An Entrepreneurial Development Framework for SMEs in South

An Entrepreneurial Development Framework for

SMEs in South Africa

by

RC Pyper

Submitted in fulfilment of the requirements for the degree of Masters in

Business Administration (MBA) to be awarded at the Nelson Mandela

Metropolitan University

April 2016

Supervisor: Prof CA Adendorff

i

Declaration

I, Regina Christina Pyper, student number 212457268, hereby declare the following:

This dissertation is my own work except as indicated in the acknowledgements,

the text and the complete references table.

This work is submitted in partial fulfilment of the Masters in Business

Administration at the Nelson Mandela Metropolitan University Business School.

This document has never been submitted before, either in part or in full, for any

equivalent or higher qualification at any other recognised educational institution.

Signed: …………………………………

RC Pyper

ii

Acknowledgements

The support, guidance and encouragement of the following individuals are gratefully

acknowledged. Without their support, this research would not have been successfully

completed:

In terms of academic support, I would like to thank Professor Chris Adendorff of the

Nelson Mandela Metropolitan University for sharing his knowledge and enthusiasm

and giving endless professional support and guidance;

My children: Cobus, Ilse-Mari and Christo who have blown wind into my sails and

assisted by providing advice and ideas – I love and honour you. Your prayers, positive

attitude and encouragement have driven me to achieve more than I ever thought was

possible.

My father, Chris Pyper, who laid the foundation for me to be an Entrepreneur – a worthy

legacy, and my brother, Christo Pyper, for doing business with passion and for

encouraging me to recognise opportunities and to take risks;

In all that I do and achieve, I am dependent on my Heavenly Father and He therefore

deserves my greatest gratitude, for blessing me with the courage, the wisdom, the

strength, and the determination to reach for the goals I wish to achieve.

iii

Abstract

Small and Medium Enterprises (SMEs) are engines of growth. It has been determined

globally that these enterprises are the largest employers in economies. Small and

Medium Enterprises fail fundamentally to succeed in South Africa. Many challenges

and barriers were identified as the reason why the enterprise fails to survive or succeed

for at least 42 months. Poor performance of the SMEs could be blamed on the lack of

meaningful support including an over-regulated environment, red tape and the poor

quality of education and training.

A number of Small and Medium Enterprise owners in Turkey were interviewed to

determine if the enterprise development support system contributed to success and

economic growth. The government succeeded to improve the economy of Turkey

profoundly by investing and supporting this very important sector. Turkey is positioned

17th in the world based on the Gross Domestic Product (GDP). The purpose of this

study was to develop an entrepreneurial development framework for SMEs in South

Africa. The government needs to support and implement this framework to stimulate

economic growth, to address the poor quality of education and training and to establish

a system to measure the performance of critical success factors.

A case study research approach was employed to address five propositions that were

investigated in this research project. Semi-structured interviews studied the

perceptions and experiences of the SME owners in Turkey. The study found a positive

relationship between economic growth, a meaningful enterprise development support

system, education and training, critical success factors and entrepreneurship and the

perceived success of entrepreneurial ventures in South Africa.

The establishment and implementation of an entrepreneurial development framework

will encourage the creation of new ventures. The government will be able to achieve

the goal of economic growth as set out in the National Development Plan. The

establishment of SMEs will result in employment, social stability, economic growth and

the generation of tax revenues. The purpose of an entrepreneurial development

framework is to ensure the sustainable economic development and prosperity of

South Africa.

iv

CONTENTS

DECLARATION i

ACKNOWLEDGEMENTS ii

ABSTRACT iii

CONTENTS iv

LIST OF TABLES ix

LIST OF FIGURES x

LIST OF ACRONYMS AND ABBREVIATIONS xi

CHAPTER 1

INTRODUCTION

1.1 INTRODUCTION 1

1.1.1 A global view on Small and Medium Enterprises 1

1.1.2 Africa and Small and Medium Enterprises 3

1.1.3 Small and Medium Enterprises in South Africa 6

1.2 PROBLEM STATEMENT 7

1.2.1 Primary research questions 8

1.2.2 Secondary research questions 9

1.3 SCOPE OF THE STUDY 9

1.4 RESEARCH OBJECTIVES 10

1.4.1 Primary research objectives 10

1.4.2 Secondary research objectives 10

1.5 RESEARCH DESIGN 11

1.6 CHAPTER OUTLINE 12

CHAPTER 2

SMALL AND MEDIUM ENTERPRISES – ENGINES OF GROWTH

2.1 INTRODUCTION 14

2.2 UNDERSTANDING ENTREPRENEURSHIP 15

2.2.1 Entrepreneurship in South Africa 16

2.2.2 Influence of Entrepreneurship on the economy 17

2.2.3 Entrepreneurship in developing countries 21

v

2.3 CRITICAL SUCCESS FACTORS FOR SMALL AND MEDIUM

ENTERPRISES

25

2.4 MUTUAL CHALLENGES IN SOUTH AFRICA 28

2.4.1 Defining SME establishment and failure 28

2.4.2 Challenges 30

2.4.2.1 Political challenges 32

2.4.2.2 Economic challenges 33

2.4.2.3 Social challenges 34

2.4.2.4 Technological challenges 35

2.4.2.5 Ecological challenges 36

2.4.2.6 Legislative challenges 36

2.4.3 Collective reasons of business failure in South Africa 37

2.5 SUPPORT SYSTEMS IN SOUTH AFRICA 38

2.5.1 Mandated organisations 38

2.5.2 Effectiveness of current systems 40

2.5.2.1 Small Enterprise Development Agency 40

2.5.2.2 Small Enterprise Finance Agency 40

2.5.2.3 National Youth Development Agency 40

2.5.2.4 Technology and Innovation Agency 41

2.5.2.5 National Empowerment Fund 41

2.5.2.6 Incentives 41

2.5.3 Non-governmental initiatives 43

2.5.4 Significant support needed by Small and Medium Enterprises 43

2.6 SMALL AND MEDIUM ENTERPRISES IN TURKEY 46

2.6.1 Overview on business in Turkey 46

2.6.2 Turkey supports Small and Medium Enterprises development 52

2.6.3 Small and Medium Enterprises are engines of growth 56

2.7 SUMMARY

57

vi

CHAPTER 3

METHODOLOGY OF THE STUDY

3.1 INTRODUCTION 59

3.2 RESEARCH DESIGN 60

3.2.1 Definitions 60

3.2.1.1 Methodology 60

3.2.1.2 Epistemology 60

3.2.1.3 Method 61

3.2.2 Assumptions of research 62

3.2.3 Research type 62

3.2.3.1 Research classification 62

3.2.3.2 Qualitative research 64

3.2.3.3 Approach towards the research 65

3.3 RESEARCH PHILOSOPHY 65

3.4 CASE STUDY RESEARCH 66

3.5 DATA COLLECTION 66

3.5.1 Research instrument 67

3.5.2 Procedure for data collection: case study protocol 68

3.5.3 Limitations and challenges 70

3.5.4 Population 70

3.5.5 Sampling 70

3.5.6 Case study units of analysis 71

3.6 VALIDITY AND RELIABILITY 72

3.6.1 Validity 72

3.6.2 Reliability 73

3.7 DATA ANALYSIS AND INTERPRETATION 73

3.8 SUMMARY

74

vii

CHAPTER 4

RESEARCH RESULTS AND ANALYSIS

4.1 INTRODUCTION 76

4.2 ANALYSIS STRATEGY 76

4.3 THE PROFILE OF RESPONDENTS 77

4.3.1 Respondent 1 78





4.3.6 Summary of respondent details 81

4.4 STRUCTURE CONTENT ANALYSIS AND PRESENTATION 81

4.4.1 Analysis of Section B: The Business 82

4.4.1.1 Support system 82

4.4.1.2 Membership in local or national bodies 83

4.4.1.3 Number of employees 83

4.4.1.4 Summary of structured content 84

4.4.2 Analysis of Section C: Entrepreneurship 84

4.4.2.1 SME per definition 84

4.4.2.2 Entrepreneurs in the family 84

4.4.2.3 School education and training 84

4.4.2.4 Starting a business 85

4.4.2.5 Summary of entrepreneurship 87

4.5 RESEARCH METHODOLOGY SUMMARY 87

4.5.1 Pattern matching 88

4.5.2 Research objectives 89

4.5.3 Research questions 90

4.6 SUMMARY

91

viii

CHAPTER 5

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 INTRODUCTION 93

5.2 REVIEW OF RESEARCH 93

5.2.1 Research propositions 94

5.2.1.1 The relationship between the enterprise development

support system and the perceived success of

entrepreneurial ventures

94

5.2.1.2 The relationship between economic growth and the

perceived success of entrepreneurial ventures

95

5.2.1.3 The relationship between critical success factors and the


95

5.2.1.4 The relationship between education and training the


96

5.2.1.5 The relationship between entrepreneurship and the


97

5.2.2 Attitudes of the respondents 97

5.2.3 Limitations 98

5.3 PERCEIVED SUCCESS OF ENTREPRENEURIAL VENTURES 99

5.4 SUGGESTIONS FOR FUTURE RESEARCH 101

5.5 CONCLUSION 102

REFERENCES 104

ANNEXURES

Annexure 1: Questionnaire 113

Annexure 2: Turnitin Report 118

ix

List of Tables

Table 1.1 Definitions of SMEs 3

Table 2.1 Summary of some emerging economies’ business indicators 23

Table 2.2 Reasons for business exit in South Africa, 2006 – 2014 31

Table 2.3 Definitions of SMEs in Turkey 47

Table 2.4 The Global Competitiveness Index 2014 – 2015 indicating

South Africa and Turkey

49

Table 2.5 Key indicators on basic requirements pillars 50

Table 2.6 Developing economies’ rankings 51

Table 2.7 Economic growth: BRICS and Turkey 52

Table 3.1 Three groups of mixed analytic methods 63

Table 3.2 Sampling 71

Table 4.1 Background and demographic details 80

Table 4.2 Reasons for starting a business 80

Table 4.3 Propositions and data alignment 82

Table 4.4 Support during the foundation phase of the business start-up 83

Table 4.5 Membership 83

Table 4.6 Categories of employment 83

Table 4.7 Education and training needs 85

Table 4.8 Secondary research objectives achieved 90

Table 4.9 Secondary research questions solutions 91

x

List of Figures

Figure 1.1 Conceptual framework 7

Figure 1.2 Propositions influencing the perceived success of

entrepreneurial ventures in South Africa

11

Figure 2.1 Sub-Saharan Africa: Population by age group: 2005–2020 20

Figure 2.2 Most problematic reasons for doing business in SA 31

Figure 2.3 Top five issues affecting budgets 44

Figure 2.4 Regulatory Impact Assessment model 46

Figure 2.5 Regional distribution of KOSGEB SME interest support

programmes (in Turkish Liras)

55

Figure 2.6 SMEs in Turkey and the European Union 56

Figure 2.7 SMEs add value to the GDP 57

Figure 3.1 Research study stages 60

Figure 3.2 Simple relationship between epistemology, methodology and

method

61

Figure 3.3 Research classification 63

Figure 4.1 Propositions linked to data 77

Figure 4.2 Izmir Province, Turkey 78

Figure 4.3 A display of the entrepreneur's commitment 85

Figure 4.4 Start-up systems 86

Figure 4.5 Challenges during start-up phase 87

Figure 4.6 Perceived success of entrepreneurial ventures in relationship

with the independent variables

89

Figure 5.1 An entrepreneurial development framework for small and

medium enterprises in South Africa

89

xi

List of acronyms and abbreviations

AKP Justice and Development Party

BBBEE Broad-based Black Economic Empowerment

BBSDP Black Business Supplier Development Programme

BPO&O Business Process Outsourcing and Offshoring

BRICS Brazil, Russia, India, China and South Africa

CIP Critical Infrastructure Programme

CPPP Community Public Private Partnership

CSFs Critical Success Factors

DoL Department of Labour

dti Department of Trade and Industry

EFCs Entrepreneurial Framework Conditions

EMIA Export Market and Investment Assistance

EU European Commission

FDI Foreign Direct Investments

FET Further Education and Training

G20 Group of 20 countries

GCI Global Competitiveness Index

GCR Global Competitiveness Report

GDP Gross Domestic Product

GEM Global Entrepreneurship Monitor

IDC Industrial Development Corporation

KGF Credit Guarantee Fund

IMF International Monetary Fund

MDG Millennium Development Goals

MUSIAD Independent Industrialists and Businessmen’s Association

NAMAC National Manufacturing Advisory Centre

xii

NDP National Development Plan

NEF National Empowerment Fund

NEPAD New Partnership for Africa's Development

NGOs Non-governmental Organisations

NPC National Planning Commission

NYDA National Youth Development Agency

NIC Newly Industrialized Countries

OECD Organisation for Economic Co-operation and Development’s

P propositions

PESTEL Political, Economic, Sociological, Technological, Ecological, and

Legal factors

R&D Research and Development

RDP Reconciliation and Development Programme

RIA Regulatory Impact Assessment

RO research objectives

RQ research questions

SARS South African Revenue Services

SBA Small Business Act for Europe

SBP Small Business Projects

SEDA Small Enterprise Development Agency

SEFA Small Enterprise Finance Agency

SMEDP Small and Medium Enterprise Development Programme

SMEs Small and Medium Enterprises

SMME Small, Medium and Micro-sized Enterprise

SPF Sector Partnership Fund

SPII Support Programme for Industrial Innovation

TDZ Technology Development Zones

TEA Total Early-stage Entrepreneurship Activities

xiii

TESK Confederation of Turkish Tradesmen and Craftsmen

THRIP Technology and Human Resources for Industry Programme

TIA Technology and Innovation Agency

TiM Assembly of Export Associations

TOBB Union of Chambers and Commodity Exchanges

TTGV Turkish Technology Development Foundation

TUSIAD Turkish Industry and Business; Association

UN The United Nations

UNDP United Nations Development Programme

US United States

WEF World Economic Forum

1

CHAPTER 1

INTRODUCTION

“It's not government that creates jobs; it's small business. Our job is to make sure

they have the access to capital, the access to contracting opportunities and the

help, advice and mentoring that they need to go out and be successful”

– Karen Mills, MBA graduate from Harvard Business School and

the United States’ 23rd Administrator of the Small Business Administration

1.1 BACKGROUND

According to Arancha González the Executive Director of the International Trade

Centre, Small and Medium Enterprises (SMEs) are “the world’s most concentrated,

booming and innovative engine for world trade and growth” (ITC News, 2014).

González argued that SMEs are not only known for innovation, social integration and

employment, but SMEs also represents 60 per cent of private sector jobs. Researching

the effect of small and medium businesses on any country’s economy would be

meaningless if the intended beneficiaries of business and job creation are forgotten:

people.

1.1.1 A Global view on Small and Medium Enterprises

The United Nations (UN) set Millennium Development Goals (MDG) to change the

circumstances of people globally and the first goal was to “eradicate extreme poverty

and hunger by 2015” (United Nations, 2008). The UN proposed seven ways to reduce

hunger and poverty with specific reference to creating jobs. Establishing small and

medium businesses is a perfect way to create jobs and this endeavour is not limited to

one country but is a global challenge and opportunity. The following statement by

Acemoglu and Robinson (2012:91) summarises the purpose of economic institutions:

“Inclusive economic institutions create inclusive markets, which not only

give people freedom to pursue the vocation in life that best suits their talents

but also provide a level playing field that gives them the opportunity to do

so. Those who have good ideas will be able to start businesses, workers

will tend to go to activities where their productivity is greater, and less

efficient firms can be replaced by more efficient ones”.

At the summit of 2014 in Australia the representatives of the Group of 20 countries

(G20) were reminded of the commitment made at the 2013 summit to “work towards

2

economic growth, job creation and the strengthening of the global economy’s resilience

to future shocks” (Mazzarol, 2014). Dr Arzeni, the Director of the Organisation for

Economic Co-operation and Development’s (OECD) Centre for Entrepreneurship,

SMEs and Local Development, (as cited by Mazzarol, 2014) argued that the

compliance rate of SMEs is ‘10 to 30 times greater than for large firms and that

reducing “red tape” by around 25% would result in overall economic growth of about

1%’. Dr Arzeni also accentuated that governments should be smarter with regulations

as this is the way to reach the goal of 2% more growth over the next four years.

According to Dalberg (2011) as cited by the Edinburgh Group (2013:7), the impact of

SMEs differs amongst countries but affects both high-income countries, and even more

significantly, the low-income countries by contributing to GDP and employment. In

addition, the report mentioned that SMEs are the foremost innovators in economies

and supply chain involvement, and can define their own output and development. The

global resolution on sustainable development and the growth of a country’s economy

is to establish small and medium enterprises (SMEs) and to reconsider non-supportive

regulations.

Günter Verheugen, the Vice-President of the European Commission (EU) indicated:

“SMEs have become increasingly important in our society as providers of employment

opportunities and key players for the well-being of local and regional communities” and

this statement is evident with the Small Business Act and European portal for SMEs

available in 21 languages (European Union, 2008).

As the definition of SMEs is still debatable, this paper would like to summarise various

countries’ definitions in Table 1.1 in terms of the number of people employed as well

as the typical turnover expected by such organisations.

3

Table 1.1: Definitions of SMEs

VARIOUS COUNTRIES

EU USA Asia (Malaysia) Egypt Ghana

Small and Medium

Enterprise

Small and Medium Business

Small and Medium

Enterprise

Micro, Small and Medium

Enterprise

Micro, Small and Medium

Enterprise

Number of employees

Micro < 10 - < 5 1 - 4 1 - 5

Small < 50 < 100 5-50 5 - 14 6 - 29

Medium < 250 < 500 51-150 15 - 49 30 - 39

Annual turnover

Micro < €2 0 RM250.000 0 $10k

Small < €10 0 RM250.000 -

< RM10m 0 $100k

Medium < €50 0 RM10m - RM25m

0 $1m

BRICS

Brazil (Industrial)

Brazil (Commercial)

Russia India China South Africa

Small and Medium

Enterprise

Small and Medium

Enterprise

Small and Medium

Enterprise

Micro, Small and Medium Enterprise

Small and Medium

Enterprise

Micro, Very small, Small and Medium Enterprise

Number of employees

Micro 1 - 19 1-9 - 0 - < 5

Small 20 - 99 10 - 49 15 - 100 0 < 300 20 - 49

Medium 100 - 499 50 - 99 101 - 250 0 300 - 2000 50 - 200

Annual turnover

Micro 0 0 - < Rs50m - < R200k

Small 0 0 400m RUB

max Rs50 - 60m < Y30m R3m - 32m

Medium 0 0 1bn RUB

max Rs60 - 99m Y30 - 300m R5m - 64m

Source: Edinburgh, 2013:9

1.1.2 Africa and Small and Medium Enterprises

African countries struggle to establish SMEs as some governments still create various

obstacles (Gatt, 2012). Gatt (2012) reports that these obstacles are found in extreme

directives and red tape. “Improved governance is crucial to stimulate economic growth

and development and to achieve the MDGs”: the Economic Commission for Africa

supports this statement as their mandate is to promote good governance in Africa

(United Nations Economic Commission of Africa, 2009:1). Research reports confirm

4

that policies are obstructive to economic development in Africa (Singer, Amorós and

Arreloa, 2015).

Worldwide financial predicaments are not uncommon and North African countries are

progressively finding ways to diminish the effects of these crises on economic growth

and focusing on ways to reach their goals (African Development Bank Group, 2013).

The Group designed a ‘Roadmap for Promoting Resilient Growth in the Short to

Medium Term’ where some North African countries’ plans and projects are listed and

monitored. The North African countries support local SME development as it can

lessen the economies’ exposure to unexpected surprises. The support includes access

to financing as well as manufacturing, technical, research and market assistance

(African Development Bank Group, 2013).

The African Development Bank Group (2013) reported highlights from some countries:

Egyptian SMEs are engines of growth for the economy as they provide

employment to two-thirds of the population and are a main element of the

economic and poverty reduction strategies. The Nilex, an exclusive stock

exchange for SMEs, a credit bureau and an equity institution are available to

support SME creation.

The Libyan economy depends mainly on the oil and gas sector and is burdened

by the unproductive public sector. The government decided to stimulate private

sector development and to support SMEs as up to 30% of the youth under 25

are unemployed. A dedicated project drafted a report on the needs,

opportunities and challenges SMEs experienced in Libya; SME training and

development are a priority; a centre to support and promote entrepreneurship

was established; and a virtual incubator and employment expo’s are focused on

informing SME owners.

The Mauritanian government improved the business environment and private

sector with a policy overview. The policy recommended SME creation and the

promotion of existing businesses. The aim is to provide more elastic financing

and to enable equipment and asset procurement.

The Moroccan government is dependent on power supply from outside their

borders and the growing population requires more energy every day. The vast

5

potential available in Morocco needs to be developed and to counter the

challenges that include unemployment, economic growth, poor competitiveness

in the economy, limited export, unattractiveness of business to attract foreign

direct investments (FDI) and climate change. The government initiated a project

to “increase power generation; create jobs and reduce greenhouse emissions”

(African Development Bank Group. 2013:210).

Tunisia’s National Development Programme focuses on the acceleration of

economic growth and job creation. A comprehensive SME promotion policy has

been implemented and addressed the financing of SMEs. The government

encourages the establishment of SMEs and assists with access to property and

other infrastructure and continues to establish 2 500 SMEs per year.

The private sector of Africa can initiate trade and investment prospects, according to

the New Partnership for Africa's Development (NEPAD), cited by Mears and Theron

(2006). Furthermore, NEPAD recommend a public-private sector dialogue and the

reinforcement of business networks and chambers of commerce as a way of

augmenting entrepreneurial capacities. NEPAD emphasised that entrepreneurship

and established SMEs are vital to generate sustainable economic growth, to relieve

poverty and to transform socio-economic circumstances (Mears & Theron, 2006).

African governments can influence entrepreneurship amenably by means of fiscal

policy, education and training strategies as well as privatization, and unintentionally

through harmful community funding, undefined policy implementation and a lack of

support towards SMEs (Naudé & Havenga, 2005). Self-employment in Africa is largely

in the informal sector despite the lack of support from government.

The World Bank (2011a) listed Chad as one of the Sub-Saharan countries where it is

most difficult to start and operate a business. Difficult and nearly impossible with a 65%

high tax rate and extremely unreasonable insolvency regulation: understandably

difficult to operate or show any profit. Gatt (2012) confirmed that the time it takes to

establish a business in Chad is at least 66 days and 160 days in the Republic of Congo.

The overall challenges reported by SME owners are poor infrastructure, high cost of

operations, exploitation, and unpredictable electricity supply.

6

Research established that some African countries are economically developing whilst

some countries show innovation despite burdensome regulations and general access

to credit (Gatt, 2012). The Global Entrepreneurship Monitor (GEM) reported that in

2010 Ghana had the highest percentage of SMEs namely 40% and Uganda 27%,

which were considerably higher than China or Brazil (Singer, et al., 2015). The same

report mentioned South Africa and Angola can be compared to the United Kingdom,

the United States and France with as little as 10 per cent newly registered businesses.

1.1.3 Small and Medium Enterprises in South Africa

South Africa depends on creating new ventures to grow the economy and to create

jobs. Butcher (1999) cited in Urban & Naidoo (2012) argued that SMEs are a crucial

mechanism to grow and improve South Africa’s (SA) economy and are

indistinguishably associated to job creation, eradication of poverty and economic

empowerment. The economy of South Africa is in a dismal state when we consider the

high unemployment statistics together with socio-economic problems and

impoverished communities in rural areas. A number of factors, as summarised in the

GEM report (Herrington, Kew and Kew, 2014), point to poor education and training as

the foremost barrier to SME development. Regulations, labour laws, and information

and communication technology are major obstacles. The World Bank reported that

while high-income countries grew steadily and larger middle-income countries such as

India and China recovered from declines, developing countries, including South Africa,

only grew by a projected 4.8% during the period of 2013/14 (World Bank, 2013).

Jones (Financial Mail, 2013), the author of an article termed: ‘SMMEs in dire state’

discussed the strategy of South Africa’s government by establishing policies for

example the National Development Plan (NDP) and setting targets in the New Growth

Path strategy of five million new jobs by 2020. The NDP includes the objective to

reduce unemployment by 6% by 2030 (Maye, 2014). This target implies that 11 million

additional jobs will have to be created and that 90% of these jobs will have to be

generated in small ventures or growing current enterprises. The national strategy for

the Development and Promotion of Small Business in South Africa (1995) cited in

Rogerson (2004:770–772), published the strategy to redress inequalities, alleviate

poverty and create employment. Minister Gordhan voiced his opinion about the

regulatory environment in South Africa and the government’s efforts to assist SMEs as

7

“pathetic” (SBP, 2013). South Africa has developed a sufficient number of policy

documents but it is the researcher’s opinion that the time has now come to develop a

meaningful framework to assist with the establishment and implementation of the

much-needed small and medium enterprises.

South Africa’s TEA has dropped by 34% from 10,6% in 2013 to 7,0% in 2014 and this

poor rating of TEA was further highlighted when a number of other sub-Saharan

countries (Ghana, Nigeria, Uganda, Angola, Ethiopia, Malawi, Zambia, Namibia and

Botswana) joined the GEM consortium (Singer, et al., 2015). The listed countries had

TEA rates three or four times the rate of South Africa. These statistics cause concern

that the current SME segment will not be able to have a positive effect on the economic

growth or eradication of poverty.

Matters such as the reasons for SME failure in South Africa and the reasons why

Turkish SMEs are successful and their economy attracts investments will be

addressed in this paper. The research will result in an entrepreneurial development

framework for SMEs in South Africa, based on the best practices from Turkey, the

lessons learnt in South Africa and the goals set by the Government.

Alleviate poverty Job creation

Wealth creation Tax revenues

Social stability Empowerment

Figure 1.1: Conceptual framework

1.2 THE PROBLEM STATEMENT

The global economy is uncertain: governments and financial leaders are incessantly

confronted with budget deficits, poverty, unemployment and socio-economic

Global SMEs

SMEs in Africa


An entrepreneurial development framework for SMEs in SA

Successful business

development

8

challenges. The NDP proposes to treble South Africa’s economy by 2030, which entails

a minimum growth of 5.4% a year and this goal “requires changing the way the country

operates”, (SBP, 2014c:3). The report further states that SA has to develop a strong

SME community in order to create jobs, to contribute to economic growth and to

alleviate poverty. The extent of the research problem was emphasised by Adcorp, as

cited by Fatoki (2014:922), when it stated that an estimate of “440,000 small

businesses closed in the last five years in SA”. Fatoki (2014) reported that SMEs in SA

are deteriorated and they can therefore not be realistically expected to create jobs.

South Africa’s SMEs are weakening and the economy is fundamentally stagnant and

it “is a long way from the purposive, wealth-and-job-creating growth that the country

desperately needs” (SBP business environment specialists, 2013:4). SBP also refers

to Trevor Manuel, the former Minister in the Presidency, who “called for serious action

on the NDP” and that SMEs require assistance as the starting point to grow South

Africa’s economy (2013:11).

The NDP as the ‘economic blueprint’ of South Africa, set a goal of 5,4% growth for the

next fifteen years but reality indicates a slow growth rate of a mere 1,4% (SBP, 2014b).

SBP also reports that the unemployment rate of 25,6% is at its highest level including

the reality of 16 million people who claim social benefits. “South Africa needs an

economic ecosystem that is designed to support market-driven inclusive growth,

provide quality jobs, rapid skills development, innovation, increased productive output

and better means to compete in a global economy” (SBP, 2014c:1).

The discussion and context forms the basis for the formulation of the main problem of

the research treatise: SMEs in SA are facing failure and challenges to survive, as

a contributing concern to poor economic growth and high unemployment

statistics.

1.2.1 Primary research question

SMEs in SA are able to contribute to economic growth, to create jobs, to alleviate

poverty, and to assist with social stability. However, a new development framework

would need to be developed to reduce failure of SMEs in South Africa.

9

Consequently, the primary research question which was addressed in this study, is:

How to design an entrepreneurial development framework to promote SME

establishment and stimulate economic growth in SA?

1.2.2 Secondary research questions

In addition to the primary research question, secondary research questions are

presented:

Question 1: How does the support system in Turkey contribute to the success of SMEs?

Question 2: Why does South Africa need SMEs?

Question 3: Why is the failure rate of SMEs in South Africa extremely high?

Question 4: How could education and training contribute to the success of SMEs?

Question 5: What is the extent and impact of support currently to SMEs in South Africa?

Question 6: How should the entrepreneurial development framework incorporate entrepreneurial attitude as performance measurement of SMEs?

1.3 SCOPE OF THE STUDY

While the corporate sector in South Africa is currently incapable of creating jobs, the

government has amplified its human resource base by nearly 200 000 people over the

previous few years. Government initiatives, however, fail to provide effective support

to SMEs (Herrington, et al., 2014). The GEM report (Herrington, et al., 2014:38) further

stated that most of these “initiatives have either been closed or merged with existing

organisations” and that closures occurred – the government thus failing to accomplish

its goals. Most often support staff at these organisations has not owned or operated

businesses themselves and can therefore only convey theoretical knowledge and

assistance.

This paper fills a gap in that it addresses the scarcity in research concerning a

framework based on critical success factors of SMEs based on actual experience and

the collection of empirical data, the approach of which is documented in section 1.5 of

this paper. The foremost restriction of the literature review is that it depends on

information that has already been researched. Secondly, due to different goals and

procedures of earlier studies, the available data might not provide answers to the

current research questions. Notwithstanding these limitations, this study engaged a

10

selective approach to literature review as it purposes “to sharpen (your) preliminary

considerations regarding the topic of study, method, and data source” (Yin, 2011: 63).

1.4 RESEARCH OBJECTIVES

1.4.1 Primary research objective

The primary objective of this research was to investigate SMEs and the critical success

factors and subsequently to design an entrepreneurial development framework for

SMEs in South Africa.

1.4.2 Secondary research objectives

In order to achieve the primary objective the following secondary objectives are:

Objective 1: To collect and analyse data on successful SMEs in Turkey

Objective 2: To analyse the reasons why SMEs fail in South Africa

Objective 3: To determine why SA needs to establish and support SMEs

Objective 4: To conduct an in-depth analysis of the current support system in

South Africa

Objective 5: To embrace entrepreneurship in the proposed framework for the

establishment of SMEs in South Africa

Propositions allow the researcher to focus on the scope of the study and the research

problem and directs the process of data collection (Baxter & Jack, 2008). The key

proposition of the study was to determine how to create an entrepreneurial

development framework in South Africa and to scrutinise the effect of support to SMEs.

The propositions of the case study were identified and investigated and are illustrated

in Figure 1.2:

11

Figure 1.2: Propositions influencing the perceived success of entrepreneurial ventures

The result of the study will offer direction to government and related departments

whose fundamental mandate is to establish and support SMEs. The anticipation of the

purposed framework is that:

More SMEs will be established and survive for longer than 42 months;

SME owners will receive meaningful support, training and mentoring to grow

their own businesses and to contribute to SA’s economic growth; and

Unemployed people will find employment with SMEs and families and

communities will reap the benefit.

1.5 RESEARCH DESIGN

A broad overview of the research design is provided and a detailed review of the

methodology implemented follows in chapter three. The subsequent procedure was

followed to address the main problem and sub-problems discussed previously:

Step 1: A thorough literature assessment was conducted to determine the status of

SMEs in SA, their success and effect on the economy, and to identify critical

success factors. Various sources on the topic of SMEs are available and the

researcher ascertained which resources to include:

Journals and e-journals

Articles and reports

Independent variable Dependent variable

Perceived

success of

entrepreneurial

ventures

Support systems

Economic growth

Critical success factors

Education and training

Entrepreneurship

Proposition 1

Proposition 2

Proposition 3

Proposition 4

Proposition 1

Proposition 5

12

Books and textbooks

Interviews and discussions

Policy documents and official publications

Step 2: A further literature review was conducted into the status of SMEs in Turkey

and the effect thereof on the economic growth of Turkey.

Step 3: A comprehensive research questionnaire was compiled to ascertain critical

success factors to develop a framework to establish SMEs.

Step 4: Empirical data was collected during semi-structured interviews with the

participants.

Step 5: The data was recorded, analysed and interpreted.

The participants in this qualitative study were SME owners in Izmir Province, Turkey.

A questionnaire was utilised as a basis for interviews with these SME owners. At least

50 SME owners were contacted and evaluated and consequently five SMEs were

selected as participants in this research.

1.6 CHAPTER OUTLINE

Chapter 1 is the research proposal to develop a framework for Small and Medium

Enterprises in South Africa. This chapter outlines a global view on SMEs, the situation

of SMEs in Africa as well as South Africa’s current position on SMEs. The chapter

discusses the problem statement, followed by the scope of the research and the

primary and secondary research objectives. The dissertation proposes the

propositions that is addressed by this study. Lastly, the chapter concludes by referring

to the research design of the study.

Chapter 2 presents a thorough exploration of literature on Small and Medium

Enterprises with the focus on critical success factors that determine success and

economic growth. The review will refer to successful enterprises in Turkey and the

challenges South African enterprises face.

Chapter 3 provides definitions and discusses the research design, methodology and

philosophy. The case study method will be explained with reference to the interviews

and questionnaires.

13

Chapter 4 records data gathered during the interview process, will draw conclusions

and report findings of the research conducted and offer an interpretation of the findings.

Chapter 5 proposes a development framework for SMEs in South Africa encompasses

a positive future of SMEs in South Africa based on the research conducted and

highlights areas for future research.

‘Every morning, a gazelle awakens in Africa

She knows she will have to run faster than the fastest lion that day

Or she will die.

Every morning, the lion awakens.

He knows he will have to catch the slowest gazelle

Or he will die of hunger.

It does not matter if you are the gazelle or the lion

When the sun rises, you should start running’.

- Muhammad ibn Raschid Al Maktum

14

CHAPTER 2

SMEs: ENGINES OF GROWTH

2.1 INTRODUCTION

The preceding chapter served as an introduction and motivation why an

entrepreneurial development framework for SMEs should be developed and

established in SA. The importance of SMEs in developing countries’ economies is

evident in the vast amount of literature available. The objective of this chapter is to

provide a detailed literature review on SMEs, with specific reference to the concept of

entrepreneurship; critical success factors for SMEs; the common set of challenges

SMEs face; the influence of entrepreneurship on the economy and in developed

countries; support systems in SA; and SMEs in Turkey.

Economic growth runs parallel with entrepreneurship, as indicated by Benzing, Chu

and Kara (2009) and small and micro businesses affect the economies in Europe, the

United Kingdom (UK) and the developing countries. Micro enterprises in general,

employ ten or less full-time employees as presented in Table 1.1. Benzing, et al. (2009)

argued the following statistics:

United Kingdom: 99% of the business sector are SMEs and offer 59% of total

employment

Europe: 99,8% of the business sector are SMEs and employ 2/3 of the total

workforce

Japan: 6 million SMEs (99,7%) and offer 70% of total employment

South Korea: SMEs offer 80% of total employment

Turkey: 99,8% of businesses are SMEs and offer 76,7% of total employment

In 19 European countries, Australia, New Zealand, the United Kingdom, and

the United States 97% of the business sector are SMEs

Australia: 82% of the business sector are micro enterprises

Nineteen European countries: 92% of the business sector is micro enterprises.

Pelser (2012) mentioned comments made by Dr Mike Herrington, the executive

director for the Global Entrepreneurship Research Association, who claimed that there

are numerous reasons why in South Africa some of these small businesses are failing.

15

Herrington also emphasised that the governments of China and Brazil promised to

support SMEs and that they have delivered on these promises – unlike the South

African government. Moreover, Herrington commented on the lack of expertise at the

SME support agencies and entrepreneurs depend on guidance and mentorship.

According to Pelser (2012), nothing is really changing in South Africa, as there are

neither enough new ventures nor are enough new ones enduring and growing.

New SMEs have a stimulating effect on the economy as it encourages research,

development and innovation and established businesses have to upgrade technology

and improve systems to contribute to economic growth (Fatoki, 2014). Maas and

Herrington, as cited by Fatoki (2014), validate the fact that new SMEs will make a

substantial difference to SA’s economy and SA “risks economic stagnation” without

new institutions.

2.2 UNDERSTANDING ENTREPRENEURSHIP

According to Ahmad and Hoffmann (2008: 8), is it necessary to have a clear

understanding about the terminology and the concepts pertaining to entrepreneurship.

The following descriptions were given:

“Entrepreneurs are those persons (business owners) who seek to generate

value, through the creation or expansion of economic activity, by identifying and

exploiting new products, processes or markets”.

“Entrepreneurial activity is the enterprising human action in pursuit of the

generation of value, through the creation or expansion of economic activity, by

identifying and exploiting new products, processes or markets”.

“Entrepreneurship is the phenomenon associated with entrepreneurial activity”.

The study by Ahmad & Hoffmann (2008) claims entrepreneurship and

entrepreneurs depend on three elements, namely resources, experienced and

skilful people and opportunities and are influenced by culture and legislation.

The Gallup Organisation has been at the vanguard of studying various topics for the

last 50 years and are an acknowledged organisation and it explained that

entrepreneurial activities are the primary factors of progress in a country, i.e.

16

economically to improve living standards; socially to encourage skills development and

social competencies; and politically to empower citizens and create well-being (2009).

According to Kirby (2002) as quoted by Rozyn (2007) an entrepreneur is the person

who will establish and operate the business with the aim to make a profit and to grow

the business. Rozyn (2007) also referred to Hakkert, Kemp and Zoetermeer (2006)

who prefer the expression “small business owner” to “entrepreneur” as are so many

definitions available and little consensus about the intention of the entrepreneur. It

would therefore be acceptable to state that the small business owner is the person who

has personal goals and the aim to earn an income from the business in return for time,

money and resources spent. Hence, the small enterprise (business) would be the

‘vehicle’ to offer services, manufacture goods or sell products to prospective customers

for a profit.

The GEM Report (2014:10) cited the definition by Reynolds, Hay and Camp (1999) for

entrepreneurship: “any attempt at new business or new venture creation, such as self-

employment, a new business organisation, or the expansion of an existing business,

by an individual, a team of individuals, or an established business”. The theory of

linking entrepreneurship to economic growth according to the United Nations’

conference lies in “intuition, common sense and pure economic observation” (2004:3).

The UN furthermore argued that entrepreneurship is a “source of innovation and

change” as these enterprises encourage developments in production and

attractiveness in trade and industry.

2.2.1 Entrepreneurship in South Africa

A study by Small Business Projects (SBP) of 500 SMEs revealed that 71% of the

respondents claimed that it became much harder in 2013 to operate a business in SA

compared to only 9% who indicated it became easier (Maye, 2014). These

respondents identified various barriers including lack of finance and support, laborious

regulations, and the cost of labour.

Maye (2014) listed a number of reasons for the failing of SMEs in SA: firstly, the

government needs to simplify start-up processes and procedures, and secondly SMEs

require early-stage support as five out of seven business fail during their early stages.

17

Maye also listed the lack of education or poor training as a barrier and cumbersome

labour legislation and identified the lack of enthusiasm from marginalised communities

as another barrier. Rogerson (2008) confirmed the concerns mentioned by Maye and

emphasised the need for overall support by the government and better access to

finance in order to “promote entrepreneurship and enhance competitiveness at

enterprise level” (2008:62).

Chris Hart, a South African economist cautioned that focus on “employment creation”

should not disregard the importance of “employer creation” (SBP business

environment specialists, 2013:3). Furthermore, he explained that South Africa is in

need not only of entrepreneurs who can start a business, but also of successful

entrepreneurs who are able to sustain and develop the enterprises. Barrington and

Ireland (2006) as quoted by Bumpus and Burton (2008: 304) aptly described the most

significant distinction successful entrepreneurs have in common, is a “passion for

business” based on the premise that business will have an affirmative power on

people’s lives.

Ligthelm (2010) expounded on the existence of small enterprises in Soweto by stating

that this is where nearly half the retail spending was done. Small businesses did not

cease doing business even after the establishment of shopping malls all over Soweto.

The smaller retailers and traders were still valuable to the local customers (Ligthelm,

2010).

2.2.2 The Influence of Entrepreneurship on the Economy

The Industrial Revolution opened prospects of economic development and Africa was

not ready to embrace the opportunity: Africa has trailed behind the rest of the world in

terms of governmental progress, opulence and technology for at least one thousand

years. Congo’s consolidated government, as an example, did not last long and Africa

shares the trail of failed nations with Afghanistan, Haiti, and Nepal (Acemoglu &

Robinson, 2012). Afghanistan, Haiti, and Nepal are some of the poorest countries in

the world today and have much in common with various Sub-Saharan African nations.

At the 2014 G20 conference in Australia, it was declared that SMEs are indeed the

“most common businesses” established through the world (Mazzarol, 2014). This

18

statement was made according to the European Union (EU) definition of an SME: “an

independently owned and managed business with fewer than 250 employees and an

annual turnover of less than 50 million euro”.

Dr Arzeni as quoted by Mazzarol (2014), accentuated that niftier regulations could be

instrumental if the G20 wishes to meet the target of 2% growth over the next four years.

Dr Arzeni referred specifically to small businesses that pay an average of 30% in tax

compared to large corporations paying on average 5% or even as little as 2%. The

main subjects of discussion were SMEs for their ability to create jobs and the

empowerment of SMEs (Mazzarol, 2014).

The UN cited various researchers’ earlier and more recent papers (Schumpeter,

1911:78; Schumpeter, 1942:83-84; Dejardin, 2000:2; Jääskeläinen, 2000:9-10, 15;

Thurik and Wennekers, 2001: 2; and Barreto, 1989:22-34) on SMEs, and the ability to

change market structures and economies favourably with innovations and revenue

streams (United Nations on Trade and Development, 2004). The success of SMEs to

innovate and develop new products or services leads to potent economic growth, the

creation of jobs, and the ability to generate profits for the business (United Nations on

Trade and Development, 2004).

The United States (US) has between 25 million and 27 million SMEs that offer “60 to

80 per cent of all US jobs” (Entrepreneur Magazine, 2012:3). The same magazine

refers to a Goldman Sachs’ representative declaring, “Small businesses play a vital

role in creating jobs and growth in America’s economy. Through 10 000 small

businesses’ we are providing the skills, capital and mentoring small businesses need

to grow, create jobs and build more prosperous neighbourhoods” (Entrepreneur

Magazine, 2012:5). According to Chang as cited by Ekmekcioglu (2011:5)

“entrepreneurship encourages self-employment and this has been found to have an

impact in productivity growth”. Stimulation of small businesses and self-employment in

Western economies, which has a direct influence on the economy, has been

researched by Carree and Thurik (2002) and they list the following evidence:

Arrival of and innovation from the software and biotechnology industries during

the last 25 years of the 20th century;

19

Small technology-based companies confronted larger companies about mass

production techniques and supported collaboration through technology;

Small businesses and job creation subjugated the US industry in the early 1980s

upon the governments recognised on the promotion of SMEs;

Commercial derivatives and divestments dominated the 1980s as a result of

larger companies who focussed on their main skills;

Purchasing power demanded assortment from a more wealthy and multicultural

consumer. Small businesses could offer a variation of products with ease;

Self-employment reached social status as it became a means to accomplish

goals;

The services industry was an easy sector for self-employment and small

businesses with the exclusion of for example the financial services, shipping,

and etcetera.

Innovation, productivity and entrepreneurship are essential elements to generate new

business and the economy grows when trade and industry advances and show profit

(Ekmekcioglu, 2011). Ekmekcioglu (2011) remarked that job creation builds

communities and business will pledge support to charities and create network

opportunities. The researcher furthermore urges government to adapt policies and

procedures to assist and encourage new venture creation.

The GEM Report (Herrington, et al., 2014:18) argued that the “Poverty Trends Report

reveal that 10,2 million people in South Africa live below the breadline” which could be

directly linked to the high unemployment level of 25,3%; three times higher than the

average of the sub-Saharan region. Herrington, et al. (2014) also reported that the

establishment of SMEs and entrepreneurship are the keys to ‘unlock’ economic growth

in SA as well as to address poverty alleviation and disparity.

Ms Lindiwe Zulu, the Minister of Small Business Development communicated the

opinion of government:

“We see small businesses and co-operatives as critical to create an

economy that benefits all. It is through this intervention that we will be able

to defeat the triple challenges of poverty, unemployment and inequality. It is

this partnership that holds the key to unlock our country’s economic

20

potential, thus affording us a golden opportunity to launch a sustained

onslaught on poverty, unemployment, inequality and underdevelopment.

Indeed, all of us must accept that we carry joint responsibility to re-distribute

the wealth of our nation” (Herrington, et al., 2014:19).

The International Monetary Fund (IMF) (2014) expressed concern for Sub-Saharan

Africa’s people: labour income is still the only means to survive with little evidence of

poverty alleviation. The Report argued: “By 2020, more than half of sub-Saharan

Africa’s population will be below the age of 25, thereby creating massive employment

and growth opportunities” (2014:35). It is therefore inevitable to be prepared and

circumvent political and social challenges and to focus on poverty alleviation.

Figure 2.1 indicates the expected population by age groups:

Figure 2.1: Sub-Saharan Africa: Population by age group: 2005–2020

(United Nations, World Population Prospects: The 2010 revision as published by

The International Monetary Fund, 2014)

The African governments should be pre-emptive and consider future job creation and

employment endeavours as a high priority to avoid increasing unemployment issues

associated with social and political volatility. The anticipated labour challenge could be

the much-needed initiative to accelerate economic growth and development (African

Development Bank, 2014)

0

50

100

150

200

250

300

350

400

450

500

0-14 15-24 25-34 35-44 45-54 55-64 65+

Po

pu

lati

on

Age groups

2005 2010 2020

21

2.2.3 Entrepreneurship in developing countries

Sachs (2001) and Gallup and Sachs and Mellinger (1998:9) as cited by Naudé &

Havenga (2005) observed correctly that entrepreneurs in Africa are facing challenging

geographical aspects. These include but are not limited to the tropical regions, greatly

concentrated populations in central Africa and more than a quarter of the populace

situated in landlocked countries compared to a lesser concentration of people in the

coastal counties. The geography of Africa entails long distances to essential markets

in Europe and high internal and transnational transport costs.

Small businesses are required to carry large inventories due to logistical challenges

and the absence of bigger companies (Naudé & Havenga, 2005). In addition to the

above-mentioned facts, are traders and producers not located in close vicinity and

services for example maintenance, auditing, consulting, financial or wholesale) often

non-existent. According to Audretsch (1998), cited by Naudé & Havenga (2005), these

factors affect geographical knowledge transfer and impact on the development of

resources with a direct influence on innovation and competitive advantage, as the

peripheral charges are extremely high over long distances.

The majority of SMEs in Africa are sole-proprietors and consequently the principal

employer of more than half the SME labour force in emerging economies, including

family members (often not remunerated) who quantifies another quarter of the

workforce (Abor & Quartey, 2010). Job creation in SMEs comprises employed workers

and apprentices with low financial expenditure and even though the labour is more

demanding. SMEs in Africa are significant for economic and community development

and the establishment of more SMEs should be prioritised by policy makers (Abor &

Quartey, 2010). South Africa as a developing country will benefit from SMEs as a “key

engine of local growth” in various phases as SMEs:

“Contribution to GDP is between 36% and 42% (Juul 2002:vii; van Eeden et al

2003:1; Nieman 2006a: 13);

The sector is relatively simple to establish and manage;

The sector has enormous potential to use local human and other resources;

The sector can be used to generate foreign direct investment;

The sector can be used to address the problem of poverty;

22

The sector would be easy to establish in disadvantaged parts of South Africa;

The sector employs the bulk of the population of South Africa;

The sector is intimately linked to the culture and history of the relatively

disadvantaged sector of South Africa, for example, in the promotion of

handicrafts in the former ‘homeland’ regions” (Nemaenzhe, 2010).

The GEM Report commented on Africa and its economic leaders by indicating that

Nigeria is now the number one economy in Africa and SA is no longer one of the 20

major developing economies (Herrington, et al., 2014). The Report based its findings

on the data gathered by the World Bank, the World Economic Forum, Doing Business

Report, Heritage Foundation and the United Nations with specific reference to a

country’s ‘macro-economic stability, infrastructure, education, labour market efficiency,

technological readiness and market size’. Herrington, et al. (2014) argued the finding

of the Global Competitiveness Report 2014/5 that SA fell to the 56th place out of 144

countries in overall competitiveness. The Report also mentioned SA’s poor macro-

economic performance, education standards and specifically math and science, labour

market issues, and high unemployment rate.

Economic growth has slowed down since 2010 in emerging economies, as much

needed structural reforms have not been implemented (World Economic Forum, 2014).

The Global Competitiveness Report (GCR) 2014/5 also indicated that in many of these

countries, disparities of income cause strain in communities with probable global

constraints. The establishment of SMEs will stimulate economic growth to support

these communities. Naudé and Havenga (2005) recognised the limited research

resources available on the effect of entrepreneurship on economic growth and yet they

confirmed the benefit of SMEs in Africa as a driver for employment. High economic

growth in Africa might dishearten entrepreneurship as the formal sector could set

expectations of higher salaries but simultaneously joblessness can be related to low

entrepreneurial undertakings (Naudé & Havenga, 2005). Kesper (2000:1) as cited by

Naudé and Havenga (2005:108) highlighted the characteristics of an entrepreneur to

survive:

“Research on South African SMEs reveals, however, a mismatch between

the reality and the model of the SME sector used by South African policy

makers: the South African SME sector is far from homogenous and would

require a fine-tuned set of interventions rather that the generic assistance

23

currently provided. Only the few, more dynamic SMEs show a potential to

contribute to rapid employment creation, whilst survivalist activities

constitute the vast majority of South African SMEs”.

Some developing countries encourage establishment of enterprises in terms of

procedures and the process in other countries is more cumbersome as depicted in

Table 2.1:

Table 2.1: Summary of some emerging economies’ business indicators

Start-up of a business and other indicators

So

uth

Afr

ica

Bo

tsw

ana

Mau

riti

us

Nig

eria

Th

aila

nd

Tu

rkey

Starting a business (rank) 61 149 29 129 75 79

Number of steps 5.0 10.0 5.0 8.7 4.0 7.0

Number of days 19.0 60.0 6.0 30.8 27.5 6.5

Cost (% of income per capita) 0.3 1.0 2.1 31.6 6.6 16.4

Getting electricity (rank) 158 103 41 187 12 34

Registering property (rank) 97 51 90 185 28 54

Paying taxes (rank) 19 67 13 179 62 56

Cost to export (US$ per container) 1 830.0 3 145.0 675.0 1564.0 595.0 990.0

Number of documents to import 6 6 5 13 5 8

Time to import (days) 21.0 35.0 9.0 33.9 13.0 14.0

Cost to import (US$ per container) 2 080.0 3 710.0 710.0 1 959.0 760.0 1 235.0

(World Bank, 2014a) 1

Entrepreneurs are faced with various challenges regarding the start-up process of a

business. Procedures to start a business might include certificates and licenses,

confirmations and notices on top of finances, infrastructure and other resources.

Schapper (2006) as mentioned by Naqvi (2011) reported that in developing economies

90% of businesses are SMEs and at least 90% of these SMEs are microenterprises.

In Uganda SMEs are acknowledged as an economic factor to eradicate poverty;

Nigeria’s SMEs are regarded as ‘engines for economic growth’ and the mainstay of the

economy; Tanzania’s SMEs are considered income-generating centres; and

1 This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the researcher and not endorsed by The World Bank.

24

Botswana’s SMEs are recognised as the principal creator of employment (Nemaenzhe,

2010).

Entrepreneurship and SMEs are interrelated and not only indispensable, but a serious

economic factor in Pakistan as these SMEs ‘contributed to almost 99,06% of

employment and 30% of GDP’ (Naqvi, 2011). Naqvi (2011) agreed that economic

growth by means of SMEs in Taiwan, Japan and Korea as well as Pakistan changed

former beliefs that larger companies are the source of foreign investments.

Naude as cited by Ligthelm (2010) explained the association between

entrepreneurship, economic growth and the ‘southern engines of growth’ namely

Brazil, India, South Africa and China, and where many crumbly and unsuccessful

states now depend on the development of private sector initiatives. The UN identified

entrepreneurship in developed countries as a significant component to secure

competitiveness in international markets (United Nations on Trade and Development,

2004). According to the 2014 GEM Report SA has the ‘fourth lowest established

business rate’ of the economies that partook in the research with Costa Rica, Puerto

Rico and Kosovo in even lower positions (Herrington, et al., 2014).

According to the GRC 2014/5, economic growth in the informal sector in emerging

countries in sub-Saharan Africa, contributes to ‘more than half of GDP’ and offers

employment to about 80 per cent of the population (World Economic Forum, 2014).

Additionally, only 50% of young Africans are in formal employment and more than half

of the population will be younger than 27 by 2020. The World Economic Forum (2014)

ranked SA as third amongst BRICS countries and in the 113th position on labour market

effectiveness: these statistics should indicate the urgency to address regulations that

is a challenge to establish SMEs.

Azmat and Samaratunge (2009) observed that most SMEs in developing countries are

established for their personal survival compared to countries where legacy or freedom

might be the motivation. Barriers to prosper are the restriction to only the local markets,

the size of the business and a lack of education (Azmat & Samaratunge, 2009). The

number of SMEs is growing despite these barriers: Baruah (2004) as cited by Azmat

and Samaratunge (2009:438) recognised the “reduced role of the state, rapid

25

urbanisation, increasing landlessness, inadequate social security programmes and

unemployment as drivers for growth.

2.3 CRITICAL SUCCESS FACTORS FOR SMEs

“Key success factors are the product attributes, competencies, competitive

capabilities, and market achievement with the greatest impact on future competitive

success in the marketplace” (Hough, Thompson Jr., Strickland, Gamble, 2011:101).

These factors are significant to the future success of all SMEs as lessons learnt were

analysed and consequently these factors can be the driving forces to prospective and

established SMEs. Supported by Hough, et al. (2011) CSFs may be the foundation for

the business’ strategy and business model.

Limited literature on critical success factors (CSFs) for the establishment of SMEs is

available and the few resources are mostly theoretical and do not provide an

entrepreneurial development framework. Simpson, Padmore, and Newman (2012)

referred to Kieser, 2005; March and Sutton, 1997; Short et al., 2002, about the absence

of significant research with specific reference to:

Data collection

The dependent variable

The business environment and

The SMEs themselves

To put it differently, the factors are critical to ensure success and could be summarised

as a) the particular strategy elements, b) product attributes, c) competitive abilities, and

d) business outcomes as it could indicate the variance between profit and loss (Hough,

et al., 2011). Chong, Shafaghi and Tan (2011:521-522) identified nine elements

pertaining to business-to-business e-commerce but this paper would like to suggest

applicability in any SMEs:

Internal implementation and management:

“Successful customer relationships

Supply chain facilities

Transparency and visibility of information

26

Top management support and commitment

Security and trust

IS/IT performances

External factors:

Global competitiveness

Government encouragement and commitment

Cultural consideration”

Simpson, et al. (2012) dedicated 12 years to thorough research in pursuit of critical

success factors of SMEs. The project included quantitative and qualitative research

and semi-structured interviews with SMEs proprietors. The following results were

recorded:

CSFs are forecaster (independent) variables and earlier activities predict the

dependent variables and could have financial or non-financial considerations.

CSFs are stimulated by the direct commercial milieu including the owner, the

venture, consumer behaviour and the industry. CSFs could therefore be

motivated by personal aspirations and financial needs or by customer-focus.

The owner, who could be an entrepreneur, and/or the manager, determines

CSFs. The owner often sets the vision and goals opposed to the manager

whose management style might be non-entrepreneurial. Sales growth will

depend on an association between these two management aspects.

CSFs are dependent on the relationship between the meaning of success and

performance indicators. Profit, turnover and return on investment (ROI) were

conventionally the focus of success and easy to measure. The

owner/manager’s objectives, involvement, lifestyle aspirations and commitment

are significant factors to success.

CSFs could be based on personal expectations such as satisfactory income for

owners and employees, manageable activities within their abilities, self-

fulfilment, and job satisfaction.

Gray, Saunders and Goregaokar (2012) conducted a research study into the ‘triggers

for SME success’ on behalf of The Surrey Business School and confirmed that the

27

absence of a collectively accepted definition of SME success led to various

interpretations. According to Gray, et al. (2012) CSFs are based on: the firm size and

growth; turnover; number of employees; nationality; social factors and lifestyle;

financial position; non-financial elements; personal involvement; reputation and

various aspects of customer behaviour. Additionally, determinants such as: “the

entrepreneur, including their traits, skills and motivation; the nature of the firm, for

example, its size, location and legal form; and the strategy of the business including

finance, market positioning and networking” (Gray, et al., 2012:11).

Benzing, et al. (2009:62) summarised their research findings pertaining to CSFs as:

The “psychological and personality traits” of entrepreneurs including strategic

planning, drive for unconventionality, revolution, and an attitude towards risk

and competition;

“The managerial skills and training of entrepreneurs”; and

The external environment.

Singapore, according to the Global Competitiveness Report, is the second-most

competitive economy in the world. Ghosh, Liang, Meng and Chan (2001) indicated,

that at the time of their research, 80 000 SMEs in Singapore offered employment to

about 40% of the population and were adding 30% of the total value to the economy.

The success and existence of these SMEs and their growth and competitiveness are

critical considering the punitive environment of operations.

The six top SMEs in Singapore acknowledged the following components as key to their

success:

“A committed, supportive, and strong management team

A strong, visionary, and capable leadership

Adopting the correct strategic approach

Ability to identify and focus on market

Ability to develop and sustain capability

A good customer and client relationships” (Ghosh, et al., 2001:218)

28

The researcher supports the guidelines to measure critical success as presented by

Gray et al. These guidelines represent the various components of a business model

and would therefore be mentioned in the entrepreneurial development framework:

“Customer satisfaction and retention

Growing business profits

Increase in the number of employees and at least five or more employees

Smaller SMEs regard personal reputation, improved quality of life and

personal fulfilment and independence as critical

Smaller SMEs embrace participation with consultants and ‘professional,

scientific and technical accomplishments’

Fiscal achievement including cash flow

Repeated business

Creation of shareholder value

Other factors such as self-fulfilment or risk, creating a legacy and “work-life

balance” (2012:19-20)

2.4 MUTUAL CHALLENGES IN SOUTH AFRICA

2.4.1 Defining SME establishment and failure

SME establishment should be demarcated prior to the analysis of failure and

challenges to survive. Fatoki (2014) explained the first step as the start-up phase (three

months in general) to ascertain feasibility, products and/or services, and the required

physical, financial and human resources. The next period: three to 42 months, in which

trading, manufacturing and other operations will occur and only after 42 months of

successful existence, could this new SME be categorised as an ‘established’ business.

Success in SMEs is related to performance but depends on and differs according to

viewpoints, as long as objectives are achieved (Simpson, et al., 2012). Furthermore,

there is a strong relation between CSFs, the definition of success and performance

management. Success of SMEs, according to Simpson, et al. (2012) could be the

achievement of informal personal goals instead of the accomplishment of strategic

objectives in a formal business plan. Available research resources provided sufficient

evidence about the dismal state of SMEs in SA and the reasons for failure (Benzing,

et al., 2009, Ghosh, et al., 2001, Nemaenzhe, 2010, Sunter, 2013).

29

“Failure” as it applies to SMEs could be interpreted in various manners:

Inadequate ROI to cover opportunity cost even though calculations on cost-

effectiveness could not be made due to the lack of data;

Lower return on capital insufficient as other investments could earn more;

Legal failure will be based on liquidation or bankruptcy which is interpreted as

obsolete operations and creditors’ losses;

Creditworthiness: to avoid bankruptcy the SME will pull out and ignore fiscal

duties;

Closure of business to avoid additional losses;

Personal goals unattained;

Withdrawal due to personal reasons for example, poor health;

Let-down of shareholders, partners, employees, suppliers and any other

stakeholder;

Lack of management skills and experience;

Employees’ skills levels insufficient and inadequate;

Poor customer services, retention and relations;

Extraordinary distribution cost, competitors’ market share, operational cost,

financial management (Peacock, 2004; Watson, 2003; Titus, 2009; Honjo,

2000) as cited by Fatoki, 2014).

Nemaenzhe (2010) remarked on the lack of values as well as the owner’s behaviour

and contribution within the bigger socio-economic framework, including the regrettable

data on small business failure. Government organisations, the civic sector and larger

enterprises are generally to blame for failure. Peacock (2004) as cited by Fatoki (2014)

specified the two vital traits that separate SMEs from bigger businesses: a) their size

and b) their ‘turnover’ and failure rates.

According to Peacock (2004) as cited by Fatoki (2014:923), the traditional trade and

industry sector is not eager to welcome new entrants. The failing of SMEs will continue

until financial funds are depleted and then the one SME will make room for a

‘successor’ – unaware of the awaiting ambuscade. Peacock (2004) indicated that

failed businesses’ lessons learnt could offer future entrepreneurs much needed

knowledge and even concepts on innovation.

30

The Edinburgh Group offered the following citations and advice to future SME owners:

Casey O’Neill, the President and Co-founder of Cypress Solutions (since 1997): “Work

with others, rely on key suppliers or key business partners”, he advises. “They’ll make

you aware of any issues. Don’t do it alone”. A representative from SONRU, a global

leader in the field of video interviewing and selection (since 2007), gave advice: “The

key factor is to fail and fail fast – learn quickly and try not to make the same mistakes

again. Also, if you are an owner-manager, it is important to recognise your own

shortcomings in some of the many disciplines you need to get a good idea off the

ground and abroad, so you have to be open to bringing other skill sets to the

management team” (Edinburgh Group, 2013).

2.4.2 Challenges

The NDP includes aspiring goals for South Africa to create 11 million new jobs by 2030

and to reduce the unemployment rate from 25 per cent to 14 per cent in 2020 and 6

per cent by 2030 (National Planning Commission, 2013). Conversely, Dr Clem Sunter

argues that the establishment of 1 million new SMEs would be more attainable as the

government’s budget cannot compensate another 5 million jobs (Sunter, 2013).

According to the 2010 Abor and Quartey report, South Africa’s SMEs accounts for 60%

employment in comparison to the international median of 77%. Rob Davies (the South

African Minister of Trade and Industry) remarked that up to 70% of SMEs in SA are

likely to fail within the first year as SA has one of the uppermost failure rates globally

(SBP, 2014a).

The possibility of 5 million jobs by 2020 could only be a reality if the 1 million SMEs

offer employment. Nico Jacobs, head of ABSA Small Business commented on SMEs:

"Currently the new entrants mainly range from people who are unemployed,

retrenched or retirees who realise they can't survive on their pension. They

are then forced to start their own business, but are not equipped to handle

the rigours, do not have the financial support or knowledge. But this has not

stopped new entrepreneurs from entering the market, 63% of small

businesses fail " (I-Net Bridge, 2010).

The GCI Report (World Economic Forum, 2014) published reasons and statistics on

the most challenging reasons to conduct business in SA in Figure 2.2:

31

Figure 2.2: Most problematic reasons for doing business in SA

(World Economic Forum, 2014:340)

Seventy one per cent of Entrepreneurs’ motivation to establish a SME is primary

income-driven, to follow a prospect or independence; compared to 28% who are

desperate and unemployed and therefore are reasons for closure of the wide-ranging

businesses. Table 2.2 displays data on the reasons why businesses closed in the

period from to 2006 to 2014:

Table 2.2: Reasons for business exit in South Africa, 2006 – 2014

2006 2008 2009 2010 2011 2012 2013 2014 Ave

Opportunity to sell 11,8 6,7 3,5 1,4 2,0 1,3 2,8 5,3 5,8

Business not profitable 11,4 31,3 26,0 24,4 32,6 28,7 36,4 42,5 27,7

Problems getting finance 32,1 29,0 27,2 39,1 24,0 28,2 28,9 19,4 20,8

Another job or business opportunity 4,3 6,8 6,0 0,9 6,0 5,4 2,9 3,2 6,9

Exit was planned in advance 2,7 1,0 0 0 0 0,8 1,8 0,5 3,4

Retirement 23,1 0 0 2,1 1,9 0 0,1 0 1,2

Incident 0,9 3,5 6,4 1,9 0,4 0,6 3,9 9,21 7,08

Source: Herrington, et al., 2014:28

Restictive labour regulations............................19.8

Inadequately education workforce................16.9

Inefficient government buraucracy...............14.8

Corruption.........................................................11

Inadequate supply of infrastructure...............9.8

Policy instability............................................. 7.4

Poor work ethic in national labour force..........5.2

Insufficient capacity to innovate........................ 3

Crime and theft.................................................2.5

Access to financing.......................................... 2.2

Foreign currency regulations............................2.1

Inflation...........................................................1.5

Tax regulations..................................................1.5

Poor public heatlh.............................................1.2

Tax rates.............................................................. 1

Government instability / coups.........................0.2

Percentage of responses

32

PESTEL analysis consisting of political, economic, social, technological,

environmental, and legislative factors will be utilised to summarise the challenges

SMEs encounter. Data is gathered and information from internal and external bases

are analysed to allow interpretation in the SME context (Deltl, 2013).

2.4.2.1 Political challenges

Deltl (2013:84) states that “political developments on the national and international

markets as well as the political ideology of the government and the strength of labour

unions” are factors that influence the political environment. Failure could be the direct

effect of exploitation, misconduct, contract administrations, weak property rights and

an education system that fails to encourage entrepreneurship according to Hiatt and

Sine (2012:924) as cited by Fatoki (2014).

Education and training are government’s responsibility and should arbitrate

entrepreneurial skills at school and higher education institutions. SA established 50

public FET colleges in 2002 in terms of the FET Act No. 98 of 1998, which receive

ample funding from the government and skills development paying employers. In 2010

SA had 248 registered private FET colleges offering meaningful training but without

financial support from government and deprived from skills development paying

employers’ contributions.

Stumpf, Papier, McBride and Needham (2012:103) asked the question: “Can former

further education and training (FET) colleges respond to the needs of large numbers

of young people in South Africa who are between the ages of 18 and 24 and not in

education, employment or training? Mlatsheni addressed unemployment of youth, the

declining economy and diminishing job creation by remarking on the much needed

contribution FET colleges are supposed to make (2012:38). Observations included

reference to almost non-existing career guidance; registrations into incorrect

qualifications (same level as previously achieved); qualifications lack to address

requirements from the workplace and can therefore not prepare the student for the

world of work; and a small percentage of successful students manage to find

permanent employment after graduation (Mlatsheni, 2012).

33

The answer to the question lies within the recommendations from the researchers: the

colleges have to create partnership-supported ingenuities and pioneering approaches;

resourceful sharing of information and purposeful career advice; and offer a selection

of qualifications appropriate to their immediate industries (Stumpf, et al., 2012). This

paper has a question that requires further research and investigation: do the colleges

register students to uphold statistics or are students advised on the choice of

qualifications in the light of the very low success rate?

The National Small Business Act of 1996 instituted guidelines about SMME

advancement in SA. Training was a focal point in the publications prior to the tabling

of the Act. Nieman (2001:446) emphasised that in spite of the “White Paper on National

Strategy for the Development and Promotion of Small Business in South Africa” and

the “President’s Conference on Small Business”, only two unvarying programmes were

launched but were sadly unsuccessful. Accreditation was a cumbersome prerequisite

and the absence of quality management led to ineffectiveness. Herrington, et al. (2014)

reminded that government policies are intended to produce an environment to

encourage and support SMEs as the chief driver of sustainable economic growth. The

veracity indicates however to incompetent administration and too high levels of

corruption and burdensome laws.

2.4.2.2 Economic challenges

According to Deltl (2013:83), the “Impact of national, supranational and international

developments in the economy, income distribution and economic developments” are

factors that should be analysed. The World Bank Group recounted that South Africa’s

economic challenges have a direct effect on foreign direct investments (FDIs) and

productivity and SME creation: infrastructure including electricity and transportation;

financial access and management; corruption; and a lack of skills (2010). These

barriers are affecting the competition policy, exports and FDIs as resources are

increasing the cost of doing business in SA. Exportation and attraction of FDIs could

be major drivers to address poverty and unemployment. SBP quantified just shy of

50% of engineering companies’ production depend on imports, which is an unbalanced

attractiveness factor given exchange rate fluctuations. Respondents in the SBP survey

voiced frustrations about exports and the government’s incompetence: “Onerous,

34

crazy. It appears government does not want you to export. For small business this is a

huge problem” (SBP, 2014:15).

“Promising informal enterprises are microenterprises that are unregistered for tax

purposes and run by owners as a matter of choice, not because they have no other

means of earning a living” (World Bank, 2010:13). Inequitable taxes and tariffs inhibit

the business’ ability to optimise human and financial resources. Financial survival is

hugely affected by periodic variations especially in the tourism industry. Late payment

disturbs cash flow as a respondent mentioned: “Customers are dragging their feet;

those that usually paid in 30 days are now only paying in 60 to 90 days...it has put a

lot of pressure on the business” (SBP, 2014:48).

Even though many reasons for failure are blamed on finance, GEM Reports indicates

a discrepancy between the source of finance and the entrepreneur:

The entrepreneur fails to provide adequate surety;

Business plans fail to comply with the institution’s criteria;

Inadequate market research and/or feasibility study (Herrington, et al., 2014).

2.4.2.3 Social challenges

Deltl (2013:84) specifically refers to “social norms, attitudes to work, status symbols,

demographics and population” as social factors. Fatoki (2014) argued that social

pressure could be the wrong motivation to start a business as the business owner

underrates the requirements and pressures concerning time; family involvement;

dearth of marketing and financial responsibilities and the willingness to take risks.

Attitudes towards a career or the business could jeopardise customer relations,

marketing and sales and ineffective financial and operations management skills could

lead to failure of the business (Fatoki, 2014). The culture in SA pivots from one extreme

to the other: ultra-prosperous and 16 million people dependent on social grants at the

opposite end. The current unemployment percentage is four times the global rate of

6%. Job creation is therefore much more than offering employment: it is a contribution

to social wellbeing and uplifting the morale of especially the youth (SBP, 2013).

Local aspects cause more social challenges than international situations such as skills

development deficiencies, arduous regulations, financial conditions and labour costs

35

(SBP, 2014c). The Sector Education and Training Authority’s (SETAs) directive

includes backing of SMEs but the consensus indicates a higher esteem of

qualifications rather than the development of skills: “In my opinion, SETAs are a

bureaucratic nightmare. Send all the money to tertiary institutions and skills training.

They are an unmitigated nightmare. They are staffed by incompetent people. Look at

the Asian Tigers. They upskill, not by building empires” (SBP, 2014:29).

2.4.2.4 Technological challenges

The SME owner could lack research and development skills and fail to determine

marketing strategies, financial planning, product design, management strategies and

human resource organisation and overall technical competencies (Boeker and

Wiltbank, 2005:924) cited by Fatoki (2014).

One of the highest priorities is job creation especially for the youth as more than 60%

of that age group is unemployed. Education and training should receive serious

consideration as the Global Competitiveness Report (2014/2015) positions South

Africa at #144 of 144 countries on the quality of math and science education; #140 on

the quality of the overall education system; and #117 on internet access in schools

(Herrington, et al., 2014).

The business environment specialists, SBP, argued that technology application and

information operations in business have profoundly changed and SA lacks competitive

advantage in the global market (SBP, 2014c). Assessment of internal aspects such as

regulatory frameworks and skills development, external aspects such as natural

resources and geographical challenges is inevitable. Technological challenges in SA

include how skilfully strategies can be adapted or formulated to optimise import and

export operations.

Acemoglu and Robinson (2012:92) accentuated the importance of technology:

“Inclusive economic institutions also pave the way for two other engines of

prosperity: technology and education. Sustained economic growth is usually

accompanied by technological improvements that enable people (labour),

land, and existing capital (buildings, existing machines, and so on) to

become more productive. Intimately linked to technology are the education,

36

skills, competencies, and expertise of the workforce, acquired in schools, at

home, and on the job”.

Improved technology together with employees’ knowledge capital leads to increased

productivity. The most extraordinary technology will be of little benefit if employees the

lack knowledge to operate it. Acemoglu and Robinson (2012) also emphasised that

skills and knowledge encompass much more than operations in the workplace.

Scientific awareness is the result of training and education and lead to variations of the

existing technologies.

2.4.2.5 Ecological challenges

Ecological (economic, social and political) aspects influence exceptional

entrepreneurial and commercial circumstances. The Global Economic Monitor

recommended since 1999 that these circumstances are able to increase economic

development and growth (Herrington, et al., 2014). The Entrepreneurial Framework

Conditions (EFCs) unwaveringly affect the pervasiveness of new business initiatives,

aptitudes and desires within a specific economy.

The shortage of energy and water could be excellent initiatives for future SMEs with

several opportunities more specifically in the agricultural and tourism industries.

Tourism and manufacturing SMEs fear failure and focus on day-to-day operations

rather than economic growth. Employment regulations are restrictive and SMEs avoid

appointment of staff rather than facing legislative issues. “We prefer to upgrade

technology and upskill the staff we have so that they can be more efficient and

productive. We also have a very selective client base and are more niched, ensuring

that we do not have to staff up rapidly to handle exponential growth”, the opinion of an

SBP respondent (SBP, 2014:26).

2.4.2.6 Legislative challenges

Government departments constitute policies with the purpose of creating guidance but

also safety and security in which SMEs are established. Policies with objectives to

ensure economic growth, address unemployment, alleviate poverty, improve social

wellbeing, and encourage socio-economic upliftment in communities are implemented.

“Environments characterised by weak institutions and high levels of political and civil

37

violence directly affect new venture survival”, maintain Hiatt and Sine (2012: 924) as

cited by Fatoki (2014).

Fatoki (2014) referred to Mbonyane (2006) who observed that a lack of knowledge

regarding legal and regulatory matters is a common cause of failure. Compliance with

regulations, labour laws and policies are challenging but dealing with corruption and

unethical officials are a serious challenge to create or to grow the existing business.

National and international economic development is still affected by acquiescence with

legislation and administrative procedures. The NDP recommended restructuring of

policies and regulations to stimulate growth of SMEs instead of restricting business

(SBP, 2014c).

2.4.3 Collective reasons of business failure in SA

Numerous reasons were provided and documented in research papers, newspapers

and other media sources. This paper would like to summarise these causes of failure:

Absence of a business plan and lack of business acumen (Fatoki, 2014;

Entrepreneur Media, 2013)

A lack of finance however, financial institutions are willing once the SME can

proof readiness for the investment responsibility (Fatoki, 2014; Entrepreneur

Media, 2013).

A lack of financial management skills (Fatoki, 2014; Entrepreneur Media, 2013).

A lack of management skills but often disputed by business owners (Fatoki,

2014)

A lack of entrepreneurial skills (Herrington, et al., 2014)

A lack of or ineffective training and supporting resources (Herrington, et al.,

2014)

A lack of technical skills (Herrington, et al., 2014)

The absence of a marketing plan and lack of branding and marketing skills

(Herrington, et al.; Entrepreneur Media, 2013)

A lack of contract management skills (Entrepreneur Media, 2013)

Financial and personal reasons, found another job, retirement (Maas and

Herrington, 2006)

An incompetently educated labour force (Herrington, et al., 2014)

38

2.5 SUPPORT SYSTEMS IN SOUTH AFRICA

2.5.1 Mandated Organisations

The Department of Trade and Industry (dti) governs the Small Enterprise Development

Agency (SEDA) as authorised by the National Small Business Amendment Act (Act

No 29 of 2004) with the following directive:

“Implement national government’s policy for small enterprise development;

Design and implement a standard national delivery network that must uniformly

apply throughout the Republic in respect of small enterprise development,

integrating all government-funded small enterprise support agencies across all

spheres of government;

Design and implement small enterprise development support programmes; and

Establish provincial structures to ensure the effective implementation of its

function” (SEDA, 2013/2014:16).

SEDA elucidated a mission statement to ‘develop, support and promote small

enterprises to ensure their growth and sustainability’ together with customers,

associates, personnel, local communities and other stakeholders and therefor it should

be appropriate to question the agency’s success with a high failure rate of SMEs in

SA. SEDA is committed to drive government’s goal of job creation and SEDA’s

strategic review indicated the following NDP goals as priority:

“To enhance economic growth through SMMEs;

To reduce the unemployment rate by 6% by 2030;

To increase support for SMMEs and

Reduce the cost of regulatory compliance for SMMEs” (SEDA, 2013/2014:21)

Kalashe (1996) as referred to by Nieman (2001:446) assessed that South Africa offers

at least 9 395 single support agencies for SMEs excluding the government agencies,

community based organisations, non-government organisations, foreign donor bodies

and entrepreneurs. These support organisations exclude accredited training providers

for the development of business, technical and administrative skills.

39

The government should offer the following support to current and future entrepreneurs:

Taxation and regulations to support growth as SMEs often pay higher

percentages of tax than bigger business and receive little incentives;

Support with infrastructure and services, i.e. transport, water and electricity,

sanitation, and security;

Technical support to improve business and financial literacy;

Mentoring support with agriculture to increase crop and improve infrastructure

as the current position on land reform does not contribute to economic growth;

Support SMEs to master financial management and accountability towards

capital investments;

Labour regulations and employment procedures

Meaningful skills development initiatives to build capacity and encourage

entrepreneurs to create new ventures (International Monetary Fund, 2014).

A positive economic market would be the most preferred structure to encourage

economic growth and SME initiatives, but government has to provide support

structures to assist entrepreneurs to realise sustainable livelihoods. These support

structures should create the environment favourable to SMEs (United Nations on

Trade and Development, 2004). Similarly, policies should offer the entrepreneur

protection against barriers and stimulate growth and skills development, especially

concerning disadvantaged groups. Government could achieve the set goals by

continuous assessments and transparent feedback and awareness programmes

including economic incentives as motivation (United Nations on Trade and

Development, 2004).

The GEM Report (Herrington, et al., 2014) argued that the EFCs are possibly the main

impetus to activate the entrepreneur from planning to establish the SME and to sustain

its operations by:

Finance: access and availability;

National policies and procedures;

Research and development (R&D);

Infrastructure: with specific emphasis on electricity

40

2.5.2 Effectiveness of Current Systems

Herrington, et al. (2014) indicated that the private sector founded successful supporting

systems in SA namely Anglo American’s Zimele programme and South African

Breweries’ KickStart initiative. The government’s enterprises were unfortunately less

successful over the previous two decades:

Ntsika Enterprise Development failed, merged with National Manufacturing

Advisory Centre (NAMAC) and a SEDA was founded;

The Community Public Private Partnership (CPPP) failed and was incorporated

with SEDA;

The GODISA Trust failed and was incorporated with SEDA;

The National Technology Transfer Centre failed and was incorporated with

SEDA’s Technology Programme;

2.5.2.1 Small Enterprise Development Agency (SEDA)

SEDA’s service provision include business development and support for SMEs in

conjunction with approved service providers but the quality and effectiveness are not

always meaningful or beneficial (Herrington, et al., 2014).

2.5.2.2 Small Enterprise Finance Agency (SEFA)

SEFA offers financing to SMEs to the maximum of R3 000 000: asset finance; bridging

finance; term and revolving loans; and working capital. Approval of finance depends

on a business plan and commitment to repay the funds over a specific period. SEFA

was founded as a result of Khula Enterprise Finance Limited (previously Industrial

Development Corporation) and a merger with South Africa Micro-Finance Apex Fund


2.5.2.3 National Youth Development Agency (NYDA)

The Umsombomvu Youth Fund and the National Youth Commission both failed to

honour their mandates and NYDA was established to organise and encourage youth

development and specifically to provide funding for SMEs. The NYDA is constantly

under scrutiny as little evidence of success on strategic objectives is available.

41

Its objectives are:

“Economic participation;

Education and skills development;

Effective and efficient operations;

Information services and communications;

National youth service;

Policy, lobby and advocacy;

Research, monitoring and evaluation;

Social cohesion” (Herrington, et al., 2014:39).

2.5.2.4 Technology and Innovation Agency (TIA)

The Department of Science and Technology (DST) initiated the TIA to “enable and

support technological innovation across all sectors of the economy in order to achieve

socio-economic benefits and to enhance global competitiveness” (Herrington, et al.,

2014:39). The TIA is the result of seven former organisations who failed to stimulate

innovation: the Innovation Fund, Tshumisano Trust, Cape Biotech Trust, PlantBio

Trust, LIFElab, BioPAD Trust and the Advanced Manufacturing Technology Strategy.

The TIA is mandated to provide equity, technology and idea development, industry

matching funding and youth technology.

2.5.2.5 National Empowerment Fund (NEF)

Black economic empowerment and promotion of a culture to save and invest are the

main obligations of the NEF. The NEF offers loan from R250 000 to R75 million for

start-up of businesses, equity procurement or to expand current businesses


2.5.2.6 Incentives

SBP reported that SME owners or prospective owners are unaware of the support that

demonstrates a pivotal obstacle: obtainable inducements are therefore meaningless if

not utilised. Often SMEs prefer not to utilise these incentives as bureaucracy is seen

as a barrier.

42

Current government support incentives are:

dti 12i: Tax allowance for environmentally-friendly manufacturing investments

dti Manufacturing Development Programme Incentive: establishment cash

grants

dti Small and Medium Manufacturing Development Programme: part of the

Manufacturing Development Programme, but applicable to SMEs only

dti Manufacturing Investment Programme: part of the Enterprise Investment

Programme: cash grants

dti Co-operatives Incentive Scheme: cash grants to co-operatives in

manufacturing, retail and services

dti Small and Medium Enterprise Development Programme (SMEDP):

manufacturing: cash grants for investment by offering SMEs in manufacturing

and tourism

Export Market and Investment Assistance (EMIA): cash grant to promote

exports of South African goods

IDC/dti Support Programme for Industrial Innovation (SPII): manufacturing:

cash grants to private enterprises and SMEs in IT and manufacturing projects

dti /CSIR National Foundry Technology Network: provides services, skills and

R&D to develop a globally competitive foundry industry

dti /IDC Manufacturing Competitiveness Enhancement Programme (MCEP):

cash grant to encourage manufacturers to upgrade their production facilities

dti Business Process Outsourcing and Offshoring (BPO and O) Investment

Incentive: investment cash grants

Department of Labour (DoL) Business Process Outsourcing and Offshoring

(BPO and O) Training and Skills Support Grant: cash grant for training purposes

dti Small and Medium Enterprise Development Programme: Tourism (SMEDP):

cash grant for capital investment: cash grant to expand existing facilities

DST Innovation Fund (IF): cash grant for companies doing R&D

Industrial Development Corporation (IDC)/dti Support Programme for Industrial

Innovation (SPII): information technology: cash grants to support technical

development in Information Technology and manufacturing

dti Small Enterprise Development Agency Technology Programme: supports

early stage ventures in technology

43

NRF Technology and Human Resources for Industry Programme (THRIP): cash

grant supporting research, technology and training

dti Black Business Supplier Development Programme (BBSDP): cash grant for

black-owned businesses to gain access to business development services

Export Credit Insurance Corporation: underwriting export credit loans and

investments outside the country

dti Small Enterprise Development Agency: non-financial services and support

dti Sector Partnership Fund (SPF): cash grant for partnerships in manufacturing,

agro-processing and ICT sectors

dti Critical Infrastructure Programme (CIP): cash grant for enterprises investing

in infrastructure (SBP, 2014c).

2.5.3 Non-government Initiatives

Commercial Banks

Shanduka Black Umbrellas

Business Partners Limited

Zimele Anglo American

U-Start

Leaf Capital

Anglo Sebenza Fund

Masisizane Fund and others (Herrington, et al., 2014)

2.5.4 Significant Support Needed by SMEs

Development of existing SMEs, recognition of entrepreneurial potential and

improvement of support systems are means to ensure realisation of job creation in the

SME sector. The Ministry of Small Business Development’s primary responsibility is to

focus on support to SMEs and to address existing challenges. Other responsibilities

include “addressing the legal and regulatory environment; improving access to

markets, and availability of finance; addressing the skills deficit; enabling better access

to information; and improving the effectiveness and reach of support institutions” (SBP

b, 2014:1). The top five most costly and frustrating red tape issues over the past year

are depicted in Figure 2.3:

44

Figure 2.3: Top five issues affecting budgets (SME Growth Index SBP, 2013:9)

The Alert Report 1 of 2014 mentioned the following challenges:

Bureaucracy: up to eight working days per month to handle red tape entails a

loss of income;

Tax requirements to an average cost of R20 500 according to The Davis Tax

Committee Interim Report on Small Business;

Regulatory compliance at an average of 75 hours per month could quantify to

R18 000 per month;

Labour related matters (especially in the manufacturing sector) as some SMEs

are involved with CCMA cases twice a year;

Local government involvement (especially the tourism industry);

BBBEE compliance;

A ‘one size fit all’ is not conducive to SME growth: different sectors face different

challenges and will benefit from different incentives (SBP, 2014a).

According to the Report on Growth and Competitiveness for Small Business in South

Africa, the following five issues are prevalent:

“The regulatory burden is distracting SMEs from their business activities, and

must be reduced

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

SARS MandatoryRegulations

Labour Issues BBBEE Municipal Issues

45

Opportunities and assistance should be made available for SMEs – but these

need to be tailored to the particular, differentiated needs of different segments

of the SME community. For the most part, established SMEs need better

information on tendering opportunities, and better – more transparent –

management of the tendering process, rather than dedicated support

SMEs struggle with the administrative demands imposed by South African

labour legislation, finding it an obstruction to growth, and a disincentive to taking

on new staff. It needs to be reformed

Overall, the efficiency and effectiveness of governance across all spheres

needs to be improved

Improving the skills of the workforce is imperative – in particular, government

needs to ensure a vastly improved quality of education to underwrite South

Africa’s future economic success” (SBP a, 2014:58).

SME respondents’ unanimous request to bigger business is:

“Pay suppliers on time

Be more willing to vigorously confront government on the regulatory

environment

Source products from local suppliers, rather than import

Combat corruption, act ethically, and within the law at all times

Refrain from anti-competitive behaviour (such as price fixing), as this has a

detrimental impact on SMEs and the local supply chain” (SBP a, 2014:58).

SBP proposed a transparent Regulatory Impact Assessment (RIA) process to establish

regulations that are more conducive to SME development. The RIA process is

presented in Figure 2.4:

46

Figure 2.4: Regulatory Impact Assessment (SBP c, 2014:3)

2.6 SMALL AND MEDIUM ENTERPRISES IN TURKEY

2.6.1 Overview on Business in Turkey

According to the World Bank, “Turkey’s demographic and economic transformation has

been one of the world’s most dramatic, with urban growth and economic growth

proceeding hand in hand” (World Bank, 2014:3). During the 1950’s agriculture

contributed mainly to the economy and only 25% of the population resided in cities.

Nonetheless, contributions to GDP increased in the next five decades: manufacturing

from 18% to 27% and services from 26% to 64% (World Bank, 2014b).

Today, approximately 75% of the total population live in cities and profitable SMEs are

doing business. They:

Offer 76,7% of employment

Contribute to 40% of investment

47

Add 26,5% of total value to GDP

Account for 25% of bank credit

The World Bank (2011) argued that Turkey accounted for 3,5 million SMEs including:

micro enterprises: 95,7%;

small enterprises: 3,7%;

medium enterprises: 0,6%

12,6% of all SMEs are in the manufacturing industry.

Turkey has effected a specific regulation on the definition, qualification and

classification of SMEs: less than 250 employees and a turnover not exceeding 25

million Turkish Liras. Table 2.3 presents the complete definitions of SMEs:

Table 2.3: Definitions of SMEs in Turkey

SCALE NUMBER OF EMPLOYEES

ANNUAL TURNOVER (tl)

BALANCE SHEET (tl)

Micro < 10 ≤ 1 Million ≤ 1 Million

Small < 50 ≤ 5 Million ≤ 5 Million

Medium < 250 ≤ 25 Million ≤ 25 Million

Source: Willis-Ertür & Vader, 2015:14

The Small Business Act for Europe (SBA) is the European Union’s strategic

mechanism to support SMEs and measure entrepreneurship responsiveness. The

2014 report commented that during 2009 to 2011 astonishing progression was made

as the number of enterprises has doubled: value added to GDP by 85% and

employment by 96% (SBA, 2014). “Turkey, China, India and Brazil are examples of

newly industrialized countries (NIC) where a very small investment on a good idea can

really skyrocket” (Forbes, 2014: 1). A new product or service requires restricted

financial resources or a small investment to start a business in NIC, as the consumer

markets are changing and open for business.

The Forbes website shares the success story of Osman Can Ozcanli, the President

and CEO of OZPACK. Ozcanli designed a fashionable stationery device and

developed the internet-famous transparent glass toaster as well as the first shape-

48

shifting sink. These accomplishments were the motivations to reward Ozcanli the

“Young creative entrepreneur of Turkey in 2008 Award by Eczacibasi & the British

Council” and an “industrial design excellence award from the Industrial Design Society

of America”.

Ozcanli, as a successful entrepreneur, motivates why entrepreneurs should start a

business in Turkey:

Turmoil: continuous social and economic transformation brings prospects;

Weak competition: a new business could address the consumer’s search for

better products and improved service;

Strong consumer spending: the younger generation loves branded fashion and

trends and are not conservative spenders;

High retail prices: locally designed and manufactured but well-priced products,

could deliver a higher margin of profit despite tax and customs costs;

Lower operating costs: lower cost of suppliers and labour is a competitive

advantage compared to costs in America or the United Kingdom;

Local manufacturers: local suppliers are willing to offer lower quantities and are

available in the geographic areas;

Unpenetrated markets: there are opportunities everywhere in Turkey – find

inspiration and conduct market research to discover your niche market.

The World Economic Forum measured and published the data on competitiveness in

144 countries. Attractiveness is based on “the set of institutions, policies, and factors

that determine the level of productivity of a country” (World Economic Forum, 2014:4).

Factors such as productivity and investments are essential drivers to determine the

growth rates.

Table 2.4 displays the following data to compare the rankings of South Africa and

Turkey according to the Global Competitiveness Index of 2014:

49

Table 2.4: The Global Competitiveness Index (GCI) 2014 – 2015 indicating South Africa and Turkey

GCI 2014 -

2015

GC

I 201

3-20

14 r

ank

(out

of 1

48)

BASIC REQUIREMENTS PILLAR (ranking)

Country / Economy

Ran

k (o

ut

of

144)

Sco

re (

1-7)

Bas

ic r

equ

irem

ents

Inst

itutio

ns

Infr

astr

uctu

re

Mac

roec

onom

ic

envi

ronm

ent

Hea

lth &

Prim

ary

Edu

catio

n

South Africa 56 4.25 53 89 36 60 89 132

Turkey 45 4.46 44 56 64 51 58 69

BASIC REQUIREMENTS PILLAR (ranking)

Country / Economy

Eff

icie

ncy

en

han

cers

Hig

her

Edu

catio

n &

trai

ning

Goo

ds m

arke

t effi

cien

cy

Labo

ur m

arke

t effi

cien

cy

Fin

anci

al m

arke

t

deve

lopm

ent

Tec

hnol

ogic

al r

eadi

ness

Mar

ket s

ize

Inn

ova

tio

n &

so

ph

isti

cati

on

fac

tors

Bus

ines

s so

phis

ticat

ion

Inno

vatio

n

South Africa 43 89 32 113 7 66 25 37 31 43

Turkey 45 50 43 131 58 55 16 51 50 56

Source: Researcher’s own compilation from The Global Competitiveness Report 2014-2015: Full Data Edition (World Economic Forum, 2014)

The World Economic Forum’s Executive Opinion Survey exemplifies answers on a

scale of 1 to 7 where 1 is always the worst and 7 represents the best possible

conclusion. Table 2.5 represents key indicators as significant to research proposition

2 – the effect of SMEs on economic growth:

50

Table 2.5: Key indicators on basic requirements pillars

Ran

k

Val

ue

Mor

e

favo

urab

le

Ran

k

Val

ue

Mor

e

favo

urab

le

Gross domestic product (GDP):

GDP in billions of current US dollars - 2013 Business impact of rules on FDI

South Africa 33 350.8 South Africa 104 4.0

Turkey 17 827.2 Turkey 71 4.41

GDP per capital:

GDP in current US dollars - 2013

Burden of government regulations: compliance wrt permits, regulations, reporting



Ethical behaviour of firms: interactions with public officials, politicians, other

Strength of auditing and reporting standards



Quality of electricity supply: reliability (lack of interruptions)

Business impact of HIV & Aids: impact in next

5 years e.g. death, disability, productivity, etc.



Quality of the education system: does it meet needs of competitive economy?

HIV prevalence: % adults aged 15-49 years


Turkey 89 3.4 Turkey 1 <0.1

Quality of math & science education Quality of primary education



1 = strongly disagree/discourage; 7 = strongly agree/encourage

Source: Researcher’s own compilation from The Global Competitiveness Report 2014-2015: Full Data Edition (World Economic Forum, 2014)

The GCR represented the ranking of the 20 largest developing economies on selected

components of the Global Competitiveness Index (GCI). The rankings of Turkey and

SA to illustrate the strengths of their economies are represented in Table 2.6:

51

Table 2.6: Developing economies’ rankings

GCI 2014–2015

rank Country

Public institutions Market

composition Labour market

efficiency

2014 – 2015 rank

Since 2010

2014 – 2015 rank

Since 2010

2014 – 2015 rank

Since 2010

20 Malaysia 23 +21 9 +20 19 +16

24 Saudi Arabia 26 -6 33 -24 64 +2

28 China 43 +3 86 -22 37 +1

32 Thailand 93 -23 47 +6 66 -42

34 Indonesia 53 +4 57 +3 110 -26

43 Poland 56 -2 46 +3 79 -26

46 Turkey 67 +23 44 +18 131 -4

52 Philippines 75 +49 109 +12 91 +20

53 Russian Federation 102 +16 119 +10 45 +12

56 South Africa 45 +8 35 +8 113 -16

57 Brazil 104 -8 135 -3 109 -13

61 Mexico 109 +1 110 +6 121 -1

66 Colombia 123 -6 127 +3 84 -15

70 India 69 -10 111 -23 112 -20

83 Iran, Islamic Rep. 98 -24 121 -18 142 -7

104 Argentina 138 -5 143 -5 143 -15

118 Egypt 101 -40 126 -42 140 -7

127 Nigeria 132 -10 78 +11 40 +34

129 Pakistan 125 -11 106 -10 132 -1

131 Venezuela 144 -5 144 -5 144 -6

Source: Researcher’s own assembling from The Global Competitiveness Report 2014-2015: Full Data Edition (World Economic Forum, 2014)

The SBA indicated that Turkey has to address globalisation and technology innovation

in public governance and promote SMEs international trade (SBA, 2014). In

conclusion, the BRICS countries (Brazil, Russia, India, China and South Africa) has

indicated accelerated economic growth in the last 10 years according to the

comparison between South Africa’s, BRIC’s and Turkey’s economic data in Table 2.7:

52

Table 2.7: Economic growth: BRICS and Turkey

COUNTRY USD GDP IN

2008 USD GDP IN

2012 ANNUAL GROWTH

POSITION IN ECONOMY

China 1.6 trillion 8.2 trillion 7.8% 2nd

Brazil 1.654 trillion 2.3 trillion 0.9% 7th

Russia 1.661 trillion 2.0 trillion 3.4% 8th

India 1.224 trillion 1.8 trillion 3.2% 10th

South Africa 273.1 billion 384.3 billion 2.5% 29th

Turkey 730.3 billion 789.3 billion 2.2% 17th

Source: Researcher’s own compilation from (USAID Economic Analysis and Data Services,

2012)

2.6.2 Turkey Supports SME Development

The support to SMEs and business are available at compulsory and voluntary

organisations:

compulsory organisations:

o the Union of Chambers and Commodity Exchanges (TOBB);

o the assembly of export associations (TiM) with about 52 000 members

and 26 local unions of exporters are represented; and

o professional associations for example: the Union of Chambers of

Engineers and Architects.

Voluntary organisations:

o interest-based bodies for example: the Turkish Industry and Business;

Association (TUSIAD) and the Independent Industrialists and

Businessmen’s Association (MUSIAD);

o sectoral or regional associations for example: Poultry Meat Producer and

Breeders Association; the Direct Marketing Association; and

o KOSGEB and other government-sponsored organisations.

According to Benzing, et al., SMEs are undeniably responsible for economic growth:

in 2000 as 99,8% of all businesses were SMEs and offered 76,7% of total employment

and therefore the government made the commitment to support SMEs. The

government endorsed the European Charter for Small Enterprises in 2002 and partook

in the Multi-Annual Programme for Enterprise and Entrepreneurship (OECD, 2005).

53

The government of Turkey launched 43 programmes to assist businesses during 2000,

which were subsidised by 14 institutions, including 28 programmes inclusive of

funding; eight included credit; and 17 to SMEs; seven R&D programmes; and five

offered supporting services to SMEs (World Bank, 2011b).

At present, several support authorities and programmes are available to current and

prospective SME owners and entrepreneurs:

KOSGEB: a Small and Medium Industry Development Organization, with the

mandate to: “improve [the] SMEs share and efficiency in [the] Turkish economy

and enhance their competitive capability” by means of skills development and

funding (Benzing, et al., 2009). This authority governs SME policies and

together with representation from the Prime Minister, universities, the private

sector and government departments together with chambers of commerce and

industrial zones (SBA, 2014).

KOSGEB Executive Committee (includes presidents of TOBB and TESK as well

as private and public sector representatives) is responsible for the execution of

the SME strategic and action plans

KOSGEB’s Entrepreneurship Support Programme outperformed most

European countries with the establishment of SMEs with female owners and the

same programme assisted 10 941 SMEs in 2013/4

KOSGEB Technology Development Zones (TDZ) are associated to universities

or innovative businesses in technology or software development or R&D

institutions. Economic development is a focus within the commercial, academic

and social structures of the stakeholders involved.

KOSGEB Technoparks are located on a university campus to inspire and

empower entrepreneurs and assist innovative enterprises with technical and

consultative services. These services may include but are not limited to

operations management; administrative services; marketing and selling advice;

financial support services; research and workshop facilities.

KOSGEB KOBI-NET: a network where SMEs can obtain information from

financial institutions, chambers of commerce, unions, and business

associations and connect with the Euro Info Correspondence Centre.

54

TÜBİTAK: Scientific and Technological Research Council of Turkey with a

distinct role to research and development (R&D) of SMEs.

TÜBİTAK mandated by national policies; empowers entrepreneurs with

mentoring projects focusing on business development, financial management,

legislation, education and training, cultural challenges and consultancy.

TOBB: the Union of Chambers and Commodity Exchanges

TESK: Confederation of Turkish Tradesmen and Craftsmen

TUBITAK-TIDEB: The Under-secretariat of Treasury has a responsibility to

attract angel investors to SMEs.

Skills development for entrepreneurs is successful and a primary component in

Turkey’s lifelong learning strategy.

Secondary education’s curriculum includes entrepreneurship which contributes

to improvement of TEA

Turkish Technology Development Foundation (TTGV) a non-profit organisation

managing financial resources for R&D projects

HALK BANK supports SMEs with loans at low interest rates and with favourable

conditions to suit the size of the SME. The Bank supplies surety for the CREDIT

GUARANTEE FUND (KGF): a company with six public and semi-public

shareholders: TOBB; TOSYOV; MEKSA; KOSGEB; TESK & HALKBANK

(World Bank, 2011b).

In support of the above-mentioned organisations and programmes, the Ministry of

Science, Technology and Industry initiated a programme in 2013 to encourage

innovation and technological advancement. During the five-year period enterprises will

receive up to 50% funding on the condition that they cooperate with industrial and

technology development zones; exporters’ associations; non-governmental

organisations (NGOs) and local businesses (SBA, 2014).

Some of the KOSGEB support programmes together with monetary values are

displayed in Figure 2.5:

55

Figure 2.5: Distribution of KOSGEB SME interest support programmes (in Turkish Liras) Key: B.E. = Number of Beneficiary Enterprises; A.C. = Allocated Credit

(KOSGEB, 2012:15)

The purpose of these programmes are as follows:

“increase the competitiveness, efficiency, innovative capacity of Turkish

industry

increase Turkish industry’s share of global exports,

increase high tech industries’ share of manufacturing output,

increase the quality of human resources capacity, and

increase awareness of environmental and other public issues” (SBA, 2014:13).

SMEs in the Turkish economy are as significant as SMEs are to most EU countries

and despite the economic downturn in 2009, Turkey is on the road to recovery as

Figure 2.6 illustrates the increase in the number of SMEs from 2009 to 2011:

56

Figure 2.6: SMEs in Turkey and the EU (SBA, 2014:3)

2.6.3 SMEs are Engines of Growth

Turkish SMEs form the backbone of Turkish economic and social order (KOSGEB,

2012). It was reported by The MasterCard Center for Inclusive Growth on 7 April 2015,

that Turkey has 3,5 million SMEs and President Recep Tayyip Erdoğan and the ruling

Justice and Development Party (AKP) issued aspiring goals to work towards Turkey

becoming the 10th largest economy by 2033 (currently 17th largest) (Willis-Ertür &

Vader, 2015).

Willis-Ertür and Vader (2015:14) argued “Turkey now has the sense of urgency needed

to capitalize on its SMEs and propel the country to the next level”. SME owners can

propel Turkey’s economy to the next level with efficient professional and employee

development. One respondent (Deputy General Manager of Printing and Stationary

Business, Istanbul) commented during the survey: “This is a country of a lot of

opportunities… If you do everything right, if you analyse competition right, if you launch

the right products at the right price and right place, if you give the right tools to the

sales team and customers – then it works” (Willis-Ertür & Vader, 2015:55).

Entrepreneurs are motivated to establish a business firstly to earn an income, secondly

for job security and the third motivator is to gain personal freedom and independence

(Benzing, et al., 2009).

86

88

90

92

94

96

98

100

102

104

106

2009 2010 2011

Index: 2009=100

SME's in Turkey

SME's in the EU

57

Data from the Turkish National Statistical Office revealed that newly registered

businesses surpassed the number of deregistration between 2009 and 2012 by 140

095 with the majority in wholesale and retail sector. An increase of 1% in 2013: 108

930 new enterprises compared to 107 219 in 2012 (SBA, 2014). The construction,

manufacturing and engineering industries are significant sectors to the Turkish

economy. The foremost export (62,6%) and import (38,5%) markets of SMEs are

European nations and Asia, and according to SBA, trade and industry could increase

with improved technology and administrative skills (2014). The sectors with the highest

share of GDP are Services Sector with 58,4% and Industries Sector with 26,9%.

Turkey earned 26,3% of GDP from exports market and 31,5% from the imports market

(Willis-Ertür & Vader, 2015). Figure 2.7 illustrates value added by SMEs from 2009 to

2011 to the national GDP:

Figure 2.7: SMEs add value to GDP SBA, 2014:3

2.7 SUMMARY

In accordance with the importance of national and global economic prosperity, this

chapter sought to investigate the positive and the less positive elements of the

government’s approach towards SMEs in order to make a modest impact towards

assisting current and future SME owners. Understanding entrepreneurship, the

possible influence of entrepreneurship on an economy and specifically in developing

countries, outlined the answer to the research propositions.

90

95

100

105

110

115

120

125

2009 2010 2011

Index: 2009=100

SME's In Turkey SME's in the EU

58

The challenges experienced by SME owners, a reflection on failure of businesses, and

expectations towards support, were reviewed and summarised in sections 2.4 and 2.5.

An overview of SMEs and the support available in Turkey, demonstrated how SMEs

could successfully contribute to economic growth. The observation of critical success

factors for the establishment of SMEs will be incorporated to develop a framework for

the establishment of SMEs in South Africa. If SA is to address unemployment, job

creation and alleviation of poverty, a new framework should be developed and

implemented and could result not only in economic growth but also social upliftment

and a sustainable livelihood.

The subsequent chapter, i.e. Chapter 3, will embark on the research methodology used

to provide an understanding into the method, approach and data collection. A link will

be revealed between the results of the literature review and to discover connections

between the critical success factors and a new entrepreneurial development

framework for SMEs in South Africa. This chapter will explain the approach that was

used to acquire the necessary data to test the theory on the Turkish government’s

attitude to assist SMEs as a valuable contributor to trade and industry and economic

success.

“My biggest motivation? Just to keep challenging myself. I see life almost like one long

University education that I never had — everyday I’m learning something new”.

– Richard Branson

59

CHAPTER 3

METHODOLOGY OF THE STUDY

3.1 INTRODUCTION

The previous chapter has introduced the concepts of entrepreneurship, SMEs, the link

between SMEs and economic development and the value of meaningful support to

encourage business development and growth. Relevant literature was reviewed and

the findings will be utilised to develop a new entrepreneurial development framework

for SMEs in SA. Chapter 1 comprises the definition of the research problem,

clarification of the research objectives, and states the research questions as well as a

framework of the research design.

The dissertation is the concluding quintessence of this research project and

summarises the research problem and data collected and analysed. The dissertation

is a “reconstruction of the logic” and the method applied to conclude the project was

carefully chosen to validate the data and prove reliability (Mouton, 2012). Chapter 3

provides an overview on the research methodology used in an attempt to gather,

investigate and interpret empirical data with the purpose of establishing the reliability

of the framework revealed in earlier chapters. Collis and Hussey (2009:3) summarised

the reasons to conduct research:

“Review or synthesize existing knowledge;

Investigate existing situations or problems;

Provide solutions to problems

Explore and analyse more general issues;

Construct or create new procedures or systems;

Explain new phenomena;

Generate new knowledge; or

A combination of any of the above.

The ‘overall approach and perspective’ of the study procedure in totality is termed the

methodology and the procedure will include the reason to collect data; the nature of

the data; the source and method of collection; and the evaluation thereof (Collis &

Hussey, 2009).

60

The researcher followed the stages for this paper as are illustrated in Figure 3.1:

Figure 3.1: Research stages, own compilation based on Yin (2011)

3.2 RESEARCH DESIGN

3.2.1 Definitions

3.2.1.1 Methodology

“Methodology: a system of methods used in a particular field” (Oxford University Press,

2010:738). Mouton (2012:56) describes methodology as the “focus on the research

process and the kind of tools and procedures to be used and the focus on the individual

steps in the research process”. According to Collis and Hussey (2009:73),

methodology is “an approach to the process of the research, encompassing a body of

methods”. The methodology of this dissertation discusses how the research was

conducted and its analytical sequence. The study focused on the survey of SMEs:

establishment, support and challenges, hence it is a qualitative approach. Methodology

also pertains to “why to” collect data in a specific way.

3.2.1.2 Epistemology

“Epistemology: the theory of knowledge, especially with regards to its methods,

validity, and scope” (Oxford University Press: 2010: 393). Carter and Little (2007: 1317)

summarised that epistemology can be considered as a justification of knowledge and

cited the definitions according to Schwandt (2001:71) as the “study of the nature of

Stage 1

• Identified the field of interest and clarified the research

question

Stage 2

• Compiled and presented the

research proposal

Stage 3

• Designed and

conducted the

research

Stage 4

• Collected and

recorded data

Stage 5

• Analysed and

interpreted data

Stage 6

• Finalised dissertation

and reported results

61

knowledge and justification” and the epistemological issues (Harding, 1987: 2) as

“issues about an adequate theory of knowledge or justificatory strategy”. Mouton

(2012:138) indicated that “epistemic” is derived from the Greek word episteme

meaning “truthful knowledge” and the researcher’s endeavour is to report the most

honest and valid results.

3.2.1.3 Method

“Method: (1) a particular procedure for accomplishing or approaching something, (2)

orderliness of thought or behaviour” (Oxford University Press, 2010:738). The relevant

tools, techniques and/or procedures utilised to construct data refers to ‘method’

(Kaplan, 1964, cited by Jackson II, Drummond and Camara, 2007). Method also

pertains to the way data is collected, i.e. “how to” or the activity of research. The

researcher concurs with the précis of the connection between methodology,

epistemology and method as depicted in Figure 3.2:

Figure 3.2: Simple relationship between epistemology, methodology and method

(Carter & Little, 2007:1317)

62

3.2.2 Assumptions of Research

The assumptions in the study were discussed in detail in chapter 1 sections 1.4 to 1.6.

It is anticipated that the trials experienced by SMEs globally will have comparisons to

the challenges encountered by SMEs in SA. Moreover, it can be anticipated that the

effective support systems employed globally, and specifically in Turkey, will have a

comparable effect when employed in SA.

3.2.3 Research Type

Research is classified according to its purpose: descriptive, analytical, predictive or

exploratory. The present study was an exploratory study to increase an understanding

of entrepreneurship and specifically SMEs in SA and Turkey. The focus was to study

the SMEs, to define critical success factors, to evaluate the support systems in Turkey

and determine reasons for their successful contributions to the economy. The data will

form the basis on which to establish an entrepreneurial development framework for

small and medium enterprises in South Africa.

3.2.3.1 Research classification

Jackson II, et al. (2007:22) mentioned Stake’s (1995:37) explanation of the three main

variances between quantitative and qualitative research as:

“The distinction between explanation and understanding as the purpose of

inquiry;

The distinction between a personal and impersonal role for the researcher; and

A distinction between knowledge discovered and knowledge constructed”.

The benefit of comparisons and variances of qualitative and quantitative methods

suggest a mixed method research approach although it should then maintain the

characteristics of a single study.

Figure 3.3 displays the elements and components of both quantitative and qualitative

research.

63

Figure 3.3: Research classification (Researcher adapted from Gerber, 2012)

A deduction should be made only upon the investigation and clarification of quantitative

and qualitative data (Yin, 2011). Table 3.1 summarises three groups of methods when

combining quantitative and qualitative methods:

Table 3.1: Three groups of mixed analytic methods

Combination of mixing Quantitative and Qualitative analysis in a mixed methods study

Parallel mixed analysis:

Interviewing participants (qualitative) at the end of a laboratory experiment (quantitative), to

gain insight into the participants’ behaviour

Using and analysing open-ended (qualitative) and closed-ended (quantitative) items as part of

the same questionnaire

Transforming qualitative data into quantitative data through content analysis

Sequential (qualitative first, then quantitative) analysis:

Using qualitative data to refine teachers in two groups, based on field observations of their

instructional practices (qualitative), and then comparing teachers’ responses to a survey

(quantitative)

Sequential (quantitative first, then qualitative) analysis:

Using additional qualitative data about individuals who performed extremely well or extremely

poorly (“outliers”) in a quantitative analysis, to explain their (high or low) quantitative scores

Source: Tashakkori and Teddlie (1998:128-135) as cited by Yin (2011:292)

RESEARCH CLASSIFICATION

Quantitative Data (Numeric)

Cause-effect relationship

Casual-comparative research (independent variable is not

manipulated)

Experimental research (independent variable is

manipulated)

Relationship prediction

Co-relational research

Test hypothesis Descriptive research

Qualitative Data (Narrative)

Past events Historical research

Current eventsNaturalistic inquiry;

Ethnographic research; Case studies

64

3.2.3.2 Qualitative Research

Qualitative data, considered to be a limitation by some researchers, involve arguments

and descriptions where numbers are the data for other research methods. Qualitative

research may include Tables, Figures and/or Timetables to display data while

quantitative data may consist of correlations or chi-squares. Yin (2011:283) indicated:

“Qualitative studies tend to generalise to other situations, on the basis of analytic

claims whereas non-qualitative studies tend to generalise to populations, on the basis

of statistical claims.

Qualitative research allows autonomy when electing the research topic whereas other

study methods could be inhibited by:

“the inability to establish the necessary research conditions (as in an

experiment);

the unavailability of sufficient data series or lack of coverage of sufficient

variables (as in an economic study);

the difficulty in drawing an adequate sample of respondents and obtaining a

sufficiently high response rate (as in a survey); or

other limitations such as being devoted to studying the past but not on-going

events (as in a history)” (Yin, 2011:3).

According to Shavelson and Townes (2002) as cited by Yin, a quantitative study would

be appropriate for “an evaluation aimed at assessing whether an intervention is

effective” while a qualitative study would be better for “an evaluation aimed at

assessing the nature of the intervention and its implementation” (2011:287). According

to Schwandt (2001) as cited by Carter and Little (2007), qualitative research indicates

that the researcher depends on text and not on numerical data, studies data in the

textual form, and proposes to comprehend human behaviour.

A qualitative research method was chosen as Yin (2011:82-83) explained, “Most

qualitative studies have more than one level of data collection unit….a broader and a

narrower level”. The broader level of data collection will be the two countries: SMEs in

Turkey and South Africa and the narrower level of data collection will be policies,

practices and people.

65

3.2.3.3 Approach towards the research

Basic research projects aim to expand a knowledge base but it might display a lack to

determine the purpose of the project prior to commencement. The course followed by

the researcher was therefore not basic but an applied approach, as the result of the

study will be applied to establish a development framework for SMEs in SA.

The approach may also be inductive where the researcher will observe details from

specific scenarios and reach an overall conclusion. The deductive outlook pursued in

the study originated from a strong hypothetical theory that preceded data gathering.

The analysed data will be interpreted and presented in Chapter 5.

3.3 RESEARCH PHILOSOPHY

A research philosophy can influence the approach assumed for the research project:

included but not limited to the reason why data will be collected; the type of data; where

and how it will be gathered; and how it will be evaluated. A positivistic philosophy is

founded on methods generally applied in science projects as facts and causes are

pursued in a precise manner. According to Collis and Hussey (2014) typical methods

to collect data will include surveys (primary or secondary data), cross-sectional,

longitudinal or experimental studies.

In this study, the researcher employed a phenomenological methodology.

“Phenomenological studies emphasises hermeneutic or interpretive

analyses…devoted to capturing the uniqueness of events” (Yin, 2011:14). However, a

phenomenological research methodology is difficult to explain because it has no clearly

defined steps. A phenomenological research approach was implemented to capture

the distinctiveness of every SME’s history, key success factors and challenges keeping

their ‘political, historical, and sociocultural contexts’ in mind, argued by Miller and

Crabtree (1992) as cited by Yin (2011).

Methods to collect data include action research, ethnography or participant

observations, participative enquiries, feminist perspectives, grounded theories or case

studies. The research problem lent itself to conduct a case study.

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3.4 CASE STUDY RESEARCH

The research strategy sets a framework whereupon the empirical data ties in with the

research questions. Case studies allow in depth studies of the sampled SMEs to

collect and evaluate the data. A case study can be descriptive, illustrative, experimental

or explanatory and the researcher utilised explanatory case studies to comprehend

and describe the practices of SMEs. According to Yin (2014), the case study research

strategy should implement the following aspects: the case study questions,

propositions, units of analysis, a logic link between the data and the proposition, and

criteria to interpret the results.

Yin (2011:307) argued that a description of a case study is “A study of a particular case

or set of cases, describing or explaining the events of the case(s) (cf. instrumental case

study and intrinsic case study). A case study may rely on quantitative or qualitative

data (or both) but usually involves some field-based data”. These studies could be

employed to draft a manuscript and analyse the results of events and relevant to this

paper, “Why?” and “How?” questions were asked as the researcher had little control

over trials (Yin, 2014). The recommended approach according to Yin (2014), is to

commence with a comprehensive literature review, to draft meaningful questions or

objectives and to submit to unambiguous procedures: which the researcher followed

and applied.

The researcher prudently selected the five distinct cases (SMEs) to warrant validity

and reliability. The distinctive cases are representative of SMEs in the province of Izmir,

Turkey.

3.5 DATA COLLECTION

Various sources and practices could be employed to gather data and the researcher

should decide carefully as the purpose is to answer the research questions (Yin, 2014).

Ways to gather data could include interviews with key informers, direct and respondent

observations, focus groups, gathering of and drawing conclusions from internal and

external documentation as well as visual media such as photos and videos (Carter &

Little, 2007; Yin, 2011). The researcher is “ultimately involved as a primary research

instrument” including prior information and understanding of the research problem (Yin,

2011:69).

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3.5.1 Research instrument

A questionnaire template was created to determine key success factors, challenges

faced by entrepreneurs, reasons for failure and lessons learnt, availability of mentoring

and aftercare post-start up and to determine the level of schooling and/or training prior

to the establishment of the business. Questionnaires simplify data gathering by asking

all respondents the same questions. The researcher will “try to adopt the same

consistent behaviour and demeanour when interviewing every participant” (Yin,

2011:133).

Collis and Hussey (2009:199) supplied guidelines to follow when questions are

designed:

Explain the purpose of the questionnaire(research) to all participants

Keep questions as simple as possible

Do not use jargon or specialist language (unless the recipients really prefer and

understand it)

Phrase each question so that only one meaning is possible

Avoid vague, descriptive words, such as ‘large’ and ‘small’

Avoid asking negative questions as these are easy to misinterpret

Only ask one question at a time

Include relevant questions only

Include, if possible, questions which serve as cross-checks on the answers to

other questions

Avoid questions which require participants to perform calculations

Avoid leading or value-laden questions which imply what the required answer

might be

Avoid offensive questions or insensitive questions which could cause

embarrassment

Avoid asking ‘difficult’ questions, e.g. where the respondent may struggle to

answer (people hate to look stupid by not knowing the ‘answer’).

Keep the questionnaire as short as possible.

Distribution methods for questionnaires are electronically (online), or by postal

services, or distributed and gathered, or telephonically. The researcher decided to

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conduct semi-structured interviews (Collis & Hussey, 2009). The research instrument

included a) a simple category scale; b) a multiple-choice single-response scale; c) a

multiple-choice multiple-response scale; and d) Likert scale measurements (Collis &

Hussey, 2009:202-204).

The questionnaire comprised of statements requiring the respondent to designate a

degree of agreement or disagreement, questions requiring an affirmative or negative

response and the option to elaborate with additional information and opportunities to

indicate their involvement. Utmost care was taken with the design of the instrument to

ensure that the information gathered will be appropriate to answer the research

questions and to be reliable and truthful (Collis and Hussey, 2009).

The questionnaire (see Appendix A) was divided into five sections:

Section A: Biographical data

Section B: The business

Section C: SME definition and entrepreneurship

Section D: Financial data

Section E: Government regulations and legislation

The questionnaire was verified for applicability to the literature study by the supervisor

of this dissertation who is an entrepreneur, business expert and academic researcher.

3.5.2 Procedure for Data Collection: Case Study Protocol

Yin (2011:130) argued: “the researcher is the main research instrument” when

collecting data and an interview relied on a fixed questionnaire with explicit interview

protocols. Protocol indicates a “broader set of procedures and queries than the classic

instrument” (Yin, 2011:102). The researcher’s integrity, ethics, anticipations, and

viewpoint are unconditionally encompassed in the protocol.

The researcher informally observed and interviewed a number of SMEs during the

three-month period. A decision was made to distribute the questionnaires electronically

to SME owners for the first sample selection. The completed questionnaires were

numbered to ensure accuracy during capturing and were assessed, whereupon five

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were chosen as the case study respondents. The collection of data, by means of

interviews, occurred between August 2015 and September 2015 in the Izmir Province

of Turkey.

The data was collected in an ethical and practical style:

The researcher visited the SME prior to the day when the interview and

completion of the questionnaire took place. Each respondent received a letter

to clarify the context of the research and respondents were allowed to ask

questions

An appointment was scheduled at a suitable time for the SME owner

The interviews had to take place at the business at the time of day fitting the

daily activities of the SME owner (interviewee) and business activities with the

assistance of a Turkish interpreter

A fixed time (duration) could not be agreed upon as language challenges and

cultural preferences had to be taken into consideration

The researcher thanked the participant for willingness and cooperation

The interview commenced with “grand tour” questions as Yin (2011:137)

mentioned in Brenner (2006) to establish the role of the business owner and to

accommodate cultural sensitivity

The research problem and objectives were outlined as a brief introduction to the

interview

The researcher allowed each interviewee ample time to answer the questions.

Confidentiality and anonymity were confirmed and ethical standards were practiced

during the interview and research. Protocol was followed at all times and the procedure

was as follows: The researcher

Indicated under whose auspices the research is conducted

Explained the aim of the research

Explained who will benefit from the research

Presented the questionnaire

Ensured anonymity and confidentiality

Expressed appreciation

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The outcomes of the assessment were scrutinised to determine the critical success

factors, the reasons for failure of SMEs in SA and how the support systems in Turkey

contribute to SME’s success and economic growth.

3.5.3 Limitations and Challenges

“A limitation is a weakness or deficiency in the research” (Collis & Hussey, 2009:125).

Due to a language barrier between the researcher and respondents, the interviews

were not verbally (i.e. electronically) recorded and only recorded in written form. The

original research agenda aimed to record all interviews to validitate the data. However,

due to the language barrier, interviews were conducted over extended time frames.

Repeat visits to a business were arranged to accommodate the availability of the

respondents as most business owners are actively involved in their day-to-day

operations. Finally, due to the cooperative nature of the respondents, the data

gathered could be collated.

3.5.4 Population

Specific conditions and features determined if the population could be included in a

study. The targeted respondents for this study were SME owners in the Izmir Province

of Turkey and the Aegean Chamber of Commerce (Izmir) provided a list of small and

medium enterprises in the province.

3.5.5 Sampling

Researchers need to select a group of individuals or entities from the population, as

research cost would be too excessive to survey the whole population. Sampling

therefore pertains to the selection made and who will be the respondents to provide

information. According to Blaxter, Hughes and Tight (1998) as cited by (Neville, 2014),

probability sampling allows the researcher substantial control to select the method of

research and the sample representing a specific group or non-probability sampling

where the researcher has very little control over the selection or where the selection

will not influence the data. Table 3.2 summarises the probability and non-probability

aspects of sampling.

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Table 3.2: Sampling

PROBABILITY SAMPLING NON-PROBABILITY SAMPLING

Simple Random Sampling: selection at random by the researchers from a choice of subjects

Convenience Sampling: sampling those most convenient; those immediately available

Systematic Sampling: selecting by the researchers at numbered intervals, e.g. every one person in five in the target group)

Voluntary Sampling: the sample is self-selecting; they come forward voluntarily in response to an appeal

Stratified Sampling: sampling within particular sections of the target groups, e.g. you target a specific number of people based on the percentage of the total group that share the same characteristics

For example, in a study of an organisation that had 50 supervisors & 800 labourers, a 10% representative sample of this population would target 5 supervisors & 80 labourers to interview.

Purposive Sampling: enables you to use your judgement to choose people that are presented or are available that best meet your objectives or your target groups

‘Snowball’ Sampling: building up a sample through informants. You start with one person – who then suggests another & so on

Event Sampling: using the opportunity presented by a particular event, e.g. a conference, to make contacts

Cluster Sampling: surveying a particular cluster of the subject group

Time Sampling: recognising that different times or days of the week or year may be significant and sampling at these times or days

Source: Neville, (2014:29)

3.5.6 Case study Units of Analysis

“The unit of analysis is the phenomenon under study, about which data are collected

and analysed” and these units could be an individual, an event, an object, organisation

or even an aggregate (Collis & Hussey, 2009:115). Yin (2014) argues that the

researcher should keep the purpose of the study in mind during the selection process

of cases. The respondents as units of analysis for this study were purposively sampled

(non-probability): five small and medium sized enterprises were selected from the

province of Izmir, Turkey. The status of the SMEs were considered according to the

EU definition of a SME in sub-section 1.1.1, Table 1.1.

The units of analysis:

Doris Değirnenci from St John’s café and shop

Emine Bozdemir from Demir Medya

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Ali Kinaci from Central Anatolia Turkish handmade carpets and kilims

Neşe Şirin from The Shepherd’s House

Şain Köstek from Gingin Artemis Guesthouse

3.6 VALIDITY AND RELIABILITY

The research design focused on exclusion of errors and prejudice and therefore

included reliability procedures. Reliability signifies the absence of differences in the

research results when research will recur whereas validity reveals the degree of

correctness of the research results and a true reflection of the research topic (Collis &

Hussey, 2009).

Jackson II, et al. (2007) argued that trustworthiness in qualitative research is assessed

by means of transferability, credibility, dependability and confirmability whereas

quantitative research is assessed on validity, reliability and objectivity. The authors

furthermore claim aspects, such as “audit trails, stepwise replication and member-

checking” to authenticate trustworthiness so that the researcher does not imperil the

data analysis with personal restatements (2007:26). The researcher should at all times

approach a dissertation and data collection with impartiality, ethical assiduousness and

rigor.

3.6.1 Validity

All studies comprise a number of assertions that may or may not be valid. Validation

of assertions will contribute to the validity of the complete research study. Validity

pertains to the research results and the narrative itself (Yin, 2011). According to

Maxwell (1996:87) as cited by Yin (2011:79), validity concerns “the correctness or

credibility of a description, conclusion, explanation, interpretation, or other sort of

account”. Maxwell’s concise approaches for contesting threats to validity in qualitative

research are:

“Intensive long-term [field] involvement: to produce a complete and in-depth

understanding of field situations, including the opportunity to make repeated

observations and interviews;

“Rich” data: to cover fully the field observations and interviews with detailed and

varied data;

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Respondent validation: to obtain feedback from the people studied, to lessen

the misinterpretation of their self-reported behaviours and views;

Search for discrepant evidence and negative cases: to test rival or competing

explanations;

Triangulation: to collect converging evidence from different sources;

Quasi-statistics: to use actual numbers instead of adjectives, such as when

claiming something is “typical,” “rare,” or “prevalent”; and

Comparison: to compare explicitly the results across different settings, groups,

or events” (Maxwell 2009:244-245) cited by Yin (2011:79).

3.6.2 Reliability

Reliability is essentially appropriate when questionnaires are chosen to collect

quantitative data. As argued by Collis and Hussey (2009:204-206), there are three

ways to assess reliability of replies in research endeavours:

Test – retest: respondents are requested to answer the same question twice

and the more the replies are the same, the more reliable is the test;

Split-halves: the questionnaire is divided into two halves and a should be a

correlation between the two data sets;

Internal consistency: each item is connected across the sample to assess the

degree to which items present analogous results.

3.7 DATA ANALYSIS AND INTERPRETATION

According to Collis and Hussey (2009:165) the analysis of qualitative data is thought-

provoking and therefore the definition of content analysis as “a method by which

selected items of qualitative data are systematically converted to numerical data for

analysis”. “Data analysis consists of examining, categorising, tabulating, testing, or

otherwise recombining evidence, to produce empirically based findings” (Yin, 2014).

Yin (2014) specified five methods to consider for data analysis of case studies: pattern

matching, explanation building, time-series analysis, logic models, and cross-case

synthesis.

As argued by Yin (2014), it necessitates the actual analysis of a case of which the

researcher gathers the data as a direct consideration of the initial research propositions

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and consequently was the dependent variable identified as the ‘perceived success of

entrepreneurial ventures’ and the five independent variables, or theoretical

propositions. These independent variables could hypothetically influence the

dependent variable. The independent variables are ‘support systems, economic

growth, critical success factors, education and training, and entrepreneurship.

“Interpreting may be considered the craft of giving your own meaning to the

reassembled data and data arrays” (Yin, 2011:207). Statistical estimations assist as

conditions for the interpretation of the findings (Yin, 2014). The researcher’s approach

was to deliberate “completeness, fairness, empirical accuracy, value-adding and

credibility” (Yin, 2011:207).

Data from the questionnaires were ordered and verified for validity and reliability. A

Microsoft Excel spreadsheet, in the form of a data matrix, was utilised to assemble a

methodical set of records prior to when analysis of data could proceed. Certain fields

of the data, such as age, gender, qualifications and business sector, were codified

whereas the remaining responses were captured as continuous data.

An analysis of the data itself did not provide answers to the research questions

although it offered a prospect to identify inaccuracies and assemble the data

accordingly prior to the interpretation thereof. The full analysis, providing the results

of the questionnaires, was discussed in Chapter 4 and recommendations were made

in Chapter 5.

3.8 SUMMARY

This chapter included an overview of the research methodology, epistemology, and

methods, and included the design, type and classification of the research. The chapter

described the research instrument and the approach to data collection and analysis.

The case study research method was discussed in detail. The case study questions,

propositions and units of analysis were described. The process of data collection was

described and the importance of validity and reliability was expounded. The chapter

supplemented the purpose of the research as argued in chapter one.

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The next chapter will provide a brief description of each case study’s respondent and

will discuss the case study findings. A narrative description, graphs and tables will

present the findings from the semi-structured interviews. A summary of the research

methodology will be discussed. The findings will be presented by answering the

research questions and indicating if the research objectives were achieved. The

technique of pattern matching was employed to address the propositions. The findings

will include data from the interviews and the literature review to draw conclusions.

“No legitimate business man ever got started on the road

To permanent success by any other means than that of

Hard, intelligent work,

Coupled with an earned credit, plus character”.

– Timothy Dwight – an American academic and educator,

8th President of Yale College (1752 – 1817)

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CHAPTER 4

RESEARCH RESULTS AND ANALYSIS

4.1 INTRODUCTION

Chapter 1 stated the problem statement, research questions, research objectives, and

the propositions supposed to influence the dependent variable. The research problem

was identified as: SMEs in SA are facing failure and challenges to survive, as a

contributing concern to poor economic growth and high unemployment

statistics.

Chapter 3 discussed the research methodology including the case study method to

collect data, and described how the data will be connected to the propositions. The

dependent variable was stated as “perceived success of entrepreneurial ventures”.

The purpose of chapter 4 is to analyse the data from the questionnaires against the

literature review in chapter 2 and the propositions introduced in chapter 1. The

researcher analysed and interpreted the data with the following elements in mind:

“completeness, fairness, empirical accuracy, value-added, and credibility” (Yin,

2011:207).

4.2 ANALYSIS STRATEGY

According to Yin (1984: 23) as cited by Yin (2014: Chapter 1), “the case study research

method is ideal to study the phenomenon within its real-life context” and data collected

from the SMEs will be analysed and interpreted. A general analytic strategy was

followed to connect the case study data with the perceived success of SMEs by making

use of the pattern matching technique (Yin, 2014). Yin furthermore explains that

patterns “may be related to the dependent or the independent variables” in the case of

an exploratory case study. As explained by Yin (2014), pattern-matching techniques

improve and support the internal validity of the research and validates the propositions.

Meetings with the respondents were scheduled, interviews were conducted and the

questionnaires were completed. The researcher asked the questions with the aid of an

interpreter due to the language barrier. The results of the interviews are reported in

order to provide answers to the research questions and to achieve the research goals.

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Chapter 4 will present the empirical results focusing on the research questions 1 to 6

as offered in sub-section 1.2.2 and the research objectives in sub-section 1.4.

Figure 4.1 displays the alignment of the data to the propositions, which leads to the

conclusion of the research in chapter 5:

Figure 4.1: Propositions linked to data

4.3 PROFILES OF RESPONDENTS

The researcher decided the semi-structured interview would be appropriate as:

“It is essential to understand the respondent’s opinions and beliefs;

To develop an understanding of the respondent’s ‘world’ and situation;

It offers a step-by-step logic when the situation is not clear;

The subject matter might be commercially sensitive;

The respondent may be reluctant to be truthful about the issue” (Collis &

Hussey, 2009:144–145).

The respondents indicated an overall caution about confidentiality due to the political

unrest and religious sensitivity in the country. The researcher is committed to protect

sensitive information about the individuals and business operations.

Global SMEs

SMEs in Africa


An entrepreneurial development framework

for SMEs in SA

DEPENDENT VARIABLE:

Perceived success of

entrepreneurial ventures

Support

systems

Entrepreneurship

Education & training

Critical success factors

Economic growth

PROPOSITIONS

Economicgrowth

Alleviate poverty

Social stability

Wealth creation

Tax revenues

Empower-ment

Literature review

Semi-structured

interviews

78

Details (from Section A) about the demographics and background of each respondent

will be explained and displayed. The respondents were interviewed during August and

September 2015 in the Izmir Province, located in the Aegean region of Turkey as

illustrated in Figure 4.2.

Figure 4.2: Izmir Province, Turkey (Michelin, 2013)

4.3.1 Respondent 1:

Doris Değirnenci from St John’s café and shop

Doris is the co-owner of the business together with her husband. They started the

business in 2004. Doris emigrated from Switzerland to Turkey after she had married

her husband. The café and shop is located near the Ephesus museum and offers a

variety of coffees and Swiss inspired meals as well as gifts and souvenirs from the

ancient city of Ephesus. This little enterprise is a favourite meeting place for both local

Turks and tourists.

4.3.2 Respondent 2:

Emine Bozdemir from Demir Medya

Emine is a qualified and experienced journalist and manages the media business

together with her husband. Emine brought a wealth of experience after years of

journalism at a national newspaper in Istanbul. Emine’s husband is responsible for the

day-to-day operations and office management. The business issues a newspaper,

reports on events and offers various printing and editing services to the community.

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4.3.3 Respondent 3:

Ali Kinaçi from Central Anatolia Turkish handmade carpets and kilims

Ali is a second-generation businessman who joined the business after school when his

father fell ill. The business has existed for 29 years but Ali made radical changes to the

business model since he joined it nine years ago. His wife, a qualified accountant,

supports Ali but she is not involved in the business. They buy carpets from local

manufacturers and supply to retailers across Turkey. Ali is now ready to expand the

business and considers an export opportunity.

4.3.4 Respondent 4:

Neşe Şirin from The Shepherd’s House

Neşe is an energetic woman with years of experience in various fields of business. She

started the guest house with very little capital and offers accommodation to tourists,

volunteers and local visitors. She is involved with various community projects and

offers a wealth of historical information to guests at The Shepherd’s House. Neşe

encourages young working adults from abroad to spend a working holiday in her

business and these volunteers assist her to keep employee costs relatively low.

4.3.5 Respondent 5:

Şain Köstek from Gingin Artemis Guesthouse

Şain is the sole owner of the guesthouse and although he employs his family to

manage the day-to-day operations, it does not operate as a family business. The

guesthouse is situated near the St. John’s Basilica, a popular tourist attraction in

Selçuk. Şain has started various small and micro businesses in the past and has the

ability to identify opportunities. Student groups and backpacking guests are mainly the

guesthouse’s customers. Şain earns an additional income from his property by letting

it out to a church group for meetings.

The demographic details, indicating age group, gender, highest qualification and the

business sector are summarised in Table 4.1.

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Table 4.1: Background and demographic details

DETAIL RESPONDENT

1 2 3 4 5

Age group 56 + 46 - 55 18 – 35 46 - 55 36 – 45

Gender Female Female Male Female Male

Business sector

Food and beverage;

Wholesale & retail

Media and printing

Wholesale & retail

Services (guesthouse)

Services

(guesthouse)

Duration of the business’ existence

10 3 9 (29) 5 16

Highest qualification and training

Completed school;

qualification in hotel

management

Completed high school

and university degree

Completed Year 12 at school and

started university

studies but not completed

Completed Year 11 at

school. Enrolled at a college but

never completed

the first year

Completed Year 12 at

school

Respondents had a specific reason why the business was established and their

emotional attachment to the business was noticed. The responses are indicated in

Table 4.2.

Table 4.2: Reasons for starting a business

Respondent

1 2 3 4 5

Family tradition X

Unemployment X

Additional income X X

Provide work and income for family X X X

Inherited the business

Unhappy at previous work

I have entrepreneurial skills X X

I like challenges X

Other reason:

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4.3.6 Summary of respondent details

The respondents that were interviewed are SME owners in Turkey and specifically in

the Izmir Province. The personal details about each respondent offers background as

to the type of business and business sector. The respondents represent the various

age categories and no assumption can be made that age influences the operations or

success of the businesses. The respondents established the businesses for various

reasons and 60% indicated that employment and provision of an income encouraged

them to start a business. The respondents are either the owner or a co-owner of the

SME as well as a full-time employee.

4.4 STRUCTURE CONTENT ANALYSIS AND PRESENTATION

“Researchers categorise, tabulate, and recombine data to address the initial

propositions or purpose of the study” and therefore the propositions are linked to the

questionnaire, research questions and objectives (Yin, 2014: Chapter 2). The

descriptive data gathered from the respondents not only assists one to understand the

nature of the individual SME, but also offers insight into the support offered or needed

by the SME owner.

The primary research question, which was addressed in this study, is How to design

an entrepreneurial development framework to promote SME establishment and

stimulate economic growth in SA?

Table 4.3 displays the pattern matching technique and the links to the research

questions (RQ) and research objectives (RO) with the propositions (P):

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Table 4.3: Propositions and data alignment

PROPOSITION DATA

P1: SUPPORT SYSTEMS

RQ 1: How does the support system in Turkey contribute to the success of SMEs?

RQ 5: What is the extent and impact of support currently to SMEs in South Africa?

RO 1: To collect and analyse data on SMEs in Turkey

P2: ECONOMIC GROWTH

RQ 2: Why does South Africa need SMEs?

RO 2: To analyse the reasons why SMEs fail in South Africa

P3: CRITICAL SUCCESS FACTORS

RQ 3: Why is the failure rate of SMEs in South Africa extremely high?

RO 3: To determine why SA needs to establish and support SMEs

P4: EDUCATION & TRAINING

RQ 4: How could education and training contribute to the success of SMEs?

RO 4: To conduct an in-depth analysis of the current support system in South Africa

P5: ENTRE-PRENEURSHIP

RQ 6: How should the entrepreneurial development framework incorporate entrepreneurial attitude as performance measurement of SMEs?

RO 5: To embrace entrepreneurship in the proposed framework for the establishment of SMEs

4.4.1 Analysis of Section B: The Business

4.4.1.1 Support systems

The questionnaire included a number of organisations in Turkey as listed in sub-section

2.6.2. The respondents could indicate if they, on behalf of the SME, requested support,

received support or still benefit from one or more of these organisations:

One respondent applied for financial support but did not qualify as she has a

negative credit record;

One respondent was not interested in any support as he managed to finance

the SME from other sources;

Sixty percent of the respondents indicated the SMEs are benefitting from at least

two organisations offering support and guidance.

The respondents’ agreement or disagreement towards support during the foundation

of the business are summarised in Table 4.4.

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Table 4.4: Support during the foundation phase of business start-up

Respondent agree

Respondent disagree

1 2 3 4 5 1 2 3 4 5

I obtained investment capital easily X X X

I managed to obtain working capital X X X

I have the necessary accounting software X X X X X

Business planning skills are vital X X X X X

4.4.1.2 Membership in local or national bodies

Membership in either the chamber of commerce or a professional body is considered

a given. The respondents, with the exception of one, indicated 80% membership at the

local chamber of commerce and 40% are members of sectoral professional bodies as

indicated in Table 4.5.

4.4.1.3 Number of employees

SMEs are the ideal provider of employment and 100% of the respondents confirmed

their status as employer with the least number of four (4) individuals employed at the

time of the interview. Table 4.6 offers an overview of the employment categories.

Table 4.5: Membership

Respondent

1 2 3 4 5

Local Chamber of Commerce X X X X

Women’s Chamber of Commerce

Professional Body X X

Other

Table 4.6: Categories of employment

Respondent

1 2 3 4 5

1 – 5 X X X

6 – 20 X

21 – 49 X

50 >

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4.4.1.4 Summary of the structured content

The respondents’ attitude towards the government and the available support systems

that was evident during the interviews is either positive or quite negative. Even though

the SME owners do not benefit from all the support services, they are aware of them

and consider the system favourably. Overall, the respondents are positive and loyal

towards the local chambers of commerce and consider membership a given. The

number of individuals employed by the respondents is positive considering the

geographical areas and size of the towns. The respondents are traditionally more

conservative and choose to approach family members rather than government

initiatives for support. They agree about the necessity of business planning skills and

the necessary accounting software.

4.4.2 Analysis of Section C: Entrepreneurship

4.4.2.1 SME per definition

One hundred per cent of the respondents indicated that their businesses comply with

the definition of a SME according to the EU and Turkish legislation – see Table 2.3.

The annual turnover and number of employees are within the criteria of a SME.

4.4.2.2 Entrepreneurs in the family

According to the responses, eighty per cent of the respondents indicated that family

members are entrepreneurs and influenced or supported their businesses. ‘Family’

includes fathers, or both parents or one of their siblings. Respondent two stated that it

is her “personal drive and ambition” leading her to persevere and succeed in the

business.

4.4.2.3 School education and training

Sixty per cent of the respondents confirmed positively that school education helped

them to develop an entrepreneurial attitude whereas 40% disagreed with the

statement. The responses were unanimous about the positive guidance and

information received during school years. In general, all the respondents were honest

about their abilities and indicated the need for further education and training in

Table 4.7.

85

Table 4.7: Education and training needs

Respondent

1 2 3 4 5

Technical skills Needed X X

Financial management skills Needed X X

Leadership skills Needed X X

Information technology Needed X X X X

Marketing and selling Needed X X X

Management skills Needed X X

Risk management skills Needed X X X

Contract management skills Needed X X X

4.4.2.4 Starting a business

The semi-structured interviews gave the respondents the opportunity to reflect on their

commitment and they could have agreed or disagreed with specific aspects of the

business. The overwhelming positive response revealed the SME owners’ attitude and

an entrepreneurial aptitude. Agreement about their commitment to make the business

successful is displayed in Figure 4.3.

Figure 4.3: A display of the entrepreneurs’ commitment

0 1 2 3 4 5 6

My willingness to take risk

My involvement in business

Creativity and innovation

Financial knowledge and skills

Knowledge of competitors

Positive attitude and approach

Commitment to the business

Willing to make use of experts

Bookkeeping skills

Customer service

Networking skills

Number of Respondents

Enre

pre

neur's a

ttitude

Disagree Agree

86

The SME owners were consistently well-prepared to start the business and had the

necessary knowledge to establish a management system in the business. Respondent

four described regulatory challenges such as a “three months waiting period prior to

approval” from the mayor’s office and “many taxes on top of value-added tax” is a

burden to her business and profitability. Figure 4.4 shows that the majority SME owners

had the necessary systems ready to start the business.

Figure 4.4: Start-up systems

The respondents were generally oblivious about any challenge they might have

experienced during the start-up phase of their businesses. Operational issues, for

example cash flow, is more of a challenge to keep the business afloat than starting a

business. Respondent one argued the “political situation” in and around Ephesus and

the “devaluation of the local money” are main challenges to sustain their business. The

challenges experienced during the start-up of the business are reflected in Figure 4.5.

0 1 2 3 4 5 6

Bank account was opened and ready

Computer and necessary software

Email address and email signature

Website and internet connection

Registered for tax

Payroll account was opened

Registered with the Chamber of Commerce

Appointed an accounting / audit firm

Business plan approved for financing

SME owners

Ma

na

ge

me

nt syste

ms

Yes No

87

Figure 4.5: Challenges during start-up phase

4.4.2.5 Summary of Entrepreneurship

The questionnaire was designed to identify if entrepreneurial family members

influenced the SME owner or the business. Respondents recognised family members

who operate their own businesses but did not reflect that it could be positive or

negative. The nature of small businesses in Turkey is of such a kind that the shop

owners are considered friends. The respondents were 100% ready to start a business

concerning a) their bank accounts, b) e-mail communication, c) registration for tax, and

d) the appointment of an accounting or auditing firm.

There is consensus about the poor level of skills or lack of education of the workforce.

The respondents indicated a desire for training and education and specifically the need

for Information Technology as indicated by 80% of the respondents. The SME owners

are committed to contribute to the success of the venture and are willing to accept

advice and guidance from experts.

4.5 RESEARCH METHODOLOGY SUMMARY

The literature review was summarised in chapter 2. The literature study initiated the

concept of an entrepreneurial development framework for SMEs in South Africa to

assist with the achievement of the National Development Plan goals and economic

Regulations

Licences

Inadequately educated workforce

Starting the actual business

Purchasing power of customers

Administrative regulations

Roads

Communication technology

Political instability

Informal competition

Lack of support

Expensive labour

Lack of skills

Electricity

Gas

0 0.5 1 1.5 2 2.5 3 3.5

CH

ALLE

NG

ES

NUMBER OF RESPONDENTS

88

demands. The critical success factors and the necessity to establish a meaningful

system to support SMEs during start-up and during the first 42 months were identified

from the literature. The researcher argued the research problem as the SMEs in SA

are facing failure and challenges to survive, as a contributing concern to poor

economic growth and high unemployment statistics.

4.5.1 Pattern Matching

A questionnaire was designed to test the proposed propositions and to gather data

through semi-structured interviews. The interviews were considered units of analysis.

The interviews were conducted with selected the owners of small and medium

enterprises. The researcher asked additional questions to eliminate misunderstanding

of facts and answers. The translator repeated the questions in Turkish to the

interviewee to confirm a clear understanding. The researcher conducted the

interviews, documented the responses and subjected the data for validity. The

independent variables were established as benchmarks for the successful

establishment of new ventures.

The well-defined research questions and the research strategy corresponded with the

questions used in the interviews. The research instrument proved to be reliable. The

primary data reflected agreement in anticipated extents of the paradigm. The

structured data is aligned with the propositions and displayed in Table 4.3.

Figure 4.6 displays the connection between the dependent variable and independent

variables.

89

Figure 4.6: Perceived success of entrepreneurial ventures in relationship with independent

variables

4.5.2 Research Objectives

The primary objective of this research project, as introduced in chapter 1, was to

investigate SMEs and the critical success factors and subsequently to design an

entrepreneurial development framework for SMEs in South Africa. The primary

objective was buttressed by the secondary objectives, which were achieved and

described in Table 4.8.

INDEPENDENT

VARIABLES

DEPENDENT

VARIABLE

PROPOSITIONSQuestionnaire

questions

Support systemsB.9, 10; D.23;

E.24, 25

Economic growth

B.6, 7, 11;

C.12, 14, 15,

D.22; E.26

Risk of failure B.8; C.13, 19

Education &

trainingC.16, 17, 18

Entrepreneurship C.18, 20, 21

Perceived

success of

entrepreneurial

ventures

Positive

Positive

Positive

Positive

Positive

90

Table 4.8: Secondary research objectives achieved

OBJECTIVE ACHIEVEMENT

Objective 1: Data on successful SMEs in Turkey was collected, analysed and interpreted during semi-structured interviews

Objective 2: An in-depth literature review offered the possible reasons why SMEs fail in South Africa and the challenges SMEs are facing

Objective 3: The National Development Plan and Millennium Development Goals confirmed South Africa needs to establish and support SMEs to stimulate economic growth and work towards full employment

Objective 4: An in-depth analysis of the current support system in South Africa revealed the gaps and confirmed the necessity of an entrepreneurial development framework for SMEs in South Africa

Objective 5: The entrepreneurial attitude and responsibility of the SME owner was revealed and entrepreneurial aptitude will be included in the proposed framework for the establishment of SMEs in South Africa

4.5.3 Research Questions

The primary research question was formulated from the research problem: How to

design an entrepreneurial development framework to promote SME

establishment and stimulate economic growth in SA? The elements that the effect

the success of an entrepreneurial development framework in support of the SMEs in

South Africa, laid the foundation of the research problem. The high rate of failure of

SMEs and the meagre contribution to economic growth confirmed the gap in the

discourse.

The discourse addressed the factors that affect the success of entrepreneurial

ventures in South Africa. The case study provided answers to the research questions

as described in Table 4.9.

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Table 4.9: Secondary research questions solutions

QUESTION SOLUTIONS

Question 1: The study recognised the contribution from SMEs in Turkey towards economic growth as indicated in Figure 2.7. Turkey is positioned 17th in the economy. Sub-section 2.6.2 offers an overview of the support available to SMEs in Turkey.

Question 2: The study highlighted the economic position of South Africa as summarised in Table 2.4 and 2.5. With nearly 26%, SA has one of the highest unemployment rates in the world and SMEs are potentially the ideal employer in communities. Sub-section 2.2.2 explained the positive influence of entrepreneurship and SMEs in developing countries.

Question 3: Sub-section 2.4.2 emphasised the challenges faced by SMEs. Table 2.2 indicated 42.5% of SMEs exited business in 2012 as it was not profitable. Sub-section 2.5.2 offered an overview of current and previous support structures that highlighted inconsistency and incompetence.

Question 4: The data collected from questionnaires reflected in sub-section 4.4.2.3 that 60% of the respondents considered introduction to entrepreneurship at school as positive. Literature reviewed emphasised in sub-section 2.4.2 the political, social and technological challenges that effect education and training.

Question 5: The support systems, the effectiveness and challenges are highlighted in sub-section 2.5. Incentives are available but not successfully utilised. Sub-section 2.5.4 summarised the urgent need for effective support.

Question 6: Sub-section 2.2 highlighted entrepreneurship and the possible influence the entrepreneur can exercise on the economy. The entrepreneurial development framework proposed in chapter 5 emphasised the importance of an entrepreneurial aptitude to succeed.

4.6 SUMMARY

In this chapter, the empirical results of the data gathered were presented. Data was

collected by means of semi-structured interviews with five respondents and it was

interpreted and analysed. The chapter reflected on the reliability and validity of the

measuring instruments. Conclusions were drawn from the study to indicate the

achievement of research objectives and to provide answers to the research questions.

The findings addressed the propositions as it was set out in Chapter 1 and will be

discussed in Chapter 5. Chapter 4 confirmed in more than one-way that South Africa

needs an entrepreneurial development framework to establish ventures and to

stimulate economic growth.

92

Chapter 5 will conclude the research and offer a review of the research study. A

conclusion will be drawn based on the findings in the literature and empirical studies.

The findings will result in the entrepreneurial development framework for small and

medium enterprises in South Africa. The paper will close with recommendations for

future research studies.

The 20th century is the first in which substantial

And rapidly growing numbers of people have real choices

About how they will invest their time and talent…..

Most people are totally unprepared for it.

– Peter Drucker, Managing Oneself

93

CHAPTER 5

SUMMARY, CONCLUSION AND RECOMMENDATIONS

Nigerian Proverb –

Look for a dark goat first in the daytime because you may not find it at night

Interpreted Meaning –

Prioritise your goals and pursue them early before it is too late to achieve them

5.1 INTRODUCTION

The previous chapter presented the analysed results of the empirical study on various

aspects pertaining to small and medium enterprises. Aspects including support

systems, the possible effect of training and education on the SME, and the challenges

that can influence success were discussed. The descriptive data analysis endorsed a

clear understanding of the perceptions of the respondents and the possible barriers to

economic growth.

The primary objective of this research was to analyse small and medium enterprises in

Turkey and their critical success factors and subsequently to design an entrepreneurial

development framework for small and medium enterprises in South Africa. What I found

was that SMEs are globally the potential engines of economic growth, that all SMEs face

challenges during the start-up phase and that the government has the responsibility to

establish and implement a meaningful support system to assist these small business

ventures.

Chapter 5 highlights the implications of the research findings and offers suggestions

for future studies. The outcome of the study results in the presentation of an

entrepreneurial development framework for SMEs in South Africa and

recommendation of strategies for the implementation of the framework.

5.2 REVIEW OF THE RESEARCH

The case study research was concerned with the reason why SMEs in South Africa

fail and set out with the primary research objective of investigating SMEs and

identifying the critical success factors that has been presented in Chapter 1. The case

94

study analysis is constructed on the propositions, which resulted in the research

objectives, research questions and literature review.

Section 4.5 summarised the achievements of the research objectives and the

satisfactory resolution of the research questions. An assessment of the achievement

of the study depends on the degree to which the propositions have been addressed.

The review of literature was presented in Chapter 2 and the determinants influencing

the success of entrepreneurial ventures were identified and tested.

5.2.1 Research Propositions

The dependent variable was identified as “the perceived success of entrepreneurial

ventures”. The following independent variables were recognised: support systems,

economic growth, critical success factors, education and training, and

entrepreneurship. The connection between the variables was tested by means of the

semi-structured interviews – as data collection method – and the respondents’ answers

to the questions. Chapter 5 addresses the research question 6 and research objective

5. The following section addresses the propositions including the interpretations and

recommendations. A summary of the results and the suppositions are presented in

relation to the five propositions investigated in the entrepreneurial development

framework for SMEs.

5.2.1.1 The relationship between the enterprise development support system

and the perceived success of entrepreneurial ventures

Enterprise development support systems have a positive impact on the perceived

success of entrepreneurial ventures. The literature review indicated that the

government of Turkey recognises the value added by the SMEs to the economy and

are committed with various organisations in collaboration with the financial institutions.

The organisations and banks support, guide, motivate and finance small and medium

enterprises. The findings showed that the respondents are aware of the available

support systems although they are not utilising all the benefits of the system. The

respondents are loyal towards and members of the local chambers of commerce and

other professional bodies. Only one of the respondents indicated no interest in any

membership or the need to seek assistance for the enterprise. The literature review

expounded on the challenges faced by SMEs (sub-section 2.4.2) and the

95

incompetence of the current support structures (sub-section 2.5.2). The extent of

support available to SMEs was evident in the data collected – in answer to research

question 1 and 5 and in the achievement of research objective 1.

Consequently, it was ascertained during the case study that there is a positive

relationship between a meaningful enterprise development support system and the

perceived success of entrepreneurial ventures in South Africa.

5.2.1.2 The relationship between economic growth and the perceived success

of entrepreneurial ventures

South Africa needs SMEs to stimulate economic growth and the findings revealed the

indispensable contributions from small and micro enterprises towards the global

economy. Table 2.5 described the key indicators between Turkey and South Africa and

the literature review recognised Turkey in the 17th position of Gross Domestic Products

(GDP), based on the economic success of the SMEs. Successful entrepreneurial

ventures will create jobs and alleviate poverty, as part of the National Development

Plan’s goals. SMEs in South Africa often fail to survive or grow economically due to

the lack of support and guidance. The research problem in chapter one claimed why

South Africa need to establish and support SMEs. SMEs in Africa, especially in Nigeria,

and in the USA, the EU and other developing countries demonstrated economic

growth, job creation, and alleviation of poverty by means of enterprise development.

The high unemployment rate in South Africa burdens the national budget and the

establishment of SMEs will create jobs and will bring relief to the heavy tax burden

caused by the nearly 16 million recipients of social grants. This proposition addressed

and solved research question 2 and research objective 3.


relationship between economic growth and the perceived success of entrepreneurial

ventures in South Africa.

5.2.1.3 The relationship between critical success factors and the perceived

success of entrepreneurial ventures

The respondents agreed by 80 per cent that it is easy to start a business in Turkey.

The findings indicated that 80 per cent of the respondents agreed on the availability

96

and sufficiency of support structures to assist enterprises and 100 per cent agreed that

entrepreneurs are job creators. However, the literature review (section 2.4) described

the lack of support and various challenges faced by SMEs in South Africa to start a

business, to obtain financing, or to expand a business. The respondents accepted the

responsibility and commitment prior to the start-up of their enterprises: 60 per cent had

established all of the necessary operations systems, 20 per cent was 78 per cent ready

and the remaining 20 per cent indicated 67 per cent readiness. The respondents could

obtain all the requirements and assistance from their local chambers of commerce and

other government institutions. The notion, therefore, is that entrepreneurs and potential

venture owners need to accept the responsibility, utilise available support, and invest

their own time and resources. Additionally, failure cannot only be blamed on the

government as testified by surviving and successful enterprises. Performance

measurement of critical success factors will highlight areas of concern and actions can

be taken to reduce the rate of SME failure. An entrepreneurial development framework

for SMEs will include the CSFs as discussed in section 2.3. This proposition addressed

and solved research question 3 and research objective 2.


relationship between critical success factors and the perceived success of

entrepreneurial ventures in South Africa.

5.2.1.4 The relationship between education and training and the perceived

success of entrepreneurial ventures

The findings proved that 60 per cent of the respondents agreed that school education

prepared them in some ways to develop entrepreneurial skills. All the respondents

agreed that education and training are necessary to develop an entrepreneurial

attitude and manage a business. Sixty per cent of the respondents indicated

challenges pertaining to an uneducated workforce and 60 per cent agreed about the

high cost of labour. The literature review highlighted the facts that education and the

lack of training in South Africa are barriers to success. Political issues, economic

implications and social structures currently contribute to the poor relationship and

perceived success of entrepreneurial ventures. The vital part of the training

programmes at all levels of education needs to broaden knowledge, stimulate

creativity, and the enthusiasm to take initiative. Education and training will include the

97

promotion of research and development, technological initiatives and innovation. This

proposition addressed and solved research question 4 and research objective 4.


relationship between education and training and the perceived success of

entrepreneurial ventures in South Africa.

5.2.1.5 The relationship between entrepreneurship and the perceived success

of entrepreneurial ventures

The establishment of small and medium enterprises are the result of an entrepreneur’s

initiative, creativity or innovative thoughts. Therefore, the success of entrepreneurial

ventures cannot be measured without a clear expectation of entrepreneurship and the

influence of entrepreneurship on the economy. The attitude and preparedness of the

respondents were observed during the semi-structured interviews. The commitment

of the SME owner is shown in Figure 4.3. The reason why the respondents decided to

start a business is displayed in Table 4.2. The respondents indicated how little support

was needed with the start-up of their ventures in Table 4.4. The general attitude

displayed by the respondents during the interviews was positive about the challenges,

loyal towards the government, and eager to build their own capacity. The

implementation of an entrepreneurial development framework will include a test to

measure entrepreneurial aptitude. The entrepreneurial development framework will

therefore focus more on aptitude as criteria for financial assistance than only the

submission of a well-constructed business plan. This proposition addressed and

solved research question 6 and research objective 5.


relationship between entrepreneurship and the perceived success of entrepreneurial

ventures in South Africa.

5.2.2 Attitudes of the respondents

I am grateful towards the respondents who allowed me to enter their businesses, to

spend time with them and gather the data from them. It took some time with each

respondent to build trust and to understand what the nature of the research project

was. It was not only when I indicated a real interest in the business, but also when I

98

engaged with family members and showed respect for their cultural and religious

differences. My best wishes accompany them and I trust they will continue to create

jobs and to make a difference in their communities.

The respondents showed a clear loyalty towards their government and cultural

backgrounds. It was clear that each respondent had a unique motivation to start a

business: varying from a desperate need to provide for a family, or unemployment and

social despair, or to continue with a family tradition. The respondents demonstrated

warm Turkish hospitality at all times by offering the traditional tea-drinking habit and

spontaneous invitations to join the family for meals.

5.2.3 Limitations

“A limitation is a weakness or deficiency in the research”, according to Collis and

Hussey (2009:125). Limitations are firstly mentioned in a discourse to recognise the

possible problems upon which the researcher could resolve the problem or to accept

the problem in the research environment or secondly to offer a warning to address the

problem (Collis & Hussey, 2009).

This analysis has focused on small and medium enterprises: either why they are

successful and how they manage challenges or why SMEs fail. I should clarify that I

have deliberately not interviewed the various enterprise development organisations in

South Africa, as I have intended to collect statistical data and not biased opinions.

The following noticable limitations of the research study were acknowledged:

The research instrument: time limitations did not allow a proper translation of

the instrument to Turkish and I depended on a translator to interpret the answers

from the enterprise owners.

Sample size: five units of analysis allowed an adequate collection of data

whereas a larger sample could have increased the cogency of the discourse.

Population: I have decided to obtain details about potential units of analysis from

the regional and local chambers of commerce that excluded SMEs that are

operational but not registered.

99

“Entrepreneurs are the economic DNA which we need to build competitiveness and

innovation in Europe”

– Günter Verheugen

European Commission Vice-President, responsible for Enterprise and Industry

5.3 PERCEIVED SUCCESS OF ENTREPRENEURIAL VENTURES

The research study found that the perceived success of entrepreneurial ventures in

South Africa has the positively influencing aspects namely support systems, economic

growth, critical success factors, education and training, and entrepreneurship. These

aspects are critical to develop and implement an entrepreneurial development

framework for small and medium enterprises in South Africa. The research effort

established a demand for a new framework to stimulate economic growth and also to

ensure sustainable economic development and prosperity in South Africa. Figure 5.1

illustrates the suggested framework based on the research outcomes. The framework

is the much-needed driver to transform words into action.

Figure 5.1: An entrepreneurial development framework for SMEs in SA

An entrepreneurial development framework for SMEs

Develop and implement an

entrepreneurial development framework;

Establish effective

support system

Amend policies: legislation more

SME-friendly, less and better

legislation; Access to financing

Increase level of awareness among local business and

new enterprises;

Public & private

partnerships

Include the promotion of

entrepreneurship at all levels of

education systems;

Generate more entrepreneurial

attitudes

Boost SME's research and innovation; Boost Micro

and Craft enterprises

To ensure sustainable economic development and

prosperity of South Africa

100

Why does South Africa need small and medium enterprises? These enterprises will:

Ensure economic growth: SMEs are the engines of growth

Ensure job opportunities: self-employment and job creation

Increase wealth and prosperity for communities

Expand the tax base to better serve citizens and support education

Improve quality of life by increasing the standard of living

How will South Africa promote such a development framework? In order to meet the

perceived demand for a development framework, the researcher proposes that a

strategic partnership between the government, the formal and informal business

sector, the unions, entrepreneurs, non-governmental organisations and normal,

everyday citizens needs to be established.

The government has the responsibility to facilitate greater equalisation of income,

wealth and economic opportunities. Full employment is one of the macroeconomic

goals, and the government benefits directly from the establishment of small and

medium enterprises. The formalisation and promotion of small business will reduce

informal and black-market activities and social stability is a major benefit of economic

growth. The nearly 16 million recipients of social grants causes a massive tax burden

on the 5 million taxpayers, as reported in chapter 1, and the establishment of SMEs

can ease the burden and expand the current tax base. The Department of Trade and

Industry has the obligation to build the capacity of all employees offering advice and

guidance to entrepreneurs and business owners. Mentorship programmes will

encourage entrepreneurs and motivate them to implement best practices.

The larger companies in South Africa will benefit when successful small enterprises

are established. SMEs can supply products and services locally, which will reduce

costs to the companies. SMEs in the immediate towns or regions can provide

knowledge of resources, supply patterns and purchasing trends. The SME is also a

source of innovation and re-engineering of products and services. The successful SME

can contribute to the larger company’s Broad-based Black Economic Empowerment

(BBBEE) demand and create a win-win situation for both parties.

101

The local communities will benefit greatly as SMEs will employ locally from the

community and especially individuals with lower skill levels. The SME can provide

products and services tailored to the local needs and can adjust more easily to local

market fluctuations. Self-employment and employment will build the self-esteem of

people and will reduce crime and violence – which are major barriers to small business.

The local business owner is more likely to be involved with immediate community “do-

good” projects.

“No political democracy can survive and flourish if the mass of our people remain in

poverty, without land, without tangible prospects for a better life. Attacking poverty and

deprivation must therefore be the first priority of a democratic government” a statement

from the Reconciliation and Development Programme (RDP) of 1994 (National

Planning Commission, 2013:24). Now is the time to move on from failed policies or

practices such as the Reconciliation and Development Programme and to embrace

the National Development Plan – which is a worthy policy document – and to meet

sooner than later with representatives from all levels of society (as suggested with a

strategic partnership).

The development of an implementation plan to include an entrepreneurial development

framework for SMEs would be a key driver to achieve the goals of economic growth

and job creation as set in the NDP (National Planning Commission, 2013).

“It is competition that gets companies to invest in knowledge and innovation and forces

them to stay fit, efficient and effective.”

– Neelie Kroes

European Commissioner responsible for Competition

5.4 SUGGESTIONS FOR FUTURE RESEARCH

This study suggests the prospect for future research is vested within the reported

findings for the perceived success of entrepreneurial ventures in South Africa. The

small, medium and micro enterprises are a struggling sector and further research is

inevitable to stimulate economic growth and to brace ourselves for any global

economic crises. Entrepreneurship is a precondition for any business and small

102

business has the “capacity to be a dynamic, transformational force” and to spur

economy-wide efficiency, innovation, growth and poverty alleviation (SBP, 2013).

The following are some suggestions for future research:

Further research to address the quality of the education system, the quality of

mathematics and science, and the quality of skills development at tertiary

institutions.

Research to investigate ‘red tape’ referring to labour and other mandatory

regulations, municipal issues, time it takes to register a business, and

inefficiencies in the South African Revenue Services (SARS).

Research to assess the effectiveness of the current economic development

support system and to assess the competencies of support staff that assist

entrepreneurs and small business owners.

Research to monitor the achievement of goals as stipulated in the National Skills

Development Act of 1998 as skills shortages are still a barrier to small

businesses.

Research to develop, implement and share best practices.

Research to create a strong awareness and a culture of entrepreneurship:

corporate careers are still more desirable in the South African society.

5.5 CONCLUSION

The objective of the research dissertation was to develop an entrepreneurial

development framework for small and medium enterprises in South Africa. The

research provided a valued understanding into the unique South African business

environment and encouraged me to embrace cultural challenges. A literature and

empirical study provided valid and reliable information and the opportunity to analyse

the insights from business owners. The empirical findings and insights gained were

organised, interpreted and analysed according to the propositions.

Recommendations were made based on the research results. The results emphasised

that the establishment of small and medium enterprises are much more than only

economic development. Or job creation. Or creating an income. Small and medium

enterprises are engines of growth.

103

“Our future – make it work. South Africa belongs to all its people and the future of our

country is our collective future. Making it work is our collective responsibility. All South

Africans seek a better future for themselves and their children”, a reflection from Trevor

Manuel as former Chairperson of the National Planning Commission (National

Planning Commission, 2013: 1).

"The person who says it cannot be done should not interrupt the person who is

doing it."

– Chinese proverb

104

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APPENDIX A:

QUESTIONNAIRE

Interview Questionnaire Administrator: Christa Pyper

The purpose of this questionnaire is to collect information on successful small and medium

size businesses (SMEs) in Turkey. The results will be used to develop an exemplary framework

to establish SMEs in South Africa.

Your input and answers will help us to analyse business success in Turkey and to evaluate the

current model in South Africa and to improve the future establishment of small businesses. All

answers and information will remain anonymous and no information will be shared with another

business.

Thank you for your cooperation! İşbirliğiniz için teşekkür ederiz!

SECTION A: BIOGRAPHICAL DATA

1. Your full name and age

Name and

surname

Age 18 – 35 36 – 45 46 - 55 56 +

2. Please indicate your gender:

Male Female

3. Name of the business and sector

Name of business

Sales Services Manufacturing Construction

Consulting Training Education Farming

Real estate &

renting

Health & social

work

Wholesale &

retail

Transport &

storage

Other:

4. Duration of the business’ existence

years

5. My highest qualification and the training received before I started the business:

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SECTION B: THE BUSINESS

6. Reasons for starting your business:

Family tradition

Unemployment

Additional income

Provide work and income for family

Inherited the business

Unhappy at previous work

I have entrepreneurial skills

I like challenges

Other reason:

7. What was the first business you started and when?

8. Since you started this business, has there been challenges to sustain the business? If

yes, please list them.

9. Support during establishment of the business:

I asked for support, received support or still enjoy the support from:

Government Chamber of

commerce Local bank

KOSGEB

Small and medium enterprise

development organisation

SİNERJİTÜRK

Etkin İş ve Güç Birliği

Vakfı

TOBB The Union of

Chambers &

Commodity

Exchanges of Turkey

TOSYOV

Turkish Foundation for Small

and Medium Business

TTGV

Technology

Development

Foundation of Turkey

TUBITAK

Scientific and

Technical Research

Council of Turkey

TEPEV KAGİDER

KGF

The Credit Guarantee

Fund

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10. Membership

I applied for membership and still enjoy the benefits from:

Local

chamber of

commerce

Women’s

chamber

Professional

body

Other

Please specify other

11. Number of employees in your business:

1 – 5 6 – 20 21 – 49 50 <

SECTION C: SME DEFINITION AND ENTREPRENEURSHIP:

For the purpose of this document dynamic small and medium enterprises (SMEs) are

defined as a particular subset of SMEs: they have 5-50 employees, a turnover less than

Euro 10 million and they are positively ambitious for growth.

12. Does your business comply with the above definition of an SME?

Yes No

If you answered yes to the above question please proceed with the questionnaire.

The rest of the questions are optional but your contribution will be appreciated and will

contribute to the success of the research:

13. What drives you to be successful?

14. Are any family members entrepreneurs? If yes, please describe.

Yes No

15. Did you work for a similar business before starting your own business?

Yes No

16. School education helped me to develop an entrepreneurial attitude

Agree Disagree

17. Would you prefer being mentored from an experienced business mentor?

Yes No

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18. Below are statements about starting your own business. Please indicate your opinion by

circling your answer. There are no right or wrong answers.

SA = Strongly agree A = Agree U = Undecided

D = Disagree SD = Strongly disagree

STARTING A BUSINESS:

It is easy to start a new business in Turkey SA A U D SD

There is sufficient support for entrepreneurs SA A U D SD

Local manufacturing costs are to my advantage SA A U D SD

Low operating costs are to my advantage SA A U D SD

Entrepreneurs are job creators SA A U D SD

I would like to expand my current business SA A U D SD

I will encourage any person to start their own business SA A U D SD

Training on simple procedures for business start-up is

necessary

SA A U D SD

SUPPORT DURING FOUNDATION PHASE:

I obtained investment capital easily Agree Disagree

I managed to obtain working capital Agree Disagree

I have the necessary accounting software Agree Disagree

Business planning skills are vital Agree Disagree

EDUCATION & TRAINING

Technical skills Received Needed

Financial management skills Received Needed

Leadership skills Received Needed

Information technology Received Needed

Marketing and selling Received Needed

Management skills Received Needed

Risk management skills Received Needed

Contract management skills Received Needed

19. Indicate the challenges around establishing your business with regard to the categories

below:

Regulations Licences

Registering for tax and tax rates Political instability

Access to finance Informal competition

Inadequately educated workforce Lack of support

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Starting the actual business Getting credit

Dealing with construction permits Enforcing contracts

Purchasing power of customers Expensive labour

Administrative regulations Lack of skills

Infrastructure:

Roads Electricity

Communication technology Gas

20. My commitment to the business will contribute to the success of the business:

My willingness to take risk Agree Disagree

My involvement in business Agree Disagree

Creativity and innovation Agree Disagree

Financial knowledge and skills Agree Disagree

Knowledge of competitors Agree Disagree

Positive attitude and approach Agree Disagree

Commitment to the business Agree Disagree

Willing to make use of experts Agree Disagree

Bookkeeping skills Agree Disagree

Customer service Agree Disagree

Networking skills Agree Disagree

21. The following structures were in place before I opened the doors to my business:

Bank account was opened and ready Yes No

Computer and necessary software Yes No

Email address and email signature Yes No

Website and internet connection Yes No

Registered for tax Yes No

Payroll account was opened Yes No

Registered with the Chamber of Commerce Yes No

Appointed an accounting / audit firm Yes No

Business plan approved for financing Yes No

SECTION D: FINANCE

22. Was the initial start-up capital from owner/s?

Yes No

118

23. Did your business have any other initial capital, besides the owners’ contribution? If yes,

please discuss.

Yes No

SECTION E: GOVERNMENT REGULATIONS AND LEGISLATION

24. How many days did it take to register your new business:

1 – 6 7 – 15 16 – 30 31 – 60

25. When you first started your business did you understand all the requirements for

establishing a business? Please describe some of the frustrations:

Yes No

26. How much did the registration of the business cost you?

When you have completed the questionnaire, please send it back by email to:

[email protected] or alternatively contact me to collect it from you.

Thank you for your kind participation in this interview.

Bu röportajda tür Katılımınız için teşekkür ederiz.

mailto:[email protected]