FACTORS AFFECTING THE GROWTH OF SMALL AND

MEDIUM ENTERPRISES
Research Problem

This study is about the challenges and problems that entrepreneurs face during the growth of
their enterprise. Not all firms grow equally, and very few enterprises find opportunities to grow and
flourish. Growth of the firm may be restrained because of inadequate resources and the entrepreneur's
low motivation. In this study, we advise entrepreneurs to hire experienced managers who can
successfully take the firm forward on its evolutionary path. The growth phase is the time to structurally
realign and establish more formal processes, structures procedures, communication and management
control systems, and functional departments in all core areas, such as marketing and sales, finance and
accounting, human resources, operations and production, customer service, information management,
and administration. Entrepreneurs also need to enhance their skills and knowledge to make their
enterprise a learning organization. Knowledge sharing and knowledge management should be given
priority to encourage innovation and creativity. Entrepreneurial capital (social, human, and financial)
should be used to address the problems of core competency, managerial capacity, availability of skilled
workers, mobilization and access of resources, acquisition of external financing, and environmental and
competitive pressures.

Small- and Medium-Sized Enterprises

Small and Medium sized enterprises (SMEs) is a driving force for the future economy. During
the last ten years, studies into Small and Medium Sized Enterprises (SMEs) have grown tremendously
(Lambing & Kuehl, 2007). Studies have shown that SMEs are not only important driver of employment
and wealth generation but also at the forefront in fostering entrepreneurship, competition, and
innovation that results in sustained success and development. Small and medium-sized enterprises are
necessary for the achievement of wider development objectives, including poverty eradication,
economic development, and promotion of more democratic societies (Deakins & Freel, 1998).

The majorities of firms in the world are SMEs and play a major role in the economy. According
to United Nations, relevant evidence suggests that Small & Medium Enterprises are responsible for the
success of main economies all over the world.In United States of America (USA), small businesses
provide more than 70% of new jobs brought to the economy representing 99% of employers. There
were close to 23 million small businesses in 2002 in the US (Thomas, 2014).

Small businesses are regarded as the critical force behind economic success, job creation and
poverty reduction in emerging economies. They have resulted in accelerated economic success, and
rapid industrialization that has witnessed across the globe (Thurik & Wennekers, 2004). While we do
acknowledge the contributions of the small business to economic development, entrepreneurs face
many challenges that have adverse effects on long-term success and development of their businesses.
Research on small business development has shown that the rate of failure in developing countries is
higher than in the developed world (Deakins & Freel, 2009). Scholars have indicated that starting a
business is a risky venture and most businesses do not survive past five years. It is, therefore, important
for entrepreneurs to develop both short-term and long-term strategies to guard against failure (Deakins
& Freel, 2009).

Literature Review

According to Ayozie Daniel Ogechukwul (2010) Small scale industries have a lot of important
contributions to make to the economic development of the country. By its less capital intensive and high
labour absorption nature, SSI sector has made significant contribution to employment generation and
also to the rural industrialization. This sector is ideally suited to build on the strength of the traditional
skill and knowledge, capital and innovative marketing practices. So, the importance of small scale
enterprise is a global phenomenon encompassing both the developing and developed countries. In both
developed and developing countries, the government is turning to small and medium scale industries
and entrepreneurs, as a means of economic development and a veritable means of solving problems. Its
contribution to the mobilization of domestic savings and utilization of local resources is also a noticeable
factor. It is a base for the development of appropriate technology and provides a veritable ground for
skilled, unskilled and semi-skilled workers. It has provided productive self-employment to a number of
educated and less educated young men and women coming out of schools, colleges, polytechnic, and
universities

Ludovica Ioana (2011),The role of small and medium enterprises is worldwide acknowledged for
their unique contribution to the economic development. Both the developed countries and the ones in
course of development realise that the SMEs and the entrepreneurs play a vital role in the industrial
development of a country. So there is no surprise that the political strategists have often thought that
the SMEs can become the “seed” of economic revival. It is necessary that while the observance of
thresholds regarding the average number of employees is compulsory, a SME can choose between
observing either the threshold regarding the turnover in a year or the one regarding the total assets. It is
not necessary to satisfy both criteria and one of them can e exceeded without losing the status of SME.

Musara Mazanai, Olawale Fatoki (2011),Small and medium sized enterprises (SMEs) play a
significant role in the economic development of every nation, particularly in developing countries like
South Africa. The development of SMEs is seen globally, as a key strategy for economic growth, job
generation and poverty reduction. The South African Department of Trade and Industry (DTI) estimates
that small businesses employ almost half of formally employed persons, and contribute to 42% of the
country’s gross domestic product. Start-up SMEs are a key driver of sustainable economic development
of the country.

Every business begins its existence with the first step of being established, so this is the period
when the business is also focused on creating a product and a market. Within this stage human
resources are provided, entrance on key markets is initiated and some financial results are indicated,
while gaining trust of customers (Churchill and Lewis, 1983).

Adeyemi, Sidikat Laraba, Dr. Aremu, Mukaila Ayanda,(2011) Small and medium enterprises
have been considered as the engine of economic growth and for promoting equitable development. The
major advantage of the sector is its employment potential at low capital cost. The labour intensity of the
SME sector is much higher than that of the large enterprises. The role of small and medium enterprises
in the economic and social development of the country is well established. The sector is a nursery of
entrepreneurship, often driven by individual creativity and innovation. The growth potential of the
sector and its critical role in the manufacturing and value chains.