International Research Journal of Finance and Economics ISSN 1450-2887 Issue 39 (2010) © EuroJournals Publishing, Inc. 2010 http://www.eurojournals.com/finance.htm
Issues in SME Development in Ghana and South Africa
Joshua Abor Department of Finance University of Ghana Business School, Legon Peter Quartey Institute of Statistical, Social and Economic Research University of Ghana, Legon Abstract This paper discusses the characteristics, contributions of SMEs to economic development, and the constraints to SME development in developing countries with particular reference to Ghana and South Africa. SMEs in Ghana have been noted to provide about 85% of manufacturing employment of Ghana. They are also believed to contribute about 70% to
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Section three discusses the characteristics of SMEs in developing countries. Sections four and five examine the contributions of SMEs to economic development and the constraints to SME developments. The paper concludes in section six.
2.0. What is an SME?
The issue of what constitutes a small or medium enterprise is a major concern in the literature. Different authors have usually given different definitions to this category of business. SMEs have indeed not been spared with the definition problem that is usually associated with concepts which have many components. The definition of firms by size varies among researchers. Some attempt to use the capital assets while others use skill of labour and turnover level. Others define SMEs in terms of their legal status and method of production. Storey (1994) tries to sum up the danger of using size to define the status of a firm by stating that in some sectors all firms may be regarded as small, whilst in other sectors there are possibly no firms which are small. The Bolton Committee (1971) first formulated an “economic” and “statistical” definition of a small firm. Under the “economic” definition, a firm is said to be small if it meets the following three criteria: • It has a relatively small share of their market place; • It is managed by owners or part owners in a personalized way, and not through the medium of a formalized management structure; •
The purpose of the essay is to discuss on the constraints faced and the steps taken to sustain SMEs’ current and future prospects in Singapore economy. The essay is divided into three broad categories. Category one will cover the overview of SMEs in Singapore. Category two will examine the constraints encountered by the SMEs. The final category will look into potential solutions to address the constraints faced by SMEs.
The rural and cottage industries play an important role in rural areas, resource utilisation is enhanced, employment is generated especially for traditional artisans and the weaker sections of society (Industrial Development & Progress after Independence, 2010). MSMEs’ greater labour intensity means that job creation entails lower capital costs than in larger firms which are particularly important for developing countries and economies with high unemployment. The SMEs play a major role in economic growth in the OECD area, providing the source for most new jobs. Over 95 percent of OECD enterprises are SMEs, which account for 60 percent-70 percent of employment in most of the countries. Productivity, growth and consequently economic growth are strongly influenced by the competition inherent in the birth and death, entry and exit of smaller firms. These SMEs are located in the top 5 percent-10 percent of all growing firms. At present, SMEs contribute between 25 percent-35 percent of world exports of manufactures and account for a small share of foreign direct investment. More than 95 percent of enterprises across the world are SMEs, which accounts for approximately 60 percent of private sector employment. Japan has the highest proportion of SMEs among the industrialised countries, accounting for more than 99 percent of total enterprises (EIU 2010). MSMEs have emerged as a highly dynamic and vibrant sector of Indian economy in last 5 decades. The sector besides
Small businesses are the backbone of national economy and play a leading role in innovations as well as in creating jobs. Small business has the intrinsic needs to growth. Obvious contributions of the growth of small businesses include the increased return on investment and job creation. The interesting and valuable question is how small business grows and are all small businesses growing? It is no surprise that the growth of business is a core topic both in organization theory and entrepreneurship, both are interested in the process and causes of business growth. Stages of growth models, which assume that business go through some distinct stages from birth to maturity, have been the most popular theoretical approach in academic to understand small business growth. Although the stages model of growth has been criticized for being too sequential and linear which is unrealistic and inconsistent with empirical evidence (e.g. Phelps et al., 2007; Levie and Lichtenstein 2010), various new stages models of business growth have been developed since the 1960s.
The purpose of this paper is to identify how different factors effect on the growth of small businesses. The growth of small businesses has been influenced by factors such as growth strategy, business forms, short and medium term goals, financing assistance, organizational structure and staffing needs, customers and promotion, and ethics and social responsibility. In this paper will to discuss how the different factors alter the advancement of small businesses.
When comparing a large organization to a SME, one clear disadvantage that the SME face is that the large organization can afford experts who are dedicated only to working capital unlike the SMEs fueled with low level of funds. Therefore, this shows that even how well the SME are doing, they are not able to match up with the large organizations due to insufficient funds to grow.
Small businesses have gained steadily more importance after they started to rise in the mid1990s. They are characterised by a high chance of entrepreneurial risk; their link is inborn and cannot be rid of; however, small firms are steadily progressing and acquiring a noteworthy role in nowadays society. These types of businesses are particularly significant for the global economy and for the commercial flow; “they are known by governments worldwide for their contribution to the economic stability and growth, employment and new job creation and social cohesion and development” (Morrison et al, 2003). For instance, according to Delephanty, in the US small business employs almost half workforce of the country and creates two-thirds of all net new jobs; that’s why small businesses have a major importance worldwide (2015). In 2007, the number of small businesses in the UK was up to 4,6 million and they contributed to almost 50% of employment (BERR, 2008). There are several elements that help the entrepreneur determine the success or the failure of SBs; they distinguished between internal and external factors. Their importance can be denoted by the way they influence the progress of the company.
Based on a survey of 139 banks in 16 countries, Rocha et al (2011) investigated the status of financing to SMEs in the Middle East and North Africa (MENA). The researcher found out that in spite of a good and viable environment which prompted the growth of the segment, the SME sector in these region remains largely untapped (Schiffer and Weder, 2011). Government assistance through low interest rate, public banks, guarantee schemes and other forms of subsidized financing play a key role in the development of SME.
In view of the poverty situation in Bangladesh, the government’s major development objective is to create more employment in order to secure incomes and thereby reduce poverty. Because of the structure of small and medium enterprises (SMEs) in Bangladesh, which are mainly labor-intensive and the development of SMEs is considered to be the most effective contribution to the eradication of poverty.
The number of SMEs in India is around 40 million per the published statistics in 2013. Moreover, around 6,000 different products (both traditional and hi-tech products) are offered by SMEs in India (Kumar 2013). According to Goyal (2013), even though SMEs contribute only around 17% to GDP growth, it gives employment to 40% of India’s workforce. While encouraging big companies, cities like Detroit failed to recognize the importance of the SME
In the period of the 1950s and 1960s the prominence given to the role of small business enterprise in the UK economy has been rewarded (Stanworth and Purdy, 2003). IN the economy of the UK 99.9 per
The purpose of the small and medium enterprises in ensuring its prospect future through growth is not only about doing further business or making more money or acquiring greater kudos through larger size. Where knowledge management maturity is high, there the firms are realizing handsome profits and significant increase in growth. Growth is a strategy that basically addresses the question of unsafe and doubtful environments, with the help of attainment of greater influence over the environment within which the enterprise works. In the European economy, SME’s are recognized as the primary players. SME’s in Spain, signify that from all registered businesses which are more than 99.8%, almost 70% of the employment and make the contribution 65%
include a wide variety of firms such as village handicraft makers, small machine shops, and
Small and medium-sized enterprises (SMEs) are a key source of innovation and make a significant contribution to the economy of New Zealand in terms of employment, output and growth. There is no universally definition of an SME in New Zealand. However, from a government perspective, they are considered to be firms having the following traits: personal ownership and management, having few specialist managerial employees, and they are not part of a larger business organization. These traits are typically demonstrated by SMEs in New Zealand, so New Zealand politicians and business organizations are usually define SMEs as enterprises with 19 or fewer employees. According to report 2011, SMEs account for 31% of total employment, and contribute 40% total outputs (Ministry of Economic Development, 2011).
As the world economy has developed rapidly these years, small to medium sized companies are playing important roles in the acceleration of the global economy development especially in those developing countries. An optimistic finance environment is especially needed to the small and medium-sized company at each stage of their life cycle, from creation through operation, development, restructuring, recovery and beyond. (Agrebi, Mohamed,2009) In this paper, the mainly source of finance to SMEs and the financing difficulties which it may face will be described.
If efforts are put towards promoting SMEs, particularly, the likes that are concerned with the informal sector, achievement of development that is sustainable is inevitable. Most developing as well as developed countries depend on the small and micro enterprises in the provision of employment. Even though a number of small and medium-sized enterprises are not part of the formal sector that is