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Over the decades, the UAE Government has been increasingly concerned about the creation of a diversified economy and a key contributor to this diversification is SME. In fact, a report by Dubai SME (2013) showed that SME represents 95% of all establishments in the Emirate, accounts for 42% of the workforce and contributes around 40% to the total value add generated in Dubai’s economy. With the advancement in technology, social media and online business, operating business at home is becoming easier leading to the gradual increase of Home Based business globally. In the UAE, definition of SME differs from Emirate to Emirate. SMEs are categorized into Micro, Small and medium based mainly on employee headcounts and turn over (annual revenue), and it varies across business sector (Trade, Manufacturing & services). As stated by Clyde & Co (2016), the recently published Cabinet Resolution No. 22 of (2016) (the Resolution) sets out the definition of a SME for the purposes of UAE law (Silver, Reeves, & Hilton, 2016).
The income statuses of the SMEs were collected from the Khalifa Fund for Enterprise Development (EDD), which was used for the analysis of SMEs by sectors. Hypothesis which have been developed for this study was analyzed by the various regression analysis methods to understand the relationships between the parameters. Small and medium enterprises (SMEs) have been a key contributor to economic diversification in oil rich GCC (Gulf Cooperation Council) countries and play a significant role in driving up the key macroeconomic indicators. Small and medium enterprises (SMEs) are considered the actual growth engine in the economy of many countries (Zarook, Rahman, & Khanam, 2013). With the ongoing recovery from the Global Financial Crisis (GFC) of 2008, a considerable number of SMEs have been set-up whilst well established ones continue to grow gradually, leading to the formation of business clusters regionally, nationally, and internationally. The term business cluster (also known as an industry cluster, competitive cluster, or Porterian cluster) is a geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field. Clusters are considered to increase the productivity with which companies can compete, nationally and globally (Januska, Kurkin, & Miller, 2010). The term cluster is indiscriminately used for quite a wide range of business arrangements, in its broad sense it refers to a geographical concentration of certain economic activities (Carpinetti, Gerolamo, & Galdámez, 2007). However, what makes clusters potentially beneficial to the competitiveness of small firms are the opportunities for collective efficiency, derived from external economies and joint actions. Also, clusters advantages include a pool of suppliers of raw materials, equipment and specialized services, a pool of specialized workers and the dissemination of new knowledge (Schmitz & Nadvi, 1999). This geographical concentration of SMEs is considered by several studies to have effects on its growth, innovation, sustainability and employment. Although the review of literature showed several studies carried out on effects of business clusters of SMEs on its growth, innovation and sustainability, focusing mainly on the growth, characteristics and economic contributions of SMEs which are non-home-based. However, apparently there hasn’t been any empirical study on the impact of geographical location of home based SMEs on their growth, innovation and economic contributions. Except for few, the following review of literature confirms the view of almost all researchers that business cluster is one of the most effective ways to foster the growth of economic system and could be regarded as an advance tool for productivity and innovation. There are two basic innovation strategies, product and process innovation, which involves not only the manufacturing processes of products, but also the planning, steering and supporting processes in the organization, also includes improving functions such as strategic planning and implementation, marketing, production, logistics, quality management and human resource management (Riederer, Baier, & Graefe, 2005). This study aims to determine whether geographic locations of SME home-based businesses have significant effect on their growth and economic contributions. Moreover, the study investigates if there are any differences in the growth and economic contributions of home-based and non-home-based businesses in the UAE. Addition to the above, the study examines out-performing SMEs with respect to economics and finance.