GOFA INDUSTRIAL

COLLEGE

THE IMPACT OF INDUSTRY

EXTENSION SERVICES ON

BUSINESS PERFORMANCE

OF MSEs; IN THE CASE OF GIC

BY: MOHAMMED SEID

REBQA SISAY

HAYALNESH DAWIT

NEGESSA DEMISE

ADVISOR: TURA N.

May, 2023

ADDIS ABABA, ETHOPIA

CONTENTS
LIST OF TABLES....................................................................................................III
LIST OF FIGURES..................................................................................................IV
LIST OF ACRONYMS............................................................................................IV
1. INTRODUCTION..................................................................................................1
1.1 Background of the Study...................................................................................1
1.2 Statement of the problem..................................................................................1
1.3 Objective...........................................................................................................2
1.3.1 General Objective.......................................................................................2
1.3.2 Specific Objectives.....................................................................................2
1.4 Research Questions...........................................................................................3
1.5 Significance of the study...................................................................................3
1.6 Scope of the Study............................................................................................3
1.7 Limitation of the Study.....................................................................................4
1.8 Ethical Consideration........................................................................................4
1.9 Definitions of Key Terms.................................................................................5
2. REVIEW OF LITERATURE.................................................................................6
2.1 Definition and Concepts of Micro and Small Enterprises................................6
2.2 Definition of MSEs in Ethiopia........................................................................6
2.2.1 The Definition Provided in the 1997 MSEs Strategy.................................6
2.2.2 The Central Statistics Authority Definition (CSA)....................................7
2.2.3 The Revised Definition of Micro and Small Enterprises (MSEs) in
Ethiopia...............................................................................................................7
2.3 Overview of the Growth of MSEs in Ethiopia..................................................8
2.4 Linkages of TVETs and MSEs.........................................................................9
2.5 Main Challenges and Constraints of MSE Sector...........................................10
2.6 Meaning and Concepts of Industry Extension Service...................................10
2.7 Vision, Goal and Mission of Industry Extension Program.............................10
2.7.1 Entrepreneurship......................................................................................12
2.7.2 Kaizen.......................................................................................................12
2.7.3 Skill gap training......................................................................................12
2.7.4 Technology Transfer................................................................................13
2.8 Stakeholders and customers of industry extension service.............................13

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 2.9 Developing and Developed Countries experience in supporting Enterprises.15
2.10 Benefits of industry extension services for Enterprises................................15
2.11 Conceptual framework..................................................................................17
3. RESEARCH METHODS AND PROCEDURES................................................18
3.1 Description of the Study Area....................................................................18
3.2 Research Design and Approach......................................................................18
3.2 Methods of Data Collection.......................................................................19
3.4 Target Population............................................................................................19
3.5 Sampling Techniques......................................................................................20
3.5 Sample size Determination.............................................................................21
3.6 Summary of data sources................................................................................22
3.7 Data Analysis Technique................................................................................22
WORK PLAN AND BUDGET................................................................................23
Work plan..............................................................................................................23
Budget...................................................................................................................23
REFERENCES.........................................................................................................23

II
 LIST OF TABLES
Table 2. 1 Definition of micro and small enterprises...............................................14

Table 3. 1 Total SMEs per woredas’ 20

Table 3. 3 Number of respondents 22

III
 LIST OF FIGURES

Fig 2. 1 BDS monitoring and evaluation model..................................................................16

LIST OF ACRONYMS
Acronym Description

IV
BDS Business Development Service

COC Center of competency

CSA Central Statistical Authority

E.C Ethiopian Calendar

ETB Ethiopian Birr

Federal Democratic Republic of Ethiopia National Planning

FDRE NPC
Commission

FeMSDA Federal Micro and Small Enterprises Development Agency

G.C Gregorian calendar

GDP Gross domestic product

GIC Gofa Industrial College

GTP Growth and Transformation Plan

IES Industry extension service

IESP Industry Extension Service Program

MOFED Ministry of finance and economic development

SMEs Small and Micro enterprises

PASDEP Plan for Accelerated and sustained Development to End Poverty

TVET Technical and vocational education training

UNCTAD United nation conference on the trade and development

USD united states dollar

WW2 World war the second

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 1. INTRODUCTION
1.1 Background of the Study
Micro and small enterprises (MSEs) are a vital component of the Ethiopian economy,
comprising more than 90% of all businesses and employing more than 75% of the workforce
(UNIDO, 2019). Despite their importance, however, many MSEs in Ethiopia face significant
challenges that limit their growth and competitiveness, including limited access to finance,
inadequate infrastructure, and a lack of technical skills and knowledge. To address these
challenges, the Ethiopian government has implemented a range of programs and initiatives to
support MSEs, including the Industry Extension Service (IES), a government-supported
program that provides technical assistance and training to MSEs to enhance their
performance and competitiveness.

Small and micro-enterprises (SMEs) are a crucial part of the Ethiopian economy, accounting
for a significant proportion of employment and GDP. However, these businesses often face
challenges in terms of accessing the resources and knowledge necessary to improve their
operations and remain competitive in the marketplace. Industry extension services (IES) have
been proposed as a potential solution to these challenges, as they aim to provide SMEs with
business development assistance and other support services to improve their performance.

Despite the potential benefits of IES, there is a lack of empirical research on their impact on
the business performance of SMEs in Addis Ababa, Ethiopia. The purpose of this study will
fill this gap by assessing the impact of IES on the business performance of micro and small
enterprises in Addis Ababa. Specifically, the study will investigate the extent to which IES
has improved the productivity, profitability, and competitiveness of SMEs in Nefas Silk Lafto
Sub-City.

Therefore, this study aims to assess the impact of IES on the business performance of MSEs
in Addis Ababa and identify the factors that influence its effectiveness.

1.2 Statement of the problem

Despite the importance of micro and small enterprises (MSEs) in the Ethiopian economy,
these businesses face significant challenges in terms of accessing business development
support services and resources, which can hinder their growth and competitiveness (Bank,

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2019). To address these challenges, industry extension services (IES) have been proposed as
a potential solution to improve the business performance of MSEs. However, there is limited
empirical research on the effectiveness of IES for MSEs in Ethiopia, particularly in the
context of Addis Ababa.

Several studies have examined the factors that impact the performance of MSEs in Ethiopia,
including access to finance, technology, and market information (Gebreeyesus, 2011)&
(Hailu, 2015) (Soderbom, 2011); Lemma (Lemma, 2019), (Tsegaye, 2019), According to
(Turaa, 2020) enterprises who have positive perception implement IES while, enterprise who
have negative perception do not want to implement the IES packages. Little research has
been conducted to evaluate its impact in the Ethiopian context. However, there is a lack of
research on the impact of IES on the business performance of MSEs in the country. This is
particularly problematic given the increasing emphasis on promoting the growth and
development of MSEs in Ethiopia, as highlighted by the government's recent shift towards a
more market-oriented economic model (Broussard, 2020).

Therefore, the problem statement for this study is the lack of empirical research on the impact
of IES on the business performance of MSEs in Nefas Silk Lafto Sub-City, Addis Ababa,
Ethiopia. By addressing this research gap, the study aims to provide insights into the potential
of IES as a support mechanism for small and micro-enterprises in Ethiopia, which can inform
policy and practice in the Sub City.

1.3 Objective

1.3.1 General Objective

To evaluate the impact of Industry Extension Service (IES) on the business performance of
micro and small enterprises (MSEs) in Nifas Silk Lafto Sub-City selected woredas.

1.3.2 Specific Objectives

i. To examine the extent to which MSEs in Addis Ababa are aware of and utilize IES.
ii. To assess the impact of IES on the productivity of MSEs in Nefas Silk Lafto Sub City
by comparing the performance of MSEs that have received IES to those that have not.
iii. To determine the impact of IES on the profitability of MSEs in Nefas Silk Lafto Sub
City by analyzing the financial performance of businesses that have received IES.

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 iv. To investigate the effect of IES on the competitiveness of MSEs in Nefas Silk Lafto
Sub City by examining the market position and customer base of businesses that have
received IES.

1.4 Research Questions

i. What is the level of awareness and utilization of IES among MSEs in Nefas Silk Lafto
Sub City?
ii. How does IES impact the business performance of MSEs in Nefas Silk Lafto Sub
City, in terms of revenue growth, profitability, and productivity?
iii. What are the factors that influence the effectiveness of IES in improving the business
performance of MSEs in Nefas Silk Lafto Sub City?
iv. How do different types of MSEs in Nefas Silk Lafto Sub City, such as those in
different industries or with different levels of experience, perceive and benefit from
IES?
v. What are the challenges and opportunities for improving the effectiveness of IES in
supporting the growth and competitiveness of MSEs in Nefas Silk Lafto Sub City?

1.5 Significance of the study

Overall, the study is significant because it will provide insights into the effectiveness of IES
as a support mechanism for MSEs in Addis Ababa, which can inform policy and practice in
the country and contribute to the development of more effective strategies for supporting the
growth and development of MSEs in Ethiopia

1.6 Scope of the Study

The study will be delimited to Nifas Silk Lafto Sub-City, GIC catchment area (lebu and jemo
woreda, 2, 3, 4, 5, 6 and partially 12) MSEs, on five sectors that are manufacturing,
construction, urban farming, trade and service.
The study will be limited to MSEs as a center of the research and includes MSE operators
from manufacturing sector of sub-sectors which is from wood and metal work, leather and
leather products, textile and garment, food and food processing and construction, urban
agriculture, service and trade and stakeholders from GIC trainers, woredas’ industry
extension officers and one stop service centers.

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The study will covered the time period of GTP I and GTP II until 2015 E.C (2004-2015 E.C)
(National planning, 2016) because industry extension service was started newly as a package
from 2004 E.C and it assessed the impact of IES on business performance of MSEs in the
case of Nifas Silk Lafto Sub-City selected micro and small enterprises.

1.7 Limitation of the Study

The study will rely on self-reported data from MSE owners, which may be subject to bias or
inaccuracy. Furthermore, the study will not be able to verify the accuracy of the data
provided by the MSE owners.
The study will only assess the impact of IES on the productivity, profitability, and
competitiveness of MSEs and will not examine other factors that may impact the
performance of MSEs, such as access to finance or market conditions.
The sample size of the study may be limited due to time and resource constraints, which may
impact the statistical power of the study and limit the conclusions that can be drawn from the
data.
The study will only consider the impact of IES as a support mechanism for MSEs and will
not assess the effectiveness of other support services or interventions that may be available to
MSEs.
Overall, these limitations may impact the generalizability and scope of the study, and the
findings should be interpreted in light of these limitations.

1.8 Ethical Consideration

Firstly, the researcher gives awareness for the participants about the objective, the purpose
and the nature of the study. And request their consent to participate. One common practice
suggested by (Leedy & Ormrod, 2005) is to present written and oral information to consent
form describing the nature of the research project and the purpose of one’s participation in it.
The researcher also committed to report the research findings in a complete and honest way,
without misleading others about the nature of the findings. Giving appropriate credit to the
use of the scholar’s idea is mandatory (Leedy & Ormrod, 2005). In this regard, all materials
belonging to another person or organization are duly acknowledged.
Finally, the researcher will take an appropriate measure to ensure the research will cause no
physical or psychological harm to research participants. Therefore, the study will not raise
any ethical concerns.

1.9 Definitions of Key Terms

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Enterprise:-A legal business organization that operates by operators.

Implementation: - Application of industry extension services in manufacturing MSEs.

Industry extension service: - A supportive framework established for micro and small
enterprises to capacitate them by applying as a package.

Business performance: The ability of a business to achieve its goals and objectives in terms
of profitability, productivity, and competitiveness. Effective business performance is essential
for the long-term success and sustainability of a business.

Productivity: The efficiency with which a business uses its resources to produce goods or
services. Productivity is often measured in terms of output per unit of input, such as labor or
capital.

Profitability: The ability of a business to generate profits, which is typically measured by the
ratio of net income to revenues.

Competitiveness: The ability of a business to compete effectively in the marketplace by

offering goods or services that are of high quality and value relative to those offered by
competitors.

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2. REVIEW OF LITERATURE

2.1 Definition and Concepts of Micro and Small Enterprises

Even though, there is no one general consensus for the definition of MSEs in the world, there
is an international criteria for the initial of the definition of MSEs. These are:

i. Number of full time employed person/staff head count/.

ii. Total asset, net asset and paid up capital.

iii. Total annual sales turn over. These three criteria may be applied either jointly or
separately (MSEs, 2012 and 2016).

2.2 Definition of MSEs in Ethiopia

According to the Ethiopia MSEs development strategy there are two main definitions of
micro and small enterprises were formulated, namely:

 The definition used in the 1997 (Gc2005) micro and small enterprises development
strategy; and
 The central statistics Authority definition(CSA)

2.2.1 The Definition Provided in the 1997 MSEs Strategy

The formulation of the 1997 micro and small enterprises development strategy took in to
account the experience of South Africa and other countries. But it has some limitations,
among these it does not consider employee/ job creation as a criteria, the use of paid up
capital as a criteria in the existing definition does not take in to account the realities on
the ground, the existing definition it being more than 13 years so that the foreign.

6
 Exchange rate and inflation related changes enforced to revise the strategy. So, the
existing definition of MSEs strategy were in micro enterprise the paid up capital is less
than 20,000 ETB(USD 1,200) and the small enterprise paid up capital is less than 500,000
ETB(USD 30,000).

2.2.2 The Central Statistics Authority Definition (CSA)

The government of Ethiopia’s Central statistics Authority definition of MSEs is based on the
type of technology adopted and the number of man power.

Handicraft / cottage industries in which a single person or family members perform their
activities mainly by hand and using non-power driven machineries; and

Small scale manufacturing enterprises engaging less than 10 persons and using motor driven
machinery.

The above mentioned definitions adopted by the Central Statistical Agency have the
following limitations:

Focus on the manufacturing sector (i.e., it does not refer to other sectors); and

No use of the amount of capital as criteria Thus, it becomes imperative to revise the existing
definitions of MSEs, in light of the international experience as well as the significance of the
sector in the country's current development endeavor (FDRE, 2016).

2.2.3 The Revised Definition of Micro and Small Enterprises (MSEs) in Ethiopia
Table 2. 1:– Definition of micro and small enterprises

Level of Enterprise Sector Human power Total asset

Micro-enterprise Industry ≤5 ≤ 100,000ETB
Service ≤5 ≤ 50,000ETB
Small enterprise Industry 6-30 ≤ 1.5 million ETB
Service 6-30 ≤ 500,000ETB

Source:-Ethiopian Micro and small enterprise Development policy and strategy 2012, edited
2016

According to the revised definition of MSEs in Ethiopia the industry sector includes
Manufacturing, construction and mining whereas the service sector is the trade and service
activities are included. These revised MSEs definitions are adopted by the Ethiopian Ministry

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of Trade and industry. In fact, the total asset still needs some adjustment by considering the
inflation of the country. As, (Amare & Raghurama, 2017) recommend on the strategy; the
Ethiopia Government is advised to adapt the base of micro, small and medium enterprises to
define MSEs by making adjustment of the total asset with the GDP growth rate.

2.3 Overview of the Growth of MSEs in Ethiopia

Many research shows that MSEs in Ethiopia is challenging now a time by lack of finance,
lack of appropriate technology, lack of trained human resource, beginning a business without
market survey( business plan) and so on. On the other hand the government report implies
that MSEs have a great contribution for the growth of GDP and other countries’ experience
also implies that their MSEs have a great role for their development.

As indicated by Ethiopia’s MSEs development policy and strategy, the level of growth of
enterprises in Ethiopia is experienced from Malaysia (i.e. startup, growth, expansion, and
maturity) and from Japan (i.e. launching stage, strengthening level and maturity level).
Hence, the growth of enterprises in Ethiopia is divided into three stages of development by
taking into consideration the international experience and then it is called as startup, growth
and maturity. The international experience description illustrates that the presence of the
enterprise based initiatives or schemes and that these schemes are targeted at overcoming the
challenges enterprises face at different stages of their growth level. When we compare to the
international experience, enterprise support schemes in Ethiopia were not packaged taking
into consideration of the growth stage of the enterprises. The support was characterized by a
blanket approach and its implementation was not well supported by sound data and
information management and also marred by the absence of standard monitoring and
evaluation and therefore a limited ability to learn from the experiences (MSEs, 2012 and
2016).

FeMSEDA mandate to coordinate and support all institutions dealing with micro, small and
medium-sized enterprise development has not changed since 2002 although, as described
above, the agency does not include medium-sized firms in many of its program (UNCTAD,
2011). As of 2010/11 it was re-established as Federal Micro and Small Enterprises
Development Agency by Regulation No. 201/2003 of the Council of Ministers and have been
referred with this name for 5 years and operated by adopting clearly defined strategy and
support frameworks of the sector. With the view of expanding the changes realized in the
second growth and transformation plan and become basis for the industry sector, the small

8
manufacturing sector which has been implemented under the micro and small enterprises,
was incorporated with the medium manufacturing sector by Regulation No. 373/2016 of the
Council of Ministers and the organization was established under the name the Federal Small
and Medium Manufacturing Industry Development Agency.

Among the main focus of this Agency is that working in collaboration with Universities,
research institutes, sect-oral development institute, technical and vocational education and
training institutes, capital good leasing companies and other stakeholders in the areas of
human resource development, research and studies, technology transfer, and infrastructure
development to improve the productivity, standards and quality of products as well as
competitiveness of small and medium manufacturing industry; and strengthen and coordinate
the linkage with these stakeholders. In addition it is clearly concluded that: design and
implement entrepreneurship programs in order to strengthen and create new industrialist;
ensure the coordinated implementation of Kaizen quality and productivity systems, facilitate
and implement industrial extension services, establishment model incubation centers and
assist their establishment in regions were given an emphasis to be a duty and responsibility of
small and medium manufacturing Agency (Council, 2016).

2.4 Linkages of TVETs and MSEs

According to government of Ethiopia, the pillar sectors to alleviate poverty in Ethiopia are
TVET and MSE to solve economic and social problems of the society. The established TVET
program will be part of Governments capacity building program. The program is undertaken
in coordination with institutions engaged in Micro and Small enterprises to support and
expand employment. (Ministry of Federal Enterprise, 2010).

TVETs reinforce the work of MSEs in order to get them successful and to develop their
entrepreneurial motivation so that they can be transferred to small and large scale Enterprise.
TVETs enable MSEs to produce world market competitive products for export purpose and
import substitution items. Regarding Technology Transfer and industry Extension Service, it
is a package designed to support MSEs by TVETs. TVET institutions will provide the new
service package which targets all the major headaches of MSEs in the Country. The services
are Technical Competence, Entrepreneurial Competency, Technology Capability, Quality and
Productivity (AATVETA, 2012).

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2.5 Main Challenges and Constraints of MSE Sector
In most developing countries, small businesses face a wider range of constraints and
problems and they are unable to address the problems they face on their own, even in
effectively functioning market economies. The constraints relate, among others, to the legal
and regulatory environments, access to markets, finance, business information, business
premises(at affordable rent), the acquisition of skills and managerial expertise, access to
appropriate technology, access to quality business infrastructure, and income cases,
discriminatory regulatory practices (MOTI, 1997).

According to (Aynabeba, 2014), (Eshetu and Zeleke,2008:2-9) in (Admasu, 2012) businesses

failed, inadequate finance, low level of education to convert part of their profit , poor
managerial skills, shortage of technical skills, inability to convert part of their profit to
investment , poor marketing skills, shortage of market information, poor quality of products,
absence of marketing research, lack of working space, shortage of selling prices, absence of
subcontracting (FMSEDA,2006:34) in (Admasu, 2012).

According to (Dereje, 2008), (Workineh,2007), (Mulugeta, 2011) and (Asegedech, 2004:1) in

(Admasu, 2012) the main constraints of MSEs were shortage of capital, lack of raw
materials, absence of government support, lack of market, lack of credit facilities and high
interest rate, unfavorable policy etc.

2.6 Meaning and Concepts of Industry Extension Service

Identifying the problems of MSEs based on their interest and then giving training and advice
and it encompasses a support on best technology adaptation and transfer.

Source: Industry Extension Manual, City Government of Addis Ababa page-4.

The services that are provided to MSEs by TVET institutions among other includes skills
trainings on entrepreneurship, business management, best technology adaptation and transfer,
productivity ,quality, maintenance and product standardization and certification (AATVETA,
2012).

2.7 Vision, Goal and Mission of Industry Extension Program

Vision: - Technical and Vocational Education and Training in Ethiopia seek to create
competent and Self-reliant citizens to contribute to the economic and social development of

10
the country thus improving the livelihoods of all Ethiopians and sustainably reducing
poverty.

Goals: - implementing Technology Transfer and Industry Extension Services to assure

growth and competitiveness of Micro and Small Enterprises Development.

Objective: - Develop capacity of Micro and Small Enterprise Operators in terms of

competency and Technology (AATVETA, 2012).

Having the above mission, goals and objectives, the IESP addresses the improvement, growth
and competitiveness of MSE‟s and enhances their contribution on employment opportunity
creation and development and growth of the industrial sector. The designed policy, IESP is
giving different kinds of support services like training to fill technical skill gaps, kaizen like
5s and Seven waste implementation ,improving quality of product, and increase in
productivity, Business management and development skills ,customer handling, developing
entrepreneurship culture and bookkeeping skills, assessment and certification, technology
adaptation and transfer are major areas of supports under industry extension program and all
these are support services provided by Technical and Vocational colleges or institutions to
MSEs.

Among the policy supports to MSEs development is access to industry extension service. So,
this strategy is adopted from Ethiopia’s experience in agricultural extension. The primary
objectives of the national industry extension service are to make MSEs competent enough in
the market, to enable them to generate sufficient and sustainable job opportunity their by
improving their income. The industry extension service elements consist of entrepreneurship,
business development services, production technique, marketing management, supplies
management, book keeping and continuous productivity improvement or kaizen (Berihu,
Abebaw, & Biruk, 2014). These services are collectively grouped in to 4 supportive
frameworks and considered as a package of industry extension service.

i. Entrepreneurship
ii. Kaizen
iii. Skill gap training
iv. Technology transfer

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2.7.1 Entrepreneurship
It is an innovation process of new things and includes a reuse mechanisms or using a
resources uniquely and wisely with predicting the future before problem happens. So,
entrepreneurship is a process where entrepreneurs tackling problems and creating a new ideas
(Lemma, 2019).

2.7.2 Kaizen
According to (Lemma, 2019) Kaizen is a Japanese management philosophy and in Japanese
management, Kaizen means “continuous improvement” involving the entire workforce from
the top management to middle managers and workers. The origin of Japan’s Kaizen
movement was the quality control method imported from the United States (US) in the post
WW2 period.

The implementation of the Kaizen management techniques could enable enterprises in

Ethiopia to identify and solve their current manufacturing problems without employing high-
tech approaches only involving people on the shop floor in Kaizen activities (Asayehgn,
Hadush, & Alula, 2014).

Micro and small enterprises Owners should ready for implementing Kaizen and assuring its
sustainability by doing the basic principle of Kaizen. Solution to challenges of Kaizen
implementation SMEs owners should encourage and motivate their workers. The enterprises
should make their own business plan and their own guidelines and strategies by forming a
Kaizen Board for the future organizational improvement and profitability (Berhanu, 2014).

2.7.3 Skill gap training

According to (Monika, 2012) skill gap is a constraint for both developed and developing
countries’ and so skill gap training is an ability to grow, innovate, deliver products and
services on time, meet quality standards and meet environmental and social requirements in
countries where they operate. Skill gap may arise from two main conditions which is due to
skill shortage (i.e. not enough graduates at a particular level of education or in the right field
of study and skill mismatch (i.e. whether young people are educated or not, they lack the
skills to fill the position.

As cited by (Monika, 2012), world bank 2002-2010 enterprise survey identified a firms labor
skill gap and each developed and developing countries have their own gap on these issue and
according to the enterprise survey of 2010, Botswana 2010: 32%, Brazil 2009: 69%, China

12
2003: 31%, Colombia 2010: 38%, Egypt 2008: 50%, India 2006:14% , Us: 52% were
recorded as a skill gap of an employees and as it implied by the survey the main problem was
educational/ Training on the position or working area were a big problem.

In order to narrow a skill gap, TVET institutions have a great role and it helps to relate a
theory on a practical ways. So, operators should trained on TVETs particularly who are
operating on the manufacturing, construction, urban agriculture, trade and service.

2.7.4 Technology Transfer

Technology transfer is one of an important component of the industry extension service is an
incubation / generation, transfer and adaptation/diffusion of technology and modern means of
production for the economy through the means of MSEs (Fita, 2014).

As (Fita, 2014) cited (EKI, 2012) technology transfer is one of the core issues of industry
extension service where technology can be identified in terms of techno ware, info- ware,
human- ware or orga-ware. Techno ware includes materials, gadgets, etc. Human ware
includes the human knowledge, ability, experience, etc. Info ware includes organized
information, work processes, design and blueprints, etc. Orga-ware: includes the
organizational structures, setups, methods of doing things, etc.

As cited by (Lemma, 2019) Zewde and Associate, Technology as related to MSEs is defined
as the ability on capability to translate and convert ideas into tangible goods and services.

2.8 Stakeholders and customers of industry extension service

Industry extension service (IES) can be takes place in coordination with some stakeholders
like TVET College, Technical and vocational education offices, one stop service center,
Regional COC centers and the customers are MSEs, Trainees, other industries who want
industry extension service and private business sectors. Though, the main actors for the
implementation of industry extension program are TVETs and MSEs. TVET encourages the
work of MSEs in order to make them profitable and to enhance their entrepreneurial
motivation so that they can be enforced in small and large scale enterprises. TVET enables
MSEs to produce world market competitive products for export purpose and import
substitution items (Aynabeba, 2014).

As (Aynabeba, 2014) cited (MOFED, 2010) in the linkage of TVET and MSEs the pillar
sectors to alleviate poverty in Ethiopia are TVET and MSEs to solve economic and social

13
problems of the society. The established TVET program will be part of Government capacity
building program. The program is undertaken in coordination with institutions engaged in
Micro and Small enterprises to support and expand employment. Overall economic goals of
the GTP are set with the overall policy objectives of maintaining the growth momentum
witnessed during the period of the PASDEP and considering Ethiopia’s long term vision of
becoming a middle income country and meeting the Millennium Development Goals.

As clearly cited in (Lemma, 2019) implied on the MSE policy and strategy of Ethiopia, the
aim of industrial extension service is to enable MSEs become competitive in the market and
in doing so improve their income and create large scale employment opportunity. So, some
principles are noticed on regarding to the implementation of industry extension service as
follows:

 TVET institutions shall be incubation centers for MSEs creation as well as centers of
technology transfer.

 Industrial extension services shall be guided by market demand, holistic and

integrated.

 The services to be delivered to MSEs shall be characterized by transparency,

accountability and honesty.

 The growth and benefits of enterprises shall be rewarding for everyone.

 Existing and model enterprises shall receive priority in getting access to industrial
extension services.

 Building technological capacity is the key instrument to achieve economic growth.

But, the strategy deduces that the industrial extension service was not organized based on
needs assessment and prioritization. As a result, the services provided by TVETs did not have
a problem solving orientation and made little impact in terms of narrowing the identified
skills gaps in MSEs. Therefore, TVET institutions have a great responsibility to implement
and evaluate the success of industry extension service since they are sources of new

14
technology and have skilled man power to generate different guidelines for MSEs operators
and Trainees (MSEs development policy and strategy, 2016).

2.9 Developing and Developed Countries experience in supporting Enterprises

According to (Lemma, 2019) cited Manufacturing extension services are common in
developed economies such as Canada, Germany, Japan, the United Kingdom, and the United
States (Andes, et al., 2013). In order to provide manufacturing extension services to their
SME manufacturers, some countries created formal Agencies and support the sector in all
aspects. Among these, United States (US) organizes a manufacturing extension partnership
Agency; Australia an Enterprises connect; Canada, Industrial research Assistance partnership;
Germany Fraunhofer Institute; Japan, Industrial Technology Research Institutes; Korea,
Small and medium Business Administration, Argentina, National Institute of Industrial
Technology; Spain, Spanish federation of Technology Centers and almost all these agencies
provides technology advice, Technical assistance, Training for SMEs and promotes
technology development and transfer to industry (Ezell & Atkinson, 2011).

Among the business support program or industrial extension programs, technology extension
program is crucial for supporting SMEs. Technology extension services are focused on direct
support of local firms. Flexible, decentralized local service is important to effective assistance
that makes a difference in competitiveness. The approach is similar to that long used by
agricultural extension services in many parts of the world. Japanese technology service
centers in every prefecture offer a menu of services that varies by locality. The Canadian
Industrial Research Assistance Program makes field engineers available in every province.
The Manufacturing Extension Partnership in the United States supports centers in every state
(Rogers, 2013).

In Ethiopia, Industry extension service is implementing with jointly by technical and

vocational education and training institutions and stakeholders by applying the four industry
extension frameworks to fill the gaps of micro and small enterprises to make them competent,
productive, progressive and profitable in the economy (Fita, 2014).

2.10 Benefits of industry extension services for Enterprises

The primary function of manufacturing extension services in developing and developed
countries is to improve SMEs’ productivity and thus to help closing the productivity gap
between SMEs and larger firms. Manufacturing extension services achieve this by promoting

15
collaboration, innovation, and competitiveness. In manufacturing firms, the link between
process and organizational innovation and shop floor productivity growth requires “learning
by doing,” and sometimes more productive firms’ partner with SMEs to facilitate knowledge
transfer in their workshop (Andes, Ezell, & Leal, 2013).

In order to increase the performance of MSEs with entrepreneurial, innovative, good

managerial and leadership skill, it is advised and recommend for the supporter by (Muluken,
Tomas, Shimelis, & Serajul, 2016) as follows:

MSEs are exposed to a lot of challenges which are interrelated and complicated. The root
causes of most challenges are due to less implementation of the policy on the ground.

Therefore, in order to resolve and minimize these challenges, there should be an integrated
business development service that could involve different sectors which could have more
related role in the area.

To transform MSEs in to medium enterprises the cluster monitoring and evaluation model is
very essential. This model is built with two parties; the PDCA model (Plan-Do-Check-Act)
developed by Deming (1986) and integration of Government institutions, Enterprises cluster,
and Education and Training institutions to support with industry extension service (Muluken,
Tomas, Shimelis, & Serajul, 2016).

Fig 2. 3 BDS monitoring and evaluation model

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Source: Deming, (1986) and Researcher Muluken et al, (2016)

2.11 Conceptual framework

The conceptual framework for the study of assessing the impact of industry extension service
on the business performance of micro and small enterprises in Nefas Silk Lafto Sub-City can
be structured around the following key elements:
Industry Extension Services: This refers to the services provided by industry extension
agents, such as training, mentoring, and advisory services, to micro and small enterprises in
Nefas Silk Lafto Sub-City.
Business Performance: This refers to the economic and financial outcomes of micro and
small enterprises, such as sales revenue, profitability, and growth.
Business Characteristics: This includes variables that may influence business performance,
such as business size, age, sector, and ownership structure.
External Environment: This includes variables related to the external environment in which
micro and small enterprises operate, such as market conditions, competition, and government
policies.
Mediating Factors: These are factors that may affect the relationship between industry
extension services and business performance, such as business skills and competencies,
access to finance, and support from family and social networks.
The conceptual framework should help to guide the data collection and analysis process by
identifying the relationships between the different elements and how they may influence each
other. By examining these relationships, the study can provide valuable insights into the
impact of industry extension services on the business performance of micro and small
enterprises in Nefas Silk Lafto Sub-City.

17
3. RESEARCH METHODS AND PROCEDURES

Research method includes how to take sample from population, how to determine sample
size, the way data will be collected and analyzed.

3.1 Description of the Study Area

According to January 2021 enterprise data of GIC, Industry Extension Service office, there
are 638 micro and small enterprises. 316 Existing and 322 new enterprises gets follow-up in
IES packages. From this manufacturing 154, construction 128, urban agriculture 38, service
and trade 318 enterprises were IES beneficiaries from GIC.

Nifas Silk Lafto Sub-City, Gofa Industrial College catchment area which the study will focus
is in an area of 4,739.03ha and it is sub-divided in to 8 woredas. The MSEs were supported
by Gofa Industrial College. Industry extension service is only performed by the government
Colleges. GIC and 8 MSEs Development offices of each woreda have clustered each MSEs
to belong to College based on geographic convenience. Hence Nifas Silk Polytechnic College
implements industry extension services to MSEs in part of Nifas Silk Lafto Sub-City
woredas, and GIC Implements Industry Extension Services in woreda 01 Lebu and Jemo, 02,
03, 04, 05, 06 and 012. So, in general the support is a package of industry extension package
and this takes place according to their geographical location. Therefore, the trainer has a
responsibility of 40 % in supporting MSEs with industrial extension service, 60% on giving
training for trainees in the TVET College. The trainers’ performance appraisal is also
evaluated based on their efficiency of industry extension service to MSEs and on training in
the College trainers.

3.2 Research Design and Approach

The purpose of this research will be to evaluate the impact of IES on the business
performance of MSEs in Nefas Silk Lafto Sub-City and identify the factors that influence its
effectiveness. The study employs a mixed-methods approach, including a survey of MSEs in
Nefas Silk Lafto Sub-City and interviews with IES providers and MSEs. The survey data is
analyzed using descriptive statistics and regression analysis.

The research design for the study of assessing the impact of industry extension service on the
business performance of micro and small enterprises in Addis Ababa will be used a
combination of cross-sectional and longitudinal design.

18
Cross-Sectional Design: This design involves collecting data from a sample of micro and
small enterprises in Addis Ababa at a single point in time. This design can provide a snapshot
of business performance and industry extension service utilization, but it does not capture
changes over time.
Longitudinal Design: This design involves collecting data from the same sample of micro and
small enterprises in Addis Ababa at multiple points in time, such as before and after they
receive industry extension services. This design can capture changes over time and provide
stronger evidence of causality between industry extension service utilization and business
performance.

3.2 Methods of Data Collection

Both quantitative and qualitative forms of data at the same time during the study and then
integrate the information in the interpretation of the overall results (Creswell, 2009).

The source of data for the study is a primary and secondary data. The primary data will
collects through field survey of MSEs, GIC trainers, small and micro enterprises officers or
the Department. So, data are collected by using a questionnaire from respondents, interview
questions and observation.

The data collection instruments are questionnaire, interview and observation. A questionnaire
was distributed to MSE owners/managers, GIC department heads, IES experts and woreda
MSEs IES experts. The questionnaire of MSEs is translated into Amharic language and
finally in the analysis part it was back to the English language. While the department heads
and experts were also be a self-administered questionnaire. A self-structured interview was
prepared for industry extensions Technology transfer vice Deans and micro and small
enterprise development department.

One of the mechanisms for data gathering instrument for this study will be an observation
and during the data collection time, different documents and files will be observed and
recorded by using a notebook and phone digital camera.

3.4 Target Population

The target population for the study will be the owners & managers of manufacturing,
construction, urban agriculture, service and trade micro and small enterprises in Nefas Silk
Lafto Sub-City and it is indicated in corresponding to each Woredas as follows in the table.

19
Table 3. 1 Total SMEs per woredas’

No. Woredas
Enterprises Total
Lebu Jemo 02 05 06 012
1 Manufacturing 15 185 193 172 147 177 889
2 Construction 146 39 20 3 15 0 223
3 Urban Agriculture 0 67 98 27 0 32 224
4 Service & Trade 27 0 90 64 376 351 908
Total 188 291 401 266 538 560 2,244
269 256 219
227

Source: Gofa Industrial College Industry Extension Service and Technology Transfer
Department 2023 existing enterprise data.

3.5 Sampling Techniques

The researcher employed both probability and non-probability sampling techniques. Under
nonprobability sampling, the organizers of inquiry purposively choose the particular unit of
the universe for constituting a sample on the bases that the small mass that they select out of a
huge one can be typical or representative of the whole (Kothari, 2004). So, in Nefas Silk
Lafto Sub-City MSEs are distributed through 12 woredas. Therefore, seven (7) woredas’
select purposively. In purposive sampling the sample units based on certain criteria.
The gov`t gives more emphasis for MSEs and job creation, TVET Colleges provide IES for
micro and small enterprises and GIC supporting their corresponding woreda is the main
criteria to choose purposively. Therefore, 01 lebu and jemo, 02, 03, 04, 05, 06 and partially
012 woredas will have taken as a sample frame were selected because of their geographic
convenience of the selected woredas to support in implementing industry extension services.
The researchers will also employed a proportionate stratification that is based on the strata’s
share by considering the total population of manufacturing, construction, urban agriculture,
trade and service enterprises in Nefas Silk Lafto Sub-City. The total small and micro
enterprises in Nefas Silk Lafto Sub-City was actively operating 2,244 and there are 889
manufacturing, 223 construction, 224 urban agriculture, 908 service and 119 trade enterprises
in the selected woredas.

20
3.5 Sample size Determination
The sample size is determines by using (Yamane, 1967) formula, by taking the sample frame
from all registered micro and small enterprises and determining the sample by multiplying
the proportion as described below.

Where n= sample

N= total population

e= is the level of precision=5%

Six woredas are selected purposively by considering; GIC supporting their corresponding
woreda is the main criteria to choose purposively MSEs and accordingly which will be
selected for a better representation of the sample. Therefore, a sample frame of 2,244 MSEs
owners are selected. Sampling frame consists of a list of items from which the sample is to be
drawn. If the population is finite and the time frame is in the present or past, then it is
possible for the frame to be identical with the population (Kothari, 2004). In this case, the
population for the sample frame N= 2,244 and with confidence level of 95% and acceptable
error (precision) of 5%, e= 0.05

n=2244/1+2244(0.05)2, n = 340

The individual participant of MSEs will be selected by simple random sampling from each
selected woreda, College trainers of selected fields, woreda MSEs Development officers, 1
industry extension deans, 5 industry extension officers purposively selected and College
trainers will be selected from furniture making, garment, textile and GMFA, construction,
urban agriculture, trade and service department. So, based on the trainers’ data from each
GIC trainers will be selected. Questionnaires are prepared and distributed for MSEs, College
deans, woreda MSEs Development officers and trainers. For the interviewee industry
extension and technology transfer vice dean and one woreda MSEs Development officers
were purposively selected and interviewed.

21
3.6 Summary of data sources
Data will be collected from different bodies starting from woreda MSEs Development
industry extension officers, TVET trainers on specific field like Garment and textile, furniture
making, General metal fabrication assembly( GMFA), urban agriculture, construction, trade,
service, Technology transfer industry extension vice deans and MSEs owners for the study
and it summarizes as follows in the table.

Table 3. 2 Number of respondents

Woredas Number of respondents and Method of data

Informants collection
MSEs owners 340 Questionnaire
Trainers from GIC 10 Questionnaire
IES officers 6 In Depth interview
Industry extension Technology 1 In Depth interview
transfer vice dean
Total 357

Source: Researcher own construction, 2023

3.7 Data Analysis Technique

The data will be analyzed by using both descriptive and inferential statistics analysis
technique. In Descriptive statistics, used to summarize & describe the business performance
and industry extension service utilization of MSEs.

In inferential statistics, a regression analysis was used to determine the relationship between
industry extension service utilization and business performance and to identify the factors
that mediate the relationship.

The primary data which collects from MSEs and trainers with questionnaires were interpreted
by using a statistical package for social science (SPSS) version 23 software) and a simple
regression analysis and correlation will be done by the software in respecting to independent
variable.

22
WORK PLAN AND BUDGET

Work plan
Months
Activities May May May May

Serial
Numbe
r
2 Problem identification
3 Proposal preparation
4 Questionnaire
preparation
5 Data collection
6 Data editing

7 Data analysis
8 Report and present

Budget
Serial Item ETB
Number
1 All required stationary (paper, ink…) 8,000
3 Transport, Telephone bill, internet, other utility cost and per diem 12,00
0
4 Data collection costs 5000

5 Total 25,00
0

23
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