A Cluster Analysis Study of Small and Medium Enterprises

Abstract

The study attempts to cluster the successful Small and Medium Enterprises (SMEs) according to their growth mode and strategies. Cluster analysis is used to derive the taxonomy of successful SMEs. Discriminant analysis is used to ensure accuracy of the clustering process. The discriminant function explained 97.8% of the total variance between clusters. About 11 variables related to characteristics of the firm, entrepreneurs and entrepreneurial dynamics were used as clustering variables. Three clusters were formed which were characterized as stable independent survivors, innovators with continuous growth, and network intensive units. SMEs in the first two clusters were growth-oriented, but the underlying nature of growth was different in each cluster. SMEs in the first cluster were efficiency-oriented, while those of the second cluster were characterized as innovators with continuous growth and SMEs in the third cluster were labeled as stable independent survivors. They had a few network relations and many operated only in the local markets. The results can be of use to SME policymakers and organizations fostering entrepreneurship and SME development because different policy initiatives may be required for different types of firms.