Strategic Planning in SMEs

Leeds University
Business School
Strategic Planning in SMEs:

The limitations in funding and managerial knowledge
A research on English wine production industry
Charis Agathos - Ninos

Dissertation supervisor: C. Antoniou
August 2011
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This dissertation is submitted in part fulfilment of the requirements for the degree of Msc
International Business
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Abstract
In this research we tried to identify whether SMEs adopt specific strategies and if they do, how do they deal
with the restrictions in financial resources and managerial knowledge that are important elements of the
implementation of those strategies. This paper expands on the Porter’ s generic strategies and tries to link them
with the limitations in small businesses. The research is taking place through the conduct of in - depth, semi -
structure interviews with owners and managers of three firms in England operating in the wine production
industry. The findings support the theory that small businesses do have identifiable strategies but oppose to
some authors suggesting that generic strategies cannot be applied in SMEs. According to the specific research
small firms could adopt a differentiation or focus strategy. We also tried to identify the impact of limited
financial resources and managerial knowledge on the strategic planning and implementation. According to this
research, financial resources and managerial knowledge cannot be considered serious issues for SMEs if they
do not adopt a growth oriented strategy but are essential for the firms when they are pursuing a growth -
oriented strategy.
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Acknowledgments
I would like to thank my supervisor Dr. Christos Antoniou for his direction assistance and guidance.
Special thanks should be given to Mr George H. Bowden owner of Leventhorpe Vineyard, Mr Jonty Daniels,
owner of Astley Vineyard and Miss Dora Lobo Cook, Sales and Marketing Executive in Hush Heath Estate for
their cooperation and the useful information the provide me. Without them this research could not have been
conducted.
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Table of Contents
1. Abstract I
2. Acknowledgements II
3. Table of Contents 3
4. Introduction 4
5. Literature Review 5
6. Methodology 11
7. Discussion 18
8. Conclusions 24
9. References 27
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Introduction
This research aims to provide evidence on the strategies adopted by SMEs in the wine production sector in
England. The competition from imported wines is very intensive in the UK market coming mainly from
Europe, USA, Australia, Africa or South America. In this highly competitive environment English wine
producers play an important role and possess a strong position in the market. According to Mintel report of
2010 the ten largest firms provide less than 30 per cent of the on-trade wine in UK all of them multinationals
and not producing their wines in UK. From that low percentage it is easy to understand that UK market is
served in a very high degree by local firms. The wineries and vineyards in England are classified as SMEs and
most of them are family businesses. In fact, the vast majority of them are very small businesses occupying one
or two employees and serving mainly the local markets.
UK wine production is very low even though it is the biggest importer of wine in European Union. According
to the “Marketing Association of English wine producers” there is a constant increase in the production of wine
as well as an increase in the size of vineyards showing a tense of concentration in the industry in recent years.
Many small vineyards are producing award winning wines and there is some export activity in specific markets
showing a dynamic in the industry. Many geologists support that the global warming will have positive effects
in the wine production sector in the next years, thus, those small producers can develop into strong competitors
in the international markets.
The focus of the current research is on the strategies adopted by small and medium size wine producers
according to the generic strategies that Michael Porter introduced in 1985 and how the strategy adopted and its
implementation as well is affected by the limitations that SMEs face in financial resources and managerial
knowledge.
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In order to answer those questions a survey was conducted with the collection of primary data via in-depth
interviews with owners / managers of wineries in UK. The goal of those interviews was to extract information
about the strategic planning of those firms and the way that restrictions in the availability of financial credit and
managerial knowledge define or affect in a degree that planning. Due to the limitations in time and financial
resources the research will include three interviews.
The success of English SMEs in the specific sector in which the external competition is very high and their
ability to survive and expand in some cases even if they have to face the restrictions mentioned above is very
interesting and the conclusions of this research could provide information on the strategic directions for SMEs
in similar agricultural, and not only, sectors. In addition, the results of this research could provide further
information to a debatable topic such as the application of Michael Porter’ s generic strategies in small and
medium size businesses.
Literature Review
Strategic planning of a firm is one of the most important factors that will affect its future survival and progress.
Johnson and Scholes define strategy as “The direction and scope over the long term which achieves advantage
for the organisation through configuration of resources and competences within a challenging environment to
meet the demands of the markets and to fulfill stakeholders expectations” ,(Exploring Corporate Strategy,
1998). Michael Porter refers to strategy as the creation of a unique and valuable position, involving a different
set of activities (What is strategy? , 1996). This definition emphasizes in the uniqueness of the position of the
firm compared to the competition. The “different activities” term implies the need of doing things in a different
way in order to achieve a competitive advantage.
Michael Porter in the “Competitive Strategy” (1985) supports that there are three main strategies, the “Generic
Strategies” as he mentions. The first one is the cost leadership strategy, based on the cost structure of the firm.
To achieve a cost advantage firms produce in large scales products with low degree of differentiation in order to
be benefited by the learning effects and the economies of scale. Firms adopting that strategy use a lower pricing
policy compared to the competitors in order to gain higher market shares. The second one is the differentiation
strategy with firms trying to differentiate their products compared to the competitors. Providing a different
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product gives those firms the ability to charge a premium price. The last strategy is the “focus strategy”
according to which firms produce goods for specific, small market niches, trying to satisfy in the best possible
way the needs of those small markets. It is easy to understand that those strategies do not only determine the
activities of the firm and the way they take place within the environment of the organisation but its positioning
in the market as well and the way it will approach its customers.
Implementation of a strategy may require specific managerial knowledge and resources. The abundance of
funding opportunities and subsequently the economic strength of large multinationals ensures the ability of
those firms to implement the strategy they have created. But SMEs do not always have those possibilities. The
financial ability of small firms is much lower and the economic risk of doing the necessary actions to
implement a strategy may be disastrous for the firm in case of a failure. Additionally, strategic planning requires
research and analytical skills as well as managerial knowledge, things that most of the times are not available in
those firms.
Reading the previous arguments, one could conclude that SMEs do not have the required financial resources
and managerial knowledge to develop and implement a specific strategy and that their activities are driven by
short term goals and their positioning is random, not focusing on specific market. But SMEs account for over
95 % of businesses and for almost 50 % of the value added worldwide (OECD, 1997; United Nations, 1993).
They survive and succeed in a highly competitive environment against large multinational firms and they are
the driving force of most of the economies all over the world. Is it possible for those firms to manage surviving
without any strategic planning? Obviously not. Despite those restrictions, SMEs create and implement their
strategies, being successful and profitable and finally growing.
Strategy in SMEs
Having defined strategy is important to take a look at the major characteristics of those definitions. The long
term direction shows the sector in which the firm will operate while the scope refers to the range of activities
that are going to take place in order for the firm to achieve its goals. Johnson and Scholes also suggest that
strategy should aim to the creation of a competitive advantage. This will be achieved through the exploitation of
the resources and competences of the firm and will finally lead to a different positioning, “fit” to the business
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environment (Johnson and Scholes, 1998). Michael Porter focuses on the uniqueness of this positioning, the
differentiation from the competition “by choosing a different set of activities to deliver a unique mix of value”
(1996). Trying to explain Porter’ s definition, Ajit Prasad (2010) refers to strategy as an “inferior” choice in the
short term in order to achieve a superior position in the future focusing on the option of strategy in contrast to
the necessity of operational efficiency.
Miles and Snow (Organizational Strategy, Structure and Process, 1978), present four different types of
organisational adaptation. According to them every one of those types has a different strategy and different
ways to adapt to the changes of the external environment. They introduce the terms of the “entrepreneurial
problem” (orientation, target market), the “engineering problem” (operational solutions to the entrepreneurial
problem) and the “administrative problem” (reduction of uncertainty, rationalisation and stabilisation of the
operational activities) and aligns firms to four different categories according to the ways that they deal with
those problems. Defenders, prospectors, analyzers and reactors. Porter (1985) describes the “Generic
Strategies”, cost leadership, differentiation and focus “to characterize strategic positions at the simplest and
broadest level” (1996).
Many authors suggest that SMEs are restricted in their strategic positioning due to the limitations of size and
financial resources. Rugman and Verbeke (1987) supported that the generic strategies could not apply to SMEs
since because the only option they have is that of the focus strategy (Rugman, Verbeke, 1987). On the other
hand, Gerald d’ Amboise supports that the size has no effect on the strategic planning of the firms. Since SMEs
compete mostly with firms of similar size they can manage to gain cost benefits without reaching economies of
scale. He also suggests that many firms appeared to have a mixed strategy (stuck in the middle). This strategy
could be justified by the effort to achieve cost advantages compared to the competitors of similar size but
higher quality or differentiated products compared to the products of large enterprises that prefer
standardisation and mass production. D’ Amboise opposes to the opinion that SMEs target narrow market
niches, finding that the bigger and most experienced of them had a wide target market (1985). Testing the
Miles and Snow’ s typology, Davig reached to the conclusion that size doesn’ t have a relation to the
performance of the firms but it did have on the type of them mentioning that larger enterprises tended to be
mostly analyzers or prospectors (1986). Additionally, North and Smallbone (2000) support that the SMEs that
experienced high growth had been pursuing a differentiation strategy. This comes in contradiction to the
Rugman and Verbeke argument that SMEs can only adopt a focus strategy.
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The above arguments show that there are different opinions about strategic planning in SMEs and how is it
possible for those firms to follow a cost leadership, differentiation or focus strategy but the majority of the
authors agree with the opinion that SMEs adopt clearly specified strategies and that Porter’ s generic strategies
can be applied. On the other hand, there are a number of limitations that SMEs have to face coming mainly
from the lack of resources, financial or not.
The Financing Gap
One of the most important constraints that SMEs face in order to survive and grow is the lack of financial
resources (Carpenter and Peterson, 2002). Unfortunately, SMEs face serious problems in accessing the money
needed for their development. A survey of Cambridge Small Business Research Centre shows that the two main
issues for the growth of small firms were financial . The first one was the availability and cost of finance for
expansion and the second one was the availability and cost of overdraft facilities (Storey, 1994). The increased
uncertainty that exists in SMEs compared to the large corporations can be a deterrent factor for their support by
the financial institutions (Harrison et al., 2004). Storey (1994) supports that there is a gap for SMEs coming
mainly from the inside of the firms and especially from the entrepreneur’ s unwillingness to share the
ownership of their business with the financial institutions or to pay the interest needed to access the necessary
money. Small businesses have access mainly to short-term financing. This restricts them from securing the
sufficient liquidity to proceed in long-term strategic planning (Deakins and Hussain, 1994). Hussain et al.
(2006) claim that owners/ managers of SMEs tend to follow the “pecking order” theory (Holmes and Kent,
1991) when deciding the way of funding their business going from the lowest commitment choice to the
highest. According to that theory, Cosh and Hughes (1994) support that the owner will firstly prefer to use
personal finance, secondly short-term borrowing, then long-term debt and equity finance as a last resort. This
clearly shows the willingness of the entrepreneur to maintain the highest control possible. In addition, the
monitoring difficulties and the information asymmetry can restrict small businesses for accessing financial
resources (OECD, 2006). The banks cannot ensure the viability of the projects they fund because of their
inability to monitor the progress of the projects and the high cost of a consistent monitoring during the life of
the loan. At the same time, small firms do not have the ability to provide the quality of security demanded and
they do not manage to gain the financial support (Tucker, 2001).
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Most authors support that the situation in UK is the same about the financing problems of SMEs. Hussain et al.
stress the importance of personal savings and informal means of financing in the SMEs of UK (2006). Mason
and Harrison (1996) explain that UK bank lending policies have resulted in a system reluctant in funding small
enterprises in an attempt to minimize the risk. Tucker and Lean (2001) support that in UK the financing of
SMEs is restricted in an important degree by certain trends in the market. The competition that has lead to a
concentration of the markets pushes the larger banks to look for big customers instead of building relations with
the small businesses so the only options for the second are the smaller regional institutions. The centralised
lending decisions have created very strict guidelines concerning the provision of loans to SMEs. The artificial
intelligence technology supporting lending decisions the move towards term-loan lending affects the ability of
SMEs to ensure their funding. The survey that Tucker and Lean conducted shows that SMEs find problems in
gaining access to capital from the financial institution and that there were firms that did not use external finance
at all. On the other hand, Wilson’ s research (2004) showed that 71 % of the respondents did not perceive access
to finance as a barrier to survival and growth.
The limited managerial knowledge
Managerial knowledge is a key factor for the strategic planning and growth of the firm. Penrose (1959)
supported that managerial knowledge is firm-specific and cannot be acquired by the market but has to be
developed within the firm. The knowledge derives from the experience of the strategic planning process and
that is the reason it applies to the specific firm. According to Penrose the growth comes from the ability of the
managerial staff to plan and implement strategies. Thus, limited managerial knowledge slows down the growth
of the firm (Pitelis, 2010). This leads to the conclusion that there is a direct connection between the managerial
resources available and successful strategic planning and growth (Orser et al., 2000). The same authors suggest
that the performance of SMEs is positively affected by the existence of high managerial skills in the firm and
that strategic planning is an important factor of the performance of the firms.
In small businesses it is very often that the manager and the owner is the same person. This means that the both
the strategic planning and the training (the management development) is responsibility and depends on the
willingness of the owner and the quality of his knowledge as well (Gray and Mabey, 2005). Gray and Mabey
also observe that the high failure rate between small firms creates a time pressure that restricts sufficient
planning and training. From this point of view, it is clear that SMEs have a major disadvantage compared to
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large enterprises. The ability of those firms to develop and retain skilled managerial staff affects the probability
of those to implement a growth-oriented strategy (Barringer and Jones, 2004; Dobbs and Hamilton 2007). But,
as Storey (1994) supports, small firms are generally growth-averse and resistant to training, staff development
and other support initiatives. It is possible that the owner’s desire to maintain the control of the business plays
an important role in the limited managerial staff as he may feel that the hiring of a manager could result in some
loss of that control. All the above result in SMEs facing problems in developing the appropriate managerial
skills and knowledge that will allow them to effectively plan and implement their strategies. Dobbs and
Hamilton (2007) support that the participation of SMEs in consortia, networks, Joint Ventures and trade
associations can help them to gain access to managerial capabilities.
The literature suggests that SMEs adopt clearly specified strategies. Michael Porter presents three main
strategies that firms can adopt. There are authors though supporting that the options for SMEs‘ strategic
planning are very narrow, restricted by their size, the financial barriers and their limited managerial knowledge.
Some others oppose to that opinion claiming that size does not matter. The availability of financial credit for
SMEs in UK is a debatable issue but the majority of the authors agrees that smaller firms face difficulties in
accessing sufficient financial resources to implement long-term planning. Finally, according to Penrose the
growth of SMEs and their ability to plan a growth-oriented strategy can be affected by their inability to develop
and support skilled managerial staff. The literature generally agrees that some factors such as the dependence of
the strategic planning and management development on the owner or even on a very small number of staff
limits the possibilities of the firms.
Reviewing the literature there are three questions that can arise:
1. What kind of strategies do SMEs in UK adopt?

2. How does financial limitations affect the strategic planning?
3. How do SMEs cope with the issue of the limited managerial knowledge?
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Methodology
The methodology that was used in this paper is a qualitative research. As mentioned above the specific research
focuses on identifying the strategies that small and medium enterprises adopt and how are those strategic
choices affected by the limitations that SMEs face due to the lack of financial resources and managerial
knowledge. Strategy is a conscious procedure that develops through time and can be affected by external factors
that have to do with the business environment or internal factors concerning the goals and ambitions of the
owner of the firm. In order to understand the reasons behind those actions that shape strategy we need to extract
information on those aspects. In addition, the owner’ s or manager’ s perception about the market can have a
major impact on the strategic planning of the firm. Numeric data would not be able to explain the underlying
causes and subsequently they would not provide sufficient information on the topic that is being investigated.
The use of questionnaires could provide some important information but our goal is to get deep into the source
of strategic planning and the factors that affect it.
The best way to approach the specific topic was the collection of qualitative data via in-depth interviews. As
McNamara (1999) supports, interviews are important when there is the need of getting information based on the
interviewee‘ s experience. In addition, personal interviews gave the ability to work directly with the
respondents and get a wide range of information on the topic of the research. Having a conversation with the
owners of the firms gave us the chance to interact with them and understand not only their actions but the
deeper reasons of them.
Sample Selection
According to “The Marketing association of the English Wine Industry” in 2009 there were 381 vineyards and
109 wineries in UK. The average size of every vineyard is 3.19 hectares or 7.9 acres approximately. Those
numbers show that the wine production industry in England consist of a big number of very small businesses.
There is though a small number of larger wineries with vineyards between 25 and 75 acres such as Hush Heath
Estate, Bolney Wine Estate and Three Choirs Vineyard occupying no more than twenty employees and some
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comparatively large such as Denbies Wine Estate which is the largest in England with an area of 265 of
vineyards and 80 employees on regular basis.
The industry of wine production in England can be separated in two main categories. The producers of English
and the producers of British wine. The definitions above do not refer to the locality of the firms but to the origin
of the grapes used. According to those definitions, English is the wine produced in England from grapes coming
from the country while British is the wine produced in UK from imported grapes. Since quality is one of the
main differentiation factors and the grapes are the most important element of quality wine, the firms examined
should have control over the cultivation of the grapes. Thus the British wine producers were excluded.
As mentioned above the vast majority of the English wineries and vineyards are very small, family businesses
with no more than five employees. There is also a small number of larger vineyards employing no more than 20
people (if we exclude Denbies Wine Estate which is the exception having a size three times the size of the
second largest in England, Battle Vineyard). Thus, in order to get a representative view of the industry, firms of
both kinds were examined. This served at the same time the purpose of exploring differences in strategies due
to the impact of financial availability and managerial knowledge in the larger firms.
Restrictions in time, financial resources and the unwillingness of some businesses to provide information,
limited our sample to three firms. Two of the firms that were examined (Leventhorpe Vineyard and Astley
Vineyard) were very small, in the typical style of the small agricultural business with the owner/ manager /
farmer, producing a relatively small variety of still and sparkling wines. Astley Vineyard is outsourcing the
production of the wine and deals with the cultivation, the set of standards during the wine production, the
branding of the firm and the sale of the wine. The third one (Hush Heath Estate) was a larger firm (still small
though with six employees on regular basis). Hush Heath Estate produces mainly sparkling wine but also still
wine and some small quantities of apple juice. The size of the sample may not be sufficient to generalize the
results of the research but the identical form of those businesses can help us understand the factors that affect
the strategic planning of the industry.
Data Collection
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The data used in that research are primary. The only way to collect the kind of data needed was via in - depth
interviews. In order to proceed the type of the interviews should be defined. Since we wanted to extract specific
information a choice should be made between structured and semi - structured interviews. In a structured
interview the interviewees are asked exactly the same questions. In order for this to be done, interviewees need
to be able to clearly understand the meaning of the questions and to have the ability to give similar kind of
answers. The information that we wanted to get were the same for all the interviewees but the limited
theoretical background on strategic planning created the need for a more informal “conversation” through
which the data would be extracted by using a “common language” of communication with people that were
aware about agriculture but not about strategic matters and scientific terms. That’ s why the semi - structured
interview type was preferred. This way we had the chance to extract the information we wanted by asking
indirect questions. As two of the people interviewed were owners of small businesses, unused to the procedure
of an interview, the usage of recording equipment was avoided to make the interviewees to feel more
comfortable. Based on the definitions of Johnson and Scholes and the Porter’s definition of strategy we aimed
to get information about the main elements of strategic planning such as the long - term directions, the
positioning and the market they target, the innovations concerning the cultivation and production of the wine.
During the interviews we tried to find evidence of specific strategic orientations both from the investing (which
would inform about the long - term planning and vision) and the market positioning point of view. In addition,
we tried to understand the opinion about the financial difficulties that small and medium size businesses face
while looking for financial support. Questions were included about the knowledge background of the
interviewees.
Findings
From the interviews conducted during that research there are some important findings considering the strategic
approach of small firms in wine production sector in England. First of all, as expected, small firms tend to focus
on small market niches due to the limited production capacity. Leventhorpe Vineyard works mainly with
restaurants, hotels and some specialised wine stores while Astley Vineyard targets the end consumer of the local
market admitting though an increasing demand coming from the local businesses. Both of those businesses
avoid the supermarket for various reasons. As Jonty Daniels, the owner of Astley Vineyard suggest:
“We do not have the power to enter in the supermarket chains”
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Hush Heath Estate focuses in a specific market as well. The firm produces high quality sparkling wine and
targets top hotels such as Kensington Roof Gardens, Pollen St. Social, Cher Bruce, St. Pancras Renaissance etc.
and other luxury goods retailers such as Harrods and Harvey Nichols. It is also the provider for British Airways’
first class customers. Dora Lobo Cook, marketing and sales executive of Hush Heath Estate supports that the
target market of their products are high income, British in the majority, consumers. Hush Heath Estate and
Leventhorpe Vineyard are exporting small quantities as well.
All the three firms that were examined for that research try to differentiate from the competition. The main
factor of differentiation was the quality. Adopting innovative techniques in the cultivation or in the wine
production has given those small firms the to produce very high quality wine compared to the mass production
wines.
George H. Bowden from Leventhorpe Vineyard said:

“In the end there are three things that matter when it comes to wine. Quality, quality and quality. A
good wine has to be unique. People may drink it everywhere in England and they know that it was made in this
winery.”
Jonty Daniels from Astley Vineyard explained the firms strategy by stating:
“When you are small trying to maximise your output is pointless. You must focus on quality. Our wines
get awards in national and international competitions so they must be good.”
“We are using varieties that are lower yielding and innovative techniques in viticulture that allow us to
produce high quality wines”
Dora Lobo Cook from Hush Heath Estate told us:

“ Our wines are luxury products. We are using the best techniques in order to achieve that. In the
tasting events we organise people cannot distinguish which one is our sparkling wine and which one is the
French Champagne.”
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Another differentiation factor that can be observed in Astley Vineyard is the range of wines, selling seven
different kinds of them, a number considerably large for such a small business. On the contrary, the other two
firms focus on a narrower range of products.
The superior quality of the wines that those firms produced is supported by the pricing policy as well.
Compared to the majority of the wines in mass production, sold in supermarkets, the wines of those producers
are more expensive in order to justify both the higher production cost, the risk of a lower yield in order to
cultivate a specific variety of grapes and of course the superior quality. The target market is not the everyday
consumer of the mass market but a different category that appreciates the value of the product.
As Jonty Daniels supported:

“There are people that will not understand the difference between the cheapest wine of the supermarket
and our wine. But those are not our market. Our market are those that in our wines will find something
distinctive.”
An interesting observation was that the opinion of the George Bowden, owner of Leventhorpe Vineyard, and
Jonty Daniels of Astley Vineyard were completely different about the way competition affects the pricing of
their products. The first one supported that competition does not really affect the prices of his wine stating that
superior quality should be followed by a premium price and even though at the moment the price of his wines is
close to the competitors there is a tense in raising that price while J. Daniels claimed that an increase in price
could result in a decrease in sales but there are markets like the area closer to London that could afford a higher
price. As about Hush Heath Estate, the wines are priced highly compared to most of the competitors’ products
to go with the reputation and the luxurious nature of the product.
In the financing of those three firms the results are more or less the ones expected according to the theory. To
begin with, all of the firms examined was exclusively funded by the owners without any external financial
support. In the two cases of the smaller firms (Leventhorpe and Astley Vineyard) the investments were low and
were focused in the production process that could ensure higher quality or in the cultivation of different
varieties to produce new more attractive products. In those two businesses there was no investment in an
attempt to increase the size of land and subsequently the production capacity for different reasons though.
According to George Bowden the land surrounding its vineyard was not the appropriate to produce the same
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quality of wine that now does. On the other hand, Jonty Daniels attributed the lack of such an investment firstly
to personal choice and secondly to the lack of economic motive.
“Between 5 and 50 acres there is no economic benefit of expanding. The extra turnovers will go to the
wages of the new employees and you will still be small. You cannot influence the market (Jonty Daniels, Astley
Vineyard).”
The small investments that are taking place in those firms come from their incomes. Both of them showed an
averse to borrow money for an investment and, at the same time, a lack of trust in the financial system and the
possibility of taking a loan. According to Jonty Daniels, for those small businesses that are not in the Southern
part of the country, the probability of ensuring financial support from a bank is very limited. The reason is the
soil and climate that in the Southern of England give firms the ability to produce high quality sparkling wine
compared with the much cheaper still wine that is produced as you get northern in the country.
“For those businesses in the South that can produce high quality and expensive sparkling wine, getting
a loan from a bank by using a business plan would be easy. For us here it is much more difficult or even
impossible.”
The case of Hush Heath Estate seems different. The firm is funded by its owner but the economic status of his
(Richard Balfour-Lynn is a businessman with multiple activities such as a commercial property business and
hotels) gave Hush Heath Estate the ability to be financially strong without the support of an external institution.
This results in a very aggressive expanding strategy especially during the last years. Even though the firm is
financially supported by the owner, Dora Lobo Cook does not consider financing support as a problem when
the firm is well established in the market. Even though there are other factors that affect the implementation of
a strategy and the success of it in those firms lying in owners’ ambition and will, in geographical limitations,
managerial knowledge capacity etc., it is obvious that the availability of financial resources has played an
important role in the shape of Hush Heath Estate strategy allowing firm to grow in much less time than the
other two.
Two of the firms examined (Leventhorpe and Astley Vineyards) were very small and the owner had to take
responsibility of the management as well. The managerial knowledge in those firms were very low since the
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owners had a background about the production process. The information flowing into the firm about the market
conditions come mainly from the merchants with whom the cooperate and the feedback received by their
customers. All of the firms examined are members of the “Marketing Association of the English Wine
Industry”. This is another way for the firms to gain access to managerial capabilities and information about the
market and its needs.
On the other hand, Hush Heath Estate is owned by an established businessman. His experience suggested that
the employment of skillful and specialised staff is essential to the growth of the firm. Even though a small firm,
it operates in the standards of larger ones with a complete managerial structure both in the production and the
strategic planning and sales department. As Dora Lobo Cook supported, the knowledge added by the addition of
the managerial staff helped the firm to produce high quality wine gave Hush Heath Estate the opportunity to
push its sales up by online promotion, by gaining access to new distribution centres and improving coordination
with the distributors.
More specifically Dora Lobo Cook supported:

“In a wine producer the most important thing is the quality of the wine. Richard Balfour - Lynn is a
successful businessman. He knew that in order to make this firm to succeed he needed the best staff in the
production. He employed Owen Elias who was Head Winemaker in Chapel Down, the biggest wine producer in
England.”
“When I came here we needed to push up our sales and we managed to do that. We promoted our
products through internet, we organised tasting events and tried to gain new customers.”
Additionally, the access to top class hotel chains through the owner of the firm provides a significant advantage
against the competitors national or international.
The choice of the new staff was not randomised. Owen Ellias was the Head Winemaker in Chapel Down, one of
the biggest wine producers in England with long experience in the area while Dora Lobo Cook was wine
advisor in Harrods. Both of them gave important benefits to Hush Heath Estate. Owen Ellias could ensure the
high quality of the product while Dora Lobo Cook could create links with luxury good retailers.
3
Considering strategy as a mean to achieve a firm’s future goals it is easy to understand whether managerial
knowledge affect the strategic orientation or not. The smaller firms we examined have a clearly specified
strategy and the positioning of those suits that strategy. The growth can be slowed down by the unwillingness of
the owners to grow. From this point of view, the economic cost of managerial staff could be a burden for them
while the existence of that could not bring dramatic changes. Nevertheless, the evidence show that, as the
theory supports, managerial knowledge is an important factor of planning and implementing a growth - oriented
strategy.
Discussion
The sample used in this research is not big enough to make generalisations on those results but the very small
size of the firms in the industry leads to the assumption that the majority of those firms employ one or two
people in regular basis so the differences cannot be that big. The findings of the interviews clearly show that
SMEs in the wine production industry in England adopt specific identifiable strategies even if they are limited
by many internal or external factors.
As Gerald d’ Amboise supported, the size does not affect the strategic planning of the firms. The evidences of
the specific research shows that all the firms had strategies that consistently implemented according to their
goals. A main difference between them and their larger competitors is that the future goals concern in most of
the cases the survival of the firm and their short - term profitability. The “long - term” planning for the two
smaller firms may refer to the next one or two years and is focused on the improvement of their products and on
the fostering of knowledge gained during the viticulture and wine production process. On the other hand, the
larger firm examined (Hush Heath Estate) shares the ambition of its owner to become the best wine producer in
England and abroad. In terms of strategy, this results in an expansion that will provide the firm with the
additional capacity to increase its sales and reputation while at the same time the employment of specialised
staff both in the production process and in the management structure will help the firm to improve its quality
and increase its sales. The small size of all the three firms and the limited financial resources forces them to
focus on a very narrow range of products. This in combination with the knowledge on the viticulture and the
geographical characteristics allows them to achieve superior quality which is one of their main advantages over
the large competitors that focus on the cost reduction coming from the mass production. Other competitive
advantages are the personal relationships that are developed in the small markets that those firms operate, the
3
ability for the customers to see the vineyards and taste the wines in various tasting events all over the country
and the tense of the English customers to support and finally prefer local products. Small firms, limited by the
size, the limited financial resources and their owners’ unwillingness for growth sometimes, can exclusively
target small segments of the market such as local end consumers, restaurants hotels and specialised merchants.
Michael Porter defines strategy as the creation of a unique and valuable position using a different set of
activities. In reality, the firms examined do not position themselves in a “unique” way. All of them produce
quality wines, sold in a considerably higher price than their large competitors, targeting consumers that are
willing to pay a premium price. Nevertheless, the attention payed by the larger firms to the mean consumer
gives those firms the space to operate in a less competitive and big enough market.
The Strategy
There are some interesting conclusions about the strategy adopted by SMEs in the wine production sector in
England to which we can reach by analysing the findings of this research. First of all, none of the firms
examined followed a cost leadership strategy. The small size of the firms which results in low volumes of
production and sales does not allow small firms to seek for cost advantages over the competitors through the
achievement of economies of scale. In fact, from the interviews that were conducted there are no evidences to
support any kind of cost reduction policies within the strategic planning. On the contrary, the planting of
expensive and vulnerable varieties of grapes that could lead to a lower yield was preferred as a mean to achieve
superior quality. This comes in contrast to the Gerald d’ Amboise ‘s argument that in markets where the
competition takes place mainly between small firms they try to adopt a mixed strategy in order to achieve cost
advantages together with the superior quality.
Looking at the English market as a whole, one could claim that all those small firms operating in that market
focus on smaller niches of it. According to that, small firms could only adopt a focus strategy because of their
limited production capacity. If we assume that those firms are trying to serve the needs of specific market
niches in the best way, we should accept that the driving force of the development of their products is the
market niche in which they target. Leventhorpe Vineyard works mainly with businesses and some specific
customers. In that case, the strategy adopted is a focus - differentiation strategy as the firm tries to better serve
the needs of an established market. For Astley Vineyard and Hush Heath Estate the case is different. The
3
strategic approach of those firms is more like a differentiation strategy. The market they target is small but only
because of the limited production capacity. Focusing on a specific market niche and developing products for
that market would be a focus strategy but those firms develop their wines according to the quality standards
they have set and then look for the market to sell them. For all the three firms the factor of differentiation is the
quality. The findings of that research come in accordance with North and Smallbone’ s argument (2000) that
SMEs can be pursuing a differentiation strategy. Rugman and Verbeke (1987) supported that Porter’ s generic
strategies could not apply to SMEs since the only option is the focus strategy but in that research there are
evidences of differentiation strategy. A possible reason for that could be the sector. The agricultural industry is
an industry that allows small firms to differentiate from the competition in terms of quality without the need of
big investments for innovation. Exogenous factors such as the soil or the climate combined with the knowledge
on the wine production process and the introduction of innovative techniques in viticulture has provided those
small firms the ability to produce very high quality, award winning wines in international competitions without
investing big amounts of finance. The firms that adopt differentiation strategy based on the quality of the wine
in England can be too many but the size of the market and the limited production capacity of all those wineries
and vineyards leaves enough space for everyone and in the local level the competition is much lower.
The differentiation strategy adopted is supported by the positioning of the firms as well. The wines that those
firms are producing are considerably more expensive than the mass market products of the competition. The
market they target is the one that appreciates the higher quality and the “uniqueness” of those wines and is
willing to pay that premium price. The distribution takes place in the vineyards where somebody can taste the
products or in specialised wine stores. The absence of the supermarkets is a conscious choice that can be
attributed to two main reasons. The first one as Jonty Daniels from Astley Vineyard said is the low capacity and
the inability of those firms to influence the market. The second is that their main customers are not probably the
ones buying wines in a supermarket.
Another interesting point is that two of the three firms that were examined had no growth - oriented goals. Their
strategy is such in order to maintain the size of the firms and the quality of the wine in order to achieve the
short - term profitability that is essential for the survival of the businesses. The only firm that had a growth -
oriented strategy was Hush Heath Estate. Owned by a successful businessman in other areas, the ambition to
become the best producer in England and not only is driving the forward with a very aggressive expansion
strategy by acquiring more vineyards to increase the production capacity and gain market shares.
3
The Limited Financial Resources
All of the firms that were examined during that research were small size firms. The financial support of those
was coming exclusively from their owners. The firms did not feel comfortable to get a bank loan in order to
invest but this could be attributed in a degree in the small costs of investment. Nevertheless, even in the case of
Hush Heath Estate which adopted a growth strategy in which big financial resources were needed, the owner
was the provider of the cash.
As most of the authors suggest, financing in SMEs is a problem in England as well. From the smaller two
businesses the results show that those firms do not feel confident about their ability to access funding from the
financial institutions. On the other hand, Dora Lobo Cook, marketing and sales executive of Hush Heath Estate
supported that once a firm is established in the market, external financial credit would be available.
Nevertheless, all the evidences of that research lead to the conclusion that, as Hussain et al. (2006) suggested,
the owners tend to follow the “pecking order” theory. They prefer to fund their business using at first their
personal finance. The main reason for that seems to be a fear against the financial system which is normal for
small firms. In addition, the lack of growth - oriented strategies does not create significant needs for financial
support.
From the interviews that were conducted it is hard to support that the availability of financial resources or the
lack of them has played an important role to the choice of the strategy adopted. The firms look to be kept in a
small size affected by other factors rather than because of the lack of capital. On the other hand, since those
firms never tried to grow, it is difficult to predict whether or not this would be a barrier.
Looking at the strategy as a mean to achieve the future goals of the firm, when the firm does not aim in growing
the lack of capital does not seem to have a big impact on the firm’ s strategy and implementation of it. Things
are very different if we consider strategy as a mean to growth. From the firms examined the only one that had a
significant growth was Hush Heath Estate, the one that was pursuing that growth. In that case, the availability
of capital was an important factor of its expansion strategy. Not only it was necessary to expand the land and
subsequently the production capacity but it gave the firm the ability to hire specialised staff that is necessary for
3
a growing firm in order to develop marketing and sales department to penetrate more into the market and
increase its sales.
From the above we can understand that the lack of finance is not a factor that defines or affects the strategy that
SMEs adopt. In the three cases examined, two of the firms adopted a differentiation and one adopted a focus
strategy. This was a choice that had nothing to do with the availability of capital. Instead it was mainly affected
by the perception of the owners about the needs of the market they targeted. The lack of capital did not seem to
play an important role even in the implementation of those strategies. On the other hand, the case of Hush
Heath Estate shows that the availability of financial resources is important when a firm pursues growth. It is
clear from the interviews conducted that SMEs have an averse to using external financial sources. Even the
largest of those firms avoided the option of the loan in order to expand and it was financially supported by its
owner. Especially the two smaller firms did not feel confident in managing to get a loan using a business plan.
For firms avoiding banking loan, even considering the option of equity finance seem to be an exaggeration.
The Limited Managerial Knowledge
The research conducted for this paper shows that the managerial knowledge in the majority of the SMEs in the
wine production industry in England is very poor. This is normal if we consider that those firms are family
businesses occupying one or two people on a regular basis. In two of the firms examined the owner was farmer,
wine producer, manager, even the designer of the labels. The small scale of production, the lack of ambition
towards the growth of the firm and the limited turnovers could not justify the employment of professional
management to those firms. This comes in accordance with Storey’ s argument (1994) that small firms are
generally growth averse and resistant to training and staff development. The only firm that tried to expand its
managerial structure and add knowledge in areas out of the production process was Hush Heath Estate.
An interesting finding of this research is that the lack of managerial knowledge does not seem to affect the
strategy adopted. All the three firms had specific identifiable strategies that were supported by their positioning
in the market successfully. This shows that even lacking the theoretical background, the owners of those firms
have developed an significant knowledge on the basic elements of strategic planning process. The participation
of those firms in the “Marketing Association of the English Wine Industry” have probably played a role in the
development of that knowledge. As Dobbs and Hamilton (2007) suggest, the participation of SMEs in
3
consortia, networks, Joint Ventures and trade associations can help them to gain access to managerial
capabilities.
Limited managerial knowledge does not seem to have an impact in the strategic planning of the firm when the
last shows evidences of growth - aversion but it looks to be very important when growth is being pursued. Hush
Heath Estate is owned by a businessman known for his hands on approach and from the very early years after
the foundation of the firm, the managerial staff was expanded in order to help the firm grow. As a result, the
firm increased its sales, established a strong brand in the sector, improved its cooperation with the distributors
and showed significant evidences of growth. This supports Barringer and Jones’ s (2004) argument that firms
with the ability to develop and retain skilled managerial staff have increased probability of implementing
growth oriented strategies.
Summarising what mentioned above, the managerial knowledge of small firms in the wine production industry
in England is very poor. The size and subsequently the low profits of the firms renders the hiring of specialised
managerial staff very expensive. Additionally, the absence of growth - oriented strategies makes it almost
unnecessary. Those firms depend mainly in the knowledge of the owners who are exclusively aware of
cultivation procedures and wine production processes. The information they get about the market come mainly
from the cooperation with the wine merchants. The participation in the “Marketing Association of the English
Wine Industry” probably helps the owners of the firms to develop some basic managerial knowledge that
supports their strategic decisions. From the interviews we conducted, there are evidences that the limited
managerial knowledge does not affect the strategy adopted by the firms. On the other hand, it clearly affects the
growth of the firms. For firms that pursue growth, the expansion of the managerial staff and the development of
a managerial structure within the firm can be an important factor of success. The case of Hush Heath Estate,
which occupies six employees in a regular basis and three of them are part of the management of the firm
shows clearly the need of that knowledge in order to plan and implement a growth - oriented strategy. The lack
of mechanisms for training and fostering the knowledge within the firm was expected. All the above, strongly
support the authors’ opinions about the connection between the managerial knowledge in SMEs and the
strategic planning and implementation.
Conclusions
3
For this research we examined the strategies of SMEs in the wine production industry in England. The data
were collected by the conduction of interviews with the owners / managers of three businesses of the sector.
The focus of those interviews was in identifying the strategies that SMEs adopted in the industry by getting
information about the future goals, the kind of investments they do and the way those firms position themselves
in the market. Another goal of those interviews was to identify how the strategic planning is affected by the
limited financial resources and managerial knowledge that most of the times smaller firms have to deal with.
Some very interesting findings were extracted from those interviews, some of them in accordance with the
literature and some other opposing to that.
It is clear from the interviews that were conducted that the size of the firms does not affect their strategic
planning. Small firms cannot adopt a cost leadership strategy since their size and the volume of their sales does
not allow them to achieve economies of scale and subsequently to gain cost advantages over the competitors
but they can adopt differentiation or focus strategies in contrast to what Rugman and Verbeke (1987) supported.
So, Porter’ s generic strategies can be applied to small businesses as well since they only strategic option they
do not have is the one of the adoption of a cost leadership strategy. The firms that were examined adopted a
differentiation strategy or a focus one with a differentiator’s orientation. The main factor of differentiation was
the quality. An important factor for being able to do so was the specificity of the agricultural sector that allows
firms to achieve superior quality without the need of spending significant amounts of financial resources in
innovation and development of new products. Looking at the positioning of other small firms of the industry
that due to some limitations could not be included in that research we can find evidences supporting that their
strategies are similar. The small firms in the wine production industry seem to have adopted a strategy that
differentiates them from the large competitors but not between themselves. Nevertheless, the size of the market
and their limited production capacity leave enough space for all of them to operate.
Interesting were the findings that were extracted about the impact of the lack of financial resources on the
strategic planning of the firms. For SMEs in the wine production industry in England the ensure of financial
support from the financial institution seems to be a problem. In addition, for many reasons such as the averse of
the firms to get in an in-debt condition leads the owners to use their personal finance which can be significant
only in very specific cases. On the other hand, the lack of financial resources does not look to have a great
effect on the strategic planning process. The majority of the firms in the sector are very small family businesses
and the want to remain in that state. Given the absence of growth - oriented strategies, the financial availability
3
cannot become a strategic issue. Finance is very important when the firms are pursuing a growth - oriented
strategy like in the case of Hush Heath Estate, but even in that case the owner’ s capital was the financial
resource of the firm. Thus, the findings of that research support the argument of Hussain et al. about the funding
of SMEs according to the “pecking order” theory and the results of Wilson’ s research according to which for
the majority of the small businesses finance is not a barrier to survival even though that research reach to the
conclusion that it is probably a barrier to growth.
Similar were the findings of this research for the managerial knowledge. From the small size of the vineyards
according to the data of “The Marketing Association of the English Wine Industry” we can understand that the
majority of the firms in the industry are very small occupying the owner and maybe sometimes some other
members of the family. Thus, the managerial knowledge in those firms is limited. Just like the lack of financial
resources, the lack of this knowledge does not seem to affect the planning and implementation of the strategy of
the firms. Most of those firms remain small because of the owners’ will. More specifically, Jonty Daniels told
us:
“I do not want to make the vineyard larger. Why should I, anyway? To become “Three Choirs” and have
fifty employees? No. What I want is to work in the vineyard, to cultivate the grapes and to be able to live in that
place.”
(Three Choirs is one of the largest Vineyards in England)
This summarises in a way the opinion of many authors that one of the main reasons that SMEs do not show
significant growth is that the owners of those firms show an averse to growth - oriented strategies because of
non economic motives.
Nevertheless, the existence of specialised managerial staff is important when firms pursue growth. This
supports the arguments of the authors concerning the impact of managerial knowledge in SMEs.
To conclude, SMEs in the wine industry in England clearly adopt specific and identifiable strategies. From
Porter’s generic strategies small businesses can chose a differentiation or focus - differentiation strategy. The
special characteristics of the agricultural sector provide the small firms the ability to differentiate themselves
3
from the larger competitors by achieving superior quality without the need of big investments. The limited
financial resources and managerial knowledge seem to be an significant barrier only when firms adopt a growth
- oriented strategy.
Even with the small sample of the specific research we took an opinion about the strategies of SMEs in the
wine industry in England and the main factors that can affect the choice and the implementation of those
strategies. Nevertheless, important issues such as how do those factors affect a firms performance or if the
results of this research could be generalised for the agricultural sector or other industries with the same
characteristics.
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Strategic Planning in SMEs

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Strategic Planning in SMEs:

Charis Agathos - Ninos

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NAME (S): [CAPITAL LETTERS]:

The Financing Gap

The limited managerial knowledge

1. What kind of strategies do SMEs in UK adopt?

“We do not have the power to enter in the supermarket chains”

George H. Bowden from Leventhorpe Vineyard said:

Dora Lobo Cook from Hush Heath Estate told us:

As Jonty Daniels supported:

More specifically Dora Lobo Cook supported:

The Limited Financial Resources

The Limited Managerial Knowledge

(Three Choirs is one of the largest Vineyards in England)

Storey, D. 1994 Understanding the Small Business Sector, Routledge, London.

Wilson, R. 2004, Business Finance 2004, Institute of Directors, London.

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