Worku Mandefro Final Thesis MBA Exten.

DEBRE BERHAN UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT
FACTORS AFFECTING TRANSITIONAL DEVELOPMENT OF SMALL SCALE

TO MEDIUM SCALE ENTERPRISE IN DEBRE BIRHAN TOWN
BY
WORKU MANDEFRO
JUNE, 2020
DEBRE BERHAN, ETHIOPIA
(MBA) PROGRAM
FACTORS AFFECTING TRANSITIONAL DEVELOPMENT OF SMALL SCALE

TO MEDIUM SCALE ENTERPRISE IN DEBRE BIRHAN TOWN
Thesis Submitted to Debre Berhan University in Partial Fulfillment for the Award of
Degree in Masters of Business Administration (MBA)
BY
WORKU MANDEFRO
Advisor:
MELAKU DESALEGN (ASS.Prof.)
JUNE, 2020
DEBRE BERHAN, ETHIOPIA
DECLARATION
I,the undersigned, declare that this thesis entitled “Factors affecting Transitional
Development of Small scale to Medium scale Enterprise (Debre Birhan town)” is my
own original work and that all sources have been accurately reported and acknowledge,
and this document has not been submitted for a degree for in any Universities.
Worku Mandefro ______________ ____________
Prepared by Signature Date

Debre Birhan University
College of graduate studies
Letter of Certification
As a thesis research advisor, I hereby certify that I have read and evaluated this thesis
prepared, under my guidance, by Worku Mandefro, entitled “Factors affecting
Transitional Development of Small scale to Medium scale Enterprise : the case of
Debre Berhan Town”. I recommended that it be submitted as fulfilling the thesis
requirement for the degree of Masters of Business Administration (MBA).
Melaku Desalegn (ASS.Prof.) ________________ ________________
Name of Advisor Signature Date

(MBA) PROGRAM
APPROVAL OF THE THESIS
As members of Board of examiners of the final MBA Thesis open defense

examination, we certify that we have read and evaluated the thesis prepared by Worku
Mandefro entitled entitled “Factors affecting Transitional Development of Small scale
to Medium scale Enterprise: the case of Debre Berhan Town” is recommended that the
thesis be accepted as fulfilling the thesis requirement for the degree of Masters of
Business Administration (MBA).
Board of Examiners
External Examiner _________________________ ____________________
Internal Examiner __________________________ _____________________
Chairperson _______________________________ ____________________
Date: ___________
ACKNOWLEDGEMENTS
It is the loveliness, charity, forgiveness, help and kindness of the enormous God that
made me achieve this success, strength and to go through all the difficult time.
. My limitless thanks go to my advisor, Melaku Desalegn (ASS.Prof.) for all his

guidance, insightful comments, patience, and encouragement throughout the process of
the project. Without him, this project can‟t have the present form.
My thanks also to: SMEs owners, staffs who cooperated with me in data collection
without their support I couldn't get good data for my analysis. Also many thank to my
friends, colleagues who encouraged me for my study.
Finally my heart tanks will go to my children's, Mahilet Worku and Daniel Worku
because you are with me in thought.
THANK YOU ALL!
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Table of Contents
Contents Page
CHAPTER ONE ....................................................................................................................................................... 1
INTRODUCTION ..................................................................................................................................................... 1
1.1 Background of the Study ............................................................................................................................. 1
1.2. Statement of the problem ......................................................................................................................... 2
1.3. Research Questions.................................................................................................................................... 4
1.4. Objective of the study ................................................................................................................................ 4
1.4.1 General Objective................................................................................................................................. 4
1.4.2 Specific Objectives ............................................................................................................................... 4
1.5. Significance of the study ............................................................................................................................ 5
1.6. Scope of the Study ..................................................................................................................................... 5
1.7. Organization of the Study .......................................................................................................................... 5
CHAPTER TWO .................................................................................................................................................. 6
REVIEW OF RELATED LITERATURE .................................................................................................................... 6
2.1 .Theoretical Literature Review .................................................................................................................... 6
2.1.1 Definition of SMEs ............................................................................................................................... 6
2.1.2 . SMEs Definition and Enterprises Characterization in Ethiopia .......................................................... 8
2.1.3. Role and contribution of SMEs............................................................................................................ 9
2.2. Challenges of Micro and small Enterprises .............................................................................................. 10
2.2.1. Inadequate finance ........................................................................................................................... 11
2.2. 2. Marketing challenges ....................................................................................................................... 11
2.2.3. Problem of skilled manpower ........................................................................................................... 11
2.2.4. In adequate infrastructure ................................................................................................................ 12
2.2.5. Policy and regulatory challenges....................................................................................................... 12
2.2.6 Working premise and Challenges....................................................................................................... 12
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2.3. Transition from Small to Medium Sized Enterprises ............................................................................... 12
2.4. Concepts of Transitional Developments of Small Scale Enterprises ........................................................ 13
2.4.1 Growth stages, constraints and transitions ....................................................................................... 13
2.5. Theoretical Framework ............................................................................................................................ 14
2.5.1 Storey’s Growth Model ...................................................................................................................... 14
2.5.2 Ansoff’s Growth Matrix ...................................................................................................................... 15
2.5.3 Transition Model ................................................................................................................................ 16
2.6. Empirical Review ...................................................................................................................................... 17
2.6.1 Organization Characteristics and Transition of Small to Medium organizations............................... 17
2.6.2 Organizational Factors and Transition of Small to Medium organizations. ....................................... 18
2.6.3 Environmental Factors and Transition of Small to Medium organizations........................................ 19
2.7. Conceptual Framework ............................................................................................................................ 21
CHAPTER THREE .................................................................................................................................................. 23
RESEARCH METHODOLOGY ................................................................................................................................ 23
3.1. Research design ....................................................................................................................................... 23
3.2.Target Population ..................................................................................................................................... 23
3.3. Sample size determination and Sampling techniques .......................................................................... 23
3.3.1. Sample size determination................................................................................................................ 23
3.3.2. Sampling Design and Procedure ....................................................................................................... 24
3.4. Data source and type ............................................................................................................................... 25
3.5. Data source .............................................................................................................................................. 25
3.6. Data Analysis Techniques and Presentation ............................................................................................ 26
3.7. Mathematical Regression Model ............................................................................................................. 26
3.8 Validity and Reliability of Instruments ..................................................................................................... 27
3.9. Ethical Consideration ............................................................................................................................... 28
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CHAPTER FOUR ............................................................................................................................................... 29
RESULTS AND DISCUSSION.............................................................................................................................. 29
4.1 Descriptive analysis ................................................................................................................................... 29
4.2 Correlation Analysis ................................................................................................................................. 35
4.3. Diagnostics test on regression. ................................................................................................................ 36
4.3.1 Multicollinearity Test ......................................................................................................................... 36
4.3.2 Linearity Test ...................................................................................................................................... 37
4.3.3 Normality test .................................................................................................................................... 38
4.3.4 Homoscedasticity Test ....................................................................................................................... 39
4.3.5. Auto Correlation Test ........................................................................................................................ 41
4.4 Regressions analysis .................................................................................................................................. 41
4.4.1 Regression ANOVA ......................................................................................................................... 42
4.4.2 Multi regression coefficients .............................................................................................................. 43
4.4.3 Mathematical regression ................................................................................................................... 44
4.4.4 Hypothesis testing… ........................................................................................................................... 45
CHAPTER FIVE.............................................................................................................................................. 46
SUMMARY, CONCLUSION AND RECOMMENDATION ................................................................................. 46
5.1 Summary of the Findings .......................................................................................................................... 46
5.2 Conclusions ............................................................................................................................................... 47
5.3. Recommendations ................................................................................................................................... 48
5.4. Recommendation for Future Studies ....................................................................................................... 49
5.5. Limitation of the study ............................................................................................................................. 49
APPENDICES ........................................................................................................................................................ xv
iv
List Of Tables
Table 2.1 Definitions of MSEs in Ethiopia by Regulation No. 201/2011 .............................................................. 8
Table 3.1. The types of Enterprise and Respective Sample size ....................................................................... 24
Table 3.2 Research Variables and Their Corresponding Measures .................................................................... 25
Table 3.3 Reliability Test .................................................................................................................................... 28
Table 4.1 Mean and Standard Deviation of Organization Characteristics ......................................................... 31
Table 4.2: Mean and Standard Deviation of Organizational Factor ................................................................... 32
Table 4.3: Mean and Standard Deviation of Environ mental Factors ................................................................ 34
Table 4.4 the summary of the independent variables ....................................................................................... 34
Table 4.5 Summary of Descriptive statistics for computed study variables ..................................................... 35
Table 4.6 Pearson correlation matrix ................................................................................................................. 35
Table 4.7 Multicollinearity Test.......................................................................................................................... 37
Table 4.8 Autocorrelation Test........................................................................................................................... 41
Table 4.9 Regression model Summary ………………………………………………………………………………………………………….41
Table 4.10. Regression ANOVA ......................................................................................................................... 42
Table 4.11 Regression Coefficients .................................................................................................................... 43
Table 4.12 Summary of Results of Hypothesis Testing ....................................................................................... 45
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List of Figures
Figure 2.1: Ansoff Growth Strategy Matrix2.5.3 Transition Model.................................................................. 16
Figure 2. 2: Conceptual Framework ................................................................................................................... 22
Figure 4.1 linearity Test ...................................................................................................................................... 38
Figure 4.2 Normality test ................................................................................................................................... 39
Figure. 4.3 Homoscedasticity test ..................................................................................................................... 40
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Acronyms and Abbreviation
ANOVA Analysis of Variance
CSA Central Statistics Authority
EC European Commission
EO Entrepreneurial Orientation
ETB Ethiopian Birr
EU European Union
FeMSEDA Federal Micro and Small Enterprises Development Agency
MNCs Multinationals Corporations
MOFED Ministry of Finance and Economic Development

OECD Organization for Economic Co-operation and Development
SD Standard Deviation
GDP- Gross Domestic Product
IFC International Finance Corporation
IS Information System
MFI Micro Finance Institute
SME Small Medium Enterprises
SPSS Statistical Package for Social Science
UNIDO United Nations Industrial Development Organization
UK United Kingdom
WTO World Trade Organization
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ABSTRACT
Small and Medium enterprises (SMEs) play an essential role in the sustainable development of a
country. They help in employment generation, job creation, self-independence, industrial production
increase, and export. However, their transition from one phase to another is faced by many
challenges which inhibit the rate of transition. This study sought to determine the factors affecting
transition of small businesses to medium organizations in Debre Birhan Town, North Shoa zone as a
case study. The study used explanatory research design to determine the factors affecting transitional
development of small scale to medium scale enterprise .The target population was 1044 small and
medium enterprises in Debre Birhan Town and the sample size for the study was 289 respondents
from small and medium sized enterprises. To achieve the objectives of this study, questionnaires were
analyzed using descriptive and inferential analyses with the help of SPSS version 23 statistical
software program. Pearson correlation and multiple linear regression analysis were done to test the
relationship between Organizational characteristics, organizational Behavior and Environmental
factors with Transition of small to medium scales enterprise. The study found out that the findings of
regression result revealed that explanatory variables organizational characteristics ,organizational
factors and environmental factors had positive significant effect on transition of small to medium
scales enterprise in Debre Birhan Town.The study concluded that organizational characteristic of an
enterprise was affected by a number of factors like size of the business, the nature of the business, the
diversity of the business, the characteristics of the market, the characteristics of the strategy and the
future plans of the organizations The study recommended that there should be the knowledge and
skills the people possess to enhance their performance at work, an increase in numbers of employees,
good use of structured marketing information services experience would help them enabling its
transition process and efficient management team.
Key words: Organizational characteristics, Organizational factors, Environmental factor and

Transition of small to medium scales enter enterprise,
viii
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Due to a contemporary highly competitive environment, most governments have seen increasing
awareness and recognition of the role played by Small and Medium Enterprises (SMEs) and their
contribution to the economy (Hlatshwako, 2012). Small and medium enterprises (SMEs) play
significant role in the growth and development of world economy. The need for SMEs consider as a
means of ensuring self-independent, jobs creation, import substitution, effective and efficient
utilization of local raw materials and participation to the economic development (Ong, 2012). SMEs
are also important in many European countries. For instance in the US, also in other industrialized
countries such as Japan, Australia, Germany, French and Canada, Micro, small and medium
enterprises ( MSMEs), and particularly small and medium enterprises (SMEs), are an important
engine of economic growth and technological progress (Thornburg, 1993).
Not only industrialized countries, Low-income countries in Sub-Saharan Africa (SSA) also are well
aware of the positive role that small and medium-sized enterprises (SMEs) can play in their
development. SMEs can innovate, adopt new technology and know-how, create jobs, broaden the tax
base, and diversify risk (Brixioval, 2009). It is estimated that SMEs employ 22% of the adult
population in developing countries. United Nations Industrial Development Organization (UNIDO)
estimates that SMEs represent over 90% of private business and contribute to more than 50% of
employment and of gross domestic product (GDP) in most African countries (UNIDO, 1999).
The worldview of SMEs as an index of technological backwardness or as a sign of industrial

backwardness is changing tremendously with time. Indeed, in many developed and developing
nations of the world, SMEs are now appreciated as a necessary complement to the industrial structure
of any modern economy (AU, 2010). The Growing SMEs conference is the international setting for
both entrepreneurs starting or growing a business in emerging markets and investors seeking for high
potential business plans and committed entrepreneurs. Together with experts on different fields,
networkers and business centers, they gather to connect exchange and ultimately invest (AU, 2010).
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SMEs have become important urban economic activities particularly in providing urban employment.
In similar fashion, in cities and towns of Ethiopia, SMEs and the informal sector are the predominant
income generating activities and thus they have a significant contribution to local economic
development and used as the basic means of survival (Gebre-egiziabher&Demeke, 2004
The extant literature has attributed the dismal contributions of Micro and Small Enterprises (MSEs)
to GDP and employment in most economies, the effectiveness of the sector depends on the nature,
performance and available resource. Lack of working premises, Limited access to financial services,
lack of market, absence of technical and business skills are among the major obstacles of the sector
(Muleta 2016). Thus, this paper try to assess the different policy, financial and operational
determinant factors affecting transitional development of Small Scale to Medium Scale Enterprise in
Debre Berhan Town:
1.2. Statement of the problem

Most developing countries like Ethiopia have been formulated and implemented different Micro and
Small Enterprise development strategy to support the development of the sector, thereby transforming
economies and generate substantial employment opportunities. As per Berhanu (2014), Micro and
small enterprises sector are major income generating and basic means of survival for the poor.
Despite the mentioned facts above, the growth of MSEs faces a number of constraints that hinders its
rapid growth and development at one hand and its ultimate goal of reducing poverty and unleashing
its potential contribution to the national economic transition. The challenges that undermine the
growth of MSEs in Ethiopia include among others access to technology, adequate skills, capital and
lack of conducive and working markets. The negative attitude towards MSEs by the people is also a
core challenge. The attitude challenge takes different manifestations of which the most important are:
The attitudes that considering engagement in MSEs is a sign of poverty and backwardness and
discounts their potential role because of this narrow perspective, preference for paid employment,
dependency (an expectation of receiving subsidies and charity rather than working and investing in
one„s own future) is seen manifesting among the society and those who participate in MSEs in
Ethiopia (ministry of urban development and housing 2016)
In Ethiopia according to (Assefa, et.al., 2014) key constraints of Micro and Small Enterprises
includes―access to finance, collateral challenges, marketing challenges, working and sales space
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constraints, institutional coordination problem, attitudinal challenges, licensing and registration
challenges, capital goods and machinery challenges‖. While major challenges identified by ministry
of urban development and construction ( 2013) are access to finance, access to land or work or work
space, access to input, lack of managerial skill, lack of technical knowledge access to market . Among
these the major ones are lack of finance (42%), lack of working premise (28.3%) and lack of access to
market or absence of linkage to market (18.1%) among others like access to input , lack of managerial
skill and lack of technical knowledge.
Several studies have been identifying factors affecting performance of Micro and Small Enterprises in
different regions of Ethiopia. For instance the findings of Seyoum (2015) shows that external factors
those influence the performance of enterprises are location of working premises, access to credit,
training, market .While study conducted by (Kefyalew and Jembere, 2016) Micro Finance Institutions
in Wolaita and Dawro zones revealed that MSEs operators do not access adequate loan for business
start-up, a long bureaucratic procedure to secure the credit and lack flexibility in loan repayment
arrangements in formal lending institutions compared to the informal sources. Moreover, high
collateral requirement the interest rate charged by formal institutions is high to credit access. Hence,
Micro and Small Enterprise operators are forced to use the informal institutions as a source of
finance. While critical problems of the MSEs sector in Addis Ababa include Market-related
problems, Institution-related problems and Financial factor Admasu, (2016).
The five year Growth and Transformation Plan envisages ensuring faster and sustained development
of the industrial sector and enabling the sector to gradually play a key role in the economy. To this
end, particular emphasis is given to the promotion of micro and small enterprises as well as
supporting the development of medium and large scale industries. Focus is laid on creating favorable
conditions to export oriented and import substituting industries so as to accelerate structural changes
in the sector. (MOFED, 2012)
In a normal process micro and small scale enterprise have to develop from one level of growth to the
next level of growth that means from micro to small, from small to medium, and from medium to
large scale enterprise by fulfilling the criteria needed. When it is developed from small scale to
medium scale, creates employment opportunity, facilitates industrial development, it becomes
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independent from government support and leave the place for new micro enterprise. So, if this
process is continues, the development of industries will be fast and its contribution for economic
growth also increases. But for some different reason this process is not properly applicable especially
from small scale to medium. The transitional development of small scale to medium scale enterprises,
changes over time in their employment and output shares, market orientation and location are usually
thought to be related to many factors, including, Lack of access to finance, lack of access to working
area., lack of infrastructure facilities, lack of training entrepreneurial and management skill. Given
this thought, the most important questions will be addressed in this paper is the factors affecting
transitional development of Small Scale to medium scale enterprise in Debre Berhan Town.
1.3. Research Questions

On the bases of the above statements of the problem, this research attempts to address the following
questions.
1. What are the effects of organizational factors on transition of Small Scale to Medium Scale
Enterprise in Debre Berhan town?
2. What are the effects of organizational characteristics on transition of Small Scale to Medium
Scale Enterprise in Debre Berhan town?
3. What are the effects of environmental factors on transition of Small Scale to Medium Scale
Enterprise in Debre Berhan town?
1.4. Objective of the study

1.4.1 General Objective
The general objective of this study was to examine the factors that affect the transitional development
of Small and medium enterprises located in Debre Berhan Town.
1.4.2 Specific Objectives

1) To determine the effect of organizational factors on transitional development of Small Scale
to Medium Scale Enterprise.
2) To investigate the effect of organization characteristics on transition of Small Scale to
Medium Scale Enterprise.
3) To examine the effect of environmental factors on transition of Small Scale to Medium Scale
Enterprise.
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1.5. Significance of the study
The study would be helpful to small and medium business enterprises, consultants, policy planners
and government agencies that need to gain a better understanding into the main challenges facing
SMEs transitional development in this city. It should also bring about insights into the needed support
for the SMEs sector. This study also serve as a spring board for other studies, which may focus on
similar topics and issues, related to factors on transitional development of Small Scale to Medium
Scale Enterprise. In addition, the findings of this study will help SMEs in Debre Berhan Town and
others, with in an insight into the benefits of using different factors studied in this research to predict
the factors that affect the transitional development of Small Scale to Medium Scale Enterprise.
The findings of this study might contribute to future scholars and academicians as it will act as
empirical literature which can be referenced besides suggesting areas for further research.
1.6. Scope of the Study

This study concerned to examine the factors affecting the transitional development of small scale to
medium scale enterprise in Debre Berhan Town. Even if there were so many factors that affect the
transitional development of Small Scale to Medium Scale Enterprise, this research was delimited to
firm specific factors and business environment factor. In addition, this study has given more
information for MSEs that conduct around five types of business sector that are manufacturing,
trade, service, agriculture and construction.
1.7. Organization of the Study

The study was organized into five chapters. Chapter one introduced the study by giving the
background information on the research problem, objectives, research questions and scope of the
study. Chapter two deal with the review of relevant literature on the research problems and concepts
with specific reference to how it applies in organizations. Chapter three discussed the research
methodology adopted for the study and relevant justifications. Chapter four discussed about data
analysis and interpretation and Chapter five also presented the summary, conclusion and
recommendation.
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CHAPTER TWO
REVIEW OF RELATED LITERATURE
In the Literature review part of this study, the number of theoretical and empirical works on Small
and Medium Scale Enterprises which receives a great deal of attention in development kinds of
literature are presented. Accordingly, several development programs and projects have been launched
in many developing countries and emphasis is now shifting towards the development of Small and
Medium Enterprises in order to increase the productivity, employment opportunities, purchasing
power and living standard of their society so as to achieve economic growth and development.
Therefore, countries should have programs to develop this sector of the economy because it is the
engine of growth for every economy especially in all developing countries like Ethiopia (Mekonnen,
2014). In addition to this, there are some conceptual works will done which is used to support the
study by determining factors of affecting transitional development of small scale enterprise to
medium scale enterprise. This chapter comprises of two main sections; these are a theoretical
Literature review and Empirical Literature review.
2.1 .Theoretical Literature Review

2.1.1 Definition of SMEs
There is no universal definition of SMEs throughout countries and they apply different criterion to
define SMEs. Mostly number of employee, turnover, total asset are used as a definition base.SME
defined as none affiliate or subsidiary firm which facilitate certain number of employee, but
according to OECD (Organization for Economic Co-operation and Development) countries number
of employee is not unique definition criteria.(OECD 2005). The size of the enterprise is also used to
classify. 'In United Kingdom (UK), a small enterprise is defined as a unit that has a turnover of £5.6
million, and employs around fifty people. And a medium sized enterprise has a turnover of £22.8
million, and has two hundred fifty employees. Canada defines a small business as one that has around
fifty to hundred employees depending on service and manufacturing respective. And a firm that has
around five hundred employees is classified as a medium sized business. In Japan, for the
manufacturing sector, SMEs are those that employ less than three hundred people or have an invested
capital of less than hundred million yen. In the United States of America, SME means a unit
consisting of one thousand five hundred employees and has a turnover of around $0.75 to 29 million,
6
depending upon the type of business. In the USA a government department called small business
administration (SBA) sets the definition of small businesses. SME definition in EU (2005) stated the
category of micro, small and medium- sized enterprises (SMEs) is made up of enterprises which
employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro,
and/or an annual balance sheet total not exceeding 43 million euro.
In China small enterprises are defined as those that employ fifty to hundred people and medium
enterprises employ hundred one to one hundred fifty people. However a study by (Jiantuo YU et
2005) showed that different SMEs classifications are used for different working sectors (Industry,
Construction, Wholesale and Retail Trade, Post and Telecommunications etc.).
In a study on west African SMEs by (lbrahima,1990) used SMEs classification adopted by

Senegalese charter which states small enterprises which includes micro enterprises characterized by
staff between 1 and 20 employees, annual revenue not exceeding $50,000 for enterprises delivering
services and $100,000 for delivering services and goods. And for medium size enterprises a staff less
than 250 employees annual revenue between US $100, 000 - $30milions without tax and net
investment exceeding US$2milions.
In Nigeria Dr. Mike et al. (2012) defined as 'Small Scale Industry:- an industry with a total capital
employed over 1.0 Million naira, but not more than 50 million naira, including working capital but
excluding cost of land and a labor size of 11 to 100 workers. Medium Scale Industry:- an industry
with a total capital employed of over 50 million naira, but not more than 200 million naira, including
working capital but excluding cost of land and/or a labor size of 101- 300 workers..A study by
(Markus Loewe et al. 2013) showed Egypt SMEs classification based on the number of employees,
'Micro enterprises are individuals or business entities with 1 to 4 employees, Small enterprises are
business entities with 5 to 49 employees, Medium enterprises are business entities with 50 to 99
employees, and Large enterprises are business entities with 100 employees or more'.
Also in Kenya, based on MSE National Baseline Survey (1999), 'MSEs defined as those non primary
enterprises (excluding agricultural production, animal husbandry, fishing, hunting, gathering and
forestry), whether in the formal or informal sector which employ 1-50 people (Ronge et al. 2002)'.
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2.1.2 . SMEs Definition and Enterprises Characterization in Ethiopia
Though Micro, Small and Medium Enterprises (Amare and Raghurama, 2017) constitute the major
share in terms of number in Ethiopia, there is no consistently placed definition for the sub-sector by
different bodies. To align the definition with at least some countries and international organizations,
the country has revised the definition of Micro and Small Enterprises in 2011.
Federal Micro and Small Enterprises Development Agency (FeMSEDA), on the other hand, put the
definition of Micro and Small Scale Enterprises and categorize them from support provision
perspective which contempt Medium Enterprises. With these precincts in defining and characterizing
Micro, Small and Medium Enterprises in Ethiopia, adopting definition of MSMEs with slight
modification is compulsory (Amare and Raghurama, 2017).
Table 2.1 Definitions of MSEs in Ethiopia by Regulation No. 201/2011
Level of the Sector Human power Total asset

enterprise
Industry <5
Micro enterprise < 100000($6000 or E4500)
Service <5
< 50,000($3000 or E2200)
Industry
Small enterprise 6-30 < birr 1.5 million ($9000 or
E70000)
Service
6-30 < birr 500,000($30000 or E 23000)
Source: FeMSEDA, 2011
CSA„s definition is based on the size of employment and extent of automation.

Hence,accordingtoCSA.
8
 Large and medium scale manufacturing enterprises have been classified as establishments
with more than ten employees and using automated machinery. Small enterprises are
establishments that engage less than 10 persons and using power-driven machinery.
 Cottage/handicrafts are household type enterprises located in households or workshops
normally using own or family labor and mostly manual rather than automated/mechanical
machinery.
The limitations of the CSA definition are, it ignores the size of capital and the sectors outside of
manufacturing. Another point worth mentioning is that, while Ethiopia targets Micro and Small
enterprises, many other developing countries target Small and Medium Enterprises (Berihu, Abebaw,
and Biruk, 2014).
Currently, federal micro and small enterprises development agency (FeMSEDA) divided into two
separate agencies Federal Small and Medium Manufacturing Industry Development and Federal
Urban Job Creation and Food Security Agency. According to Regulation No. 373/2016, Federal
Small and Medium Manufacturing Industry Development Agency defined "Small Manufacturing
Industry" means an industry having a total capital, excluding building, from Birr 100,001 to Birr
1,500,000 in the manufacturing sector and engages from 6 to 30 workers including the owner, his
family members and other employees and Medium Manufacturing Industry" means an industry
having a total capital, excluding building from Birr 1,500,001 to Birr 20,000,000 in the
manufacturing sector and engages from 31 to 100 workers including the owner, his family members
and other employees; whereas under Regulation No. 374/2016 Federal Urban Job Creation and Food
Security Agency defined Small Enterprises‖ means an enterprise having a total capital, excluding
building, from Birr 50,001 to Birr 500,000 in the case of service sector or Birr 100,001 to Birr
1,500.000 in the case of urban agriculture, artisanal mining, and construction sector engages from 6 to
30 workers including the owner, his family members and other employees.
2.1.3. Role and contribution of SMEs

The economic importance of SMEs is widely understood in all corners of the globe. They contribute
significantly for job creation (employment), involve in innovative activities and they create
competitiveness in the market. Especially for developing economies they contribute much for
economic growth and poverty alleviation. In the context of poverty alleviation, SMEs help
9
entrepreneurs for income generation in terms of profit margins, and also for income generation in the
form of salaries for employees.
In OECD (Organization for Economic Co-operation and Development) countries, 95% of firms are
SMEs employing between 60% and 70% of workers. In a different report in the enlarged European
Union of 25 countries, some 23 million SMEs provide around 75 million jobs and represent 99% of
all enterprises (European Commission). Similarly in Africa comprising over 90% of African business
operations and contributing to over 50% of African employment and GDP (Okafor, 2006). In Kenya
some estimates showed that there were about 900,000 small and micro enterprises establishments
employing 2 million Kenyans and generating about 14 per cent of the country's GDP (Dolman, 1994).
In Nigeria, SMEs working under agricultural projects were used as an effective strategy for poverty
alleviation. Despite previous failed government programs to alleviate poverty, SMEs working in
agricultural sectors easily create income and employment to the local rural communities which in turn
also reduce displaced people to urban areas (Adepoju, 2012) More experiences in developing world,
for example, in three west African countries (Botswana, Zimbabwe and Mauritius) showed that SMEs
working in various sectors (trade and service, 68%,manufacturing, 15%, construction, 3%) played
much in poverty alleviation( Mukras, 2003).
In general SMEs played a key role in job creation in developed and developing world. Ethiopia, being
the poorest country, the role of SMEs in alleviating poverty is unquestionable and it is also widely
accepted from every stakeholder in the country SMEs are helping much for the community to
survive. Moreover SMEs in Ethiopia are not only aiming for income and employment generation,
rather they are contributing to the welfare and improving the life of society (Mukras, 2003).
2.2. Challenges of Micro and small Enterprises

Sitharam and Hoque(2016) defined the business environment as factors both internal and external to
the organization, influencing the continued and successful existence of the organization. Accordingly
this part assesses the most serious challenges that constrain the development of Micro and small
Enterprises.
10
2.2.1. Inadequate finance
One of the major challenges pointed out as hindering the development and survival of start-up MSEs
is access to finance (MOTI, 1997; Engida,et al,2017;Fadahunsi ,2012). Moudc (2013) and
Tadesse(2014) also identified that financing has become a principal challenge to Micro and Small
Enterprises in Ethiopia; banks in Ethiopia do not provide finance in the form of loan to MSE„s due to
collateral obligations and other requirement.
More over the study conducted by (Kefyalew, 2016)revealed that MSE lack adequate loan to start-up
their business, long process to secure the credit, high collateral requirement and high interest rate of
loan service by lending institutions. Several studies (Abera, 2012; Wolde, 2013; Mebrahtu, 2014;
Alemu, 2015; Admasu, 2016; Gebreyohannes, 2015) pinpointed that the loan MSEs is not sufficient
to start business, run and expand business because enterprises need finance to purchase equipment
and machinery, to expand their market and to cover working capital shortages. Since there is high
interest rate and collateral requirement, most MSEs have been forced to use the informal institutions
for credit. The research conducted by Bernard; Sare, and Musah,(2014) in Ghana also confirms that
high interest rate is the leading factor in constraining MSEs development.
2.2. 2. Marketing challenges

Presence of market for the products and services is one the driving forces behind the success of
Micro and Small Enterprises and some efforts available by the governments; marketing is among the
major challenges for the development the sector. MSEs in Ethiopia are encounter access to sufficient
and sustainable market, lack of suitable working and selling premises and inadequate market
competition and knowledge. Several studies conducted in different regions such
as:Admasu(2016).Abera(2016);BekeleandMezgebe(2016);Engida,etal,(2017);Abera(2012);Sherefa(2
012)also identified that marketing is among the top most severe problems that hinder the
development of micro and small enterprises.
2.2.3. Problem of skilled manpower

For Micro and Small Enterprises, Training is the main means to gain the relevant and business-
specific know-how and abilities to start and grow their own businesses in low and middle income
countries (German Development Institute, 2013).However, studies by Abera(2012);Kebede(2015)
mentioned that Lack of entrepreneurship training is one the hindering factors for the success of their
business.
11
2.2.4. In adequate infrastructure
In most developing countries infrastructural facilities are grossly inadequate Olalekan
(2014).Inadequacy of the physical infrastructure is among the causes of low levels of investment and
unsatisfactory performance of Micro and Small Enterprises. Study conducted by Abdissa and Fitwi
(2016) in south west of Ethiopia, most MSE operators opined that lack of adequate infrastructural
facilities especially insufficient and interrupted electric power and water supply.
Abera(2012);Cherkos( 2017) ; Demeke (2016) also mentioned challenges like interruption of electric
power, interruption of water supply ,lack of road facilities and interruption of telecommunication
service are constraining factors of MSEs development.
2.2.5. Policy and regulatory challenges

Having the right business policy, regulations and related institutions is vital for the health of an
economy (Doing Business, 2014; Belás and Sopková (2016). However, enabling policy environment
itself may not be sufficient to ensure optimal results because the response to the enabling policy
environment depend on, among other things, the degree to which MSE operators can access resources
such as skill, technologies, finance, infrastructure, markets, etc( Ageba and Amha,2006). (Bekele and
Mezgebe, 2016; Abera, 2012) study results reveals that most of the Enterprises are not getting support
from government. (Abera, 2012; Admasu, 2016) also states that bureaucracy in company registration
is the main factor that affects the performance of the sector in addition to unreasonable tax and related
issues.
2.2.6 Working premise and Challenges

For successful and sustainable growth of Enterprises, working premise is one of the main components
(Haile et. al, 2014). However, the shortage of such infrastructure has also been one of the main
obstacles to the development of the sector in many urban areas of the country. For instance, the
findings of (Haile et. al, 2014) shows that MSEs that have own working premise grow faster than
those that operates at rented and at family working premise. In addition, the studies conducted by
Adego( 2014);Berhanu (2014); MoUDC( 2013) and Cherkos et.al (2017 ) states that among obstacles
experienced by entrepreneurs operating MSEs sector is unavailability of work premises.
2.3. Transition from Small to Medium Sized Enterprises

Transition is the progression of a small business unit into a bigger/larger business unit, characterized
by increased market share, market presence, operations, more products and sales leading to higher
profits and growth (Turner, Ledwith, & Kelly 2010). Turner,Ledwith and Kelly (2010) further says
12
that most small and medium sized enterprises started to be established in the early 1990s due to
favorable legislation by the central governments and attractive opportunities that led to rapid growth
rate in the sector as entrepreneurs choose to enter this field. The rules of the economic game favored
small enterprises as compared to the large establishments; such rules included liberal price setting, tax
exemption benefits to small business startups, less administrative controls and wage formation. But as
the small enterprises grew; the rules changed such that the small scale enterprises experienced
difficulties that made them unable to transit and become large business establishments. Some of the
difficulties included economic difficulties leading to decline in production, stiff competition caused
by the ability of large enterprises to advertise and garner the market and the shortcomings of
economic legislation which is difficult for all businesses and it is especially hard for small and
medium enterprises (Turner, Ledwith, & Kelly 2010).
2.4. Concepts of Transitional Developments of Small Scale Enterprises

2.4.1 Growth stages, constraints and transitions
Micro and small scale enterprises remain the very important agent in the economic developments of
one country. They become the bench mark for the transitional development of economy in most
developing countries. The study undertaken by Boaten (2012) affirmed this idea. According to this
study the dynamic role of micro and small-scale enterprises MSEs in developing countries is
indicated as a “necessary engines for achieving national development goals such as economic growth,
poverty alleviation, employment and wealth creation, leading to a more equitable distribution of
income and increased productivity. That is why an attempt to accelerate growth rates in low-income
countries, particularly in Africa gets the attentions of partners and donors of the world. This shows
that MSEs are seen as essential facilitator for economic growth, job creation, industrial development
and poverty alleviation, equitable distribution of income both in developed and developing countries.
In light of the foregoing for economic growth and development, it would appear that a reasonably
large and vibrant SME sector would be highly desirable, especially for underprivileged economies,
which characteristically appear to have smaller and less vibrant SMEs sectors. Size and vibrancy in
turn require that start–up, micro and smaller firms (MSEs) are able to „transit‟ to the next stage that is
into SMEs (Galbraith, 1982; Kazanjian, 1988).
The Hanks et al. (1993) propose four stages model and has received a lot of attention in literature.
Where the first stage is characterized as startup, young and small enterprises with simple
13
organizational structures, the second stage is expansion stage which is slightly older and larger
enterprises with more complex organizational structures. The third is maturity stage. At this stage
enterprise become larger than in the previous stage with more complex structures. The last and fourth
stage is diversification stage at which the enterprise reached the highest level of entrepreneurship.
These stages indicate the evolutionary developments of micro and small scale enterprise.
Essentially, stage models commonly propose that enterprises „transit‟ gradually from one stage to
another such that most, if not all, firms do start small. However, the models also claim that the
transitional process can often be highly challenging since firms experiences different problems typical
of a particular stage of growth. Those firms that are able to resolve the problems are usually able to
transit to the next stage, others may be forced to exit the business environment altogether or remain
ever small. This phenomenon appears well articulated by Berger and Udell (1998). This model is
frequently referred financial growth model in the literature. The authors propose a three stage firm
growth: very small; medium–sized, and large firms.
According to this model, the transition from the very small to the large firm stage is determined
largely by access to confined sources of finance. For instance, in the case of a very small firm,
survival and transit to the medium stage would be determined importantly by the availability, and the
firm‟s accessibility to insider (founder capital, trade credit, etc.) and angel finance. Thus, in the
absence of angels, a very small firm must rely only on insider finance; the model predicts that at this
stage, external debt, such as a bank loan, is highly unlikely due mainly to the firm‟s size, age and
operational capacity
2.5. Theoretical Framework

This study was based on the entrepreneurial business growth theories. The study specifically
anchored on transitional model, Storey‟s Growth model and the Ansoff‟s Growth matrix. These are
discussed in details below.
2.5.1 Storey’s Growth Model

Storey‟s model, strategy is “action taken by the firm once in business” (Storey, 1994). Market
positioning, new product introduction and technological sophistication are the key drivers.
Technological sophistication relates to product innovation and does not include management
Information system (IS). The other two drivers that support growth are a willingness to borrow
money to fund it and to devolve decisions to a management team. Both of these reinforce the
14
importance of the owner‟s attitude towards growth. Churchill and Lewis (1983) identify four firm
related success resources: financial, personnel, systems and business (including customer and supplier
relations). A key message is the need to plan for systems ahead of the stage of growth for which they
are required. They also identify four owner-related factors: business goals, operational skills,
managerial ability and strategic abilities.
However, it is not critical for SMEs to use all these skills at all stages. For example, owners‟ personal
skills become less relevant as the firm grows. The importance of financial resources changes with
business growth. Scott and Bruce (1987) develop Churchill and Lewis‟ (1983) model. They identify
six factors that influence growth: top management role, style, structure, product and market research,
system and controls, and sources of finance. They argue that movement to the next stage is
occasioned by a crisis and suggest it is unlikely that firms require formal management. This is in line
with the first objective of organizational characteristics that indicates how these characteristics affect
the growth and expansion of small enterprises.
2.5.2 Ansoff’s Growth Matrix

The most common model for analyzing the possible strategic directions that an organization can
follow towards growth is the Ansoff Matrix (Kotler, 2000). This strategy was first published in the
Harvard Business Review in 1957 and has remained popular since then. Ansoff‟s Matrix is a strategic
grid that can help firms identify their future strategic direction, and is often used when firms are
planning for growth. The matrix itemizes four basic ways in which a firm can develop its portfolio of
products and markets, but importantly also emphasizes the degree of risk of each approach. To
portray alternative corporate growth strategies, Igor Ansoff presented a matrix that focused on the
firm‟s present and potential products and markets (customers). In this model potential areas where
competencies and generic strategies can be deployed can be depicted in four broad alternatives:
market penetration, market development, product development and diversification.
The market penetration, market development, product development and diversification are all
influenced by the economic status of the country. Successful organizations practice market
penetration, market development, product development and diversification for them to grow but the
success of these strategies towards growth as suggested by Ansoff depends on the economic
environment (Kotler, 2000). The growth matrix is applicable in this study as it helps in understanding
15
the growth challenges hence bringing out the organizational factors that affected the transition of
small enterprises into medium organization. It helps organizations to come up with better strategies
for growth on development of existing and new products as they transition into large organizations.
Product
Existing New
Market Penetration (increase market share) Product development (new
Existing
or improved product)
Market Market Development (new Customers, new Diversification (new products

market segments or new countries for into new markets)
New
existing
Figure 2.1: Ansoff Growth Strategy Matrix
Source: Kotler (2000)
2.5.3 Transition Model
The Transition Model was created by change consultant, William Bridges in 2005 in his book on
"Managing Transitions." The main strength of the model is that it focuses on transition which is
internal as it is what happens in people's minds as they go through change. Change can happen very
quickly, while transition usually occurs more slowly over a long period of time affecting so many
factors of an organization, firm or business unit.
The model highlights three stages of transition that people go through when they experience change.
These are: Ending, Losing, and Letting Go, the second is the Neutral Zone and lastly the new
beginning. Bridges (2010) says that people will go through each stage at their own pace. For instance,
those who are comfortable with the change will likely move ahead to stage three quickly, while others
will linger at stages one or two.
This model was applicable in this study as it shows the transitional challenges that small scale
enterprises and the entrepreneur would go through and the measure that they have to take in order to
16
transition in an orderly manner to a medium sized enterprise. This model looks at the stages of
transitions that organizations go through, thus preparing the organization for better transition.
2.6. Empirical Review

This section looks at the various empirical studies on the factors affecting transitional development of
small scale to medium scale enterprises. They have discussed in accordance with the study objectives
2.6.1 Organization Characteristics and Transition of Small to Medium organizations

The characteristics of an organization often reveal the growth pattern of small firms and how they
transit into medium sized enterprises and eventually large corporations. There are several stages that
organizations often pass through as they grow and transit from one small stage to another bigger
phase of their business operation. According to Ceptureanu, (2015) in the survey regarding resistance
to change in Romanian innovative SMEs from IT Sector; The findings reveal that these stages
included the initial stages of transition where the organization has a single product or service but as it
grows more and more products are made and the organization is known via its list of products. At this
point the organization was characterized by a lot of stresses as the management tries to cover the
costs of running the organization and its process. At this point the key character that (Cardon&
Steven, 2004). Lee (2008) also indicated that the success in terms of business growth and expansion
where business grow to be categorized into medium or large enterprise; majorly depends on the
people within that business unit. If they have knowledge and skills, as well as opportunities for
development, they will be able to improve their jobs and enhance their performance (Lee, 2008).
Manolova, Manev and Gyoshev (2010) in the journal on .In good company: The role of personal and
inter-firm networks for new-venture internationalization in a transition economy, mentioned that in
the last stages as the firm keeps expanding, the organization is characterized by having bureaucratic
systems and a lot of red tapes. With the expansion the decision making process becomes longer and
longer as more people need to put their input before a decision is made. But with these last stages the
firm matures and stabilizes with its operations and production. As the company grows then its
managerial duties and soon handled by professionals who propel the business further (Manolova,
Manev&Gyoshev, 2010).
According to Wataku (2007) while doing a study on the extent to which the adoption of e-commerce
has facilitated business in clearing and forwarding firms in Nairobi. The study found out that many of
17
the Clearing and Forwarding firms have internet and domain addresses but they haven‟t adapted to
the use of e-commerce; yet there are many benefits to using the internet based applications and
operations. Such benefits include improving efficiency, cutting down costs and saving time for other
activities that would improve the performance and profitability and eventually their transition to
medium and large sized business organizations that would yield more revenues (Wataku, 2007).
H1: Organization Characteristics have a significant and positive effect on Transition of Small to
Medium organizations
2.6.2 Organizational Factors and Transition of Small to Medium organizations.

The small sized firms and medium sized firms (SMEs) are backbone of a state which is in the stage of
progress and growth. These play very vital role in the development of any nation and no one country
can complete its growth stages without small and medium sized enterprises. The growth of small
scale and medium scale (SMEs) can be determined by the effectiveness and capabilities of the
company's resources such as labor, capital and knowledge acquired, organized and transformed into
products and services through the activities of the organization, practices and structures (Ruirie,
2012).
A key distinguishing feature of a successful SME is a balanced alignment of the owner or

entrepreneur‟s intention, his/her business abilities, and environmental opportunities that has
contributed to management inaptitude in new firms and is one of the reasons for the low level of
entrepreneurial formation and the high collapse rate of new business enterprises (Olawale, 2010).
Another issue is that the owners (entrepreneurs) of most of small scale enterprises act as managers of
the same enterprises and they treat it as an everyday job, this might not be simple to some of them
leading to losses and closure. Therefore, the majority of the small scales enterprises do not purpose
perform well due to the holdup of decision-making method, deprived association, poor employment,
weak scheming and directing. These factors simple mean that the chances of small scale enterprises
transiting into becoming medium or large enterprises are small. Monetary management of the
majority of the small scale enterprises is established to be very feeble since most small scale
enterprises do not work out total expenses, total proceeds, earnings etc, for they do not keep any
account methodically. Thus for growth and expansion of the small scale enterprises; the management
be it the owners or optimal short term macroeconomic strategies. It may also guide to a more normal
18
switch of policies, creating instability and therefore, pessimistically upsetting macroeconomic concert
(Veiga, 2011).
Another factor is organizational culture; Culture can be considered as an idiosyncratic asset which is
accumulated a long time and can become a source of competitive advantage if it is valuable, rare, and
difficult for competitors to imitate. In addition, it constitutes an important success factor in the growth
process of small scale enterprises owing to its important role in establishing the firm‟s strategic
framework and its influence on other organizational aspects such as the structure, management style
employed at the business, or human resources management. Promoting company culture should make
growth and stability of SMEs easier, thus contributing to establishing a shared organizational vision,
commitment in terms of common projects, team work, autonomy in decision making, and a stimulus
to continuous (Lee, 2008).
The last factor is the access to finances (Leitner, &Güldenberg, 2010) for the SMEs, this is necessary
to produce a fiscal state that enables firms to produce and flourish, grow and expand their activities.
Small scale enterprises in growing countries, though, face important barriers to economics. These
small scale enterprises find it very difficult to assess finances and if they do, the rates are high and the
regulations put in place by financial institutions further restrict them; this inhibits their efforts to
expand and grow into a large enterprise. Financial restraints are superior in growing countries in all-
purpose, but small scale enterprises are mostly controlled by gaps in the fiscal structure such as high
administrative costs, high wear and tear of materials and lack of information inside economic
intermediaries. Better than before admission to money for SMEs can get better fiscal circumstances in
developing countries by promotion novelty, macro-economic softness, and GDP growth (Delberg,
2011).
H2: Organizational Factors have significant and positive effect on Transition of Small to Medium
organizations.
2.6.3 Environmental Factors and Transition of Small to Medium organizations

According to Brown (2007) the growth and transition of small scale enterprises into medium scale
enterprises are affected by its business climate. The legal and regulatory framework as noted by
Krasniqi (2007) is unfavorable to businesses and thus negatively impacts on small firm growth and
transition. Brown (2007) identified competition as one of the major hindrances to the growth and
19
expansion of small firm and small scale enterprises. If governments through their legal avenues do
not protect small scale enterprises against unfair competition by the multinationals corporations
(MNCs) and international companies, then their chances of growth and survival is very minimal.
Ruirie (2012) noted that an unfavorable tax system, complicated rules and regulations can heavily
hamper small firms‟ growth. SMEs do not have the capacity to pay high taxes and unless they are
given tax incentives it will be difficult for their growth and yet their contribution towards
employment of the locals and the youths and GDP cannot be ignored. Krasniqi (2007) showed that
corruption is a major source of the rise in unfair competition. Where big businesses can bribe their
way in while the SMEs cannot hence this greatly affects their growth and hampers their chances of
surviving. He further emphasized that the cost of complying with regulations and increased tax rates
increases small firms‟ expenses while limiting their growth. Likewise, St-Jean et al., (2008) noted
that unfair competition from the informal sector, cumbersome regulations, and tax rates are the main
obstacles on small business growth.
A study done by International Finance Corporation (IFC; 2013), based on responses of more than
45,000 firms in developing countries, found that the top obstacles to their operations are a poor
investment climate, especially red tape, high tax rates, and competition from the informal sector, and
inadequate infrastructure, especially an insufficient or unreliable power supply. Whereas informality
is a major hindrance of small scale enterprises in middle-income countries, an inadequate power
supply is the most important challenge for companies in low-income countries. If governments either
the national or at local areas would ensure adequate and consistent water and power supply, this
would help in the growth of small scale enterprises. A good telecommunication and infrastructure
would greatly help the SMEs to grow in sales volumes, profitability and market presence and in the
end further be sustainable (Lee, 2008).
Ruirie (2012) noted that new technologies improve efficiency, enable greater production, and are a
source of profit for small scale enterprises. Although the initial cost of acquiring the technology
maybe high, the benefits far outweigh the cost and in the long-run it will pay off the business. This is
a worthy investment that would help SMEs to grow and expand their activities. According to Morse
et al. (2007), technological capabilities benefit SMEs in several ways: they enhance SME efficiency
during their production process, reduce costs and wastage of time, and broaden market share, both
20
locally and globally; as the world has become a global village. As noted by Ruirie (2012), a small
business that adopts greater levels of technological sophistication can be expected to grow more
rapidly than a similar firm that does not. Morse et al. (2007) pointed out that low technological
capabilities hinder and discourage SMEs from fully reaching their potential. As noted by Wendel
Clark (2012), countries with high levels of technological growth tend to have high levels of
entrepreneurial growth.
The above information, indicate that there is no clear understanding or specific theory as to whether
SMEs will sustain, grow, succeed, or fail. Scholars have put forward a number of factors concerning
the important elements of the growing firm, such as Storey‟s (1994) identification of three necessary
factors for growth: the entrepreneur, the firm, strategy and the environment as contributing to the
growth of the SMEs. However, there appears to be no unified pattern and one answer that would see
the SMEs flourish but evidence points towards a complex set of interrelated factors that affect small
business growth (Olawale&Garwe, 2010).
H3: Environmental Factors have significant and positive effect on Transition of Small to Medium
organizations.
2.7. Conceptual Framework

Conceptual framework means a written or visual presentation of the main things to be studied that
can be explained either graphically or in narrative form. Previous related works are reviewed to
develop the conceptual framework. The variables that this study focused on will be factors affecting
transitional development of small enterprise to medium enterprise. The actors of SMEs include:
Organizational Factors, Organizational Characteristics and Environmental Factors. Furthermore if the
SMEs achieved positively, the enterprises under study will expand and the Participants have got
improved access to basic needs .This is shown in the following diagram.
21
Dependent Variable
Independent Variable
Organizational
Characteristics
H1
Transition of small to
Organizational Factors medium business
Environmenatl Factors
Figure 2. 2: Conceptual Framework
Source: Adopted from _ (David O, 2016)
22
CHAPTER THREE
RESEARCH METHODOLOGY
3.1. Research design
In this study, explanatory research design was employed to determine how the selected explanatory
variables affect the transitional development of small scale to medium scale enterprise in Debre
Berhan Town. Because of this study emphasis to determine the cause and effect relationship of
selected variables, the researcher was applied to test the research hypothesis and to examine the
relationship between dependent and independent variable by using empirical models.
3.2.Target Population
The target populations of the study were the owners of small-scale business who engaged in
industrial, manufacturing, urban agriculture, trade and service sectors enterprises in the Debere
Berhan Town.
3.3. Sample size determination and Sampling techniques

3.3.1. Sample size determination
Stratified random sampling was used to get information from different sizes of the small enterprises.
Accordingly, 289 respondents were selected from the total of 1044 Small Enterprises. These 289
respondents were selected from service, industrial, manufacturing, urban agriculture and trade sectors
The samples were selected by Taro Yamane, 1967, sample size determination formula and, stratified
random sampling technique. (Kothari, 2004), recommends stratified random sampling because it is
accurate, easily accessible, divisible into relevant strata and it enhances better comparison; hence
representation across strata. The study grouped the population into strata. From each stratum, the
study was used simple random sampling to select the respondents. This sampling design was used
because the population of the study was not homogenous and was to be sub-divided into sub-units
This technique is preferred because it is used to assist in minimizing bias when dealing with the
population. With this technique, the sampling frame can be organized into relatively homogeneous
groups (strata) before selecting elements for the sample. According to Janet (2006), this step
increases the probability that the final sample will be representative in terms of the stratified groups.
23
The strata considered in this study are sectors including: service, industrial, manufacturing, urban
agriculture and trade sectors.
In order to determine sample size Yamane (1967 cited in Abdissaand Fitwi, 2016) finite and large
population sample size formula with 95 % confidence level and 0.05 precision levels is employed.
The formula used to obtain this sample size is presented below.
n= N
1+N (e2)
Where n = sample size
N = population size
e = sampling error (level of precision) \
Accordingly the target population results, the following number of samples.
n= 1044
1+1044 (0.05)2 === 289
Table 3.1. The types of Enterprise and Respective Sample size
Major activities Targeted population Sample size

310 85
Construction
250 70
Manufacturing
390 108
Service
19 5
Trade
75 21
Urban agriculture
Total 1044 289
3.3.2. Sampling Design and Procedure

To select a sample, first the lists of those MSEs that were currently registered and operating in Debre
Berhan Town would be identify as sampling frame by a researcher. Samples has been selected using
stratified random sampling technique, where the entire population was divided in to subgroup (strata)
of manufacturing (Metal & wood work, garment, and agro processing), service (garage, meal and
barber), urban agriculture (cattle fattening, honey production, dairy farm), Trade sector (packed
24
water, soft drinks, goods) and construction works (building material production, cobble stone
production, cobble stone paving). According to Janet (2006), this step increases the probability that
the final sample would be representative in terms of the stratified groups.
3.4. Data source and type

This study was applying both primary and secondary types of data and they have quantitative nature.
The primary sources of this study would be organized MSEs cooperative members who run business
currently. To collect necessary information from the sample population, Stratified random sampling
was carried out using questionnaire. The questionnaire contained closed ended types were designed
and administered. In this study, English version of the questionnaire was translated into Amharic
version (the National language of Ethiopia) and finally the Amharic version of the questionnaire was
distributed to the respondents. The secondary sources of data was gathered from files, pamphlets,
office manuals, circulars and policy papers are used to provide additional information where
appropriate. In addition, variety of books, journals, published and/or unpublished government
documents, websites and reports would be reviewed to make the study fruitful.
3.5. Data source

questionnaires
In order to collect the necessary primary data, closed ended questionnaire was developed to generate
information and data that was used for quantitative analysis. Structured questionnaire was employed
for Micro and Small Enterprise Cooperative member sample respondents of the study area to generate
information and data that had been used identify their views, key challenges of MSEs in the study
area towards answering the research questions. The questionnaire was divided into three parts. They
were about factors affecting transitional development of small scale enterprise to medium scale
enterprise. These questions were looked at the constraints faced by MSEs during of these businesses.
Table 3.2 Research Variables and Their Corresponding Measures
Source
Constructs No. of Items
Organizational David,O.(2016). factors affecting transition 9 items were used

characteristics of small scale businesses to medium to measure this
organizations in Kenya: A survey of variable
clearing and forwarding companies in
Mombasa
David,O.(2016). factors affecting transition 9 items were used
25
Organizational of small scale businesses to medium to measure this
factors organizations in Kenya: A survey of variable
Mombasa
Environmental factors
David,O.(2016). factors affecting transition 7 items were used
of small scale businesses to medium to measure this
organizations in Kenya: A survey of variable
Mombasa
transition from small
to medium sized David,O.(2016). factors affecting transition 3 items were used
of small scale businesses to medium to measure this
enterprises organizations in Kenya: A survey of variable
Mombasa
3.6. Data Analysis Techniques and Presentation

Once the filled questionnaires were received, the data was coded using Statistical package for Social
Sciences Software (SPSS) V23 and then analyzed. The collected data analyzes using statistical
method SPSS which helped develop the means, frequencies, percentages and standard deviation
while doing the analysis. According to Kothari (2004) data analysis and interpretation involves
cleaning up collected research data before undertaking to deduce it so as to give meaningful
interpretation and explanation. Factor analysis was done handling each of the three objectives
Organizational characteristics, organizational factors and environmental factors. Regression analysis
was also used to test for the relationship between the independent variable (Organizational
characteristics, organizational factors and environmental factors) and the dependent variable
(Transition).
3.7. Mathematical Regression Model

The Regression model is: Y= a1 + β1X1+β2X2+β3X3 + ε
Where Y= Transition
a1 = Constant
β1, β2 and β3 are Coefficients of the factors affecting transition of small businesses to medium
organizations in Debre Berhan Town:
ε = error term
X1= Organizational characteristics
26
X2= Organizational factors
X3= Environmental factors
3.8 Validity and Reliability of Instruments

Validity is defined as the extent to which a concept is accurately measured in a quantitative study.
Construct validity refers to whether you can draw inferences about test scores related to the concept
being studied (Roberta and Alison, 2015). Therefore the researcher tried to search different literatures
and select sustainability variables and their measurement. For instance some of the variables taken
from (Abera, 2012; Ugwushi, 2009; Mulugeta, 2014)
Reliability is “a characteristic of measurement concerned with accuracy, precision and consistency”

(Cooper and Schindler, 2006). The reliability of the study was measured so, as to ensure that the data
collected is correct, the method of collection is not compromised and that the questionnaires are
consistent for all the respondents. It is important for the results of the study to be reliable as this can
ensure that they are commercially significant or can be used for academic purposes.
According to Sekaran (2003) the reliability of a questionnaire is measured by how well it measures
that which it keeps to measure. Cronbach Alpha Coefficient is a reliability test which measures the
internal consistency of a multi item measurement scale (Sekaran, 2003). Ideally, the Cronbach Alpha
Coefficient value should be above 0.7 because the closer to 1 that the coefficient value is, the higher
the internal consistency (John and Creswell, 2007)
Reliability analysis was done using Cronbach„s Alpha as the measure. A reliability co-efficient of α ≥
0.7 was considered adequate. In this case, a reliability co-efficient of 0.82 was registered indicating
an Adequate level of internal consistency for the Likert scale used and the instruments selected can
help to show factors that affect transitional development of small scale Enterprise to medium
Enterprises. It can clearly address how these factors affect the transitional development of small scale
Enterprise in Debre Berhan Town.
27
Table 3.3 Reliability Test
Study variables Cronbach’s Items

Alpha value
Organizational characteristics 0.842 9
organizational factors 0.808 10
Environmental factors 0.794 7
transition from small to 0.853 3

medium
3.9. Ethical Consideration

In this study, the researcher conducted ethically because it is one of the main issues for every
research. So that, the researcher ethically considers before collection of data to understand the
respondent‟s willingness, without forced and harmfully to answer the given questionnaire, clearly
explain the purpose of the study, told them not to express their personal information in the answer of
the questionnaire, keep the time when the respondents‟ interest, keep confidential for any things and
researcher was appreciated and thanks for their collaboration.
28
CHAPTER FOUR
RESULTS AND DISCUSSION
This chapter focus on data analysis, presentation, and interpretation of the findings obtained from
data collected through the survey questionnaire to answer the research questions outlined in chapter
one. The responses obtained from the respondents for the measures on the questionnaires were
summarized and presented in the form of tables.
The total sample of the study was 289 owners of small-scale business who engaged in industrial,
manufacturing, urban agriculture, trade and service sectors enterprises in the Debere Berhan Town
and the survey questionnaires distributed for all samples. Out of 289 questionnaires distributed; 267
were returned timely. From returned questionnaires, 7 questionnaires were rejected because of some
of them had missing data and were not fully answered. Therefore, the number of valuable
questionnaires collected with a response rate of 90.96%. Therefore, the researcher is possible to make
further analysis.
4.1 Descriptive analysis

In this section, the respondents answer was presented in the form of a Table. The Tables contain
mean and standard deviation of their response. Mean value provides the idea about the central
tendency of the values of a variable. Standard deviation is to give the idea about the dispersion of the
values of a variable from its mean value. All of the independent variables were measured using five
point Likert scale ("1" Strongly disagree; to"5" Strongly agree). The interpretations of the Likert scale
results are: scores of 1 to2.32 indicate low level; scores of 2.33 to 3.65 indicate medium level, and
scores of 3.66 to 5 indicate high level (Alhakimi&Alhariry, 2014).
As shown in Table 4.1 below the transition of small scale enterprises into medium scale enterprises
are to a great extent affected by the characteristics of business organization often reveal the transition
of small scale to medium scale enterprises with a mean of 4.03 and a standard deviation of 0.80, small
scale enterprises that make good use of structured marketing information and services experience
would help them to attain the firm‟s transition achievement with a mean of 4.01 and a standard
deviation of 0.55, good management exhibited by the management team would help the small
enterprise transit to a medium sized enterprise with a mean of 3.82 and a standard deviation of 0.88,
29
transition from small to medium enterprise is characterized by an increase in numbers of employees
with a mean of 4.36 and a standard deviation of 0.80, the small organization must create structures to
control the whole organization in enabling its transition process with a mean of 3.56 and a standard
deviation of 0.90, transition depends on the knowledge and skills the people posses to enhance their
performance at work With a mean of 4.33 and a standard deviation of 0. 83, transition from small to
medium enterprise is characterized by employing professional staffs with a mean of 4.04 and a
standard deviation of 0.88 ,small scale enterprises owners motivate the employees to attain the firm‟s
transition achievement had a mean of 3.87 with a standard deviation of 0.98 and small scale
enterprises owners with prior business experience as owners tend to correlate with greater
performance would help the small enterprise transit to a medium sized enterprise with a mean of 4.02
and a standard deviation of 0.96.The overall mean value was 4.01 an indication that the respondents
were to a very great extent in agreement with the statements to a very great extent.
From the table 4.1 below transition from small to medium enterprise is also characterized by an
increase in numbers of employees with a mean score of 4.36, is the most important variable that
influences transition in the effects of organizational characteristics. This could be because the
respondents seem to understand the importance of the fact that increased increase in numbers of
employees leads to increased productivity and ultimately growth of their organizations. The small
organization must create structures to control the whole organization in enabling its transition process
had the least score, with a mean score of score of 3.56.
It is possible to conclude the overall mean for the organization characteristics of respondents‟
perception on all independent variable are in the range between 3.56 to 4.36 .This indicates that the
impact of all independents variable on the dependent variable was high level according to the
perception of SMEs Owners/operators.
30
Table 4.1 Mean and Standard Deviation of Organizational Characteristics.
Items Mean Std.

Deviation
The characteristics of business organization often reveal the transition of 4.0337 .80575
small scale to medium scale enterprises.
Small scale enterprises that make good use of structured marketing 4.0187 .55151
information and services experience would help them to attain the firm’s
transition achievement.
Good management exhibited by the management team would help the 3.8277 .88018
small enterprise transit to a medium sized enterprise.
Transition from small to medium enterprise is characterized by an increase 4.3670 .80886
in numbers of employees
The small organization must create structures to control the whole 3.5655 .90446
organization in enabling its transition process.
Transition depends on the knowledge and skills the people posses to 4.3371 .83094
enhance their performance at work.
Transition from small to medium enterprise is characterized by employing 4.0487 .88930
professional staffs.
Small scale enterprises owners motivate the employees to attain the firm’s 3.8727 .98422
transition achievement.
Small scale enterprises owners with prior business experience as owners 4.0225 .96531
tend to correlate with greater performance would help the small enterprise
transit to a medium sized enterprise.
Overall Mean 4.015
Source: Survey questionnaires 2020
As indicated in Table 4.2, educational background and experience affect the transformation of small
scale enterprise to medium enterprise with a mean of 4.07 and a standard deviation of 0. 75,
environmental opportunities affect the transition of the small scale into medium sized firm in the
economy with a mean of 3.78 and a standard deviation of 0.79, the holdup of decision-making
process enables small scale enterprises to achieved the transition to medium scale enter prize with a
mean of 3.82 and a standard deviation of 0.59, the amount of loan size borrowed from MFI& other
lending institutions are sufficient to achieved transition of small scale enterprise with a mean of 2.44
and a standard deviation of 1.00, technological capabilities have benefit for small sized firms by
reducing time wastage costs thus enabling their transition with a mean of 4.47 and a standard
deviation of 0. 76, the government has policies and regulations that promote the transformation of
small enterprise to medium enterprise with a mean of 3.36 and a standard deviation of 1.08, the
government has policies and regulations that promote the transformation of small enterprise to
medium enterprise with a mean of 3.36 and a standard deviation of 1.08 ,the government provides
31
training and development for small scale enterprise to achieve their transition with a mean of 3.16 and
a standard deviation of 0.81 and Acquiring information on the achievement of transforming business
training services will enable business to transform from small scale enterprise to medium scale
enterprise with a mean of 4.25 and a standard deviation of 0. .73.The mean value was 4.10.
The table 4.2 below Acquiring information on the achievement of transforming business training
services will enable business to transform from small scale enterprise to medium scale enterprise has
the highest mean score at 4.25 is the most important variable that influences transition in the effects
of organizational characteristics. The amount of loan size borrowed from MFI& other lending
institutions are sufficient to achieve transition of small scale enterprise had the least score, with a
mean score of 2.44. This indicates that these institutions were not sufficient to achieve transition of
small scale enterprise. It is possible to conclude the overall mean for the organizational factor of
respondents‟ perception on all independent variable are in the range between 2.44 to 4.25 .This
indicates that the impact of most independents variable on the dependent variable was high level
according to the perception of SMEs Owners/operators.
Table 4.2: Mean and Standard Deviation of Organizational Factor
Items Mean Std.

Deviation
Educational background and experience determine the transformation of small 4.0712 .75505
scale enterprise to medium enterprise.
Environmental opportunities affect the transition of the small scale into medium 3.7865 .79195
sized firm in the economy.
The holdup of decision-making process enables small scale enterprises to 3.8202 .59878
achieve the transition to medium scale enter prize.
The amount of loan size borrowed from MFI& other lending institutions are 2.4419 1.00721
sufficient to achieve transition of small scale enterprise.
Small scale enterprises need to prepare for long term tactics that would enable 3.9251 .92684
them expand to medium enterprises.
The government has policies and regulations that promote the transformation of 3.3633 1.08953
small enterprise to medium enterprise
The government provides training and development for small scale enterprise to 3.1648 .81515
achieve their transition.
Acquiring information on the achievement of transforming business training 4.2547 .73239
services will enable business to transform from small scale enterprise to
medium scale enterprise.
Overall Mean 3.6034
32
As indicated in Table 4.3 the transition of small scale enterprises into medium scale enterprises are to
a great extent affected by its accessible information on government regulations that are relevant to
business enterprise enhanced transition of small scale enterprise with a mean of 4.14 and a standard
deviation of 0.67, Competition as one of the major hindrances to the growth of small size enterprises
into medium size enterprises with a mean of 4.04 and a standard deviation of 0.872, the transition of
small scale enterprises into medium scale enterprises are affected by its business climate with a mean
of 4.11 and a standard deviation of 0.785, availability of financial institutions such as insurance for
our business, borrowing, saving and the like will enhance the transition of small scale enterprises to
medium scale enterprises with a mean of 4.31 and a standard deviation of 0.83,agood
telecommunication infrastructure system would greatly help the small firm transition to medium firm
with a mean of 4.09 and a standard deviation of 0.66, new technologies improves efficiency enabling
greater production, leading to high profits for small scale enterprises with a mean of 3.82 and a
standard deviation of 0.91 and technological capabilities benefit small sized firms by reducing time
wastage costs thus enabling their transition with a mean of 4.17 and a standard deviation of 0.76.The
mean value was 4.17 an indication that the respondents were in agreement with the statements.
Availability of financial institutions such as insurance for our business, borrowing, saving and the
like will enhance the transition of small scale enterprises to medium scale enterprises had the highest
mean score at 4.31. This suggests that availability of financial institutions have made the business
organizations to enhance the transition of small scale enterprises to medium scale enterprises. New
technologies improves efficiency enabling greater production, leading to high profits for small scale
enterprises had the least mean score at 3.82.
It is possible to conclude the overall mean for the environ mental Factors of respondents‟ perception
on all independent variable are in the range between 3.82 to 4.31 .This indicates that the impact of all
independents variable on the dependent variable was high level according to the perception of SMEs
Owners/operator
33
Table 4.3: Mean and Standard Deviation of Environ mental Factors
Items Mean Std. Deviation

Accessible information on government regulations that are relevant to 4.1461 .67530
business enterprise enhanced transition of small scale enterprise.
Competition as one of the major hindrances to the growth of small size 4.0412 .87261
enterprises into medium size enterprises
The transition of small scale enterprises into medium scale enterprises 4.1199 .78560
are affected by its business climate
Availability of financial institutions such as insurance for our business, 4.3146 .83974
borrowing, saving and the like will enhance the transition of small
scale enterprises to medium scale enterprises.
A good telecommunication infrastructure system would greatly help 4.0936 .66224
the small firm transition to medium firm.
New technologies improves efficiency enabling greater production, 3.8240 .91915
leading to high profits for small scale enterprises
Technological capabilities benefit small sized firms by reducing time 4.1798 .76426
wastage costs thus enabling their transition.
Overall Mean 4.1027
As indicated in Table 4.4 below the of number of product has increased had a mean score of 4.18 and
a standard deviation of 0.72, the turnover has increased a mean of 4.19 and a standard deviation of
0.78 and the number of employees has increased mean of 4.14 and a standard deviation of 0.67. This
indicates that a great number of the respondents felt that the turnover has increased was more
important. This probably due to the fact that most of the firms can easily related to increased turnover
as a measure of success.
Table 4.4 the summary of the independent variables
Items Mean Std. Deviation

The number of product has increased 4.1835 .72030
The turnover has increased 4.1910 .78821
The number of employees has increased 4.1423 .67888
Valid N (list wise)
The overall mean for the responses of all independent variable were in the range between3.66 to 5
this indicates that the impact of all independents variable on the dependent variable is high level
according to the perception of respondents. The overall mean for the organizational characteristic was
34
4.01, the overall mean of organizational factors was 3.603 and the overall mean of environmental
factors was 4.10, this implies that the effect of organizational characteristic, organizational factors
and environmental factors on the transition from small to medium enterprise was towards high level.
Table 4.5 Summary of Descriptive statistics for computed study variables
N Minimum Maximum Mean Std. Deviation

Organizational characteristic 267 2.67 5.00 4.0874 .35640
organizational factors 267 2.67 5.00 3.9896 .40850
Environmental factors 267 3.00 5.00 4.1448 .31682
transition from small to medium 267 2.67 5.00 4.1723 .39349
Valid N (listwise) 267

4.2 Correlation Analysis

In this study Pearson‟s correlation coefficient was used to determine whether there is significant
relationship between the dependent variable and each of the independent variables. The dependent
variable for the study was transition while the independent variables Organizational Characteristics,
Organizational Factors and Environmental Factors. Correlation which is a statistical technique
employed in this study to show the strength of pairs of variable is used to examine the association
between the independent variables above with the dependent variable. The correlation test was
conducted at the 5% level of significance with a 2-tailed test. The strength of the correlation is
measured based on the Pearson correlation scale. The correlation coefficient ranges from -1.0 to +1.0
and the closer the coefficient is to +1 or -1, the more closely the two variables are related. .
Table 4.6 Pearson correlation matrix
transition from Organizational organizationa Environme

small to characteristics l factors ntal factors
medium
transition from Pearson 1 .562** .558** .560**

small to medium Correlation
Sig. (2-tailed) .000 .000 .000
N 267 267 267 267
Organizational Pearson .562** 1 .358** .161**
35
characteristics Correlation
Sig. (2-tailed) .000 .000 .009
N 267 267 267 267
organizational Pearson .558** .358** 1 .310**

factors Correlation
Sig. (2-tailed) .000 .000 .000
N 267 267 267 267
Environmental Pearson .560** .161** .310** 1

factors Correlation
Sig. (2-tailed) .000 .009 .000
N 267 267 267 267
**. Correlation is significant at the 0.01 level (2-tailed).
The correlation analysis results obtained in the study show that all independent variables had a strong
positive and significant correlation with business transition. The Table 4.6 above indicates that
Organizational characteristics and transition from small to medium(r =.562,p< 0.01), organizational
factors and transition from small to medium(r =.558, p < 0.01), Environmental factors and transition
from small to medium(r = . 560, p < 0.01), there is a statistically significant relationship between
independent variables and independent variable This finding was coherent with the result of (David
O., 2016) concluded that independent variables namely organizational factors, organizational
characteristics and environmental factors have strong relationships with transition from small to
medium.
4.3. Diagnostics test on regression.

4.3.1 Multicollinearity Test
Multicollinearity is used to describe the correlation between independent variables. If there is a high
correlation between two or more predictor variables, may cause problems when trying to draw
inferences about the relative contribution of each predictor variable to the success of the model
(Pallant, 2010). Multicollinearity in this study was tested using Variance Inflation Factor (VIF) value
36
and tolerance value. If the tolerance value closed to 1 and VIF value is around 1 and not more than
10, it can be concluded that there is not Multicollinearity between an independent variable in the
regression model (Pallant, 2010). In theTable below 4.7 shows there was no Multicollinearity exist.
Table 4.7 Multicollinearity Test
Collinearity Statistics
Model
Tolerance VIF
Organizational characteristics .869 1.151
organizational factors .806 1.241
Environmental factors .901 1.110
Source: Source: Survey questionnaires 2020
4.3.2 Linearity Test

In multiple linear regressions, the first assumption to be tested is linearity. Linearity means the
relationship between dependent and independent variables is to be linear. This relationship
characterized by a straight line. Linearity allows the researcher to predict the dependent variable
based on one or more several independent variables. The assumption is checked through a scatter plot
by looking at whether the two variables approximately form a straight line. Therefore, to determine
the linear relationship between a dependent variable (transition from small to medium) and
independent variables (Organizational characteristics, Organizational factors and Environmental
factors) through the scatter plot. The plots do not show any evidence of non-linearity; therefore, the
assumption of linearity is satisfied.
37
Figure 4.1 linearity Test
Source: SPSS output of the questionnaire survey, 2020
4.3.3 Normality test

One of the basic assumptions for multiple linear regressions is normality. Normality assumes that the
data to be normally distributed. The normal distribution of data characterized bell-shaped means that
the data has spread evenly so that it can represent the population. Data that is not normal, can be
distinguished by the level of skewness, that is, the data tends to skew to right (negative skewness),
left (positive skewness). Data that is normally distributed, it is symmetrical that median, mean, and
the mode have zero skewness (Ainiyah & Deliar, 2016). The histogram for Organizational
characteristics, Organizational factors and Environmental factors respondents shows that how the data
is distributed, so from the histogram the researcher can concluded that the data was normally
distributed. Therefore, the assumption of normality was satisfied.
38
Figure 4.2 Normality test
4.3.4 Homoscedasticity Test

Homoscedasticity refers to equal variance of residuals (errors). For a basic analysis it is worth
plotting ZRESID (Y-axis) against ZPRED (X-axis), because this plot is useful to determine whether
the assumptions of random errors and homoscedasticity have been met. Decision rule: If there were
certain variant, such as organize shaping dot (waves, fuse and narrow), therefore no homoscedasticity
happened. If there were not certain variant, and dots spreads above and below 0 numbers in axis Y,
then homoscedasticity did happened (Pallant, 2010).The scatter plots for Organizational
characteristics, Organizational factors and Environmental factors show that there was
homoscedasticity. Thus the assumption is reasonably supported in this study.
39
Figure. 4.3 Homoscedasticity test
4.3.5. Auto Correlation Test

Regression analysis is based on uncorrelated error/residual terms of any two or more observations
(Kothari, 2004). This assumption is tested for each regression procedure with the Durbin-Watson test,
which test for correlation between variables residuals. The test statistic can vary between 0 and 4 with
a value of 2 meaning that the residuals are uncorrelated (Field, 2009). A value greater than 2 indicates
a negative correlation between adjacent residuals, whereas a value below 2 indicates a positive
correlation. As a general rule, the residuals are independent (not correlated) if the Durbin-Watson
statistic is approximately 2, and an acceptable range is 1.50 - 2.50 (Muluadam, 2015). In this study
the Durbin-Watson value was 1.803, which was very close to 2, therefore it can be confirmed that the
assumption of independent error has almost certainly been met.
40
Table 4.8 Autocorrelation Test
Model Summaryb
Model R R Square Adjusted R Std. Error of the Durbin-Watson

Square Estimate
1 .782a .611 .607 .24683 1.803
4.4 Regressions analysis

The results are as shown below as illustrated in table 4.9 below regression analysis was conducted to
know by how much the independent variable explains the dependent variable. It is also used to
understand by how much independent variable (Organizational Characteristics, Organizational
Factors and Environmental Factors) explains the dependent variable that is transition from small to
medium. The results of the multiple regression analysis are look like in the following.
Table 4.9 Regression model Summary
Model Summaryb
Model R R Square Adjusted R Std. Error of Durbin-

Square the Estimate Watson
1 .782a .611 .607 .24683 1.803
a. Predictors: (Constant), Organizational Characteristics, Organizational Factors,

Environmental Factors
41
According to the regression analysis results between independent variables (Organizational
characteristics, Organizational factors and Environmental factors) and dependent variable (transition
from small to medium) in Table 4.9. the result showed that Organizational characteristics,
Organizational factors and Environmental factors has the power to explain transition from small to
medium. When considering of the correlation of Organizational characteristics, Organizational factors
and Environmental factors and transition from small to medium and R square 0.611 are take in to
consideration. R square is coefficient of determination or explained variance and it is actually the
square of multiple R ( 0.782)2 besides, it is confirmed that 60.7 percent of Organizational
characteristics, Organizational factors and Environmental factors can explain the dependent variable
i.e. transition from small to medium. This means that 39.3 % of transition from small to medium is
explained by other factors other than Organizational characteristics, Organizational factors and
Environmental factors studied in this research
4.4.1 Regression ANOVA

As shown in table 4.10 below the significance value in testing the reliability of the model for the
relationship between Organizational Characteristics, Organizational Factors and Environmental
Factors with Business Transition was obtained as 0.000 which is less than 0.05 the critical value at
95% significance level. Therefore the model is statistically significant in predicting the relationship
between dependent (business transition) and independent variables of the study (Organizational
Characteristics, Organizational Factors and Environmental Factors). The F value from the table is
137.67 indicating a significant model for the relationship as given by the regression coefficients. This
shows that the overall model was statistically significant and reliable in explaining the influence of
the predictor variables
Table 4.10. Regression ANOVA
ANOVAa
Model Sum of Df Mean Square F Sig.

Squares
1 Regression 25.163 3 8.388 137.674 .000b
Residual 16.023 263 .061
Total 41.186 266
42
a. Dependent Variable: Business Transition
b. Predictors: (Constant), Organizational Characteristics, Organizational Factors, Environmental Factors
4.4.2 Multi regression coefficients

Table 4.11 Regression Coefficients
Coefficientsa
Model Unstandardized Standardized T Sig.

Coefficients Coefficients
B Std. Error Beta

1 (Constant) -.812 .249 -3.257 .001
Organizational .434 .046 .393 9.524 .000

characteristics
organizational .280 .041 .290 6.781 .000
factors
Environmental .505 .050 .407 10.042 .000
factors
a. Dependent Variable: transition from small to medium

The unstandardized coefficient of beta told us the unique contribution of each factors of a model. A
high beta value and a small p value (<0.05) indicate the predictor variable has made a significance
statistical contribution to the model. On the other hand, a small beta value and a high p value (p
>0.05) indicate the predictor variable has little or no significant contribution to the model (Ggorge et
al., 2003).
As shown in the above Table 4.11 that all the variables had a positive and significant influence on
business transition. The results showed, Organizational Characteristics had positive and statistically
significant influence on business transition as shown by the unstandardized beta coefficient (β = 0.43,
(P< 0.05) Organizational Factors also showed positive and statistically significant on business
transition with the unstandardized beta coefficient (β = 0 .280, (P< 0.05). Environmental Factors as
well showed a positive and statistically significant influence with a coefficient of (β = 0.505, (P<
0.05).
43
This finding was coherent with the result of (David O., 2016) concluded that independent variables
organizational factors, organizational characteristics and environmental factors have a positive and
statistically significant influence with transition from small to medium.
4.4.3 Mathematical regression

The specified regression equation takes the following form:
The Regression model is: Y= a1 + β1X1+β2X2+β3X3 + ε

Where Y= Transition
a1 = Constant
β1, β2 and β3 are Coefficients of the factors affecting transition of small businesses to medium
organizations.
ε = error term
X1= Organizational characteristics
X2= Organizational factors
X3= Environmental factors
Finally Organizational characteristics, Organizational factor and, Environmental factors is described

in the form of the multiple regression equation as follows.
Transitions= -0.812 + 0.434 X 1+0.280 X2+ 0.505 X3
The regression equation above has established that taking all factors in to account(organizational
characteristics , organizational factors and environmental factors) constant at zero transition will be
0.812.The findings presented also show that taking all other independent variables at zero, a unit
increase in Organizational characteristics would lead to a 0.434 increase in transition .further, the
finding shows that a unit increase in organizational factors would lead to a 0.280 increase in
transition. In addition, the findings shows that a unit increases in environmental factors would lead to
a 0.505 increase in transition .Overall environmental factors had the highest effect on transitions of
small businesses to medium organizations followed by organizational characteristics and
Organizational factors.
44
4.4.4 Hypothesis testing
The hypothesis test results based on unstandardized coefficient beta and P-value to test whether the
hypothesis to reject or not reject. As shown from above Table 4.11 organizational characteristics, the
P value is statistically significant (P< 0.05) and the unstandardized coefficient beta value is positive
(beta=0.43). Therefore, the result supported the initial hypothesis and infers that organizational
characteristics have a significant and positive effect on transition from small to medium. With regards
to organizational factors, the P value is significant (P< 0.05) and the unstandardized coefficient beta
value is positive (beta= 0.280). Therefore, the result supported the initial hypothesis and infers that
Organizational factors have a significant and positive effect on transition from small to medium. In
addition environmental factors, the P value is significant (P< 0.05) and the unstandardized coefficient
beta value is positive (beta= 0.505). Therefore, the result supported the initial hypothesis and infers
that environmental factors has a significant and positive effect on transition from small to medium.
(David O., 2016) also supported the initial hypotheses of independent variables have a significant
and positive effect on transition from small to medium
Table 4.12 Summary of Results of Hypothesis Testing
Hypothesis Statement of hypothesis P value (Sig.) Result
H1 Organizational characteristics .000 Accepted
H2 organizational factors .000 Accepted
H3 Environmental factors .000 Accepted
45
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION

This chapter present summary of key findings and results, conclusions, and recommendations. Based
on the major findings and results of the study, conclusions are drawn and recommendations are
present.
5.1 Summary of the Findings

The study revealed that the environmental factors of an organization affect transition of small
business to medium sized organizations to a great extent. The study also found out that the
characteristics of business organization often reveal the transition of small scale to medium scale
enterprises. Small scale enterprises that make good use of structured marketing information and
services experience would help them to attain the firm‟s transition achievement. The study
established that transition is characterized by the organization having grown in terms of number of
staff, number of products being manufactured, increased distribution lines, increased presence in the
market and profits. Availability of financial institutions such as insurance for our business,
borrowing, saving and the like enhanced the transition of small scale enterprises to medium scale
enterprises. Transition from small to medium enterprise is characterized by an increase in numbers of
employees for the transition process to take place. Transition depends on the knowledge and skills the
people posses to enhance their performance at work and the need to employees‟ professional staffs.
Further, the study revealed that educational background and experience determine the transformation
of small scale enterprise to medium enterprise., environmental opportunities affect the transition of
the small scale into medium sized firm in the economy and. The study further found out that many
small scale enterprises do not do well due to the holdup of decision-making process. The amount of
loan size borrowed from MFI& other lending institutions were not sufficient to achieve transition of
small scale enterprise. There is also a need for the small scale enterprises to prepare long term tactics
that would enable them expand to medium enterprises. Thus the study established that organizational
factors have an influence in the transition of small scale enterprises into medium organizations
The study further established that the transition of small scale enterprises into medium scale
enterprises are affected by its business climate and accessible information on government regulations
that were relevant to business enterprise enhanced transition of small scale enterprise. Unfair
46
Competition was also one of the major hindrances to the growth of small size enterprises into
medium size enterprises. Competition could be from the multinational and large enterprises that have
more resources who can afford to undercharge., The study further established that, a good
telecommunication infrastructure system would greatly help the small firm transition to medium firm,
new technologies also improves efficiency enabling greater production, leading to high profits for
small scale enterprises. Technological capabilities benefit small sized firms by reducing time wastage
costs thus enabling their transition. Quite clearly therefore the environmental factors influence the
transition of small scale enterprises into medium organizations in Debre Brihan Town to a great
extent.
5.2 Conclusions
Taking the data analysis and the findings in to account the following conclusions could be reached.
Since the transition of small scale enterprise to medium enterprise is as crucial to preserve the flow of
new small businesses into the economy and it will further reduce the unemployment rate and increase
the number of products or services offered to the society. This research was conducted in Debre
Birhan Town with the main objective of critically the factors affecting the Transitional Development
of Small Scale to Medium Scale Enterprise
According to the findings, the organizational characteristic of an enterprise was affected by a number
of factors like size of the business, the nature of the business, the diversity of the business, the
characteristics of the market, the characteristics of the strategy and the future plans of the
organizations. A flexible organizational structure enables the organization to quickly and effectively
respond to the changes in the market. To keep pace with the changing business setting, organizations
are giving a lot of importance to its technical capabilities.
The study concluded that the most important appropriate factors identified are financial, technologies,
infrastructures, policies, regulations, and Competitions are the key business environmental factors
affecting transition of small scale businesses into medium organization. On the other hand,
entrepreneurial characteristics, low managerial capacities, lack of marketing skills, and using un
structured marketing systems are the main internal factors responsible for the unstable and limited
growth of small scale businesses into medium organization
47
In general, the findings of this research show that the MSEs have great roles in industrial
development by playing a base position. There are different constraints which hinder the transitional
development of SMEs in the study area which can be solved in government body and operators
themselves. Therefore, it is important to draw some recommendations that can help to reduce the
problems on SMEs and to encourage the development and expansion of the sectors.
5.3. Recommendations
The main interest of this paper was assessing factors affecting transitional development of small scale
enterprise to medium scale enterprise. On the basis of the major findings of the study, the following
recommendations have been drawn with the view to improve the contributions of SMEs in Debre
Brihan Town.
 In order for small scale business to transits to medium organization, there should be the
knowledge and skills the people posses to enhance their performance at work and an increase in
numbers of employees.
 They should create good use of structured marketing information and services experience would
help them enabling its transition process, enhance knowledge and skills by employing
professional staff and have efficient management team.
 The study further recommends that small scale businesses should efficiently transforms firms‟
resources into products by having quick decision-making process and proper monetary
management.
 It is better that small scale businesses should adopt long term plans for survival and growth this
will ensure that the SMEs survival.
 To make SMEs competitive and profitable, increasing the capacity, knowledge, and skill or
attitude that enables operators to prepare for production activities, through continuous trainings,
experience sharing from successful enterprises, and provision of advice and consultancy should
be crucial
 To play SMEs their roles properly, the government body should strength coordination between
actors in all level and Improve provision of necessary infrastructure
 The types of supports need for the SMEs in each level of growth should be identified and define
to help according to their stage
48
 Responsible bodies should act to tackle the lack of attitudinal change and knowledge or any
motivational mechanism of officers by providing training and motivational mechanism
5.4. Recommendation for Future Studies

The focus for this study was on the transitional development of Small scale to medium level of
growth. It is the researcher‟s view that future research could therefore investigate the other stage
development like from Micro to small, from medium to large and come up with specific findings
which will potentially contribute a lot in the development of the country in general. This study dealt
with internal and external factors that affect the transitional development of SMEs Further research
could target the medium and larger firms that have dominated the markets having graduated from the
SMEs. The field of SMEs is large and very diverse. It is an interesting area with many unresolved
issues. It would be encouraging to get more solutions to many issues arising.
5.5. Limitation of the study

This researcher experienced various limitations for instance the fear by respondents to provide study
information. In this regard the researcher assured all respondents that the information gathered would
be used for academic purposes only. It was also difficult to access data because some respondents
failed to give adequate information. However, the researcher assured them that the information was
confidential and would be used only for academic purpose, the limitation of time for an in-depth
study, respondent unwillingness and carelessness in questionnaires‟ answers.
49
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APPENDICES
Appendix -I
Dear respondent,
My name is Worku Mandefro and I am a graduate student in Debre Berhan University. Currently, I
am undertaking a research entitled ‘Factors Affecting Transitional Development of Small Scale to
Medium Scale Enterprise in Debre Berhanb City .You are one of the respondents selected to
participate on this study. Please assist me in giving correct and complete information to present
representative finding. Your participation is entirely voluntary. Finally, I confirm you that the
information that you share me will be kept confidential and only used for the academic purpose. No
individual‟s responses will be identified as such and the identity of persons responding will not be
published or released to anyone. Thank you in advance for your kind cooperation and dedicating your
time. At last, if you have any questions or comments on this research work, please participate via the
following addresses
Sincerely
Worku Mandefro
EMail: worku mandefro@gmail.com Phone No: +251-91377133
xv
Instruction
 No need of writing your name
PART 1: ORGANIZATIONAL CHARACTERISTICS
1. Below are several statements on organizational characteristics and its impact in transition of a
small scale business into to medium scale enterprises in Debre Berhanb town. After you read each of
the factors, evaluate them in relation to your business and then put a tick mark (√) under the choices
below. Where, 5 = strongly agree, 4 = agree, 3 = undecided, 2 = disagree and 1= strongly disagree.
Statements 5 4 3 2 1
The chara eristics of business organization often reveal the

transition of small scale to medium scale enterprises.
Small scale enterprises that make good use of structured
marketing information and services experience would help them
to attain the firm‟s transition achievement.
Good management exhibited by the management team

would help the small enterprise transit to a medium sized
enterprise.
Transition from small to medium enterprise is characterized

by an increase in numbers of employees
The small organization must create structures to control the

whole organization in enabling its transition process.
Transition depends on the knowledge and skills the people

posses to enhance their performance at work.
Transition from small to medium enterprise is characterized

by employing professional staffs.
Small scale enterprises owners motivate the employees to attain
the firm‟s transition achievement.
Small scale enterprises owners with prior business experience as
owners tend to correlate with greater performance would help
the small enterprise transit to a medium sized enterprise.
xvi
PART 2: ORGANIZATIONAL FACTORS
2. Below are several statements on organizational factors and its impact in transition of small scale
enterprises into medium scale enterprises in Debre Berhan town. After you read each of the factors,
evaluate them in relation to your business and then put a tick mark (√) under the choices below.
Where, 5 = strongly agree, 4 = agree, 3 = undecided, 2 = disagree and 1= strongly disagree
Educational background and experience determine the
transformation of small scale enterprise to medium enterprise.
Environmental opportunities affect the transition of the small

scale into medium sized firm in the economy.
The holdup of decision-making process enables small scale
enterprises to achieve the transition to medium scale enter
prize.
The amount of loan size borrowed from MFI& other lending

institutions are sufficient to achieve transition of small scale
enterprise.
Small scale enterprises need to prepare for long term tactics

that would enable them expand to medium enterprises.
The government has policies and regulations that promote the
transformation of small enterprise to medium enterprise
The government provides training and development for small
scale enterprise to achieve their transition.
Acquiring information on the achievement of transforming
business training services will enable business to transform
from small scale enterprise to medium scale enterprise.
PART 3: ENVIRONMENTAL FACTORS

3. Below are several statements on environmental factors and its impact in transition of small scale
enterprises into medium scale enterprises in Debre Berhan town. After you read each of the factors,
evaluate them in relation to your business and then put a tick mark (√) under the choices below.
Where, 5 = strongly agree, 4 = agree, 3 = undecided, 2 = disagree and 1= strongly disagree
xvii
Accessible information on government regulations that are
relevant to business enterprise enhanced transition of small
scale enterprise.
Competition as one of the major hindrances to the growth of

small size enterprises into medium size enterprises
The transition of small scale enterprises into medium scale

enterprises are affected by its business climate
Availability of financial institutions such as insurance for our

business, borrowing, saving and the like will enhance the
transition of small scale enterprises to medium scale
enterprises.
A good telecommunication infrastructure system would greatly

help the small firm transition to medium firm.
New technologies improves efficiency enabling greater

production, leading to high profits for small scale enterprises
Technological capabilities benefit small sized firms by

reducing time wastage costs thus enabling their transition.
PART 4: TRANSITION FROM SMALL TO MEDIUM SIZED ENTERPRISES
. To what extent has the following factors affected the transition of your business to medium size.
. After you read each of the factors, evaluate them in relation to your business and then put a tick
mark (√) under the choices below. Where, 5 = strongly agree, 4 = agree, 3 = undecided, 2 = disagree
and 1= strongly disagree
The number of product has increased

.
The turnover has increased
The number of employees has increased
Thank you!!!
Appendix -II
xviii
ደብረ ብርሃን ዩኒቨርሲቲ
ቢዝነስና ኢኮኖሚክስ ኮሌጅ
ማኔጅመንት ትምህርት ክፍል
በቢዝነስ አስተዳዳር ማስተርስ ኘሮግራም
መግቢያ
ወርቁ ማንዯፍሮ እባሊሇሁ በዯብረብርሃን ዩኒቨርሲቲ በማናጅመንት ትምህርት ክፍሌ በቢዝነስ
አስተዲዯር የድህረ ምረቃ ተመራቂ ተማሪ ነኝ፡፡ በአሁኑ ሰአት የመመረቂያ ፅሁፌን
በማዘጋጀት ሊይ አገኛሇሁ ፡፡የጥናቴ ርእስም ‹‹በዯብረብሃን ከተማ የሚገኙ አነስተኛ የንግድ
ተቋማት ወዯ መካከሇኛ የንግድ ተቋማት እንዲያድጉ ተፅእኖ የሚያሳድሩ ተግዲሮችን’’
ይመሇከታሌ፡፡እርስዎም ሇዚህ ጥናት እንዱሳተፉ ተመርጠዋሌ፡፡እርስዎ የሚሰጡትን
ትክክሇኛውን መረጃ ሇጥናቱ ውጤታማነት በጣም አስፈሊጊ መሆኑን በመገንዘብ መጠይቁን
በጥንቃቄ እንዱሞለ በአክብርዎት እጠይቃሇሁ፡፡ተሳትፎዎ በእርስዎ በጎ ፈቃዯኝነት ሊይ
የተመሰረተ ነው፡፡በመጨረሻም ማንነትዎ በማንኛውም መሌኩ የማይታምና የማይሰራጭ
ይሆናሌ፡፡ሁለም መረጃዎች ሇትምህርታዊ አሊማ ብቻ ይውሊሌ፡፡
ጊዜዎን ሰውተው ሇሚያዯርጉሌኝ ትብብር በቅድሚያ አመሰግናሇሁ፡፡
በመጠይቁ ሊይ አስተያየት ወይም ጥያቄ ካሇዎት በሚቀጥሇው አድራሻ ይሳተፉ፡፡
ከምስጋና ጋር
ወርቁ ማንዯፍሮ
E Mail: workumandefro@gmail.com Phone No: +2519 13 77 13 33
ማሳሰቢያ - በመጠይቁ ሊይ ስም መፃፍ አያስፈሌግም፡
xix
1.ድርጅታዊ ባህሪዎች
ከዚህ በታች በድርጅታዊ ባህሪዎች ጥቃቅንና አነስተኛ ኢንተርፕራይዞች ወዯ መካከሇኛ
ኢንተርፕራይዞች በመሸጋገር ሊይ ያሇው ተፅእኖ ቀርቧሌ፡፡ በእነዚህ መግሇጫዎች ምን ያህሌ
እንዯሚስማሙ ወይም እንዯማይስማሙ የ(√ ) ምሌክትበማድረግምሊሽይስጡ፡፡፡
5= በጣምእስማማሇሁ 4 = እስማማሇሁ 3 = ሇመወሰንእቸገራሇሁ 2 = አሌስማማም
1 = በጣምአሌስማማም
መገሇጫዎች 5 4 3 2 1
የአንድድርጅትባህርይብዙውንጊዜየአነስተኛእናየመካከሇኛኢንተ
ርፕራይዞችንእድገትያሳያሌ
በዯንብ የተዋቀረ የግብይት መረጃእና የአገሌግልቶ አሰጣጥ
ተሞክሮዎችን በጥሩ ሁኔታ የሚጠቀሙ አነስተኛ ዯረጃ
ኢንተርፕራይዞች የድርጅቱን የሽግግር ውጤት እንዱያሳኩ
ይረዲቸዋሌ ፡፡
በአስተዲዯሩ የታየው መሌካም አስተዲዯር የአነስተኛ ዯረጃ
ኢንተርፕራይዝ ሽግግርን ወዯ መካከሇኛ ዯረጃ ኢንተርፐራዝ
ሽግግር ሇማድረግ ይረዲሌ፡፡
ከጥቃቅንና አነስተኛ ኢንተርፕራይዞች በሚዯረግ ሽግግር
በሠራተኞች ቁጥር መጨመር ይታወቃሌ’፡፡
የሽግግር ሂዯቱን ሇማመቻቸት አነስተኛ ዯረጃ ኢንተርፕራይዝ
ድርጅት መሊውን ድርጅት ሇመቆጣጠር የሚያስችሌ
መዋቅሮችን መፍጠር አሇባቸው፡፡
የዯረጃ ሽግግር የሚወሰነው ሰዎች በሥራ ሊይ እያለ
አፈፃፀማቸውን ሇማሳዯግ ባሊቸው እውቀትና ችልታ ሊይ ነው
የአነስተኛ ዯረጃ ኢንተርፕራይዝ ባሇቤቶች የሠራተኞቹን
ተነሳሽነት ከፍ በማድረግ የድርጅቱን የሽግግር ስኬታማነት
ያበረታታለ ፡፡
ከጥቃቅንና አነስተኛ ኢንተርፕራይዞች ወዯመካከሇኛ
ኢንተርፕራይዞች የሚዯረግ ሽግግር በብቁ ባሇሙያ ሰራተኞች
ቅጥር ይገሇጻሌ፡፡
ቀዯም ሲሌ የንግድ ሥራ ሌምድ ያሊቸው የአነስተኛ
xx
ኢንተርፕራይዝ ባሇቤቶች ከፍተኛ አፈፃፀም የመፍጠር ሌምድ
ያሊቸው በመሆኑ አነስተኛ ኢንተርፕራይዝን ወዯ መካከሇኛ
መጠን ያሇው ኢንተርፕራይዝ ሇማሸጋገር ይረደታሌ ፡፡
ክፍሌ 2.ድርጅታዊ ጉዲዮች
2.ከዚህ በታች በዯብረብርሃን ከተማ ውስጥ ከጥቃቅንና አነስተኛ ኢንተርፕራይዞች ወዯ

መካከሇኛ ኢንተርፕራይዞች የዯረጃ ሽግግር በድርጅታዊ ጉዲዮች ሊይ በርካታ መገሇጫ ያሊቸው
ተጽእኖዎች ይገኛለ፡፡ በእነዚህ መገሇጫዎች ምን ያህሌ እንዯሚስማሙ ወይም
እንዯማይስማሙ የ(√ ) ምሌክት በማድረግምሊሽይስጡ፡፡ 5 = በጣም እስማማሇሁ
4 = እስማማሇሁ 3 = ሇመወሰንእቸገራሇሁ 2 = አሌስማማም1 = በጣምአሌስማማም
መገሇጫዎች 5 4 3 2 1
የትምህርታዊ ዲራ እና ተሞክሮ አነስተኛ ዯረጃ ኢንተርፕራይዝ
ወዯ መካከሇኛ ዯረጃ ኢንተርፕራይዝ ሇመሇወጥ ይወስናሌ፡፡
የአካባቢ ዕድልች ከጥቃቅንናአነስተኛ ኢንተርፕራይዞች ወዯ
መካከሇኛ ኢንተርፕራይዞች የዯረጃ ሽግግር ሊይ ተጽዕኖ
ያሳድራለ፡፡
የውሳኔ አሰጣጥ ሂዯቱ አነስተኛ ዯረጃ ኢንተርፕራይዞች ወዯ
መካከሇኛ ዯረጃ ሽግግርን እንዱያገኙ ያስችሊቸዋሌ፡፡
አነስተኛ መጠን ያሇው ኢንተርፕራይዝ ሽግግርን ሇማሳዯግ ከ
ማይክሮ ፋይናንስ ተቋም እና ከላልች አበዲሪ ተቋማት
የሚበዯር የብድር መጠን በቂ ነው፡፡
ጥቃቅንና አነስተኛ ኢንተርፕራይዞች ወዯ መካከሇኛ ዯረጃ
ኢንተርፕራይዞች ሇማስፋፋት የሚያስችሊቸውን የረጅም
ጊዜስሌቶችን ማዘጋጀት አሇባቸው ፡፡
መንግሥት አነስተኛ ኢንተርፕራይዝን ወዯ መካከሇኛ
ኢንተርፕራይዝ ሽግግርሩን የሚያበረታቱ ፖሉሲዎችና
መመሪያዎች አለት፡፡
መንግስት ሇአነስተኛ ኢንተርፕራይዝ ሽግግራቸውን ሇማሳካት
የስሌጠና እና የማብቃት አገሌግልት ይሰጣሌ፡፡
የንግድ ሥራ ሥሌጠና አገሌግልቶችን የማሸጋገሪያ ስኬትን
በተመሇከተ መረጃ በማግኘት ድርጅቶች ከትናንሽ
ኢንተርፕራዝ ወዯ መካከሇኛ ኢንተርፕራይዝ እንዱሸጋገሩ
ያስችሇዋሌ፡፡
xxi
3.ከባቢያዊ ጉዲዮች
ከዚህ በታች በዯብረብርሃን ከተማ ውስጥ ከጥቃቅንናአነስተኛ ኢንተርፕራይዞች ወዯ መካከሇኛ
አንተርፕራይዞች የዯረጃ ሽግግር በከባቢያዊ ጉዲዮች ሊይ በርካታ መገሇጫ ያሊቸው ተጽእኖዎች
ይገኛለ፡፡ በእነዚህ መገሇጫዎች ምን ያህሌ እንዯሚስማሙ ወይም እንዯማይስማሙ የ(√ )
ምሌክትበማድረግምሊሽይስጡ፡፡ 5 = በጣምእስማማሇሁ 4 = እስማማሇሁ 3 =
ሇመወሰንእቸገራሇሁ 2 = አሌስማማም1 = በጣምአሌስማማም
መገሇጫዎች 5 4 3 2 1
በመንግስት ሕጎች ሊይ ተዯራሽ የሆነ መረጃ ማግኘት አነስተኛ
ኢንተርፕራይዞች ወዯ መካከሇኛ ኢንተርፕራይዞች ሇሚዯረግ
የዯረጃ ሽግግር አስተዋፅኦ አሇው፡፡
ጥቃቅንና አነስተኛ ኢንተርፕራይዞች ወዯ መካከሇኛ

ኢንተርፕራይዞች ሇሚዯረግ የዯረጃ ሽግግር ዋና እንቅፋት
ከሆኑት መካከሌ አንደ ውድድር ነው፡፡
የአነስተኛ ዯረጃዎች ኢንተርፕራይዝ ወዯ መካከሇኛ ዯረጃ
ኢንተርፕራይዝ ሇሚዯረግ ሽግግር በንግደ ከባቢያዊ ሁኔታ
ይወሰናሌ፡፤
እንዯየንግድኢንሹራንስ ፣ ብድር ፣ ቁጠባ እና የመሳሰለት
የፋይናንስ ተቋማት መኖር ከአነስተኛ ዯረጃ ኢንተርፕራይዞች
ወዯ መካከሇኛ ዯረጃ ኢንተርፕራይዞች የዯረጃ ሽግግርን
ያሻሽሊሌ፡
ጥሩ የቴላኮሙኒኬሽን የመሠረተ ሌማት ሥርዓት አነስተኛ
ኢንተርፕራይዝ ወዯ መካከሇኛ ኢንተርፕራይዝ የሚዯረገውን
ሽግግር በእጅጉ ይረዲሌ፡፡
አዲዱስ ቴክኖልጂዎች ምርታማነትን የሚያሻሽለ ስሇሆነ ይህም
ሇአነስተኛ ኢንተርፕራይዞች ከፍተኛ ትርፍ ያስገኛሌ፡፡
xxii
4.የሚከተለት ምክንያቶች ንግድዎ ወዯ መካከሇኛ ኢንተርፕራይዞች በሚዯረግ የዯረጃ ሽግግር
ሊይ እስከ ምን ድረስ ተጽዕኖ እያሳዯሩ እንዯሚገኙ እና በመገሇጫዎቹም ምን ያህሌ
እንዯሚስማሙ ወይም እንዯማይስማሙ የ (√) ምሌክት በማድረግ ምሊሽ ይስጡ፡፡ 5 = በጣም
እስማማሇሁ 4 = እስማማሇሁ 3 = ሇመወሰንእቸገራሇሁ 2 = አሌስማማም1 = በጣም
አሌስማማም ፡፡
መገሇጫዎች 5 4 3 2 1
የምርት ቁጥር ጨምሯሌ ፡፡
የፍሌሰት መጠኑ ጨምሯሌ፡፡

የሰራተኞች ቁጥር ጨምሯሌ፡፤
ሰሇትብብራችሁ አመሰግናሇሁ!!!
xxiii
Appendix -III
Summary statistics for organizational characteristics
Items Mean Std.

Deviation
The characteristics of business organization often reveal 4.0337 .80575

the transition of small scale to medium scale enterprises.
Small scale enterprises that make good use of structured 4.0187 .55151
marketing information and services experience would help
them to attain the firm’s transition achievement.
Good management exhibited by the management team would 3.8277 .88018

help the small enterprise transit to a medium sized
enterprise.
Transition from small to medium enterprise is characterized 4.3670 .80886

by an increase in numbers of employees
The small organization must create structures to control the 3.5655 .90446
whole organization in enabling its transition process.
Transition depends on the knowledge and skills the people 4.3371 .83094
posses to enhance their performance at work.
Transition from small to medium enterprise is characterized 4.0487 .88930

by employing professional staffs.
Small scale enterprises owners motivate the employees to 3.8727 .98422

attain the firm’s transition achievement.
Small scale enterprises owners with prior business 4.0225 .96531

experience as owners tend to correlate with greater
performance would help the small enterprise transit to a
medium sized enterprise.
Overall Mean 4.015
xxiv
Descriptive statistics for organizational factors
Items Mean Std.

Deviation
Educational background and experience determine the 4.0712 .75505

transformation of small scale enterprise to medium enterprise.
Environmental opportunities affect the transition of the small 3.7865 .79195

scale into medium sized firm in the economy.
The holdup of decision-making process enables small scale 3.8202 .59878

enterprises to achieve the transition to medium scale enter
prize.
The amount of loan size borrowed from MFI& other lending 2.4419 1.00721
institutions are sufficient to achieve transition of small scale
enterprise.
Small scale enterprises need to prepare for long term tactics 3.9251 .92684
that would enable them expand to medium enterprises.
The government has policies and regulations that promote the 3.3633 1.08953
transformation of small enterprise to medium enterprise
The government provides training and development for small 3.1648 .81515
scale enterprise to achieve their transition.
Acquiring information on the achievement of transforming 4.2547 .73239

business training services will enable business to transform
from small scale enterprise to medium scale enterprise.
Overall Mean 3.6034
Descriptive statistics for environmental factors
Items Mean Std.

Deviation
Accessible information on government regulations that are 4.1461 .67530

relevant to business enterprise enhanced transition of small
scale enterprise.
xxv
Competition as one of the major hindrances to the growth of 4.0412 .87261
small size enterprises into medium size enterprises
The transition of small scale enterprises into medium scale 4.1199 .78560
enterprises are affected by its business climate
Availability of financial institutions such as insurance for our 4.3146 .83974

business, borrowing, saving and the like will enhance the
transition of small scale enterprises to medium scale
enterprises.
A good telecommunication infrastructure system would greatly 4.0936 .66224

help the small firm transition to medium firm.
New technologies improves efficiency enabling greater 3.8240 .91915

production, leading to high profits for small scale enterprises
4.1798 .76426
Technological capabilities benefit small sized firms by reducing

time wastage costs thus enabling their transition.
Overall Mean 3.6034
Descriptive statistics for computed study variables
N Minimum Maximum Mean Std. Deviation
Organizational 267 2.67 5.00 4.0874 .35640

characteristic
organizational factors 267 2.67 5.00 3.9896 .40850
Environmental factors 267 3.00 5.00 4.1448 .31682
transition from small to 267 2.67 5.00 4.1723 .39349

medium
Valid N (listwise) 267
xxvi
Summary statistics for transition from small to medium sized enterprises
Items Mean Std.

Deviatio
n
The number of product has increased 4.1835 .72030
The turnover has increased 4.1910 .78821
The number of employees has increased 4.1423 .67888
Valid N (listwise)
Appendix -IV Correlation Analysis Results
transition Organizatio organizational Environ

from nal factors mental
small to characteris factors
medium tics
transition from Pearson 1 .562** .558** .560**

small to medium Correlation
Sig. (2-tailed) .000 .000 .000
N 267 267 267 267
Organizational Pearson .562** 1 .358** .161**

characteristics Correlation
Sig. (2-tailed) .000 .000 .009
N 267 267 267 267
organizational Pearson .558** .358** 1 .310**

factors Correlation
Sig. (2-tailed) .000 .000 .000
N 267 267 267 267
xxvii
Environmental Pearson .560** .161** .310** 1
factors Correlation
Sig. (2-tailed) .000 .009 .000
N 267 267 267 267
**. Correlation is significant at the 0.01 level (2-tailed).
Appendix V: Multiple Regressions
Model Summaryb
Mode R R Adjusted R Std. Error of Durbin-

l Square Square the Estimate Watson
1 .782a .611 .607 .24683 1.803
ANOVAa
Model Sum of Df Mean F Sig.

Squares Square
1 Regressio 25.163 3 8.388 137.674 .000b

n
Residual 16.023 263 .061
Total 41.186 266
Coefficientsa
Model Unstandardized Standardize T Sig. Collinearity

Coefficients d Statistics
Coefficients
B Std. Error Beta Toleran VIF

ce
1 (Constant) -.812 .249 - .001

3.257
xxviii
Organizational .434 .046 .393 9.524 .000 .869 1.151
characteristic
s
organizational .280 .041 .290 6.781 .000 .806 1.241

factors
Environmental .505 .050 .407 10.04 .000 .901 1.110

factors 2
a. Dependent Variable: transition from small to medium
xxix

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DEBRE BERHAN UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

FACTORS AFFECTING TRANSITIONAL DEVELOPMENT OF SMALL SCALE

FACTORS AFFECTING TRANSITIONAL DEVELOPMENT OF SMALL SCALE

Worku Mandefro ______________ ____________

Prepared by Signature Date

Melaku Desalegn (ASS.Prof.) ________________ ________________

Name of Advisor Signature Date

As members of Board of examiners of the final MBA Thesis open defense

External Examiner _________________________ ____________________

Internal Examiner __________________________ _____________________

Chairperson _______________________________ ____________________

. My limitless thanks go to my advisor, Melaku Desalegn (ASS.Prof.) for all his

THANK YOU ALL!

CHAPTER ONE ....................................................................................................................................................... 1

1.1 Background of the Study ............................................................................................................................. 1

1.2. Statement of the problem ......................................................................................................................... 2

1.3. Research Questions.................................................................................................................................... 4

1.4. Objective of the study ................................................................................................................................ 4

1.4.1 General Objective................................................................................................................................. 4

1.4.2 Specific Objectives ............................................................................................................................... 4

1.5. Significance of the study ............................................................................................................................ 5

1.6. Scope of the Study ..................................................................................................................................... 5

1.7. Organization of the Study .......................................................................................................................... 5

CHAPTER TWO .................................................................................................................................................. 6

REVIEW OF RELATED LITERATURE .................................................................................................................... 6

2.1 .Theoretical Literature Review .................................................................................................................... 6

2.1.1 Definition of SMEs ............................................................................................................................... 6

2.1.2 . SMEs Definition and Enterprises Characterization in Ethiopia .......................................................... 8

2.1.3. Role and contribution of SMEs............................................................................................................ 9

2.2. Challenges of Micro and small Enterprises .............................................................................................. 10

2.2.1. Inadequate finance ........................................................................................................................... 11

2.2. 2. Marketing challenges ....................................................................................................................... 11

2.2.3. Problem of skilled manpower ........................................................................................................... 11

2.2.4. In adequate infrastructure ................................................................................................................ 12

2.2.5. Policy and regulatory challenges....................................................................................................... 12

2.2.6 Working premise and Challenges....................................................................................................... 12

2.4. Concepts of Transitional Developments of Small Scale Enterprises ........................................................ 13

2.4.1 Growth stages, constraints and transitions ....................................................................................... 13

2.5. Theoretical Framework ............................................................................................................................ 14

2.5.1 Storey’s Growth Model ...................................................................................................................... 14

2.5.2 Ansoff’s Growth Matrix ...................................................................................................................... 15

2.5.3 Transition Model ................................................................................................................................ 16

2.6. Empirical Review ...................................................................................................................................... 17

2.6.1 Organization Characteristics and Transition of Small to Medium organizations............................... 17

2.6.2 Organizational Factors and Transition of Small to Medium organizations. ....................................... 18

2.6.3 Environmental Factors and Transition of Small to Medium organizations........................................ 19

2.7. Conceptual Framework ............................................................................................................................ 21

CHAPTER THREE .................................................................................................................................................. 23

RESEARCH METHODOLOGY ................................................................................................................................ 23

3.1. Research design ....................................................................................................................................... 23

3.2.Target Population ..................................................................................................................................... 23

3.3. Sample size determination and Sampling techniques .......................................................................... 23

3.3.1. Sample size determination................................................................................................................ 23

3.3.2. Sampling Design and Procedure ....................................................................................................... 24

3.4. Data source and type ............................................................................................................................... 25

3.5. Data source .............................................................................................................................................. 25

3.6. Data Analysis Techniques and Presentation ............................................................................................ 26

3.7. Mathematical Regression Model ............................................................................................................. 26

3.8 Validity and Reliability of Instruments ..................................................................................................... 27

3.9. Ethical Consideration ............................................................................................................................... 28

RESULTS AND DISCUSSION.............................................................................................................................. 29

Worku Mandefro __

Melaku Desalegn (ASS.Prof.)

External Examiner _____

Internal Examiner ______ _

Chairperson ___________