BINDURA UNIVERSITY OF SCIENCE EDUCATION

AN ANALYSIS OF THE CHALLENGES AFFECTING PERFORMANCE OF

SMES IN THE MANUFACTURING SECTOR: A SURVEY OF MUCHEKE,
MASVINGO (2014 - 2015).

PRESENTED
BY
MASARA OWEN
B1231104

A DISSERTATION SUBMITTED IN PARTIAL FULFILMENT OF THE

REQUIREMENTS FOR BACHELOR OF ACCOUNTANCY HONOURS
DEGREE OF BINDURA UNIVERSITY OF SCIENCE EDUCATION:
FACULTY OF COMMERCE.

(OCTOBER, 2015)
BINDURA, ZIMBABWE
 APPROVAL FORM

The undersigned certify that they have supervised the student MASARA OWEN
(B1231104) dissertation entitled: An analysis of the challenges affecting performance
of small and medium enterprises (SMEs) in the manufacturing sector. A survey of
Mucheke in Masvingo, submitted in partial fulfilment of the requirements of Bachelor
of Accountancy at Bindura University of Science Education.

…………………………………… ………/…………/………………..
SUPERVISOR DATE

…………………………………… ………/…………/………………..
CHAIRPERSON DATE

…………………………………… ……/…………/…………………..
EXTERNAL EXAMINER DATE

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 RELEASE FORM

NAME OF AUTHOR : MASARA OWEN

B1231104

PROJECT TITLE : An analysis of the challenges affecting performance

of SMEs in the manufacturing sector: A survey of
Mucheke, Masvingo.

PROGRAMME : Bachelor of Accountancy Hounors Degree

YEAR GRANTED : 2015

Permission is hereby granted to the Bindura University of Science Education to
produce copies for this research project for project scholary purpose only. The author
reserve publication rights and neither the project no extensive extracts therefore may
be otherwise reproduced without the author’s permission.

Signed…………………………………
(Author’s signature)

PERMANENT ADDRESS:
1882 Flamboyant Road
Shashi View
Bindura
Zimbabwe

DATE………/…………/………………

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 DECLARATION FORM

I, MASARA OWEN declare that this is my piece work and has not been copied or
duplicated from any other sources without acknowledging the source.

Signed ……………………………..

iv
 DEDICATIONS

To my brothers and sisters for their encouragement and support during the research
and writing of the dissertation.

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 ABSTRACT

This research sought to unearth the challenges that are impediments to Small and
Medium Enterprises (SMEs) performance in the manufacturing sector of Masvingo, as
they are considered as a critical ingredient for ongoing and sustainable economic
transformation. Both quantitative and qualitative approach were adopted in this study.
The researcher used probability sampling to select 60 respondents from SMEs at
Mucheke Light Industry. Structured questionnaire and personal interviews were used
for data collection. In this analysis, the Statistical Package for Social Sciences (SPSS)
version 21 was employed for analysis of data by way of tables and graphs. The results
from this study show that SMEs are failing due to external challenges such as
infrastructure, stringent regulatory environment, lack of access to finance and internal
factors like risk management deficiency, uncontrolled growth, lack of information and
technology and poor planning. It was noted that government is not taking an effective
role in enacting laws and put in policies that are supportive to SMEs and majority of
them unaware of initiatives established to assist them. It was concluded that SMEs
should be initiative and form groups to acquire space at lower costs and that they
should be well acquainted with managerial skills for smooth operations. Finally, it
also recommended that the government should revise its initiatives and aim to help
SMEs in every way it can and make those initiatives known to the beneficiaries.

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 ACKNOWLEDGEMENTS

This research project is result of combined and priceless effort and support of many
people, without which it would have been impossible. The sacrifices of these people
made to see this piece of work to completion is considerable.

First and foremost, I would like to thank the Almighty God for the courage and
wisdom to undertake this particular research work. I would also like thank my
supervisor, who has guided, supported, and given feedback throughout this research.
Without his continuous support and encouragement, it would not possible for
completion.

Furthermore, I would like to thank all respondents from SMEs operating at Mucheke
Light Industry for spending their valuable time accepting my questionnaires and
interviews, sharing information with me to make this present study successful.

Lastly, I would like to thank all my family members and friends with their unwavering
financial and moral support and encouragement.

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 TABLE OF CONTENTS
TITLE PAGE .................................................................................................................. i
APPROVAL FORM ....................................................................................................... i
RELEASE FORM ......................................................................................................... iii
DECLARATION FORM .............................................................................................. iv
DEDICATIONS ............................................................................................................. v
ABSTRACT .................................................................................................................. vi
ACKNOWLEDGEMENTS ......................................................................................... vii
TABLE OF CONTENTS ............................................................................................ viii
LIST OF TABLES ......................................................................................................... x
LIST OF FIGURES ...................................................................................................... xi
LIST OF APPENDICES .............................................................................................. xii
CHAPTER I ................................................................................................................... 1
INTRODUCTION ......................................................................................................... 1
1.0 Introduction` ......................................................................................................... 1
1.2 Statement of the problem ..................................................................................... 3
1.3 Aim of the study ................................................................................................... 3
1.4 Research objectives .............................................................................................. 4
1.5 Research questions ............................................................................................... 4
1.6 Significance of the study ...................................................................................... 4
1.7 Assumptions ......................................................................................................... 5
1.8 Limitations of the study........................................................................................ 6
1.9 Delimitation of the study ...................................................................................... 6
1.10 Definition of terms ............................................................................................. 6
1.11 Structure of the research project ......................................................................... 7
1.12 Chapter Summary ............................................................................................... 7
CHAPTER II .................................................................................................................. 8
LITERATURE REVIEW .............................................................................................. 8
2.0 Introduction .......................................................................................................... 8
2.1 Theoretical Literature ........................................................................................... 8
2.2 Empirical literature ............................................................................................. 28
2.3 Gap analysis ....................................................................................................... 39
2.4 Chapter Summary ............................................................................................... 39

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CHAPTER III .............................................................................................................. 40
RESEARCH METHODOLOGY AND DESIGN ....................................................... 40
3.0 Introduction ........................................................................................................ 40
3.1 Research Design ................................................................................................. 40
3.2 Population........................................................................................................... 41
3.3 Data sources ....................................................................................................... 43
3.4 Research Instruments ......................................................................................... 44
3.5 Data Collection Procedures .............................................................................. 46
3.6 Data Presentation and Analysis .......................................................................... 47
3.7 Chapter Summary ............................................................................................... 48
CHAPTER IV .............................................................................................................. 49
DATA PRESENTATION, ANALYSIS AND DISCUSSION .................................... 49
4.0 Introduction ........................................................................................................ 49
4.2 Analysis of Data Response Rate ........................................................................ 49
4.3 Data analysis and interpretation ......................................................................... 51
4.4 Interview discussion ........................................................................................... 63
4.5 Chapter Summary ............................................................................................... 64
CHAPTER V ............................................................................................................... 65
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ................................ 65
5.0 Introduction ...................................................................................................... 65
5.1 Summary ............................................................................................................ 65
5.2 Summary of findings .......................................................................................... 66
5.3 Conclusions ........................................................................................................ 66
5.4 Recommendations .............................................................................................. 67
5.5 Areas for further researches ............................................................................... 70
References .................................................................................................................... 71

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 LIST OF TABLES

Table 4.1 Questionnaire response rate ......................................................................... 50

Table 4.2 Interview response rate ................................................................................ 51

Table 4.3 Responses to factors cause problem in accessing finance. .......................... 56

Table 4.4 Responses on the financial statement prepared ........................................... 60

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 LIST OF FIGURES

Figure 4.1 Gender of the gender .................................................................................. 51

Figure 4.2 Status of the respondents ............................................................................ 52

Figure 4.3 Respondents experience with SMEs .......................................................... 53

Figure 4.4 Responses on the education qualifications of the respondents ................... 54

Figure 4.5 Responses on challenges facing SMEs in the manufacturing sector .......... 55

Figure 4.6 Responses on the factors affecting production ........................................... 57

Figure 4.7 Responses on the influence of management skills ..................................... 58

Figure 4.8 Respondents on the role of government ..................................................... 61

Figure 4.9 Responses on the roles of supporting institutions ...................................... 63

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 LIST OF APPENDICES
APPENDIX I ............................................................................................................... 79

APPENDIX II .............................................................................................................. 80

APPENDIX III ............................................................................................................. 83

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 CHAPTER I

INTRODUCTION

1.0 Introduction`
This chapter introduces the research problem which made the researcher undertake
this piece of work. The background of the problem, the statement of the problem, as
well as the main research objectives were discussed in this chapter. The researcher
further highlighted the assumptions that were made during the research. Limitations of
the study were followed by the delimitations which were faced by the researcher.

1.1 Background of the study

Small and Medium Enterprises (SMEs) are universally increasingly considered
critical, backbone and engine for economic growth and they form the greater
percentage of manufacturing sector. Chadamoyo and Dumbu (2012) regard SMEs as
the seedbed for development of the entrepreneurial talent as they assist in the
distribution of national income and decentralisation of industry. They create
employment, open up opportunities for upward social mobility, foster economic
growth, and reinforce competition and economic efficiency (Liao et al, 2008). Their
growth is a critical ingredient in the sustainable development of developing economies
and a panacea for Zimbabwe’s economic challenges (Dumbu, 2014). Zindiye (2008)
also stresses that SMEs are playing a critical role in absorbing labour, penetrating new
markets and generally expanding economies in creative and innovative ways. Most of
the countries are considering them as an important sector since the majority of bigger
firms are currently downsizing and in worst scenario are closing (Sunderson, 2014).
They constitute a major source of employment and generate significant domestic and
export earnings. As such, SMEs development emerges as a key instrument in poverty
reduction efforts.

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As a result of the inflationary period up to 2008, Zimbabwe’s formal sector shrunk
drastically. Many companies retrenched and some converted into the informal sector
for survival (Klinkhamer, 2009). Zimbabwe is facing both hidden and apparent
obstacles blocking development of SMEs like financial constraints, energy crisis,
government regulations and information asymmetry. Manufacturing sector remains in
crisis with capacity utilisation declining from an average of 57% in 2011, 44% in
2012 and 39% in the third quarter of 2013 (ZIMASSET, 2013). This attributable to
structural and infrastructural bottlenecks such as erratic power supply, obsolete
machinery and dilapidated infrastructure negatively affecting value addition and
beneficiation as well as employment creation. This era of prevailing economic
hardship was characterised by lack of finance, high rate unemployment, decrease in
investment level, exorbitant interest rates as well as lack of human resource due to
brain drain. Brain drain negatively impact on SMEs as they lack sufficient
management skills. Initiative, skilled and well experienced qualified personnel fled the
country for better living standards. Small Enterprises Development Corporation
(SEDCO, 2004) stresses that growth and development of SMEs is generally
undermined by a lot of challenges resulting in high rate of failure to these businesses.
It further elaborates that, approximately 60% of SMEs collapse in the first year of
establishment, 25% fail in the first three years and the remaining 15% are likely to
survive. These statistics convey that 85% of SMEs eventually collapse.

Masvingo was regarded as the most de-industrialised town as 18.2% of its industry
was declared dormant by the Central Business Register (CBR) inquiry carried from
August 2013 to June 2014. Zimbabwe National Statistics Agency (ZIMSTAT)
brought forth the first Central Business Register in Zimbabwe. Even more worrying in
the report is that the country’s economy has become more retail with the
manufacturing sector shrinking to a tiny percentage of overall economic activities. In
Masvingo the number of manufacturing entities is one sixth of the retail entities. There
are 718 players in the manufacturing industry compared to 4071 players in the retail
sector. The report says 18.2% of economic establishments in Masvingo whose entire
industry is now almost all cobwebbed have closed down or become dormant,
According to the report, Masvingo Province had the highest number of dormant
establishments reported with 18.2% followed by Harare and Bulawayo Provinces
which had 12.9% and 12.7% respectively. Matabeleland South Province has the

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lowest number of dormant establishment at 5.7%. All these statistics amount to a
greater drawback to a country’s sustainable economic development for this reason it is
important to determine factors affecting SMEs performance so as to reduce the degree
of detrimental effects of SMEs failure to the country’s economy. According to
Mudavanhu et al, (2011), the trends of economic development tells us that promotion
of infant industries is one of the major drivers behind industrialisation, so it is of
significant importance to consider their foreseeable future growth and development.
The stimulation of SMEs must be seen as an integrated strategy or programme to
transform Zimbabwe economy to ensure diversification, productivity, investment and
entrepreneurship in the country.

1.2 Statement of the problem

SMEs in Zimbabwe are facing obstacles that are impeding their viability in the
manufacturing sector. There is high rate of SMEs failure to such an extent that some
firms are experiencing pre-mature death and some downsizing. SMEs are struggling to
offset the trends of recurring challenges although they keep surviving under harsh
conditions. The prevailing fear is that the country’s economy has become more retail
with the manufacturing sector shrinking to a tiny percentage of overall economic
activities. This has become a very much cause of concern to all stakeholders to
strategies and re-examine this issue to mitigate such challenges considering that SMEs
are considered crucial for developing countries like Zimbabwe with major
employment and income distribution challenges. SMEs are the backbone and are a
way out of miserable situation facing Zimbabwean economy as they are a poverty
alleviation strategy, therefore they need a conducive environment to operate and their
dynamics and constraints are important to note.

1.3 Aim of the study

This study seeks at analysing the challenges affecting the performance of SMEs in the
manufacturing sector of Masvingo, Mucheke Light Industry. To analyse this statement
of problem objectives are developed, which will hopefully contribute towards every
aspect of overcoming the challenges affecting the performance of SMEs.

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1.4 Research objectives
i. To identify key challenges affecting SMEs growth and d.evelopment.
ii. To establish the extent to which management expertise affects the performance
of SMEs.
iii. To examine the extent to which Zimbabwe’s economic initiatives are
enhancing SMES development.
iv. To make recommendations on measures to overcome determinants of SMEs
performance.

1.5 Research questions

i. What are the key challenges affecting the performance of SMEs in the
manufacturing sector?
ii. Does management expertise influence SMEs performance?
iii. To what extent government initiatives assist SMEs performance?
iv. What are measures that can be established to overcome challenges to SMEs
performance?

1.6 Significance of the study

Once the problem is reduced or solved, various groups as stated below tend to benefit.

1.6.1. The government of Zimbabwe

The SMEs are viewed as a vital sector of the economy, challenges that affect their
performance must be effectively determined. The identification of those hindrances
will result in tentative solutions and strategies being adopted to decrease the rate of
SMEs failure in the country that is necessary to reduce employment challenges and
boost the economy. The research will assist the government to create the environment
conducive for the operation of SMEs and policies formulated help their growth and
development as evidence suggests that they play a vital role in the nation’s economy
and wellbeing. These SMEs will pay tax to the government thereby increasing its
revenue and the growth will lead these company involved in social responsibilities
which is predominantly the role of the government.

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1.6.2 SMEs in the manufacturing sector in Masvingo
SMEs in the manufacturing will benefit from the necessary recommendations that
come from the finding and outcome of the research. They will be operating within the
problem free environment thereby resulting in their growth and developing as desired
enterprises.

1.6.3 The researcher

The research project will give the researcher the platform to boost problem solving
capacity as an accountant. Accounting field requires experience in conducting
research which improves the quality of decisions. This research will give the
researcher the needed experience in his research work. This research carried out in
partial fulfilment of Bachelor of Accountancy Honours Degree at Bindura University
of Science Education. This will widen the researcher‘s academic knowledge and
enlighten the researcher on the issue challenges affecting the performance of SMEs.

1.6.4 Bindura University of Science of Education (BUSE)

BUSE is going to benefit from the study in a variety of ways. The research will add to
the archives of the university library as essential material for research and this will go
a long way to improve its limited literature.

1.7 Assumptions
i. Chosen sample gave a true representation of the population
ii. Respondents answered truthfully
iii. All responses provided by the questionnaire respondents were true facts.
iv. Also it was assumed that the limitations encountered did not negatively affect
the validity and reliability of the research.

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1.8 Limitations of the study
i. Since the research was undertaken during industrial attachment period, time
was the greatest limitation to the study. The researcher allocates time such that
demand for weekly work target was also going to be met. In addition, it was
required to spend much time on actual sites observing, discovering and
investigating challenges affecting SMEs performance. The researcher ensure
that administration of questionnaires and interviews will be done simultaneous
in order to be time effective.

ii. An insufficient fund was another limiting factor. There was a challenge of
limited resources like finance, transportation and other resources so the
researcher personally could not visit all respondents; that are why relied on
email interviews in some cases which gave so limited information. In addition
the researcher ensure that the only few interviews will be done.

iii. Accessing first-hand information from top management was difficult as the
researcher needed to follow the hierarchy therefore having to rely on data from
lower management.

1.9 Delimitation of the study

i. The study was confined to the challenges hindering performance of SMEs in
the manufacturing of Masvingo producing clothing, furniture, plastic or food.
As such, the research was restricted to Mucheke Light Industry only and no
attempt was made to SMEs in other parts of the country. However the outcome
and recommendations of this research may be used in any parts of Zimbabwe.
ii. The research covers a period from 2013 to 2015.

1.10 Definition of terms

i. Manufacturing sector – agglomeration of industry involving transformation
of raw materials into consumer or industrial goods.
ii. Performance – fulfilment or achievement of desired outcome

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 iii. Small and Medium Enterprises (SMEs) - are non- subsidiary, independent
firms or business with less than 100 employees. (Zimbabwe Policy
Framework, 2004).
iv. Strategy formulation – management function undertaken in firms to directly
contribute to better performance.

1.11 Structure of the research project

Chapter one has covered introduction, background of the study, statement of the
problem, research objectives and questions, assumptions, significance of study,
delimitations and limitations of the study and definition of terms. Chapter two covers
introduction, literature review, theoretical framework, empirical evidence and
justification of the study. Chapter three looked at the research design, research
instruments, data collection and analysis procedures. Chapter four represent analysis
and interpretation of the results. Finally, chapter five summarises, concludes and make
recommendations of the research findings.

1.12 Chapter Summary

This chapter focused on introducing what has given rise to this study in the
background to the study, leading the researcher to define research objectives that
formulated the appropriate literature to be reviewed in the next chapter.

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 CHAPTER II

LITERATURE REVIEW

2.0 Introduction
The main purpose of literature review is to assist the researcher to develop a clear
understanding and insights into relevant previous researches and trends that emerges.
In order to have a clear understanding of this study, the researcher finds it necessary to
review literature from other authentic sources. Saunders et al (2009), emphasises that
reviewing of literature critically will provide the foundation on which one’s research
is built. This research will critically review the theoretical and conceptual framework
underpinning from various literatures on the topic issue of impediments on SMEs
performance that is it provide an analysis into similarities and differences of ideas
suggested by authors.

2.1 Theoretical Literature

2.1.1 Definition of a Small and Medium Enterprise (SME)
There is no universal definition for an SME that is possess a worldwide agreed upon
definition (Siti, 2009). The definition varies from country to country, therefore
because of diversity of Small and Medium Enterprises, every simple definition is
subject to criticism (Chittithaworn, 2011). Beaver and Ross (2002) observes that it is
easier to describe than to define SME. Most definitions are sorely based on the size of
an entity. Nevertheless, other authors depend on number of employees, capital base,
annual turnover, legal structure, degree of formalisation and financial position to
define SME.

The Zimbabwean definition according to the ministry of small and medium

enterprises (2002), regards an SME as a registered enterprise with employment level
ranging to 100 employees. Small and Medium Enterprises Development Corporation

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(2010) elaborates on to the definition by defining SME as a firm that has not more
than 100 employees and maximum annual turnover of US$830 000.

International definition according to the World Bank (2010) an SME is a formal

enterprise with annual turnover in US dollar terms between 10 to 1000 times the mean
per capita gross national income, at purchasing power parity of the country in which it
operates. The European Union defines micro enterprise as employing 0-9, small 10-99
and medium employing 100-499. International Accounting Standards Committee
Foundation (IASCF, 2007) defines an SME as an entity that does not have public
accountability and thus publishes general purposes financial statements for external
users.

It can be seen from the foregoing definitions that there is no universally agreed
definition of an SME thus for the purpose of this study, an SME is regarded as an
entity that employs less than 100 people, generating less than US$1 million in annual
turnover, registered or non-registered and holding assets for the owner managers.

2.1.2 Organisational Performance

Performance measurement is the process of obtained symbols to represent the
properties of objects, events, or state (Zairi, 2010). Munyaka (2010) synthesises that
organisational performance comprises of actual output or results of an organisation as
measured against its intended output that is its goals and objectives. Munyaka (2010)
went on to define organisational performance as the concept of measuring the output
of a particular process or procedure, then modify the process or procedure to increase
output, efficiency or effectiveness of a procedure. Firm’s performance is characterised
by firm’s capacity to produce desirable or intended outcomes. It is multidimensional
that is can have different configurations for example increase in market share,
survival, profitability and goodwill (Zindiye, 2008).

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2.1.3 Characteristics and contribution of SMEs to the economy
SMEs boost an entrepreneurial spirit and put across flexibility in the economy.
Sweeney (1981) opines that small firms are a core source for entrepreneurship and
innovation in the economy, transforming it into a blooming and flourishing economy.
They are a fundamental part of the economic fabric in developing countries and they
play a crucial role in the furthering growth, innovation and prosperity (Nyanga et al,
2013). There is clear evidence that exist which points out that and SMEs sector and
broadly based is a vital and prominent ingredient for sustainable economic
development and growth. Gono (2006), highlights that the role of SMEs is critical for
strengthening economic performance and employment creation, particularly in
developing countries such as Zimbabwe. They are increasingly viewed as an engine
for economic growth in the developing countries with capital shortages and increasing
labour surpluses. They contribute significantly in the country’s Gross Domestic
Product (GDP), poverty alleviation and assist in employment generation. SMEs
employed 61% of the labour force and contribute over 50% of GDP in Zimbabwe
(Gono, 2007). The World Bank (2013) describes the SMEs as the medium to fuel
economic growth, prosperity and poverty reduction. This reflects that they indeed the
keys to country's future meaning that is SMEs have the capacity in the Zimbabwean
perspective, they contribute immensely towards the achievement of Zim-Asset goals
and objectives.

Lau (2001) highlights that smallness is dangerous just like in the animal kingdom,
small animals are easy prey for predators. Despite of contribution to the sustainable
economic development shown by SMEs in the developing world, a number of
impediments or limiting factors to their growth and development resulting to some of
them performing below expectations.

2.1.4 Challenges affecting SMEs development in Zimbabwe

According to Gono (2006), the SMEs sector, while playing a critical role in the
sustainable economic growth and development, is confronted by variety of challenges.
These impediments can be categorised into internal and external (Mudavanhu et al,
2011). Internal factors are those that are controllable and originate from within the

10
SMEs sector whereas external are those coming or derived from an outside source and
SMEs do not have control over such challenges.

2.1.4.1 External challenges

Nyoni (2002), have come up with principal areas from the external environment
affecting sustainability of SMEs in the developing economies and these are limited
access and cost of finance, market structure, lack to infrastructure, lack of access to
land, lack of information and technology and a hostile regulatory environment.

(a) Limited access to finance

Finance is the lifeblood of any organisation. Chipangura and Kaseke (2012) advocates
that growth potential can only be realised if a firm has sufficient financial resources to
support the expansion process. Access to financial resource remain the critical
constraint for SMEs and entrepreneurs who usually have to mobilise their capital or
their own resources to establish or expand their businesses (Rose, 2014). In addition,
Megginson et al (2006), highlights that finance is vital in the success of business as it
assist in maintenance and acquisition of facilities, attraction and retention of capable
personnel, efficient production and marketing among other thing required for business
success. This means access to financial resource is the cornerstone to success of SMEs
as other factors like management, technology and facilities acquired rely on the
working capital available.

Gono (2006), opines that accessibility and availability of finance is very limited, as
the majority of SMEs are owner capitalised that is their inherent higher perceived risk
and lack of collateral make financial institution reluctant to lend them. This initiates as
a consequence of weak banking institutions, lack of capital markets and inefficient
legal framework regarding credit and collateral assessment (Anga, 2014). SMEs are
incapable to access funds due to several reasons. Chimucheka and Rungani (2012)
review that reasons why SMEs applications for finance were unsuccessful at financial
institutions because some lack collateral security, lack financial deposit, poor business
plan, business plan not viable and lack financial management knowledge.

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 i. Lack of collateral security
SMEs lack collateral security which is one of the crucial requirements for evaluation
of borrower’s creditworthiness when trying to obtain credit finance. Gartner et al
(1999) agrees that lack of eligible collateral security is the major impediment for
SMEs as a result of poverty. Majority of small business operators lack non-current
assets to be accepted by financial institutions as collateral security or pledge from the
loan applicant for risk.

ii. Unavailability of proper financial management records

Some small business operators do not keep proper financial records. This may be due
to lack of bookkeeping and financial management skills. The small business
entrepreneurs are financially illiterate and they tend to suffer from deficiency of
proper accounting procedures and usually mix their personal or private with business,
making their financial statements unreliable (Jansen, 2003). Chimucheka and Rungani
(2012) synthesise that it is surprising that some business operators expect to obtain
bank loans even if they do not have any financial records.

iii. Cost of capital

SMEs are perceived to be extremely high risk borrowers. This create a finance gap as
SMEs operate under uncertain conditions than larger firms. The SMEs are at an
inferior position in credit filtration (Hongbo et al, 2009). Their rates of return are
fluctuating at undesirably higher level and some financial institutions are reluctant on
extending loans to them except at high interest rates because of high risk related to
SMEs and this automatically hamper their operations.

Moti et al (2012), highlights that in assessing and evaluating credit worthiness or

potential of a client or borrower, Microfinance Institutions (MFIs) use 5Cs model of
credit. These 5Cs are: collateral, capital, capacity, character and condition.

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(b) Legal and Regulatory Framework
Poor defined or stringent legal and regulatory framework imposed by the government
act as impediment to SMEs operations in an economy. Anga (2014) stresses that the
contribution of SMEs to the economic sustainability indicates how important it is to
have government policies that support SMEs, including regulations that enable them
to operate efficiently while reducing administration costs. The government has already
engaged in some activities to support small entrepreneur’s growth and development
but there is still gap in the regulations and administrative procedures by government
and its agencies. Some policies imposed on SMEs are unsatisfactory, that is, there is
absent of supportive institutional structures. There is non-establishment of enabling
legal, regulatory and administrative environment meaning ease of business and
flexible licensing models. Anga (2014), highlights that complex tax system, low level
of trust in the judicial system and the need to pay bribe to access public services
represent major barrier to SMEs success and lack of government support. The
government and its local authorities are making less or no efforts in nurturing and
making the environment conducive for SMEs instead of just harvesting from them.

(c) Unavailability and unreliable infrastructure and Public Utilities

As mentioned earlier finance is vital for the success of business as it affects facilities
acquired. Incapability of SMEs to access funds hinders their operations as they are not
in a position to acquire adequate infrastructure such as property, plant and equipment.
There is no rehabilitation of infrastructural assets and recovery of utility services such
as water and sanitation public amenities, Information Communication Technology,
energy and powers supply. Poor working premises, roads, warehouse, electricity and
water supply negatively affects the development and growth of SMEs (Muriford,
2012; Ackar and Vuvor, 2011). Inequitable land distribution and poor infrastructure in
Zimbabwe act as barrier to SMEs growth and development.

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(d) Poor market structure
The organisational and other market characteristics like price and ease of access and
entry negatively affects small business community in Zimbabwe. The segment in
which they are operating is generally fierce as they are competing with large
corporations with greater human resource, higher compensation packages, strong
brand recognition and enjoy more economies of scale. SME face stiff competition
from larger corporations due to their inability to analyse their competitors and the
market in which they are competing. Muriford (2012) asserts that SMEs needs to
market their brand considering the tough competition it will face against more
established business. In addition, cheap imports from China, South Africa and other
neighbouring countries are giving tough time to SMEs as the global economy is
slowing down and it is weakening domestic demand across all sectors. They end up
offering unknown brands or uncompetitive products and as a result they fail to reach
their target sales if they offer products that are failing in the market (Man et al, 2002).
The challenge the SMEs are facing is that there is fierce competition of which the
customers are very few. They lack adequate resources to establish their own market.
Lack of human resource will result them in having weak poor customer relations
which negatively affects their market performance.

2.1.4.2 Internal inhibitors to SMEs success

Rose (2014) describe internal factors as those constraints that affects the businesses of
SME manager's ability that is are those that are controllable and originate from within
the SMEs sector and management have control over.

(i) Limited managerial capacity

Inadequate management skills is another commonly cited problem facing SMEs in the
country. As specified by Mudavanhu et al (2011), most of empirical studies reflect
that lack of managerial experience is the main reason for SMEs failure. SMEs
performance is closely linked to entrepreneurial skills of the proprietor. Thaimuta and
Makoni (2014) emphasise that managerial skills are important in running any business
thus there is need for management that transform ideas into economic opportunity.
This particular problem is broad but includes weaknesses in terms of business

14
knowledge, lack of management skills or capabilities, poor or inadequate planning
experience (Nyanga et al, 2013). There is over-reliance on the owner-manager of most
SMEs and there is reluctance to move away from this managerial tendency. This type
of management is a sign of poor human resource practice where no other permanent or
qualified staff hired and no delegation of duties, responsibilities and authorities.
Nyanga et al (2013) also argues that there is need for SMEs management who are
generalists rather than specialists and thus responsible for efficient allocation and
cannot afford to make poor decisions. SMEs usually come into their industries with
little or no knowledge of handling the multiple facets of a business such as financial
management employee relations, advertising and other responsibilities (Muniford,
2012). Gono (2006), SMEs also lack the capacity to conduct research and
development needed to commercialise ideas and grow business.

Small firms fail due to the limited portfolio of managerial skills such as human
resources, financial, marketing and production management. Shafique et al (2011)
proclaim that financial management and planning (28%), marketing management
(16%), operational and production (15%), human resource management (6%) and
characteristics of owner (13%), are major causes of SME failure and contribute more
than 70% failure of small firms.

15
 Production and operations
Marketing Management
 Inventory
 Integrated
management
marketing
 Productivity
 Customer focus
 Technical SME Performance
 Market focus
efficiency
 Efficiency
 Profit
 Growth
 Size and Financial Management
Human Resource liquidity
Management  Market value  Working capital
 Success/ failure Management
 Human capital
 Leverage  Financial
 Human
reporting and
recruitment and
management
selection
accounting
 Retention
 Computer
 Development of
Accounting
employees
Software
 Performance
 Accounting
Appraisal
information

Figure 2.1 Portfolio of management skills

Source: Shafique et al 2012

(a) Production and Operation Management

This is management function that involves a coordinated, planned and controlled
transformation or conversion of inputs (raw materials) into outputs (finished goods or
products) through either a chemical or mechanical way with the requisite of quality.
The manufacturing process should ensure that goods and services are produced in a
more effective and efficient manner that is the correct amount and quality level at the
right cost. According to Semster (2011), production as a value addition process,
innovations in technology have resulted in the development of manufacturing
capabilities. Inventory management, technical efficiency and quality control are the
major area involved in production and operation management. Shafique et al (2011),
emphasise that inventory management is an effective management of components like
raw materials, work in progress and finished goods. Production management deals
with decision making related to production process to achieve production and
operations management objectives such as right quality, right quality, and low

16
manufacturing cost, timeless of delivery to customers. Operations management is part
of management science which is concerned with production of quality good to ensure
business operations are performed smoothly, efficiently and effectively (Semester,
2011, Shafique, 2011).

(b) Marketing Management

The purpose of marketing activities is to gain competitive advantage however, SMEs
lack necessary skills like the personnel, finance and attitude (Shafique et al, 2011).
Dweyer et al (2009) highlights that in this situation innovative marketing can play an
important role in order to gain competitive advantage in the firms. For an effective
marketing management strategy, firms must possess a full detailed objective
understanding of their own business and the market they operate. Ardjouman (2015)
reviews that there is a high level of awareness of significant roles played by marketing
management strategies in the performance of SMEs. Kotler (2014) asserts that
managers must develop the firm’s detailed marketing plans and procedures and should
fully equipped with relevant skills on customer care which involves determination and
satisfaction of their needs, gain knowledge on changing needs trends and competitor
activities. Murphy (2006) also agrees highlighting that SMEs exhibit some
personality traits that are responsible for the success or failure of their businesses.

(c) Financial management

Effective financial management is the crucial element in the running of growing
businesses. It involves the management and administration of organisational funds in
an effective and efficient manner so as to accomplish it goals and targets. Owner-
manager should be able to raise finance, managing cash flows and record keeping
which are essential for making informed decisions and assess new opportunities and
evaluation of the business strategy (ACCA, 2013). High performing small firms focus
on record keeping, cash flow planning and costing system (Deakins and Logan, 2001;
Shafique et al, 2011). Jindrichovska (2013) also agrees emphasising that owner-
manager should concentrate critical issues or core elements of small business financial
management that is liquidity and cash management, long term asset acquisition,
capital structure and cost funding. This necessitates the ability to prepare financial

17
statements, bookkeeping, and tax calculating and budgeting for small firms to be
fruitful so as to access loans from financial institutions. Zindiye (2008) asserts that
budgeting assists in the planning and is usually used as a yardstick for which
performance can be measurement.

(d) Human resources management (HRM)

This is an administration function within the organisation that involves conducting of
job analysis, planning personal needs, recruitment and selection, management,
development and retention of employees so that they can be viewed as valuable to the
organisation. It is an effective tool for the survival and success of the small firms
(Shafique, 2011). Katou (2008:119) synthesises that there is a relationship between
human resource policies (compensation, incentives, involvement and job design) and
organisational performance is partially mediated through human resource management
outcomes (skills, attitude and behaviour) and it is influenced business strategies (cost,
quantity and innovation). Caliska (2010), also agrees that human resource system can
contribute to a sustained competitive advantage through a facilitative development of
competencies that are firm specific.

(ii) Lack of planning

Most of entrepreneurs lack plans on how to carry out their business. This is just like
sailing in an ocean without a compass as business plans are acknowledged as the
bedrock for SMEs growth. Chikwuemeka and Ufechukwede (2013) explains planning
as set of managerial activities that are designed to prepare the organisation for the
future and ensure that decision regarding to efficient allocation and use of resources to
achieve organisational objectives. Planning is particularly critical for small to medium
as resources are usually scarce. It sets out certain objectives they are much likely to
achieve. Mambuka (2002) highlights that plans establish the basic objectives of firm,
determine the amount of resources necessary for successful implementation.
Kangasharju (2000) specifies that SMEs make plans that are only sale oriented in the
short run which will result the in failing in their operations. In addition lack of focus is
one a real challenge for an SME as there are constant changes in priorities, issues that
needed attention and other fires to be extinguished. Often opportunities present

18
themselves and it is difficult to say ‘no’ to a short term opportunity that will distract
them from their long- term goals. SMEs are not focused and clear on their long-term
objectives and opportunities that will facilitate them in achieving this (Phillipson,
2007). They do not set procedures or steps with alligators that will be snapping at
their backs such that it becomes more difficult for them achieve or recognise steps
necessary to achieve long term goals (Phillipson, 2007). They are failing to plan for
matters that absorb most of their time, resources and energy. They do not realise that
having procedures that are well managed will reduce errors because their corrections
is wastage of resources which is a challenge to SMEs as they have limited resources.
According to Phillipson (2007), good procedures with a little time and efforts invested
up front will usually pay enormous dividend in time and cost savings on an on-going
basis. Business plans include the organisation short term and long term goals and
objectives which mean every aspect or detail will guide the business to the right path.

(iii) Risk management deficiency

The SME owner-managers ought to ignore risk in their assessment of alternatives and
opportunities. Risk is the possibility of something unpleasant will happen. The goal of
risk management is to identify, measure, control minimises losses associated with
uncertainty events (Bougaardt and Kyobe, 2011). SMEs fail to recognise and measure
losses because they do not engage in record keeping and Information Technology
assessment and management, the main reason being lack of finance, expertise and
awareness of security risks (Dimopoulos in Bougaardt and Koybe, 2011). The
managers should ensure that uncertainty does not affect the business goals and
objectives by identifying, assessing and priotising of risk.

(iv) Uncontrolled growth

Growth is a good thing unless it is left unchecked and generated revenue cannot keep
with expansion (Muniford, 2012). If the business experience great success, do not be
overage to spend their retained income by immediate buying more property, plant and
equipment. In addition, Laidler in Mudavanhu et al (2011) postulate that the
Production Theory asserts that small firms are inefficient because they do not operate
at the minimum efficient scale where economies of scale are enjoyed and this is where

19
their average costs are always falling. Wetson and Brigham (1981) agreed that rapid
expansion and growth could lead to liquidity problems and financial distress.
Mudavanhu et al (2011), review that if the firms do not find a way of increasing their
scale so as to be able to enjoy economies of scale, they remain uncompetitive and
hence have a high chance of failing.

(v) Lack of information and technology

According to the Institute of chartered Secretaries and Administrators (ICSA, 2000) a
Corporate Administration study pack, information is necessary to run any corporation
as it enables management to make informed decisions on strategic and operational
issues. Technological changes may be a sensitive issue that needs to be addressed with
consideration and support as communication is vital to ensure that all staff are aware
of the necessity for the change and benefits that they will ultimate derive from it
(ICSA, 2000:24). An effective manager needs information immediately prior to the
need to take decision. Without accurate, relevant and timely information, it is all too
easy to take wrong decisions. Due to information asymmetry the SMEs decisions are
taken in void and completely arbitrary therefore negatively influence the SMEs
performance.

2.1.4 Support measures to address the challenges facing SMEs in Zimbabwe

The Zimbabwean government realised the crucial role played by SMEs in the
economic sustainability, so it has made commitment to the full development and
transformation of this sector in various policy documents such as Framework for
Economic Reform, The Zimbabwe Programme for Economic and Social
Transformation (ZIMPREST) and The Economic Recovery Programme (Nyoni,
2002). The government realise the need to have an integrated coherent policy and
strategy as an effective intervention for establishment of SME sector in Zimbabwe.
With the help and guidance of these programmes, the Zimbabwean government came
up with the following as problem areas which need to be revisited:
i. Enabling Legal and Regulatory Environment;
ii. Investment promotion;
iii. Financial Assistance;

20
 iv. Market Promotion;
v. Technology and Infrastructure;
vi. Provision of Information;
vii. Entrepreneurship, Management and Skill Development;
viii. Target Support;
ix. Relationship and Partnership; and
x. Institutional Reform.

2.1.4 .1 Enabling the Legal and Regulatory Environment

A considerate environment is necessary for all business sectors. However, over
regulations is a worldwide threat to competitiveness of the small business sector
(Zindiye, 2008). The SMEs will become reluctant to carry business due to the
stringent, stiff and complex regulations. The Zimbabwean government has established
the following strategies or initiatives (Ndlovu, 2002, Chipangura and Kaseke, 2012):

(i) The Small Business Act

The Act aims at simplifying stringent regulations and removing barriers for
establishment of SMEs in Zimbabwe. It creates mechanism for rewarding SMEs with
incentives and also highlights penalties and non-compliance with provisions (Zindiye,
2008). It is an audit strategy to make sure there is compliance among all stakeholders.

(ii) Business Formation and Licensing Procedures

The government and its agencies responsible for business formation should revise,
simplify and minimise the procedures for establishment of small firms. The process or
procedure should cut on cost and time consumed in acquiring business licenses and
permits by relevant authorities (Zindiye, 2008).

21
(iii) Reporting and Administrative Requirements.
The fundamental goal of the Zimbabwean government is to have a revised, simplified
and minimised requirements or procedures that are easy and not time consuming in
acquiring operating licences and permits by relevant authorities. The revised
administrative procedures should be applicable to the labour markets such that they
will be guided by specified code of conduct, employment conditions and wage levels
(Zindiye, 2008).

2.1.4.2 Investment Promotion

It has been observed that high taxes and interest rates adversely influence the
establishment of small businesses so investment promotion is the key and critical for
growth and development of SMEs. It is quite critical for the policy makers to
conducive environment for SMEs (Msipah et al, 2013). The government of Zimbabwe
has formulated the following investment promotion to stimulate the growth and
development of SME sector in the country (Zindiye 2008; Ndlovu, 2002):

(i) Tax Relief

It is a fiscal measure by the government for small business development. The
Zimbabwean small business sector is not subjected to the full amount of tax are
provided with 5 years grace period (Zindiye, 2008). Also tax breaks or holidays are
granted to small companies that are subcontracted by government (Gono, 2006).

(ii) Rebates and Discounts

Gono (2006) stipulates that SMES are granted rebates and discounts by local and
utilities in Zimbabwe on land and services to reduce their cost of production which
will increase their viability in business operations.

22
2.1.4.3 Access to finance
The two principal constraints currently facing SMEs in Zimbabwe are lack of access
to finance and high rates of interests and the secondary constraints of SMEs are
absence of security and lack of business track record (Zindiye, 2008). Hinton et al
(2006) gives measures that can be put in place by government to reduce the challenges
of access to finance and high interest rates by small business community.

(i) Credit finance

It include the formation of institutions that assist the feasibility of SMEs in obtaining
unsecured funding at concessionary interest rates and also incentives such as reduced
tax rates and easy access to foreign currency for the purpose of acquiring cheap
imported raw materials (Chipangura and Kaseke, 2012).

(ii) Credit guarantees

The government acts as surety for SMEs when they want to access finance from banks
and financial institutions. SMEs are encouraged to form cooperatives and credit
unions for them to deposit and save money. The government provide financial
assistance to these cooperations and credit unions (Hinton et al, 2006).

(iii) Risk Capital

It includes private equity, business angels and corporate venturing. Private equity
refers to capital equity that is made available to companies not listed on the stock
market. Incentives for initiatives such as tax holidays for those investing their own
equity into high growth businesses as also been introduced (Zindiye, 2008:72). The
Zimbabwean government is also promoting the establishment of secondary market
aiming at increasing the attractiveness of small businesses to the lending community
and to allow lenders to meet credit needs for small businesses.

23
2.1.4.4 Market Penetration
This remains the major challenge affecting both small and large enterprises due to
lack of information and intelligence on trends. The government should come up with
grassroots initiatives as support measures to avoid pitfalls when it comes to marketing
for quick diffusion and adoption of SMEs products. The Zimbabwean government
come up with the following initiatives for intervention (Nyoni, 2002; Zindiye, 2008).

(i) Market Intelligence

It is important that relevant information on market trends and other industrial
strategies be provided on continuous basis to assess market entry opportunities for
SMEs and formulate market development plans and penetration strategies. The
government has introduced the pre-investment studies specifically so that owner-
manager will be equipped with the various marketing strategies and market strategies
before venture into business. Market intelligence will be based on the four
cornerstones that are competitor intelligence, product intelligence, market
understanding and customer understanding. ZimTrade is offering technical assistance
for SMEs to assist them in the identification of niche markets and also provide trade
information, promotes and coordinates all exports related activities (Zindiye, 2008).
The government is also assisting small businesses to take part in trade fairs for them to
become more viable (Nyoni, 2002).

(ii) Business Linkages

The government has formulated regulations and strategies to promotes and protect
SMEs from exploitation by prompt exploitation payment legislation which enable
SMEs get paid by large enterprises on time and also arrange that SMEs get first
preference in obtaining contracts. SMEs are supposed to gain information, ideas and
integration in achievement of shared objectives though the promotion of
subcontracting, franchising and joint ventures among other business linkages (Nyoni,
2002).

24
(iii) Marketing and Distribution Support
The government has developed data banks and marketing houses to support small
business exports (Zindiye, 2008). These marketing houses and distribution networks
have been enhanced to support SME exports while reducing the complexity and cost
of transaction in an efficient, transparent and predictable manner. The distribution
networks have been set by ZimTrade and private sector to enhance SME exports and
the process that they go through in exporting their commodities.

(iv) Quality assurance

The Zimbabwean government encourages quality assurance measure and accreditation
to ISO9000 and other standards to hence product competiveness. ISO9000 is a
standardised quality for manufactured goods which must be met (Zindiye, 2008). The
Standard Association of Zimbabwe (SAZ) has support programmes for SMEs to
enable them to produce to the expected standards as this increase their competitive
advantage and viability.

(v) Trade Facilitation

In creating a facilitative environment, the Zimbabwean government is looking at
procedures and controls governing SME exports to reduce or minimise associated cost
burden and maximise efficiency. Schemes like duty draw back system and inward
processing scheme are well functioning in Zimbabwe and their administration has
been decentralised across all regions (Chipangura and Kaseke, 2012). An inward
processing scheme is duty suspension scheme that allows registered beneficiaries,
usually large exporters to import raw materials in bond without paying duty required
to maintain accurate inventory level. Duty is only paid in the event of such inputs
being used to manufacture for the Zimbabwe market (Zindiye, 2008:75).

2.1.4.5 Technology and Infrastructure Support

SMEs are unable to identify sources of technologies appropriate to their specification
due to lack of Knowledge, so the Zimbabwean government has introduced various
strategies for intervention (Nyoni, 2002).

25
(i) Technology information
Government advise institutions such as Science, Industrial, Research and
Development Centre to design their programmes in such a way that they cater for
SMEs and assist them in the identification of the appropriate technology for carrying
out their business operations (Chipangura and Kaseke, 2012).

(ii) Provision of workplace

The government will liaise with the local authority so that they renew their master
plans so as to come up with vacant places to locate SMEs (Nyoni, 2002).

(iii) Business incubators

The government is establishing business incubators start up SMEs so as to reduce
commencement costs. They also provide with assets such as email computers and
email facilities (Nyoni, 2002).

(iv) Electronic Commerce

SMEs are encouraged to incorporate information technologies in their system such as
wireless so that they will be in a position to meet the demands for the 21 Century
(Chipangura and Kaseke, 2012).

2.1.6.5 Entrepreneurial management skill development

Lack of management skills and expertise has been highlighted as the critical constraint
facing SMEs in Zimbabwe. The government has established skill development
training programmes for intervention (Zindiye et al, 2012).

(i) Entrepreneurial development

Training of entrepreneurial courses is being carried at national level which includes
bookkeeping and business skills. Women and youths are the target group as they are
regarded as high affected. The government offer SMEs basic accounting principles

26
which are crucial for their operations because they are unable to hire qualified
accountants (Nyoni, 2002).

(ii) Business management support

SMEs are being provided with specific training in financial accounting, marketing to
assist to reduce their failure (Zindiye et al, 2012).

2.1.5 The role of supporting institutions in the establishment of SMEs in

Zimbabwe
The SMEs as already highlighted they constitute almost two thirds of employment
making them the main generators of new jobs in Zimbabwe. In supporting them the
government in conjunction with supporting institutions such as ILO, SEDCO and
EMPRETEC are joining hands to help SMEs sector (Zindiye, 2008).

2.1.5.1 EMPRETEC
It is an initiative established by government to empower SMEs through provision of
support services; its mandate is provision of capacity building programs to promote
the establishment and development of SMEs. It also builds support structures to
promise SMEs to build innovativeness businesses (Hwengwere, 2004).

2.1.5.2 ILO
The International Labour Organisation assists in the development, growth and
promotion of SMEs in Zimbabwe. It trains SMEs using programs such as the Start
Your Business (SYB) in Zimbabwe. It also assists by providing start-up capital for
SMEs (Chuma, 2004).

27
2.1.5.3 SEDCO
This is regarded as a development finance institution that was formed to promote and
develop micro, small and medium enterprises in the country. It was established in
1983 through an Act of parliament Chapter 24:2. Part 111 Section18 of the SEDCO
Act, Chapter 24:12 provide the function of the corporation is to provide help in
different forms such as financial support. It ensures that SMEs have access to
appropriate financial support to ensure that there is continuous in production. It also
assists SMEs with management counselling and training, information and advice. It
plays an advisory to the minister on all matter concerning SMEs matters. SEDCO also
help in the development and establishment of the small businesses.

2.2 Empirical literature

2.2.1 The Challenges faced by Small & Medium Enterprises (SMES) in obtaining
Credit in Ghana by Ackar and Vuvor, 2011
This paper sought to explore the issues facing small to medium enterprises in Ghana
in their attempt acquire or to access credit from financial institutions. Quantitative
approach was adopted and questionnaires were circulated in 80 SMEs in Accra and
Tema metropolis selected through convenience sampling. Basing on the responses
from questionnaires, the following major findings came to the fore. Institutions such
as banks and non-bank financial institutions that are willing to provide funds to SMEs
but Ghanaian SMEs are unable to meet stringent requirements for accessing loans
from financial institutions. The chief among these requirements is that SMEs are
failing to pledge enough collateral security. There is also issue of small equity base of
these SMEs among others. SMEs are regarded as risky so those who are able to
access credit are granted financial support at high interest rates and short repayment
periods making it very difficult to embark on any developmental and expansion
project. In addition, high interest rates are making it expensive to borrow money. This
study recommended that financial institutions should establish factoring services and
enforce credit reporting act. The government should also provide tax incentives for
banks to SMEs that lend SMEs to encourage others to do the same.

28
2.2.2 An investigation into problems facing small to medium-sized enterprises in
achieving growth in the Eastern Cape: enhancing the strategy for developing
small ‘growth potential’ firms in the Eastern Cape: Shafeek Sha, 2012
Following high rate of failure of many SMEs before they reach the climax stage of
business growth, this study was undertaken to explore the factors, characteristics and
management abilities that are required to enable survival of SMEs and indeed to
progress to growth phase of organisational life cycle. This research examines both
factors from the internal and external environment that are consistent in the survival of
SMEs which reached the growth phase. Non probability sampling was adopted as the
study relatively and results generalisation was not a goal. Criterion and convenience
sampling are the two purposeful strategies the researcher selected. Convenience
sampling was adopted as it had an advantage of saving both time and money
(Creswell, 1998). This is because the manufacturing businesses that met the criteria
were included in the sample. The study suggests that most SMEs fail before they
reach maturity or growth stage the main reason being poor financial management
skills. The researcher finally concluded that business environment also contributed to
success and failure of SMEs. Recommendation from this study was that the owner-
manager should have an understanding of financial management and should attend
developmental courses to enrich their knowledge and skills in terms of business
management.

2.2.3 Determinants of Small and Medium Enterprises failure in Zimbabwe: A

Case Study of Bindura. Mudavanhu et al, 2011
This study seeks to establish the major causes of small and medium enterprises
(SMEs) in Zimbabwe. Basing on a case of Bindura, Ordinary Least Square (OLS)
estimation criteria was employed to estimate the change in return on investment
function which was used as a proxy for SME failure. Data was collected through
formal and informal interviews, questionnaire and focus groups discussions with
SMEs which were randomly selected from different clusters representing different
clusters. Results showed that lack of general knowledge on business management,
unavailability of credit, import competition and high cost of raw materials are major
causes of SMEs failure in Zimbabwe.

29
2.2.4 Factors Affecting the performance of Matatu Paratransit Venture in Small
and Medium Enterprises in Nairobi County. Thaimuta and Maronge, 2014.
The purpose of this research was to investigate the factors affecting the performance
of paratransit venture in small and medium enterprises in Nairobi County. The
specific objectives of the study were: To assess how SME management skills
influence the performance of Matatu paratransit, to evaluate how entrepreneurial skills
influence the performance of Matatu paratransit, to determine how training influences
the performance of Matatu paratransit and to examine the role of government policies
on the performance of Matatu paratransit sector in Nairobi County. The target
population was 18 174 SME who have ventured in the Matatu sector. In order to
obtain reliable results from the study, it was necessary to have a representative sample
size of 384. This study targeted 19 respondents from each of 20 Transport SACCOs in
Nairobi County. Data was collected using questionnaires that had linkert scale. Data
analysis was done using SPSS (Version 21) because it is the latest and user friendly
for management related issues. The study found that management skills,
entrepreneurial skills, training and finally the role of government policies influence
the performance of Matatu paratransit sector in Nairobi County. This study, based on
these findings concludes that, management teams with clean and high quality track
record can help the SMEs access finance more easily than those with poor track record
management skills. Entrepreneurial skills influence on SMEs venture in Matatu
paratransit transport helps through efficient communication to employees by ensuring
that rules and regulations were undertaken to seek stability, efficiency and satisfaction
to customers. The study found out that majority of respondents goes for training to
improve and expand their venture, as well as promoting the competitiveness by
upgrading the managerial skills. The study also found out that policy makers facilitate
the private sector to be the engine of economic growth. It was concluded that
implementation is done through development strategy to facilitate the private sector.

30
2.2.5 A Factor Analytic Study of the Determinants of Success in Manufacturing
SMEs. Wijewardena and Zoysa, 2005
Small and medium enterprises (SMEs) play a vital role in the economy of Sri Lanka.
Despite the ethnic unrest that prevailed in the country, manufacturing SMEs have
shown a striking progress over the past two decades. This paper attempts to analyse
the main factors that are perceived to have contributed to progress and success of
these enterprises. This analysis is based on the perspective of owner/managers who
are respondents to a questionnaire survey conducted on a sample of manufacturing
enterprises in Sri Lanka. The statistical technique of factor analysis has been used for
analysing data. The results indicate a set of six identifiable factors that have positive
and significant impact on the success impact on the success of the sample firms. These
factors, when ranked in their order of importance, are as follows: customer
orientation, product quality, efficient management, supportive environment and
marketing strategy.

2.2.6 An empirical investigation into the factors affecting performance of SMEs

in a manufacturing sector of Harare by Zindiye, 2008
This study investigates the factors that affect the performance of small and medium
enterprises (SMEs) in the manufacturing sector of Harare, Zimbabwe. To achieve this
objective, the research hypotheses that lack of skilled human resource contribute to
the poor performance of SMEs in the manufacturing sector of Harare, Zimbabwe. The
research further hypotheses that poor management skills such as human resource,
financial management , general management, production management and marketing
management results in the poor performance of SMEs in the manufacturing sector of
Harare, Zimbabwe. A research proposition was also stated which stipulated that
current hyperinflation environment affects the profitability of SMEs in the
manufacturing sector in terms of profitability. This study is important because SMEs
despite to their contribution to Zimbabwean economy have not been given enough
attention as the research on performance has been biased towards large enterprises.
The results indicate that managerial aspects which are in short supply have negative
effects on the performance of SMEs in the manufacturing sector. The results also
indicate that the high rate of inflation and other economic factors such as foreign
currency shortage, interest rate and exchange rate affects their performance

31
negatively. Lastly, the study recommends that SMEs, the Zimbabwe government and
other supportive institutions such as Empretec, ILO and SEDCO take measures to
ensure that survival, growth and development of this sector which has potential to
steer the economy. These measures are expected to improve the managerial skills in
the sector and consequently result in improved performance.

2.2.7 Growth constraints of Small and Medium Enterprises (SMEs) at Glenview

Furniture Complex (GFC) in Harare (Zimbabwe) by Chipangura and Kaseke,
2012
Small and Medium Enterprises (SMEs) are regarded as the seedbed of
entrepreneurship development. The government and other support institutions are
making efforts to support the growth of the sector. Despite all these efforts and
initiatives, there has been an insignificant corresponding growth of SMEs in terms of
size. This study adopted both qualitative and quantitative approaches. The research
used random sampling focusing on owner/managers. Primary data was collected using
questionnaires. The Statistical Package for Social Scientists (SPSS) was used to
analyse the data. The results show that the main factors constraining the growth of
SMEs at Glenview Furniture Complex are limited access to finance, limited access to
infrastructure, competition, limited access to markets, HIV/AIDS and lack of access to
appropriate technology. It was also found that SMEs at GFC grow through joint
ventures, product differentiation, focus strategy and low cost strategy. The study
recommended that SMEs at GFC should pull their resources together in acquiring raw
materials as a group and selling their products through cooperative shops in town
where they can display their products.

2.2.8 The Background and Challenges Faced by Small and Medium Enterprises.
A Human Resource Development Perspective, Siti et al 2009
In the recent years, a number of emerging issues are posing serious challenges to
small and medium sized enterprises (SMEs) in Malaysia. Hence, these enterprises a
new era, dramatic challenges begun such as establishing new enterprises,
globalisation, financial constraints, high turnover, low motivation among employees,
lack of human capital building and more challenges ahead. Thus understanding the

32
problems and challenges are fundamental solution to expand and strategize SME’s to
future progress and grows. Therefore this article examines the background and
challenges faced by SMEs which play a vital role in the nation growth. The
uniqueness of this paper is the emphasis on human development perspective which is
important for SMEs to progress and be competitive. Finally, this article maps out how
future research can be more sensitive to how SME actually develop their human
resource development for future development.

2.2.9 Entrepreneurship skills development and growth of Small and Medium

Enterprises in Rwanda (case study: “Caplaki”), by Kerosi and Kayisime, 2013
The research aimed at assessing how entrepreneurship skills development impacts on
growth of SMEs in Rwanda, with CAPLAKI “Cooperative des Artistes Plasticiens de
Kigali’, an artisan’s cooperative in Rwanda selected as a case study. The research will
benefit the researcher, the community, the government and other researchers. The
study adopted mixed method approach that is, qualitative and quantitative methods.
The choice of using both is justified in the sense that the study has several objectives;
and information relating to some of them was assessed using qualitative method,
while other using quantitative methods. Basically the study was conducted in Kigali
city specifically with all the 71 members of CAPLAKI Cooperative. Data were
collected using structured and unstructured questionnaires. Also, secondary data were
collected from various documents. The findings of the study show that on the whole,
the respondents (CAPLAKI members) have limited entrepreneurship skills
particularly in terms of recognising business opportunities, being innovative and
communicating effectively in business transactions. In particular, a percentage of 65
admitted that they lack skills of identifying business opportunities. Similarly, a
considerable percentage of the respondents (96%) lamented that their sales are
decreasing because of failure to communicate with clients especially foreigners who
are their potential customers. Besides, a substantial percentage of the respondents
(63%) revealed that they lack innovative skills. Lack of these skills greatly affects the
growth of their businesses in terms of return on investment, net profit and sales
turnover. Therefore, it is recommended that the cooperative should organize training
for its members in entrepreneurship skills. They need to be equipped with such skills
as separating money between business and household, reinvesting profits in the

33
business, maintaining records of sales and expenses, and thinking proactively about
new markets and opportunities for profits. In addition to these strategies, business to
business linkages should be explored by entrepreneurs to enable SMEs join global
business chain to create new market and explore business opportunities.

2.2.10 The impact of entrepreneurial skills on the viability and long-term

survival of small businesses: a case of the city of Tshwane, South Africa by
Marivate, 2014.
Small businesses operating in the City of Tshwane are characterised by shortage of
entrepreneurial skills. The purpose of the study was to highlight the impact of shortage
of entrepreneurial skills on the long-term survival and economic viability of small,
micro and medium-sized enterprises (SMMEs) that operate in and around the City of
Tshwane in Gauteng Province, South Africa. The research was based on a 5-year
follow-up study (2007 to 2012) of a random sample of 349 small and medium-sized
business enterprises that operate in and around the City of Tshwane in South Africa.
Data was gathered from each of the businesses on socioeconomic factors that are
known to affect the long-term survival of small, micro and medium-sized businesses.
The objective of the study was to identify and quantify key predictors of viability and
long term survival. The design of the study was descriptive and longitudinal.
Econometric methods such as panel data analysis, Kaplan-Meier survival probability
curves, life tables, and logit regression analysis were used for data analyses. Hazard
ratios estimated from the Cox Proportional Hazards Model were used as an
econometric measure of effect. The study found that 188 of the 349 businesses that
took part in the study (54%) were not viable. Based on hazard ratios estimated from
the Cox Proportional Hazards Model, the long-term survival and viability of SMMEs
was significantly and adversely affected by lack of entrepreneurial skills, lack of
supervisory support to newly established businesses, and inability of operators
running newly established businesses to acquire relevant vocational skills.

34
2.2.11 An Analysis of Entrepreneurial and Business Skills and Training Needs in
SMEs in the Plastic Manufacturing Industry in the Eastern Cape Province,
South Africa by Afolabi, 2012
Small and Medium Enterprises (SMEs) are very vital in the development of today’s
global. They contribute significantly in terms of creating jobs, Gross Domestic
Product (GDP) and social welfare of most economies. However, there is high rate of
failure among SMEs due to various reason of which lack of skills is one. The study at
hand was undertaken to find out whether training in business and entrepreneurial skills
could help SMEs to succeed. The study analysed the entrepreneurial and business
skills and training needs in the Plastic Manufacturing Industry in the Eastern Cape
Province, South Africa. A quantitative approach was used in which 74 questionnaires
were distributed. The result showed that there is strong linked between training in
entrepreneurial and business skills and success of such organisation. The results also
showed that despite the linkage between success and training, most of the
organisations still have a lot of unskilled workers in their pool. The research
concluded with a strong argument for training as an essential tool for determining
organisation success, effectiveness and efficiency.

2.2.12 The impact of Strategic Performance Management on SME performance

by Bauml et al 2014
The literature from this specific study to small and medium-sized enterprises (SMEs)
suggests that Strategic Performance Management positively affects organizational
outcomes, empirical evidence supporting this suggestion is pre-dominantly anecdotal
or limited to a few qualitative case studies. Drawing on the resource-based view of the
firm, this study develops predictions that link the use of measures in key managerial
processes and three essential design properties of measurement systems (alignment of
measures with firm strategy, breadth of measurement system, and degree of
formalization) to the strategic alignment of employees and to an SME’s financial
performance. To quantitatively test the developed hypotheses, 90 owner-managers and
managing directors of Swiss and Singaporean manufacturing SMEs filled in a survey
during interviews. Results suggest that the use of measures is positively associated
with the strategic alignment of employees, which in turn affects firm performance. A
critical firm size of 45-55 employees is found, beyond which the described first effect

35
becomes increasingly significant. In addition, this study provides supporting evidence
for the breadth of a measurement system. This design property positively moderates
the underlying association between the use of measures and the strategic alignment of
employees. Findings are discussed in light of existing theory with respect to large
firms and taking into account SMEs’ specific characteristics.

2.2.13 Investigating the Influence of Knowledge Management Practices on

Organizational Performance: An Empirical Study by Mohamad et al, 2013
The aim of this study is to investigate the influence of knowledge management
practices on organizational performance in small and medium enterprises (SMEs)
using structural equation modelling (SEM). A number of 282 senior managers from
these enterprises were chosen using simple random sampling and the data were
analysed with the structural equation model. The results showed that knowledge
acquisition, knowledge storage, knowledge creation, knowledge sharing, and
knowledge implementation have significant factor loading on knowledge
management; and also productivity, financial performance, staff performance,
innovation, work relationships, and customer satisfaction have significant factor
loading on organizational performance. Finally, the results of this study suggest that
knowledge of management practices directly influence the organizational performance
of SMEs.

2.2.14 Impact of strategic management on the performance of Small and Medium

scale Enterprises (SMEs) in Nigeria by Adeyemi, 2015
The promotion, performance as well as sustainable development of Small and
Medium Scale Enterprises (SMEs) have been of concern to developing nations. This
study was therefore designed to assess the impact of internal and external SM
variables on the performance of SMEs in order to enhance their sustainability. A
research design used to collect data from owners/managers of SMEs was purposive
sample. A total of 420 out of 1611 population of SMEs operators with the knowledge
of SM in the North Central Zone of Nigeria completed the questionnaire. The
analytical method used is regression analysis. The findings revealed that the combined

36
effect of internal and external variables of SM on SMEs performance (as represented
by sales volume). The coefficient between SM and all independent variables showed
that it is highly significant (F-statistics is 7.1943 with probability = 0.0000). The study
concluded that internal variables is found to be a driving force on performance than
external variable of SM and therefore must be aggressively pursued by the managers
of SMEs. The study recommended that SMEs should focus more on internal SM
variables such as training, recruitment process, capital base, profit and employment
because they are central to performance and sustainable development of SMEs.

2.2.15 An analysis of the impact of targeted government support on SMEs

growth and development in Zimbabwe: a survey of Mashonaland Central
Province by Maseko et al 2012.
This paper sought to analyse the impact of targeted government support on SMEs
growth and development in Zimbabwe. The research focused on SMEs operating in
the Province of Mashonaland Central and governmental institutions that are involved
in advancing targeted government support to SMEs in the province. The survey
research design was used. A target population of 200 SMEs was used as a sample in
this study. A structured questionnaire was used to gather data from owner-managers in
SMEs. Interviews with officials from the governmental institutions were used to
gather qualitative data. The study concluded that government targeted support
advanced to SMEs is effective in bringing about growth and development in this
sector. The study also concluded that the forms of targeted support to SMEs are not
complete enough to transform SMEs operations into viable businesses that can
compete in the global marketplace. The study recommended that SMEs do not only
need financial support from government but also need support in research, quality
assurance, marketing, financial management and technology. Further, the study
recommended the decentralization of operations of support institutions in order to
reach SMEs operating in remote areas of the country.

37
2.2.16 The SMEs Governance Mechanisms Practices and Financial Performance:
Case of Tunisian Industrial SMEs by Hamad, 2011
Nowadays, the issue of corporate governance occupies central paramount position
among the preoccupations of the firms’ decision-makers. Noteworthy, the relationship
between governance and company performance is often stressed within the context of
large companies and very few are those studies dealing with this subject as regard the
small and medium enterprises (SME). In fact, most of the studies dealing with the
governance question have predominantly out looked this issue with respect to the
SME essentially in the context of the emergent countries. In this setting of analysis,
the present research magic objective consists in highlighting the interaction
dominating the governance relating mechanisms, namely, the directors’ characters, the
ownership structure and the directors’ board regarding the SME performance.
Actually, an examination of the tests conducted on a sample constituting of 50
Tunisian SMEs has shown that both the ownership structure and the board of directors
play a paramount role in improving the SME performance. The results have also
indicated that the directors’ do not greatly affect the performance owing to several
careers related to the outside external environment of the SME.

2.2.17 The impact of Government and other Institutions' support on the

Performance of Small and Medium Enterprises in the Manufacturing Sector in
Harare, Zimbabwe by Zindiye et al 2012
The purpose of this paper is to investigate the influence of government and other
institutions' support on the performance of Small and Medium Enterprises (SMEs) in
the manufacturing sector in Harare, Zimbabwe. The target population for this study
was 609 SMEs of which a sample of 241 SME owners or managers participated in the
study. Data analysis was done using the Chi-square test to test for association. The
results indicated that government and other institutions are playing a positive role on
the performance of SMEs despite the prevailing economic conditions. Based on the
results it can be concluded that duty drawback system and skills training are the most
important initiatives for the growth of SMEs in the manufacturing sector in Harare,
Zimbabwe.

38
2.3 Gap analysis
Small to medium enterprises dominate both developed and developing economies as
they are increasing viewed as engine or backbone for sustainable economic
development. It is now generally accepted that SMEs are of crucial important in terms
of employment creation, wealth creation, development and innovation and general
increase in the Gross Domestic Product (GDP) but surprisingly, most of them are
failing to succeed and reach their full potential. The government, local authorities,
policy makers and all stakeholders should be adequately informed so as to support the
small business community to realise their roles in the development the economy. The
high rate of failure of these SMEs in Zimbabwe necessitates this current study. It
becomes vital to investigate and analyse the causes of failure. The empirical literature
mainly focused on all SMEs in general and the challenges were caused by the external
factors such as lack of access to finance and stringent government policies. This study
therefore, attempts to explore the challenges affecting SMEs in the manufacturing
sector in Masvingo town as it is now regarded as the most deindustrialised town with
the industry declared dormant (ZIMSTATS, 2014). The growing fear is the fact that
the country’s economy has become more retail with the manufacturing sector
shrinking to a tiny percentage of overall economic activities. This study also sought to
distinguish internal and external challenges affecting SMEs and trying to find
solutions within themselves not from outside.

2.4 Chapter Summary

The chapter brought to clarity the conceptual theoretical and empirical framework of
the study. It looked at the internal and external environment or challenges affecting
the growth and establishment of the small business community. It also cited some key
areas the government, local authority and support institutions are trying to support the
SMEs. The subsequent chapter focuses on the research methodology.

39
 CHAPTER III

RESEARCH METHODOLOGY AND DESIGN

3.0 Introduction
This chapter clarifies in detail how the research was conducted including a description
of the population, sample plan, sample size, determining the method of gathering data
and how the data will improve for validity and reliability. Anderson (2004:51) defines
methodology as a system of explicit rules and procedures upon which claim of
knowledge are exhausted. It is a way to systematically solve the research problem. In
short it is the analysis of and rationale for the particular methods implemented by the
researcher in his endeavour to obtain valuable data for the success of this research.

3.1 Research Design

It is a process of creating an empirical test to support or refute a knowledge claim
(Borg and Gall, 1989). For the purpose of this study, the researcher used the
descriptive survey to collect data from SMEs in the Mucheke Light Industry in
Masvingo. The researcher used the descriptive survey since it is more preferable
especially in this study as it allows collection of data in large populations. Descriptive
research design undertaken when one needs to understand the characteristics of certain
phenomenon to solve a particular problem (Kotler, 1989). It provides an accurate and
clear picture to the problem at hand. The researcher applied survey method as a
quantitative technique since it involves the collection of primary data from a large
number of respondents with the intention of finding results from a wider population. It
seeks at quantifying data by applying a form of statistical analysis. The purpose is to
generalise about a specific population based on the results of a presentation to produce
broad representative data of the total population and forecasts of future conditions
(Justin et al, 2003; Cant et al, 2003).

40
The researcher conducted in-depth surveys through open interviews and
questionnaires with the small number of intended target respondents to investigate the
causes of failures by most of the SMEs during their growth stage. This method was
used since the data solicited is not static, the problem facing each SME may not be the
same as those facing other SMEs. Descriptive research design allows collection of
both qualitative and quantitative data therefore some statistical techniques were used
to summarise the information. Through descriptive research, the researcher was also
able to use both primary and secondary data, which could not have been used if
exploratory research has been used.

3.2 Population
A population is the entire population group of persons or set of objects and events the
researcher wants to study (Collins et al., 2000). This means a group of individual
items that have one or more traits in common that are of interest to the researcher. In
this study identification of the target population was necessary to promote base from
which units and sample size were deduced. There are almost one hundred and fifty-
one registered SMEs in Mucheke Light Industry Masvingo. In this study, the
researcher targets the managers and employees for these SMEs. It was high
improbable to gather around data form all these SMEs in Mucheke area. The
researcher then seems to generalise the findings to this accessible population.

3.2.1 Sampling
It is a procedure by which some of the elements of the entire population are taken as
representatives of the entire of a given population (Cooper and Shindler, 2003).
Sampling was used because it reduces the amount of work undertaken as it was taken
to be representative of the entire population and conclusions were drawn about the
entire population. A sampling technique can be classified as probability or non-
probability.

41
3.2.1.1 Probability Sampling
It involves selection method or technique in which all members or elements have an
equal chance of being chosen in the sample through a random process or method. The
commonly used probability sampling methods are simple random sampling,
systematic, stratified and cluster sampling. The researcher then used the simple
random sampling to collect data from employees. However, the technique has a
limitation that it relies on the availability of a complete or population list (sampling
frame) but was utilised because it allow the researcher to project sample to the target
population.

3.2.1.2 Sampling Frame

It is a comprehensive list of all units or elements in the target population (Collins et
al., 2006). Sampling frame is closely related to the population. It is a list of elements
from which the sample is actually drawn (Cooper, 2003). In this regard, the sampling
frame includes all SMEs mangers, general employees at Mucheke Industrial Area.

3.2.1.3 Sampling Error

This is the difference between population parameter and sampling statistics (Gilbert,
1993). Using the sample survey involved some unfavourable errors, systematic error
in particular. Systematic error resulted from non-responses, self-selected bias and non-
response bias. In trying to rectify this problem the researcher distributed the
questionnaire to various respondents personally. The researcher constantly contacted
and reminded the respondents through personal visits and telephone to complete the
questionnaires, after which the researcher personally collected the distributed
questionnaire.

42
3.2.1.4 Sample size
A sample is a portion chosen by some clearly defined set of procedures (Borg and
Gall, 1996). According to Martins (1999), the correct size of the sample depends on
the nature of population as well as purpose of the study. The sample size refers to the
number of elements in a sample. As the sample increases, the accuracy of the finding
also increases. As the size of the population increases, progressively smaller
proportion of the objects can be selected. The following formula was used to derive
the sample size:
n = N÷[1+N(e)2] (Kinyua, 2014)
n = 151÷[1+151(0.1)2]
= 60.15936255
= 60
Therefore, the sample size will be 60 SMEs.
Where: n is the sample size
N is the population size
e is precion level (sampling error)

In this case N is 151 and e is 10%, hence the sample size of the study is 60. This
current study the sample size consisted of ten respondents from micro enterprises,
thirty from small enterprises and twenty respondents from medium sized enterprises
making it to a total of sixty.

3.3 Data sources

The gathering of data for the purpose of this study comprises of primary and
secondary data.

3.3.1 Primary Data

It is the data that is observed and collected from first-hand experience (Business
Dictionary, 2010). Kotler (2011) defines primary data as that data the researcher
collects in the field, especially for the project at hand. This data was collected through
the use of structured questions. Both qualitative and quantitative data was collected by
use of interviews and questionnaires. Interviews were the most versatile method. It

43
gave the researcher the opportunity or room for further probing where necessary to
ascertain.

3.3.2 Secondary Data

It is the data that has been collected and readily available for use from other sources
(Jocely, 2010). The researcher took an extensive search of secondary data from both
published and unpublished sources relating to the obstacles facing small and medium
enterprises. In addition, secondary data was collected from SEDCO, ZIMSTAT, RBZ
statements, Central Business Register (CBR) inquiry reports and companies’ annual
reports. The advantage for this data source is that it was easily accessible and readily
available. However, information could be biased and out of date to the current study
.

3.4 Research Instruments

Data gathered is thus obtained through questionnaires, direct observations and
interviews. Surveys require that the researcher go on the ground, observe, gathering
around data and seeing what is being investigated.

3.4.1 Personal Interviews

It is a two way conversation by an interviewer to obtain information from the
participants. Babbie (1992) highlight that, interviewing is typically done face-to-face
or through a telephone. Interviews take a number of forms depending upon how
structured they are (Barkarm and Baker, 1998). The researcher choose the technique
because it ascertains value, attitude, beliefs and experiences from the management. It
helped to observe non-verbal behaviour thereby assessing the respondents’ motives.
The researcher had to secure appointments with the interviewees and they were
briefed about the discussion to prepare and to gather around relevant information the
interview date. The differences in the roles of the interviewer and participants are
pronounced. The interviewer can do more to improve the quality of information. The
interviewer can note the conditions of the interview, may further probe with additional
questions and gather supplemental information through observation. The researcher
can pre-screen to ensure that the correct respondents are replying and they can set up

44
and control interview conditions. The interviewer also can adjust language to that of
the interviewee as they observe the problems during the session.

Interviews were used in this study as they ensure good cooperation from respondents
and increased the quality of data collected due to their personal nature and the limited
effort required of respondents. An interviewer can be and in what terms can and in
what terms it should expressed (Cooper and Shindler, 2003). It enables the interviewer
to answer the research questions about the survey, probe more answers, use follow up
questions and gather information by observation. The researcher was able to reach all
respondents regardless of their literacy level, hence quality of data as the researcher
clarified problematic aspects.

However, interviews as a research tool pose a number of problems. This technique is

time consuming and is one of the most difficult to employ successfully. The danger of
interviewer bias is constant. Bias threatens validity of the research study findings.
Besides being time consuming, recording of observations may be problematic and the
presence of the interviewer may influence the participants’ thinking. The researcher
overcame low turn up by making appointments and visiting interviewees at their work
places. The chances of bias were minimized by designing a structured interview.
Despite the weaknesses cited, the interview technique as a method of data collection
appeared to be the most appropriate instrument to complement quantitative
observations in this study.

3.4.2 Questionnaires
In this study the researcher used self-administered questionnaires to solicit
information from managers and other non-management staff of these small to medium
enterprises. Churchill (1998) defines a questionnaire as a booklet of structured
standardised procedure, pre-coded and containing open ended questions at times that
are used to collect information from respondents who record their answers. This
means a questionnaire is a structured sequence of questions designed to draw out facts
and opinion and which provides a vehicle for recording data (Tustin et al., 2005). It
can contain different types of questions such as open and close ended like the
dichotomous which offer two alternatives to choose form.

45
Both structured and unstructured questionnaires were used to gather information from
employees and management. Structured (close ended) questions would help on saving
respondents’ time while unstructured (open ended) questionnaires ensure that the
respondents’ feelings would not be limited. The questionnaires were preferred by the
researcher because the interviewer bias was eliminated since they were filled in the
absence of the researcher. Standardised questions, response questions and response
format of the questionnaires ensure that every participant respond in identical stimuli
and this facilitated easy results presentation, analysis and discussion of the findings.
The questionnaires did not require the respondents to leave their jobs and to attend
them during the working hours so, they was no problem with the human resources
officers as no working time was wasted.

However, some respondents took time to respond to the questionnaires while some did
not return the questionnaire hence delaying the analysis of data. Some general staffs
did not understand the terms used in the questionnaires, hence the researcher had to
follow-up for clarifications. There is inability to probe and clarify and hence the
respondents end guessing. There is limited room for alternative responses in a closed–
ended questionnaire. To address this problem, the questionnaire in the study had both
open–ended and closed–ended questions.

3.5 Data Collection Procedures

This entails how the primary and secondary data was collected for the current study.

3.5.1 Questionnaire Distribution

The researcher physically distributed questionnaires in person to the respondents who
were randomly selected. The questionnaires were distributed to both the management
and non-management staff working for these SMEs. They were collected after five
working days; however, it took ten days to collect all the questionnaires for results,
presentation and analysis.

46
3.5.2 Interview appointments
Managers were contacted for appointment bookings for face to face interview. The
researcher sticks to the time limits of ten minutes. All respondents were recorded on
the interview question paper.

3.5.3 Validity of Data

Validity is the characteristic used to describe research which measures what it claim to
measure (Boyd et al, 1977). It is the extent to which a research to which a research
instrument can measure what it is supposed to measure. To ensure validity of the
instrument, the researcher worked in close liaison with the supervisor and conducted a
pilot test. The researcher also avoided asking questions in constructing the
questionnaires so as to ensure validity. This means that data gathered was relevant to
answer the research questions. In order to validate the questionnaire, the researcher
carried out a pilot test.

3.5.4 Reliability of Data

Reliability refers to the consistency with which an instrument measures something
that is it entails that the outcome would be believed to be true to the fact the method
used was considered to be reliable. This refers to the extent to which the research
instrument has to produce the same results and maintain consistency each time
administered as long as it supplies consistent results (Cooper and Shindler, 2003).
Reliability is a necessary tool but not a sufficient condition for validity.

3.6 Data Presentation and Analysis

Data analysis is a process of developing solutions to problems through the
examination and interpretation of data. In this analysis, the Statistical Package for
Social Sciences (SPSS) version 21 Microsoft excel and word were used. The process
of analysing with SPSS involved data coding, capturing and cleaning and analysis.
The study results were presented by way of tables, pie chart and graphs and.The data
collected through qualitative observation interviews will be categorized, interpreted as
single instances and identify patterns of perceptions.

47
Unit of analysis and study period: The central unit of analysis of the case study refers
to all registered SMEs in the Mucheke Industrial Area, Masvingo. The study period
applicable to the collection data refers to ten months that from November 2014 to
August 2015.

3.7 Chapter Summary

The chapter highlighted on how data was collected from both primary and secondary
sources. It discussed research design, sampling techniques, research instruments, data
collection procedures and data presentation techniques used. The descriptive research
was used as a research design in this study. The next chapter is Chapter 4 which
presents data analysis, presentation and discussions which gave major findings and
results of the research work.

48
 CHAPTER IV

DATA PRESENTATION, ANALYSIS AND DISCUSSION

4.0 Introduction
The purpose of this chapter is to present, analyse and interpret findings of the research
gathered from interview discussions, questionnaires and desk research gathered by the
researcher. Therefore, it presents the views of the different stakeholders which include
employees and management from different Small and Medium Enterprises at
Mucheke Light Industry. The findings are relevant to objectives of the study and fulfil
the research questions.

4.1 Data presentation process

Data collected from field, the researcher went through the entire completed
questionnaires to analyse the response rate from different stakeholder so as to draw
relationships and identify errors. The analysis and presentation of findings was done
by the Statistical Package for Social Sciences (SPSS) version 21 and Microsoft excel.
The tables, pie charts, bar charts are used to analyse data as they are deemed effective
in portraying trends and relationships.

4.2 Analysis of Data Response Rate

4.2.1 Questionnaire
The response rate shows the number of questionnaires completed and collected by the
researcher so that they could be compiled and analysed (Saunders et al, 2003).
Questionnaires were distributed to different interested stakeholders who do their
businesses at Mucheke Light Industry in Masvingo. The researcher managed to
distribute 10 copies to micro business category, 30 copies to small business and 20 to
medium business. The researcher noted the response rate as depicted below:

49
Table 4.1 Questionnaire response rate
Type of Range: Target Sample Questionnaire Response
Business No of (Questionnaire Returned (Achieved Rate
employees Distributed) Sample) %
Micro 1 up to 5 10 6 60
Small 6 up to 50 30 24 80
Medium 51up to 100 20 18 80
Total 1 up to 100 60 n = 48 80
Source: Primary Data (2015)

The table above shows that sixty questionnaires were distributed with the major
concentration on the issue surrounding small to medium enterprises at Mucheke Light
Industry. Successful questionnaire were 48 out of 60 giving to 80% overal response
rate. This was a satisfactory results since the respondents were given a short time to go
through the questions. The 20% who did not respond were pointing out the issue of
confidentiality of their information despite the assurance that the researcher will treats
the information with confidentiality. The highest response came from small to
medium enterprises with 80% because they were ready available disclosing their
operations.

The high response rate help to ensure that the survey results are the representative of
the entire population. A high response rate produce accurate and valuable outcomes.
The overall rate of 80% falls in the bracket of excellence. A satisfactory response rate
differs by how the questionnaire were administered (Jackson, 2011).

4.2.2 Interviews
A total of 30 interviews were conducted to the targeted employees and managers from
micro, small and medium businesses in the manufacturing sector of Masvingo in
Mucheke Industrial Light Industry. The interviews were conducted mainly focused on
the challenges affecting these SMEs and how they can be overwhelmed. The response
rate is depicted below in table 4.2.

50
Table 4.2 Interview response rate
Type of Range: No of Target Samples Achieved Response Rate
business employees Samples (%)
Micro 1 up to 5 10 6 60
Small 6 up to 50 10 8 80
Medium 50 up to 100 10 7 70
Total 1 up to 100 30 n= 21 70
Source: Primary Data (2015)

In the micro type or category the response rate was 60% because firms in this category
were busy to attend the interviews while carrying their daily work. The small and
medium have 80% and 70% respectively response rate. Firms in this category were
available at the site and to attend interviews. The respondents were enthusiastic to air
their views and most of them were structured organisation with adequate staff who
actually had time to attend the interviews. The overall response rate is 70%. This can
be safely taken to represent the target population (Jackson, 2011).

4.3 Data analysis and interpretation

Section A: Demographic Information
4.3.1 Gender of the respondents
The information on gender of the respondents is provided in the figure 4.1 below.
n=48

Figure 4.1 Gender of the gender

Source: Primary Data (2015)

51
The results show that 62% of the respondents were female whilst 38% were male
entrepreneurs. These results clearly reflect that women are highly involved
entrepreneurial business venture than men. This results agrees with Manyani (2014)
who found out that women are involved in small business ventures. In addition, this
could attributed to the fact that men are usually on top positions at most of large
corporations. However, Nkoge (2013) argues that males are dominating the small
business venture. The results reviewed that men were aggressive when it comes to
business as they were still perceived as breadwinners in the African culture.

4.3.2 Status of the respondents

The information on status of the respondents is statistically portrayed in a bar graph
below.
n=48

Figure 4.2 Status of the respondents

Source: Primary data (2015).

The findings reflect that, 54% of the respondents are owners of the business whilst
46% of the respondents are managers. This stipulates that a large portion of SMEs in
the manufacturing sector in Masvingo Mucheke Light Industry are managed by the
owners. The reason being they do not have funds to recruit qualified personnel and
fear of the agent-principal costs. This agrees with Manyani et al (2014) who find out

52
that most of small to medium enterprises start out by using contribution from owners
and that the owners are involved in the day to day activities of their enterprises. These
findings goes in line with Holt (2008), who stipulates that due fewer start-up
requirements, the SME sector is dominated by business minded individuals. Airmic,
Alarm and Irm (2002), concur that Small and Medium-sized Enterprises are mostly
proprietorship and partnership concerns thus the very constitution itself may prove to
be risky due to lack of professionalism.

4.3.3 Respondents experience with the small to medium enterprises.

The following results were obtained from managers and employees pertaining their
experience at work.
n=48

Figure 4.3 Respondents experience with SMEs

Source: Primary data (2015)

The results depict that 80% of the respondents had more than three years experience
working in the SMEs manufacturing sector meaning that the they had enough
information about their operations. This information therefore guarantees the validity
of the data since it was obtained from people who had full knowledge about the
operations of the entrepreneurs.

53
4.3.4 Education qualification of the respondents
Information about the education qualification of the respondents are presented in a bar
chart below.
n=48

Figure 4.4 Responses on the education qualifications of the respondents

Source: Primary Data 2015

The results reflect that 33% of the respondents have diplomas and 35% have
certificates. Post graduates and degree holders have 5% and 17% respectively. The
remaining 10% had other qualifications not specified. This depict that majority of the
respondents were educated the reason being most large enterprises have retrenched
and the people are now using their retrenchment package as start-up capital. Zindiye
(2008) stresses that SMEs are playing a critical role in absorbing labour, penetrating
new markets and generally expanding economies in creative and innovative ways.
These results also concur with the findings of Sha (2012) who advocates that
management training courses and human resource development is a crucial aspect for
SMEs development.

54
4.3.5 Challenges facing SMEs in the manufacturing sector
The information in figure 4.5 shows the challenges facing SMEs in the manufacturing
sector of Masvingo.
n=48

Figure 4.5 Responses on challenges facing SMEs in the manufacturing sector

Source: Primary data (2015)

The findings reflected that, 75% of the respondents strongly felt that access and cost
to finance has a direct influence on the performance of their business as they do not
posses adequate funds for expansion. The interest charges are extremely high because
the small business community is regarded as risky by financial institutions. The results
are in agreement with the previous studies by Ligthelm and Can (2003) who advocates
that growth and development of small and medium enterprises is affected by limited
access to financial resources as compared to large enterprises. Furthermore, studies by
Abedion (2001) suggests small enterprises fail because of high transaction costs as
compared to the large enterprises in obtaining credit, couple management and
accounting practices. Ackar and Vuvor (2012) advocates that SMEs are regarded as
risky so those who are able access credit are granted financial support at high interest
rate and short period making it difficult to embark on any developmental and
expansion projects.

55
The findings are also in agreement with studies undertaken by Liedholm and (2002),
which showed that failure that most of SMEs failure is as a results of non financial
challenges like lack of skilled human, poor management practices as well as well as
lack forecasting or planning skills. The results reviewed that, 70% of the respondents
view market structure as having a direct influence on the performance of small
business as it is difficult for them to complete on the market due to competition they
are facing. As depicted in figure above, 50% of the respondents are facing
infrastructure and facilities challenges which had an influence on the performance of
their ventures and 63% feel that government regulations also affect both performance
and operations of small businesses. These results agree with Fatoki (2006) noted
inadequate planning , inadequate access to appropriate resources, poor quality
infrastructure, poor network to markets, poor skills and management expertise and
hostile government regulations as major constraints facing small business community.
He also noted these constraints are greater to small businesses as compared to large
businesses and usually in reduction in profitability.

These results also agree with those of Manyani et al (2014) who found out that
finance was viewed as vital element for the development of SMEs. The results stated
that SMEs high transaction cost in accessing credit and are faced with adequate funds
to finance their operations. Furthermore, Linkoun (2003) concluded that performance
of SMEs is closely linked to propriator’s entrepreneurial skill. In his study, he found
that small to medium enterprises owned by people with related qualifications tended
to survive 30% more than qualified.

4.3.6 Factors that cause problem in accessing finance

Table 4.3 Responses to factors cause problem in accessing finance.
n=48
Factor Validity Percentage (%)
Lack of collateral 45
No proper books of accounts 15
Lack transaction transparency 10
Procedures too complex 30
Source: Primary data (2015)
56
Table 4.3 shows that, 45% of the respondents indicated that they are failing access
finance due to lack of collateral security, 15% said failure to produce proper books
was an impediment for them to access finance. 10% and 30% of the respondents
stated that transparency and complexity of the procedures respectively, were the
causes of failure to accessing finance by SMEs. The results show that lack of
collateral is the major cause of problem accessing finance by SMEs as this the main
requisite by lender before they extended credit. The results is consistent with that of
Chipangura and Kaseke (2012) that most SMEs face challenges in accessing finance
due to lack collateral and accounting knowledge which makes it impossible to them
to come up with proper books of accounts. In line with the above results Ackar and
Vuvor (2011) highlight that the collateral is the chief among others. SMEs are
regarded as risky so who’s who are able to access the credit are granted financial
support at high interest and short repayment making it difficult to embark on any
developmental or expansion projects. In addition, high interest or costs of capital are
making it expensive to seek external funds.

4.3.7 Factors affecting production of the SMEs

The figure below shows the factors hindering production of goods and services.
n=48

Figure 4.6 Responses on the factors affecting production

Source: Primary data (2015)

57
The results show that 50% of the respondents which is the majority indicated that
unavailability of operating space was the main constraint to the growth of the
businesses. The results reviewed that, 20% of the respondents indicated that power
cuts were hindering their operations. Water shortages and lack of competent and water
shortages have 15% each. This result review that shortages of workplaces are a major
impediment to the development and growth of SMEs. There is no available land for
them to occupy and they end up situated in backyards. This result tally with the
findings of Chipangura and Kaseke, (2012) who found out that workplaces provided
for SMEs were not suitable for growth as they were too small for expansion. SMEs
found it hard to boost their operations or even display their products due to the limited
space. They ended up erecting shades that were not well roofed to protect their
products.

4.3.8 The extent to which management skills influence performance

The extent to which management skills influence performance of SMEs in the
manufacturing sector of Masvingo is potrayed by the figure 4.7.
n =48

Figure 4.7 Responses on the influence of management skills

Source: Primary data (2015)

58
As depicted by the findings 65% of the respondents felt general management skills
influenced performance of the firm to a greater extent as this involves having control
mechanisms in their operational activities and having strategic plans that are vital for
the success of the business. Responses also reflected that, 70% felt financial
management was greatly an influence to the performance of the business as finance is
regarded the backbone of the organisation and requires special attention to ensure
making intelligent and careful decisions with it. 60% strongly felt marketing skills
influenced performance to a greater extent as it involved having a deeper
understanding of the marketing in which they are operating to increase their
competitive advantage. 63% of the respondents mentioned that production
management skills were influential to a larger extent as it enables an efficient and
effective production process that ensures a flow of operations in the organisation. 50%
felt human resources management skills influenced to a greater the performance of
their organisation as it involved the handling of staff who are vital in the organisation
as they are ones involved in the attainment of goals. Handling them well through
motivation and promotion is a vital aspect.

These results tally with those of Kinyua (2014) who found out that management skills
positively and significantly affect SMEs performance of SMEs to a greater extent.
Shafeek (2012) concurs that financial management skills affect SMEs growth and
concluded that it contribute to success of SMEs. Owner-manager should have an
understanding of financial management and should attend developmental courses to
enrich their knowledge and skills in terms of business management. On the other
hand Chipangura and Kaseke (2012) strongly disagree with the result. Their findings
suggested that lack of managerial skills was not a very strong constraint and did not
greatly influence performance of SMEs.

59
4.3.9 Financial statement prepared by SMEs
Table 4.4 Responses on the financial statement prepared
n=48
Financial Statements Percentage Validity (%)
Statement of Profit and loss and other comprehensive income 10%
Statement of Financial Position (Balance Sheet) 13%
Statement of Cashflow 20%
Preliminary Record of bookkeeping 57%
Source: Primary data (2015)

The results depicts that, 10% of the respondents prepare statement of Profit and loss
and other comprehensive income. Statement of financial position is prepared by 13%
of the respondents, 20% prepare statements of cashlfow and 57% indicated
preliminary records of bookkeeping. The result show that majority of the SMEs
depend largely on book keeping skills and lack adequate accounting information.
These results tally with those of Maseko and Manyani (2011) who found out that
majority of SMEs lack accounting knowledge and are unable to prepare the proper
and complete financial statements. They rely largely on book keeping techniques
which include the preparation of preliminary records which are not really important in
financial accounting. According to Marshall (2003), the frequency of preparation of
the financial statements reflects the extent to which accounting information is used for
decision making in an entity.

60
4.3.10 The role government in the development of SMEs.
n=48

Figure 4.8 Respondents on the role of government

Source: Primary data (2015)

The finding reflects that, 41% of the respondents felt the government was actively
playing its role whereas 59% dis agreed. According to the responses the SMEs were
of the opinion that the government was not vigorously performing its role in assuring
that small firms were getting sufficient access to financial assistance. Small businesses
are still facing problems in accessing credit. This result is consistent with the findings
of Sahaj (2013) who found out that majority of the respondents lacked any idea about
the government schemes and policies. Their information was restricted to that of
banks and financial institutions that provided the loans.

Also the results are concur with the results of Ogbokor (2012) who found out that
majority of SME operators in Namibia were facing challenges in respect of the
government initiatives and support. They were still finding it difficult to register for
licences, taxes and forming businesses despite the efforts by government. Also they
mentioned that the processes were extremely expensive and time consuming. Also
majority of SMEs in Namibia were not aware of any of the support initiatives of the
government. The results of Chipangura and Kaseke, (2012) also mentioned that
majority of SMEs did not receive any support. They cited that lack of transparency

61
was the main reason they never received support. The government only favoured
SMEs who were politically loyal to the political party and also the exhibitions and
trade fairs such as the Agriculture show only the politically loyal SMEs took part.
Maseko et al (2012) coincide that the forms of target support to SMEs are not enough
to transform their operations into viable business that can be complete in the global
market

In contrast to these results were those of Manyani et al (2014) which showed that
respondents appreciated government’s effort to address financial issues affecting
small firms. Furthermore, a study by Zindiye et al (2012) indicated that the
government and other supporting institutions are playing a positive role in the
performance of SMEs despite the prevailing economic hardships.

4.3.11 Government policies on the development SMEs.

The table below illustrates the responses by different respondents on the policies of
development of SMEs which were enacted in Zimbabwe.
Table 4.5 Responses on the policies on the development of SME
n=48
Policy Frequency Percentage (%)
ZIMASSET 4 10
Indigenisation 18 43
Zimprest 12 28
Economic Recovery Program 8 19
Source: Primary data (2015)

The findings reflects 19% of the respondents argued that the economic recovery
program was the most helpful to them, 28% were advocating for Zimprest, 28%
argued that the indigenisation program was the most helpful in their operational
activities since it was initiated with the primary object of empowering black people in
business activities. The results also depict 10% were advocating for ZIMASSET
since it encourages value addition and its guiding vision is “Towards an empowered
society and a growing economy” by providing an enabling environment for

62
sustainable economic transformation and social transformation to the people of
Zimbabwe.

4.3.12 Role of supporting institutions in the development of SMEs

n=48

Figure 4.9 Responses on the roles of supporting institutions

Source: Primary data (2015)

Figure 4.9 shows that, 61% of the respondents agreed to supporting institutions
playing a significant role in the development of SMEs and 39% feel that supporting
institutions are not effectively doing their part. The results conclude that supporting
institutions are playing an effective role in the development of SMEs. This result is in
tandem with those of Manyani et al (2014) who found out that majority of SMEs were
thoroughly satisfied with the roles played by these supporting institutions. The study
reviewed that EMPRETEC, SEDCO and ILO played a crucial and significant role in
the development of small firms. Zindiye et al (2012) coincide that the supporting
institutions are playing a pivotal role in the developmental of SMEs despite the
prevailing economic hardships.

4.4 Interview discussion

The respondents highlighted that the SMEs are facing challenges such as inadequate
and lack of access to funds, stringent government regulations, inadequate
infrastructure and load shedding among others. Most of the respondents cited that they

63
did not do formal planning of the operations and did not have vision and mission
statements. In addition, the respondents did not have management structures. The also
mentioned that government was not doing enough to assist SMEs development.

4.5 Chapter Summary

This chapter presented and analyzed the research findings from the study. The
researcher used tables, graphs and pie-charts to illustrate some of the findings in a
manner that is simple and easy to understand. The ground is laid now for the
recommendations, which follow in the next chapter, which is the summary of findings
and recommendations.

64
 CHAPTER V

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.0 Introduction
This chapter presents summary of the research findings which will be drawn from the
rest of the study. The primary objective of the study was to analyse the challenges
affecting performance of SMEs in manufacturing sector of Mucheke Light Industry,
Masvingo. . Recommendations based on the study findings can be used by both Small
and Medium Enterprises sector and future researchers.

5.1 Summary
The research intended to explore the challenges that are hindering the performance of
Small and Medium Enterprises in the manufacturing sector. The highest contributing
challenge for SME failure was found to be the shortage of finance for expansion due
to their inability to pledge collateral security for them to access credit from banks. The
other factors identified are high interest rates charged by these institutions attached
with short loan repayment periods. Other hindrances are low returns from businesses
and lack of viable business proposals. In addition, the researcher also found out that
failure by most small to medium enterprises is as a result of lack of marketing skills
and market knowledge, lack of accounting skills inadequate management and
entrepreneurial skills, a hostile or stringent regulatory environment in which they
operate and lack of access to infrastructure for development.

65
5.2 Summary of findings
i. In line with the first objective, the researcher found out that access to finance,
market structure, infrastructure, lack of information, government regulations
and poor management skills are the major impediments to SME growth.

ii. The researcher also noted that SMEs found it difficult to access finance due to
lack of collateral, inability to produce proper books of accounts, lack of
transparency and procedures being too complex.

iii. It was noted that lack of operating space, power and water shortages and lack
of skilled personnel affects production to a larger extent.

iv. In line with the second objective, the research reviewed that management skills
influenced the performance of SMEs and that they that SMEs were poorly
managed.

v. The researcher found out that majority of SMEs prepared only preliminary
records of bookkeeping.

vi. In line with the third objective it was observed that the government was not
playing an active and satisfactory role in assisting SMEs and that there lacked
transparency in the system and that the government was being politically
biased.

vii. It was also noted that supporting institutions were playing their part in
supporting SMEs although there is still gap.

5.3 Conclusions
The study concludes that failure of small and medium enterprises in the manufacturing
sector is not caused by financial constraints only. However, it is caused by a lot of
factors although financial constraints contribute as a major factor hindering their
development. The major factors which affect the performance and development of
small to medium enterprises include access to and cost of finance, government

66
regulations, market structure, management skills, infrastructure and facilities and lack
of information. Other constraints were those referred to as internal constraints which
are lack of planning, lack of vision, lack of risk management and lack of information
and technology. The results clearly review that there is not only one factor which
influence performance of SMEs but in fact there exist a combination of factors.

5.4 Recommendations
The following recommendations are made to alleviate the challenges affecting
performance of SMEs in the manufacturing sector of Masvingo.

1. Small to medium enterprises should employ already educated personnel on the

managerial functions that have a direct effect on their performance. These managerial
skills include financial management skills, marketing knowledge and skills, human
resource management and production management skills. In addition, they should
send their employees on refresher courses regularly for them to adjust to changes in
environment. Since SMEs are affected by finance shortages they should form
partnerships with the government so that they can get funds for the proposed training
programmes.

2. On financial management skills, SMEs must send their employees on training in

book keeping and financial statement preparation. The owners of SMEs must keep
proper financial records at all times no matter how small the size of their businesses. If
they do not have the competence to prepare such records, they should hire the services
of qualified personnel. These financial statements are the ones required by commercial
banks and other financial lending institutions when they make their assessments of
credit worthiness.

3. On marketing management skills, small to medium enterprises must invest in their

employees by regularly sending them for training so that they acquire new ideas and
stay at par with their competitors from well established companies. On the issue of
advertising, SMEs must form cooperatives whereby a number of SMEs come together
and advertise their products and services as one so as to minimise their costs. It is also
important that SMEs carry out market research at start up and even when already in

67
the business so that they know what is needed in the market. Although their operating
costs and costs of production are usually high, SMEs must endeavour to offer
competitive prices so as to attract customers. They should also offer discounts at times
so as to retain customers and increase their market share.

4. Another important aspect SMEs must achieve is that of being good citizens. A
company is said to be a good citizen when it markets safe products, combats pollution,
corporate social responsibility and respecting the rights of customers. A company
should not be engaged in unscrupulous activities. This helps to create a good image
with customers and the outside world as a whole thereby improving customer loyalty.

5. Human resource is the most important department in any organisation because it is

through the workers that the company makes money. It is therefore important that
starting from recruiting, SMEs recruit qualified and competitive personnel as to
reduce wastage and ensure efficiency and effectiveness. Training will then be required
from time to time so that employees are kept up to date with new skills and ideas. It is
also important that SMEs engage in performance appraisal for their exceptional
employees to motivate them to work hard even in the future. Motivation is an engine
for success of any organisation.

6. It is of paramount importance that small and medium enterprises create good

relationships with their suppliers so that they receive their raw materials and other
supplies on time. They should also form quality circles so that they can test the quality
of their products before they supply them to the final consumers. They must ensure
that their products meet the requirements of the Standard Association of Zimbabwe.
Quality circles involve the testing of products for the required quality standards done
by a group of people at the work place.

7. As outlined in the previous chapter, planning and controlling are vital elements for
the business. SMEs must plan their operations so as to assess their progress and to
monitor if they meet their deadlines. This helps to identify training needs in the
employees. Controlling essentially check whether the planned objectives are being
followed. It therefore gives the feedback to management on what is happening in the

68
business. Controlling is also important in the production department to ensure that
required standards are met and wastages are minimised.

8. They should also endeavour as much as possible to network so that they can see
how other businessmen access funds from financial lending institutions.

9. It is also important that businessmen should take it upon themselves to learn some
basic business skills and attend workshops whenever called upon to do so by their
association.

10. Furthermore, SMEs should not only rely on commercial banks for financial
sources, but also search for alternative sources of finance which are relatively cheaper
as compared to the financing offered by the commercial banks so as to reduce their
costs. Instead of relying on loans offered by commercial banks, SMSs should make
use of family funds from their personal savings and also make use of ploughed back
profits for expansion. They may also form partnerships and cooperatives in order to
pool their financial resources together.

11. It is highlighted that shortage of fuel and continuous power cuts (load shedding)
are negatively affecting the performance of small to medium enterprises. To address
this problem, SMEs should form cooperatives and pull their resources together to
purchase fuel. This implies that they can be able to negotiate for discounts since they
will be buying in bulk and they can easily get transport for the fuel.

12. As the study revealed, registered SMEs were more likely to have a bank account
and making use of a credit product. Moreover, because of the difficulty of separating
small business owner’s personal finances from that of the business, registering made it
easier to make the distinction because business registration separates the business at
law from its owner, thereby reducing the probability of an application for credit being
rejected. Increasing levels of formality also mean additional reporting requirements,
thus promoting the availability of information available on a business, the lack of
which can also be an impediment to accessing financing. In this regard, interventions
to increase the levels of formality in the SME sector would have a positive impact on

69
the SME sector being able to access finance. This can be done through the compulsory
registration of SMEs that have not yet registered, at minimal or no cost to the SMEs.

5.5 Areas for further researches

The research work requires some further researches to be done. Firstly, the research
was centred on small to medium enterprises in the manufacturing industry. It is
therefore recommended that further researches should be done to establish whether the
results would be consistent across different sectors like the automotive sector and the
retail sector. Secondly, the research was carried out at Mucheke Industrial Area,
Masvingo. There is need to carry out the same research in other parts of Zimbabwe so
as to establish if this research can be generalised in the whole country. Lastly, for
comparison purposes, the research could be carried out in some other parts of
Southern Africa.

70
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 APPENDIX I

Questionnaire Cover Letter

Bindura University of Science Education

Faculty of Commerce
Department of Accountancy
P Bag 1020
Bindura
Tel: +2632717531

Dear Sir/ Madam

RE: APPLICATION FOR AUTHORITY TO CARRY OUT RESEARCH WITH

YOUR ORGANISATION.
I am a Bachelor of Accountancy Honors Degree student with Bindura University,
undertaking a research project entitled ‘An analysis of the challenges affecting
performance of small and medium enterprises (SMEs) in the manufacturing sector of
Masvingo’. It is a perquisite that I will carry out research in the fulfilment of the
requirements of my degree programme.
I hereby requesting for authority to carry out this study in your organisation. All
information to be given will surely be used for academic purposes and high level of
confidentiality will be exercised. For further clarification you may contact the
university.
Your assistance in this regard will be highly appreciated.

Yours faithfully

Masara Owen
B1231104
.......................
+263773428266
masaraoweneg@gmail.com

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 APPENDIX II

QUESTIONNAIRE

Instructions:
Answer all questions by ticking in the box [ ] as well as writing responses in the space
provided.

SECTION A: DEMOGRAPHIC DATA

1. Gender of the respondent
Male [ ] Female [ ]
2. Educational qualification
Post graduate [ ] Degree [ ] Diploma [ ] Certificate [ ] Other [ ]
3. You experience with the SMEs
0-3 years
4-7 years
Above 7 years
Total

SECTION B: CHALLENGES AFFECTING PERFORMANCE OF SMES

4. Which of the following is constraining factor on the performance of your business?
Rating Strong constrain Moderate Weak
Access to finance
Government regulations
Infrastructure and Public Facilities
Information asymmetries
Management skills
Market structure

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5. Which of the following factor is a cause for the problem of accessing finance?
Lack of collateral security
No proper accounting records
Lack of transparency
Procedure too complex

6. Which of the following affect production by SMEs

Operating places [ ] Load shedding [ ] Water shortages [ ] Skilled labour [ ]

SECTION C: MANAGEMENT QUESTIONS

7. To what extent do management skills influence performance of your organisation?
Management skills Greater Extent Moderate Lesser Extent
General management
Financial management
Marketing management
Production management
Human resource management

8. Which of the following statements are prepared by your organisation?

Financial Statements Prepared
Statement of Profit and loss and other comprehensive income
Statement of Financial Position (Balance Sheet)
Statement of Cashflow
Preliminary Record of bookkeeping

SECTION D: SME SUPPORT

10. Is the government playing an effective role in SME financing?
YES [ ] NO [ ]

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11. Which of the following Zimbabwean policies on the development of SMEs is most
helpful to you?
Policy Frequency Percentage (%)
ZIMASSET
Indigenisation
Zimprest
Economic Recovery Program

12. Are the supporting institution such as SEDCO and ILO playing a significant role
in the sustainable development of your organisation?
YES [ ] NO [ ]
THANK YOU FOR COOPERATION

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 APPENDIX III

INTERVIEW QUESTIONS

1. What are the challenges you are facing as SMEs?

2. As an organisation do you formally plan for your activities?
3. Do you have a vision and mission statement?
4. Is your management structured and aware of their functions and duties?
5. What the government has done to support you as an organisation?

83