The Importance of Knowledge Transfer as Soft Capital from State Development Banks in SME Growth - Thesis Proposal Example

The importance of knowledge transfer as soft capital from State Development Banks in SME growth

Table of Contents

1.0 Introduction3

1.1 Background of the study3

1.2 Research question4

1.3 Research aims and objectives5

2.0 Literature review5

3.0 Research methodology7

3.1 Interview8

3.2 Case studies9

4.0 Timeframe10

10

Reference List11

Appendix14

• 1.0 Introduction
  • 1.1 Background of the study

It is widely believed that small and medium enterprises (also known as SMEs) significantly contribute to economic progress. Empirical research shows that SMEs helps in economic development through job creation, meeting demand and supply in the market, circulate money in the society and so on. The state and national banks are playing an active role in regards to creation and transfer of knowledge as soft capital for growth of SMEs. Knowledge has become an important factor for growth and development and it has become the key to success for contemporary businesses. In order to maintain a competitive advantage over rival firms, it has become imperative for organisations to develop, retain, organise, utilise and transfer their knowledge resources. One way to attain these objectives is to implement Systematic Knowledge Management (or SKM) (National Development Strategy, 2011).

In order to develop a sustainable business environment by promoting knowledge-based economy, the government is making efforts to support the private sector development and the banking and financial institutions like the Qatar Development Bank and the State Development Bank are playing a vital role. These banks are assisting the SMEs in the knowledge transfer process by providing soft capital. A soft capital is a subsidised loan provided by banks or financial institutions to borrowers. Traditionally, the World Bank and International Monetary Fund (or IMF) provided soft capitals to developing and underdeveloped countries (Bunglawala, 2016).

In the year 2009, the government established the Enterprise Qatar which aims to catalyse operations that will support creations and development of SMEs in the economy. The Qatar Development Bank has been actively investing in SMEs to ensure that there is greater application and more efficient delivery of services to private sector. The government is trying hard to promote SMEs because entrepreneurship is not firmly established in Qatar. The SMEs only constitutes a meagre portion of the economy and despite the success of few firms like iHorizons, there is a need to support this sector (National Development Strategy, 2011). According to Roper and Ruckes (2012), knowledge transfer helps the SMEs to use external source of funds for growth and expansion of business. The main advantage of soft capital is that it allows the SMEs to attain long-term funds at lower cost of capital with extended tenure to repay the principal amount in future.

This dissertation will clearly distinguish the difference between what normal banks offer to SMEs (that is, hard capital) and what State Development Bank offers (which is beyond capital including know how, support, knowledge transfer, general guidance, etc). The findings of this dissertation will show how soft capital knowledge transfer, support, etc. is equally or more important than hard capital offered by normal banks and state development banks. This research will also show how knowledge transfer leads to success and growth of SMEs who avails loans from Qatar Development Bank. This will prove how the additional services are essential to overall success of SMEs along with hard capital.

• • 1.2 Research question

This research proposal is based on the following research question,

“Why is it important by banking and financial institutions like the State Development Banks and Qatar Development Bank to provide soft capital for knowledge transfer to SMEs?”

• • 1.3 Research aims and objectives

Based on the background of the study and the research question, this study is centred on the following research aims and objectives:

• To determine the role of SMEs in economic development of Qatar.
• To understand the benefits of soft capital for SMEs in Qatar and distinguish its impact on SMEs with hard capital.
• To conduct interview with senior executive of Qatar Development Bank regarding his/ her detailed experience on soft capital support provided by the bank.
• To conduct three case studies on SMEs that have actually availed soft capital from Qatar Development Bank and assess its difference with hard capital.
• 2.0 Literature review

Role of SMEs in economic development

The SMEs are important building blocks in economic development because they significantly contribute to the economic output. According to Deakins and North (2013), the main roadblocks which SMEs generally encounter includes limited access to capital, issues with supply of labours, intense competition, issues in handling manpower and rising cost of input. P.Sok, O’Cass and K.Sok (2013) argued that the SMEs play a vital role in creating jobs and innovation in the society. Empirical evidences reveal that many products introduced by SMEs in the market are very creative and affordable in nature. In contrast, most of the new launches of the large firms focus on improving existing products in the market. The main argument is that large companies do not have same flexibility as SMEs because of their large organisational structure and accountability to multiple stakeholders (Fernández‐Serrano and Romero, 2013). In practice, the decision making process of large firms is a time consuming process because information flows at different levels. The decision making process of the small firms on the other hand is less complex as the business owner mainly takes the final call. This helps SMEs to simplify the decision making process and thereby, minimising unnecessary communication gaps and repetitive processes (Ahlin, Drnovšek and Hisrich, 2014).

Importance of knowledge transfer as soft capital for SME growth

According to Mason and Brown (2013), one of the most common problems faced by SMEs is acquiring capital from investors. As equity capital is more expensive than debt capital, many small firms are unwilling to raise funds via this financing route. There is also another disadvantage that the SMEs could lose ownership of the firm to the investors. Hence, the best option available to the SMEs is knowledge transfer as soft capital.

The main objective of the dissertation is to show how soft capital plays an important role in SME growth. Basically, the SMEs have two options – to use hard capital from banks (financial support) and soft capital (where emphasis is more on support and knowledge transfer).

According to Baiman, Heinle and Saouma (2013), knowledge transfer refers to flow and dissemination knowledge from the creditor to the SMEs. The main characteristics of knowledge transfer as soft capital is that the SMEs availing this type of services will be able to benefit by taking low interest capital from the bank for a longer tenure. This will provide flexibility to the cash crunch SMEs who in turn will be able to repay the principal when there are sufficient cash flows in the business. On the other hand, the SMEs taking soft capital will also not have to pay additional interest on loans unless they can prove that they had problems with the cash flows (Dutta and Fan, 2012).

Impact of hard capital and soft capital on SMEs

According to Arvanitis, Loukis and Diamantopoulou (2013), there can be two situations which could force the SMEs to look for new sources of funds. Hard capital refers to a condition when the company is unable to raise funds from the stock markets. This kind of situation could lead to financial shortage for financing new developments in the firm. Soft capital on the other hand is a condition which allows firms to voluntarily restrict the limit on the amount of fund. According to the arguments of Hunter and Lean (2014), the decision to take soft capital is generally made by the internal management because the owners of the firm could decide to restrict financing through equity issue in fear of losing control of the firm. In order to ensure control over the firm, it is a good strategy to raise soft capital very slowly over a long time period. In contrast, Jafri et al. (2014) mentioned that, a promoter may be forced to use knowledge transfer as soft capital only as last resort. This is because, excess leverage of capital structure increases financial risk and opportunity cost of capital. In the long term, debt financing has implications on liquidity and solvency ratios of the company which is limited for hard capital (Baldock and Mason, 2015).

• 3.0 Research methodology

This study will conduct a two-tier methodological framework using both interviews and case studies in order to answer the research question. The underlying philosophy for this research will be social constructivism. This social constructivism approach will assist the researcher to understand the environment and system. In order to conduct the study, the researcher will be involved in designing a questionnaire that will be open-ended types. The main focus will be to interact with participants and understand cultural and behavioural settings of the organisation (Taylor, Bogdan and DeVault, 2015). This dissertation will argue through research methodology regarding how the Qatar Development Bank offers more than just funds to SMEs.

This study will conduct one face-to-face interview with a senior executive of Qatar Development Bank to explore the fundamental trends in the economy. The interview process will aim to explore the relationship between soft capital support and development of SMEs. The study plans to discuss in detail the experiences of the banking employees with SMEs and their experience through knowledge transfer. The interview process will help the researcher to acknowledge their backgrounds and experiences. This study will conduct and analyse 3 case studies on SMEs that have actually benefited from soft capital support from Qatar Development Bank. This will help the researcher to assess the difference between just receiving hard capital and soft capital (knowledge transfer).

• • 3.1 Interview

The main objective of personal interviews is to investigate the responses of the interviewee to gather deeper information regarding the overall process of soft capital support of Qatar Development Bank to SMEs in regards to the personal experience of the bank’s executive. The main advantage of open-ended interview style and discussion with representatives of Qatar Development Bank is to observe the behaviour of the interviewee (Corbin and Strauss, 2014).

The questions which will be asked to the senior official of Qatar Development Bank will be very practical and focus on the importance of knowledge transfer as soft capital for SME growth. The first question (refer to appendix table 1) will critically review the various initiatives taken by the bank to support SME’s growth. This will help the researcher to get more details regarding what criteria the bank looks for when they provide knowledge transfer as soft capital to SMEs (refer to question 2 of appendix, table 1). In order to understand the current knowledge transfer as soft capital procedure followed by the bank, the researcher will ask the third practical question regarding the feedbacks of the SMEs. It is also important to understand the opinions of the SMEs which have actually taken soft capital from the bank (Gioia et al., 2013). In order to address this point the researcher will ask the official regarding what he/she thinks motivates SMEs to ask for soft capital from Qatar Development Bank. Finally, the interview process will end with the question that whether or not the SMEs experience tangible or intangible benefits when they choose soft capital over hard capital. This question will help the researcher to assess the difference between just receiving hard capital and that of soft capital and hard capital.

According to, in-depth interviews are generally conducted through one-to-one encounter through the use of semi-structured or structured questionnaire in relation to the issue or topic of discussion. The in-depth interviews will help the researcher to explore the underlying emotions, attitudes and behaviour of the interviewee (Marshall et al., 2013; Krueger and Casey, 2014).

• • 3.2 Case studies

According to Yin (2013), case studies provide a great opportunity for the companies to reveal the value of their products or services. For this study, three SMEs will be randomly chosen from the list of companies which have acquired soft capital (knowledge transfer) from Qatar Development Bank. The list will be obtained from the bank with prior consent of the loan officer. Once the list has been obtained from the bank, the next task will be to shortlist only three such firms which have actually taken soft capital from the bank. The main criteria for shortlist will be:

• The total number of employees of the company should be less than 250 in the past three years (for creative sector the number should be less than 100)
• The annual revenues of the firm is less than QR 100 million (or approximately US$ 28.2 million) in the past three years
• Must belong to either of these industries: agriculture, creative industry, construction and real estate, transformational industry and service sector
• The amount of loan (more than owner’s capital) (Shoeb, 2015).

Hence, the case study will be conducted only on the SMEs which satisfy the four criteria mentioned above. Once the three SMEs have been identified who have actually taken soft capital from Qatar Development Bank and benefitted from using it, the researcher will conduct the case study in such a manner that the difference between hard capital and soft capital becomes clear and also there is evidence of the impact (Lundström et al, 2014).

• 4.0 Timeframe

Table 1: Time frame

(Source: Author’s creation)

• Reference List

Ahlin, B., Drnovšek, M. and Hisrich, R.D., 2014. Entrepreneurs’ creativity and firm innovation: the moderating role of entrepreneurial self-efficacy. Small Business Economics, 43(1), pp.101-117.

Arvanitis, S., Loukis, E. and Diamantopoulou, V., 2013. The effect of soft ICT capital on innovation performance of Greek firms. Journal of Enterprise Information Management, 26(6), pp.679-701.

Baiman, S., Heinle, M.S. and Saouma, R., 2013. Multistage capital budgeting with delayed consumption of slack. Management Science, 59(4), pp.869-881.

Baldock, R. and Mason, C., 2015. Establishing a new UK finance escalator for innovative SMEs: the roles of the Enterprise Capital Funds and Angel Co-Investment Fund. Venture Capital, 17(2), pp.59-86.

Bunglawala, Z., 2016. Nurturing a Knowledge Economy in Qatar. [online] Available at: <http://www.brookings.edu/research/reports/2011/09/qatar-bunglawala> [Accessed 23 May 2016]

Corbin, J. and Strauss, A., 2014. Basics of qualitative research: Techniques and procedures for developing grounded theory. London: Sage publications.

Deakins, D. and North, D.J., 2013. The role of finance in the development of technology-based SMEs: evidence from New Zealand. Journal of Entrepreneurship, Business and Economics, 1(2), pp.82-100.

Dutta, S. and Fan, Q., 2012. Incentives for innovation and centralized versus delegated capital budgeting. Journal of Accounting and Economics, 53(3), pp.592-611.

Fernández‐Serrano, J. and Romero, I., 2013. Entrepreneurial quality and regional development: Characterizing SME sectors in low income areas*.Papers in Regional Science, 92(3), pp.495-513.

Gioia, D.A., Corley, K.G. and Hamilton, A.L., 2013. Seeking qualitative rigor in inductive research notes on the Gioia methodology.Organizational Research Methods, 16(1), pp.15-31.

Hunter, L. and Lean, J., 2014. Investigating the role of entrepreneurial leadership and social capital in SME competitiveness in the food and drink industry. The International Journal of Entrepreneurship and Innovation, 15(3), pp.179-190.

Jafri, S.K.A., Ismail, K., Khurram, W. and bte Soehod, K., 2014. Impact of Social Capital and Firms’ Innovative Capability on Sustainable Growth of Women Owned Technoprises (SMEs): A Study in Malaysia. World Applied Sciences Journal, 29(10), pp.1282-1290.

Krueger, R.A. and Casey, M.A., 2014. Focus groups: A practical guide for applied research. London: Sage publications.

Lundström, A., Vikström, P., Fink, M., Meuleman, M., Głodek, P., Storey, D. and Kroksgård, A., 2014. Measuring the costs and coverage of SME and entrepreneurship policy: a pioneering study. Entrepreneurship Theory and Practice, 38(4), pp.941-957.

Marshall, B., Cardon, P., Poddar, A. and Fontenot, R., 2013. Does sample size matter in qualitative research?: A review of qualitative interviews in IS research. Journal of Computer Information Systems, 54(1), pp.11-22.

Mason, C. and Brown, R., 2013. Creating good public policy to support high-growth firms. Small Business Economics, 40(2), pp.211-225.

National Development Strategy, 2011. Qatar National Development Strategy 2011~2016. [pdf] Available at: <http://www.gsdp.gov.qa/gsdp_vision/docs/NDS_EN.pdf> [Accessed 23 May 2016]

Roper, A.H. and Ruckes, M.E., 2012. Intertemporal capital budgeting.Journal of Banking & Finance, 36(9), pp.2543-2551.

Shoeb, M., 2015. Minister announces definition for SMEs. [online] Available at: < http://www.thepeninsulaqatar.com/business/qatar-business/359006/minister-announces-definition-for-smes> [Accessed 23 May 2016]

Sok, P., O’Cass, A. and Sok, K.M., 2013. Achieving superior SME performance: Overarching role of marketing, innovation, and learning capabilities. Australasian Marketing Journal (AMJ), 21(3), pp.161-167.

Taylor, S.J., Bogdan, R. and DeVault, M., 2015. Introduction to qualitative research methods: A guidebook and resource. New Jersey: John Wiley & Sons.

Yin, R.K., 2013. Case study research: Design and methods. London: Sage publications.

• Appendix

Table 1 – Designed questionnaire for interviews (1 interview)

1. What are the initiatives taken by Qatar Development Bank to support SME’s growth?

2. What does the bank look for when they are providing knowledge transfer as soft capital to SMEs?

3. Has the SMEs approached the Qatar Development Bank with any feedbacks to improve their process of providing soft capital?

4. Why do you think (the interviewee) motivates the SMEs to prefer soft capital over hard capital?

5. Is there a tangible or intangible benefit experienced by SMEs when they choose knowledge transfer as soft capital over hard capital?