J. Service Scie nce & Management, 2009, 3: 230-235
doi:10.4236/jssm.2009.23028 Published Online September 2009 (www.SciRP.org/journal/jssm)
Competitive Intelligence Monitoring in the Risk
Prevention of SMEs
Xianjin ZHA, Minghong CHEN
Center for Studies of Information Resources, Wuhan University, Wuhan, China.
Received June 17th, 2009; revised July 24th, 2009; accepted August 2nd, 2009.
ABSTRACT
Competitive Intelligence plays an increasingly important role in the risk prevention of SMEs, however, there is an ob-
vious phenomenon—the absence of competitive intelligence in the field of Chinese SMEs. In this paper, the author
firstly pointed out how many kinds of risks the SMEs were facing, and then analyzed the demand for competitive intelli-
gence in the risk prevention of SMEs. Based on that, the model of competitive intelligence monitoring in the risk pre-
vention of SMEs were put forward at last.
Keywords: small and medium-sized enterprises (SMEs), risk prevention, competitive intelligence
1. Introduction
With the change of economic environment and fierce
competition between large enterprises, many small and
medium enterprises (SMEs) survive difficultly, for they
are facing increasingly diversified and complicated risks
in the activities of production, operation, management
and decision-making. Thus people begin to explore how
SMEs could convert from enduring consequences of
risks passively to using risks positively to create value.
Competitive intelligence, which is developed in the
course of competitive activities, invo lving collecting and
extracting the information about competitors, competi-
tive environments and competitive strategies, aims to
win and maintain competitive advantages of enterprises
[1]. Its successful application helps SMEs to win com-
petitive advantages by identifying the potential threats
and opportunities in the market as soon as possible and
by reducing competitors’ response time, equal to in-
creasing their own response time. To be specific, com-
petitive intelligen ce not only facilitates risk management
by predicting, identifying , avoiding, transferring, spread-
ing and controlling risks well, but also helps SMEs to
enhance the capabilities of risk awareness and risk pre-
vention. In this paper, competitive intelligence is re-
garded as the breakthrough point to study how SMEs
prevent risks in the productive and commercial activities.
2. SMEs and their Risks
Generally speaking, compared with large enterprises in
the same industry, SMEs are smaller economic units—
fewer employees, less assets and smaller scale. And the
modified definitions of SMEs are not the same in the
different countries, development stages and industries,
however, the quality and the quantity are still basic pa-
rameters for the definition of SMEs [2].
In fact, SMEs often play a role of vulnerable groups in
the fierce market competition in contrast with these large
enterprises. According to the report of Chinese Academy
of Social Sciences on the role of SMEs in the reco very of
financial crisis, 40% of SMEs have been collapsed, 40%
of SMEs are struggling against the financial crisis, and
only 20% of SEMs are immune to the current financial
crisis [3]. However, SMEs, having a large number, flexi-
ble forms and wide distribution, have been becoming a
major strength in the economic and social development
process. It means that SMEs are playing an irreplaceable
role in promoting economic diversification and in ex-
panding urban and rural employment. Just for this reason,
the governments of many countries try to take some laws
and regulations to improve the business environment of
the SMEs and further to promote the healthy develop-
ment of SMEs primarily by taking measures in the as-
pects of financial support, business support, technical
innovation, market development and social services, for
example, the law “SME Promotion Law of People’s Re-
public of China”.

XIANJIN ZHA, MINGHONG CHEN 231
Nevertheless, SMEs still face great difficulties. In gen-
eral, enterprise risks refer either to the extent of losses
and the possibility of uncertainties and errors caused by
nature, politics, economics, cultures, etc. or to the possi-
bility of the deviation of the reality from the expected or
established objectives. Acco rdingly, enterprise risks con-
sisting in various fields of production, operation, man-
agement and decision-making, could be classified into
stock risk, inventory risk, market risk, investment risk,
technical risk and so on. Furthermore, according to dif-
ferent standards, all the above-mentioned risks are as-
sorted into the various categories: external risk and in-
ternal risk, pure risk and speculative risk, fundamental
risk and personal risk, realistic risk and potential risk.
However, these risks can be further broken down. For
example, external risks can be divided into natural risk,
policy risk, legal risk, market risk, industrial risk, com-
petitive risk, the risk of technological innovation, etc.;
while internal risks can be divided into strategic risk,
investment risk, operational risk, financial risk, technical
risk, the risk of human resources, etc. With the estab-
lishment of modern enterprise system, SMEs have be-
come independent operators, who regard property rights
as a link to the self-risk in the market economy environ-
ment. At the same time, the increasingly fierce competi-
tion makes risks so unpredictable that a large number of
SMEs always face a variety of realistic and potential
risks, such as prices decline, the global economic slow-
down, and higher interest rates and so on. If SMEs could
not take some effective measures to prevent those risks
timely, they may find it difficult to survive and develop.
And yet most risks, which have more or less something
with emergencies, are sudden and ferocious. Therefore, it
is impossible for SEMs to make effective countermea-
sures to handle emergencies well, on condition that they
should not identify and prevent those risks in advance.
3. Demand for Competitive Intelligence in
the Risk Prevention of SMEs
It is obvious that risk prevention is an objective demand
for the long-lasting survival and development of SMEs,
owing to the uncertainty of internal factors and the com-
plexity of the external environment. In fact, the risk is a
kind of uncertainty resulted by asymmetric information
and incomplete information. And in most cases, the
so-called uncertainty could be predicted and measured
through collecting and analyzing information, both of
which are just the core work of competitive intelligence.
As a product of market competition and social infor-
mationization, competitive intelligence does not only
refer to the collection and statistics of data, nor to the
answer to specific questions, but to all the continuous
and systematical activities of collection and analysis of
the full information that may be related to competitive-
ness. And the focus of co mpetitive intelligen ce activities
directly aims at the competitive environment and com-
petitors. First of all, people carry out market research in a
wide range in a multi-directional and multi-level way so
as to collect useful information, and after comprehensive
analysis and systematic processing, professionals would
transform the occupied information into intelligence,
which could offer decision-making support to SMEs in
several aspects of R&D, investment strategy and long-
term business strategy.
The practice shows that competitive intelligence is so
useful to help SMEs improve the ability of risk aware-
ness and risk prevention that they subsequently can be
easy to find a shortcut of dealing with risks an d fur ther to
minimize the losses even if they stand on the edge of a
precipice. As a rule, all the evergreen enterprises often
attach great importance to competitive intellig ence. They
have a keen scent for the “clues” of changes in the com-
petitive environment. When the potential threat and risk
turned into realities, they could grasp the changing con-
text accurately and respond quickly. As a result, these
enterprises would reduce losses, seek potential business
opportunities and increase revenue with the help of
competitive intelligence.
In this sense, competitive intelligence determines the
survival of enterprises. Making full use the favorable
characteristics of competitive intelligence, namely, “re-
sponding timely” and “avoiding surprise”, SMEs could
minimize the losses of the crisis at th e minimum cost by
preventin g the risk timely and taking prompt measures to
deal with risks.
4. The Model and Contents of Competitive
Intelligence Monitoring in Risk
Prevention of SMEs
Usually, managers are confronted with different kinds of
risks (macro-economic, policy, competitive and resource)
and some are in fact unique [4]. Managing risk is a com-
plex process that draws upon various levels of manage-
ment expertise and knowledge, and needs to be placed in
the context of managing change. Jones et al. have ad-
dressed the issue of readiness for market changes by
linking a human relations culture orientation with the
usage of a new computing system [5]. This focuses at-
tention on:
 How senior managers are able to devise a strategic
intelligence policy that incorporates the use of
technology.

XIANJIN ZHA, MINGHONG CHEN 232
 How competitive intelligence officers can under-
take research into technology life cycles.
 How marketing intelligence officers interpret changes
in government regulations.
 How global product development teams devise and
implement product launches.
 How competitive intelligence officers develop com-
petitor mapping devices.
Obviously, competitive intelligence is advantageous
for SMEs to put in place an organizational resilience
value system that is created for and supports risk preven-
tion of SMEs, by adopting a proactive approach to risk
assessment [6]. What is important to note is that the re-
silience value system, which is underpinned by the
SME’s strategic goal, results from the vision and leader-
ship of managers who are committed to establishing an
intelligence focus, which has a security dimension of
risks. In this paper, it is put out that the model of com-
petitive intelligence monitoring in risk prevention of
SMEs and it is shown as Figure 1.
This model shows that competitive intelligence is
composed of three components that are competitors, the
competitive environment and competitive strategy. And
in this model, the whole process of risk prevention, in-
cluding forecasting and identifying risks, averting risks,
transferring risks, spreading risks and controlling risks
[7], closely associated with intelligence work, which is
all about organizing the in telligence process and utilizing
information and data sources, and not just about finding
solutions to a certain risk in the short-term [8]. As a mat-
ter of fact, by reducing an SEM’s level of vulnerability
to a risk, its ability to withstand attacks from competitors
and the competitive environment will be increased, and
its level of resilience will move from average to above
average, and the detected threat will be downgraded to
the “not immediately at risk”.
And for this reason that incomplete information and
asymmetrical information probably result in risk s, SMEs
that have access to risk information often identify poten-
tial risks more easily and seize more market opportuni-
ties than others, which do not have corresponding infor-
mation. Consequently, the fact is that the above men-
tioned model of risk prevention could be carried out
successfully based on having adequate and reliable in-
formation in limited response time. Additionally, the
principle of competitive intelligence is that monitoring
competitive activities should focus on a variety of infor-
mation needs in the different section of risk prevention.
The concrete steps of preventing risks of SMEs are as
follows:
Figure 1. The model of competitive intelligence monitoring
in risk prevention of SMEs
4.1 Planning Stage
The first step of risk prevention is to plan all activities of
risk prevention from the perspective of competitive in tel-
ligence—establishing the goal of risk prevention, limit-
ing the scope of risk prevention, defining criteria of risk
prevention, making information-gathering plan, making
tables of responsib ilities and arrang ements and so on [9].
According to a study on SMEs of Industry Canada, it is
difficult for SMEs not to use competitive intelligence
tools but to assure the following issues before: under-
standing what competitive intelligence is, knowing your
own purpose, building internal co-operation, starting
with a plan, knowing what you know, protecting your
confidentiality, gathering information systematically,
analyzing information, building a competitive strategy,
understanding the costs and benefits.
In addition, a proactive competitive intelligence op-
eration requires that competitive intelligence profession-
als, under the direction of a senior manager, take respon-
sibility for coordinating matters relating to intelligence
gathering, analysis, interpretation, dissemination, and
most importantly, the development of scenarios and fu-
ture worlds. Furthermore, by embedding the intelligence
activities within a well defined ethics policy, competitive
intelligence professionals can protect the company’s
reputation and the individual reputations of those that
undertake competitive intelligence work.
To be sure, above activities prepared for risk preven-
tion from the perspective of competitive intelligence,
offer right direction or latter specific operation.
4.2 Collecting Risk Information
As the basis and foundation of risk prevention activities,
collecting risk information is to resolv e the problem how

XIANJIN ZHA, MINGHONG CHEN 233
to collect useful and effective risk information as soon as
possible at the minimum cost. Hence, the tasks in this
step mainly include the following steps in this stage:
analyzing the target of collection, making strategies and
plans, confirming collectors and choosing the initial
sources or renewable resources of risk information by
competitive intelligence-gathering methods.
As we all know, the sources of risk information dis-
tribute widely and are viewed as all-embracing, flexible
and adaptable. Thus Porter’s five-force model is usually
regarded as a criterion to establish the sources of risk
information [10]. Given that the frequency of risks has
the law of distribution—“2-8 principles”, collectors
should pay more attention to the critical assets of enter-
prises and discern the three-dimensional values of in-
formation, namely, the time, the space and the form.
Specifically, it is necessary to search open publications,
laws and regulations of government and business as well
as many materials of Internet. What is more, some sig-
nificant information like market competition, strategic
decision-making, product structure, investment, liquid
assets, human resources, policies and regulations, supply
chain management and natural risks, could be extracted
by communicating with customers, suppliers, partners,
employees of them and competitors, industry associa-
tions, experts and organizations.
On the whole, the work of collecting is a dynamic,
normative and sequential process. It means that people
must make full use of specific methods and tools of
competitive intelligence apart from general approaches,
such as the traditional method of literature search, net-
work search, telephone interview, direct interview and so
on [11]. Besides, the target of collecting should be ad-
justed in pace with results of analysis and changes in
circumstances. Hence collectors should try their best to
take full advantage of information technologies so as to
optimize channels and methods of collecting.
4.3 Identifying Risks
Although the information collected above has certain
relevance, it is affected greatly by some subjective fac-
tors of the staff. Hence, it is necessary for professionals
to recognize threats and vulnerabilities of the enterprise.
In other words, keeping close watch on processes and
sections of business management, people may identify
uncertainties—the sources of risks, and then they can
more accurately analyze serious consequences of the risk
and more easily find out response measures using vari-
ous comprehensive methods systematically and continu-
ously.
Risk identification requires professionals consider the
characteristics of SMEs, that is, they need to analyze and
investigate the personnel, assets and business activities
of SMEs comprehensively, mainly concentrating on the
following problems: what are current and potential risks?
Which one deserves to be researched? What is the main
reason for the risk of accidents? What are consequences
of the risk? Are all of the measures of identifying risk
management proper? [12]
On the one h and , professionals need perceptual knowl-
edge and experience to identify risk information; and on
the other hand, more importantly, SMEs must analyze,
summarize and sort out the objective statistical data,
business information and other risk records to recognize
the damage and regularity of the risk. This requires
SMEs use some excellent methods of competitive intel-
ligence, for example, analysis of critical success factors,
analysis of strategic groups, value chain analysis, SWOT,
reverse engineering etc. In addition, other proper meth-
ods, including environmental analysis, analysis of finan-
cial statements, flow chart of law, decision analysis, dy-
namic analysis, literature survey and expert survey
methods and so on [13], are important tools of analysis.
However, each method is not an isolated. A variety of
methods are used together simultaneously based on the
specific circumstances, which helps to identify risks
from the multi-angle and multi-level perspective on the
premise of performing relevant work in a comprehensive,
institutiona l and combined way.
4.4 Processing Risk Information
By this time, there is sporadic and disorderly risk infor-
mation, which still cannot be used as the basis of man-
agers’ decision-making. Instead, SMEs must assort data
systematically and analyze the id entified risk information
deeply once again. That is to say, choose and classify
risk information according to the three standards—the
predictability of risk, the probability of occurrence and
the extent of loss. Through these activities of classifica-
tion, sorting and comparison, all risk information is made
to a table, which includes the following contents: the
name of risk, the description of characteristics, the level
of risk, the probability, the cause and th e impact, and the
degree of the impact.
The above processes mainly depend on some modern
information processing technologies. Firstly, it is appro-
priate to sort out the information collected before by the
methods of automatic indexing, automatic classification,
data storage technology and computer technology of
sorting. Furthermore, the technologies of data mining,
online analytical processing, information fusion and
case-based reasoning are favorable to extract useful in-
telligence from a large number of risk in formation based

XIANJIN ZHA, MINGHONG CHEN 234
on analyzing the risk information from multi-angle and
multi-directional perspective. Learning from the past
experience, relevant personnel could uncover some new
regulations and knowledge, which would eventually be
transformed into high-value competitive intelligence.
However, professional experience is vital to manage risk
information. It not only helps to control SMEs’ different
risks appropriately in line with the strategy of hierarchy,
but also emphasizes these critical factors of risk informa-
tion management resulting in high efficiency of risk
prevention.
4.5 Proposing Risk Prevention Schemes
Based on above steps, decision-makers may put out the
corresponding schemes of risk prevention relying on
their knowledge and experience. It requires prevention
schemes clearly specify the objects, measures, contents
and strategies of prevention, all of which are closely re-
lated to competitive intelligence. And these schemes do
not emphasize efficiency of the forecast, identification,
evasion, transfer, spread and the control of risk effec-
tively, but also focus on economic efficiency, that is, the
proper scheme is beneficial to obtain the effectiveness of
risk prevention at the lowest cost.
4.6 Evaluating Prevention Schemes
In fact, SMEs may face potential or new risks along with
time. Thus they need to be sensitive to some subtle
changes. Once the scheme deviated from the original
target, it would improv e the scheme in time to ensure th e
effectiveness of risk prevention.
Therefore, evaluators ought to take full advantage of
competitive intelligence as an effective tool in the proc-
ess of evaluation. Monitoring environment and tracking
competitors continuously, competitive intelligence could
readily discern some critical factors of environment
changes that are enterprise-related internally and exter-
nally, so as to identify early-warning signals of potential
risks and additional risks. Through the analysis and
processing of competitive intelligence, evaluators could
determine whether SMEs need to adjust or completely
change the primary scheme and they would more easily
find out the main reason why the results deviated from
the target. It can be said that the whole activities need to
consider the problem whether the scheme is best
cost-effective and another one is whether the scheme is
consistent with the overall strategy of the SMEs.
5. Conclusions
In a word, SMEs have smaller scale, inferior economic
strength, more difficult of access to information and
more imperfect competitive intelligence systems, all of
which have resulted in weaker ability to resist risks.
Starting from a good many characteristics of SMEs, this
paper firstly pointed out how many kinds of risks the
SMEs are facing, and then analyzed the demands for
competitive intelligence in the risk prevention of SMEs.
After that, it was proposed that competitive intelligence
plays an important role in the risk prevention of SMEs.
By studying the mechanism and procession of competi-
tive intelligence prevention comparatively with larger
enterprises, the model that includes the contents of com-
petitive intelligence monitoring in the risk prevention of
SMEs were put forward at last. The model may bring
into play their strengths and while avoid disadvantages in
the increasingly fierce competition. Clearly, it could
promote the competitive intelligence system of SMEs to
enhance their abilities of risk prevention and ultimately
to improve SMEs’ competitiveness.
6. Acknowledgements
This paper is supported by the project of Program for
New Century Excellent Talents in University under grant
NCET-06-0624, the key project of National Natural
Science Foundation of China (NSFC) under Grant
70833005, and the MOE Project of Key Research Insti-
tute of Humanities and Social Sciences at Universities
under grant 06 JJD 87 0 00 7.
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