The Financial Resource Limitations of Small and Micro Enterprises

in the Magnetic Material Industry in Terms of Strategic Choices:

Taking Zhejiang Guomai Magnetic Material Technology Co., Ltd as

an Example

Ruotian Li

School of Management, Jiangsu University, Zhengjiang, 212013, China

Keywords: Magnetic Industry, Small and Micro Enterprises, Strategic Choices, Financial Resources.

Abstract: Small and micro enterprises play an important role in economic development, but due to the limitation of

financial resources, they face many challenges in strategic choices. China's magnetic material industry is

growing rapidly under the impetus of policy support, technological progress and downstream demand

expansion. This paper focuses on the limitations of financial resources of small and micro enterprises in the

magnetic material industry, and discusses its impact on strategic choices by taking actual specific enterprises

as examples. This paper argues that the limitations of financial resources limit the company's strategic choices

of small and micro enterprises, making them more inclined to choose market-focused and conservative growth

strategies, and the limitations of financial resources make small and micro enterprises competitive strategic

choices, unable to play the cost-leading advantage, and the limitations of financial resources will lead to the

inability of small and micro enterprises to establish local production facilities in their internationalization

strategies, thus facing the risk of order loss and weakening market competitiveness when customers migrate

abroad.

1 INTRODUCTION

Small and micro enterprises are an important driver

of economic growth and innovation, especially

through job creation and market diversification to

promote regional economic development. However,

small and micro enterprises face many challenges in

the operation process, especially in terms of strategic

choices, and the limitation of financial resources is

considered to be a major factor restricting their

development.

The magnetic material industry is in a critical

period of strong demand, technological upgrading,

and supply chain optimization. The development of

new energy vehicles, wind power, and intelligent

manufacturing has provided a broad market for

magnetic materials. The industry has high technical

barriers and increased industry concentration. The

high-end magnetic material market is gradually

concentrated in technology-leading enterprises, and

the survival pressure of small and low-end magnetic

material enterprises is increasing.

This article will explore from three aspects of

strategic choice, namely corporate strategy,

competitive strategy, and internationalization

strategy. Corporate strategy is the long-term

development direction and decision-making of an

enterprise at an overall level. It involves how the

enterprise allocates resources in different business

areas or markets and formulates overall goals. It

usually includes decisions such as business

expansion, market selection, diversification or exiting

a certain market; Competitive strategy is the strategy

of how the enterprise competes with competitors in a

particular industry or market.

It emphasizes that enterprises gain an advantage

in competition through cost leadership,

differentiation, or market concentration to ensure

long-term market share and profits;

internationalization strategy is a strategy for

enterprises to expand their business across national

borders, involving how enterprises can enter the

international market, including through exports,

foreign investment cooperation, factory construction,

or cross-border mergers and acquisitions.

Li, R.

The Financial Resource Limitations of Small and Micro Enterprises in the Magnetic Material Industry in Terms of Strategic Choices: Taking Zhejiang Guomai Magnetic Material Technology

Co., Ltd as an Example.

DOI: 10.5220/0013842700004719

Paper published under CC license (CC BY-NC-ND 4.0)

In Proceedings of the 2nd International Conference on E-commerce and Moder n Logistics (ICEML 2025), pages 277-282

ISBN: 978-989-758-775-7

277

The purpose of this paper is to reveal the

relationship between financial limitations and

strategic choices, provide a strategic path for resource

adaptation for small and micro enterprises, and

enhance sustainable development capabilities; make

up for the shortcomings of existing strategic

management theories in the field of small and micro

enterprises, and promote the diversification of

theoretical frameworks.

At present, the mainstream research on enterprise

strategic management mostly focuses on the strategic

choice and execution of large enterprises. Large

enterprises have more choices and flexibility in the

strategic decision-making process by virtue of their

size, resources, market position and brand

advantages, so the academic community pays more

attention to how they can achieve long-term growth

and market leadership through strategic paths such as

differentiated competition, global expansion or

technological innovation. However, for small and

micro enterprises, especially in the context of limited

financial resources, there is relatively little research

on their strategic choices.

Existing strategic management theories (such as

resource-based theory (RBV), dynamic capability

theory, competitive strategy theory, etc.) are mostly

proposed and validated in the context of large

enterprises. These theories mainly focus on how to

achieve sustainable competitive advantage in a highly

competitive market and how to expand strategically

through resource accumulation, while ignoring how

small and micro enterprises formulate and execute

strategies in the context of resource shortage, market

uncertainty and capital shortage.

Although some scholars have begun to pay

attention to the particularity of small and micro

enterprises in recent years, overall, the strategic

management of small and micro enterprises,

especially the strategic choice under the constraints of

financial resources, is still a relatively weak research

field.

There are few researches on the magnetic material

industry, most of which are biased towards general

market analysis and lack of specific analysis from a

single perspective. This paper will analyze the impact

of financial resource limitations on small and micro

enterprises from the perspective of strategic choice.

This paper uses the case analysis method, taking

specific small and micro enterprises as an example, to

explore how financial resources limit the company's

strategic choice, and the impact on competitive

strategies such as cost leadership, differentiation and

market concentration, as well as the constraints on

internationalization strategies.

2 LITERATURE REVIEW

The definition of small and micro enterprises is

usually based on quantitative indicators such as the

number of employees and the scale of revenue, which

plays an irreplaceable role in the global economy.

Tian Xiujia (2024) shows in his research that small

and micro enterprises in the European Union account

for 99.8% of the total number of enterprises and

contribute 51.8% of GDP; according to the National

Bureau of Statistics (2019), small and micro

enterprises in China provide more than 80% of jobs.

However, compared with large enterprises, the

particularity of small and micro enterprises lies in

their significant resource constraints and market

uncertainty.

When studying small and micro enterprises, many

scholars have found that the narrow financing

channels, fragile cash flow, management's reliance on

the founder's experience, and high market

competition barriers of small and micro enterprises

together constitute their core development obstacles.

For example, Wang Xingjuan (2012) believes that

small and micro enterprises have many obstacles in

financing and cannot obtain funds efficiently.

Karadag (2015) proposed that the problem of "poor

financial management" is considered to be the main

reason for the failure of small and medium-sized

enterprises. It is worth noting that existing studies

focus on the survival of small and micro enterprises,

but there are still obvious shortcomings in the

discussion of strategic management paths in the

context of resource constraints.

Traditional strategic management theories (such

as resource-based theory, Porter's competitive

strategy, and dynamic capability theory) are mainly

based on the practical experience of large enterprises,

emphasizing resource accumulation and large-scale

competition. For example, Beamish, & Chakravarty

(2021) used resource-based theory to study large

multinational companies. Gerard, & Bruijl (2019) put

forward the outdated view that Porter's competitive

strategy proves that companies achieve greater

success and victory through scale because they sell

more products, sell more customers, generate more

revenue, and have more power.

However, these theories fail to answer how small

and micro enterprises choose strategic paths when

resources are scarce, such as whether they need to

abandon traditional competition frameworks or adjust

strategic priorities. The existing literature dominates

the study of strategic choices of large enterprises,

such as globalization expansion, mergers and

acquisitions, and technological innovation, while the

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study of small and micro enterprise strategy is often

simplified to "flexibility" or "market segmentation",

lacking systematic analysis. This emphasis leads to

significant gaps in the theoretical framework and

practical guidance of small and micro enterprise

strategic management.

The limitations of current research are mainly

reflected in three aspects: first, the research

perspective is single, most follow the theoretical

framework of large enterprises, ignoring the

uniqueness of small and micro enterprises; second,

the lack of empirical research, quantitative analysis

based on large enterprise data dominates, and case

studies for small and micro enterprises are scarce;

third, the influence mechanism of financial resource

constraints on strategic choices has not been

systematically demonstrated. For example, how

financial constraints constrain the internationalization

process or competitive strategies of small and micro

enterprises (such as cost leadership and

differentiation) remains unclear.

Therefore, this study focuses on the strategic

choices of small and micro enterprises under the

constraints of financial resources, aiming to fill the

gap between theory and evidence, and provide them

with an appropriate resource optimization path.

After reading the literature on the magnetic

industry, it can be found that small and micro

enterprises are under great pressure to survive in the

magnetic industry. Weng Xingyuan (2021) pointed

out that the development situation of enterprises in

the magnetic industry varies greatly, and the

polarization situation is very prominent. Many small

and micro enterprises basically survive at low profits,

which are unprofitable and difficult to invest in

innovation and development. About 40% of the

enterprises have maintained a growth of more than

10% in sales and profits, mainly listed enterprises

with magnetic materials. From the perspective of

enterprise structure, at present, the production and

operation situation of large and medium-sized joint-

stock (especially listed companies) private and

private enterprises in the industry is relatively good,

and most of the small and micro enterprises are

relatively difficult.

Therefore, it can be concluded that the

development of small and micro enterprises is

difficult, and scientific strategies are urgently needed

to improve the development situation.

Therefore, this research will analyze from three

aspects - company strategic choice, competitive

strategic choice, and internationalization strategy,

and explore how the limitations of small and micro

enterprises in financial resources will negatively

affect the strategic choice of enterprises.

3 CASE STUDY

The following cases will be demonstrated by taking

Zhejiang Guomai Magnetic Materials Co., Ltd.

(referred to as Guomai) as an example.

This article takes Zhejiang Guomai Magnetic

Materials Co., Ltd. as an example. The company's

main business includes research and development of

electronic special materials; production and sales of

magnetic materials; manufacturing of power

electronic components, etc. According to the relevant

definitions in China, the enterprise is a small and

micro enterprise.

3.1 Financial Constraints Constrain

Companies' Strategic Choices

The limitations of financial resources limit the

company's strategic choices of small and micro

enterprises, making them more inclined to choose

market-focused and conservative growth strategies.

Guomai, as a typical small and micro enterprise, is

forced to focus on core production links such as

magnetization, packaging and processing in strategic

choices due to limited financial resources,

abandoning the layout of the entire industrial chain.

Although this focus strategy has enabled it to

accumulate technical advantages in specific

processes and improve short-term operational

efficiency, it has also buried latent risks due to over-

reliance on external suppliers (such as electroplating

and raw material outsourcing).

In 2023, the German Bosch company found in the

cooperation evaluation that the outsourcing of key

processes of Guomai led to the fracture of the product

quality traceability chain, which could not meet its

requirements for the quality control of the whole

process, and finally terminated the potential annual

transaction volume, reaching 200 million to 300

million yuan long-term orders. In 2024, the leading

enterprises in the electronics industry also believed

that Guomai quality control without a complete

industrial chain may not meet the standards, and

terminated the business with Guomai. Guomai is

expected to lose 100 million to 200 million yuan.

This case reveals the strategic dilemma of small

and micro enterprises under resource constraints: on

the one hand, specialized focus can optimize the

allocation of limited resources and reduce initial

The Financial Resource Limitations of Small and Micro Enterprises in the Magnetic Material Industry in Terms of Strategic Choices: Taking

Zhejiang Guomai Magnetic Material Technology Co., Ltd as an Example

279

investment costs; on the other hand, the disruption of

the industrial chain may weaken the company's

control over core Quality Standards, which in turn

affects customer trust. Somjai (2017) mentioned in

the article that there is a probability of a series of

problems in the outsourcing process, including

extended delivery time, substandard quality, defects,

and improper classification of responsibilities. The

loss of Bosch orders not only reflects the direct loss

of order amount, but also highlights the opportunity

cost for small and micro enterprises to establish long-

term cooperative relationships with large

multinational enterprises due to strategic limitations.

This contradiction shows that although financial

resource constraints force small and micro enterprises

to adopt contractionary strategies, if they fail to

balance the conflict between professional efficiency

and industrial chain integrity, their strategic choices

may change from "survival tools" to "development

bottlenecks".

Furthermore, Guomai's predicament confirms the

shortcomings of the applicability of resource-based

theory (RBV) in the scenario of small and micro

enterprises. Traditional theories emphasize the

supporting role of internal resources to competitive

advantage, but small and micro enterprises often need

to make up for the capacity gap through outsourcing

due to limited financial resources. However, the

external dependence brought by outsourcing may

offset the advantages of its core links.

3.2 Financial Constraints Limit

Competitive Strategic Choices

The limitation of financial resources makes it

impossible for small and micro enterprises to compete

for strategic choices and take advantage of cost

leadership. Due to the limitation of financial

resources, it is difficult for Guomai to imitate large-

scale investment in advanced production equipment

and technology by large-scale competitors, resulting

in structural obstacles to the implementation of its

cost leadership strategy. Although enterprises try to

optimize local costs through lean management, the

lack of investment in key equipment seriously limits

the overall production efficiency and unit cost control

ability.

In contrast, large enterprises with financial

advantages to introduce automation equipment and

achieve economies of scale, through centralized

production and bulk procurement significantly

diluted fixed costs, while Guomai's small-scale

operating model makes it impossible to obtain the

same cost advantage.

In the processing process, Guomai introduced 5

wire cutting machines to increase its own production

capacity, but other large enterprises introduced about

100 units. In the competition with large companies,

Guomai's production capacity is too low to play a

cost-leading role. In the automatic car process,

Guomai introduced 1 grinding table for processing,

while competitors introduced more than 10

equipment for processing. The gap in equipment

forced Guomai to give up ordinary magnetic products

and choose high-precision products as its main

products.

This contradiction highlights the dilemma of

small and micro enterprises in the cost competition:

the shortage of resources directly weakens their

ability to upgrade equipment and expand capacity,

which in turn hinders the formation of economy of

scale benefits. Ultimately, the high unit production

cost of China is difficult to compete with large

enterprises in price competition, and product

opportunities are lost. Isaboke (2018) SMEs are more

likely to adopt a centralized strategy when gaining a

competitive advantage, followed by differentiation,

combination, and the least applied strategy is the low-

cost leadership strategy, which is a challenge for start-

ups and medium-sized SMEs because of limited

resources and vast markets, and the free market

economic system is not conducive to them.

Portfolio strategy poses a greater challenge in

application because it involves a mix of

differentiation and concentration strategies, while

SMEs attempt to focus on specific markets, products,

locations, and gain market share.

3.3 Financial Constraints Constrain

Internationalization Strategies

The limited financial resources of small and micro

enterprises will prevent them from establishing local

production facilities in their internationalization

strategy, thus facing the risk of loss of orders and

weakening market competitiveness when customers

relocate abroad. Due to the shortage of financial

resources, Guomai cannot respond to the localization

needs of core customers (such as Luxshare Precision

Industry Co.,Ltd. and Goertek) after relocating their

production bases to Vietnam. In order to optimize the

efficiency of the supply chain, customers require

suppliers to establish production facilities nearby to

reduce transportation costs and ensure delivery

timeliness. However, Guomai is limited by

insufficient funds. It is impossible to independently

invest in the construction of overseas factories and to

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localize production capacity through strategic

cooperation.

This contradiction directly leads to the loss of

orders to competitors with overseas layout

capabilities, and the loss of long-term cooperation

opportunities with top-tier clients.

This case reveals the structural dilemma of small

and micro enterprises in the process of

internationalization: financial constraints limit the

ability to invest in overseas production facilities,

forcing enterprises to rely on cross-border logistics,

which in turn drives up operating costs and weakens

delivery reliability. Roy, Sekhar, & Vyas (2016)

pointed out in the article that resources are limited,

and capital is a key factor restricting the

internationalization of small and micro enterprises.

As customer supply chains shift to low-cost

regions, small and micro enterprises that lack

localized capacity face a double risk - not being able

to share fixed costs through economies of scale, but

also struggling to meet customer demand for agile

supply chains, ultimately leading to a systemic

decline in market competitiveness. This problem

confirms the limitations of the resource-based theory

(RBV) in the interpretation of small and micro

enterprises' multinational operations: even if the

focus is on core capabilities, the lack of resources will

still weaken the effectiveness of the strategy through

supply chain disconnection.

4 CONCLUSIONS

According to the research in this paper, the limitation

of financial resources has a profound impact on the

strategic choice of small and micro enterprises. First,

financial resource constraints force small and micro

enterprises to choose market-focused and

conservative growth strategies when formulating

corporate strategies, rather than extensive market

expansion or diversification. Second, financial

limitations also affect the competitive strategy of

small and micro enterprises, especially in the

implementation of cost leadership. Due to insufficient

funds, small and micro enterprises cannot make large-

scale equipment investment or technology upgrades,

making it difficult for them to achieve economies of

scale in production and thus unable to compete with

large enterprises on price.

Finally, the constraints of financial resources also

make small and micro enterprises face huge

challenges in their internationalization strategies.

Especially when core customers migrate abroad and

suppliers are required to provide localization

packages, it is difficult for small and micro

enterprises that lack funds to establish production

facilities overseas, resulting in the loss of orders and

the weakening of market competitiveness.

Despite this, under the limitation of financial

resources, small and micro enterprises can still make

up for the lack of resources and enhance their market

competitiveness through unique business methods,

innovative sales concepts and technological

innovation. By flexibly responding to changes in

market demand, optimizing management and

operation models, and relying on digital technology,

small and micro enterprises can find a foothold in the

fierce market competition, overcome financial

bottlenecks, and promote sustainable development of

enterprises.

In the future, the competitiveness of small and

micro enterprises will depend more on the

combination of technical expertise, operational

efficiency, and niche selection, rather than relying

solely on capital investment. In high-tech industries

such as magnets, if small and micro enterprises can

adhere to technological innovation, efficient

management, and amplify resource efficiency with

the help of digital tools, they have every opportunity

to achieve "small to big" in the subdivision track, and

even become the leader of disruptive technologies.

This path not only fits the general trend of China's

manufacturing transformation and upgrading, but

also opens up a sustainable development path for

small and micro enterprises to break through financial

constraints.

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