Suleyeman Final
Suleyeman Final
Suleyeman Final
BY:
SULEYMAN TSEGAW
ID No: TCED/ 048/13
ADVISOR
BIZUAYEHU AMBAYE (PhD Candidate)
APRIL, 2022
DESSIE, ETHIOPIA
TABLE OF CONTENTS
Contents
TABLE OF CONTENTS ...........................................................................................................ii
2.5.4. Provide the basis for medium and large scale enterprises ...................................... 26
2.5.7. MSE support service provided by city government of Addis Ababa MSE ............ 27
iii
3.8.1 Descriptive Analysis ................................................................................................ 34
BUDGET ................................................................................................................................. 39
REFERENCE ........................................................................................................................... 40
iv
LIST OF TABLES
Table 3-1: Total Target population of the study ..................................................................... 31
Table 3-2 : Sample size selections under each stratum .......................................................... 33
LIST OF FIGURES
v
LIST OF ACRONYMS
BDS Business Development Service
UN United Nations
vi
CHAPTER ONE: INTRODUCTION
1.0 Introduction
This chapter discusses and presents an introduction to the study which includes background
of the study, statement of the problem, the basic research questions and intended objectives,
significance of the study, scope of the study and limitations of the study, operational
definition of terms and organization of the study
Furthe rmore; promoting this sector has inevitable contribution in reducing poverty in general
Growth and Transformational Plan(GTP) in particular. Micro and small enterprise have
been performing under capacity and their growth has been severely constrained by number
of factors like lack of market, financial business information; lack of business premise;
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low ability to acquire skill and managerial expertise; low access appropriate technology and
poor access to quality business infrastructure(FRDoLoc,2013). The Micro and Small
Enterprises sector is identified as a tool in bringing about economic transition by efficiently
using the skill and talent of the people with out requesting high-level training, much capital
and sophisticated technology ,(Wolde&Geta,2015). The sector is also described as the
national home of entrepreneurship, they are the primary vehicles by which new entrepreneurs
provide the economy with acontinuous supply of ideas, skills ,and innovations,
(Katua,2014).It provides the ideal setting, enabling entrepreneurs to exercise their talents
to the full and attain their goals. In all the successful economy, they have seen as an
indispensable spring board for growth, job creation, and social development at large.
The MSE also seen as an important force to generate employment and more impartial income
distribution, to activate competition, exploit niche markets, increase productivity and
technical change, and through all of these stimulate economic advancement. In a cross-
section of both developed and developing economies, the contribution of the MSE sector to
total employment ,entrepreneurship ,and innovation can not be under valued. As indicated in
the concept not eprepared for EU104 session of the international conference by ILO, June
2015, in the OECD countries MSE represents more than 95 percent of all firms and account
for around 46 percent of total employment. In the EU, legally registered micro and small
enterprises contribute to about 50 percent of total employment.
For example, this sector generates about 6.2 percent of the aggregate employment in the
United States ,22.3 percent in China, about 80 percent in India, 67 percent in Japan and
about 70 percent in EU countries (Carter and Jones-Evans ,2004).To further comprehend
the social and economic importance of micro and small enterprises, one UN study indicated
that the sector represented 99 percent of all enterprises and provided around 65 million
jobs in EU countries (UNCTD,2001).
From the stand point of developing countries, MSE have a number of rewards that make
them attractive in hastening economic development .Firstly, because MSE are fairly labor
intensive, employment opportunities generated with a relatively low capital cost, a factor
with limited supply in many developing nations. Then, they apply raw materials and labor-
intensive technology that are locally available. Thirdly, policies and programs can put in
place to encourage the development of these industries in different parts of the country there
by reducing concentration of enterprises in certain areas and promoting balanced economic
growth.
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As per UNDP study conducted on 2015 SMEs are widely recognized to contribute towards
promotion and development of inventions, and there by generate employment opportunities
for developing countries. With in the Ethiopian context, despite the potential contribution of
the MSE to poverty reduction and employment creation is widely recognized, the
Government until very recently will be extended adequate support to the development of the
sector.Recent research work by(Anteneh,2017) indicated that in Ethiopia there has not
been an independent assessment of the contribution of the MSE development strategy to
poverty reduction, job creation and business growth either at the federal or regional levels to
date. MSEs are particularly important in the context of the country‟s poverty reduction
strategy because they are seed bed for the development of medium and large enterprises
,and because they absorb agriculturally under-employed labor, and diversify the sources
of income for farming families.
Dessie city is one of areas in Amhara National Regional state as capital for South Wollo
Zone administration ,it faced many problem related to MSEs.The evidence of 2021 /2022
annual report of MSEs indicated and also my obeservastion.Such an understanding of the
pre requisites for town MSEs to perform well in their businesses is critical importance
especially intoday‟s competitive environment. Thus, this paper will tries to assess the
different policy, financial and operational determinant factors affecting MSE growth in
Dessie by assessing the key MSE‟s performance factors of some selected enterprises who
are working in Segno Gebeya,Arada and Bwanbawa wuha sub-Cities in Dessie
Administration.
Recognizing the expansion behaviours of MSEs is quite heterogeneous. The basic aspire to
comprise this research is to recognize and examine factors that affect the growth of MSEs. In
this survey growth of MSEs was measured with sale and accessibility of external business
environment. And major issues were recognized that control growth of MSEs.
Despite a strong empirical support for investigating the Factors Affecting Performance of
Micro and Small Enterprises in developing countries (Mohammed, 2021),), researches on
this area in Ethiopian context are scanty. To the best of the researcher knowledge, no
previous researches have been directly addressed the factors affecting the Performance of
Micro and Small Enterprises in the Ethiopia in general and in Dessie city in particular.
Therefore, this study attempt to partially feel this empirical research gap in Ethiopian context
by identifying factors affecting Performance of Micro and Small Enterprises in Dessie city
administration.
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1.2 Statement of the Problem
Micro and Small Enterprises Sectors contribute to economy development of nations by
creating employment opportunities, production of goods and services and other value added
activities. Micro & Small Enterprises caught the attention of development practitioners and
policy makers recently not only because of its importance in terms of generating employment
also because of various other attributes. Some of these are: Micro and Small Enterprises are
breeding ground for entrepreneurs, the sector has high employment generating capacity, and
is less capital intensive and it is highly competitive, flexible, and innovative (Anteneh,2017).
Even though, the number of MSE increasing in an increasing rate, the status of their
operation remained low.
According to Anteneh (2017), Majority of MSE operators rated infrastructure access has
not been improved and hugely affecting their performance; getting working premises is
still a time consuming and challenging task for them. Credit access for MSEs is limited;
institution involved in providing loan are also limited.
Dessie city has several Micro and Small Scale Enterprise that organize their business
under MSEs Development program manufacturing, construction, service, trade and urban
agriculture before 2015 still most of enterprises were remain at micro and small
enterprise.
Additionally MSEs in particular have still remained relatively little in its job creation to
other sectors in town administration economy. These show as there is internal and
external factors that affects their performance (Dessie city MSEs Office annual report
2019/2020) and also my observations. Such an understanding of the pre-requisites for
town MSEs to perform well in their businesses is critical importance especially in today‟s
competitive environment.
Thus, this research will try to fill the gap which was not addressed by previous
researchers by taking in to account the registration procedures of business enterprises, not
qualities of one stop shop centre service delivery , market linkage, and access to training
4
facilities, not advantageous location , high rate interest rate , collateral security that
improve the performance MSEs.
Understanding of why some firms succeed and others not is crucial to the stability and health
of the economy. Despite this fact, however, which factors are the most important to the
success of MSEs sector in Ethiopian has not been adequately studied empirically. So this
study will try to assess selected success or failure factors with the performance of Micro and
Small Business Enterprises in Dessie Town.
5
1.5 Hypothesis of the study
With the help of sufficient and appropriate empirical data on the factors affecting the
performance of MSEs, this study will test the following hypothesis:
: The business environments of Ethiopia aimed at MSE development do affect the
performance of MSEs in the selected manufacturing sector of Seghnoge, Arada and
Bonebowa wuaha sub-cities
: The business environments of Ethiopia aimed at MSE development do not affect the
performance of MSEs in the selected manufacturing sector of Seghnoge Arada and
Bonebowa wuaha sub-cities
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those will not part of this study. The instruments will be developed by the researcher based
on the literature & limited to descriptive statistics which needs more statistical tests in order
to establish a more robust validity and reliability. Thus the instruments could be further fined
to more closely capture each of the problem areas identified in the literature. Replication of
this study using larger samples broader geographic, longitudinal wide study is suggested for
cross-validation purpose.
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CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.0- Introduction
At this chapter, the researcher reviewed some theoretical and empirical work on Micro and
Small Scale Enterprises, which has received a great deal of attention in contemporary
development literature and national plans of developing countries. This is because, It has
been realized that most countries have programs to develop this sector of the economy since
it is believed that this sector is the engine of growth for every economy and especially in all
developing countries like Ethiopia. Further to this, there will be some conceptual works,
which will be using to support the study
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sector is believed to be able to fill the gap that exists between the poor and the rich
indeveloping countries regarding income generation and, unemployment rate. Successful
small businesses are the primary engines for economic development such as income growth
and poverty reduction in many of the developing countries. These businesses can also
build foundation for stable communities and gendere quality. Reviews of studies in the
area also confirm that the contributions of MSEs have long be enrecognized all over the
globe. The study by A.Nyangor(2010) indicates that Micro and small enterprises are a major
source of entrepreneurial skills, innovation and employment.
In the enlarged European Union of 25 countries, some 23 million MSEs provide around 75
million jobs and represent 99% of all enterprises. MSEs as the main source of employment in
developed and developing countries nearly alike, comprising over 90% of African business
operations and contributing to over 50% of African employment
As stated by MoUDC (2013), small enterprises along with medium are major derivers of both
employment and economic growth contributing to more than 50% to GDP and 60% to
employment indeveloped economies. These types of enterprises, however, constitute less
than 30% of employment and 17% of GDP indeveloping countries. Hence, it is possible to
under line that Micro and Small enterprises play significant roles in the creations of
employment opportunities and contribution to growth of GDP indeveloping and developed
countries.
LaManchaSims(2013) stated in general sense that marketing helps increase sales. If you
have done you rmarketing right, chances are that any potential clients would be able to
instantly recognize your branding efforts, separating your company from your
competitors and increasing the likelihood for them to become a future client or make a
purchase. At this point, your clients can also become apart of your marketing campaign by
writing positive comments about your company and its services or products on social media
as well as recommending your company to friend‟s relatives and other business associates
and you may see the sales increasing exponentially as word spreads.
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Accordingly, good Marketing efficiency allows small businesses the opportunity to compete
with well-known larger corporations and compete for their market share. Smaller businesses
often have an advantage over larger companies because of the greater amount of personal
attention they can provide to each client. Good customer service and areal sense of value are
more important to clients than the lower rates they may pay for the services or products of
larger companies (Sims2013).
Clough(2011) stated that location of the business can play a role in their customer reach. If a
business located on a main route people from other towns may purchase their products and
recommend them to other people further away. For businesses located in rural areas there are not
always as many institutions and commercial businesses close by compared to those in more urban
areas or commercial centers and they may rely on local house holds as their main source of
customers.
Geographic location has its implications for access to markets and other resources like
finance, skilled labour subcontractors, infrastructure, distribution and transport logistics
10
and other facilities. ME success also depends on neighbourhood appearance and
continued or maintained future business operations in that location (Tustin,2001) Keble
(1997) also predicted that MSEs located in urban areas typically have a relative ease of
access to customers and the inputs required to produce goods or services. MSEs located in
urban areas may benefit from agglomeration economies and spatial externalities (i.e.
specialized infrastructures, information, network of suppliers, specialized labour,
specialized knowledge, concentration of existing exporters, etc). Stresemann (1987)
suggests that home-based enterprises in commercial areas generate more income than
similar enterprises in more remote areas.
Marketers are increasingly adding dialogue channels (e-mail and toll-free numbers) to
counter balance the more normal monologue channels (such as ads). The marketer uses
distribution channels to display or deliver the physical product or service(s) to the buyer
or user. There are physical distribution channels and service distribution channels, which
include warehouses, transportation vehicles, and various trade channels such as
distributors, wholesalers, and retailers.
The marketer also uses selling channels to effect transactions with potential buyers.
Selling channels include not only the distributors and retailers but also the banks and
insurance companies that facilitate transactions
Marketers clearly face a design problem in choosing the best mix of communication,
distribution, and selling channels for their offerings. Major factors determining marketing
channels according to OECD (2005) are:-
a)urban infrastructure
Infrastructure is related to provision of adequate access to roads and telecommunication.
It has been a main restraint in the development of MSEs. If the government failed to
provide infrastructural framework it gets difficult to bring development and growth within
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MSEs. Frequent water shortages, power rationing and the high cost of electricity
experienced in a country, can hinder growth for MSEs given that most modern processes
are electrical. The availability of proper infrastructure will have positive effects to
marketing manage strategies that can influence marketing performance of MSEs.
(Ardjouman& Asma, 2015).
b) Supply chain
Where as marketing channels connect the marketer to the target buyers, the supply chain
Describes longer channel stretching from raw materials to components to final products
that are carried to final buyers. For example, the supply chain for women„s purses starts
with hides, tanning operations, cutting operations, manufacturing, and the marketing
channels that bring products to customers. This supply chain represents a value delivery
system. Each company captures only ascertain percentage of the total value generated by
the supply chain. When a company acquires competitors or moves up stream or
downstream, its aim is to capture a higher percentage of supply chain value. (Kotler,
2000) .
2.2.4. Competition
Competition, a critical factor in marketing management, includes all of the actual and
potential rival offerings and substitutes that a buyer might consider. Competitiveness is a
complex concept, long debated in the worldwide specialized literature.
There are noticed many ways in which the reisde fined competitiveness of the company,
but no definition is universally accepted. Beingin separable from the notion of competition,
the concept expresses at general level, the ability of individuals, companies,economies,
regions etc.; to remain in the internal and/ or international competition and to obtain
economic benefits from it. For the company, the competitiveness concern sitsability to
increase profits in market shares where it operates, context in which firms seek strategies to
adapt to business environment and try to identify their competitiveness factors: improving
quality standards, developing new products and production processes, adopting modern
technologies etc.(Kotler, 2000) As interior feature of an economic entity, the competitiveness
is defined by company‟s potential and occurs in relation with the environment in which it
operates. Competitiveness means,essentially, the liability and skill for market contention and
the skill for position gain and permanent commitment that are indicated especially by
expansion of business successfulness, market share and profitabilityǁ (Markovics,2005).
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Competitiveness is determined by productivity, and depends on firms strategies, it is
partially, the result of relationship between firms and local business environment, depends
on social and economic objectives synergy and is influenced by factors from external
environment (Porter and Ketels, 2003).
It is stated in the study of UNCTAD, (2005) that since the company has to face both
domestic/indigenous competitors and foreign/ international ones in each market where
penetrates; an analysis is needed to identify the behaviour of these competitors of the
company and in this context, a more accurate assessment of their potential. Clearly, the
number, size and quality of competitors influence the firm's ability to enter and compete
profitably in a particular market and its competitiveness requires strengthening of its
activity in a particular market, the existence of a strategy to maintain or increase market
share through marketing elements which allow maximizing the strengths that distinguish
it from the other competitors.
Bouazza, (2015) suggested unfair competition arising from the low cost of doing business
in the informal sector is a serious challenge for a significant section of MSEs, especially
small sellers and producers. In addition, unfair competition from companies operating in
the non-official sector is a serious challenge affecting both MSEs and large firms in the
any economy.
To sustain macro-economic stability there exists a wide agreement that stable growth, a
stable inflation rate and healthy public balance sheets are essential (Ocampo, 2005).
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Thus, both political and macro-economic instability are regarded as obstacles to the
creation of productive jobs within MSEs.
The growth of a firm is, to a certain extent, does individual entrepreneur make a matter of
decisions. This is very much pronounced for MSEs that are run by owner managers.
Personality traits, motivation, individual competencies and personal background are
important factors for the success/failure of MS (Baum,Locke,& Smith,2001;Shane,
Locke, Collins,2003).
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Goedhuys and Sleuwagen (2000), argue that higher education not only raises enterprise
performance, but also increases outside options such as wage employment. Lower
education and vocational training significantly influenced the likelihood of being
entrepreneurs rather than wage employees.
Higher education was found to influence post entry firm growth (Goedhuys
&Sleuwaegen, 2000) Marketing problem has been widely acknowledged as being the
most important of all activities and critical for the survival and growth of MSEs.
However, many studies found owner/managers of MSEs as having a very limited
understanding of the marketing concept generally to be little more than advertising and
public relations and lacking adequate marketing skills. Specifically, MSEs frequently
encountered problems in promotion and marketing research. These problems include the
selection of promotional media, low purchasing power of customers, advertising, content
design and format of the promotional materials, market size, location and addresses of
potential customers (Kefale & Chinnan, 2012). Lthand the environment (Klein &
Hadjimichael,2003)
Malhotra et al (2006) goes some way to confirm the above explanation that lack of access
to finance is hampering the growth and competence of MSEs. Studies conducted by
World Bank (2008) concluded that the problem of MSEs are access to working capital,
inadequate infrastructure, high transactional cost, limited managerial and technical experts
and marketing problems.
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However, Mekonnen (2014) described that recognizing the significance of this sector, the
Ethiopian Government issued the National Micro and Small Enterprises Strategy in 1997
and established the Federal Micro and Small Enterprises development Agency in 1998.
The country „s industrial policy in 2003 and the poverty reduction strategy in 2006 have
singled out MSEs as major instruments to create a productive and vibrant private sector
and reduce poverty among Rural and urban dwellers. Creating employment opportunities,
production of goods and services and other value added activities year Growth and
Transformation Plan envisages ensuring faster and sustained development of the
industrial sector and enabling the sector to gradually play a key role in the economy. To
this end, particular emphasis is given to the promotion of micro and small enterprises as
well as supporting the development of medium and large scale industries. Focus is laid on
creating favourable conditions to export oriented and import substituting industries so as
to accelerate structural changes in the sector (MoFED, 2012) Even though particular
emphasis was given the problem of raw material shortages, lack of working capital and
effective marketing practices faced by micro and small skill up grading programs for
MSE operators, strengthening the use of appropriate modern technologies that boost their
capacity to create long-term jobs, and export markets. These support programs as
described by Mulate, Fantu and Tadele (2006) are stated as follows: Facilitating economic
growth and bring about equitable development: It is argued that
The expansion of MSEs stimulates economic growth using manufacturing industries
result in the failure of these businesses to expand .The same problems, when experienced
by informal sector operators, have the effect of preventing their expansion almost from
the beginning of their operations. It was also observed that for about 50 present of
informal sector operators, the first major difficulty when starting their operation was the
lack of sufficient initial capital and this problem becomes more critical when the informal
sectors operators intended to expand their businesses. (CSA, 2003)
Empirical studies in Ethiopia indicate also that economic roles of the Micro and small
enterprises in the country show significant changes in this decade. Mulate, Fantu and
Tadele (2006) stated that Micro and small enterprises are playing vital role as a major
source of entrepreneurial skills innovation, employment opportunity, and generations of
income for many people. Hence, support service programs are developed to alleviate the
financial problems of MSEs through credit availability and improve market access to
large business purchases which include local resources and is the basis for equitable
16
distribution of income and wealth. Create long-term jobs: Although MSEs are largely
labour-intensive, i.e., reduce unemployment; they are characterized by low productivity
and return. It is, therefore, essential to upgrade their skills and strengthen use of
appropriate modern technologies to improve their capacity to create more jobs.
Strengthen cooperation between MSEs: Promoting inter-sectorial linkages within MSEs
and between MSEs and medium and large scale enterprises are the key for overcoming
constraints in the area of resources.
Provide the basis for medium and large-scale enterprises: It is generally argued that MSEs
are the bedrocks for the growth and development of medium and large scale enterprises
and stimulate indigenous entrepreneurship.
Promote exports: Because MSEs depend heavily on domestic raw materials, the strategy
also pays due attention in helping MSEs to participate in international market in which the
country has relatively comparative advantage e.g. leather and leather products, textiles,
horticulture, etc. Balance preferential treatment between MSEs and bigger enterprises:
The strategy aims at correcting the preferential treatment given to bigger enterprises and it
also aims at achieving the greatest possible cooperation and interaction between the
various enterprises in the economy.
Entry rates of new firms are high; however, a large number of these entrants can be
expected to go bankrupt within a few years. Bertelsmann (2005) analyse the post-entry
performance of new firms in seven Organizations for Economic Cooperation and
Development(OECD) countries, the results revealed that about 20-40 present of entering
firms fail within the first two years, while only about 40-50 present survives beyond the
seventh year. One of the reasons they do not survive, as stated by Bertelsmann, is that
they face several obstacles (Challenges) over time. Challenging factors of Marketing can
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roughly be divided into two groups: internal factors of the firm and external factors that
are beyond the control of the MSEs.
High tax rates can reduce firms „internal sources of financing Competition from the
informal sector and corruption among government officials also pose significant
challenges for firms. Objective measures of the size of the informal sector, barriers to
entry into and exit from the formal market, and the existence of informal payments shed
light on the importance of these obstacles to the existence of MMSEs (Khrystyna
Kushnir, Melina Laura Mirmulstein, and Rita Ramalho, (2010).
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Bouazza (2015) stated that MSEs in developing countries suffer more than large firms
from many policy and institutional constraints arising from imperfect markets, and, as a
consequence, they benefit disproportionately from reforms. Because of savings on
registration and licensing costs as well tax evasion, non-official companies gain a
substantial cost advantage that can allow them to produce and sell goods at a low price
compared to companies that operate in the formal sector, which prevents genuine
competition and increases the relative costs of the formal firms.
ii. Infrastructure
Infrastructure relates to provision of adequate power, access roads, telecommunication,
sewage, and water. It has been a main restraint in the development of MSEs (Dondo&
Mutiso, 2007). If the government failed to provide infrastructural framework it gets
difficult to bring development and growth within MSEs. Ardjouman (2014), suggested
frequent water shortages, power rationing and the high cost of electricity experienced in a
country, can hinder growth for MSEs given that most modern processes are electrical .The
availability of proper infrastructure will have positive effects to marketing manage
strategies that can influence marketing performance of MSEs.
iii. Local Supply
Suppliers form an important link in the company„s overall customer value delivery
network. They provide the resources needed by the company to produce its goods and
services. Supplier problems can seriously affect marketing. Marketing managers must
watch supply availability and costs. Supply shortages or delays, conflict, and other events
can cost sales in the short run and damage customer satisfaction in the long run. Rising
supply costs may force price increases that can harm the company„s sales volume (Kotler,
2012).
Many manufacturers depend on raw materials supplied from outside sources. Some of the
factors that can delay or hamper a regular delivery schedule include a glitch at the site of a
supply source, problems with transportation or inclement weather. If supplies are not forth
coming as needed, the potential for shut down or a major slowdown in the manufacturing
process can result. Hence, the fate of such enterprises depends on access and level of local
supply from the surrounding. The fluctuation of local supply may therefore make it
difficult to plan and that may precipitate same stock that may destabilize the setup
(Kotler, 2012)
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iv.Financial Factors
Shah (2013) explained promotion and expansion of business is impossible without
sufficient finance. Lack of access to external financing is one of the major challenges to
the growth of MSEs, and it has accounted for high rates of failure among those MSEs.
Financial institutions be have more cautiously when providing loans to MSEs and MSEs
are usually charged comparatively high interest, high collateral and loan guarantees.
Krasniqi (2007) finds that loan policies and collateral requirements discourage firms from
obtaining loans from banks. In consonance with Berge and Udell (1998), Galindo and
Schantiarelli (2003) find that in both developing and developed countries, small firms
have less access to external financing, which leads small firms to be more restrained in
their operations and growth compared to large firms.
A study done by Beck (2005) in developing countries provides further evidence that
MSEs face greater financing obstacles than large firms do. Ayyagari (2006) show that
financing, crime, and political instability directly affect the rate of growth of small firms,
with financing being the most significant constraint affecting small firms„ growth.
Rocha (2010) analyse the most binding constraint on firm growth in developing countries.
They find that each country faces different sets of constraints and that these constraints
also vary by firm characteristics, especially firm size. However, across all countries,
access to financing is among the most binding obstacle while other obstacles appear to
matter much less. The internal finance has an important part in financing of MSEs, at the
same time numerous studies have confirmed that enterprises have recourse to external
finance when they can„t satisfy their own financing requirements with internal finance. In
the case of external finance, the enterprises draw on cash from external organizations and
investors.
Examining the external finance, the public offering and the bond issue is not characteristic
to this sector, because of its high cost and big time-consumption, and the trade debt and
trade credit are applied occasionally depending on the deal position of the enterprise. In
the case of external debt the role of the bank loan and overdraft, the leasing and the
factoring (and for feting) can be emphasized, but this enterprises can get loan and
overdraft just by higher interest and collateral because of the relatively high cost of the
credit assessment and higher operating risks. To sum it up it can be declared, that the
MSEs are in more disadvantageous situation than the large size enterprises on the
admittance of financing sources with respect to both equity and debt.
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v. Technical Factors
Small businesses are constrained not only by financial factors but also by non-financial
factors such as lack of training and education, inadequate technical skills, poor access to
markets, lack of information and unreliable infrastructure. Many entrepreneurs rush out to
establish MSEs without having good and adequate technical skills. They covet the
progress and profit of existing ones without good technical background. For this reason,
many enterprises collapse after few years. It is important for entrepreneurs to recognize
the role of education and training in ensuring the success of their business endeavour.
Education and training will help establish a good foundation for small business growth,
(Biggs and Shah, 2006).
As explained by Kotler (2014), the marketing managers develop the firm's detailed
marketing plans and procedures. With the help of subordinates, including product
development managers and market research managers, they determine the demand for
products and services offered by the firm and its competitors. In addition, they identify
potential markets such as, whole sales, public, retails business firms, or government.
Parker (2014) observes that marketing managers develop pricing strategy with an eye
towards maximizing the firm's share of the market and its profits while ensuring that the
customers are satisfied. In collaboration with sales, product development, and other
21
managers, they monitor trends that indicate the need for new products and services and
oversee product development.
Marketing managers work with advertising and promotion managers to promote the firm's
products and services to attract potential users. Other areas where management is required
may be in promotions, public relations, sales, production and all levels of the
organization. Boulton & Carland (1983), SME is considered to be any organized effort
intended to return a profit or economic outcome through the provision of products or
services to an outside group.
Meredith (2001) observed that the operation of MSEs traditionally requires the investment
of time and capital in creating, expanding or improving the operations of a business. The
enterprises that are considered to have fewer than 250 employees are generally considered
to be MSEs. Management is an essential activity that helps MSEs pursue or achieve their
stated goals Thornton & Kagan (2005).This means that the management measures taken
by any organization are very significant to performance of that organization. Hendrick &
Singhai (2005) argue that management actions and managers activities are very important
in today„s business activities .The actions and dealing done by management in MSEs
decides whether the enterprise performs effectively. McHugh (2010) has given an
example that if a SME is in economic complexity, management ideals of cost cutting may
be expected. Thus, the methods used by management to solve problems will largely
determine the long-term effectiveness of the MSEs (Balfanz&Koelmel, 2009).
In context of this study managing the marketing efficiency is a crucial issue. MSEs must
design and put into action the marketing mix that will best achieve its Objectives in target
markets.
Bouazza (2015) explained that among the major challenges facing the development of
MSEs is the huge lack of technological capabilities, which is the key to developing the
competency of SME owners and managers. Romijn (2001) underlined that technological
capacities are considered as tools for strengthening the competitiveness of MSEs. By
improving their technological capabilities, MSEs can largely improve their production
abilities and profitability: the latter can be improved in several ways, such as through
R&D spending, technology and knowhow agreements with domestic and foreign firms. It
is possible to generalize that Micro and small business owners are in need of at least
training, education and experience sharing with similar industries in order to develop their
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marketing skill that enable them to with stand challenges coming from marketing
perspectives.
II. Entrepreneurial skill business.
Entrepreneurship is recognized as an important chauffeur of economic growth,
productivity, innovation and employment. Entrepreneurship is related to the functional
role of entrepreneurs and includes coordination, innovation, uncertainty bearing, capital
supply, decision making, ownership and resource allocation in their organization. Most of
the prevailing areas in which MSE faces a problem are sales or marketing, human
resource management, and general marketing research and training ( Iordache, 2014).
The growth of a firm is, to a certain extent, is a matter of decisions made by individual
entrepreneur. This is very much marked for MSEs that are run by owner-managers.
Personality traits, motivation, individual competencies and personal background are
important factors for the success/failure of MSE (Praag, 2003 cited in Munir,2019).
Education helps entrepreneurs to create good judgments, best use of information, exploit
opportunities well leading to firm growth and success Study conducted by Okpara,&
Wynn, (2007 cited in Munir,2019), argue that higher education not only raises enterprise
performance, but also increases external options such as wage employment. Lower
education and vocational training significantly influenced the probability of being
entrepreneurs rather than wage employees.
23
capital investment and their capacity to generate greater employment have proved their powerful
propellant influence for speedy economic growth. The sector is also known as an tool in bringing
about economic transition by effectively using the skill and talent of the people with out
requesting high level training, much investment and sophisticated technology.
The micro and small enterprise sector also described as the national home of entrepreneurship.
They are the primary vehicles by which new entrepreneurs provide the economy with a
continuous supply of ideas, skills, and innovations, Katua,2014. Recent reports released by
ILO and World bank indicated that working in micro, small, and medium enterprises (MSMEs)
is the most prevalent way to make a living in low-and middle-incom countries (ILO,2015;
WorldBank,2013). Formal MSE employ more than one-third of the world‟s labour force
(Kushniretal.,2010).
The International Monetary Fund (IMF) estimates that across the 132 economies covered,
there are about 125 million formal MSE of which 89 million operate Low and Middle
Income Countries (LMICs) and of which the overwhelming majority, about 83%, are
micro enterprises, including the self-employed. Across these countries, micro, and small
enterprises (MSEs) constitute the largest share of private sector enterprises and account
for the majority of employment. Even though large shares of these MSEs are in formal,
they are also accountable for most of the job creation in low and middle income countries.
However, much of the employment in MSEs is low productivity, low income, and low-
quality employment (Reeg, 2015). As a result, substantial controversy remains over the
underlying growth assumptions, the job oilcan regulatory frameworks, and structural and
institutional indiscretions, lack of smooth supply creation potential, and the net
contribution of MSEs to national employment. They face problems of poor raw materials
and lack of working premises, lack of sufficient capital, and marketing problems. These
problems call for government intervention by recognizing and paying due attention to the
promotion and development of MSEs.
24
alone to substantially improve the employment situation. The world development report
2013 on „Jobs‟ estimates indicated that there need to an additional 600 million jobs by
2020, if the ratio of employment to working age population is to be held constant (World
Bank, 2013).
Further, evidence suggests that the majority of current jobs in LMICs do not lift people
out of poverty. According to estimates from the International Labour Organization (ILO),
nearly half of all workers worldwide still live below the USD 2 a day poverty line (ILO &
IMF, 2010).Thus, in Job creation within MSEs is defined as the creation of new
employment in existing MSEs as well as the job contributions that arise from new. Order
to reduce poverty, we do not just need more jobs; what we need as well, and more
importantly, are more productive and thus better paying jobs and decent working
conditions (ILO, 2015) However, these estimates are probably only a small part of the
bigger problem as data on micro, small and medium enterprises, in particular on micro
enterprises and the informal sector is scarce and often not comparable across countries
due to differences in definitions and methods of estimation. Most statistical MSE
definitions and subsequent
However, these estimates are probably only a small part of the bigger problem as data on
micro, small and medium enterprises, in particular on micro enterprises and the informal
sector is scarce and often not comparable across countries due to differences in definitions
and methods of estimation. Most statistical MSE definitions and subsequent research are
predominantly concerned with businesses that have formalized or registered in some
manner and have reached a critical number of employees. Consequently, the importance
that micro and small enterprises (MSEs) have in providing employment is often
Underestimated and we know little about their potential in creating jobs.
25
2.5.1 Facilitate economic growth and bring equitable development
MSEs by making use of pre dominantly local resources engage in the production of goods
and Service some as consumption and stimulate the growth of the economy. The expansion
of MSEs Also contributes towards a more equitable regional development and distribution of
income and wealth.
2.5.4. Provide the basis for medium and large scale enterprises
MSEs provide these bed for grow than stimulate in digamous entrepreneurship. They provide
training for entrepreneurs and managers and through this learning process, MSEs grow in to
medium and large ones.
The support strategy will help to correct the preferential treatment accorded in favour of
bigger enterprises. At the same time, it aims at bringing the greatest possible cooperation and
interaction between the segments (Micro, Small, Medium, and Large) of the economy.
26
2.5.7. MSE support service provided by city government of Addis Ababa MSE
The promotion of MSEs is one of the strategic direction spurs used by the City Government
of Addis Ababa Micro and Small Enterprise Development Agency during the GTP I
implementation period(2010/11-2014/15),the agency focused on promoting the development
and competitiveness of MSEs by providing different supports. Accordingly, the following
core support has been planned first the strategy backs to create and implement an enabling
legal framework. Second, it envisages establishing user friendly business environment, for
example, by simplifying and standardizing registration, licensing, and other enterprise
development services. Finally, the agency offers direct policy support by devising targeted
and specific support programs such as access to finance, access to appropriate training and
technology, marketing linkage, provision of physical infrastructures and access to working
and selling spaces and other hand holding supports as deemed appropriate.
In this contemporary world, the promotion of MSEs is therefore at the heart of development
of both developed and developing countries (MSMES strategy, European Bank, 2006)).
Thus, policy dialogue work is intended to focus on improving the business climate for MSEs
generally, with a priority on addressing policies and regulation which create impediments to
accessing and providing financing, working infrastructure and business development support
service, This can take many forms ranging from ad hoc interaction with local government
bodies and workout developing short term and long term policy dialogue with the respective
institutions working on this specific sector.
In Ethiopia‟s stated in the government MSE strategy document although there have been
attempts by the government to liberalize and improve the policy, regulatory and institutional
support environment for MSEs, which resulted in increase in investment and competition and
improvement in the licensing procedures, the real practice as evidence by different research
27
indicates that there is divergence between stated policies & directives and the outcome on the
ground. Capital shortage, inadequate business premise, inadequate/uncertain market and high
taxes remain major constraints to expand MSEs(Gebrehwiot and Wolday,2006).
To sum up, studying MSE dynamics has led to the insight that there is no single factor, but
rather a number of factors policy, financial and operational factors within the MSE owner‟s
drives enterprise growth, sustainability.As specified above, in different segment of the
literature review the researcher want to summarize that existence of favourable MSE
development policy with access to finance, access to working premises, Well established
infrastructure, in support of appropriate business development service, innovation,
entrepreneurship, managerial, technical and skills will enhance performances of MSE
enterprise only when the support is integrated and collectively provided for the enterprise
based on their real need and challenges they encountered
Technological factors
Management factors
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CHAPTER THREE: RESEARCH METHODOLOGY
3.0 Introduction
In order to analyse the potential impacts of factors on performance of MSEs, this study will
be made use of a research methodology. This section provides an overview of the study‟s
research approach which lays within the mixed methods strategies. The chapter discusses
procedures and activities under taken, focusing on namely the study‟s research design,
questionnaire design, data collection, sampling strategy, data processing and analysis and
instrument development. Besides, the section deals with a discussion on the ethical issues and
the study area profile.
29
3.2 Research Approach
According to Mark et al. (2009:101) mixing qualitative and quantitative approaches gives the
potential to cover each method‟s weaknesses with strengths from the other method. In this
study, a combination of qualitative and quantitative approaches of doing research will be
employed, which has been practiced, as recommended by Creswell (2009:203-216).
30
Table 3-1: Total Target population of the study
31
According to Janet (2006:94), this step increases the probability that the final sample will be
representative in terms of the stratified groups. The strata‟s are sectors including:
Manufacturing, Urban -Agriculture and Construction sector
According to Catherine Dawson (2009:54), the correct sample size in a study is dependent on
the nature of the population and the purpose of the study. Although there are no general rules,
the sample size usually depends on the population to be sampled. In this study to select
sample size, a list of the population formally registered MSEs until December 2014 by the
Dessie City Administration Trade and Industry Development zone will be obtained. The total
population of the study is 620 enterprises which includes Manufacturing, (224), Urban -
Agriculture (257) and Construction (139). The sample size will be selected here is considered
as representative of Manufacturing, Urban -Agriculture and Construction sector and also
large enough to allow for precision, confidence and general ability of the research findings.
The following formula will used for the calculation of the sample size since it is relevant to
studies where a probability sampling method will be used (Watson, 2001:5).
( )
( )
⌊ ⌋
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Table 3-2 : Sample size selections under each stratum
33
In this study, change in profit is used as a dependent variable to measure the performance of
MSEs. Here the change in profit ratio data is used as the measure of the dependent variable
performance of the enterprises involved in the survey. This is mainly because of the
following three reasons. First, as the pilot study clearly indicates, MSEs are more focuses on
profitability than other modes of performance measures. Second, as recommended by Rami
and Ahmed (2007:6) change in profit has been widely adopted by most researchers and
practitioners in business performance models. Also growth in employment level of the
enterprises would not be another appropriate alternative measure of performance because this
MSEs are primarily established as a source of self-employment. The independent variables
are politico-legal, working premises, technological, infrastructural, marketing, financial,
management and entrepreneurial variables.
In this study Pearson‟s Product Moment Correlation Coefficient will be used to determine the
following relationships.
The relationship between politico-legal factors and performance of MSEs;
The relationship between working premises factors and performance of MSEs;
The relationship between technology factors and performance of MSEs;
The relationship between infrastructural factors and performance of MSEs;
The relationship between marketing factors and performance of MSEs;
The relationship between financial factors and performance of MSEs;
The relationship between management factors and performance of MSEs;
The relationship between entrepreneurial factors and performance of MSEs;
35
3.8.2.2 Linear Regression Analysis
Linear regression is a method of estimating or predicting a value on some dependent variable
given the values of one or more independent variables. Like correlations, statistical regression
examines the association or relationship between variables. Unlike correlations, however, the
primary purpose of regression is prediction (Geoffrey M. et al., 2005:224-225). In this study
multiple regressions will be employed. Multiple regression analysis takes into account the
inter-correlations among all variables will be involved. This method also takes into account
the correlations among the predictor scores (John Adams, et al., 2007:198). They added
multiple regression analysis, which means more than one predictor is jointly regressed
against the criterion variable. This method is used to determine if the independent variables
will explain the variance in dependent variable.
Regression Functions
The equation of regressions on this study is generally built around two sets of variables,
namely dependent variable (Business performance) and independent variables (politico-legal,
working premises, technology, infrastructure, marketing, finance, management and
entrepreneurial). The basic objective of using regression equation on this study is to make the
study more effective at describing, understanding and predicting the stated variables.
Regress Performance on Selected Variables
= + + + + + + + +
Where: Y is the response or dependent variable- performance
= politico-legal, = working premises, = technology, = infrastructure, =
marketing, = finance, = management and = entrepreneurial skills are the explanatory
variables.
Is the intercept term- constant which would be equal to the mean if all slope coefficients
are 0.
, , , , , , , and are the coefficients associated with each independent
variable which measures the change in the mean value of Y, per unit change in their
respective independent variables.
Accordingly, this statistical technique will be used to explain the following relationships.
Regress performance (as dependent variable) on the selected linear combination of the
independent variables using multiple regressions
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3.9 INSTRUMENT DEVELOPMENT
Basically, the instruments will be developed based on the objectives of the study and research
questions. The principles of questionnaires such as, use simple and clear languages,
statements should not be too long and use of appropriate punctuations will be also considered
when developing the instrument. In addition, interviews will be taken as an instrument to
strength the investigation.
A pilot study will be conducted to refine the methodology and test instrument such as a
questionnaire before administering the final phase. Questionnaires will be tested on potential
respondents to make the data collecting instruments objective, relevant, suitable to the
problem and reliable as recommended by John Adams et al. (2007:136). Issues raised by
respondents will be corrected and questionnaires will be refined. Besides, proper detection by
an advisor will be also taken to ensure validity of the instruments. Finally, the improved
version of the questionnaires will be printed, duplicated and dispatched.
The instruments will be selected can help to show factors that affect performance of MSEs. It
can clearly address how these factors affect the performance of MSEs in three sub-cities. The
relevant data will be collected on the factors of the MSEs that can better indicate the
relationship between factors and the performance of MSEs. The structured and unstructured
37
interviews can also validate the measurement. Moreover, to have valid conclusion, inferential
statistical model will be used to test the relationship between the variables.
In this study each statement will be rated on a 5 point likert response scale which includes
strongly agree, agree, undecided, disagree and strongly disagree. Based on this an internal
consistency reliability test will be conducted in the Seghnogebeya, Arada and Bowanbwauha
sub-cities with a sample of 21 operators and the Cronbach's alpha coefficient for the
instrument is found as 0.802 which is highly reliable. Typically an alpha value of 0.80 or
higher is taken as a good indication of reliability, although others suggest that it is acceptable
if it is 0.67 or above (Cohen et al., 2007:506). Since, instruments will be developed based on
research questions and objectives; it is possible to collect necessary data from respondents.
Then, instruments are consistent with the objectives of the study.
38
WORK PLAN
This contains the schedule or plan of time that is required to accomplish the research. The
details will be presented as follows.
BUDGET
These sources cost will cover by the researcher. It is a monetary cost that will be incurred in
order to accomplish the research. The details are presented below.
39
REFERENCE
Baum,E. A. Locke, Ken G. S (2001) Abroad view of macro economic stability: United
Nations, Department of Economic ,and So-cial Affairs.
Bosma, Jona Acs, Z. J.,Desai,S.,&Hessels,J. (2008) Financing Micro and Small
Scale Enterprises:An empirical survey in Urban Ethiopia.
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Z.J.,Desai,S.,&Hessels,J.(2008) Entrepreneurship and Growth of
Entrepreneurial Firm is in Coted‟Ivoire.
41