Business Support Centres used interchangeably with supporting institutions effectively provide a range of services to all the diverse sectors at different stages of business development, regardless of their size (UNDP, 2004:6-8). The services they provide are designed to develop SMME sector.
Business Support Centres also stimulate sustainable SMMEs’ development by improving the general business environment. The role they play assists MSMEs/SMMEs to operate efficiently and grow, thereby contributing to job creation, poverty reduction and sustainable economic growth (UNDP, 2004:6-8).
Supporting institutions have different functions such as, training; guidance with licensing procedures; assistance with access to premises; developing financial initiatives, improving the access of small firms to finance; facilitating local network development; provision of business support; and assisting in reducing costs of accessing information and advice (Ahmad and Xavier, 2012). Furthermore, these centres provide counselling and consulting services, with the aim of raising the performance and the potential of new firms, and encouraging a higher start-up rate and growth. The services provided, amongst others, aim to reduce the costs of information and transactions involved in the start-up and expansion of small firms (Chetty, 2009 and Olufisayo, 2014). For instance, public support centres provide necessary guidance and information for the support of small businesses, at a reasonable price or at no cost at all (Rogerson, 2006). According to Mahembe (2011:7), a healthy SMME sector contributes to the growth of the economy through amongst others, creation of more job opportunities.
According to Olufisayo (2014) supportive agencies are established by the government to facilitate the promotion of SMMEs, and these agencies are expected to cope with the dynamics of the economy at that particular time. The supporting agencies have basic functions which are participatory, regulatory, and facilitating. The participatory agencies assist in providing subsidised goods and services which are best produced by the government. The next function performed by supporting agencies is to regulate businesses by implementing and enforcing laws.
Agencies have a responsibility to monitor businesses to ensure they are complying with set regulations. The last function is to facilitate the establishment and successful existence of SMMEs by ensuring a favourable business environment through the provision of specialised funds to SMMEs. The functions this study focuses on are the last two, namely, regulatory and facilitating
27 (Olufisayo, 2014). This research focuses on these two as they have a direct impact on the establishment and growth of SMMEs.
There is a different range of services provided by business supporting institutions at the start-up and growth phases as mentioned earlier in this chapter. This variety of services is aimed at achieving a common goal of developing small businesses. These services are provided in a dynamic environment where business development support providers (referring to supporting institutions) are expected to cope with ever changing trends of the economy (Olufisayo, 2014).
When providing these services, some of the consequences are, public and private supporting institutions might have a positive or negative impact on SMMEs’ start-up and growth. It was highlighted earlier in this study that businesses operate in an external macro environment, which might affect businesses either positively or negatively. Due to a range of programmes offered to develop small businesses, a “one-size fits all” approach has proven inappropriate, hence why it is advisable to customise the programmes to the local specificities (UNDP, 2004:6-7). Provision of general training to SMMEs’ owners, according to Maluleke (2013:57), is somehow acceptable, as it simplifies training and enables the supporting institutions to reach a large number of SMMEs in a short period with fewer resources compared to customised training. On contrast, Maluleke (2013:57), argues that customising training programmes to a specific SMME group or sector is very expensive, however, it is rewarding.
Khoase (2011:52), reported that, MTICM as one of the public supporting institutions in Lesotho, has created a Policy Analysis Section (PAS) responsible for a regulatory review. The PAS suggests recommendations for reform based on identified regulatory obstacles on business activities. Furthermore, Lesotho implemented Regulatory Best Practice (RBP) in the quest to eliminate impediments that hinder effective implementation of the small business policy. This initiative taken by the MTICM, gives the impression that other public and private supporting institutions in Lesotho are also concerned about the implementation of their programmes.
However, according to the EESE survey (2014:35), Lesotho’s performance in ability to provide sound policies and regulations for the promotion of the private sector has been very poor and below 0 between the years 2006 and 2012, when using the “Regulatory Quality Index”. The report alerts the readers to the fact that, for the promotion of start-up and enterprise development, well designed and clear regulations are proved to be useful.
Chetty (2009:120) concurs with Döckel and Ligthelm (2005) that programmes provided to SMMEs should target mainly those who make the best use of them, as this might maximise the effectiveness of such services. Chetty further posits that adopting this strategy would be of benefit to the enterprises, society, and the public and private supporting institutions. It is understood that
28 targeting those who make the best use of the programmes provided might be effective. However, developing the SMME sector aims at satisfying SMMEs’ needs and wants, and if the strategy Chetty is proposing, is fully adopted, then it might be difficult to satisfy some of the target group which would be just to create barriers for SMMEs. It is perceived that it is also rewarding to convince entrepreneurs that do not make use of the services provided by supporting institutions to make use of such services. If these entrepreneurs are not encouraged or equipped with necessary skills, they could be unable to grow or start businesses.
2.7.1 Role of supporting institutions on SMMEs’ start-up
Entrepreneurs have valuable business ideas, however, sometimes they lack some resources (Mbonyane, 2006:6). Newly established businesses sometimes need assistance in terms of licensing procedures, funding, appropriate business premises, training and networking support, among others (Renawat and Tiwari, 2009:16). Mahembe and Underhill Corporate Solutions (2011:41) stress that entrepreneurs frequently depend on their own start-up capital to run their businesses. The study they conducted found that this is because entrepreneurs did not know the procedures to follow when applying for a loan, furthermore, they were not aware of the available financial institutions. According to Wright and Marlow (2012) and Herrington and Kew (2014), the start-up stage is a very crucial period in the development cycle of small businesses, that needs careful attention.
This struggle of SMMEs at the early stage has called for the intervention by public and private supporting institutions (Ngcobo and Sukdeo, 2014:436). At the start-up stage, supporting institutions in both cities provide amongst others, business registration, access to finance, and incubation services to SMMEs (OECD, 2004a). Incubation services means that supporting institutions provide management training and office space to SMMEs. Most potential entrepreneurs have the ambition to start their own businesses yet they lack necessary skills to do so (Ensor, 2013). It is the responsibility of the supporting institution to provide such owner- managers with the necessary skills. At times, this training is also needed by the employees, who are the ones involved in the daily operations of the businesses. If all the staff is equipped then such a business has the potential to grow and be sustainable (SBP Alert, 2009:4).
Entrepreneurs may be willing to start businesses, however, one finds that they are challenged with the issue of obtaining business premises. This is where the supporting institutions play their part through supply of premises to such entrepreneurs (Ghobakhloo, Arias-aranda and Benitez- amado, 2011). These premises are normally subsidised, consequently, the rentals are affordable.
The other important aspect of these premises is, that they are normally in close proximity to the
29 customers and/or suppliers (Renawat and Tiwari, 2009:16). This grouping together of SMMEs forms clusters, which assist SMMEs to be productive, competitive, and be able to benchmark themselves with their counterparts. This is also of benefit to customers as they receive the quality services they need and they have variety of product choices (Lesáková, 2012:93).
The use of incubation services results from the identification that incubation is an effective way of developing small businesses at the start-up phase and connects them with more established enterprises, according to Ensor (2013). Ghobakhloo et al. (2011) and Lesáková (2012:93) claimed that the majority of businesses who have been assisted by business incubators during their initial stage have a better chance to grow and be sustainable.
2.7.2 Role of supporting institutions on SMMEs’ sustainable growth
Entrepreneurs start businesses expecting to see such businesses grow from small to medium and ultimately to large. However, this is not always the case. Many businesses are established, and sometimes even grow, however, after a few years such businesses close down. According to Dubihlela and van Schaikwyk (2014:265), small businesses normally close down during their first two years of operation. This reflects that businesses are established but they do not sustainably grow. Failure to the sustainable growth of SMMEs could be because entrepreneurs are not aware of business development service providers and do not make use of services provided (OECD, 2004b:42). At this stage, generally, supporting institutions provide services such as business advisory services, training, networking services, and access to finance. According to Muzondi (2014:635), the failure of SMMEs to grow could be a result of the entrepreneurs not being ambitious enough to grow their businesses.
According to Perks and Struwig (2005:171), there are different kinds of growth which makes it difficult to define the growth of a business. They further proclaim that there are many factors that can be used to measure business growth. These include, size of the business; number of employees; diversification; opening of more new businesses; and turnover.
2.7.3 Relevance of training by supporting institutions
Some entrepreneurs start businesses without much experience or skills for running a business.
Subsequently, in the long term, due to the constantly changing business environment, their businesses start diminishing, and ultimately shut down (McGrath, 2005 and OECD, 2010). It is evident that training programmes significantly contribute to the success of SMMEs in this
30 complex and competitive world (Audet, Berger-Douce and St-Jean, 2007:44). Therefore, it is advisable for entrepreneurs to participate in training programmes whether they are on the start- up or growth stage (Botha, Nieman, and van Vuuren, 2007:176). Studies have found that SMMEs owners who attend the training programmes declare the importance of such trainings. These SMMEs owners say the training programmes improve their entrepreneurial skills which contribute to their sustainable success (Mahadea and Pillay, 2008:434).
Among the necessary skills needed by small business owner-managers to run and grow their businesses successfully, Perks and Struwig (2005:171) and Rogerson (2008:71) stated the following: personal skills, managerial skills, technical skills and business operation skills. They affirm that these skills are composed of thirteen other specific basic skills. According to Department of Trade & Industry (DTI) (2013:37), necessary entrepreneurial skills include, risk- taking, information processing, opportunity recognition, market awareness, decision-making, resources organisation, and product management.
Economies are concerned about the effectiveness of the training offered to small businesses. This has compelled them to explore ways of improving SMMEs’ competitiveness and development.
It is evident that public and private supporting institutions have really established a number of training programmes with the aim of assisting SMMEs (Chetty, 2009:96). However, according to Audet et al. (2007:27), in both developed and developing countries, despite the initiatives put in place, there are still challenges encountered in providing effective training to SMMEs.
Challenges identified include amongst others, poor accessibility and awareness of training programmes; supply-driven programmes; poor quality of trainers and mentors; short duration of training programmes; and lack of monitoring and evaluation.
It is anticipated that SMMEs’ owners are not making full use of business development service providers because they are not aware of offered services as service providers fail to vigorously market their existence (Johnston and Loader, 2003:274). The other reason perceived is that, SMMEs’ owners find training programmes to be very time consuming and impact negatively on their daily operations (Chetty, 2009:95). It is proposed that training programmes are demand- driven rather than supply driven (as supply-driven is delivered in a controlling pattern). Training provision can be designed according to different needs of business organisations, not what the trainer assumes is needed by SMMEs (Maluleke, 2013:57). For instance, in the pre-start-up phase, training can focus on opportunity identification and strategy development, while in the post start- up phase training focuses on management skills that assist owner-managers in developing a competitive advantage (Audet et al., 2007:4 and Chetty, 2009:108). It is important to note that the application of quality and level of skills can affect the effectiveness of a training programme.
31 For example, a contributing factor to the poor quality of training programmes is a shortage of skills by supporting institutions (Monkman, 2003:24). The other concern is the duration of training, which normally takes a few days, which is perceived to be too short to make a valuable impact (Chetty, 2009:107 and Maluleke, 2013:21).
Stepwise approaches, according to Iseal Alliance (2011:11), are also used to assist trainers to eliminate the barriers that hinder trainees to perform sustainably. For instance, stepwise approaches operate on the assumption that businesses do not grow sustainably because the entrepreneurs are not equipped with necessary skills to successfully operate their businesses.
Equipping entrepreneurs with necessary skills is perceived to make it easier for entrepreneurs to run their businesses successfully which will eventually lead the businesses to grow sustainably and contribute to the economic growth (Iseal Alliance, 2011:11). Subsequent steps have to be created in a stepwise approach. Subsequent step defines exactly what sustainable growth must be attained at each step (Iseal Alliance, 2011:14).
It could happen that entrepreneurs or managers do not receive the relevant training they need, and this affects their business operation negatively. The business environment in the 21st century requires individuals equipped with skills and knowledge for them to remain competitive in this rapidly changing business world (Mazanai and Ngirande, 2014:44). The relevance of training the entrepreneurs receive, contributes greatly to their coping with challenges of these rapidly changing times. If well trained, entrepreneurs become effective and competitive, this translates to a business success. Training has to be done continuously to equip owner-managers with current knowledge and skills which add to the sustainability of a business (Mazanai and Ngirande, 2014:44).
2.7.4 Ease of access to finance
Countries with highly developed financial and legal systems are known to contribute greatly to the start-up and growth of small businesses (Mbedzi, 2011:9). This initiative adds to the ease of doing business and allows SMMEs to grow and prosper, which ultimately contributes to the countries’ economic growth (Chetty, 2009:101). Consequently the World Bank and the International Finance Cooperation find it important to rank economies according to their ease of doing business. Moreover, the availability of financial resources for SMEs is considered by the Global Entrepreneurship Monitor (GEM) as a key factor for stimulating entrepreneurial activity (Mahembe, 2011:61).
32 It is evident that SMMEs’ access to finance is determined by external factors (available institutional framework), where SMMEs’ owners do not have control, but just have to align themselves with the situation (Quan-Baffour and Arko-Achemfuor, 2009:408). It is determined by internal factors (knowing how to manage finances). For instance, if a business is growing, that is, more profits are being gained, more workers are being hired, more assets acquired, and other businesses are opened, and then such a business has an opportunity of getting a loan from a financial institution (Mbedzi, 2011:9).
There are existing formal and informal financial institutions which assist businesses with financial resources. However, access to finance seems to be easier for older businesses than for young ones (Beck & Demirguc-Kunt, 2006). In developing countries particularly, as Chetty (2009:97) asserts, access to finance by SMMEs that are in a start-up phase is a huge challenge.
However, according to OECD (2006:7), it is evident that micro-credit and micro-finance schemes play an important role in developing countries. The OECD, therefore, encourages developing countries to put more effort into boosting the effectiveness of these schemes. In contrast, Dalberg’s Survey (2011:9) declares that micro-finance loans are too little to meet SMMEs’ capital needs. According to Chetty (2009:98), SMMEs’ access to finance largely depends on the development of financial markets and the regulatory environment within which financial institutions operate.
Numerous studies, Viljoen (2008) and Mahembe (2011:33), have attested that most entrepreneurs rely on their personal savings or loans from friends, as they find it a challenge to access finance from financial institutions. The OECD (2015) report ascertains that there is a need for small businesses to diversify their sources of funding by tapping into alternative finance instruments.
According to Cull and Xu (2005) and Siringi (2011), in developing countries, small businesses are normally funded by family and friends. It is perceived this is because the banks and other financial institutions demand high interest rates and collateral (Dalberg Survey, 2011:20). This exclusion from certain financial sources, according to Quan-Baffour and Arko-Achemfuor (2009:408), makes it very difficult for entrepreneurs to expand their businesses.
It is a general belief that SMMEs need to be boosted financially to assist them grow sustainably.
According to Orford, Wood, Fisher, Herrington & Segal (2003:46) and Cronje, Du Toit, Marais
& Motlatla (2006:415), SMMEs can be funded, however, the ultimate success relies on how SMMEs’ finances are managed. They assert that proper financial management skills are necessary for the entrepreneurs to monitor their financial position and should be able to take advantage of opportunities and reduce risk of failure.
33 Mahembe (2011:11), recommends that policy makers should focus on designing how efficiently finances should be offered to meet the needs of the SMMEs they are intended to serve, rather than focusing on increasing the amount of credit available to the sector. Furthermore, monitoring and evaluation of programmes on a regular basis is alleged would assist both public and private supporting institutions to be abreast of the applicability of the various programmes. Mbedzi (2011:9), concurs with Mahembe that, one of the reasons why government interventions fail, is because of the uneven distribution of services. They criticise that in most cases, services are solely concentrated in metropolitan areas. This implies that services are not distributed to entrepreneurs who might need such services. It further implies that there is poor service delivery as there is no competition, which allows the officials to be incompetent.
All the services discussed above create a favourable business environment and bring satisfaction to SMMEs’ owners if these services are efficiently offered. Supporting institutions’ programmes can possibly contribute to the sustainable growth of small businesses, if such businesses accept and utilise provided services.
2.7.5 Satisfaction by SMMEs regarding services provided
If the business environment is conducive to business for the SMMEs’ owners, there is an assurance of job creation, poverty reduction and ultimately the experience of economic growth.
As a result, governments’ goal of developing SMME sector is achieved, as more businesses are generated and even grow sustainably (Matola, 2014). Conversely, if the business environment is not favourable for SMMEs, this becomes a barrier to SMMEs’ establishment and growth (Derera, 2011:21). SMMEs become dissatisfied and arguments against supporting institutions’
interventions are raised. It is perceived that public and private supporting institutions’ reliability, responsiveness, assurance and empathy towards SMMEs are important factors that influence SMMEs’ satisfaction (Wamuyu, 2015:269). If these factors together with existing barriers are thoroughly addressed, SMMEs’ satisfaction can translate into the increase of SMMEs’ start-up and growth.
The perceived important factors that influence SMMEs’ satisfaction are considered in details in the following sub-sections: