Indicators of Competitive Advantage in the Context of Small and Medium Enterprises: A Review of Literature

Small and Medium Enterprises are important in job creation, income generation and poverty alleviation. Researchers have therefore proposed theoretical frameworks to help investigate factors on competitiveness, the constraints SMEs face and the policies that regulatory bodies can pursue to make the business environment friendlier. This study therefore focused on previously published empirical literature related to competitiveness. The reviewed literature shows that competitiveness has been described as dependent upon macroeconomics, governmental industrial policies and firm specific choice. The perspective of the current study is that macroeconomics and government policies equally affect all the industrial players and are to a large extent out of control of the leadership of any enterprise. There is therefore need to evaluate competitiveness based on a firm’s specific choices that depends on the leadership ability of the management and hence can be manipulated by an enterprise for competitive advantage. Secondly, the widely used competitiveness models such as Porter’s five forces analysis have some drawbacks.The modelassumes a classic perfect market as well as static market structure, which is unlikely to be the case in present-day dynamic markets. In addition, some industries are complex with multiple inter-relationships, which make it difficult to comprehend and analyse using the five-force model.Based on intensive literature review, it was concluded that there is need for scholars to develop additional theoretical frameworks upon which propositions at the abstraction level can be advanced and empirically tested as hypotheses in empirical work. Therefore, the current study proposes a theoretical model to show the interplay of relevant factors for competitive advantage.