Exploring challenges faced by SMMEs in the construction industry in Mangaung Metropolitan Municipality of the Free State Province
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Date
2022
Authors
Khetha, Ntahle Snowhite Charlotte
Journal Title
Journal ISSN
Volume Title
Publisher
University of the Free State
Abstract
Since the democratic dispensation, the Small, Medium, and Macro-enterprises (SMMEs) have witnessed significant support from the government, which was not available before 1994. The entrepreneurial support and contribution to the development of emerging businesses were informed by the identified roles these businesses played in a country's economy. The promulgation of the White Paper on National Strategy for the Development and Promotion of Small Business in South Africa (1995) contributed to this transformation, which the government saw, fit since millions of citizens live in poverty due to unemployment. In this regard, small businesses, mainly those regarded as SMMEs, play a pivotal role in the mission to address challenges faced by South Africa in absorbing labour, and expanding the economy by penetrating new markets through innovation and creativity. SMMEs are needed to contribute to economic growth, job creation, and equity in South Africa. Small enterprise development in South Africa is envisioned as an engine of employment growth through creating jobs. However, the SMMEs in the construction industry, particularly those in the Mangaung Metropolitan Municipality, is still faced with significant growth challenges. Therefore, the purpose of this research was to explore growth challenges faced by SMMEs in the construction industry in the Mangaung Metropolitan Municipality of the Free State Province so that the appropriate strategies can be provided to enhance the performance of these SMMEs as far as growth is concerned. This research followed a quantitative research approach. A self-administered questionnaire (open-ended) was developed to understand these challenges that affect SMMEs in the construction industry. In developing the questionnaire, the supervisors guided the whole process of developing the research instruments, and the Cronbach Alpha test was used to test the reliability and validity of the statements. The approved questionnaires were distributed to 154 participants, all of them SMMEs owners. These participants were selected purposively, which resulted in a 100% response rate. This study found that 55% of SMMEs in the construction industry show some progress, compared to 45% of those still struggling to show good profit margins or grow in the construction industry. Some reasons are linked to this challenge, such as the unavailability of policies guiding SMMEs to operate sustainably lack of access to government financial support. Moreover, this study found that macro-environmental factors such as crime, corruption, inflation, interest, and labour regulations contribute to the slow growth of SMMEs in the construction industry. Furthermore, this research found that the lack of managerial skills (72%), a skilled labour force (72%), acceptance of technology (69%), acquisition of marketing skills (66%), access to finance (64%), and networking and convenient location (63%) have the most significant impact. Therefore, these factors are needed to reduce the impact of the challenges facing SMMEs in the construction industry. This study found that factors such as tendering process are among the factors contributing to the failures of emerging SMMEs in the construction industry (68.2%). On the other hand, a lack of cash flow (47.4%), lack of financial management knowledge (50.6%), lack of communication (29.9%), an increase in equipment factor lease prices (48.7%), and an increase in the cost of skilled labour (49.4%) in the industry are also seen as contributing factors.
From these findings, this study recommends key strategies to mitigate the challenges faced by SMME companies in the construction industry in the Mangaung Metropolitan Municipality in the Free State Province. Small to medium enterprises should employ advanced technologies to improve their operations. Technologies offer various benefits to quality and market-related problems. Technologies can also improve small businesses' profitability and sustainability. Small to medium enterprises should improve their participation in municipal incubation contractor programs to mitigate tendering irregularities. These programs can contribute significantly to the success of small businesses in the construction industry. Regarding cash flow financing, it is advised that contractors create a thorough financial plan with efficient controls based on the study's findings to assure plan compliance and prevent cross-financing of several projects. A financial strategy must be created and followed to provide adequate financial management, which will then ensure cash flow stability and, as a result, improve project performance. Given the role of government as stipulated in the White Paper on National Strategy for the Development and Promotion of Small Business in South Africa (1995), the government must develop policies and strategies to assist small to medium regional enterprises and access markets, equipment, and research and development services. The government and small businesses must work hand in hand with non-governmental organisations to improve sustainable development challenges. Policy formulation and the implementation of access to financial resources can be made easier for SMMEs through the intervention of the government and other stakeholders. Lastly, this study recommends that local authorities be mandated to create a conducive environment for SMMEs' growth, increase business support and reasonably extend tender support services to SMMEs, and improve sustainable development initiatives or policies.
Description
Dissertation (MBA (Business Administration))--University of the Free State, 2022
Keywords
Small, medium, micro-enterprises, construction industry, economic development, Mangaung Metropolitan Municipality, Free State Province, South Africa