2.4 D ETERMINANTS OF E NTREPRENEURSHIP WITHIN THE CONTEXT OF SME DEVELOPMENT
2.4.3 Entrepreneurial Capabilities
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government wants to improve SMEs’ access to finance. Policies that are aimed at changing the accessibility of finances to SMEs as well as those that change the institutional set up of countries should be put in place to enhance access to finances for small businesses. Government also needs to adjust legal and institutional systems in order to mitigate the obstacles of accessing finances.
According to Beck and Dermiguc-Kunt (2006:2940) countries that have more effective and adaptable legal systems have their firms reporting lower financing obstacles. It is thus important for policy makers to review the impact of the legal system on small businesses.
However, it is worth highlighting that availing loans to SMEs should be done under strict monitoring as some of the funds can be subject mismanagement. Bukaliya and Hama (2012:62) in a study of the challenges affecting informal businesses’ access to finance in Zimbabwe note that the informal businesses have a reputation of high indiscipline whereby after submitting a viable business proposal and granted a loan, the informal business operators divert the funds to other personal expenditures. Penalties have to be put in place as a deterrent against the abuse of funds.
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accounting standards found that 80 percent of SMEs failed to maintain accounting records with the lack of skills accounting for such a high percentage (Mazhindu and Mafuba, 2013:2315).
Bukaliya and Hama (2012:63) argue that business management deficiencies show that small enterprises fail to keep books of accounts for their business operations. Failure to maintain accounting records tends to increase the risk of mismanagement of funds as such there is a need to equip SMEs with skills.
Inkoun (2003:23) asserts that SME performance is closely linked to entrepreneurial capabilities of the proprietor wherein proprietors with business skills and business related qualifications have 30 percent more likelihood to survive than non-qualified proprietors. The level of skills that an SME operator has therefore determines whether or not that particular enterprise will be successful. Etuk, Etuk and Baghebo (2014:658) found out that in Nigeria small businesses remain small for years because of the mind-set of their owners who lack the basic knowledge of managing a business venture. In this light, therefore, the proprietor has to have knowledge on how to keep the enterprise’s books up to date as well as how to manage the day to day activities of the company.
Business owners can also lack knowledge of funding sources available or lack the skills to present themselves as investable opportunities to investors (Blackburn, 2012:8). Thus the failure of SMEs to access finances can be attributed to a lack of adequate skills to attract investors into buying in to their businesses. The lack of skills can lead to a situation whereby SME owners are misinformed on how financial institutions assess credit risks resulting in them failing to secure loans. To this end Blackburn (2012:21) argues that the lack in skills may account for why 41 percent of SME employees lack an understanding of the way banks assess business credit risk.
Mudavanhu et al. (2011:83) notes that most SMEs have high operating costs but have insufficient funds to keep them afloat as such there is a need to have proprietors that are equipped with the necessary skills in order for the enterprises to cope. Zindiye (2008:213) in a study on the factors affecting SMEs in the manufacturing industry in Zimbabwe, found that the International Labour Organisation (ILO) has been involved in the training of SME entrepreneurs through programmes such as Start Your Business (SYB) and Start and Improve Your Business
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(SIYB). Small business owners are equipped with the necessary skills for them to develop their businesses and aspiring individuals are given information on how to start a business and how to manage a business entity.
Furthermore, management training may enable the business owners to apply for and use loans and resources more efficiently so as to achieve set objectives without needing additional finance (Bukaliya and Hama, 2012:63). The success of an SME therefore depends on the skills level of the owner. Chadamoyo and Dumbu (2012:32) assert that the lack of formal management training in the management of SMEs is a critical limiting factor to the growth and expansion of such businesses. Du Plessis, Indavong and Marriott (2015:2) concur and are of the view that management abilities are key to enhancing the growth of SMEs. These arguments show the importance of management skills for SMEs to development a lack thereof will limit the growth of SMEs
However, it is also important to note that laying the burden to train proprietors on the government can be problematic. This is so because even though the Government of Zimbabwe’s responsibilities are on the increase its sources of revenue are narrowing (Nyamwanza et al., 2014:2). Therefore, providing skills training for SME proprietors will be difficult. Storey (2008:3) is of the view that micro policies which include management programmes and training are ineffective compared to macro policies such as tax incentives in government’s SMEs assistance programmes. The failure rate of Small and Medium enterprises in Zimbabwe is 85 percent with 60 percent failing in the first year and 25 percent in the first three years (Mudavanhu et al., 2011:82). Timm (2013) highlights that in South Africa five out of seven small businesses fail within the first year. As such, it can be argued as to whether or not government should assist SME proprietors acquire the right skills for the effective management of their enterprises.
Additionally, Zimbabwe has had various interventions to equip SMEs with entrepreneurial skills but little growth has been evidenced (Msipah, Chavhunduka, Jengeta, Mufudza and Nhemachena, 2013:82). This is an indication that even though government can assist SMEs only a few will produce the desired results. This failure can be as a result of the SMEs’ failure to cope
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with foreign competition to which the government has no control over; foreign competition has been found to be predatory to SMEs especially in the manufacturing sector (Mudavanhu et al., 2011:83) Even with government intervention it is possible for some SMEs to fail therefore there needs to be discriminate assistance. Criteria on how and which enterprises can be assisted have to be developed should government offer assistance to SMEs in the form of skills training.
Maseko et al. (2012:51) argue that although the government of Zimbabwe has been advancing targeted support in marketing, management and finance to the SMEs, some have remained small and worse still others have collapsed. This finding shows that there could be deep rooted problems faced by SMEs which go beyond skills shortages. As such indiscriminate skills equipping programmes might fail to save SMEs.
Management training can take on the route that is taken by Peru where proprietors of high growth companies are equipped with management skills instead of those with low growth potential (Ramis, 2002:5). According to Ramis (2002:5) this ensures that SMEs with higher potential are assisted to maximise and realise their potential. This is in line with Ramis’ (2002) assertion that it is imperative to ensure that businesses with the potential to survive and be effective are assisted so that a country can realise the benefits associated with SMEs. The discriminate training of proprietors is important to the management of already scarce resources as is the case with Zimbabwe. The reality that a lot of factors contribute to the failure of SMEs and that the government has limited resources necessitates the discrimination of other enterprises in skills training programmes.
The Reserve Bank of Zimbabwe (2009) found that targeted support to SMEs translates into economic development in countries like Indonesia where SMEs account for 98 percent of employment creation and growth with Japan and Thailand having their SMEs contributing 81 percent and 78 percent to GDP respectively. Selected SMEs that have the potential to develop and grow can also be targeted for skills enrichment programmes so that they can contribute to the economy.
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