SMEs are fundamental for the development and growth of the economy all over the world. Small and medium enterprises contribute significantly contribution for developing countries economy. They are considered flexible, effective, progressive and important in an economy (Gal, 2007). Firms, regardless of size, location and type of economy in which it evolves need to face the irresistible competitive phenomenon (Coplin, 2002). Successful SMEs and oriented toward increase are very important for economic development (Analoui& Karami, 2003).
The Small and Medium Enterprises considered as backbone of modern economies due to their remarkable contribution in job creation, help to earn foreign exchange, exports and innovation. Small and Medium Enterprises considered as a major driver of growth in Pakistan which reflects significant beneficence in worse economical situations (DUmara, N. and Danish J., 2015)
The Ethiopian government has long recognized the important contribution that small and micro enterprises can make in poverty reduction, employment creation and private sector development. Micro and small enterprises offer both a safety valve for the survival of workers that is available to find steady wage employment and opportunity for the poor entrepreneurs to raise their capital and income. These enterprises also offer a vehicle for acquiring and applying skills to raise productivity and private sector growth, providing better wage earning opportunities for the poor, while raising national income (Minilek, K and K. P. M Chinnan, 2012). Due to these reasons and based on the government strategy of capacity building in public and private sectors, donors as well as national governments have attempted to promote micro and small enterprises through support for financial and non-financial services appropriate for them (Solomon, 2007).
The policy identified number of limitation which affects the development of the SME. unfavorable legal and regulatory frameworks, underdeveloped infrastructure, poor business development service, limited access to finance, ineffective and poorly coordinated institutional support as the key drawbacks that affect SME (Endalkachew, 2008). Small and micro enterprises (SMEs) have a remarkable potential to create employment for the majority of the urban labor force. They are also important sources of income not only for those people who could not get an employment in other sectors but also provide cushion to falling incomes of low salary earners. Therefore, SMEs are operating in manufacturing, service, dairy, fattening, poultry, construction, agriculture, wholesale, retailer and other activities (Minilek, K and K. P. M Chinnan, 2012).Gondar town SMS has started its operation in primary mission to reduce the number of unemployment and to improve the economic situations of low-income productive people in Gondar town through facilitating anticipatory process and landing service. Hence, SMES has played a significant economic role for unemployment reduction and economic development
1.2 statements of the problems
Despite the role of SMEs in the Ethiopian economy, the financial constraints they face in their operations are discouraging and this has had a negative impact on their development and also limited their potential to drive the national economy as expected. This is worrying for a developing economy without the requisite infrastructure and technology to attract big businesses in large numbers.
The Gondar city administration has undertaken SMEs program by organizing the youth into group and solely to reduce unemployment. Currently, there is an information gap in exploring the challenges of SMEs in employment creation and regarding to what extent these sectors create jobs at startup and the growth in employment across periods. In addition to this MSEs affected by external factors include access to finance, competition, limited production/market place, lack of market for the product or service; and other barriers to trade. However ,MSEs sector in Ethiopia is a key target but its current size, performance in terms of its contrition to GDP, employment and export and total manufacturing output is largely unknown.. Hence, there is need for efforts in examining the factors affecting the growth of SMEs.
The aim of the study is to analyze the external factors that affect the performance of small and micro enterprise in Gondar city administrations.
The study will undertake to address the following research questions:-
? How does the Legal and political issues related with on the financial and economic conditions of the sub city macro and small enterprises
? How does an inadequate social infrastructure constitute a major challenge in the performance of SMEs in Gondar city administrations?
? Does attending technical and business management training has effect on growth of MSEs in Gondar city administrations?
1.3 Objectives of the Study
The main objective of this study is to investigate external factors affecting the performance of MSEs in Gondar city administrations. Specifically in lideta sub city, the study attempts to address the following objectives
? To evaluate the Legal and political issues with the financial and economic conditions of the sub city macro and small enterprises
? To evaluate whether inadequate social infrastructures constitute a major challenge in the performance of SMEs in Port-Harcourt City
? To assess effect of attending technical and business management training on growth of MSEs in Gondar city administrations
1.4. Significance of the study
SMEs important for capital incitement and generate greater employment, have demonstrated their powerful propellant effect for rapid economic growth. Therefore, the successful completion of this research had the following importance providing information for the ways of accessing credit in Gondar city administrations, show the implication of training with related to technical and managerial for growth of MSEs and the impact of infrastructures in the performance of SME.
1.5. Scope of the Study
This study basically deals with external factors affecting the performance of small and micro enterprises in Gondar city administrations. The data gathered from Gondar city small and micro enterprises office and same selected enterprises from Gondar city administrations.
1.6. Organization of the paper
This study includes five chapters. The first chapter deals with introduction part, which includes back ground of the study, statement of the problem, objective of the study, significance of the study, scope and limitation of the study. The second chapter covers the review of related literatures to the area of the study. The third chapter includes research methodology that is involved in the study. The fourth chapter is includes data presentation, analysis, and interpretation. Finally, chapter five is contains concussion and recommendation.
REVIEW OF RELATED LITERATURES
2.1 DEFINITION OF MICRO AND SMALL ENTERPRISES (MSEs
In the past the definition of Micro and Small Enterprises was based on paid up capital only. An enterprise is categorized as micro if it’s paid up capital is less than or equal to Birr 20,000. Similarly, an enterprise is considered small when its paid up capital is less than or equal to Birr 500,000. On the other hand, this does not provide information on the size of jobs or number of employees in the MSE. It also did not tell the size of the total asset for the MSE and did not differentiate between manufacturing (industry) and services.
1.2. ROLE OF MICRO AND SMALL ENTERPRISE (MSEs)
The small business sector is recognized as an integral component of economic development and a crucial element in the effort to lift countries out of poverty (Wolfenson, 2001). Small-Scale businesses are driving force for economic growth, job creation, and poverty reduction in developing countries. Further, small scale business has been recognized as a feeder service to large-scale industries (Fabayo, 2009).
2.3 Challenges Faced by the MSEs
MSEs Sector provides goods and services and also a driver in promoting competition, innovation and enhances the enterprise culture which is necessary for private sector’s development and industrialization despite the significant role played by the sector. It has continued to experience many binding constraints:-
a) Unfavorable policy environment; – the government has an inappropriate policy design, weak implementation framework and failure to institute and effectively monitor policy implementation.
b).Inhibitive legal and regulatory framework environment; – A number of existing laws and regulatory framework still remain cumbersome to MSEs, some by-laws applied by local authorities are not standardized, registration of business and the requirement of permanent physical address is a challenge to MSEs. Judicial system is complex and therefore complicates issues of dispute resolutions, time wasting and expenses.
c) Limited access to markets; – lack of access to markets and marketing information is a major challenge due to low aggregate demand, cheap imported goods and over production.
d) Limited access to financial services; – Lack of access to credit is a major constraint inhibiting growth and more so for women entrepreneurs and due to lack of tangible collateral to MSEs.
e) Inadequate skill and technology; – MSEs are characterized by restricted levels of technology, inappropriate technology and inadequate institutional capacity to support adaptation and absorption of modern technological skills.