The impact of entrepreneurial characteristics and business practices on the long term survival of small and medium enterprises (SMEs)
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Date
2011
Authors
Neneh, Brownhilder Ngek
Journal Title
Journal ISSN
Volume Title
Publisher
University of the Free State
Abstract
In South Africa, entrepreneurial ventures have a low survival rate as entrepreneurs start businesses but are unable to turn them into sustainable businesses (Foxcroft, Wood, Segal, Herrington and Kew, 2002: 14). Fatoki and Garwe (2010) note that most new SMEs in South Africa do not move from the first stage (existence) of growth to other stages such as survival, success, take off and resource maturity. As such, it is believed that many of these SMEs do not survive in their first years of operation and thus, do not provide their benefits to society (Persson, 2004). Sutton (1984) is of the opinion that if business owners and managers are good at managing their businesses, then they will do extremely well in terms of ensuring their continuous survival of their businesses. For SMEs to survive and succeed in their business operations, it is pertinent that its owners or managers possess certain entrepreneurial characteristics (MacGregor and Varzalic, 2005; Westerberg, Singh and Häckner, 1997) and carry out specific business practices. For these reasons SMEs deserve much more attention, especially with regard to its business practices, which are often developed as part of the entrepreneur‟s personal life strategies. These business practices and personal life strategies are used as a means of earning a living, which in turn is largely influenced by the entrepreneur‟s personality characteristics (Littunen, 2000). Hence, an increase in the long-term survival of SME will result in sustainable job creation; poverty eradication and improved standards of living. The primary objective of this study was to investigate which entrepreneurial characteristics and business practices have a bigger influence on the long-term survival of SMEs, and the extent to which they do so. The argument of this study is that businesses in the SME sector all over the world are more prone to failure due to the specific qualities possessed by the businesses, their owners and managers (Bannock, 2005). It is necessary to establish an understanding of key entrepreneurial characteristics and business practices that can help in the understanding and promotion of SME long-term survival. Another objective was to find out the determinants of SMEs survival and determine the relationship between entrepreneurial characteristics and business practices. The empirical research was conducted by self-administered questionnaires to entrepreneurs in the Motheo district (Bloemfontein; Botshabelo and Thaba‟Nchu). The questions were developed through a modification of entrepreneurial self-assessment tools for entrepreneurial characteristics and through a review of the literature on business practices. A total of 353 questionnaires were issued, 218 questionnaires were received but only 200 questionnaires were considered in the study because they were those fully completed by the respondent and thus gave the study a response rate of 56.7%. The statistical analyses included descriptive statistics, frequencies, chi square, T-test, ANOVA and Pearson correlation. The Cronbach‟s alpha was used as a measure of reliability. The results revealed that: In answering the question which entrepreneurial characteristics and business practices have a bigger influence on the long-term survival of SMEs, this study considered characteristics and practices that had a score of 50% and are above to be determinants for SMEs survival. A conclusion was made in terms of required and sufficient characteristics and practices. The required characteristics identified by this study were four characteristics; creativity, self-reliance and ability to adapt (83.8%); tolerance of ambiguity and uncertainty (81%); opportunity obsession (75.8%) and commitment and determination (71.5%) that influences the long-term survival of SMEs. The sufficient characteristics are need for achievement; risk-taking propensity; self-confidence; innovativeness and motivation to excel, that influences the long-term survival of SMEs. The required practices identified by this research are; marketing practices (84.3%); performance management practices (77.9%); strategic planning practices (72.7%) and teamwork (72%). No sufficient practices were identified that influences the long-term survival of SMEs. Seven variables: age; number of employees; net profit; equipments/ assets; number of business owners; business location and the office number, were considered determinants of SMEs survival. In establishing a relationship between entrepreneurial characteristics and business practices, it was observed that all the values for entrepreneurial characteristics and business practices were positive correlated with each other except for the correlation between team work and tolerance of ambiguity and uncertainty which are negatively correlated with value (-0.02). The recommendations included the need to improve the entrepreneur‟s level of education and business knowledge skills through simplified training programmes and courses. The inclusion of these training courses will certainly foster the survival and growth of SMEs. Business support mechanisms should use the Life Styles Inventory (LSI) measures thinking styles and Brain profiling to identity the way entrepreneurs think and use the results to modify their teaching methods. HRM practices should be enhanced by encouraging SMEs owners to provide performance evaluation in place. In order to promote risk taking and risk management practices, entrepreneurs are encouraged to insure all their investments to enable them take appropriate account of the specific risk and return characteristics of their investment.
Description
Dissertation (M.Com.(Business Management))--University of the Free State, 2011
Keywords
Small business, Entrepreneurship, New business enterprises -- Management