According to Drucker and Maciariello (2015), the economy of the United States recently experienced a significant shift in approach: from “managerial” one to “entrepreneurial”. Moreover, Mitra (2020) suggests that technology-based ventures and technological innovations play an increasingly big role in today’s market. Hisrich and Kearney (2014) confirm that the changing environment and attitude towards innovations have a strong impact on any business.
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For example, Legg (2015) emphasizes that modern health safety legislation and work environment regulations do not take into account specific characteristics of SMEs’. Similarly, Ruchkina et al. (2017) state that the taxation system is also not tailored to the SMEs’ specifics, ultimately bringing more harm while it could be used instead to reduce the costs. This harms small businesses in different ways: first, the health safety and work environment regulations reduce the SMEs’ capability of hiring, proving it to be increasingly difficult to meet up the untailored requirements.
Additionally, unclear regulative formulations also do not play in favor of SMEs, reducing their chances of hiring an international workforce and decreasing competitive capability. Third, the taxation regulations do not address the SMEs’ financial capacities, leading them to increased expenses associated with taxes only and, potentially, causing them to go bankrupt. Finally, in regards to taxes, it is clear that any changes in the taxation system that primarily target big companies would undoubtedly harm the SMEs in the process.
Still, despite the obvious demerits, legal regulations also provide a positive impact on the business processes of SMEs. For example, Atkinson et al. (2014) state that appropriate employment regulations prompt managers to fulfill their obligations to the employees with respect. Another example is provided by the study from Juniarti and Anggrahini (2020): the reduced taxation tariffs with a certain time limit provide a much-needed boost for SMEs, giving them more financial opportunities to compete. Kunday and Şengüler (2015) also give a great organizational example in favor of regulations.
As the European Commission established the legal guidelines for SME definition, it became much easier to access the capital for creating an SME. However, Ruchkina (2017) also states that excessive legal regulations pose a significant burden for SMEs, as they might potentially hinder the innovative process. In my opinion, SMEs indeed have a strong need for formal regulation; however, a healthy balance must be maintained in order for the regulative process not to interfere with the SMEs’ working processes and competitive abilities.
Atkinson, C., Mallett, O. & Wapshott, R., 2014. ‘You try to be a fair employer’: Regulation and employment relationships in medium-sized firms. International Small Business Journal: Researching Entrepreneurship, 34(1), pp.16–33.
Drucker, P.F. & Maciariello, J.A., 2015. Innovation and entrepreneurship, Abingdon, Oxon: Routledge.
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Hisrich, R.D. & Kearney, C., 2014. Managing innovation and entrepreneurship, Thousand Oaks, CA: SAGE Publications, Inc.
Juniarti, J. & Anggrahini, Y., 2020. Four factors based on government regulation number 23 of 2018 affect the compliance with taxation of small and medium enterprises. Proceedings of the Annual International Conference on Accounting Research (AICAR 2019), 127, pp.191–196.
Kunday, Ö. & Şengüler, E.P., 2015. A study on factors affecting the internationalization process of small and medium enterprises (SMEs). Procedia – Social and Behavioral Sciences, 195, pp.972–981.
Legg, S.J. et al., 2015. Managing safety in small and medium enterprises. Safety Science, 71, pp.189–196.
Mitra, J., 2020. Entrepreneurship, innovation and regional development an introduction, London, UK: Routledge.
Ruchkina, G. et al., 2017. Small and medium enterprises in the context of regional development and innovations. Journal of International Studies, 10(4), pp.259–271.