ANALYSIS OF FACTORS DETERMINING SMALL BUSINESS PERFORMANCE

 ANALYSIS OF FACTORS DETERMINING SMALL BUSINESS PERFORMANCE


INTRODUCTION

Background Information

In order to achieve sustainable economic growth in developing countries, it is crucial for enterprise performance to be improved. A positive relationship has been documented between small-business development and economic growth in developed countries (Harris and Gibson, 2006; Sauser, 2005). Small businesses have been the way across that accelerated commercial development and through which quick development has been attained (Francis, 2000). Furthermore, small business has been understood as a feeder ability to large- scale industries (Wolfenson, 2001). Strong economies like the United States of America and the United Kingdom trace their development from growth and development of their SMEs (Hatega, 2007). 

 

According to Subhan et al. (2013), Small and Medium Enterprises are the driving force for the promotion of an economy. Due to their significance, all the countries whether, developed or developing, are concentrating on the development of SMEs. Small enterprises are considered as main driver for innovation, poverty reduction, employment generation, and social integration. SMEs sector may strengthen the production capacity which has a significant impact on the promotion of economic and social development. Avendano et al. (2013) mentioned that, SMEs provide the vast majority of employment in developing countries and are keystones in the productive structures of emerging economies. In Africa, SMEs are the main source of employment comprising of over 90% of African business operations and contributing to over 50% of African employment and GDP (Okafor, 2006).

 

SMEs usually utilize local resources like capital (family savings); skills harnessed to produce a variety of products for the markets and utilize local material resources often to a greater extent and have proved to be a dependable source of employment even or especially during the periods of economic crisis in many countries (Avendano et al., 2013). SMEs cover more than 95% of all firms in Sub-Saharan Africa and their importance cannot be underestimated (Kaufmann and Mastruzzi, 2005).

 

Though small businesses have been acknowledged of their great contribution to development of the economy, the entrepreneurs’ still face a number of challenges. Research on small business development has shown that the rate of failure in developing countries is higher than in the developed world (Arinaitwe, 2002).

 

In Tanzania, SMEs sector plays a significant role in fostering the development of the country due to its contribution to economic growth and poverty alleviation (Musonda et al., 2008; Mungaya et al., 2012). The share of the SMEs sector to the gross domestic products (GDP) is estimated at 27%, and employs about 5 206 168 people (NBS, 2012).  The sector is labour-intensive in nature and it covers a wide range of enterprises dealing with a variety of businesses that provide multiple jobs; a fact that makes it more geographically dispersed than large enterprises.

 

Tanzania like any other developing countries in the world, has taken a number of measures to promote business growth of private sector and SMEs (Mungaya et al., 2012). For instance; development of 2003 SMEs policy, improvement of infrastructure, creation of conducive legal environment, provision of business training and credit services. Although the SMEs sector is important to the socio-economic development of Tanzania, studies have revealed that it is largely informal and very much under-performing due to a multitude of constraints facing it (Mutambala et al., 2011).

 

On this basis, there is a need to study why small and medium industries are not performing well despite the various government efforts to promote the subsector. Hence, this study is done to analyse factors determining small business performance in Tanzania, an experience from Moshi Municipality.

Statement of the Problem

Literature review indicates that SMEs play an important role in the economy of many countries across the globe, being them developed or developing. However, SMEs have been said to report high rate of failures with many enterprises dying at an infant stage. Very few of the SMEs grow to become big enterprises (Karo, 2012). The enterprises in Tanzania also have shown to die at the very early stages of growth. The subject as to why small businesses in Tanzania do not perform well despite much efforts made by the government to promote the sector is one of the most interesting questions in the field of entrepreneurship.

 

Despite the determinants that lead to growth of SMEs, there are also SMEs challenges that have been observed affecting the success of SMEs in many countries. In addition, Swierczek and Supyuenyong (2011) identifies the hindrances of SMEs development which are lack of new technology and equipments. Through other previous researches, the problem has been continually interpreted to justify the factors limiting the growth of SMEs by looking the external factors that are corruption, lack of education and training, government policy, poor access to finances, lack of planning, improper financial and poor management.

 

Gamba (2003); Tundui and Tundui 2012; Nchimbi (2002) and Nawaz (2009) have written a lot on factors affecting the growth and development (performance) of small business in different areas of Tanzania in particular but less has been done in Moshi Municipality. For that case then, this study aims to assess the factors determining small business performance in Moshi Municipality due to the fact that in the Municipality, the full potential of the Small business has not yet been tapped due to the existence of a number of factors hindering their performance.  The study also aims to give recommendations to the Small business entrepreneurs on how to overcome those problems affecting Small business performance and improve their income. Also, this will help them to improve their living standard and promote rapid economic growth of Moshi Municipality and of the nation at large.

 Objectives

General objective

The main objective is to analyse factors determining performance of small businesses in Moshi Municipality.

Specific objectives

Specifically, the study was guided with the following objectives:

           i.            To determine the effect of socio-economic characteristics of small business entrepreneurs to the small business performance in Moshi Municipality.

         ii.            To evaluate the performance in terms of profit of small business in Moshi Municipality

       iii.            To find out the relationship between customer value strategy and small business performance in Moshi Municipality.

       iv.            To assess the influence of external environmental factors on the performance of small business in Moshi Municipality.

Research questions

To attain the specific objectives, the study intended to answer the following research questions:

           i.            What is the effect of socio-economic characteristics of small business entrepreneur to the small business performance in Moshi Municipality?

         ii.            What is the performance in terms of profit of small business in Moshi Municipality?

       iii.            What is the relationship between customer value strategy and small business performance in Moshi Municipality?

       iv.            To what extent do external environmental factors influence the performance of small business in Moshi Municipality?

Significance of the study

The study will add knowledge on the entrepreneurship field concerning the factors for entrepreneurship success. The findings will also provide training needs for entrepreneurs and inspiration for potential entrepreneurs. The study on the other hand will provide input to the SMEs policy review and formulation of other policies that have influential power to SMEs. Finally, the study will create more practical knowledge on entrepreneurship to the researcher and other stakeholders by providing socio-economic value to the community as well as the technological improvement.

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