How competitive are Hungarian small businesses?

Abstract

Based on the RBV and configuration theories, this paper aims to develop a conceptual model and methodology that is suitable to measure and examine small businesses competitiveness. The competitiveness model contains 55 individual variables and ten pillars - Human capital, Financing, Networking, Product and product innovation, Administrative routines and processes, Competitive strategy, Applied technology, Marketing, Internationalization, and Online presence and ICT tools. The study reports the most important findings about the distribution of competitiveness points in the Hungarian small business sector and conducts a cluster analysis. Based on a sample containing 799 small businesses, the average Small Business Competitiveness Index (SBCI) score is 3,79 (3,35 weighted) on a 0-10 point scale. The cluster analysis is based on the ten pillars of competitiveness and reinforces the heterogeneity of the Hungarian SMEs over the eight clusters. At the same time there are remarkable similarities within the clusters. It has been clear that insufficient financing is only one of the problems domestic small businesses face; we have identified other critical factors such as the lack of language knowledge, inadequate training, low level of networking, and shortage of innovation. Since these problematic points change from business to business, it is not possible to amend them by general policy tools. We suggest a decentralized system focusing on the improvement of the weakest links. Reachable benchmarks should be based on the Hungarian best practices. It is unrealistic to expect major improvements from those businesses that have many bottlenecks in their business model. Supporting such kinds of businesses is just a waste of the resources. Government support should concentrate on those firms that have only a few weak areas and could improve their competitiveness by effectively utilizing government support.