From Survival to Sovereignty: Strategic Growth Strategies for Bahraini SMEs

Learn how Bahraini SMEs can transform economic pressure into strategic power through financial resilience, digital transformation, niche positioning, sustainability, and long-term growth planning.

Bahrain's small- and medium-sized enterprises (SMEs) have become more than just a component of the country's economy. They are the backbone of the economy. Through the development of the national vision 2030 plan, the government aims at diversifying the economy, creating jobs, developing innovation and developing SMEs. SMEs represent nearly 90% of all registered businesses in Bahrain. Moreover, SMEs generate almost 30% to 35% of the Gross Domestic Product (GDP). Many of these organizations face numerous obstacles to grow. Such obstacles include increasing operating expenses, fluctuating global economies and changing technological environments. Consequently, survival has evolved from being short-term to long-term and strategic.

Many entrepreneurs continue to expend most of every working day managing the daily cash flow needs of their company and competing with others. While there is a growing body of evidence indicating that focusing on the daily operations of a business often diverts the attention of management away from developing long-range strategies for growth. Therefore, the "Survival Trap," exists when companies are extremely adept at functioning as efficient day-to-day operations, but inept at scaling or innovating. It follows that the fundamental strategic imperative is to begin viewing survival as a platform from which to construct a strategic transformation of an organization and defining success in terms of achieving "Business Sovereignty" - the ability of an organization to competitively function independently, to continually evolve in response to rapid changes occurring within an industry, and to produce sustainable value for stakeholders. To aid in this paradigmatic shift, entrepreneurs must understand the larger macroeconomic environment in which they operate. In recent years, Bahrain has significantly expanded beyond its dependence on oil-based revenues by developing diverse sectors. Non-oil based sectors currently contribute over 80 percent to gross domestic product. From a perspective of opportunity creation, the structural changes that have occurred in Bahrain have generated possibilities for SMEs to enter a variety of fields including information technology, fintech, tourism and services. On the other hand, the same structural changes have increased competitiveness among SMEs and created higher expectations regarding efficiency, innovation and customer service. In this climate, SMEs operating in Bahrain must possess a certain degree of strategic acuity to achieve a balance between meeting current operational needs while simultaneously preparing for future positioning.The challenges faced by SMEs in Bahrain are not random. Rather, they are formed by identifiable structures. One of the most significant constraints that SMEs experience is the lack of access to capital. Limitations on an SME's ability to gain access to capital impede their ability to invest in their business, expand or innovate. New entrants into existing markets combined with digital platforms disrupting traditional industries create intensified competition for today's SMEs. Digital deficiencies and management skills gaps limit the capacity for growth. While regulations provide necessary structure for maintaining order in the market place, regulatory requirements add another layer of complexity for smaller businesses who must navigate very carefully around them. Together these structural barriers demonstrate an important concept: an SME's ability to survive is dependent on aligning their strategies with these significant variables.

Entrepreneurs can alter their view about survival by defining it as a strategic objective. Defining survival as a strategic objective includes viewing survival as a question not only of whether the organization survives but how survival can be strategically defined and executed in order to maximize performance. Strategic definition of survival implies building financial resilience and operational flexibility and providing the ability to respond quickly to disruptions in the market caused by external shocks. Establishing financial resilience alone is insufficient. As an example, if an organization establishes enough financial resilience but fails to generate growth then the organization will eventually decline and threaten its own continuity. The previous situation demonstrates what some researchers call the Resilience-Growth Paradox.

The Resilience-Growth Paradox refers to the interdependence of stability and growth. Those organizations focused solely on stability tend to sacrifice opportunities for growth and conversely organizations focused solely on growth expose themselves to extreme risk. Ultimately, only organizations that establish both stability and growth in Bahrain can be classified as successful. Successful organizations utilize stability as a springboard for taking calculated risks to enhance growth and utilize growth to improve their competitive position and increase their financial capability.

Digital Transformation represents a critical vehicle for achieving this synergy. Bahrain has moved aggressively to position itself as a digitally advanced economy characterized by well-developed digital infrastructure and high levels of digital adoption (e.g., e-government applications, fintech). Those organizations that successfully incorporate digital technologies have been able to extend their markets, reduce their operational costs, enhance customer interactions and are better positioned relative to organizations relying exclusively on conventional practices.

Another important element that assists SMEs in achieving strategic objectives is Financial Discipline. An SME is financially resilient when it can manage its cash flows effectively; control its costs; and diversify its sources of revenue. Bahrain has developed a supportive financing framework through government sponsored programs and financial institutions providing assistance for securing funds for SMEs. However, securing funding accounts for only half of the equation; for an SME owner/ manager to direct funding towards organizational goals and maintain financial stability during times of uncertainty is equally important.

Lastly, Market Positioning represents still another factor associated with success for SMEs. In highly competitive environments, many businesses endeavor to target large markets, resulting in diminished value propositions and increased vulnerability. Targeting specific niches results in greater competitive advantage for SMEs; creates stronger relationships with customers; and allows organizations to establish unique value propositions. Examples of successful niche-targeted businesses in Bahrain include specialty food brands; boutique service providers; and tech-enabled startups. Instead of competing on the basis of economies-of-scale; niche targeted businesses compete on the basis of relevance and specificity.

The availability of an entrepreneurial ecosystem in Bahrain enhances the potential for SME success. Collaborations between government agencies, financial organizations and private sector entities have created a culture that supports innovation and entrepreneurship. Programs sponsored by organizations such as Tamkeen have provided access to funding, training, education and market opportunities for SMEs in Bahrain.

Ultimately, all of the previous examples illustrate that the ultimate source of success for an entrepreneur is human capital. The entrepreneur and their team's capabilities determine the path forward for the business. Effective leadership; strategic decision-making; ongoing learning; etc., are essential characteristics for entrepreneurs wishing to lead their businesses through challenging times. Entrepreneurs need to continually improve their knowledge/skills in areas such as financial planning; marketing; digital transformation; team development; etc., so that they can execute plans and adapt to new realities in addition to identifying new opportunities.

Finally, Sustainability is beginning to emerge as an important competitive advantage for entrepreneurs. Today's consumer - especially younger generations - increasingly cares about the environmental/social impacts associated with the goods/services they purchase. Entrepreneurs whose companies practice sustainable processes - such as environmentally friendly practices; socially responsible procurement; community involvement; etc., not only benefit society but also create value for their customers/buyers and differentiate themselves from less sustainable competitors. Given Bahrain's commitment to achieving Vision 2030 - a long term plan for the nation's economic development - Sustainability is fast becoming an integrated part of the nation's long term economic strategy with SMEs playing an active role in implementing sustainable solutions.The transition from survival to sovereignty is not a straight line; rather it is a series of ongoing adaptations/growths. It necessitates a cultural shift from reactively addressing challenges/problems in a business environment to proactively developing strategies; from short-term perspectives/decision making to long-term visions/goals; and from operationally independent organizations to organizations that are interconnected/participants in their respective ecosystems. Those businesses that recognize this opportunity will not only endure in an economically volatile environment but will help shape the future course of Bahrain's economy.Each entrepreneur must ask themselves one question going forward: Is my current strategy sufficient to support the growth I desire? Survival may be necessary; however, it is insufficient. True success is derived from turning pressure into power; and resilience into sustainable growth.

Thus far, we have illustrated that SMEs in Bahrain are more than simply participants in the economy; they are its potential architects.

Keywords: Bahraini SMEs, SME growth strategy, digital transformation Bahrain, financial resilience, business sustainability

Bahraini SMEsSME growth strategyDigital transformation BahrainFinancial resilienceBusiness sustainability

FA

Ms. Fatima Al-Shuwaikh

Gulf University