Small, Medium and Micro-sized Enterprises (SMMEs) play a significant role in the South African economy by contributing to decrease the levels of unemployment and poverty and increase the country’s Gross Domestic Product. Despite the importance, SMMEs encounter challenges that affect business performances. Therefore, this study intended to evaluate the challenges and the impact of the challenges on business performance. The internal and external challenges that were identified as having the biggest impact on SMMEs in Durban were managerial skills, competency and education, employees, obtaining finance, technology, crime and corruption, compliance, economic factors and competition.
Given the large population size of SMMEs in Durban, the study was refined to 10 selected streets in Durban North. The respondents of the study were selected using probability sampling techniques specifically simple random sampling. The study consisted of a sample size of 57 respondents within 10 selected streets in Durban North. A closed-ended questionnaire was administered to obtain primary data for the study.
The primary data was analysed quantitatively using descriptive statistics and presented in tables and figures. A Chi-Square test for independence was performed on all the challenges against business performance. The results revealed that business scoring when obtaining finance; employees undergoing formal training before commencement of employment; high staff turnover; expense of technology; interest and inflation rates and competition have a strong correlation to impact the performance of SMMEs in Durban.
It was recommended that to overcome the challenges, an increase in collaboration should be used to minimise the impact of competition and combine resources to allow funds to be allocated in development and growth. High staff turnover could be combated by promoting incentives, motivation and effective leadership. SMMEs should use the “buddy” system and develop short videos for new employee. Credit scoring can be improved by paying credit on time and reducing debt, which reduces interest too. Increasing customer loyalty, effective marketing strategies and building a good customer base can overcome the inflation and competition challenge.
Further research can be conducted in different parts of Durban. In addition, focus can be more in-depth on the most critical challenges identified that affect SMME performance.
INTRODUCTION OF THE STUDY
Steyn (2017:1) indicates that in South Africa, a developing country, Small, Medium and Micro-sized Enterprises (SMMEs) contribute significantly to the country’s gross domestic product (GDP) and are regarded as the country’s engine to growth. This helps to remedy some of the county’s problems such as poverty, unemployment and innovation (Writer, 2017:1). Dana, Ratten and Honyenguga (2018:10) explain that despite the importance of SMMEs, the challenges that they are faced with are complex causing an effect on performance and consequently, compromise growth in the country.
Dana et al. (2018:10) state that the challenges in business are far more complicated than they previously were due to a dynamic and unpredictable market. The ability to uncover and gain a better understanding to the challenges that SMMEs in Durban encounter, will allow for growth and development.
Dana et al. (2018:11) posit that therefore entrepreneurship and SMME development and support is vital to addressing the concerns and problems that South Africa encounter, which can be used as driver for growth.
1.2 Background to the Problem
Friedrich (2016:1) explains that there are a large number of SMMEs in South Africa, Durban that tend to fail or have stagnant growth at early stages of inception. In addition, many potential entrepreneurs in South Africa have doubts and hesitations about entering the SMME sector due to the challenges that SMMEs encounter. The failure rate and the lack of motivation or incentive to enter the SMME sector, draws concern for growth within the country and contribution to gross domestic product (GDP).
SMMEs in South Africa, Durban are characterised by being any entity that offers trade with the ideology of making a profit. In Durban, many SMMEs are not registered and fall under the informal sector. Nevertheless, these SMMEs experience the same challenges that SMMEs under the formal sector encounter.
In all parts of the world, like Durban, SMMEs hold a significant place due to the importance and value that SMMEs add in terms of growth and development. Previous studies on the challenges that affect the performance of SMMEs in South Africa were reviewed. While there was vast research conducted, the focus of previous studies were primarily focused on a specific challenge or explored other parts of the country, but not Durban. Therefore, the researcher chose to bring attention to both internal and external challenges that affect SMMEs in Durban.
Since SMMEs contribute to the South African economy, there is a desperate need to discover the challenges that inhibit SMMEs growth that negatively affect business performance. Therefore, by determining these factors, recommendations can be drawn up to improve the performance of SMMEs. This can provide insight to assist existing and potential entrepreneurs in the SMME sector as well as policy makers. The ongoing concern of poverty, growth, unemployment and innovation is a pandemic in South Africa. The success of the SMMEs can be a possible remedy to some of these major problems that South Africa faces (Friedrich, 2016:1). Mashimbye (2018:1) adds that SMMEs are important to supporting the economic development in South Africa. However, Mashimbye (2018) points out that the failure rate of SMMEs in South Africa is exponentially high.
1.3 Research Problem
It has been noticed that SMMEs in Durban commenced due to the high rates of unemployment and retrenchment causing these individuals to earn some form of income. Unfortunately, the SMMEs are not thriving and growth is being stifled. More specifically, the failure rate of SMMEs in Durban is in elevation.
During interactions with SMME owners, it was discovered that there was a need for additional funds for growth and meet financial obligations. However, many of the SMME owners were refused credit due to a lack of business records or unfavourable business scoring.
After consulting with some of the SMME owners, it was discovered that they all experienced similar challenges that prevented business growth. One of the problems is due to the lack of education, skills and experience in managing and operating the small business. Technology is constantly evolving but SMMEs in Durban find the expense of technology too great to invest. Due to unemployment and poverty, many people in Durban tend to turn to crime and corruption but this impacts SMMEs by having to enhance security thereby increasing costs. The South African economy is so dynamic, causing changes in inflation and interest rates therefore affecting SMMEs in terms of obtaining finance and the cost of materials. The SMME owners also expressed that competition comes from local and foreign competitors, which affect business performance.
It is important to determine if all SMMEs in Durban experience the same or similar challenges that affect business performance. Therefore, there is a need to uncover the challenges, the impact of the challenges on business performance and discover factors for improving the performance of SMMEs in South Africa.
1.4 Aim of the Research
The aim of the study is to investigate the challenges that are faced by SMMEs and the impact on business performance in Durban, KwaZulu-Natal, South Africa.
1.5 Research Objectives
The objectives of this study are listed below as follows:
1. To investigate the challenges that are faced by SMMEs within Durban, KwaZulu Natal
2. To assess the impact of these challenges on business performance of SMMEs within Durban, KwaZulu Natal
3. To recommend possible solutions to the identified critical challenges to improve the performance of SMMEs within Durban, KwaZulu Natal
1.6 Research Questions
1. What are the challenges that are faced by SMMEs within Durban, KwaZulu Natal?
2. What impact do these challenges have on business performance of SMMEs within Durban KwaZulu Natal?
3. What are the recommended possible solutions to the identified critical challenges to improve the performance of SMMEs within Durban, KwaZulu Natal?
1.7 Significance of the Research
According to Friedrich (2016:1), the current state in South Africa is governed by high levels of unemployment, poverty and a generally low standard of living. The success of SMMEs can make a huge contribution to economic growth and development, which can be a part of a solution to the unemployment epidemic. Given the great failure rate and the important role that SMMEs in South Africa play, it becomes particularly imperative to research the challenges that entrepreneurs face and the recommendations that can assist business performance. This will allow SMMEs to thrive, create employment opportunities and encourage the economy’s growth rate.
The study exposes the challenges that SMMEs within South Arica, Durban face. In addition, the strategies, recommendations and methods to overcome challenges will assist SMMEs to grow. Dana et al (2018:10) state that this would also prove beneficial to entrepreneurs who are looking to enter the SMME sector as information and skills will be revealed upfront. The recommendations, suggestions and strategies are obtained from information gathered throughout the process of the study. According to Dana et al. (2018:10), this provides insight to policy makers who will be able to identify areas that SMMEs require more support and guidance. Due to the importance, this study will also assist SMMEs in Durban with reducing the failure rate, promoting, and developing SMMEs for success.
1.8 Chapter Summary
SMMEs are regarded as being engines for economic growth in South Africa by having the ability to create employment opportunities and remedy the country’s poverty epidemic. Despite the important role that SMMEs play in South Africa, there are many challenges that have a negative impact on business performance.
This chapter explained the purpose of the study by providing a comprehensive background to the study, problem statement and significance of the research. This study aims at identifying and analysing the challenges that SMMEs are faced with and evaluating ways that business performance can improve. The research objectives and questions were outlined to reiterate the purpose of the study. Chapter 2 presents research that has been gathered by various authors with the purpose of acquiring an understanding and identification of the challenges faced by SMMEs.
2.1 . Introduction
The purpose of this chapter is to review the relevant literature that are in line with the aim and research objectives of the study. This study aims at exploring the challenges that Small, Medium and Micro-sized Enterprises (SMMEs) are exposed to and the impact that this has on their business performance. The literature review begins with definitions and characteristics of SMMEs, followed by the role and contributions that SMMEs make to South Africa. The study then draws attention to the challenges that SMMEs in Durban, KwaZulu Natal experience.
2.2. Definition and Categories of SMMEs in South Africa, Durban
Ward (2018:1) and Charbonneau (2013:1) allude that defining a SMME can be tough and that each country sets their own parameters due to criticism of the definition. Furthermore, in South Africa, a SMME is defined based on three aspects: the number of people employed, annual sales or turnover, asset value (excluding fixed property) of the company or a combination of these factors. SMMEs are classified as medium, small, very small and micro. Moreover, the terms used in South Africa are Small, Medium and Micro-sized Enterprises (SMME) and Small Medium Enterprise (SME), which are used synonymously.
In the report of Institute of Risk Management South Africa (2015:1), SMMEs are defined as “any entity carrying on small enterprise concerns in any economic sector with the aim of making a profit.” According to The Banking Association of South Africa (2018:1), SMMEs are categorised in accordance to the size or class, number of fulltime paid employees, annual turnover and gross asset value (excluding fixed property).
2.3 Role and Contributions of SMMEs in the Economy
In South Africa, SMMEs are considered key contributors to the growth and development of the economy’s gross domestic product (GDP). SMMEs are described as being the backbone of the economy (Business Report, 2018:1). Writer (2017:1) states that SMMEs contribute 52% of South Africa’s GDP. SMMEs make up 91% of formal businesses and provide 60% of employment to the labour force (Banking Association of South Africa, 2016:1). SMMEs support the economy by reducing the high unemployment rate, contributor to innovation and skill development and the improvement of overall socio-economic problems.
SMMEs provide benefits for individuals and the country (Business Report, 2018:1). For individuals such as employees, employers and families, there is a heightened and improved standard of living. For the country, its resources and raw materials that would not have been utilised, economic growth and opportunities and supportable employment (Business Report, 2018:1).
Bierman (2018:1) states that according to the recent budget speech, the South African Government is realising the importance of SMMEs and has allocated a provisional R2.1 billion for the growth and development of SMMEs. There have been several strategies, policies and programmes that were put in place to support SMMEs (Business Report, 2018:1). Moreover, these need to be re-assessed to suit the industry that the SMME operates within.
Despite the importance, SMMEs within South Africa, Durban have a large amount of failed SMMEs at early stages of inception. There are a vast number of challenges that affect the business performance. Mashimbye (2018:1) explains that approximately 70% to 80% small businesses in South Africa fail within the first year of commencement and a mere 9% survive to celebrate the 10-year mark. Mashimbye (2018:1) adds that only a small number of successful SMMEs turn into high-nett-worth firms. Furthermore, South Africa has one of the highest failure SMME rate in the world.
Therefore, given the importance of SMMEs, it is vital for SMMEs to have strategies in place to defend themselves against these challenges and utilise the opportunities to reduce the failure rates of SMMEs. The identification of the challenges will assist policy makers. These strategies will help current and future SMMEs to grow by improving business performance and the survival rate.
2.4. Challenges Affecting SMMEs in South Africa, KZN, Durban
In the context of this study, Collins (2018:1) defines a challenge as being something that is often difficult and has to be undertaken with great determination to overcome. Furthermore, a challenge can be something that is questioning the truth or value.
According to Mashimbye (2018:1), there are many challenges and growing trends that SMMEs in Durban face on a daily basis and these challenges that SMMEs face are more complex and diverse than they previously were. Mashimbye (2018:1) further explains that this is due to the discovery of new markets, technology, innovation, rules and regulations and other internal and external factors that affect SMMEs business performance.
Writer (2017:1) states that in South Africa, some of the challenges may stem from the country’s history. In the past, Townships in KwaZulu-Natal were placed in clusters and did not have much access to the urban environment. This is further explained as the Townships still have a lack of infrastructure and investment thereby leading to the inability to acquire assets, access to technology and development.
The growth and survival of SMMEs in South Africa are often susceptible to various challenges that occur within the business environment. The business environment is defined as “a collection of all individuals, entities and other factors, which may or may not be under the control of the organisation, but can affect its business performance, profitability, growth and even survival,” Business Jargons (2018:1). Moreover, the business environment is categorised into two broad categories being the internal environment and the external environment. The internal environment refers to factors within the organisation and the external environment relate to aspects outside of the organisation. Jain, Trehan and Trehan (2014:38) explain that the success of SMMEs is being able to understand the business environment adapt the organisation accordingly.
2.4.1 Internal Environment Challenges
According to Jain, Trehan and Trehan (2014:38), the challenges that occur within the internal environment are generally controllable as the SMME has direct control over these factors. The internal factors that will be discussed are the managerial skills, competency and policies, employees and financial resources.
22.214.171.124 Managerial Skills, Competency and Policies
Czaja (2017:1) explains that managerial competencies are a component of skills, motives and attitudes necessary for executing business tasks effectively. Furthermore, managerial skills include being able to work in a team, problem solving, communication and being client focused among other basic skills such as writing and speaking.
Hayton (2015:1) alludes that many SMMEs are not growing due to the lack of management and leadership skills. Czaja (2017:1) adds that good management indicates being capable of creating a conducive and effective working environment that boosts business revenue. Czaja (2017:1) explains that the lack of management skills, competency and policies are one of the major reasons that SMMEs fail. Furthermore, there is a strong relationship between entrepreneurship skills, management skills and leadership having a direct impact on the performance of SMMEs in terms of turnover, productivity and employment growth.
According to Hayton (2015:1), entrepreneurial education is being offered globally and rapidly becoming recognised as more of a need for entering the SMME sector. Dludla (2014:1) agrees and adds that SMMEs with owners that are more educated within the industry are more likely to succeed. In addition, Dludla (2014:1) further states that research that was conducted in South Africa proves that there is a strong correlation between opportunity-driven entrepreneurs and the level of education. Dludla (2014:1) adds that even the small changes in education and training can have a positive impact on SMMEs and improve entrepreneurial climate. The crucial challenge in South Africa is experienced when entrepreneurs do not have the required education due to economic and time restrictions.
Hayton (2015:1) adds that management and owners require certain skills to run successful SMMEs but not all skills are necessarily required at equal levels. It is further explained that due to major time constraints in the SMME sector, the skills may not be perfected. Hayton (2015:1) posits that many of the entrepreneurs are ignorant to the skills required on inception of the business. However, the required skills are essential to the survival, growth and development of the SMME.
Research conducted by Applegate, Butler and Kraus (2016:1) found that financial management skills and knowledge is key to the survival of SMMEs. Research conducted by Applegate, Butler and Kraus (2016:1) demonstrated the importance of decision making regarding financial management. Furthermore, it is imperative for the entrepreneur to have financial management training, bookkeeping skills, inventory management and sales and marketing training in order for the survival of the SMME. In addition, the skills, training and knowledge acquired by the entrepreneur assists in making informed and confident decisions.
Managerial skills and competency are important by employing policies for the organisation. These include financial management, decision-making, communication, education, training and having the correct attitude and motivation. This helps the SMME to grow, develop and reduce the failure rate.
Johansson (2018:1) states that SMMEs face challenges regarding the lack of resources, inexperienced human resources and employees, size, location and public awareness. It is added that employing the right employees may be difficult and overwhelming but is a crucial component to business success.
Martin (2013:1) allude SMMEs have indicated a 5% decrease in confidence levels with finding staff with the required skill level to positively contribute to the organisation. Furthermore, this is attributed to the low levels of education in South Africa at the secondary and tertiary level institutions. Martin (2013:1) states that in South Africa, there has been a severe decline in young people learning toward math, science and technology, resulting in the decreased skill level.
Reeve (2014:1) states that economies of scale are a challenge for SMMEs when training of new employees is concerned. As a result, SMME owners rely heavily on the organisations culture for new recruits to learn as they work. This is because providing training and supplying training guides and manual may pose costly for the organisation.
According to Reeve (2014:1), many SMMEs that do not have dedicated human resource (HR) staff due to budget constraints. As a result, other employees such as bookkeepers, who do not have the expertise, carry many of the HR activities are forced to. Reeve (2014:1) posits that this often leads to the lack the knowledge, need and resource to upskill employees within the organisation, making the compliant, bored or undervalued. This could result in a high staff turnover, preventing the SMME from retaining skilled employees that have knowledge of the business.
According Johansson (2018:1), many SMMEs lack public awareness and as a result, the SMMEs are not attracting the most suitable calibre of candidates. Furthermore, even if there is a dedicated human resource (HR) department, the job postings may not receive as much attention as compared to a large corporate firm due to the lack of name recognition. Johansson (2018:1) adds that SMMEs business location also plays a vital role in attracting skilled employees. This is because in South Africa, there is a high crime rate and employees want to be employed in a location that is safe. Moreover, there a large labour force that utilises public transportation services, therefore, there is the need for easy access to the various stations and stops.
Johansson (2018:1) states that many SMMEs experience the “warm body syndrome.” This means that employees are employed based on convenience and being cost-effective as opposed to being the right fit for the organisation and possess the necessary skills. As mentioned above Sherman (2018:1) indicates that due to lack of financial resources, the SMME is forced to employ labour that is cost-effective. However, this may be problematic after a few months during operations where the warm bodies could be dragging down the organisation rather than contributing to returns.
It can be noted that by not having the right employees, lack of human resource skills and knowledge can result in business failure or stagnant growth. This is further pointed out that SMMEs need the most fitting employees hired in their organisation to gain growth and provide growth to the economy
126.96.36.199 Financial Resources
Sherman (2018:1) points out that even in a booming economy, one of the major challenges that affects the growth and survival SMMEs is financial resources and the inability to access finance. It is added that limited financial resources has negative impact on business performance in the sense that the organisation is unable to employee the required staff, incapable to purchase good quality equipment or have a limited marketing and advertising budget.
The relationship between banking institutions and borrowers is often a strained one. Obtaining credit from a banking institution may pose both difficult and costly for the SMME (Qatar, 2018:1). Coeure (2013:1) further explains this by mentioning that banking institutions regard SMMEs as being more likely to default on repayments as opposed to larger firms. This can become challenging for SMMEs to grow and manage day-to-day activities and expenses.
According to Long (2017:1), banking institutions and creditors want to view and analyse past and present financial records before granting credit facilities. There are 1.5 million informal business owners in KwaZulu Natal (Business Tech, 2016) . Given the state in South Africa, KwaZulu Natal, Durban, there are a large number of informal SMMEs that are often not registered, do not have the business documents or lack the basic bookkeeping skills to prepare the financials. This further states the point by Long (2017:1) that lending institutions consider SMMEs more risky to lend to.
According to Long (2017:1), should a SMME have all their financial and business records up to date and prepared accurately, a financial lending institution or credit may consider looking into their records. A concern for the SMME owner is the small business credit scoring (Experian, 2018:1). This score helps the institution determine the interest rate that can be offered to the organisation (Experian, 2018:1) and (Nedbank, 2018:1). Furthermore, the owner and other partners, along with the business need to be assessed on the credit bureau. Long (2017:1) further states that given the risk of SMMEs, the interest rate is often high, making is difficult for the SMME owner to keep repayments on track.
In some instances, financial lending institutions may require some form of collateral in order to reduce the risk of lending. Collateral increases chances of approval and may be a requirement for an application ( Standard Bank, 2018:1) and (Nedbank, 2018:1). This is particularly used for SMMES with little or no credit history and start-ups.
Sherman (2017:1) points out that the lack of financial resources may result in SMMEs to fail, not begin or experience stagnant growth, as they are unable to be creative and innovative. In addition, it is important for the SMME to have proper and up to date business and financial records for greater chances of financing options.
2.4.2 External Environment Challenges
According to Jain, Trehan and Trehan (2014:39), the challenges that transpire from the external environment are beyond the control of the SMME. Furthermore, external challenges range from competition, suppliers and customers, socio-economic, political, economic, technological, globalisation and legal. The factors that will be discussed are technology, crime and corruption, legislation, laws and regulation, economic and competition.
Wregren (2013:1) allude that technology, in a developing country such as South Africa, is a crucial contributor to SMMEs growth and development. Technology is inclusive of any online activities, equipment or improvements to digital presence. Wregren (2013:1) states that SMMEs that utilise technology advancements contribute to the economy by increasing revenue and creating employment opportunities
According to Wregren (2013:1), SMMEs are faced with the challenge of implementing technology due to the cost that is involved. SMMEs lack the financial resources to purchase technology or keep up to date with new technology The cost does not only include purchasing but also includes training and the time taken to perfect its use (Qatar, 2016:1). In addition, Wregren (2013:1) mentions that when learning to use technology, there is always the risk of making mistakes. Brookins (2018:1) agrees and further mentions that when the organisation carries out new technology, employees may experience the learning curve effect, which temporarily reduces productivity. This can be detrimental to an SMME by resulting in a loss of clientele or hurting the firm’s corporate image.
Wregren (2013:1) explains that SMMEs, who do not employ and attract employees that are skilled and knowledgeable, may have the challenge of their employees not being able to embrace change. Furthermore, Wregren (2013:1) adds that SMMEs are more reluctant to roll out new technology due to their employees not being capable to utilise the technology in a manner that is beneficial to the organisation.
Bryant (2018:1) states that SMMEs constantly have to try to gain a competitive edge over larger organisations, who have the resources at their disposal. Given that technology is now being recognised for its importance throughout the world, SMMEs that do not invest in technology could result in failure.
According to Brookins (2018:1), technology assists SMMEs with the capabilities of being able to communicate with clients, suppliers and other stakeholders easier and quicker. Brookins (2018:1) adds that the use of online shopping provides convenience for customers and generates revenue for the organisation. Furthermore, given the flexibility of technology, employees and owners are able to work away from the work place and enter global markets, giving SMMEs an edge. As mentioned by Wregren (2013:1), employees need to be able to use the technology to create revenue. By not embracing technology, SMMEs are not being able to utilise all opportunities, hence this could be resulting in failure and growth prevention.
Research conducted by Rossie (2016:1) indicates that SMMEs that have embraced digital technology show faster growth than those that do not. The study also proved evidence that employing software such as Customer Relationship Management (CRM) systems and analytics assist SMMEs with being able to run smoother, simpler and able to compete with larger organisations. This further reiterates the importance and need for SMMEs to adapt and embrace technology.
188.8.131.52 Crime and Corruption
Smit (2014:1) explains that in South Africa, the high crime and corruption rate remains an essential concern for SMMEs. In addition, that the crime and corruption in South Africa is attributed to the increase in people not being able to meet financial obligations, due to the current economic downturn. Therefore, this increases the temptation to be a part of criminal activities.
Wolman (2015:1) points out that crime and corruption does not only occur out of the organisation, but internally too. In many instances, crime goes undetected for long periods before surfacing and in many cases, once noticed, recovery can be difficult. Wolman (2015:1) further states that white-collar crime is the most sophisticated crime whereby it is very rare that an employee will be caught. Kervick (2016:1) adds that corruption may take the form of bribery of fraud where an employee may motivate for a supplier, despite quality, cost or reliability, for self-gain such as a portion of profit. This may result in SMMEs failing due to a loss of clientele based on poor quality products. In addition, this may also cause the SMME to declare bankruptcy.
Given the state of the economy in South Africa, Wolman (2016:1) explains that SMMEs experience cash flow difficulties, resulting in cutting back on security and insurance cover. Furthermore, without adequate cover, SMMEs can face even larger losses, which may not be recoverable, should they become a victim to crime.
Lucero (2013:1) states that many SMEs engage in corruption, as they do not have the influence, resources and bargaining power to be able to contest requests for unofficial payments. Furthermore, SMMEs resort to corruption due to bureaucracy and issues around compliance (Corruption Watch, 2014:1).
SMMEs also face corruption challenges when dealing with public sectors and municipalities at all levels. Unis (2013:1) explains that this includes licences, taxes, permits and contracts. Furthermore, Unis (2013:1) says that this bribery and corruption is undertaken to receive service faster, to be a part of a panel for future work or granted a licence due to regulatory requirements.
184.108.40.206. Legislation, Laws and Regulations
Entrepreneurs establish SMMEs with main objective of acquiring new businesses and ensuring continuous and sustainable profitability. Webster (2013:1) explains that legislation, laws and regulations tend to be forgotten due to the pressure of ensuring constant flows of revenue. However, by not keeping up to date with the legal requirements, this may result in SMMEs being liable for severe fines, forced closure or stifling business growth.
Prem (2014:1) posits that it is essential for SMMEs to be made aware and abide by the legal aspects as it regulates the relationship between the employer, employees and other stakeholders. Webster (2013:1) states that many entrepreneurs are under the impression that because they have only a few employees or turnover is small; they are not obliged to comply.
According to Thulo (2014:1), regulatory compliance for South African SMMEs may become too time consuming and even costly if professionals are required. In addition, many SMME owners do not understand the legislation, making if challenging to comply. Thulo (2014:1) explains that some of the major regulations that affect South African SMMEs are taxation legislations and compliance imposed by South Africa Revenue Services (SARS), labour laws and regulations, Broad Based Black Economic Empowerment (BBBEE).
Hoover (2016:1) stated that research conducted by National Small Business Association indicated that taxation compliance posed as one of the biggest challenges for SMMEs (National Small Business Association, 2018:1). This was further narrowed to being Value Added Taxation (VAT) and income taxation. Thulo (2014:1) adds that due to complexity and lack of skills, most SMMEs outsource this function. This is costly and is challenging for SMMEs to comply with.
Schoeman (2017:1) explains Broad Based Black Empowerment Equity (BBBEE) was introduced to readdress the inequalities of the past in South Africa. This legislation affects businesses of all sizes, especially SMMEs. The challenges that SMMEs faced were the lack of information for compliance, the costs involved and finding suppliers, employees and partners to improve the organisation’s scorecard.
SMMEs in South Africa always contemplate on ways that they can avoid legislation. This is mainly due to the cost and time involved. In addition, SMME owners need to consult with professionals or conduct extensive research on compliance and legislation due to the lack of information, skills and knowledge.
220.127.116.11 Economic: Interest Rates and Inflation Rates
Saunders (2017:1) explains that inflation and interest rates in South Africa have a negative impact on SMMEs. This is attributed to the weakened rand and high inflation rates.
McCarthy (2016:1) explains that the high inflation rate causes business owners to increase their prices of products and services to offset the high inflation. However, the concern is that many SMME owners either do not do this due to competition, forget or do not understand the need. This will be detrimental to the SMME, as they will not be making the desired revenue to remain in operation. The cost of raw materials, services and other costs involved in running the business will also increase. The increase in costs has a negative impact on SMMEs (Start Up Biz Hub, 2018:1).
According to Duff (2018:1), the increase in the interest rate, affects SMMEs by forcing them to pay more interest on borrowing funds in the form of business loans, overdraft facilities, property loans, vehicle finance and credit cards from financial institutions. In addition, the high interest rates affects consumers spending by making them more cautious before making purchases.
The economic conditions in South Africa have a direct impact on SMMEs as well as spending habits on consumers. Duff (2018:1) states that all businesses, big and small, are affected by the economic conditions.
Competition is a major concern for SMME owners due to these small businesses having to compete against large corporations for market share. Florain (2016:1) states that competition may have a negative effect on SMMEs in terms of the labour costs, production and price factors.
The pricing goods and services for SMMEs can be challenging with competition in the market place (Start Up Biz Up, 2018:1). This is because if goods are priced too high, this can make the firm more revenue per item sold but can also cause customers to be attracted to the firms’ competition. Should the price be low, the organisation runs the risk of not making adequate revenue to continue operations. As a result, SMMEs pricing strategy has to be high enough to make returns but low enough to attract consumers. This is the challenging aspect for SMMEs.
Florain (2016:1) explains that competition within businesses often change due to many factors such as technological advances, changes to consumer behaviour and globalisation. A competitor may be able to produce the same product at a fraction of the cost due to new technology (Start Up Biz, 2018:1). This poses challenging for SMMEs, as it is important to change strategies and technology to keep abreast with competitors.
According to Green (2017:1), many domestic SMMEs are threatened by the entry of foreign companies. Furthermore, Green (2017:1) states that local SMMEs find it challenging to keep up with these foreign firms in an attempt to remain at their current business position or even survive. In addition, with the free trade agreement, SMMEs are going to find it even more challenging.
2.5. Chapter Summary
The literature review focused on aspects that SMMEs in South Africa, KwaZulu-Natal find challenges in. These challenges can occur outside the business or within the business and affect business performance in the sense of being able to grow and develop. The challenges that SMMEs face not only affect the individual or owner but also affect the country. This is because SMMEs are key role players in the growth and development of the South African economy. Furthermore, SMMEs assist with remedying the high levels of unemployment, which is one of the major concerns in South Africa. The next chapter (chapter 3) explains the methods that were used to collect and analyse data for the study.
According to Leavy (2017:5), research methodology are the methods and procedures for collecting and analysing data to obtain answers to critical questions for the study. This chapter focuses on determining and explaining the research strategy, the target population and sample and sampling strategy that was used for the study. Furthermore, the questionnaire is discussed, the validity and reliability of the data is explained, followed by the data analysis. Thereafter, a pilot study is explained. Lastly, the limitations of the research, elimination of bias and ethical considerations are discussed.
3.2 Research Design
Ang (2017:3) describes research design as a framework of how primary data is collected, the research instrument employed and the method for the analysis of data. Furthermore, Ang (2017:3) explains that the purpose of developing a research design is to obtain primary data to the research questions. Leavy (2017:5) states that the common research design methods are causal-comparative research, correlation research, explanatory research, descriptive research and exploratory research.
According to Leavy (2017:5), exploratory research is a way of learning about a topic by assisting to fill a gap with knowledge on an under-researched topic. Furthermore, Leavy (2017:5) explains that descriptive research is about describing individuals, groups, activities, events or situations. Leavy (2017:5) describes explanation research as being used when an explanation about a cause and effect, correlation or why things are the way that they are. According to Ang (2017:3), correlation research is to determine whether two variables in the study are correlated. Ang (2017:4) states that causal-comparative research is used to identify a causative relationship between an independent variable and a dependant variable.
3.2.1 Research Design for this study
For this particular study, the researcher has chosen the descriptive research method. This is because the research design is best suited for the study to describe the responses received and analyse the data from the SMME owners in Durban. In addition, the research instrument chosen, being the questionnaire is appropriate for descriptive research design. Murphy (2018:1) states that the descriptive research method helps with using variables that can be tested. In this study, the challenges were the variables that were tested against business performance. Furthermore, the descriptive research method can be used for collecting large amounts of data on various topics, such as the different challenges. One of the most important advantages that Murphy (2018:1) points out is that this method is least time consuming. However, Murphy (2018:1) states that a disadvantage of this method is that there is the possibility of human error through misunderstanding or participants not feeling comfortable to reveal information relating to their company. In this study, this was prevented by ensuring that confidentiality and anonymity was maintained. Furthermore, instructions were clearly marked and worded appropriately to avoid misunderstanding or misinterpretation. Although there are disadvantages to the descriptive research method, these were overcome, making this method the most suitable for the study.
3.3. Research Philosophy
According to Datt (2016:1), the purpose of research strategy is to allow researchers the ability to answer research questions. Furthermore, it flows and shapes the structure of the research that is founded based on the aims and objectives. Kumar (2014:1) explains that the research strategy employed is directed by the research questions, aims and objectives of the study. Datt (2016:1) adds that the time constraints, existing and available knowledge and resources also influence the research strategy. Kumar (2014:1) states the three research approaches: qualitative or positivist; quantitative or phenomenological and the mixed methods approach.
3.3.1 Qualitative or Phenomenological Research
According to Sekaran and Bougie (2016:300), qualitative research is used to describe data in terms of its quantity, where there is no numerical value placed on a specific group or aspect of the study. Furthermore, Adams, Khan and Raeside (2014:6) state that qualitative research employs methods, data collection and analysis that is non-quantitative in nature. Adams et al. (2014:6) add that the qualitative method is aimed towards exploration of the research question and objective.
According to Dowd (2018:1), qualitative research is useful for behavioural studies and for a study with a small sample size. In addition, Dowd explains that the biggest advantage is the ability to investigate and obtain descriptive data. However, Dowd (2018:1) explains that this method is time consuming and cannot be generalised to the population.
3.3.2 Quantitative or Positivist Research
Kumar (2014:87) explains that the quantitative or structured approach is where everything about the research from the aims, objectives, design, sample and questions that are planned to ask respondents are predetermined. Moreover, this research approach is carried out on a larger sample size, gives importance to validity and reliability and communicates findings in an analytical and aggregate matter.
Kumar (2014:88) points out that the quantitative research approach has many advantages. One of the advantages that this research method presented is the ease of being able to administer the questionnaires with participants from around Durban. This will mean that large amounts of data can be quickly collected. In addition, given the large sample size, this will provide a generalised viewpoint for participants that are not even included in the study. The questionnaire also allows for anonymity, giving respondents the ability to discuss topics that are sensitive with honestly and transparency. However, Kumar (2014:88) points out that this method may result is survey errors in measurement and flawed sampling techniques. In addition, quantitative method involves numbers, which some may find complicated or challenging.
3.3.3 Mixed Methods Approach
According to Kumar (2014:89), the mixed methods approach entails an integration of both the qualitative and quantitative approach. Furthermore, this approach is utilised when one wants to validate results from other methods to clarify unexpected findings or possible contradictions. This method can also be used to generalise findings from the qualitative approach.
The mixed methods approach is much more complicated that the qualitative and quantitative methods, is time-consuming and difficult to implement one method by drawing on the findings of the other (Foodrisc, 2018:1). However, the mixed approach method provides a more comprehensive understanding of the research problem helps to validate findings and provides the strengths that offset the weaknesses of the other method (Foodrisc, 2018:1).
3.3.3 Research Approach for this Study
For the purpose of this study, the researcher used the quantitative or positivist approach. This study has many time constraints; therefore, the quantitative approach allows primary data to be collected quicker and is relatively less expensive than qualitative or phenomenological research. The respondents are providing very case sensitive information about themselves and the company, making anonymity greater with the positivist method. Lastly, the results of the study can be generalised for the entire population of SMMEs in Durban.
3.4 Research Strategies
According to DeFranzo (2013:1), phenomenological (qualitative) research approach uses different research strategies as compared to the positivist (quantitative) research approach. Furthermore, the research strategies for the phenomenological approach include interviews, focus groups, case studies, action research, grounded theory and ethnography. However, the research approach selected for this study was positivist (quantitative) approach. DeFranzo (2013:1) states that survey research is used for positivist approach.
3.4.1 Research Strategy for this Study
According to Ornstein (2013:1), survey research is a popular research strategy for the positivist method. Reddy (2018:1) states that if the questionnaire fails to provide possible answers, it can result in missing important data. Reddy (2018:1) adds that the entire population does is not part of the survey research, therefore making assumptions difficult about the population. In addition, Ornsten (2013:1) explains that survey research assists the researcher to represent almost any population as questionnaires can cover a range of topics and subject matter to acquire a large amount of primary data relatively quickly at a relatively low cost. Furthermore, survey research provides for a higher capability to represent a large population. This was most applicable to this study because the researcher was able to gather data about SMMEs challenges quickly, generalise findings to the population and because the quantitative method was employed.
3.5 Target Population
McLoed (2014:1) describes the target population as a group of people that share similarities. A population can be a very large group or a small group of individuals. According to Odendaal (2017:1), there are 5.6 million SMMEs in South Africa. In addition, many SMMEs in Durban, KwaZulu Natal are not registered with Companies and Intellectual Property Registration Office (CIPRO) as companies or sole proprietors. Therefore, for the purpose of this study, a target population was obtained by evaluating the SMMEs in 10 streets in Durban North. The 10 streets in Durban North comprised of 285 SMMEs. McLoed (2014:1) explains that it is almost impossible to study everyone within the population.
According to McLoed (2014:1), a sample is a sub-group of the population that a study will be conducted on. It is further explained that a sample size that is selected for the study needs ensure that the participants are similar. This ensures the ability to generalise from the sample to the target population. Therefore, the more participants in the sample, the more confidence can be placed on generalisation. As a result, a sample size selected was 20% of the target population. In the case of this study, the sample size that had been selected was 57 respondents being SMME owners within Durban North.
Kumar (2014:54) explains that the accuracy of the findings is fundamentally dependant on the selection of the sample. Furthermore, sampling assists with not only being able to collect data when it is impossible to from the entire population, but also to minimise cost and abide by time constraints. According to Kumar (2014:54), there are two common sampling methods: probability and non-probability.
3.6.1 Probability Sampling Methods
Surbhi (2016:1) describes random or probability sampling as being where all subjects in the population are given an equal opportunity in being selected for the study. In addition, probability sampling can be simple random sampling, stratified, cluster or systematic sampling.
According to Surbhi (2016:1), cluster sampling is defined as dividing the population into separate groups, called clusters. These clusters can be based on demographic data, geographical location or other groups for comparison. Ochoa (2017:1) explains that simple random sampling is where all the elements in the population have an equal opportunity of being selected. In addition, common methods include utilising drawing names from a hat or modern technology that allows researchers to select names electronically at random. Crossman (2018:1) describes stratified sampling as dividing the population into sub-groups or strata, where all the participants have similarities. Furthermore, stratified sampling is utilised when the researcher wants to investigate the existing relationship between two groups. Surbhi (2016:1) explains that systematic sampling dividing the population and selecting the members through intervals by selecting the desired sample size from the entire population size.
Verial (2018:1) posit that probability sampling is beneficial for generalising a study of a sample to the population as all participants are given an equal chance of being selected. However, Verial (2018:1) adds that probability sampling can be time consuming and expensive.
3.6.2 Non-Probability Sampling Methods
Surbhi (2016:1) states that non-probability sampling entails that the possibility of each participant in the population being chosen is unknown. Furthermore, it is improbable to answer research questions or objectives that require mathematical analyses on the data obtained from the study. Non-probability can be convenience, quota, purposive, snowball or maximum variation methods.
According to Verial (2018:1), convenience sampling is a method that depends on collecting data from participants that are conveniently available to participate in the study. Furthermore, with convenience sampling, there is no inclusion criteria and all participants are invited to participate. Surbhi (2018:1) states that quota sampling is a method of obtaining a sample group that represents specific characteristics of the population. Surbhi (2018:1) explains that purposive sampling is also known as judgemental sampling where the researchers utilise their own judgement when choosing a sample. Surbhi (2018:1) posits that snowball sampling is used when characteristics of the sample are rare and difficult to find. Furthermore, snowball sampling method is best for obtaining data on a specific organisation. Surbhi (2018:1) states that maximum variation sampling method is based on a large population size with extreme variations. In addition, this method achieves the best results if coupled with another sampling method such as quota sampling.
Verial (2018:1) explains that non-probability sampling is most beneficial when there is a small sample size; it is more convenient and less costly than probability sampling.
3.6.3 Sampling Method for this Study
After reviewing the sampling methods, for the purpose of this study, the sampling method chosen was probability sampling, simple random sampling method. The reason behind deciding on simple random probability sampling was that it was challenging to select a minimum of 45 participants due to the large population size of 285 SMMEs within the 10 streets in Durban North. In addition, all SMMEs were given an equal opportunity in being selected. All 285 SMMEs were put into a hat and every fifth SMME that was selected from the hat was invited to participate in the survey until 57 participants were identified.
The inclusion criteria for the study is that the SMMEs had to be registered with Companies and Intellectual Property Registration Office (CIPRO) and the SMME had to be located within the 10 selected streets in Durban North. Furthermore, the SMME owner had to consent to be part of the study. The exclusion criteria were SMMEs that were not registered with Companies and Intellectual Property Registration Office (CIPRO). Participants were also excluded from the study if the SMME was not located within the 10 streets in Durban North.
Although 58 questionnaires were distributed, the researcher only managed to acquire 57 questionnaires. The sample size selected for this study consists of 57 SMMEs that were selected within the 10 selected streets in Durban North. This sample size included the 10 participants for the pilot study. This met the criteria of Regent Business School, being a sample size of a minimum of 45 participants.
3.7 Research Instrument
As previously mentioned, for the purpose of this study, the researcher had decided to use the quantitative approach. In addition, the primary data was collected using a questionnaire. Saris and Gallhofer (2016:2) define a questionnaire as a list of questions that are asked to a sample study for obtaining primary data for a study. Dudovskiy (2017) explains that questionnaires can be used for either the quantitative or the qualitative approach but they are differentiated through the nature of the questions. Since the quantitative approach was elected, the questions are close-ended with multiple choice and are analysed quantitatively with pie charts, bar graphs and percentages (Dudovskiy, 2017:1).
According to Reddy (2018:1), questionnaires are relatively inexpensive, can be administered without the respondents being present such as over electronic mail, allowing to obtain opinions from a large group and most importantly, anonymity can be maintained. Reddy (2018:1) explains that there are drawback to questionnaires as the results are only based from the type of questions asked, there is a lack of control to the response rate and a lack of control over answering the questions, participants may forget the purpose of the study and may lead to misinterpretation. The main reason for electing to use questionnaires was due to the convenience as many SMME owners have busy schedules.
3.7.2 Questionnaire Construction
The questionnaire (Appendix 2) was prepared in accordance to the aims, objectives and literature review. The covering letter (Appendix 2) of the questionnaire explains the purpose of the study, that participation is voluntary and may be withdrawn at any stage of the study, that there are not costs or monetary gain for participation.
McLoed (2018:1) states that a Likert Scale measures a respondent’s strength, intensity or experience to a particular aspect. In addition, the respondent is given either 5 or 7 pre-coded options to choose form with agreement, disagreement or neutral. Nelen (2017:1) explains that close-ended questions are used for quantitative research and is a set of pre-defined answers to the question posed. Furthermore, multiple-choice questions may also be used for quantitative research such as yes/no questions. The researcher has used a Likert Scale measure, close-ended and yes/no types of questions for the questionnaire. This type of questioning was used to develop the questionnaires.
The questionnaire is structured in a way that flows in the same way and order of the literature review. The first part of the questionnaire begins with demographic details pertaining to the manager or owner of the organisation. It is then followed by business related questions relating to the SMME in the study. The questionnaire is then divided by the internal challenges (Managerial skills, competency and policies, employees and financial resources) and external factors (Technology, crime and corruption, legislation, laws and regulation, economic and competition). This questionnaire covers all the aspects discussed in the literature review in order to obtain primary data for findings and recommendations.
3.8. Pilot Study
According to Shuttleworth (2018:1), a pilot study allows researchers to conduct a preliminary analysis before committing to an extensive study. During the pilot stage, any validity concerns are solved, methods and processes are tested and research on a smaller scale is verified to ensure that it will be successful.
In this study, the pilot test was conducted on the on the survey questionnaire to evaluate the appropriateness, validity and reliability. In addition, spelling, ambiguity, abbreviations or any other confusion or misunderstandings were tested. All participants were very helpful, provided great insight, and concluded that the questionnaire was appropriate and easy to understand.
The pilot study was tested on 10 respondents that are similar to those participants for the final study but have been excluded from the study. These ten respondents were selected from 10 streets within Durban North. These respondents were owners of which their SMME met the definition and inclusion criteria for the sample.
The researcher met with the respondents in person at convenient locations to administer the questionnaire. Consent forms (Appendix 1) were given to respondents to sign before commencement of the questionnaire. The covering letter, which explained the aims and objectives of the study, was reiterated. Once completed, the researcher collected the questionnaire on the same day. The administering of the questionnaire took respondents between 20-30 minutes to complete. The purpose of this test was to evaluate the understanding, appropriateness and to ensure that the owners were comfortable to answer the questions posed.
There were a few amendments such as spelling and grammar errors. In addition, the instruction of whether to tick or cross the most applicable option was added to the questionnaire.
The pilot study was a good experience and all participants were well informed of the purpose of the study, willing to participate and provided valuable insight. This also assisted the researcher with being more confident to administer the questionnaire as a means of receiving data applicable to the study.
3.9 Administering the Questionnaire
Before the administration of the questionnaire, consent were given to participants (Appendix 1). The respondents signed the consent letters to agree to be part of the study by answering a questionnaire. The consent letters (appendix 1) were distributed to participants by setting up appointments and meeting with the participants.
The respondents agreed to complete the questionnaires by meeting the researcher in person at convenient locations. This was the most suitable option as it provided convenience to the respondents, making them more willing to participate in the study. Furthermore, it assured anonymity of the respondent’s identity.
The researcher had set up appointments with participants to determine the most convenient date and location to meet to administer the questionnaire. It was indicated to the respondents that the questionnaire would take approximately 20-30 minutes for completion. Once meeting, before commencement of the questionnaire, the aim and research objectives of the study were explained to the respondent although this was indicated on the covering letter. In addition, consent was received again and the opportunity to opt out from the study was presented. During the meeting, the questionnaires were completed by respondents and collected from the respondents on conclusion of the meeting.
3.10 Collection of the Questionnaire
Respondents completed the questionnaires between 10 July 2018 and 5 August 2018. The questionnaires were collected from the respondents on the same day as administering the questionnaire. All questionnaires are stored in a file, in a locked cupboard where the researcher is the only person with access. The questionnaires will be kept for a period of five years, thereafter will be discarded.
3.11. Validity and Reliability
Taylor (2013:10) describes validity as “Threats to validity are those factors that lead us to doubt whether research and assessment claims can be trusted.” This means that validity is whether the findings are what they appear to be. Reliability is defined by Sauro (2015:1) as a measure of the consistency of a metric or method. In addition, reliability measures the uniformity and consistency of the responses. Furthermore, it is explained that validity and reliability measure the quality and trustworthiness of a quantitative study. For this study, validity and reliability was measured.
3.11.1 Validity Testing
According to Tao (2018:1), validity testing uses the four common methods being face validity and content validity, criterion validity and concurrent validity. Tao (2018:1) explains that face validity as being if the instrument measures what it indent to measure. Furthermore, Tao (2018:1) describes content validity as non-statistical and entails subject matter experts assessing survey items against stipulations. In addition, content and face validity are closely linked. Tao (2018:1) states that criterion validity assesses if the questionnaire essentially measures the concepts of the study. Lastly, Tao (2018:1) explains that concurrent validity is when one measure is compared to another measure and they are related. For this study, face validity, content validity and criterion validity were measured.
18.104.22.168 Face Validity
Face validity was achieved by having the 10 SMME owners from the pilot study answer the questionnaire to ensure that it was appropriate and measured what it was supposed to measure. In addition, face validity was also achieved through obtaining feedback from the research supervisor and research coordinator on the questionnaire.
22.214.171.124 Content Validity
By conducting the pilot study, content validity was achieved by respondents indicating if they were comfortable to answer the questions and if the questions made sense to them. In addition, content validity was achieved from gaining insight from the research supervisor and research coordinator .
126.96.36.199 Criterion Validity
Criterion validity was achieved in the study by taking into account the consideration of other questions for questionnaires that were used in similar studies. In addition, criterion validity was achieved by scrutinising items in the questionnaire, to assess if the questions in the study correlate to meeting the objectives of the study.
3.11.2 Reliability Testing
Sauro (2015:1) explains that the common methods of measuring reliability are parallel forms of reliability, test-retest reliability and inter-rater reliability. Sauro (2015:1) describes parallel forms of reliability as being getting the same or similar results from slight variations of the question. Sauro (2015:1) explains that test-retest is asking respondents to answer the questionnaire twice and at different times or days to monitor if the answers yield the same as the first time. Lastly, Sauro (2015:1) explains that inter-rater reliability is the extent to which respondents respond the same way to a given phenomenon. For this study, parallel forms of reliability, test-retest reliability and inter-rater reliability were measured.
188.8.131.52 Parallel Forms of Reliability
The parallel forms of reliability was tested by giving the participants of the pilot study a questionnaire from another study and the questionnaire in this study to see if it yielded the same result. This measure revealed that the participants responded in the same manner.
184.108.40.206 Test-retest Reliability
The five SMME owners from the pilot study, whom were excluded from the study, conducted the test-retest. They answering the questions on two separate days and in different environments did this. Therefore, this was used to measure if the participants yield the same responses. The test-retest showed that the participants responded the same way to the questionnaire.
220.127.116.11 Inter-rater Reliability
The inter-rater reliability was measured by having the research instrument assessed by the research coordinator and research supervisor to ensure that the questionnaire measures the research objectives and provides insight to the research questions in the study. The inter-rater reliability measure was tested as the research coordinator and research supervisor indicated that the questionnaire measures consistently to the objectives of the study.
3.12. Data Analysis
The instrument used for collecting primary data is the questionnaire. Data analysis is the way in which primary data is interpreted and analysed by using different techniques and methods for discovery (Dudovskiy, 2017:1). In addition, Dudovskiy (2017:1) adds, “quantitative research involves critical analysis and interpretation of the figures and numbers and attempts to find a rationale behind the emergence of main findings.”
According to Harvey and Land (2017:50), since quantitative research entails statistics, there are two types of statistics that may be used: descriptive or inferential statistics. Descriptive statistics are measures of central tendency and include mean, median and mode. Harvey and Land (2017:50) explains that inferential statistics is used when the researcher wants to make inferences about the findings to the population. Therefore, for the purpose of this study, statistical methods were used. The findings for the descriptive statistics would be presented using graphs, pie charts, tables and using percentages, frequency and measures of central tendency.
Randolph and Myers (2013:57) states that the Chi-square test is to help enable researchers to determine if the sample represents the entire population with some characteristic that is measured at the nominal or ordinal level. The two types of Chi-square tests that was conducted was the Chi-square goodness of fit and the Chi-square test for independence. The Chi-square goodness of fit was used to test if the sample matches the population. The Chi-square test for independence compares variables in a contingency table to see if they are related. In this test, if the p value is less than 5%, this indicates that there is a strong relationship between two variables (Randolph and Myers, 2013:57).
3.13 Limitations of Research
The sample of the SMMEs chosen were from 10 streets within Durban North. However, Durban consists of hundreds of thousands of streets. Therefore, the limitation was the geographical location as the study was limited to the 10 streets in Durban North. However, the challenges that SMMEs face occur in the whole of South Africa. In addition, the need to increase the country’s Gross Domestic Product (GDP) affects the entire country. Furthermore, the socioeconomic problems such as unemployment and poverty are not only subject to Durban but to the rest of South Africa too.
Another limitation that presented itself with the study is the lack of participants responding to the questionnaire. This was due to time constraints as most of the participants had busy schedules and were not able to meet to complete the questionnaire. There was also a language barrier as the consents forms and questionnaires were presented in English only and there a substantial amount of SMME owners that were unable to understand.
3.14 Elimination of Bias
Sarniak (2015:1) explains that bias is experienced in all research studies. However, it may be reduced by taking careful considerations. Furthermore, bias can occur at any stage of the research process and may hamper the results.
Sampling bias as being a dependable inaccuracy that occurs due to the chosen sample (Explorable, 2018:1). This may prejudice the researcher’s estimated conclusions. Furthermore, this type of bias usually occurs because of sampling procedure executed. For this research, probability sampling was chosen. In order for elimination of bias within the sample, simple random sampling was used where every fifth participant that was drawn from a hat was asked to participate in the study.
Responder bias is where the participants of the study feel that they should answer in a specific way, respond in a desirable manner according to social standings or are afraid to answer the question honestly (Sarniak, 2015:1). In this study, responder bias was eliminated by reiterating that their identities and the company identity will remain confidential.
3.15 Ethical Considerations
According to Datt (2016:1), ethical considerations promote authenticity, public accountability, responsibility and adherence to human rights, legal obligations and compliance. This is important to the study as it ensures that confidential and sensitive information is not exploited. Furthermore, it provides the respondents with confidence in the researcher and to be honest in answering the questionnaire.
3.15.1 Informed Consent by Participants
Consent forms (Appendix 1) A1 were sent to respondents, requesting permission to conduct a study with the owner or head of the SMME. The participants were also informed that participation is on a voluntary basis and they are allowed to withdraw from the study at any time. Thereafter, questionnaires were sent to the respondents from July 2018 and it was further reiterated on the covering letter that respondents could withdraw from the study. If the manager answered the questionnaire, they were informed that permission was granted by the organisation.
3.15.2 Participants Protected from Harm
The participants were protected from harm by ensuring that all respondents were made aware that honesty, respect and sensitivity towards the participants are maintained at all times. Furthermore, the participants were reassured that their identities and the identity of the company will remain protected.
3.15.3 Confidentiality and Anonymity of Participants
The discussion and analysis was carefully constructed to ensure that no company names or identities of respondents were revealed. All permission letters and questionnaires will be kept for a period of three years in the event that there are any ethical concerns around the study or if verification is required. The letter indicated that confidentiality and anonymity of their identities and company identities would be respected and adhered.
3.15.4 Permission Obtained from Participants
Before the administration of the questionnaires, consent forms (Appendix 1) were given to respondents requesting permission to conduct research with the owner or manager of the SMME. The researcher and respondent provided all contact details and signed the consent form. If the owner was unavailable and the manager was to step in to answer the questionnaire, permission was obtained from the owner first.
3.16 Chapter Summary
This chapter discussed the research methodology of the study, which included the research design, research strategy, target population and sampling methods. In addition, the questionnaire was discussed in detail in relation to the design, validity and reliability. The pilot study was explained. Lastly, limitations to the study, elimination of bias and ethical considerations were discussed. The next chapter demonstrates the findings from the questionnaire with an analysis and interpretation of the results.
RESULTS, DISCUSSION AND INTERPRETATION OF FINDINGS
The purpose of this chapter is to present the data that was received from the questionnaires. The summarised information is presented in the form of tables, pie charts and bar graphs with the ideology of allowing the reader to understand the results easier. All statistic data was captured and analysed by using Math Portal, an online statistic calculator. In addition, an interpretation and discussion of the results followed using the literature gathered from the previous chapter (chapter 2). The results are allocated into different categories, which begin with demographic results and business related questions, followed by internal factors and lastly the external factors that affect the performance of SMMEs within the 10 selected streets in Durban North.
4.2 Response Rate
After obtaining 58 permission letters to conduct research, all 58 questionnaires were distributed to the participants of the study by the researcher. However, the researcher obtained 57 questionnaires (98.28%) of which 10 questionnaires were used during the pilot study. Therefore, 47 questionnaires (82.46%) were used for the analysis of this study.
4.3 Demographic Results
Fryrear (2014:1) describes demographic data as being information relating to an individual that can often be seen as sensitive or personal. Kostoulas (2014:1) posits that demographic data is collected by researchers for a primary reason of being able to describe a sample better, which allows for being able to identify differences and similarities.
The demographic data that was included in the questionnaire, from questions 1 to 5, are age, gender, racial group, highest level of education and the respondent’s role in the organisation.
The first demographic question relates to the respondents age. The reason behind determining the age of the respondents was to identify if there is any correlation between age and the way that business performance has been affected over the last year. Table 4.1 above represents the descriptive statistics of the age of the respondents. All 47 respondents answered the question indicating age. Respondents aged between 20-30 years old formed 21.28% of the study. The majority of the respondents, made of 29.27%, were aged between 31-40 years. There were 23.40% of respondents between the ages of 41-50 years old and 17.02% between 51-59 years old. The minority of the age group were above 60 years and formed 8.51% of the study. The youngest respondent was 20 years old and the oldest respondent was 70 years old. The average age of the respondents were 41 years. A standard deviation of 12.23 years exists from the mean of 41.53 years among the SMME owners (table 4.1).
Although this particular study did not indicate any correlation between the age of the respondents and the challenges faced by SMMEs, some literature had indicated the association. According to Stokes and Wilson (2013:39), entrepreneurs that are from the age group of 35 to 45, tend to have the necessary experience, stability and capital assets. Furthermore, Stokes and Wilson (2013:40) state that entrepreneurs that are post-retirement have the need to continue due to pension insufficiencies or would like to continue working due to forced retire. In addition, Stokes and Wilson (2013:40) posits that the age of the respondent provides credibility when it comes to the submission of obtaining finance for the SMME, making age a challenging factor for SMME growth.
4.3.2 Gender of the Respondents
Figure 4.1: Composition of Gender (n=47)
The majority of the respondents that participated in the study were males, which represent 62% of the 47 participants. The remaining 38% respondents were females. This statistical data is represented above in figure 4.1.
Since, the majority of the respondents in the study were male; this indicates that the SMME sector is male-dominated. Nxumalo (2017:1) suggests that entrepreneurship is not viewed as a feminine characteristic; as a result, females do not receive as much support. Nxumalo (2018:1) adds that female entrepreneur SMMEs do not fail because of a lack of skill, knowledge or expertise but because of the increased responsibilities as compared to the male counterparts.
However, in this study, the results indicate that female entrepreneurs are increasing as females form just over a third of the respondents. This could be attributed to many organisations wanting to add female owned SMMEs to their preferred supplier list (Nxumalo, 2017:1). In this study, there has been no relation between the gender of the respondent and the challenges that SMMEs face.
4.3.3 Race of the Respondents
Figure 4.2: Composition of Race (n=47)
The distribution of race groups were Black (19.15%), Coloured (12.77%), Indian (51.06%) and White (19.15%) The statistical data indicated above in figure 4.2, depicts that the Indian race group were the majority of the respondents.
The composition of race in the study revealed the majority respondents being Indian, followed by Black, White and then Coloured. This shows that the previously disadvantaged race groups, Black and Indian, are growing. According to Nxumalo (2017:1), many businesses prefer to incorporate various SMME owners from different race groups to their supplier lists.
4.3.4 Highest Level of Education of the Respondents
Figure 4.3: Highest Level of Education (n=47)
All 47 respondents that participated in the study had answered the question relating to the highest level of education that they obtained. The statistical data represented above in figure 4.3 indicates that most respondents have a Degree (27.66%) as the highest level of education. The same number of respondents have obtained a Matric and a Post Graduate Degree being 25.53%. 17.02% of the respondents hold a Diploma or Certificate and a mere 4.26% of the respondents only have up to Secondary education (figure 4.3). The data shows that 70.21% of the respondents have obtained a tertiary level education (figure 4.3).
Majority of the respondents in the study had an education level of greater than Matric, while the larger amount of respondents had obtained a degree and post-graduate degree. This finding is supported by Dludla (2014:1) as it was discovered that the performance of SMMEs are closely related to the level of education of the SMME owner or manager due to the ability, skills and knowledge of being able to successfully manage and run the SMME.
4.3.5 The Respondents Roles in the Organisation
Figure 4.4: Role in the Organisation (n=47)
Depicted in figure 4.4 above is the statistical data provided by all 47 respondents on the role that is played in the organisation. The majority of the respondents (55.32%) are both the owner and manager of the SMME. A total of 38.30% of the respondents are either the owner or director of the organisation and just 6.38% of the participants are managers.
The majority of the respondents were either the owner/director or both owner/director and managers, while the minority were only managers. This reveals that many of the respondents perform many roles simultaneously. According to Langston (2016:1), the benefit of not performing all roles allows the owner to be able to concentrate on core activities that can improve the business model and performance.
4.4 Business Related Results of Small, Medium and Micro-sized Enterprises (SMMEs)
The business related results consist of the respondents indicating the number of permanent employees that are employed. In addition, the SMME owner or manager indicated if business performance has increased, decreased or remained unchanged. Lastly, respondents indicated if operating and running the SMME has become easier, more difficult or remained the same.
4.4.1 Permanent Employees Employed by the Small, Medium and Micro-sized Enterprises (SMME)
Figure 4.5: Permanent Employees Employed by the Small, Medium and Micro-sized Enterprises (SMME) (n=47)
The statistical data above in figure 4.5 shows the number of employees that are employed on a permanent basis by the SMME. The respondents indicated that 38.29% of the SMMEs employed, between 6 to 20 permanent employees. This was followed closely by 36.17% of SMMEs employing 0-5 employees. There were 2.13% of the respondents that employ 51-100 employees and 10.64% of the respondents that employ 101-200 employees. There were no SMMEs in the study that employed more than 200 permanent employees.
The purpose of determining the number of permanent employees of the SMMEs selected for the study was to deduce if the SMME met a certain aspect of the criteria. SMMEs need to have no more than 200 full-time employees to meet the criteria of a SMME (The Banking Association, 2018:1). The study revealed that all the SMMEs had no more than 200 employees with the majority of SMMEs having between 6 to 20 employees. There is no association between the number of employees that the SMME has and the challenges that affect business performance.
4.4.2 Business Performance of the Small, Medium and Micro-sized Enterprise (SMME) Since January 2017
Figure 4.6: Business Performance of the Small, Medium and Micro-sized Enterprise (n=47)
In figure 4.6, more than half of the respondents (59.57%) indicated that the SMME business performance that they operate within, has deceased. There were 27.66% of the respondents that showed that business performance had increased while 12.77% expressed that performance has remained unchanged (figure 4.7). Dana, Ratten and Honvenguga (2018:10) explain that despite the importance of SMMEs, the challenges that they are faced with are complex, causing an effect on performance.
4.4.3 Level of Complexity in Running and Operating the Small, Medium and Micro-sized Enterprises (SMMEs)
Figure 4.7: Running and Operating the Small, Medium and Micro-sized Enterprises ( SMMEs) (n=47)
Based on figure 4.7 above, most respondents (74.47%) expressed that it has been more difficult in running and operating the SMME. However, some of the respondents (17.02%) that have shown that running and operating the SMME has become easier. There were 8.51% of the participants conveyed that running the SMME has remained unchanged.
Majority of the respondents in the study indicated that business performance had decreased from January 2017 to June 2018. In addition, majority of the respondents also specified that the running and managing of the SMME has become more difficult. All the respondents that selected a decrease in business performance also had trouble in running and managing the SMME. Therefore, this demonstrates the strong correlation between business performance and running and managing of the SMME.
4.5 Internal Factors
The statistical data collected from the questionnaire took into account the internal factors that affect business performance. The results from the internal factors include the importance of managerial skills, the owner’s formal education and training, skills and knowledge and employees in the organisation.
4.5.1 Importance of Managerial Skills and Competency for Business
Figure 4.8: Importance of Managerial Skills and Competency for Business (n=47)
According to figure 4.8 above, more than three quarter (78.72%) of the participants expressed that having managerial skills and being competent has an impact on business performance. There were 17.02% of respondents that indicated that it is important while only 4.26% of the participants selected that it is moderately important having managerial skills and being competent that affects business performance. There were no respondents that indicated that managerial skills and competency for business is slightly important or not important.
The importance of managerial skills and competency posed to be a very important aspect to majority of the respondents. Hayton (2015:1) points out that the lack of managerial skills and competency is a major contributor to the failure rate of SMMEs by not being able to motivate, control and manage the business.
4.5.2 Attendance of Business Workshops/Seminars/Courses to Manage Business Better
Figure 4.9: Attendance of Business Workshops/Seminars/Courses to Manage Business Better (n=47)
Figure 4.9 above demonstrates that 57.45% of the SMME owners have not attended any seminar, workshops or course in running a small business, while 42.55% of the respondents have.
However, the study conducted by Coleman (2014:1) discovered that by attending business courses or workshops, the SMME is more likely to succeed through obtaining knowledge and understanding to manage a small business better. Furthermore, Coleman (2014:1) points out that the attendance of these workshops expose SMME owners to various scenarios and demonstrate ways to combat these challenges. In addition, Coleman (2014:1) found that education and training improves business performance by gaining an understanding and having a positive impact on the organisation.
4.5.3 Formal Education/Training by Small, Medium and Micro-sized Enterprises (SMME)
Figure 4.10: Formal Education/Training by Small, Medium and Micro-sized Enterprises (SMME) Owner (n=47)
The illustration above, figure 4.10, depicts the owner of the SMME having formal education or training in a particular function of business. The results from the questionnaire revealed that most respondents (53.19%) do not have formal education or training in running a small business. It was found that 68.09% of the participants have education or training in the industry that the SMME operates. It was also found that majority of the respondents do not have formal education or training in financial, accounting or bookkeeping (68.09%), marketing (74.47%), human resource (91.49%) and acquiring new business (57.45%).
However, Pillay (2015:1) states that if the entrepreneur has education within the industry, human resource training or education and a financial background, the success rate is a lot higher, which assists with increasing business performance by being able to make informed and confident decisions.
Gleeson (2018:1) adds that sales and marketing knowledge improves business performance by being able to understand and analyse consumer needs and various markets, creating successful and meaningful marketing campaigns and develop marketing strategies.
4.5.4 Skills or Knowledge by the Small, Medium and Micro-sized Enterprises (SMME) Owner
Figure 4.11: Skills or Knowledge by the Small, Medium and Micro-sized Enterprises (SMME) Owner (n=47)
Based on the results, figure 4.11 indicates that all 47 respondents (100%) have communication skills and the ability to read and write. A small percentage of respondents (2.13%) do not have problem solving skills. Figure 4.11 also shows that 21.28% of the participants in the study do not possess leadership skills and 8.51% do not have decision-making skills.
According Hill (2017:1), an entrepreneur should have the necessary skills of communication, leadership, decision-making, ability to read and write and problem solving skills for the success of business. Hill (2017:1) agrees that the basic skills mentioned has an impact on business performance. Hill (2017:1) argues that the owner of the SMME can learn certain skills or if they have the resources at their disposal to delegate or employee employees that have the required to skill.
4.5.5 Employee Competency Affecting Business Performance
Figure 4.12: Employee Competency Affecting Business Performance (n=47)
Results indicated that majority respondents (82.89%) strongly agree and 12.75% agree that the competency of employees affect SMME business performance. There were no respondents that disagreed or strongly disagreed that employee competency affects business performance.
Almost all the respondents in the study agreed and strongly agreed that the competency of the employees employed by the SMME affects business performance. According to James (2015:1), competent employees play a vital role in business performance because employees are regarded, as the face of the business as the success of the employees are a reflection of the success of the organisation. James (2015:1) adds that competent employees ensure that the job is performed and exceeds quality while incompetent employees have no regard for their duties and responsibilities.
4.5.6 Basis of Employing Employees
Figure 4.13: Basis of Employing Employees (n=47)
The results from the questionnaire indicate an almost equal spread of responses for the basis of employing employees. The statistical data in figure 4.13 shows that 29.79% of respondents expressed that they employ employees on skill or competency, 36.17% on cost efficiency and 34.04% on both cost and competence.
There has been a fairly equal split between the respondents indicating the basis of employing employees as being either on skill or competency, cost-efficiency or on both aspects. The literature provided by Johansson (2018:1) points out that by simply employing individuals on convenience and cost may solve the cash flow concern but these employees may not have the required skills and can pull down the organisation rather than adding value.
4.5.7 Challenges with Employees
Figure 4.14: Challenges with Employees (n=47)
In figure 4.14, a large percentage of SMME owners (87.23%) have difficulty in finding skilled and competent employees. This figure also shows that more than half of the respondents (65.96%) find it challenging to retain employees or have a high staff turnover. In addition, figure 4.14 shows that a fair percentage of respondents (61.70%) experience challenges in attracting skilled employees due to the name of the company. Majority (70.21%) of the participants in the study do not have a dedicated human resource department. More than three quarter respondents (76.60%) employees are provided with ongoing training while employed at the organisation and 72.34% of new employees are given formal training prior to starting work. In the attached appendix 3, there was a strong correlation between new employees undergoing formal training before starting employment and business performance (p=0.000). There was also a strong association with the impact of staff retention and high staff turnover on business performance (p=0.027).
Majority of the SMME owners or managers revealed that it is difficult in finding skilled and competent employees. Crawford (2016:1) posits that acquiring skilled and knowledgeable employees allows the business to keep up-to-date with trends, fill in the gaps of skill or knowledge that the owner lacks and keeps the organisation operating at optimal levels.
Brenton (2014:1) explains that by conducting training for new employees, it saves the organisation on money in the future by preventing avoidable mistakes, informing the new employee of the culture of the business, reduces inefficiencies which can prevent a loss of customers. Brenton (2014:1) suggests that training and education should be an ongoing activity as it allows the SMME to keep up with changing trends, consumer behaviour and keeps the employee motivated to try new techniques to improve their function.
Literature provided by Crawford (2016:1) points out the importance and affect that retention of skilled employees has on the performance of business. Despite the importance, majority of the respondents indicated that it is difficult to retain employees and a challenge for the performance of business.
4.5.9 Lack of Financial Resources Affecting Business Performance
Figure 4.15: Lack of Financial Resources Affecting Business Performance (n=47)
The illustration above of figure 4.15 shows that more than half of the respondents (68.09%) strongly agree and 8.50% of respondents agree that the lack of financial resources affect business performance. There are a small number of respondents that disagree (2.13%) and strongly disagree (10.64%). However, there were 10.64% of respondents that are neutral on the matter of the lack of financial resources have an impact on business performance.
In the study, the survey results revealed that majority of the respondents feel that the lack of financial resources affects business performance. This finding is supported in the literature by Sherman (2018:1) whom explains that the lack of financial resources results in the SMMEs growth being stifled, having an impact on business performance in terms of being able to employee the right employees, purchase of inventory or machinery and being able to market to gain a competitive edge over competitors.
4.5.9 Challenges in Obtaining Finance
Figure 4.16: Challenges in Obtaining Finance (n=47)
In figure 4.16, a large percentage of respondents (89.36%) indicate that high interest rates and 74.40% for having inadequate collateral have an impact in obtaining finance. Over half the respondents (53.19%) indicated that business scoring does not affect business performance. In addition, majority of the respondents (57.45%) of the respondents selected that an inadequate/lack of past, present and future financial records does not affect business performance. In the attached appendix 3, statistics revealed that business scoring has an association to business performance (p=0.021).
The data obtained from the questionnaire shows that respondents do not find inadequate or lack of past, present and future financial records is not a challenge for obtaining finance. However, Long (2017:1) states that a SMME should have all their financial and business records up to date and prepared accurately as financial lending institutions or credit lenders look into their records as a means of determining whether a SMME meets the criteria or not.
The literature does not support the findings from the study in relation to business credit scoring. Karlson (2016:1) explains that bad credit scoring impacts business performance by not being able to receive any credit for growing the organisation and inability to conduct operations with other suppliers. Therefore, the literature and findings of the study are in contradiction.
According to Long (2015:1), the reason that financial institutions pose high interest rates is due to the risk and uncertainty of lending to a SMME, especially a start-up firm. Long (2015:1) points out that the high interest rate impacts business performance because it makes borrowing more difficult as the SMME has to pay back a higher amount on the amount borrowed. In addition, the SMME has difficulty in being able to expand and grow.
4.6 External Factors
The questionnaire took into account the external factors that affect SMMEs business performance. The focus of the external factors were technology, crime and corruption, regulation, law and legislation (Broad Based Black Empowerment Equity, Taxation/Value Added Taxation and labour laws), interest rates, inflation rates and competition.
4.6.1 Impact of Technology on Business Performance
Figure 4.17: Impact of Technology on Business Performance (n=47)
Majority of the respondents strongly agree (72.34%) and agree (12.77%) that technology has an impact on business performance (figure 4.17). Some respondents (8.51%) of the respondents are neutral about the impact of technology on business performance. None of the respondents disagrees but 6.38% of the respondents strongly disagree on technology affecting business performance.
Over three quarter of the respondents agreed and strongly agreed that technology has an impact on business performance. Vitez (2018:1) explains that technology helps an organisation to reduce costs by being able to automate many functions such as data analysis. Therefore, the study and the literature show that technology has an impact on business performance
4.6.2 Challenges with Technology
Figure 4.18: Challenges with Technology (n=47)
Keeping up-to-date, purchasing and training staff on technology has posed a challenge for 82.98% of the respondents. Software affects business performance by over half of the participants (54.45%). From figure 4.18, it can be seen that 97.87% of the respondents find that technology assists with communication between stakeholders. While 59.57% of participants in the study indicated that, the SMME has skilled and competent employees to learn new technology. The attached appendix 3 revealed that the expense of keeping up-to-date, purchasing and training staff of technology has a strong correlation to business performance (p=0.002).
Vitez (2018:1) states that despite the advantages of technology, the cost of investing in technology may pose a huge challenge for many small business owners. Vitez (2018:1) adds that the expensive technology affects business performance based on cash flow problems and the high employee training costs to make employees feel comfortable. This is constant with the findings from the study that show that SMME owners find investing and training staff on technology expensive.
4.6.4 Impact of Crime and Corruption on Business Performance
Figure 4.19: Impact of Crime and Corruption on Business Performance (n=47)
Majority of the respondents strongly agree (53.19%) and agree (23.40%) that crime and corruption has an impact on business performance (figure 4.19). However, 8.51% of the respondents disagree and 10.64% strongly disagree that crime and corruption impact business performance.
Smit (2014:1) states that crime and corruption is a major concern for SMMEs in South Africa and has a negative impact on business performance. Murtagh (2013:1) adds that South Africa has one of the highest crime rates in the world. Literature and the findings from the study show that there is a link between business performance and crime and corruption. Majority of the respondents in the study agreed that crime and corruption impacts business performance.
4.6.4 Challenges with Crime
Figure 4.20: Challenges with Crime (n=47)
In figure 4.20, more than half of the respondents (63.83%) expressed that crime and corruption occurs within their organisation. A large percentage of participants in the study (70.21%) indicated that the cost of protection services affects business performance.
Research by Ray (2018:1) suggest that crime and corruption that occurs within the organisation results in a decrease in business profits or on boarding an unsuitable supplier that does not add any value to the organisation. This is constant with the findings from the study that indicate that majority respondents find that crime and corruption within the organisation has an impact on business performance.
Majority of the respondents selected that the cost of protection affects business performance. However, according to Ray (2018:1), corruption is a diminishing factor that leads to the loss of public trust and causes the efficiency of the business to suffer. Murtagh (2013:1) adds that the failure of small businesses is due to not being able to find and afford the proper protection or insurance against losses. Therefore, the study is supported by the literature.
4.6.4 Compliance Factors
18.104.22.168 Complying with Legislation and the Impact of the Compliance Expense on Business Performance
Figure 4.21: Low Turnover and a Few Employees, therefore Complying with Legislation is not required (n=47)
Figure 4.21 indicates that more than half of the respondents (53.20%) disagree that due to low turnover and only employing a few employees, the SMME does not need to comply with legislation. A mere 6.38% of respondents were neutral. However, more than a quarter (29.78%) of the respondents agree and strongly agree that it is not necessary to comply with legislation due to having a small business.
Webster (2013:1) states that compliance, legislation and regulation is vital for small businesses to avoid incurring unnecessary fines, forced closure or having stifled business growth and development. In addition, Webster (2013:1) explains that abiding to the legislation and regulation, the relationship between the SMME and the stakeholders improve as it shows legitimacy. Therefore, the literature proves the importance of compliance and the findings reveal that many SMMEs do not find it necessary to comply.
22.214.171.124 Legislation too Expensive for Compliance
Figure 4.22: Legislation, Law and Regulation is too expensive to comply with (n=47)
Most of the respondents (82.98%) agrees and strongly agrees that legislation, law and regulation is too expensive to comply with (figure 4.22). A few respondents (2.13%) are neutral while 14.89% of the respondents disagree and strongly disagree that compliance is too expensive to comply.
Literature support the finding of the study. Webster (2013:1) explains that many small businesses are unable to comply with legislation due to the additional expense that many SMME owners do not have at their disposal.
126.96.36.199 Impact of Broad Based Black Empowerment Equity (BBBEE) on Business Performance
Figure 4.23: Impact of Broad Based Black Empowerment Equity (BBBEE) on Business Performance (n=47)
More than half of the respondents (65.96%) agree and strongly agree that Broad Based Black Empowerment Equity (BBBEE) has an impact on business performance (figure 4.23). However, 6.38% of the respondents were neutral. More than a quarter of the respondents (27.66%) disagree and strongly disagree that BBBEE impacts business performance.
The literature supports this finding and agrees that BBBEE has an impact on business performance. According to Schoeman-Louw (2017:1), BBBEE affects business performance in terms of which business the SMME deals with for procurement with the aim of growing and developing “Black Enterprises.” Furthermore, BBBEE affects the SMME with whom they should employ, to ensure that the SMME remains as being BBBEE compliant in all business dealings.
188.8.131.52 Impact of Taxation/Value Added Taxation (VAT) on Business Performance
Figure 4.24: Impact of Taxation/Value Added Taxation (VAT) on Business Performance (n=47)
Taxation and Value Added Taxation (VAT) has a huge impact on majority (80.85%) of the respondents that affects business performance (figure 4.24). None of the respondents selected disagree or neutral. However, there were respondents (19.15%) that strongly disagreed to Taxation and VAT A2 having an impact on business performance.
Research conducted by Ndalana (2018:1), showed that Taxation and VAT means that goods and services become more expensive. It was further added that this results in a decrease in consumer spending power, which in turn reduces the company profits. In the study, majority of the respondents agreed and strongly agreed that Taxation and VAT has an impact on business performance. Ndalana (2018:1) explains that VAT only affects small businesses that are VAT registered or the small businesses that are not entitled to claim full VAT as Input Taxation. Therefore, the literature supports the finding that taxation and VAT impacts business performance.
4.6.5 Economic Factors
184.108.40.206 Interest Rates Impact on Business Performance
Figure 4.25: Impact of Interest Rates on Business Performance (n=47)
Figure 4.25 indicates that majority of the respondents (80.81%) agree and strongly agree that interest rates have an impact on business performance. A mere 2.13% of the respondents were neutral. Minority respondents (17.06%) disagree and strongly disagree that interest rates impact business performance. In the attached appendix 3, the statistics revealed that there was a strong correlation that interest rates affects business performance (p=0.000).
Jenson (2015:1) explains that interest rates affect small businesses, as it prevents the business form being able to grow. This is further explained as the higher interest rates make it more difficult for the SMME owner to pay back their credit and the higher repayments lead to a reduction in profitability. In addition, Jenson (2015:1) states that without borrowing money to save on paying interest, the SMME owner is forced to redirect their resources away from innovation and reinvestment. Jenson (2015:1) adds that the interest rates also affect the consumer spending power, as consumers are more inclined to saving their money as opposed to spending, therefore, affecting business profits and performance. As a result, the finding from the study is supported by the literature.
220.127.116.11 Inflation Impact on Business Performance
Figure 4.26: Impact of Inflation on Business Performance (n=47)
Majority of the respondents (97.87%) in figure 4.26 considers inflation to be a hindering factor to business performance. A small percentage of respondents (2.13%) strongly disagree that inflation affects business performance. There were no respondents that disagreed or were neutral about inflation affecting business performance. The statistics in the attached appendix 3 revealed that there was a strong association with inflation rates on business performance (p=0.000).
Literatures suggests that the impact that inflation rates has on business performance is very similar to that of interest rates. Mcmahon (2017:1) posits that inflation impacts consumer spending, as consumers are not as willing to spend money unnecessarily. Mcmahon (2017:1) explains that inflation results in the cost of purchasing inventory to increase. Furthermore, if the replacement inventory is priced higher than the inventory sold, it often leads to inventory shortages for the business. Mcmahon (2017:1) states that inflation also means that when the prices of goods and services change, the cost of changing price lists or menus is also an additional cost. This literature and the finding from the study are consistent.
18.104.22.168 Competition on Business Performance
Figure 4.27: Impact of Competitors on Business Performance (n=47)
In figure 4.27, a large percentage of respondents (89.37%) strongly agreed and agreed that competitors have an impact on business performance. The minority respondents (10.63%) disagree and strongly disagree competitors affect business performance, while there were no respondents that indicated neutral. Appendix 3 demonstrated that the pricing of competitors have an impact on business performance (p=0.000).
Florain (2016) states that competition can drastically affect a small business. Furthermore, competition can be various forms such as pricing, skilled labour, lower production costs and a large share of the market. This literature supports that the findings of the study as majority of the respondents strongly agree and agree that competitors affect business performance.
22.214.171.124 Impact of Competitors Pricing on Business Performance
Figure 4.28: Impact of Competitors Pricing on Business Performance (n=47)
Figure 4.28 demonstrates that almost all respondents (91.50%) strongly agree and agree that the competitors pricing impacts business performance. A mere 2.13% of the respondents were neutral. There were no respondents that disagreed while there were 6.37% of the respondents that disagreed that the competitors’ price has an impact on business performance. In the attached appendix 3, the statistics displayed that the pricing of competitors have an impact on business performance (p=0.020).
In the study, majority of the respondents have suggested that competition and the pricing of competitors good and services are major variables on the impact on business performance. Florain (2016:1) explains that small businesses find it challenging to compete with larger organisations in terms of price setting. It is further explained that this may be due to the capability of bulk purchasing an established relationships with suppliers.
126.96.36.199 Composition of Competitors
Figure 4.29: Composition of Competitors (n=47)
The composition of competition in figure 4.29 indicates that more than half of the respondents (59.57%) competitors are local competition, 27.66% of respondents’ competitors are both foreign and local and 12.77% is foreign competition.
More than half of the respondents indicated that their competition is from both local and foreign competitors. Research conducted by Vlachvei, Notta, Karantininis and Tsounos (2016:12), point out that competition surrounds all businesses and has more of an effect on small businesses. This is further explained as competition has increased tremendously over the last few years with new entrants to the market, with very little or no barriers to entry. Therefore, this makes it easier for foreign and local competitors to enter into new markets.
Table 4.2 above reflects the results of the Chi-Square goodness of fit test in terms of the challenges that affect business performance. As mentioned in chapter 3, the Chi-Square goodness if fit test was used to determine the sample presents to the entire population. If the p-value is less than 5%, there is a strong relationship between the variables. Table 4.2 above indicates that there is a strong correlation between the variables and the impact on business performance as p=0.001, which is less than the significance level of 0.05.
4.9 Chapter Summary
In this chapter, the responses from SMME owners regarding business performance was presented in the form of pie charts, bar graphs and tables. The statistical data related to demographic data, business related questions, internal and external factors that SMME owners find challenging.
The findings in the study, together with the literature revealed many factors that affect SMMEs performance in South Africa, KwaZulu Natal, Durban. The study exposed that majority of the respondents viewed certain factors as having a bigger impact on business performance than other aspects. The Chi-Square test for independence that was conducted and was used to interpret and correlate the results to the literature in chapter 2.
The results indicated that SMMEs in South Africa, KwaZulu Natal, Durban face challenges that affect business performance. The major challenges that were found were, business scoring in obtaining finance, challenges of employees relating to having a high staff turnover, difficulty in retaining employees and employees having to undergo formal training before starting employment, technology being too expensive, economic factors of interest and inflation rates and competition. All these variables had a p-value of less than 0.050. The literature supported these findings.
The next chapter (chapter 5) provides a conclusion to the study by concluding the findings from the literature review and the primary research, as well as making recommendations on the critical challenges, based on the findings.
CONCLUSIONS AND RECOMMENDATIONS
As indicated in chapter 1 of the study, it has been discovered that SMMEs play a vital role in the South African economy. Research indicated that SMMEs are large contributors to reducing the unemployment rate and consequently the rate of poverty, innovation and most importantly, economic growth. Given the significance of SMMEs, SMMEs are faced with challenges that stifle growth and decrease performance. This was the motive for the study, to evaluate the challenges that are faced by SMMEs.
The focus of this chapter is to conclude the study by explaining the findings from the study, making recommendations to improve business performance based on the findings
5.2 Findings from the Study
The findings from the study are separated into two sections, which are the findings from the literature review and the primary study. The overall conclusions of the study will be discussed.
5.2.1 Findings from the Literature Review
Friedrich (2016:1) posits that the performance of SMMEs is a concern as South Africa has one of the highest failure rates. In addition, it was explained that there are various challenges that affect SMMEs in Durban, KwaZulu Natal. The study showed that respondents experienced a decrease in performance and greater difficulty in running and operating the SMME. Therefore, the purpose of this study was to evaluate the challenges that affect SMMEs in Durban.
Managerial skills, competency and education were found to be an important factor on business performance. Hayton (2015:1) explains that the lack of managerial skills and competency are a contributing factor for the failure rate of SMMEs. In addition, Hayton (2015:1) states that having education within the industry of the SMME and knowledge in managing a SMME is important for survival. The study revealed that SMMEs have adequate basic skills but education and training in various functions of the business is lacking. Research conducted by Dludla (2014:1) states that even the smallest changes in education or training, yield a positive impact on business performance.
Employees play a vital role in any organisation. The study illustrated that the competency of employees affect business performance. Despite the value placed on employees, Johansson (2018:1) points out that many SMME owners hire individuals based on cost-efficiency and this held true in the study. Furthermore, another concern regarding employees was explained by Johansson (2018:1), which stated that SMMEs have difficulty in finding skilled employees and being able to retain employees. The study revealed this as being a challenge. Johansson (2018:1) suggests that employees undergoing training before employment will contribute to increase business performance. Furthermore, the study showed a strong correlation between business performance and employees undergoing training before employment. However, respondents indicated that training was provided prior to starting employment.
Sherman (2018:1) states that obtaining finance is a challenge for SMMEs and the study revealed that this was true. There was a strong association between business performance and business scoring in terms of obtaining credit. Experian (2018:1) and Sherman (2018:1) explain that business scoring is a challenge for SMMEs to obtain finance and many financial institutions decline owners based on credit scoring. However, the respondents in the study indicated that business scoring was not a challenge as the biggest challenge was the interest rates. Experian (2018:1) states that a good business credit standing assists the SMME in obtaining better interest rates.
According to Carey (2015:1), a developing country like South Africa benefits from technology. Wregren (2013:1) adds that technology can prevent an SMME from failing by being able to operate faster and communicate more efficiently. The study showed that technology has an impact on business performance. However, Wregren (2013:1) states that the expense of keeping up-to-date, purchasing and training staff proved to be costly for the SMME.
Smit (2014:1) explains that crime and corruption in South Africa is a major concern. Furthermore, Crime and corruption was shown to have an impact on business performance and in particularly, the cost of protection and that crime and corruption occurs within the organisation. Wolman (2015:1) states that crime and corruption occurs within the organisation and is a reason for SMME failure as it goes undetected for son so long. Furthermore, Wolman adds that financial obligations are always a concern to SMMEs and to invest in protection may not always be possible, resulting in decreased profits due to theft.
Thulo (2014:1) explains that compliance is necessary for SMMEs for better relationships with stakeholders, obtaining tenders and contracts and obtaining finance. The study illustrated the importance compliance for SMMEs but also found that the expense of compliance is a challenge. Thulo (2014:1) states that compliance is costly in terms of monetary value and time, resulting in compliance to be overlooked by SMMEs.
The study revealed that BBBEE and Taxation/VAT is still a huge hurdle for SMMEs. Thulo (2014:1) posits that these two variables are still considered a challenge due to the lack of understanding and skills. Thulo (2014:1) adds that this is a challenge due to the lack of support, information and the high cost involved.
Interest rates and inflation rates are dependent on the economy but posed to be challenges to SMMEs, affecting business performance. The study also demonstrated that there was a strong correlation between these variable and business performance. Duff (2018:1) explains that interest rates and inflation rates cause the price of goods, materials and services to increase, which affect business performance by competition not increasing their prices, resulting in a loss of the market share. Duff (2018:1) adds that the high interest rates makes borrowing funds more challenging, preventing growth and development of the SMME.
According to Green (2018:1), competition is a major concern for SMME owners due to these small businesses having to compete against large corporations for market share. Competition alluded to have a strong impact on business performance. In addition, the pricing of competitors showed a strong relationship to business performance. Green (2018:1) explains that competition may be local or foreign and survival is threatened as new firms enter the market, offering similar goods or services at competitive prices.
5.2.2 Findings from the Primary Research
The primary research for the study was gathered from a representative sample of SMME owners and managers in Durban, KwaZulu Natal. There were 58 permission letters that were received for agreement to participate in the study. However, the researcher received a response rate 81.03%; therefore, there were 47 respondents that participated in the study. The respondents were provided with a questionnaire, to which they provided answers. The questionnaire was divided into four sections: demographic data, business related questions, questions based on the internal challenges and lastly, the external challenges that affect business performance.
188.8.131.52 Demographic Data Findings
All the respondents (47) answered the questions relating to demographics, which included age, gender, race, highest education level and role in the organisation.
The respondents’ ages were then grouped according to their age; 20-30 years, 31-40 years, 41-50 years, 51-59 years and those that are above the age of 60. The study indicated that the average age of respondents were 41 years old with the youngest respondent aged 20 and the oldest respondent being 70 years old. The study revealed no relation between the age of the respondents and the impact on business performance.
The study revealed that the SMME sector is still male-dominated (62%). However, as opposed to previous studies, there has been a growth in female owned SMMEs.
There were majority Indian SMME owners that participated in the study (51.06%), while Black respondents comprised of 19.15%, the second highest respondents in the study. This revealed that there are more previously disadvantaged race groups that own SMMEs.
There were 25.53% of the respondents with a Post-Graduate degree and Matric, 27.66% of respondents with a degree and just 4.26% of the respondents with secondary education. These statistics faired a positive indication for managing the SMME as the respondents are in possession of a good education background.
The study also illustrated that majority of the respondents (55.32%) were the owner/director of the SMME. Therefore, many of the respondents perform multiple roles simultaneously, preventing them from being able to concentrate on the business model.
184.108.40.206 Business Related Findings
In the study, there were 38.29% of the respondents with between 6-20 employees and 36.17% with 0-5 employees. There were no SMMEs with more than 200 employees. As a result, the criteria for a SMME was met for the study.
Business performance was the main variable for the study as all factors were measured against business performance. Majority of respondents in the study (59.57%) indicated that business performance had decreased since January 2017. In addition, all the respondents that showed a decrease in performance also stated that running and operating the SMME has become more difficult since January 2017.
220.127.116.11 Findings from Internal Challenges
A 5-point scale was used to determine if the respondents find managerial skills and competency important for business. The scale ranged from very important to not important. The study showed that all the respondents indicated an importance of some level as no respondents selected not important.
Although the highest level of education of the SMME was already asked in the demographic section, the study focused on gaining a more in depth indication of what other skills, knowledge and education or training the SMME owner had for running and operating the small business. Most of the respondents in the study have indicated that they have problem solving, communication, leadership and decision making skills. The study revealed that majority of the respondents (57.45%) of the respondents had not attended any business workshops/seminars/courses to manage business better. Alarming amounts of respondents (91.49%) do not have any education or training in human resources. Majority of the respondents had no formal education or training in financial or bookkeeping, marketing, running a small business and acquiring sales. However, most respondents (68.09%) of the respondents have education or training in the industry of the SMME. This is an indication of a possible decrease in business performance as education and training needs improvement.
Employees indicated to be a huge component to having an impact on business performance as majority of the respondents (95.74%) specified that the competency of employees have an impact on business performance. None of the respondents disagreed or strongly disagreed with the competency of employees affecting business performance. Despite most respondents indicating that employees affect business performance, there has been a relatively equal split amongst the respondents that employ staff based skill, cost and both. Most respondents (87.23%) specified that finding skilled employees is a challenge. More than half of the respondents indicated that the company name affects acquiring skilled employees.
The results showed that there was a strong correlation between business performance and employee retention and new employees undergoing formal training before starting employment as the p-values were 0.000 and 0.027 respectively. However, there were 72.34% of the respondents that indicated that new employees undergo formal training before employment and 65.96% of the respondents agreed that it is difficult to retain employees.
In the study, majority of the respondents indicated that the lack of financial resources affects business performance. Almost three quarter of the respondents specified that high interest rates impacts business performance, when obtaining finance. There was a strong correlation to business scoring as being a critical challenge on business performance, causing an inability to obtain finance. However, the study revealed that only 46.81% of the respondents felt that business scoring affected the ability to obtain finance.
18.104.22.168 Findings from External Challenges
The study illustrated that most respondents agreed and strongly agreed (85.11%) that technology impacts business performance. There were 97.87% of respondents that indicated that technology improves communication between stakeholders. There was a strong association between business performance and technology being too expensive in terms of updating, purchasing and training staff (p=0.002). The study correlates to the findings as 82.98% of respondents agree that technology is too expensive.
More than three quarter of the respondents (76.59%) stated that crime and corruption affects business performance. The test for independence did not reveal that crime and corruption having a direct impact on business performance but majority of the respondents have indicated that crime and corruption occurs within their organisation and the cost of protection impacts business performance.
It was good to note that most of the respondents strongly disagreed and disagreed (63.84%) that compliance was not necessary for a small business with low turnover or a few employees. However, there was a strong indication amongst respondents (82.98%) that compliance is expensive to comply with. Although the study did not reveal a correlation between BBBEE or tax and vat and business performance, respondents (65.96%) indicated that BBBEE affects business performance and 80.85% of the respondents showed that tax and vat impacts business performance.
The study illustrated that there was a strong relationship between interest and inflations rates on business performance as the p-values were 0.000. In addition, the respondents agreed as 83.81% of the respondents were in agreement that interest rates affect business performance and 97.87% of the respondents for the inflation rate.
Majority of the respondents strongly agreed and agreed (89.37%) that competitors affect business performance. There was also a strong statistical correlation between business performance and competition as p=0.000. Respondents also indicated that the pricing of competitors has an impact on business performance (91.50%). Again, there was a strong correlation between business performance and pricing of competitors (p=0.020).
5.3 Conclusions of the Findings
The conclusions of the findings are presented in terms of the research objectives.
5.3.1 To investigate the challenges faced by SMMEs in various sectors within Durban, KwaZulu-Natal
The challenges for the study were outlined in the literature review in chapter 2. In chapter 2, it was determined that there were both internal and external challenges that affect the SMMEs in Durban. Literature indicated a vast number of internal and external challenges. However, the researcher selected the most prevalent challenges to Durban.
In the literature review, the internal challenges that were identified were managerial skills, education level, competency and policies, employees and lack of financial resources. The external challenges that were identified were technology, crime and corruption, legislation, laws and regulation, economic and competition.
Literature suggested that managerial skills, competency and polices affected business performance in the sense that without these, the SMME would have no direction and be unable to run efficiently. Furthermore, employees were shown to be integral component to the SMME but if the employees were not competent or trustworthy enough; this would pose as a challenge to the owner/manager. The lack of financial resources were also recognised as a challenge as the lack of financial resources may cause inability of the SMME to grow, develop and become sustainable.
Technology was identified as a challenge due to the cost involved in investment, inability to embrace change, communication and constant updates. In addition, crime and corruption is a major aspect that occurs in Durban therefore, the cost of protection of the SMME is one of the major challenges relating to crime and corruption. Many laws, regulations and compliance concerns were identified for the SMMEs to keep abreast. The challenge was to understand all these factors, the cost implication and to determine if it is needed to be implemented. The economic factors included inflation and interest rates that were recognised as cost implications and has an impact on consumer spending power. Lastly, competition is a variable that exists in all businesses throughout the world and affects the SMMEs performance.
The identification and explanation of why the internal and external factors were regarded as challenges, answered the research objective one.
5.3.2 To assess the impact of these challenges on business performance of SMMEs within Durban KwaZulu-Natal
The impact that the challenges have on SMMEs were fully discussed in chapter 5, based on the results from the questionnaires that were presented in chapter 4. In Chapter 4, a Chi-Square test for independence was conducted, which measured each internal and external variable asked on the questionnaire to the impact that had on business performance.
The study revealed that there were a number of factors that had an impact on business performance. However, the Chi-Square test for independence found that there were only a few of the variables that had a strong association to the impact on business performance as the p-value was less than 0.050. When obtaining financing, business scoring was discovered as being a huge concern. The impact that new employees undergoing formal training before stating employment and the high staff turnover rate and difficulty in retaining employees indicated a strong correlation to the impact on business performance. With the external factors, technology being too expensive, economic factors being interest rates and inflation rates and competition posed to indicate a strong correlation to have an impact on business performance.
The inability to obtain finance due to business scoring impacts business performance by not being able to grow, venture into new markets, invest in capital or meet financial obligations. As a result, competitors can take advantage of this and gain a larger market share.
Employees also posed to have a strong association to an impact on business performance. By employees not given an opportunity to undergo formal training before commencement of employment means that they are not able to learn and adopt the organisation’s culture, values and mission. This is then vital to business performance as the employee can make ethical errors, which may be a reputational and financial risk to the SMME. SMMEs that experience high staff turnover rates or the inability to retain employees can be a financial burden for the business. This is because the SMME had to re-train employees, which costs time and money.
The expense of technology also revealed to an impact on business performance. The expense included training employees on new technology, purchasing and keeping up-to-date. This means that the investment in technology posses as a financial constraint for the SMME in terms of reduced cash flow and additional expenditure, which impacts business performance.
Economic factors, which include interest rates and inflation rates, had an impact on SMME business performance. The increase in the interest rate means that the cost of borrowing funds from financial intuitions is greater, preventing the SMME from being able to grow and invest in technology. The increased inflation rates means that the prices of goods and services are increased too. In addition, these economic factors result in the consumer spending power to decrease substantially.
Competition also showed to have a strong association to business performance. Competition includes both foreign and local competitors. The impact of competition on business performance means that the pricing of goods and services is influenced by competitors. In addition, the SMME has to compete for their share of the market to survive. Furthermore, larger corporations can compete with pricing due to established relationships with suppliers offering discounts and the ability to purchase in bulk.
The impact that these challenges have on business performance, answered the second research objective.
The recommendations for the study were formulated based on the findings of the research and form the third research objective. In addition, the recommendations only take into account the factors that had a strong correlation to impact on business performance. The recommendations listed below can be used to assist the performance of SMMEs to improve, policy makers or for individuals that are interested in entering the SMME sector.
5.4.1 Increase Collaboration between SMMEs
Morrison (2013:1) explains the term collaboration as “working with each other to do a task. It is a recursive process where two or more people or organisations work together to realise shared goals.” This can be used by SMMEs to resolve the challenge of the lack of financial resources, technology, interest rates and competition. SMMEs can collaborate to share and combine resources such as technology, equipment, machinery and capital. Therefore, this will eliminate competition and be stronger against other domestic and foreign competition, save the SMME money, borrow less money from financial institutions and not have to be concerned with interest rates and have updated technology.
5.4.2 Improve Motivation in the Workplace
In order to combat the challenge that SMME owners/managers are experiencing with employees in terms of inability to retain or high staff turnover rates, a possible solution can be dive, motivation and incentives. Page (2018) states that there are ways to retain employees without having to offer performance bonuses, monetary incentives or increase in pay. According to Page (2018:1), SMME owners or managers can improve working environment by making it more positive, creative and taking into account their employees views. In addition, teamwork can be encouraged for getting to know other employees to improve relationships, healthy competition and increased productivity.
5.4.3 Increase Employees Undergoing Training before Employment
Another challenge that SMME owners/managers faced that impacted on business performance was employees undergoing formal training before starting employment. This can be done by first offering an orientation where the manager shows the employee their way around the office and introduces them to the other employees. Secondly, the manager can allow for the new employee to shadow and “buddy” with an employee to grasp the firm’s way of conducting business and get an understanding of the firm’s culture (Page, 2018). The organisation can also develop a short training manual or video to assist the new employee.
5.4.4 Limiting Amount of Credit and Paying Credit Timeously
According to Tarver (2017) business credit scoring is dependent on the owners of the SMMEs credit scoring too. Therefore, the only way to combat this challenge is to ensure that all credit products are paid timeously. In addition, the owner should avoid taking on too much credit that they are unable to pay back as this affects credit scoring. By avoiding taking on too much credit, the business can also save on paying back a great deal of interest.
5.4.5 Improve Customer Loyalty and Marketing Strategies
Inflation in South Africa is a huge challenge for SMMEs. One of the ways that SMMEs can try to reduce the impact of inflation is to create excellent customer service and in turn, create customer loyalty. This would also reduce the impact of competitors. In addition, SMMEs can position their product or service as a need and not a want through effective marketing strategies and campaigns.
5.5 Areas for Further Study
This study explored some of the internal and external challenges that have an impact on SMMEs performance. However, the list is far-reaching and should be expanded on for future research. In addition, the study only took into account a small number of SMMEs in Durban but for future studies, SMMEs from other industry sectors can be studied and compared. The study took place in a small part of Durban but could be expanded to other parts of the city. Lastly, a proposed future study could be a more in-depth study on the factors that indicated a strong association on business performance.
5.6 Chapter Summary
The study focused on identifying and evaluating the challenges that affect the business performance of SMMEs in South Africa, KwaZulu Natal, Durban. This was successfully achieved by selecting 57 SMMEs from 10 streets in Durban North. The respondents answered questions that relate to various challenges that affect business performance. The findings revealed that SMMEs encounter both internal and external challenges, with some challenges having a larger impact on business performance than others. As pointed out, SMMEs play a vital role in the South African economy and need to be supported to succeed. Therefore, it is important that the challenges that affect SMMEs performance need to be improved through the consideration and implementation of the recommendations.
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