Effectiveness of Risk Management Strategies on the Production and Manufacturing Small-Medium Enterprises in Bhutan

Abstract

The small-medium enterprises (SMEs) are well known in all economies for their socio-economic role of job creation, import-substitution, and poverty alleviation. Apart from their importance to the economy, SMEs are also known for higher failure rates than their bigger counterparts and the SMEs in Bhutan are no exception in this globalized world. However, no formal studies have been published about the effectiveness of enterprise risk management (ERM) on SME performance for a small economy like Bhutan. Thus, the primary objective of this study is to investigate the use of ERM in the production and manufacturing SMEs in Bhutan and their impact on performances.

The study uses a convergent mixed methods design and collected both quantitative and qualitative data. The study surveyed about 300 production and manufacturing SMEs using close-ended structured questionnaires and interviewed 15 SMEs using a semi-structured interview method to answer the research questions and test the hypotheses. Structural Equation Modeling (SEM) and thematic analysis are used to analyze the two types of data.

The analysis of the data showed that the personal entrepreneurial competency of the owner/manager and the SME size have a statistically significant influence on the ERM while their impact on the performance isn’t established. However, it can be concluded that the Bhutanese SMEs are aware of risk and their impacts including the risks posed by technology and globalization although they do not have a formal ERM in place. Owing to the limited availability of reliable data, it is recommended that the SMEs and relevant agencies maintain reliable and up-to-date data to correctly measure the impact on their performances.

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