation. An important objective of the Act
was to stimulate European economic development through the creation of a
unified single market by removing the physical, technical and fiscal barriers
which were seen as the key factors impeding the growth of European firms
(Dudley, 1989).
In October 1988, the European Council announced a “programme for

165
International 1992” which focused on the four actions of abolishing internal trade barriers,
Business promotion of world wide free trade, commitment to co-operation over
Review revising the GATT agreement and enhancement of multilateral trade systems.
A key research study which supported the European Council’s belief in the
32
need to move towards the creation of a single market was Cecchini’s (1988)
study entitled “Costs Of Non-Europe.” The report documented the economic
benefits from growth, job creation, economies of scale, productivity, healthier
competition, labour mobility and customer choice. Subsequent researchers
(Lamoriello, 1988; Calingaert, 1988; Baldwin, 1989) endorsed Cecchini’s
conclusions although Baimbridge and Burkitt (1991) have issued a word of
caution because they feel the estimates of economic growth are at the “top
end range of possibilities”.
Announcement of the objective to create a single market by the end of
1992 has stimulated a number of articles and texts on the strategic response
which companies should implement if they wish to survive and grow within
Europe during the 90s. Charsley (1989) proposed the creation of operational
improvement programmes which focus on the organisational restructuring of
operational and administrative systems. Daems (1990) suggested application
of the Porter “Contending Forces” model to examine the issues of (i)
sustainability of company position in the face of competition, (ii) optimising
company market position, (iii) prioritising market sector opportunities and
(iv) determining future locations for the firm’s production facilities.
Other writers have also suggested decision models and planning
frameworks to ensure successful “Europeanisation” of the company. These
range from generalised international strategic plans (e.g. Hunsiker, 1989;
Tietz, 1989; Toepfer, 1991; Lynch, 1990; Dudley, 1990; Berger, 1991)
through to strategic marketing approaches specifically designed to reflect the
conditions to be encountered within European market environments (e.g.
Vandermerwe, 1989; Meissner, 1990; Guido, 1990).
Virtually every writer has primarily focused on the response of larger
organisations to the single market and have avoided commenting upon the
situation facing the small- and medium-size enterprise (SME) sector (Axford
et al., 1991). This is despite the fact that as estimated by the OECD (1985),
the SME sector accounts for approximately 95% of all enterprises within the
Community, employing between 34% (UK) and up to almost 60% (Belgium)
of a country’s workforce. Describing the precise nature of what constitutes the
SME sector is difficult because there are a number of different existing
definitions (Birley, 1989). One definition that has been adopted lately is that
given by the European Investment Bank; namely SMEs have no more than
500 employees, net assets worth less than 75 million ECU and not more than
one third of the company’s capital is owned by a larger firm. This definition,
however, is still not accepted throughout the Community. Simon (1992), for
example, in a recent study presented a definition of the SME sector in
Germany of firms with an average of 2900 employees and average annual
revenue of DM 527 million.
Recognition of the vital importance of the SME sector’s capability to
 167

contribute to a European economic revival (Birch, 1979; Curran, 1986) caused Performance of
the European Commission in June 1986 to create an SME task force. This SME Food
new entity was assigned the responsibility of creating legal and administrative Processing
environments that could encourage the growth of smaller firms. As writers Companies
such as Tigner (1988) noted, however, most European SME companies
remained unaware of the potential impact of the single market. Therefore in
1989, the European Community’s Directorate XXIII was assigned the
responsibility of identifying additional mechanisms through which to assist
smaller firms. The main focus of this initiative was to provide
owner/managers with easier access to information on both new market
opportunities and the potential impact of impending legislation. European
information centres were established, followed by the creation of a business
co-operation network to increase the level of business-to-business contact
between smaller firms within Europe (Hancock, 1991). However, despite
these efforts there is still an apparent lack of strategic planning frameworks
available to the SME company wishing to either pro-actively exploit “new
routes into Europe” or merely wanting to defend home markets against new
sources of competition from abroad.

Research Objective and Methodology

Small firms cannot easily adopt the strategic management techniques
employed by larger firms (d’Amboise, 1986; Langer, 1988; Brytting, 1990).
Hence their strategic planning frameworks may have to also be different to
that proposed in the literature for developing an effective response to the
single European market. The first phase of the strategic planning process for
any organisation is to answer the question of “where are we now?” This can
only be achieved by the firm acquiring an understanding of which factors in
both their external and internal environments are most likely to influence
future performance (Bamberger, 1989). As the single market represents a very
significant change in the European business environment, then the initial
action to be undertaken by any SME firm is to determine which factors within
this new scenario will have to be managed in order to ensure business survival
in the future.
To gain further insights into the factors which smaller firms believe will
influence future performance, the Plymouth Business School decided to study
the UK food processing industry. The food industry was selected because (i) it
represents an extremely important component of the South West economy and
(ii) this sector is likely to be severely impacted by new pan-European
legislation and regulations (Farrands, 1989; Daems, 1990). To compliment
data on UK firms, it was decided to undertake a comparative study of German
firms of a similar size. Germany was selected because the country is seen as
economically very involved in the establishment of the single market (Berger,
199 1) and German SME firms are considered to be the most likely source of
competition for UK firms seeking to expand into mainland Europe (Davis,
1991).
The selected research methodology was to survey SME food processors in
168

International both Germany and the UK, asking them to identify which national, regional
Business and company-specific factors they believe will influence their performance in
Review the single market. The list of factors (see Table 1) about which firms were
asked to comment was based upon (i) variables identified in an earlier study
3,~
of 9000 companies across 55 EC regions undertaken by the IFO-Institute
(199 1) on behalf of the Directorate General for Regional Policy in Brussels
and (ii) Bamberger’s (1991) conclusions about which variables have an
important influence on achieving competitive advantage in European markets.
The perceived potential impact for each factor was determined by asking
respondents to classify influence on a scale of very important, important,
neither important nor unimportant, unimportant and not at all important. The
assumed null hypothesis was that there would be no significant difference
between factors considered important by UK and German food processing
companies.

Results
Completed survey forms were received from 107 UK and 89 German firms
yielding a response rate of 44% and 37% respectively. Data were processed
using a prime-based SPSS software package. By assigning values ranging
from 1 (not at all important) through to 5 (very important) it was possible to
calculate the mean value of response for each factor. These mean values for
both UK and German firms are summarised in Table 2. Respondents from
both countries feel that the two most important factors capable of influencing
business performance within the single market environment are product
quality and national-level, legally enforceable business regulations.
By ranking the top ten factors in descending order of importance, it is
apparent from Table 3, however, that there are also certain differences in
opinion between firms in the two countries. Factors considered to be of high
importance among UK firms include internal communications, energy costs,
availability of energy, costs of direct labour, costs of borrowing, the rate of
inflation and the transportation network. In contrast, German firms believe
that the most important influencers are product quality/innovation, internal
communications, availability of skilled labour, distribution channels, costs of
waste disposal, pricing strategies, information on EC regulations and
availability of waste disposal services.
In order to determine whether these differences in opinion were statistically
different, a multivariate analysis was undertaken and the generated F values
are shown in Table 4. Examination of these F values indicates that in the case
of 19 factors, it is not possible to validate the null hypothesis that there is no
significant difference in opinion between respondents from the two countries.
Within this group of 19 factors, where at a 95% confidence level a significant
difference of opinion exists, British firms considered that the following four
factors were much more important influencers of performance than their
German counterparts:
(1) National - availability of risk capital.
(2) Regional - availability of machinery servicing providers.
 169

Vational economic factors Regional factors Company specific factors

Exchange rate
htcome/corporate tax
Cost of borrowing
Availability of risk capital
Economic growth rate
Inflation rate
Direct labour costs
Indirect labour (employee
benefit) costs
Employment laws and
regulations
Government industrial policy
Legal regulations
jovemment procedures
(e.g. for grants)
Performance of
SME Food
Proximity of customers Supplier links Processing
Proximity of suppliers Product quality
Companies
Proximity of similar companies Product innovation/
development
Financial services availability Production capacity
Marketing services availability Advertising budget
Skilled labour availability Price strategy
Machine service availability Distribution channels
Transportation infrastructure Internal communication
systems
Energy supply (availability) External communication
systems
Cost of energy Staff capability for Europe
Telecommunications Administration capability
Waste disposal availability EC accounting procedures
Waste disposal costs Credit management
Industrial site availability Links with other firms
in region
Social climate Links with firms elsewhere
in UK
Housing costs/availability Links with firms elsewhere
in EC
Education & training facility Information on EC
availability regulations
Skilled labour availability Product information
elsewhere in EC
Non-skilled labour availability Pricing information
elsewhere in EC
Proximity of training facilities
Proximity of Universities, research
institutions Table 1.
Regional policy incentives Factors as Possible
Local government co-operation Influencers of
Marketing co-operatives Performance Within
Regional taxes the Single European
Market

(3) Regional - availability of non-skilled labour.

(4) Regional - co-operation and flexibility of regional authorities.
In the case of the remaining 15 factors where the null hypothesis was not
validated, German firms considered the following factors are more important
influencers of performance in the single market environment than their British
counterparts:
(1) National - indirect employee costs (social security, benefits etc).
(2) Regional - proximity of customers.
(3) Regional - availability of providers of marketing services.
(4) Regional - costs of waste disposal.
(5) Regional - social climate (labour relations, union activity, etc).
(6) Regional - availability and costs of housing.
170

International UK Germany
Business
Review Country’s exchange rate 3.57 3.57
Income/corporate tax 3.80 3.63
32 Cost of borrowing 4.46 3.60
Availability of risk capital 3.48 2.40
Economic growth rate 4.20 3.79
Inflation rate 4.29 3.77
Direct labour costs 4.47 4.24
Indirect labour costs 3.94 4.28
Labour market regulations 3.82 4.00
Industrial policy 3.48 3.83
Legal regulations 4.59 4.64
Governmental administration 3.60 3.42
Proximity of customers 3.75 3.92
Proximity of suppliers 3.42 3.33
Proximity of companies of same nature 3.23 2.42
Market services - banks etc. 3.26 3.62
Market services - advertising agencies etc. 2.51 3.34
Market services - servicing for machinery 3.85 3.67
Traffic network 4.24 4.36
Energy supply - availability 4.47 4.20
Energy supply - costs 4.52 4.29
Communication 4.54 4.53
Waste disposal - availability 4.10 4.38
Waste disposal - costs 4.06 4.48
Industrial sites 3.28 3.67
Social climate 3.74 4.33
Housing 3.27 3.62
School education & training 3.50 3.70
Labour - skilled 3.88 4.52
Labour - semi skilled 3.91 3.80
Labour - non skilled 3.58 2.95
Vocational/managerial training facilities 2.93 3.25
Proximity of colleges, university, etc. 2.76 2.74
Regional policy incentives 3.40 3.24
Co-operation of regional authorities/flexibility etc. 3.98 3.14
Co-operative marketing 2.78 3.47
Local/regional taxes & public fees 3.73 3.80
Other factors 4.38 3.67
Supplier links 3.35 4.01
Product quality 4.76 4.74
Product innovation & development 4.22 4.64
Production capacity 4.13 4.15
Advertising budget 3.08 3.91
Price strategies 4.13 4.45
Table 2. 4.34 4.51
Distribution channels
Calculated Mean 3.81 4.19
Internal communication systems
Values of Perceived 4.16 4.28
External communication systems
Importance of 3.48 4.24
Capability of staff
Factors of UK 3.79 3.91
Admin. standards to EC standard
Versus German
Firm

Table 2. Cont.
 171

UK Germany Performance of
SME Food
Accounting procedures to EC standard 3.60 3.88 Processing
Credit from other institutions in EC 3.04 2.88
Links with others in region 2.87 2.60
Companies
Links with others in UK 2.96 3.08
Links with others in EC 3.00 3.15
Information about new EC regulations & implications 4.12 4.40
Information about products in other EC countries 3.73 4.16
Table 2.
Information about pricing structures in other EC countries 3.74 4.19
Cont.

1 = not at all important, 2 = quite unimportant, 3 = neither, 4 = quite important, 5 = very

important.

(7)Regional - availability of skilled labour.

(8)Regional - co-operative marketing opportunities.
(9)Company specific - links with suppliers within the EC.
(10) Company specific - product innovation and development.
(11) Company specific - advertising budget.
(12) Company specific - pricing strategies.
( 13)Company specific - internal communication systems.
(14) Company specific - competence of staff to manage EC business
procedures.
(15) Company specific - ability to manage EC accounting standards.

Conclusions and Discussion

In relation to the factors likely to influence performance in the single market
environment, there are 19 areas where there is a statistically significant
difference in opinion between UK and German firms. It is proposed that some
of these differences can be attributed to the specific nature of the socio-
economic conditions which exist in the two countries (e.g. the availability of
risk capital in Britain; the higher indirect labour costs facing German firms
due to social charter elements present in this country’s employment
legislation). The proposed explanation for the wide variance of opinion about

UK (total) (Mean) Germany (total) (Mean)

1. Product quality (4.75) 1. Product quality (4.76)

2. Legal regulations (4.60) 2. Product innovation & development (4.63)
3. Energy supply (availability) (4.54) 3. Legal regulations (4.63)
4. Communication (4.5 1) 4. Communication (4.54)
5. Labour cost (direct) (4.48) 5. Availability of skilled labour (4.52)
6. Energy supply (cost) (4.48) 6. Distribution channels (4.5 I)
7. Cost of borrowing (4.45) 7. Waste disposal (cost) (4.48)
8. Distribution channels (4.32) 8. Price strategies (4.46) Table 3.
9. Inflation rate (4.29) 9. Information about new European (4.41) Mean Values of
regulations & implications Top 10 Factors for
10. Product innovation & (4.22) 10. Waste disposal (availability) (4.39) UK and German
development Companies
172

International National economic factors Regional factors Company specific factors

Business
Review Exchange rate Proximity of customers Supplier links
F = 0.564 0.009* 0.017*
52 Income/corporate tax Proximity of suppliers Product quality
F = 0.892 0.510 0.334
Cost of borrowing Proximity of similar Product innovation/
development
F = 0.062 0.063 0.00 1*
Availability of risk capital Financial services availability Production capacity
F = O.OOO* 0.085 0.986
Economic growth rate Marketing services availability Advertising budget
F = 0.498 0.031* o.ooo*
Inflation rate Skilled labour availability Price strategy
F=0.170 0.035* 0.040*
Direct labour costs Machine service availability Distribution channels
F = 0.350 0.934 0.900
Indirect labour (employee Transportation infrastructure Internal communication
benefit) costs systems’
F = 0.008* 0.194 0.018*
Employment laws and Energy (availability) External communication
regulations systems
F = 0.498 0.425 0.128
Government industrial Cost of energy Staff capability for Europe
policy
F = 0.373 0.325 0.001*
Legal regulations Telecommunications Administration capability
F = 0.060 0.262 0.255
Government procedures Waste disposal availability EC accounting procedures
(e.g. for grants)
F = 0.009* 0.046* 0.019*
Waste disposal costs Credit management
F= 0.453 0.788
Industrial site availability Links with other firms in
region
F= 0.022* 0.352
Social climate Links with firms elsewhere
in UK
F= 0.049* 0.281
Housing costs/availability Links with firms elsewhere
in EC
F= 0.657 0.650
Education & training facility Information on EC regulations
availability
F= 0.005* 0.290
Skilled labour availability Product information elsewhere
Table 4. in EC
F Values Generated F= 0.484 0.229
by an Analysis of Non-skilled labour Pricing information elsewhere
Variance of availability in EC
Difference in F= 0.009* 0.333
Response Between Proximity of training facilities
UK and German F= 0.556
Firms
Table 4. Cont.
 173

National economic factors Regional factors Company specific factors

Performance of
SME Food
Proximity of Universities Processing
research institutions
Companies
F= 0.279
Regional policy incentives
F= 0.060*
Local Government co-operation
F= 0.000*
Marketing co-operatives
F= 0.033*
Regional taxes
Table 4.
F= 0.106
Cont.

At a 95% level of confidence an F value of s 0.05 is considered to be a factor where the null
hypothesis is not proven. All factors where F is 5 0.05 are marked with an * and these are
considered factors where there is a significant difference between UK and German firms.

other factors influencing performance is that firms in these two countries have
very different perceptions of how trading conditions within the single market
will influence future business performance.
The contrast of the four factors considered more important by British firms
with the 15 factors which German firms believe are more important, indicates
that the latter have a much broader perspective of the multiplicity of variables
which will affect performance within the European market environment.
Moreover German owner/managers’ identification of managerial issues such
as product innovation, pricing strategies, promotional budgets, staff
competencies to handle EC legislation and EC accounting standards all point
to the existence of a stronger strategic management orientation among that
country’s smaller firms. On the other hand, British owner/managers’ concerns
about direct labour costs, interest charges and prevailing rate of inflation,
leads to the conclusion that UK firms are orientated towards the management
of short term financial performance issues. Furthermore, these British
owner/managers’ do not yet appear to have recognised the changes which will
occur in their market environment as trade barriers are removed across the
European Community during the 90s.
Porter (1980) demonstrated that the start point in the formulation of an
effective company strategy is the acquisition of a detailed understanding of
the external business environment and the likely future behaviour of
competitors. The implications of the post-1992 single market scenario for UK
SME owner/managers’, whether or not they decide to enter overseas markets,
is that they can expect to face an increasing intensity of competition from
firms based elsewhere within the EC. Hence it is worrying to find that UK
respondents in this study are focusing their attention on short-term financial
performance, while their German counterparts, although aware of the
influence of socio-economic factors on current business performance, are
equally concerned about the internal competencies required to sustain their
competitive position over the longer term.
174

International It is not suggested that the longer term, strategic orientation of the German
Business respondents identified in this study has been evolved as a specific response to
Review the creation of the single European market. In fact, Germany’s small and mid-
size companies, known as the “Mittelstand”, have long exhibited a talent for
3,~
developing strategies for achieving a leadership position in both domestic and
overseas markets (Simon, 1992). Having acquired this expertise in analysing
market opportunities and evolving appropriate strategies over many years
means, however, that German firms will probably face few problems in
seeking to determine how best to exploit the opportunities and nullify the
threats encountered in the post- 1992 European market environment.
The lack of strategic orientation and minimal concerns about developing
the managerial competencies for effectively responding to changing market
conditions among UK firms revealed by this study, confirms the earlier
conclusions of other researchers. Collins (1990), for example, commented
that “. . . most of our small companies make profits by accident, rather than
by design; and in the administrative expertise stakes their management seem
to have perfected the art of coming last.” In seeking to identify the managerial
weaknesses of UK firms in both domestic and overseas markets, researchers
in the past have tended to focus on the threat posed by Pacific Basin and/or
American companies. Only more recently has attention turned towards
assessing the competitive threats originating from firms located elsewhere in
Europe. These studies also conclude that UK managers are excessively
orientated towards fulfilling the demands of the financial community to
achieve short-term improvements in profitability (e.g. Eccles, 1989;
Thompson, 1992). This is contrasted with the managerial behaviour of
German firms, for example, which exhibit a strategic orientation concerned
with market performance over the longer term through the emphasis on
development programmes capable of sustaining their technological
superiority over competitors located elsewhere in Europe (Shaw and Doyle,
1990).
Assuming that UK SME owners/managers in the food processing sector
can be persuaded to respond to the dangers posed by an increasing intensity
of competition in their domestic and/or overseas markets, the first step should
be to acquire a detailed understanding of the factors most likely to affect
future performance. This knowledge will then provide the basis for evolving
an appropriate strategic response to the European single market scenario.
Smaller firms will usually seek opportunities for implementing a focused
market strategy based upon either cost leadership or differentiation (Porter,
1980). Unfortunately for UK firms, a KPMG Peat Marwick McLintock
(1991) study has already found that smaller British food processors have a
lower productivity/employee ratio than the majority of their counterparts
elsewhere within the EC. Hence cost leadership in overseas markets does not
appear to be a viable proposition. Moreover even where some form of cost
advantage exists currently, this is likely to be eroded as eastern European
producers seek to earn hard currency by expanding their market share of the
EC food market.
 175

Given the minimal opportunities available for achieving cost leadership, Performance of
longer term survival for most UK SME food processors in both domestic and SME Food
overseas markets will have to be based upon some form of tangible or Processing
perceived differentiation. As demonstrated by “blue chip” f.m.c.g. companies, Companies
this latter strategic approach is critically dependent upon an extremely high
level of promotional spending. UK SME food companies will rarely have the
financial resources to sustain this type of activity and thus creation of a
market position based on perceived differentiation is an unlikely strategic
option.
A visit to a UK supermarket or a catering sector wholesaler will rapidly
reveal that smaller UK food processors are typically only able to sustain their
market position against overseas competitors where they can fulfil a unique
customer cultural preference (e.g. the British sausage; the Scottish kipper) or
the UK supplier enjoys a logistical distribution advantage over a producer
based in mainland Europe (e.g. fresh bread, perishable dairy products).
Nevertheless the rate with which products from even the larger UK companies
are being displaced from the supermarket shelves would indicate that there are
fewer and fewer situations where British food companies can continue to
delude themselves that overseas competitors do not represent a growing threat
to their existence.
On the basis that the most effective way to survive is to learn from the best
of the competition, then smaller UK food companies would do well to
comprehend that the success of the German Mittelstand (Simon, 1992) is
based upon a strategy of:
- seeking to maximise geographic market diversity;
- emphasising the importance of delivering maximum customer value;
- exploiting internal technological expertise to achieve product
performance superiority;
- sustaining leadership through emphasis on continuous innovation.
Although this study indicates that small UK food processors are aware of
the importance of product quality, the concurrent priority which they give to
factors impacting immediate financial performance means that insufficient
attention is being given to investment in the scale of product innovation
needed to successfully defend their market position. Furthermore even if
British food processors do realise the urgent need to respond to threats posed
by the single market, they may have to accept it will prove extremely difficult
to recover the ground which has already been lost to their more forward
thinking competitors based in mainland Europe. For although in the children’s
fairy tale the tortoise eventually wins out over the hare, this fantasy rarely
proves to be the case in the world of business (Buzzell and Gale, 1987).
For those UK food processors who wish to rapidly regain lost ground and
ultimately overtake their competitors, one possible solution is to consider the
formation of new Strategic alliances (Dudley, 1989). Prior to initiating a
search for an ally, each firm will firstly have to determine the nature of the
benefits sought from an alliance. One possible approach is to undertake an
assessment of the company’s current strategic position in relation to both
176

International internal organisational capability and European market management

Business competency. Assessment of internal capability will involve an analysis of
Review factors such as financial resources, employee skills, managerial competencies,
production capacity, ability to manage technology and organisational
32
structure. By applying a simple score of 1 to 10 (with 10 representing the
highest possible level of achievement) for each factor, the firm will be able to
quantify actual current capability. Market management competency can be
assessed in a similar way by scoring the firm’s actual performance in relation
to factors such as customer service, product performance, pricing policy,
promotional resources, promotional mix effectiveness, channel management,
physical distribution, customer information systems and financial transaction
management systems.
The achieved scores can be entered in a single market evaluation matrix of
the type illustrated in Fig. 1. A firm located in Cell 1 of the matrix can
probably conclude it has sufficient strengths to exist without needing to form

MARKET MANAGEMENT COMPETENCY

I 1.
N
T
E Sustain Current Market
R Strategic Performance HIGH
N Direction Enhancement
A Alliance Strategy
L

C
A ‘3. 4.
P I

A
B Internal Retrenchment LOW
I ~Capability and/or Trading
L ‘Enhancement Termination
I ,Alliance Strategy
T
Y

HIGH LOW
Figure 1.
 177

any strategic alliances. In the case of the company located in Cell 2 of the Performance of
matrix, then the recommended strategy is to seek an alliance with a firm SME Food
which can strengthen market management competency. On the other hand, a Processing
firm in Cell 3 already has sufficient market management competency, but will Companies
require to develop an alliance capable of upgrading one or more areas of
internal capability.
Successful alliances usually require that each of the partners have strengths
which compliment those held by the other member of the relationship. A firm
located in Cell 4 of the matrix has problems with both market management
competency and internal capability. Under these circumstances they would
have little to offer a potential partner and hence the recommended solution is
for the firm to consider a strategy of either market retrenchment and/or
termination of trading activities.
The concept of forming strategic alliances to exploit international markets
has become increasingly common among large multinational firms (e.g.
IBM’s diverse partnerships with companies such as Nippon Steel, Fuji Bank
and Ricoh to exploit the Japanese I.T. market; Philips and Whirlpool’s home
appliance venture; the Honda/Rover and Mercedes/Mitsubishi ventures to
exploit the European car market). The concept has yet to gain widespread
acceptance with the UK SME sector. Where such ventures have been initiated,
the UK members of the partnership reported that it offers the important
benefits of (i) increasing total revenue, (ii) permitting access to new
customers, (iii) strengthening the firm’s overall market position
and (iv) providing a stronger defence against competitive threats (Chaston,
1993).

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Baimbridge, M. and Burkitt, B. (1991) The Cecchini Report and the Impact of 1992. European
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Baldwin, R. (1989) The Growth Effects of 1992. Economic Policy, No. 9, pp. 248-281.
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Received November 1992

Revised March 1993
Revised October 1993