Question

Discuss the best funding options for Small and Medium Business Enterprises (SMEs) in Saudi Arabia to keep cost of capital optimum.

Answer 1

Solution:-

The concern about the resources possessed by the firms is linked with its benefits for better performance. A resource means anything that can be considered as the strength or weakness of a firm (Wernerfelt, 1984). To grow, the firms should make a unique combination of resources that increases their competitive capacity (Barney, 1991) or to use their resources for exploiting opportunities (Gupta et al.,2013). The firm shave difficulties to grow without resources such as financial resources, staff, expansion of business operations, management capabilities, debit, cash, equity investments, firm attributes, business networks, organizational processes, information and knowledge (Barney, 1991;Conner and Prahalad, 1996). These have been highlighted in the resource-based view (RBV) theory that is used in analyzing the organizational performance based on its resources (Gupta et al.,2013). The RBV of the firm holds that the performance of a firm could be influenced by the internal resources available to the firm (Penrose, 1959).

Human capital

Extant studies have adopted human capital in predicting models of entrepreneurial success (Davidsson and Honig, 2003;Rauch et al.,2005). Human capital also relates to higher performance and sustainable competitive advantage (Nordhaug, 1998); higher organizational commitment (Iles et al.,1990); and enhanced organizational retention (Robertson et al.,1991). Garavan et al. (2001) described that human capitals have four key attributes, which are as follows:

(1) flexibility and adaptability;

(2) the enhancement of individual competencies;

(3) the development of organizational competencies; and

(4) individual employability.

It indicates that these attributes, in turn, generate and add values to individual and organizational outcomes. Human capital has been central to the explanation of individual earnings differences (Nerdrum and Erikson, 2001). Entrepreneurs who invest in education and training will raise their skill level and be more productive than those less skilled, and so higher earnings can be justified as a result of their investment in human capital. This can also lead and will be likely to strive for more growth and profits in their businesses (Cassar, 2006).