The impact of strategic management on financial performance and competitiveness of small and medium sized enterprises (SMEs): The Turkish case

Small and medium sized companies (SMEs) constitute the backbone of a dynamic economy, due to their important role in growth, new job creation and overall social welfare. SMEs form a large part of economy and are seen as the drivers of socio-economic development. Over 95% of all enterprises fall in the SME category, while over 50% of the private sector employment is supplied by SMEs in OECD countries (Lukacs, 2005). As the importance of SMEs in the economy has been widely recognized, focus of both academics and practitioners shifted from large corporations to micro and small businesses, particularly after 1980's. In Turkey, significance of SMEs is relatively higher compared to SMEs in other countries, which is caused by not only from the large share of SMEs in the economy, amounting to 99.9% (KOSGEB, 2011), but also from their vital contribution to the dynamic but turbulent Turkish economy. Despite the developments and improvements in the SME sector, Turkish SMEs still face several challenges. Among these, efficient and effective conduct of financial management has a unique situation, as the function of finance has a central role in the overall management system of SMEs (Meredith,1989). This dissertation aims to analyze and propose solutions to some of these financial management challenges by focusing on the "financial practices" aspect of SME financial management with a fresh strategic management viewpoint, as well as analyzing the impact of these practices on the performance and competitiveness of SMEs in Turkey. As to our knowledge, a theoretical approach that attempts to combine the elements of strategic management and financial management practices, has not been introduced up to date. The research project is also fresh and unique, for its empirical investigation of the relationships between strategic financial management practices and the performance and competitiveness of SMEs. Therefore, the new model and empirical findings are expected to make significant theoretical and practical contributions to the existing SME literature. Keywords: SMEs, strategic management, financial management, financial management practices, performance, financial performance, competitiveness, efficiency.