Lower costs: Driving SME business performance

This study examines the impact of cost on the performance of small and medium sized manufacturing firms. Two distinct types of firms were examined: those with lower than average costs for their market, and firms with above average costs. The overall drivers in both sets of firms are examined along with the resultant performance. The study sampled cost structures in SMEs in the engineering and electronics industries. The findings show differences in both sets of firms. Firms with lower than average costs have reduced their employee levels over the past three years, which is reflected in their reduced direct labour costs, arguably as a result of increased contracting out of activities. The lower than average costs translate into the ability to offer competitive pricing and increased market share. On the other hand, firms with above average costs in their market have experienced an increase in costs (other than direct and indirect labour) reduced turnover, have more management levels and tend to focus on specific markets.