Impact of internal and external factors on the performance of fast-growing small and medium businesses

This study aims at broadening the understanding of small and medium businesses (SMBs) as a significant driver of economic development, as particularly related to their market performance, as well as the impact of the internal and external environment on it. The study was conducted on Croatian fast-growing SMBs, i.e. gazelles. However, the scientific and practical contribution of the research transcends national borders, as there are not many similar studies carried out in transitional or small countries or those in the field of fast-growing businesses. The paper provides a more realistic picture of the variability of environmental factors, as well as of the variability of SMBs performance/effectiveness, as well as includes the period of economic crisis, jeopardising not only the performance, but also the very survival of businesses in general. This study confirmed that eight internal factors (business entity size, life cycle stages, technology and product innovation, organizational autonomy, centralization and formalization, market roles, and type/importance of goals) and three out of the five analyzed external factors (general state of the economy, sector, and type of customers), depending on the period (life cycle stage and general state of the economy), exercise a more or less significant impact on the performance/effectiveness (sales growth and achievement of goals) of SMBs.1. INTRODUCTIONThe fundamental problem that led to this study1 is still limited empirical knowledge about SMBs in Croatia and worldwide, which makes the development of adapted theories and their successful implementation difficult. The paper addresses two specific problems: market performance of SMBs and the impact of internal and external factors on it. The subject of this dynamic research are the fast-growing SMBs in Croatia, as successful representatives of this important segment of the economy, and the impact of 13 factors (8 internal and 5 external) on their performance/effectiveness, shown through objective indicators of sales growth and subjective evaluation of goals achievement.1. 1. Small and medium businesses - concepts and relevanceSMBs are best determined by the economic and statistical definition in the Bolton Committee Report (1971). While the statistical criteria for quantitative determination of the business entity size (micro, small and medium) vary from country to country, the economic criteria - ownership and managerial independence ((co)owners are also the managers and the small market share of these business entities) - can be considered generally applicable. According to the Small and Medium Entrepreneurship Incentives Act (MINGORP, 2007) SMBs in Croatia are all natural and legal entities independent in permanent undertaking of business activities to gain profit, i.e. income on the market, which meet two of the three (statistical) criteria required. One of the obligatory criteria is the number of employees (up to 250 employees) and the other can include either the annual turnover of up to 216 million HRK or (long-term) assets value of up to 108 million HRK.Contrary to their name, SMBs play a significant role in the economic and social development of each community. According to data provided by the Ministry of Economy, Labour and Entrepreneurship (MINGORP, 2008), the indicators of SMBs in Croatia do not show large deviations from those for the EU and OECD countries (99.4% of the total number of registered businesses, 64.7% of all employees, 44% of GDP). Of particular interest to researchers, practitioners and government policies is the category of fast-growing businesses and/or gazelles. The main characteristic of this category is surely fast and above average growth of revenue/sales achieved in a three-year period (the percentages vary from country to country dependent on the national economy growth rate), and closely related increase of employment, while any additional categorization features vary depending on the circumstances and the priorities of national economies. …