COLLEGE OF FINANCE, MANAGEMENT AND DEVELOPMENT

DEPARTMENT OF DEVELOPMENT ECONOMICS

Factors Affecting Sustainability of Small and Medium Manufacturing Industries

in Addis Ababa, Ethiopia
By

Bizuwork Getamesay Gebre

ECSU1702073

Advisor:

Semneh Bessie (PhD)

A Thesis Submitted in Partial Fulfillment of the Requirements

For the Master of Science Degree in Development Economics

July 2020
Addis Ababa, Ethiopia
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DECLARATION

I Bizuwork Getamesay declares that this research, entitled “Factors Affecting Sustainability of
Small and Medium Manufacturing Industries in Addis Ababa”, have carried out it
independently with the guidance and suggestions of my research advisor. And it has not been
presented in any academic or research area. I assure that this study has not been submitted for
any scholarly award in any university.

Name of the candidate: Bizuwork Getamesay

Signature: -----------------

Place: Ethiopian Civil Service University

Date: 8 /3 /2020

I hereby certify that I have carefully supervised this thesis and recommend it to be submitted
for the final examination.

Name of the supervisor: Semneh Bessie (PhD

Signature -----------------

Date 8 /3 /2020
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APPROVAL

Ethiopian Civil Service University

School of Graduate Studies

This is to certify that Bizuwork Getamesay has carried out his thesis on the topic of “Factors
Affecting Sustainability of Small and Medium Manufacturing Industries in Addis Ababa”.
This work is original in its nature and it is suitable for Submission in partial fulfillment of the
requirement for the award of Master’s Degree in development economics program.

Name of Supervisor………………………….

Signature…………………………………….

Date 8/ 3 /2020

Name of Internal Examiner…………………………………

Signature……….…………………………

Date 8/3 /2020

Name of External Examiner…Dr.Mesele Araya

Signature………...……………………….

Date 8 /3 /2020

Name of Head of Department…………………………………..

Signature…...…………………………..

Date 8 /3 /2020
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ABSTRACT

Small and Medium Enterprises are vital actors for enhancing innovation, competitiveness,
entrepreneurship and the establishment of an effective innovation system for developing
countries like Ethiopia. Besides, reducing inequality, creating employment opportunities,
enhancing self-independence, improving industrial productivity and technological adoption,
import substitution and export promotion. Therefore, this study has identified major internal
and external factors that affecting sustainability of small and medium manufacturing
industries in Addis Ababa, Ethiopia. Thus, the study was mainly targeted manufacturing
industries of existing and closed small and medium enterprises that are found in Akakai,
Arada, Nifassilk, and Bole sub cities. A survey-based approach was applied for the study by
using primary and secondary data from 380 sample respondents through random sampling
techniques. And collected the responses from 359 (102 closed and 257 existing) small and
medium manufacturing industries through structured interview questionnaires, and constitute
replied a response rate was approximately 94.47 percent. Furthermore, the study was applied
binary logit model for sustainability status (closed and existing) as dependent variable and
managerial factors, human capital factors, marketing factors, infrastructural factors,
governmental factors and financial factors as explanatory variables. The result indicates that
a one-unit Financial Factor decreases the likely of being sustainability of SMEs decreases by
13.6 %.Or a one-unit financial factor increases the likely of being sustainable of SMEs
increases by 86.4%.According to the participants’ perception, the study revealed that the
most important internal and external factors that influence SMEs sustainability are
managerial, human capital, marketing, financial, governmental factors are significant and
infrastructural factors is not significant factor. Finally, the study recommends that improving
marketing strategy, financial and managerial problems are critical in guaranteeing the
survival of the Small and Medium Enterprises.

Key words: Sustainability, Government, SMMIs, Factors, Logistic Regression, Binary

Logistic Regression.
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ACKNOWLEDGEMENTS

This research paper would not have been completed without the help of Almighty God. Next
to this, I am greatly indebted to my advisor Name: Semneh Bessie (PhD), for his countless
suggestions, assistance and invaluable advice.

My most sincere thanks are addressed to my beloved families, kalkidan Amare, and Mekonen
Getamesay for everything they have done to help me. Their moral support and pray is always
recognizable with great love and thanks.

Also, my special thanks go to all the study participants who have given their time to fill the
questionnaires and to many people specially friends for their kind support up to the
completion of my thesis work.
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TABLE OF CONTENT

Table of Contents page

DECLARATION ....................................................................................................................... i
APPROVAL ..............................................................................................................................ii
ABSTRACT ............................................................................................................................. iii
ACKNOWLEDGEMENTS .................................................................................................... iv
BIOGRAPHY ..........................................................................Error! Bookmark not defined.
TABLE OF CONTENT ........................................................................................................... v
LIST OF TABLES ................................................................................................................ viii
ACRONYMS .............................................................................................................................x
CHAPTER ONE ....................................................................................................................... 1
INTRODUCTION .................................................................................................................... 1
1.1. Background of the Study ...............................................................................................1
1.2. Statement of the Problem .............................................................................................. 3
1.4. Objectives of the Study .................................................................................................. 4
1.4.1. General objective .......................................................................................................4
1.4.2. Specific objective ...................................................................................................... 5
3.8. Hypothesis of the Study ................................................................................................. 5
1.5. Significance of the Study ............................................................................................... 5
1.6. Scope of the Study ..........................................................................................................6
1.7. Limitation of the Study ..................................................................................................6
8. Organization of the Study ................................................................................................ 7
CHAPTER TWO ......................................................................................................................8
LITERATURE REVIEW ........................................................................................................ 8
2.1. Working Definitions .......................................................................................................8
2.2. Theoretical Framework ...............................................................................................11
2.3. Empirical studies ..........................................................................................................12
2.1.2. Importance of Small and Medium Manufacturing Industries for the Economy ..... 14
2.3.1. Factors Affecting the Sustainability of Small and Medium Manufacturing
Industries ........................................................................................................................... 17
2.4. Conceptual Framework ...............................................................................................20
CHAPTER THREE ................................................................................................................21
RESEARCH DESIGN AND METHODOLOGY ................................................................21
3.1. Description of the study area ...................................................................................... 21
3.1.1. Geographical Location ............................................................................................ 21
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3.1.2. Target population .................................................................................................... 22

3.2. Research design, approach and technique .................................................................22
3.3. Source of data ............................................................................................................... 22
3.4. Method of data collection ............................................................................................ 23
3.6. Sample technique and size ...........................................................................................23
3.7. Methods of Data Analysis ............................................................................................25
3.7.1. Assumptions of Binary Logistic Regression ........................................................... 26
3.7.2. Maximum Likelihood Estimation ........................................................................... 27
3.7.3. Evaluation of Binary Logistic Regression Model ................................................... 29
3.7.4. Definition and measurements of variables .............................................................. 31
3.7.5. Selection of dependent and independent variables ..................................................33
3.5. Ethical considerations ..................................................................................................33
CHAPTER FOUR .................................................................................................................. 34
RESULT AND DISCUSSION ............................................................................................... 34
4.1. Introduction ..................................................................................................................34
4.2. Descriptive analysis of survey data ............................................................................ 35
4.2.1 Demographic characteristics of respondents ............................................................35
4.2.2. Results of Measures of Mean and standard deviation .............................................38
4.3. Reliability Test ............................................................................................................. 39
4.4. Binary Logistic Regression ..........................................................................................40
4.4.1. Multicollinearity ......................................................................................................40
4.4.2. Omnibus tests of model coefficients ....................................................................... 42
4.4.3. Model summary .......................................................................................................42
4.4.4. Hosmer and Lemeshow Test ................................................................................... 44
4.4.5. Interpretation of the model ...................................................................................... 44
4.5. Hypothesis Testing Result ........................................................................................... 47
CHAPTER FIVE .................................................................................................................... 49
CONCLUSION AND RECOMMENDATIONS ..................................................................49
5.1. CONCLUSION ............................................................................................................ 49
5.2. Recommendations ........................................................................................................ 51
5.3. Limitations of the Study and Areas for Further Research ...................................... 53
REFERENCES ....................................................................................................................... 53
APPENDICES .........................................................................................................................57
Appendix 1. Survey Instrument .........................................................................................57
Appendix 2.Descriptive Statistics of the variables ........................................................... 66
Appendex3: Annex to the Logistic Regression Result ..................................................... 67
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TableA.Multicoliarity result .............................................................................................. 67

TABLE B: Case Processing Summary ..............................................................................67
Table C: encoding ............................................................................................................. 68
Table D: Block 0: Beginning Block .................................................................................. 68
Table E: Block 1: Method = Enter .................................................................................... 68
Table F: Model Summary ................................................................................................. 68
Table H: Hosmer and Lemeshow Test Result. ..................................................................69
TABLE G: Classification Table ........................................................................................ 69
Table H: Variables in the Equation ................................................................................... 70
Table H: Contingency Table For Hosmer And Lemeshow Test .......................................71
Appendix 4: Map of the study area ................................................................................... 72
Appendix 5: Image sample of SMMIs in the study area ................................................. 73
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LIST OF TABLES

TABLE 1: DEFINITION OF SMES WITH EUROPEAN ......................................................................9

TABLE 2: DEFINITION OF SMES WITH THE WORLD BANK STANDARDS ...................................10
TABLE 3: QUALITATIVE INDICATORS IN DISCERNING SMES FROM LARGE COMPANIES ...........10
TABLE 4: SMMI ECONOMIC CONTRIBUTIONS FOR SELECTED COUNTRIES ................................15
TABLE 5: DESCRIPTION OF VARIABLES .................................................................................... 33
TABLE 6: MEAN CONSTRUCT ....................................................................................................38
TABLE 7: RELIABILITY TEST .....................................................................................................39
TABLE 8: MULTICOLINEARITY RESULT .....................................................................................41
TABLE 9: CASE-PROCESSING SUMMARY .................................................................................. 41
TABLE 10: CLASFICATION 1 ......................................................................................................41
TABLE 11: OMNIBUS TESTS OF MODEL COEFFICIENT .............................................................. 42
TABLE 12: MODEL SUMMARY .................................................................................................. 42
TABLE 13: CLASSIFICATION 2 ...................................................................................................43
TABLE 14: HOSMER AND LEMESHOW TEST ..............................................................................44
TABLE 15: VARIABLES IN THE EQUATION ................................................................................ 44
TABLE 16: SPEARMAN’S RHO INDEPENDENT VARIABLE CORRELATIONS .................................46
TABLE 17: TABLE HYPOTHESIS SUMMARY .............................................................................. 47
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LIST OF FIGURE

FIGURE 1:CONCEPTUAL MODEL ............................................................................................... 20

FIGURE 2:GENDER OF THE PARTICIPANTS .................................................................................35
FIGURE 3: AGE OF RESPONDENTS ............................................................................................. 36
FIGURE 4: EDUCATION OF THE RESPONDENTS .......................................................................... 36
FIGURE 5: EDUCATION OF THE RESPONDENTS .......................................................................... 37
FIGURE 6: LEGAL STRUCTURE .................................................................................................. 38
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ACRONYMS

AACA Addis Ababa city Administration

EU Europe union
FGDs Focus Group Discussions
GDP Gross Domestic Product
MoFED Ministry of Finance and Economic Development
VIF Variance Inflating Factor
CSA Central Statics Agency
NGOs Non-governmental Organization
OECD Organization for Economic Co-Operation and Development
UN United Nation
SMEs Small and Medium Enterprises
SMMIs Small and Medium Manufacturing Industries
UNIDO United Nation Industrial Development Organization
FSMMDA Federal small and medium manufacturing development authority
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CHAPTER ONE

INTRODUCTION

1.1. Background of the Study

Small and micro-sized enterprises (SMEs) are key actors for economic resilience, productivity
and inclusiveness. It serves central to the collective goal of increasing productive potential,
reducing inequality, generating employment, value added and innovation contribution to
growth and development of world economy(OECD, 2017).SMEs also consider as a means of
ensuring self-independent, import substitution, effective and efficient utilization of local raw
materials and participation to the economic development (Ong, 2012).

According to (Avendano,2013) mentioned that, SMEs provide the vast majority of

employment in developing countries and are keystones in the productive structures of
emerging economies. Given their importance in all economies, the growth of SMEs is
essential for economic recovery and development from the 2008 crisis (EU, 2011).

According to Subhan et al.,(2013), SMEs are the driving force for the promotion of an
economy. Due to their significance, all the countries either, developed or developing, are
concentrating on the development of SMEs. His study also argued that, a Small enterprise
serves as main driver for innovation, poverty reduction, employment generation, and social
integration. SMEs sector may amplify the production capacity which has significant impact
for the promotion of economic and social development.

The worldview of SMEs as an index of technological backwardness or as a sign of industrial

backwardness is changing tremendously with time (AU, 2010). 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. 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).

The dimensions of the recent attention on SMEs border on the perceived wisdom that they
could leapfrog their initial early stage and embrace modern large businesses in the
development process many developing countries have recorded success and positive results
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from the discovery of SMEs in the past two or three decades (Chile and Julio, 2007). In many
countries, the dynamic role of SMEs as tools through which the growth objectives of
development can be achieved has long been recognized. It is estimated that SMEs employ 22
percent of the adult population in developing countries. In view of the importance and place
of SMEs in an economy, it is imperative that SMEs sector should be given the priority it
deserves (Chile and Julio, 2007).

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 (Gebreegiziabher
&Demeke, 2004).SME sector is one of the principal driving forces for economic growth and
job creation. This particularly holds true for many low income countries in Africa where
SMEs and the informal sector represent over 90% of businesses, contribute to over 50% of
GDP, and account for about 63% of employment (Ahmed, 2012).

Accordingly, most developing countries considered the enormous potentials of the SMEs
sector, and the significance, contribution and potential of the SMEs to job creation, poverty
reduction and economic growth have been recognized in Ethiopia. And, despite the
acknowledgement of its immense contribution to sustainable economic development, its
performance still falls below expectation in many developing countries Arinaitwe, (2006).
This is because the sector in these developing countries has been bedeviled by several factors
militating against its performance, and leading to an increase in the rate of SMEs failure.
Therefore, this research intends to assess some of factors those increase the failure rate of
SMEs.

Generally, the aim of this study is to investigate and identify the major factors that influence
the sustainability of SMEs in Addis Ababa Ethiopia. The literature is based on the concept of
sustainability and factors that affecting the sustainability of SMEs.
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1.2. Statement of the Problem

In many countries, and in particular OECD countries, governments are facing the challenges
of low growth, weak trade and investment, and rising, or persistently high inequality (OECD,
2016).

SMEs are directly involved in contributing to the sustainability of national economies; thus
sustaining small and medium businesses is extensively related to economic development for
developing countries (Chen, 2011). Ethiopia is one of the developing countries which have
taken measures to enhance the operation of SMEs by considering their contributions (MUDC,
2013).

Despite various initiatives have been undertaken by the Ethiopian government and non-
governmental organizations to promote SMEs development across the country, their
sustainability is still low.SMEs owners gets low income from them and yet they are still living
under poor condition As a result the sector’s contribution to economic growth in the country
is still low(World Bank,2012)

Many researchers have written a lot on factors affecting the growth and development
(sustainability) of SMEs in different areas around the world and in Ethiopia. For example,
Kirui (2002) conducted a research on “Challenges facing SMEs in Kenya”, Subhan et al,
(2013) conducted a research on “Innovation in SMEs and impact of economic development in
Pakistan”, and Ekiti A, (2012) conducted a research on “Policy support and sustainability of
SMEs enterprises in South west Nigeria”, and SekerM and RahelFetene(2018) have studied
about factors affecting sustainability of small and medium Enterprise in sectors of
manufacturing, construction, trade and service but this study only concern about
manufacturing sector to minimize factors reduce their effectiveness and enhance contribution
to GDP.

Empirical studies revealed that, few researches are done to assess the major internal and
external determinants affecting SMMIs sustainability, in Addis Ababa. However, the full
potential of the SMMIs has not yet be appointed due to the existence of a number of factors
encumbering their sustainability and give recommendations to the SMMIs owners, managers,
employees, policy makers and the society at large on how to overcome those problems
affecting SMMIs sustainability which in turn they can be able to improve their SMMIs
sustainability by accruing more income from them. This also, would help them to improve
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their sustenance and promote rapid economic growth the nation at large and the growth of the
city in specific.

SMEs are faced with many challenges and obstacles which affect their sustainability to
function and contribute optimally to the economy. According to ministry of trade (MoT), past
statistical bulletin there are 12,810 failed SMEs are found within the last four years (MoT,
2018). Majority of them around 11,090 (86.57%) are small enterprises. And the other
1,720(13.43%) of them are medium enterprises. However, despite the attention devoted to
SME growth and sustainability.

It is important to note that SMMIs in Addis Ababa city are not immune from the
aforementioned challenges in their day to day operations hence it becomes necessary to
embark on a study that investigates the determinants that affects the sustainability of small
and medium manufacturing industries in Addis Ababa city administration. In general, the
scanty information as to clearly identify the main internal and external factors affecting
SMMIs in Addis Ababa.

1.3. Research Questions

The study was devoted to answer the following key questions;

1. What is the financial sustainability status of small and medium sized enterprises (SMEs) in
Addis Ababa?
2. What are the major internal factors that affect the growth of small and medium
manufacturing industries in Addis Ababa?
3. What are the major external factors that affect the growth of small and medium
manufacturing industries in Addis Ababa?

1.4. Objectives of the Study

1.4.1. General objective

The overall objective of this study is to identify the factors that affect the sustainability of
small and medium manufacturing industries in Addis Ababa.
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1.4.2. Specific objective

1. To assess the financial sustainability of small and medium manufacturing industries

(SMMIs) in Addis Ababa;

2. To identify internal factors that affects the growth small and medium manufacturing
industries in Addis Ababa;

3. To identify external constraints that influences the small and medium manufacturing
industries in Addis Ababa;

3.8. Hypothesis of the Study

With the help of sufficient and appropriate empirical data on the factors affecting the
sustainability of SMEs, this study was test the following hypothesizes:
H1: Sustainability of small and medium manufacturing industries is positively associated to
advertising strategy.

H2: Sustainability of small and medium manufacturing enterprise is positively related to

Government policy.

H3: Sustainability of small and medium manufacturing enterprise is positively associated to

inside managerial capacity.

H4: Sustainability of small and medium manufacturing enterprise is positively related to

financial factors

H5: Sustainability of small and medium manufacturing enterprise is positively related human
capital element.

H6: Sustainability of small and medium manufacturing enterprise is positively associated to

Infrastructural factors.

1.5. Significance of the Study

The study should be helpful to small and medium business enterprises. It helps in raising
awareness among the private enterprises all over the country particularly in the small and
medium manufacturing industry of Addis Ababa city regarding the importance of small and
medium manufacturing industries, economic grow, technology transfer and to minimize the
unemployment by small and medium manufacturing industries with the assistance of industry
development and building partnership within local stakeholders.
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It also helps to determine the small and medium manufacturing industries handling knowledge,
attitudes and practices along with stakeholders by identifying the factors that can affect the
small and medium manufacturing industries. Thus, it may serve as a board for further studies
that may be conduct on the small and medium manufacturing industries and other relative areas
in Addis Ababa city including any other geographical areas all over the country. Moreover, it
may supposed to provide lessons and guide line information to policy makers, industry
development bureau, NGOs, private enterprises, micro, small and medium enterprise office
about the existing situation and factors that can affect the sustainability of small and medium
manufacturing industries practice of Addis Ababa city to develop effective strategy in order to
solve the problem that affects the sustainability of small and medium manufacturing industries.

1.6. Scope of the Study

Obviously, there is a chronic problem of small and medium manufacturing industries

throughout the country. To resolve this problem it requires urgent action. As a result, small
and medium manufacturing industries get high attention from the government, NGOs,
researchers, communities and private sectors. The study is limit to the factors that affect the
sustainability of small and medium manufacturing industries practice in Addis Ababa city.

This is mainly because, there is a severe problem of small and medium manufacturing
industries practice and limited surveys or no investigations which will conduct so far
regarding the factors that affect the sustainability of small and medium manufacturing
industries in the Addis Ababa city. Basically, there are different factors that can influences the
transformation, sustainability and success of small and medium manufacturing industries in
Addis Ababa level, but this study was delimited to the following major factors such as human
capital, financial, managerial competence, governmental, marketing linkage, infrastructure.
Hence, small and medium manufacturing industries has various stakeholders who actively
engaged in organized, market analysis, and credit; however, the study focused on small and
medium manufacturing industries practice and the sustainability of private enterprises sector
in the Addis Ababa..

1.7. Limitation of the Study

The small and medium manufacturing industry has become the current issue, and encouraged
the research and development institution across the world. Especially, in developing nations
including Ethiopia, there were factors affecting the sustainability of small and medium
manufacturing industry was observed as the evidence to conducted study. However, due to the
 7

time and financial constraints, this study was concentrate on Addis Ababa city. Therefore, its
output represents the factors that affect the sustainability of small and medium manufacturing
industry of geographical area. In addition, even though the constraints of the small & medium
manufacturing industry in a given area are various in problems, this study was focused on
Akaki Kality, Nifas Silk, and Bole and Arada sub- city of Addis Ababa.

8. Organization of the Study

This research report has been organized to comprise of the following five chapters. Chapter
one-Introduction: begins with research background and discusses statement of the problem,
basic research questions, objectives, definition of terms and significance of the study. Finally
scope of the study and organization of the research report is presented. Chapter Two-
Literature Review: These are definitions of SMEs, the concept of business sustainability,
empirical studies and finally hypothesis of the study is presented and conceptual frame work
is drawn from literature review. Chapter Three-Research Methodology: This section discusses
the research design and approach of the study, data source and method of data Collection.
Sampling method and sample size also presented in this section, and then measurement of
variables included in the research is mentioned. Specification of the model to this study is
determined. Finally, methods for data analysis are discussed, validity and reliability of the
variables are measured, and then ethical considerations are explained in the section. Chapter
Four - Data Analysis and Interpretation: The section discusses the respondents‟ profile, and
then tests the reliability of individual constructs with Cronbach‟s Alpha. Data analysis is
conducted through descriptive statistics and regression analysis. Hypothesis testing is
performed by using Binary logistic regression analysis. Chapter Five –Conclusion and
Recommendation: In this section the main findings of the research is summarized and
conclusions on major findings is presented. Recommendations are given based on the research
findings and the limitation of the study is mentioned.
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CHAPTER TWO

LITERATURE REVIEW

In this chapter, definition of working concepts, theoretical frameworks that guide the study,
conceptual frameworks are thoroughly scrutinized. A thorough empirical review is also
presented to augment discussions and arguments in subsequent chapters.

2.1. Working Definitions

Small and medium scale manufacturing industries: Several studies have attempted to
define SMMIs as a term that covers a wide range of definitions, roles and measures.
According to (Rajan,2013) states that the definition of small and medium scale industry may
vary from country to country, year to year, from period to period and from time to time and
according to the level of economic development reached in a country. Sometimes, it is defined
in terms of number of workers employed and on the use of electric power and also in terms of
investment made. Despite of this, small and medium Scale manufacturing industries when
established varies in its mode of formation, its sizes, its organizational setup, and in its
activity. The reason for this is because the type chosen by each individual operator would
depend on the financial capability to manage such enterprise. There is no universal definition
for Small and Medium Manufacturing Industries. It is contextual, most of the time, is based
on criteria or cut offs such as the number of employees, the value of sales, and/or the value of
assets. Differences in SME definition extend in three flanks: definitions by international
institutions, definitions by national laws and by industry definitions. Finding a universal
standard poses a sharp and acute critic to institutionalizes, economists, academics and
industrialists. Although a dilemma, more negligible is coining enterprise or business, although
all authors use them interchangeably.

Abbreviation SMEs which is usually faced in the European Union and international
organizations as the World Bank, United Nations and World Trade suggests that companies
that fall into categories according to criteria that are different from large companies to be
labeled as enterprise (Small and Medium Enterprise). This article is an attempt to summarize
SMEs definitions of various authorities, a review of relevant literature of the field, theoretical
overview through comparison with practices of the different countries and critical overview of
standard criteria and approaches of different authors in the definition of small and medium
enterprises.
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Small and medium enterprises are named by adjectives indicating size, thus economists tend
to divide them into classes according to some quantitative measurable indicators.

The most common criterion to distinguish between large and small businesses is the number
of employees (Hatten,2011). This report suggests two approaches to the definition:
quantitative approach and qualitative approach. Academics, policymakers, international
institutions and statistical agencies mainly apply quantitative criteria in defining
SMEs.European Commission promotes “the criterion of the number of staff as the main
criterion, however, introducing a financial criterion is nonetheless a necessary adjunct in order
to grasp the real scale and sustainability of an enterprise and its position compared. European
Commission promotes “the criterion of the number of staff as the main criterion, however,
introducing a financial criterion is nonetheless a necessary adjunct in order to grasp the real
scale and sustainabilityof an enterprise and its position compared to its competitors”
(European Commission, 2003, item 4). European Commission through a guide determines the
criteria for defining enterprises: number of employees, annual turnover and annual balance
sheet (European Commission: 2005). It is determined that meeting the criteria of the number
of employees is mandatory, while filling another from the two financial criteria is a choice of
the enterprise.

The definition of SMEs that came into effect from 1 January 2005 is shown in table one.
Small firms are generally those with fewer than 50 employees, while micro-enterprises
have at most ten, or in some cases five, workers. Financial assets are also used to
define SMEs (OECD, 2000).

Table 1: Definition of SMEs with European

Enterprise category Headcount annual Annual turnover Annual balance
work unit (AWU) sheet total
Medium-sized <250 ≤ €50
≤ €50
Small-sized <50 ≤ €10 ≤ €10
Source: European Commission (2005)

In other words the World Bank uses three quantitative criteria for defining SMEs: number of
employees, total assets in U.S. dollars and annual sales in U.S. dollars (IEG: 2008). A
business must meet the quantitative criteria of number of employees and at least one financial
criterion to be categorized as micro, small or medium business.
 10

Table 2: Definition of SMEs with the World Bank standards

Enterprise Number of Total assets Total annual sales
indicators employs
Medium-sized >50;≤300 >$3,000,000;≤$15,000,000 >$3,000,000;≤$15,000,000
Small-sized >10; ≤50 >$100,000;≤$3,000,000 >$100,000;≤$3,000,000
Micro-sized <10 ≤ $100,000 ≤ $100,000
Source: Independent Evaluation Group (2008)

Bolton Report, the primary reference for qualitative definition of SMEs for all subsequent
literature in the field, defines three essential characteristics of small firms: management of
firm by its owners in a personalized manner; relatively small share of the market in economic
terms; independence in the sense that it does not form part of a larger enterprise is relatively
free from outside control in its principal decisions (Bolton: 1971 as quoted in Stokes and
Wilson: 2010). The following table presents some qualitative indicators defining SMEs,
summarized by UNIDO, Industrial Development Organization of the United Nation.

Table 3: Qualitative indicators in discerning SMEs from large companies

Category SMEs Large companies
Management  Proprietor entrepreneurship  manager- entrepreneurship
 functions linked to personalities  division of labor by subject
matters
Personal  Lack of university graduate  Dominance of university
 All round knowledge graduate
 Specialization
Organization  Highly personalized contacts  Highly formalized
communication
Sales  Comparative position not defined and Strong competitive position
 Uncertain
Buyer’s  Unstable  Based on long term contracts
relationship
Production  Labor intensive  Capital intensive, economies of
scale
Research  Following the market, intuitive
 Institutionalized
development approach
Finance  Role of family financing  Diversified ownership structure,
access to anonymous capital
market
Source: UNIDO (as quoted in yon and Evans: 2011)

Manufacturing: Is a mechanical, physical, or chemical conversion of a raw material,

substance or component by using machine equipment or labor in to products that worth better
value (FSMMDA, 2016).
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Small manufacturing industries: An industry having a total capital, excluding building,

from Birr 100,001 to Birr 1,500,000 (one hundred thousand one Birr to one million five
hundred thousand birr) in the manufacturing sector and engages from 6 to 30 workers
including the owner, his family members and other employees (FSMMDA, 2016).

Medium manufacturing industries: Means an industry having a total capital, excluding

building, from birr 1,500,001 to 20,000,000 (one million five hundred thousand one birr to
twenty million birr) in the manufacturing sector and engages from 31 to 100 workers
including the owner, his family members and other employees (FSMMDA, 2016).

SMES Business Sustainability: Many researchers define sustainability in different concept.

For instance, Sustainability has been defined by Forestry Commission of Great Britain as the
concept having four goals. The first one deals with the social progress that caters to the need
of everyone. Second one is for the environment protection. Third one deals with the judicious
use of natural resources and the last one this studies also concerns involves task of
maintaining high and stable levels of growth sustainability of the economy and in
employment generation (Khurana and Haleem, 2016).The most common definition of
sustainability in relation to business is “meets the needs of its stakeholders without
compromising its ability to meet their needs in their future‖ (Hubbard, 2009). But in this paper
sustainability defined as the ability of the enterprises to continuously maintain in the business
environment.

2.2. Theoretical Framework

There are many alternative definitions of business growth and ways of measuring this
growth. Business growth is usually defined and measured, using absolute or relative
changes in sales, assets, employment, productivity, profits and profit margins.Smitet al.
(2007), define a business environment as all those factors or variables, both inside and
outside the organization that would influence the continued and successful existence of the
organization.

Sales data are usually readily available and business owners themselves
attach high importance to sales as an indicator of business sustainability. In addition, a sale
growth is additionally easier to live compare with other indices and is far more
likely to be recorded. Sales are an honest indicator of size and growth. Sales may additionally
be considered a definite indicator of how a firm is competing relative to their market
 12

Barringer et al.,(2005). Churchill and Lewis (1983) as a brand-new small firm

starts and develops, it moves through some growth stages, each with its own distinctive
characteristics.

Churchill and Lewis(1983) identified five stages of grow theory: existence,

survival, take-off ,success, and resource maturity. In each stage of development, unique set off
things is critical to the firm's survival and success. The Churchill Lewis model gives an
insight into the dynamics of SME growth, including the distinguishing characteristics,
problems and requirements of growing SMEs and explains business growth processes among
SMEs. The precise moment in time during which a start-up venture becomes a brand-new
business hasn’t yet been theoretically determined. However, the concept of business survival
might be equated with affirm that has fully completed the transaction to stage two
organization within the five stages of small business growth.

The important issue in new firm growth is that almost all new SMEs in Ethiopia don’t move
from the primary stage (existence) to other stages like survival, success, and take off and
resource maturity. The business life cycle model during this study aims to be designed for for-
profit firms within the new economy instead of relevant for all organizations. Most of the
organizational life cycle researches don't seem to be designed for not for profit organizations.
However, the term “organizational lifecycles “should include the lifecycles of not for profit
organizations. There is no existing research trying to answer questions on the differences of
life cycles between for profit and business life cycles to define the scope of factors affecting
small and medium firm growth and sustainable organizational developmental process.

2.3. Empirical studies

Past and recent studies introduced internal and external factors of sustainability. Those studies
have been widely used in the empirical literature by previous scholars (see Rahel(2018);
Sitharam, andHoque, 2016; Zhang and Morrison, 2007;Bouazza, et.al. 2015).

According to Okapar and Kabonga,(2009) stated, in their study, that infrastructure factors
such as power supply and access roads were major factors. However, the research results
showed that the SME owners/managers see power supply and telecommunication
infrastructure as affecting the business sustainability. A sufficiently functioning infrastructure
in terms of providing services, such as power, is another factor that contributes to SME
growth. The role of services such as electricity, transportation, and water sanitation are critical
in a country’s development and are directly linked to small business success and economic
 13

growth not for profit organizations. Therefore, the author uses the adoption of sustainability
have been pointed out by several studies such The foremost implication improving financial
and work-related problems is critical in guaranteeing the survival of the SMEs (Rahel,2018),
And Human resource management and organizational culture (Cameron & Quinn, 2006) have
been mentioned as internal organizational factors.

According to Stephen and Wasim (2013) the transformation of traditional industries is one of
the contributions of small-scale industries to the growth and development of the country. In
short, the modern sector has evolved through structural transformation and modernization of
the traditional type-cottage or artisan industry. Small scale industry can be a means of
achieving a smooth transition from tradition to modern industrial sector.

A study conducted by Bhavani T.A.(2010) highlights the issue of quality employment

generation by the Ethiopia and negates the short-term attitude of increasing the volume of
employment generation compromising with quality. The author argues that employment
generation by the SSIs may be high in quantitative term but very low in quality.

Technological up-gradation would enable the small firms to create quality employment
improving remuneration, duration and skill. This structural shift may reduce the rate of
employment generation in the short run but would ensure high-income employment
generation in the long run. Application of technology adoption of IT will assist an
organization in storing information, as well as communicating with customer, suppliers and
business partner who will facilitate business transaction, and enhance the overall sustainability
of SMEs, leading to a better performance in reducing the operating expenses as a whole
(Levey& Powell, 2000).

Arenite (2006) mentioned that primary reasons small business continues to face growth
challenges in developing countries, despite significant support from governments and other
organizations is their technological capabilities or lack thereof.

According to Bekele and Worku (2008), tied to revalued a longitudinal study to assess
the impact of influential factors that affect the long-term survival advisability of small and
medium enterprises by employing a stratified random sample of 500 SMEs from 5 major
cities in Ethiopia assessed from 1996-2001 the factors affects the long run SMEs are found to
be adequacy of finance ,level of education level of managerial level of technical skills ability
to convert profits to investment This is so because the findings of business we retailed
 14

characterized during the study period inadequacy of finance (61%), low level of education
(55%), poor management skills (54%) shortage of converting profit to investment(46).

2.3.1. Importance of Small and Medium Manufacturing Industries for the Economy

The entire world is facing a recovery stage since the financial crisis in 2008, and SMEs are the
middle of the controversy and also considered a key driver for growth in any economy (Jain,
Chen2013). (D’Imperio,2012) believes that the 2008 financial crisis created new challenges
for SMEs, but SMEs are evidently contributing towards the gross domestic product (GDP)
and employment in almost every country globally.

Bouri et al..(2011) further state that the SME sector is that the backbone of any economy,
especially in high-income countries, although the arena is a smaller amount developed in
lower income countries. Imperio (2012) furthermore states that the contribution of SMEs to
economic fundamentals like contribution to GDP varies across countries.

The rationale for this being that richer countries have larger SME sectors and smaller informal
sectors than poorer countries do, which open economies tend to own smaller SME sectors
than their relatively closed counterparts (The Association of Chartered Certified Accountants,
2010).it's also indicated that SMEs contribute 16% to GDP in low income countries, while the
contribution of GDP is 51% in high-income countries. Although SMEs play key roles in high-
income countries, it's also important for low income countries, because it contributes to both
employment and GDP.

Jain and Chen (2013), check with SMEs because the employment multiplier, since the new
jobs created by SMEs further create more jobs, which, for industries like manufacturing might
be closer to a multiplier of three. For instance, a business with 50 employees in 1965 and 100
in 1994 will have multiplied its workforce by two (OECD, 2002).

SMEs are boosting overall domestic consumption, and thus SMEs are remarked as a
neighborhood multiplier effect. SMEs could have two to 3 times the impact on domestic
spending when put next to spending at larger businesses. Since SMEs are creating jobs and
fostering a competitive business environment, Shinozaki (2012) considers it propulsion of
economic stability, with a positive impact on a country’s financial set-up. in step
withEthiopia.info (2012), the price to form employment within the small businesses a smaller
amount than creating employment within the large business, because larger businesses are
usually more capital intensive and, in step with Edmidton (2007), larger businesses also offer
 15

better jobs in terms of stability, quality and compensation within the variety of both benefits
and salary.

SMEs are widely recognized the most vital driver of innovation in most countries and account
for a high share of real innovation since it makes SMEs relevant to investors and customers.
Economic process founded on innovation would be sustainable and uplift the economy, in
step with Jain and Chen (2013). Small businesses are more likely to have interaction in
innovative activity like research and development leading to spending in engineering
industries, and 90% of companies engaging in these activities are SMEs (Connolly et al.,
2012).

Grammy (2011) believes that SMEs play four major roles within the economy which they
contributing the following: Creating jobs; Producing new products and services; Serving
larger corporations and providing specialized, innovative products.

According to DImperio (2012), over 95% of enterprises across the planet are SMEs, therefore
accounting for roughly 60% of personal sector employment. Japan accounts for an SME
proportion of 99% of total businesses, and is taken into account because the country with the
very best proportion of SMEs among industrialized countries. India had 13 million SMEs in
2008, which accounted for 80% of all the country’s businesses. For countries of which
reasonable data are available, SMEs account for 52% of the whole private sector value, which
successively provides an inexpensive estimate for the SME sector’s global economic
contribution

Table 4: SMMI economic contributions for selected countries

Country Contribution to Job creation (% of Representation of
GDP total jobs created total businesses
United
United States 46% 65% 98
Germany 50% 52% 99.6
China 60% 80% 99
United Over 50% 67% 99.9
Kingdom
Sources :( Chen, 2013)

The growth of SMEs could be a major economic driver as SMEs contribute to employment
growth at the next rate than larger businesses do. The important economic contribution of
SMEs has aroused significant interest from both international organizations and academic
 16

researchers, whose goals -include using national policies to come up with growth within the
SME sector. Despite the considerable attention paid to SME growth, no theories are able to
effectively explain why certain SMEs grow et al fail (Farouk and Saleh, 2011). Overall, the
sustainability of SMEs is taken into account as a necessary ingredient for long-term success,
since the failure of getting a culture of sustainability is seen as a source of competitive
disadvantage (Eccles, 2012).

SMEs are considered to play a pivotal role in promoting grassroots economic process and
reasonable sustainable development. High prevalence of economic process contributes to
economic- and social development. The standard of growth is additionally important and
includes the composition of growth, the spread and distribution and therefore the degree of
sustainability and so it's important to grasp various factors accountable for quality growth and
therefore the sustainability of SMEs (Pandya, 2012)

According to the studied conducted (World Bank, 2015) the GTP has not been able to foster
and accelerate structural transformation of the economy and therefore the share of the
manufacturing sector in GDP remained stable at a rather low level. In fact, Ethiopia’s past
high growth decade has been fueled by large services and agricultural sectors. However,
Small and cottage scale, large and medium manufacturing industries contribute 0.9% 2.0 %
respectively (NBE, 2018).

Reasons for SMMIs failure: According to Mbonyane (2006), many new businesses
are started every year, but also that an increased number of businesses are failing annually.
Business owners experience a high mortality rate for start-up businesses.

The failure rate of SMEs is generally referred to as nine out of ten firms fail in the first
year of operation”and“80%of new start-ups fail during the first 3 years”, according to Gore
and Fal(2011).Other statistics of small business failures reported that three out of five fail
with in the first few months (Bowenetal.,2009), approximately 40 to 50% of small firms
established decease trading within three of four years (Urwinetal.,2008), and approximately
70 to 80%new small businesses fail in the first year (Bradley and Cowdery,2002).

There have been considerable research into the reasons for the high failure rate of SMEs,
indicating that bad budgeting; stock control; personnel relations, customer relations and a lack
of staff training are the primary reasons for failure (Mbonyane, 2006).
 17

Seeletse (2012) states that common a uses of SME failure include an increase in crime lack of
effort to satisfy the needs of clients failure to add value and empower employees, short fall of
competence in inventory control, inappropriate uses of technology, limited finances or credit,
lack of appropriate training for owners and employees, poor customer relations, under
developed infrastructure, poor financial and cash flow management and lack of attentiveness
in business. Bowenetal.(2009) considers poor education and a lack of infrastructure as the
main reasons for SME failure.

According to Petrus (2009) states the factors contributing to SME failure are poor business
planning, poor financial planning, poor marketing, poor management, limited access to
finance, regulation, gender, inadequate financing, teamwork, globalization, inability to
manage growth, access to markets and access to information.

The general macro environment factors include government decisions, the national and
international economic conditions and the effects of the global financial crises. The extended
duration of the procedures to obtain public funding, insufficient financial support, lack of
qualified staff and bad directions of public assistance are considered as failure reasons derived
from the general environment.

An enterprise constantly interacts with clients, suppliers, competitors and shareholders and
these interactions with the closest environment of a business determine its development in a
positive or negative way (Ropega,2011 acceptably high failure rate for smaller businesses
(Watson and Everett, 2004).

2.3.2. Factors Affecting the Sustainability of Small and Medium Manufacturing

Industries

Internal Factors: The internal environment includes factors in the business environment that
are largely controllable by the business (Fatoki and Garwe, 2010; Kolstad and Wiig, 2015).
Challenges in the internal environment of a business, includes management competency and
skills human capital, limited financial knowledge and a lack of business management training.

Managerial Competency: The success of a small and medium scale enterprise revolves
around the entrepreneur and its employees, provided the employees are skilled and efficient.
Because of inefficient human factor and unskilled work force, create innumerable problems
for the survival of small industries. Non-availability of adequate skilled work force in the
rural sector poses problem to small-scale industries.
 18

Investigated, lack of managerial competency was found to be the main reason why SMEs fail
(Martin and Staines,2008). Abdel, Rowena & Robyn (2010) revealed that small business
owner-managers have very basic understanding of financial and accounting information and
have serious problems with financial planning literacy. On the same theme, it has been
asserted that small and micro enterprises owner managers have little knowledge about
financial matters, and found out that those with little or limited financial planning skills do not
even value the information extracted from financial statements (AlattarandKouhy,2009)

Human capital: The greater skills and know-how an SME proprietor has, the higher is their
functionality to exploit opportunities, examine about new processes or advance a growth
method and find it easier to develop than others (Shane, 2003). And the conduct of the
entrepreneur affects the association sustainability that in reality creates business and uses any
opportunities. For instance, innovation activities, fee reduction, manufacturing effectively and
any different modifications and growth and sustainability of the company relies upon fairly on
the entrepreneur capability to reply to modifications in the environment(Hashi and Krasniqi,
2011).

Firms with boom intention entrepreneurs gain excessive boom charges as in contrast to those
with no intention of growth. Also the willingness, motivation and readiness to take chance
also affect the upgrading of SMEs (Markus Loewe et al.2013).

Externalfactors: Factors such as economic variables and markets; crime and corruption,
labor, infrastructure and regulations make up the external environment (Fatoki and Garwe,
2010). In a comparative research between Nigeria and UK, Ihua (2009) found that economic
growth of Nigerian SMEs was hindered by externally related factors, like the poor economic
conditions and infrastructural inadequacy.

Marketing strategy: The rapid economic growth of global markets observed over the last
decade has motivated competition in both developed and developing countries, forcing
entrepreneurs and policy makers agree to market-oriented policies. The fact that, the share of
SMEs has increased in these countries suggests that efficient SMEs have actually been able to
deploy new strategies in order to maintain, or even enhance, their competitiveness in a
globalized economy (Mateev and Anastasov, 2010)

Marketing skills has been considered as one of the most effective factors to firm survival,
computation and growth. It plays an essential role in operating and to sustainable their
business. Most of the small and medium manufacturing industries in developing countries
 19

have no researched their marketing strategies, of advertisement, market research, bazaar

exhibition and promotion.

Government Policy: One of the major challenges pointed out as hindering the growth and
survival of start-up SMEs in SA is access to finance (Mazanai andFatoki, 2012). Financial
institutions credit processing has become more complex, and the institutions have become
more cautious because of the financial crises, making it difficult for SMEs to understand the
procedures and decisions when it comes to the loan processing (Haron et al., 2013). Before
the crisis, access to finance was already seen as a concern to SMEs in many developing
countries, accessing the funding that they needed to grow and expand. Banks do not provide
SMEs with adequate capital in many of these countries (Dalberg, 2011).

Financial factors: can be both internal and external factor. Many studies have discussed that
small firms are influenced through financial constraints than giant and medium enterprises.
According to Abdel, Rowena & Robyn (2010), small business owner-managers have very
simple perception of economic and accounting information and have serious problems with
monetary planning literacy. Ademola and Michael also recognized key challenges of SMEs
among them negative accounting approach and practices have been cited (Ademola and
Michael, 2012).

Infrastructure:The availability of good infrastructures additionally controls SMEs increase it

Competitive in the local and worldwide markets. Infrastructure can be assured through the
provision of excellent education, health facilities, environment, water supply, electricity
supply, get entry to roads, and creation of science and science institutions to produce
aggressive entrepreneurs (Elhame, 2014).Infrastructures like efficient transport community
structures helps SMEs to get properly access to market and resources, and reliable strength
resource manufacturing and distribution systems which helps SMEs to use modern
technologies. Particularly SMEs working in creating world suffer lot in this dimension due to
the fact there are many infrastructure problems. The World development report (1994)
showed that the affectivity of infrastructure utilizations essential to commercial enterprise and
economic growth and sustainability.
 20

2.4. Conceptual Framework

Conceptual framework is used to make conceptual distinctions and organize ideas. In fact,
itcanbe defined as a way ideas are organized to achieve a research project‘s purpose. Based on
the review of literature this study identified six essential driving factors. These selected
factors have been used frequently by previous literatures and supposed to be the critical
success factors of SMEs. Sustainability of enterprises in Addis Ababa, Ethiopia depends on
certain factors as set out into two categories as dependent and independent variables.
Independent variables include: governmental factors, marketing factors, infrastructures,
financial factors, human capital factors and managerial factors. The dependent variable is
sustainability of SMEs. The relationship of the variables is displayed below.

Figure 1:Conceptual Model

Managerial
Factors:
management
skills, monitoring
and evaluation,
clear mission and
Governmental
Financial Factors Factors: political
vision, training
intervention.infla
Sufficient tion,governemnt
working alsupport,rules
capital,saving,hab and polices,tax
its,cashflow,acces Sustainability
s to finance of SMMIs

Marketing Infrastructural
Strategy: Factors:transport
promotion, ,communication.
product quality water,power
assurance, new
market research, Human Capital:

Education level,
entrepreurship,
Source: (Own sketch, 2020) innovation,
education status
 21

CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

This chapter discusses the study area, data source, methods of data collection, sample size,
research design, analysis tools, techniques, description of variables and econometric model
used in the study.

3.1. Description of the study area

3.1.1. Geographical Location

Addis Ababa is the capital and biggest city of Ethiopia. It is where the Africa Union and its
predecessor the OAU were based. It also hosts the headquarters of the United Nations
Economic Commission for Africa (ECA) and numerous other continental and international
organizations, therefore often referred to as "the political capital of Africa" for its historical,
diplomatic and political significance for the continent (wikipedia.org/wiki/Addis Ababa).

It consists of a population of 3,384,569 as per 2007 population enumeration, with yearly

growth rate of 3.8%. This number has been expanded from the initially published 2,738,248
figure and gives off an impression of being still to a great extent underestimated. It has the
status of a city as well as a place where the African Union is antecedent. It likewise he city is
populated by individuals from various districts of Ethiopia. The religion with the most
devotees in the city is Ethiopian Orthodox with about 75% of the total population, while 18%
are Muslim, 0.48% Catholic and 7.77% Protestant(CSA, 2007).
 22

3.1.2. Target population

The research was conducted at Addis Ababa city, Ethiopia to test the factors that affecting
sustainability of SMMIs. There are so many failed small and medium enterprises that are
found in each sub cities but it is difficult to get their full information to include them in the
study.

The target population of the study includes all existing and closed Government Organized
SMMIs in Addis Ababa, Ethiopia. According to CSA (2016) survey, the target population of
the study reaches a total of 3335, small and medium manufacturing industries in Addis Ababa.
Out of this by using scientific statistical method developed by slovin’s formula the researcher
would take a sample size of 357.Therefore, this study takes a total sample size of 380 SMMIs
from the 4 sub cities in.SMMIs owners, managers and employees were interviewed by asking
them to answer both closed and open ended questions.

3.2. Research design, approach and technique

Research design is a comprehensive plan for data collection in an empirical research project.
It is a “blueprint” for empirical research aimed at answering specific research questions or
testing specific hypotheses (Anol, 2012)

This research strategy applied is more qualitative and quantitative strategy as the data collected
and analyze to reach the conclusion describe factors affecting sustainability of small and
medium manufacturing industries since it is used to obtain information concerning the current
status of the phenomena and to describe "what exists" with respect to variables or conditions in
a situation.

This study also used a cross-sectional quantitative study of Addis Ababa city. Cross-sectional
surveys are studies aimed at determining the frequency or level of particular attribute in a
defined population at a particular point in time, (Lotta,2012). This will help the study to
suggest solutions to the problems identified in the organizations. This type of research design
helps to portray accurately the characteristics of a particular individual, situation or a group
(Creswel, 2003).

3.3. Source of data

The study was also gathered both primary and secondary data. Primary data was collected
from SMMIs managers, manufacturing industry bureau particularly head and SMMIs owners
 23

who are currently delivering their business by using different instruments of data collection
which includes self- administered questionnaire, structured interview and group discussion
respectively.

The researcher was used Secondary data from different sources including published and
unpublished materials like journal articles, internet resources, Proclamation, books and other
documents from administrative offices and manufacturing industry bureau of the city. The
study will to achieve the pre- state objective of the thesis, both primary and secondary data
would use

3.4. Method of data collection

Structured questionnaire: To gather information from existing SMEs and closed SMEs was
conducted on the sample population of 380 manufacturing industries using structured likert
scale and multiple questionnaires with closed-ended questions 4 sub cities purposively. The
structured questionnaires were organized into two main sections; the first section personal
information of the respondents, which includes gender and age composition, work experience
of respondent, educational level, legal structure of SMEs second section of the questionnaire
was likert scale order selected choices.

Qualitative data was collected from the SMEs managers via questionnaire, which was design
by the author with the support and supervision of advisors and the qualitative data, would take
from the SMEs owners through focus group discussion and the head of the manufacturing
industry bureau through interview in order to triangulate the analysis of the data.

The data was collected by the researcher and governmental support organization work staffs.
The collected data was entered in to SPSS, version 24, software.

3.6. Sample technique and size

A multi-stage cluster sampling technique was used in choosing a sample of 380 SMEs. The
first stage was involved the purposively selection of Arada Sub City,AkakaiKality Sub
City,Nifase Silk Sub City, and Bole Sub City (because of Addis Ababa is my
workingplace,Thereare above 50% SMEs in industry zone where Addis Ababa small and
medium manufacturing agency supports).The second stage was involved also purposively
selected woreda 04 from 07,10 woredasjackrose industry zone and lebu industry zone (SMEs
were clustered by their production type example textile, leather and leather products, house
and office furniture ,chemical and detergent, Agroprocessing, garment and etc). The third
 24

stage was involved the random selection SMEs. In this study, three types of sampling
techniques were used. Those are from random sampling, stratified random sampling and
purposive non probability methods. Purposive sampling method based on the access of the
infrastructure & input supply of SMMIs within the sub cities particularly the study area which
has high access of the infrastructure, input supply, credit and support and training of SMMIs.

According to the formula, the sample size was determined with some degree of precision for
general population was used.The researcher be decided by using scientific statistical method
developed by using slovin’s formula. The sample size of the SMMIs were selected randomly,
180 samples of SMEs would selectfromAkakiKality, and the remaining 200 SMMIs, the
researcher would be take 80 from Nifas Silk, 80 from Bole and 40 sample SMEs are from
Arada sub city. The number of the SMMIsdraw from each sub cities would be determined
based on it’s the size of SMMIs. In fact, purposive sampling technique is mostly appropriate
to select the sample of the SMMIs because of the nature of the study and unavailability of the
actual sampling frame of the registered SMMIs that are living in Addis Ababa. In addition,
purposive sampling usesto manage the time and other resources like simple random sampling.

N
n
1  Ne 2

Where:-

n=Sample size of the small & medium manufacturing industries

N= the total population size of the small & medium manufacturing industries

e=Allowable error/Margin of error (0.05).

According to obtain data from the CSA(2016), in Addis Ababa there are about 3335 small &
medium manufacturing industries in Addis Ababa (N);Thus,

N 3335
n = ≈ 357
1  Ne 2 1+3335 0.05 2

Therefore, 357 will be the minimum sample size (n) of small & medium manufacturing
industries the Data Collection Tools This study was explanatory type of the study; since it
explains the relationship between the effective sustainability of the small & medium scale
manufacturing industries and the various explanatory variables in Addis Ababa.
 25

3.7. Methods of Data Analysis

The aim of the study was to analyze factors that affect sustainability of small and medium
manufacturing SMEs. In an attempt to address the research questions, various descriptive
indicators such as frequency distributions, averages, and percentages were reported and
presented from the field survey data collected to draw appropriate inferences. SMEs managers,
owners, employers, demographic characteristics, socioeconomic and welfare profiles and
information were examined using descriptive analysis. The results from the descriptive
statistics also serve to develop and specify the appropriate variables to be used in the
econometric analysis.

The responses were organized in relation to the themes or research objectives and from this
information, the researcher was wrote a narrative and interpretive report in order to explain
and reflect the situation as it was occurring in the selected sample. The coded data was entered
in the computer for analysis using SPSS version 24.

The researcher was appointed logistic regression model to analyze factors that affect
sustainability of SMMIs. The logit model is a maximum likelihood estimator that allows for
estimating the probability that an event occurs or not by predicting a binary dependent
outcome from a set of observable independent or predictor variables. The convention for
binomial logistic regression is to code the dependent class of interest as 1 and the other as 0
Logistic regression model tries to determine whether or not a team of variables together
predict a given based variable (Orodho, 2005).

The logistic equation Logistic form

Yi = β0 + β1X1i + β2X2i………… + βnXni + εi

Let us consider a linear regression of the form;

Yi = the outcome variable predicted from the equation

Xi = a vector of explanatory variables representing SMEs managers’ owners and employers

�'s = a vector of regression coefficients to be estimated

��= the error terms

 26

Logistic regression assumes meaningful coding of the variables. A logistic coefficient is

difficult to interpret if not coded meaningfully. The convention for binomial logistic
regression is to code the dependent class of interest as 1 and the other as 0.

According to this The equation of logistic regressions on this study about is usually built
around two units of variables, specifically structured variable (sustainability) and unbiased
variables (Market Strategy, Government Policy, Financial Factors, Human Factors,
infrastructural factors, managerial factor). The simple goal of the usage of regression equation
on this find out about is to make the study more nice at describing, grasp and predicting the
referred to variables.

Log (p/1-p) = β0+ β1X1 + β2X2 + β3 X3 + β4X4 + β5X5 + β6X6

Where: Log (p/1-p) is the response or dependent variable- sustainability.

X1 = Financial factor (FF), X2 = Government Policy (GP), X3 = Market Strategy (MS), X4

=Human Capital (HC) ), X5 = managerial factor (MF) ,X6 Infrastructural factor (IF) are
explanatory variable β0 is the intercept term- regular which would be equal to the mean if all
slope coefficients are 0.β1, β2, β3, β4, β5, β6, , are the coefficients associated with each
impartial variable.

3.7.1. Assumptions of Binary Logistic Regression

Unlike general linear models, binary logistic regression does not have many key assumptions;
particularly it does not require a linear relationship between the dependent and independent
variables, normality of the error distribution, homoscedasticity of the errors and
measurementleveloftheindependentvariables.(http://www.statisticssolutions.com/assumptions-
of-logistic-regression/) however, logistic regression still requires other assumptions.

1. Binary logistic regression requires the dependent variables to be binary.

2. Since binary logistic regression assumes that that P(Y=1) is the probability of event
occurring, it requires that the dependent variable is coded accordingly.

3. Model should be fitted correctly. It means that all meaningful variables should be included.
In addition, it should not be over fitted with meaningless variables included.
 27

4. Binary logistic regression requires each observation to be independent. Also, it should have
little or no multicollinearity, which means that independent variables are not linear functions
of each other.

5. Binary logistic regression requires linearity of the relationship between independent

variables and log odds. Meanwhile, it does not require a linear relationship between dependent
and independent variables.

6. Binary logistic regression requires quite large sample sizes. Studies with small sample sizes
overestimate the effect measure. Also, the more independent variables are included in the
model; the larger sample size is required.

3.7.2. Maximum Likelihood Estimation

Although logistic regression model looks like simple linear regression model, the underlying
distribution is binomial and α and β parameters cannot be estimated in the same way as for
simple linear regression. The Maximum Likelihood Model (Park, Hyeoun-Ae, 2013) usually
estimates the coefficients. The likelihood is a probability to get observed values of the
dependent variable given the observed values of independent variables. The likelihood varies
from 0 to 1 like any other probabilities.

The probability estimation of the dependent variable as applied by Gujarati: (2004) can be
represented by;

Prob(Yi = 1) = F(β'Xi)…………… (2)

Prob Yi = 0 = 1 − F(β'Xi)…………… (3)

Where:

1 if − existing
Yi = ………….. (4)
0 if − closed

The probability model involves regression of the conditional expectation of Y on X as given

by:

E � � = 1 � �' � + 0 1 − � �' � = � �' � ……….. (5)

The F-function represents that the logit model uses a logit cumulative distributive function.
When an outcome variable is dichotomous or binary, the relationship between variables may
 28

be nonlinear and can be converted into linear ones through logarithmic transformation.
Therefore, the logit regression equation from which the probability of the outcome variable (Y)
is predicted is given by:

eβ'X
P(Y = 1|X) = ' ……………….……… (6)
1+eβ X

eβ'X 1
P Y=0 X =1− ' = ' ……………….. (7)
1+eβ X 1+eβ X

Where: P(Y) = the probability of Y occurring as defined in equation (4)

e = the base of natural logarithms

The logit regression in equation 6 and 7 are expressed in logarithm terms and overcomes the
problem of nonlinearity. The result of the logit regression varies between 0 and 1: values
closer to 0 indicates that the outcome variable (Y) is unlikely to have occurred and values
closer to 1 indicate the probability of Y occurring is very high.

The output of the logit regression model explains the probability that the outcome variable (Y)
changes when the independent variables change. Thus, a positive logit coefficient tells us that
a change in the independent variable (X) increases the probability that (Y=1). A significant
coefficient indicates that the positive effect is statistically significant. But the logit coefficient
does not tell us by how much percentage the probability of (Y=1) change when the
explanatory variable (X) changes by one unit. The logit coefficient shows the direction of the
change not the magnitude of the change. The magnitude of the effect would be estimated by
calculating the marginal effects.

According to Gujarati: (2004)

∂E Yi|Xi
= F(β' X) 1 − F(β'X) β……………… (8)
∂Xi

It indicates how much percent the probability of (Y=1) changes when the X covariates change
by one unit. SPSS software version 24 has an inbuilt system to compute the coefficients of the
logit function and the marginal effects.

The sustainability of the SMMIs was measured through financial status

 29

3.7.3. Evaluation of Binary Logistic Regression Model

3.7.3.1. Overall model evaluation

a) Likelihood ratio test

Due to overall model evaluation we can see how strong the relationship between all
independent variables and dependent variable is. If logistic regression with k independent
variables demonstrates an improvement over the model without independent variables (null
model), then it provides a better fit to data (Park, Hyeoun-Ae, 2013). This is performed using
the likelihood ratio test, which compares the likelihood of the data under the full model with
the likelihood of the data under the model without independent variables. The overall fit of the
model with k coefficients can be accessed via likelihood ratio test, which tests the null
hypothesis -2 log likelihood of the null method is compared with 2 log likelihoods of the
given model. Likelihood of null method is the likelihood of obtaining the observation if
explanatory variables have no impact on the outcome. Likelihood of the given model is
likelihood of obtaining the observation if all explanatory variables are included in the model.
It measures how well independent variables influence on the dependent variable. If the p-
value for the overall model fit statistic is less than 0.05, then decline �0 with the conclusion
that at least one of the independent variables has an impact on the outcome or dependent
variable.

b) Chi-square Goodness of Fit Tests

Chi-square goodness of fit test is a non-parametric test that is used to find out how the
observed value of a given event is significantly different from the expected value. There are
two hypotheses to test in relation to the overall fit of the model:

H0: In Chi-square goodness of fit test, the null hypothesis assumes that there is no significant
difference between the observed and expected value.

H1: In Chi-square goodness of fit test, the alternative hypothesis assumes that there is
significant difference between the observed and expected value. If the p-value is less than
significance level, the null hypothesis is rejected.

c) Hosmer-Lemeshow test

Hosmer-Lemeshow test also measures how good the model is. The test evaluates whether
observed event rates match expected event rates in subgroups of the model population.
 30

Divides subjects into 10 ordered groups of subjects and then compares the number actually in
each group (observed) to the number predicted by the logistic regression model (predicted). If
the H-L goodness-of-fit test statistic is greater than .05, as we want for well-fitting models, we
fail to reject the null hypothesis that there is no difference between observed and predicted
values, implying that the model’s estimates fit the data at an acceptable level (Hosmer and
Lemeshow, 2000 pp 150).

3.7.3.2. Statistical significance of individual regression coefficients

After evaluating the overall model, the next step is to assess the significance of every
independent variable. The coefficient of it explanatory variable indicates the change in the
predicted log odds for one unit change in the i-th explanatory variable, when all other
explanatory variables remain unchanged.

a) Likelihood ratio test

As mentioned above, the likelihood ratio test is used to evaluate the overall fit model. The test
is also used to evaluate statistical significance of individual predictors.

b) Wald statistic

The Wald statistic is used to test the significance of individual coefficients in a given model
(Bewicket al.,2005). The statistic is the ratio of the square of the regression coefficient to the
square of standard error of the coefficient.

Cox and Snell’s R-Square and Nagelkerke’s R2is part of SPSS output in the ‘Model
Summary’ Table and is the most-reported of the R-squared estimates. The result indicates the
relationship between the predictors and the prediction.

3.7.3.3. Validation of Results

At this stage, the validation sample used to assess the external validity and practical
significance of the model. The predictive power of the fitted model is assessed by comparing
the correct classification percentage for the two samples. If the model produces almost the
same classification accuracy for the model fitting sample and the validation sample then the
models are said to be accurate/ valid.
 31

3.7.4. Definition and measurements of variables

Sustainability (Dependent variable): The analysis of the factors influencing sustainability of
SMEs was examined by estimating a logistic regression model. Logistic regression is used to
predict the binomial (Yes/No, 1/0 etc…) outcome of a response (dependent) variable using
one or several predictor (independent) variables as seen below. The predictors can be
binomial, categorical, or numerical. As in multiple linear regressions, we need a function that
connects the independent variables to the dependent variable.

Independent (Explanatory) variables

The choice of independent variables is largely guided by the empirical literature on the factors
affecting sustainability of small medium manufacturing industries The independent variables
were used in this study are defined in Table 5.

Demographic characteristics: weren’t much impact on dependent variable but four variables
would be selected and executed simple descriptive analysis out of many to reflect general
background of the SMMIs owners/managers: age, sex, experience and the level of education.
All of these attributes are, of course, quite general and do not represent specific preparation
for management responsibilities or for particular lines of business.

Education of respondents: Education is one of the most widely studied entrepreneurial

variables. Presumably, education is related to knowledge, skills, problem-solving ability,
discipline, motivation, and self-confidence. These may enable the SMMIs owners, managers
and employees but also entrepreneurs to cope with problems and thereby are more successful.
However, it may be that more educated entrepreneurs and SMMIs owners/managers perceive
a higher opportunity cost in staying with a marginal business. This could lead to a higher
threshold level of sustainability in order to stay with a venture. (Milagrosa,2011).

Gender of respondents: In regard to the demographic characteristic again in sex, the

researcher might expect women to have fewer opportunities to develop relevant experience, to
have fewer contacts that can provide assistance, and to have greater difficulty in assembling
resources (William, 2008).

Ethiopia in particular, in previous years women had little chance in starting and managing
businesses due to various socio-cultural practices prevailed by that time. This makes the
researcher to take sex in this assessment.
 32

Age of the respondents: On regard to the age the researcher might expect the SMMIs owned,
and managed by old people would have to perform better than the young ones. This is due to
the fact, number of years in doing business give a chance to the business owners, managers
and the managers to have enough experience which would increase efficiency, hence better
performance (Milagrosa, 2011).

Work experience of the respondents: on regard to the Work experience the researcher might
expect the SMMIs owned, and managed by experience people would have to perform better
than inexperienced. This is due to the fact, increase experience in doing business give a more
productive and sustainable to the business owners, managers and the managers to have
enough experience which would increase efficiency, hence better sustainability (Parisa
Artin,2011.)

Marketing linkage: are the vital tool in promoting sales, for example, Jones and Bartlett
(2010) argued that, for any business with growth market strategies, the organization is
attempting to gain more sales from existing market and alternatively native growth
perspective might lead the firm to develop a new product or service that can generate sales
from existing customers.

Managerial competency: In the contemporary global dynamic business environment

strategically thinking and systematically decision-making are also important for small
enterprises growth and survival (Dobbs & Hamilton, 2007). Business strategies refer to an
internal management action changing the firm plan premeditated to cope with external
environment changes in order to achieve the firm‘s business objectives (Blackbur, 2013.
Financial factors: is a score card on the financial performance of your business that reflects
when sales are made and when expenses are incurred. It draws information from the
various financial models developed earlier such as revenue, expenses, capital (in the form of
depreciation), and cost of go According to Abdel, Rowena & Robyn (2010).

Infrastructure: The availability of good infrastructures additionally controls SMEs increase

to make them Competitive in the local and worldwide markets. Infrastructure can be assured
through the provision of excellent education, health facilities, environment, water supply,
electricity supply, get entry to roads, and creation of science and science institutions to
produce aggressive entrepreneurs.

Human capital: The conduct of the entrepreneur affects the association sustainability that in
reality creates business and uses any opportunities. For instance, innovation activities, fee
 33

reduction, manufacturing effectively and any different modifications and growth and
sustainability of the company relies upon fairly on the entrepreneur capability to reply to
modifications in the environment(Hashi and Krasniqi, 2011).

Government policy: Under the government policy in Ethiopia there are some key points
which are help to motivation for the small and medium manufacturing industries. But in some
constraints there are a few policy are not well performed to motivate the sustainability of the
economic growth of the SMMIs .Right now, access of the credit, infrastructure, Input supply
and support and training. Generally, the government policy has a positive significant factor
for the sustainability of the SMMIs in Ethiopia especially in Addis Ababa.

3.7.5. Selection of dependent and independent variables

Table 5: Description of Variables
Variables Types Description Expect sign
Dependent variables
Current status of Binary 1 if existing and 0 if closed
SMEs
Explanatory variables
Human capital Categorical Useful ability, machines +
education, innovative
Infrastructure Categorical Water, road, communication, +
power
Government Categorical Political, taxes, rules guides +
policy polices.
Marketing linkage Categorical Market information, product +
differentiation, PQA,MP
Financial factors Categorical Working, interest rate +
Capital, saving habits,
Managerial factors Categorical Management skill,ME, +
multi- skill training to
perform multiple tasks
Source,(developed by the researcher, 2020)

3.5. Ethical considerations

Participants of the study were informed about the objectives of the study emphasizing that the
data was used only for the academic purpose. The data was collected using questionnaire
techniques and doing with the full consent of the participants. A statement that clearly
indicates their participation is only on a voluntary basis and they are advised not to include
their names and address on the questionnaire. Also, Careful attention was given in respecting
the rights, needs, and values of the participants; and maintaining confidentiality of the data
and acknowledging sources of information
 34

CHAPTER FOUR

RESULT AND DISCUSSION

4.1. Introduction

The total target population was 3335 small and medium manufacturing industries based on 95
percent confidence level 380 SMEs273 existing and 107 closed enterprise were selected, 94
percent 359 respondent’s response the questionnaire, about 257 (94.1 percent) existing and
102 (95.3 percent) closed small and medium manufacturing enterprise. This response rate was
excellent and conformed to (Mugenda and Mugenda,2003) argument that for generalization of
findings to the whole population the least acceptable response rate should be 50% and a
response rate of above 70% is excellent.

Among 359 completed questionnaires 162 (45.1%) of them are small enterprises and, the rest
197(54.9%) are medium enterprises. Descriptive statistics such as mean and standard
deviation were used to analyze the data. Regression analysis was used to test the relationship
between the variables under study in relation to the objectives of the study. The information
captured using the managers, employers and SMEs owners’ questionnaires (from February
first up to March first 2020 for one month) which covered demographic data, financial
sustainability factors Data collecting period spend 2 months including enumerator orientation
in this situation it was very difficult to know the population of closed and existing SMEs data
because of there wasn’t studied clear population data survey of closed and existing small and
medium manufacturing industries data.

Table 6: Response Rate

Response rate Frequency Existing Closed Percentage
Completed 359 257 102 94.47%
Incomplete 21 16 5 5.53%
Total 380 273 107 100%
Source: (field survey, 2020)
 35

4.2. Descriptive analysis of survey data

4.2.1 Demographic characteristics of respondents

Gender of the participants: The researcher sought and obtained the gender details of
respondents who participated in the research. Like other country, in Ethiopia both females and
males are operating in SMEs at different positions as owners, managers or employees.
However the percentage of their involvement in such enterprises is not equal. Depending on
figure 2.below indicates 69.9% of total sample are males and the rest 30.1% are females.
These shows majority of the government organized SMEs peoples are males.

Figure 2: Gender of the participants

Age of respondents: The findings in figure 3 showed that 5.29 percent of the respondents
were aged between 18-29 years, 15.60 percent between 30-40 years, 33.70 percent between
41-50 years, 38.44percent between 51-60 years and 6.96 percent above61years old,
respectively. Majority of enterprises respondents (38.44 percent) were between 41-50 years
old,. The mean and standard deviation age of respondents was calculated to be 3.26and 0.98
 36

these results showed that age of the respondents were leading in the total number of those own
and manage SMEs.

Figure 3: Age of respondents

(Source; field survey, 2020)

Education of the respondents: On the education level of respondents, the descriptive results
showed that: 6 respondents which were about 1.7 percent were not educated; 38 respondents
about 10.8 percent had the primary education. Furthermore the results showed that,
respondents with secondary education were 149 making about 41.5 percent of the total
respondents, 68 respondents about 18.94respondents with diploma education were and 98
making about 27.3 percent had the degree and above education. These results therefore,
shows that most of the SMMIs in the study area are owned, managed and operated by people
with secondary education followed by those with college or university degree education.
However, there are also other people with only not educated or even those without education
owning, and managing an enterprise.

Figure 4: Education of the respondents

 37

(Source; field survey, 2020)

Work experience of SMMIs:On Work experience respondents, the descriptive results

showed that SMMIs owned, and managed highest respondent between 11-15 years 35.4
percent frequencies 127,between 6-10 years 29.81 percent frequencies 107, above 16 years
26.74 percent frequencies 96,between 11-15 years 35.4 percent frequencies 127, 6-10 years
frequency 109, 30.4 percent, 98 frequency 27.3 percent and lastly less than 5 years 27
frequency 7.52 percent these results showed that age of the respondents were leading in the
total number of those own and manage SMEs were between 11-15 years.

Figure 5: Education of the respondents

(Source; field survey, 2020)

Legal structure: In accordance with the legal structure, the descriptive results showed that,
out of the 359 people interviewed it was found that 162 people used to operate their SMEs
under family business which accounted about 45.13 percent, 110 SMEs used to operate their
enterprises under partnership business which was equals to 30.64 percent. Also, 53 SMEsused
to operate their business under Corporation Company which was equals to 14.76 percent and
34 SMEsoperated their SMMIs through sole preparation that equals to 9.47 percent. This
 38

result showed that, most of the enterprises operated under family business followed by
partnership business, corporation and lastly was those people who run their SMMIs under sole
proprietorship

Figure 6: Legal structure

(Source; field survey, 2020)

4.2.2. Results of Measures of Mean and standard deviation

There are a number of challenges that affect sustainability of SMEs associated with different
factors. This part explains the descriptive statistics calculated on the basis of the factors that
affect the sustainability of SMEs. The results for measures of mean and standard deviation
were obtained from the sample of respondents of manufacturing industries shown in the
following tables.

Table 6: Mean Construct

 39

Descriptive Statistics
N M SD
Financial Factors 359 4.1749 .66864
Governmental Factors 359 3.9373 .70514

Human Capital 359 4.2663 .47573

Infrastructural Factors 359 3.8195 .73777

Managerial Competence 359 4.4262 .42634

Marketing Strategy 359 4.1411 .50170

Valid N 359
(Source: Own Survey, 2020)

The above Table 6 clearly shows, governmental and infrastructural factors have a mean value
of 3.9 and 3.8 respectively. This implies governmental and Infrastructural Factors are not
critical problems for SMEs sustainability. In reverse marketing factor, financial factor,
management factor and human capital factors have a have a mean value of 4.14, 4.17, 4.42and
4.26 respectively. Which indicates that majority of SMEs believed that marketing factor,
financial factor, management factor and human capital factors are their main obstacles to
become sustainable.

4.3. Reliability Test

Reliability has to do with the accuracy and precision of a measurement procedure. When
instruments are robust and perform well at all times under different conditions. Cronbachs
alpha is a coefficient of reliability. It is commonly used as a measure of the internal
consistency or reliability of the instrument. According to statistical interpretation, the closer
the reading of Cronbach‘s Alpha to digit 1, the higher the reliability is in internal consistency.
In general, reliabilities less than 0.60 are considered to be poor;those in the 0.70 range,
acceptable, those over 0.80 better and over 0.90 is best. (1).Cronbach’s Alpha will be
calculated to test the reliability of the research instrument. The researcher will use this
measurement to know the instruments are consistent based on time and conditions of the
instrument.In this case, reliability co-efficient of 0.833 was registered indicating abetter level
of internal consistency for the Likert scale used as shown in table 7 below.

Table 7: Reliability Test

Reliability Statistics
 40

Cronbach's Alpha Cronbach's Alpha N of Items

Based on
Standardized Items

.833 .827 47
(Source: Own Survey, SPSS V24, 2020)

4.4. Binary Logistic Regression

The above area of the study basically focused on describing demographic, government
coverage and institutional factors of small and medium manufacturing industry of the study
area, indicating sustainability and SMMIs amongst the pattern proprietors and managers of
the SMMIs as nicely as small & medium manufacturing industry across demographic,
authority’s coverage and institutional variables. In tremendous analysis, statistical
descriptions of demographic, government policy and institutional traits and description of
economic overall sustainability of SMMIs is no longer a stop through itself. Hence, similarly
duties are wanted to observe the correlates of monetary overall sustainability the usage of
regression analysis in order to answer why the SMMIs are negative and see the impact of
SMMIs impact of selected explanatory variables, human capital factors, marketing strategy
factors, financial factors, governmental and infrastructural factors with the dependent variable
of financial sustainability of the SMMIsin the study area. According to Bian Maximum
possibility estimation (MLE) it is greater suitable for logistic regression model, it maximizes
the log likelihood. And the log possibility suggests how in all likelihood the determined
grouping can be envisioned from discovered values of predictors.

Logistic regression does not make many of the key assumptions of linear regression and
general linear mannequin that are based on everyday least rectangular algorithms.
Homogeneity of variance and normality of mistakes are no longer assumed, but it requires:
Absence of multicollinearity and No specification errors: all relevant predictors are covered
and irrelevant predictors are excluded (Bian, 2013)

4.4.1. Multicollinearity

In this thesis, the IBM SPSS version 24 software was used to conduct logistic regression. Let
us see what happened when we used all 6 explanatory variables as predictors in our model.
Before estimating the models, it was necessary to check for multicollinearity. The reason for
this is that, if multicollinearity turns out to be significant, the simultaneous presence of the
two variables will attenuate or reinforce the individual effects of these variables. The problem
 41

of multicollinearity was checked by variance inflation factor VIF (variance-inflating factor)

based on the test for each variable was satisfied which is less than 10 then there is no
multicollinearity problem (Gujarati, page 366).

Table 8: Multicolinearity result

Coefficientsa
Model 95.0% Confidence Interval Collinearity
for B Statistics
Lower Upper Toleranc VIF
Bound Bound e
1 (Constant) 3.863 4.880
HCF -.201 -.045 .852 1.174
MSF -.346 -.197 .845 1.184
GF -.243 -.114 .563 1.777
MCF -.264 -.100 .959 1.043
IF -.033 .077 .713 1.402
FF -.200 -.081 .742 1.348
a. Dependent Variable: Sustainability
(Source: Own Survey, SPSS 2020)
Table 9: Case-Processing Summary
Case Processing Summary
UnweightedCasesa N Percent
Selected Cases Included in 359 100.0
Analysis
Missing Cases 0 .0
Total 359 100.0
Unselected Cases 0 .0
Total 359 100.0
(Source: Own Survey, SPSS V24, 2020)

The above table 9 the “Case Processing Summary” output it is visible that 359 cases used out
of 359 (100 percent cases included).The case processing summary simply tells us about how
many cases are included in our analysis. The dependent variable encoding reminds us how our
outcome variable is encoded ‘0’ for ‘closed.

Table 10: Clasfication 1

Classification Tablea,b
Observed Predicted
Sustainability status Percentage
Closed Existing Correct
Step 0 Sustainability status Closed 0 102 .0
 42

Existing 0 257 100.0

Overall Percentage 71.6
a. Constant is included in the model.
(Source: Own Survey, SPSS V24, 2020)

According toTable10, the model with just the constant is a statistically significant predictor of
the outcome. However, it is accurate 71.6 percent of the time! The reason we can be so
confident that our baseline model has some predictive power (better than just guessing).

4.4.2. Omnibus tests of model coefficients

The omnibus tests of model coefficients Table 11 gives the result of the Likelihood Ratio (LR)
test which indicates whether the inclusion of this block of variables contributes significantly
to model fit. A p-value (sig) of less than 0.05 for block means that the block 1 model is a
significant improvement to the block 0 model. Here the chi-square is highly significant (chi-
square=222.113, df=6, p<.005) so our new model is significantly better. TheSig.values are
p< .005, which indicates the accuracy of the model improves when we add our explanatory
variables

Table 11: Omnibus Tests of Model Coefficient

Omnibus Tests of Model Coefficients
Chi- Df Sig.
square
Step 1 Step 222.113 6 .000
Block 222.113 6 .000
Model 222.113 6 .000

(Source: Own Survey, SPSS V24, 2020)

4.4.3. Model summary

Model summary has values shown in Table indicate how good the model fits the data.

Table 12: Model Summary

Model Summary

Step -2 Log Cox & Snell R Nagelkerke R

likelihood Square Square

1 206.180a .462 .662

a. Estimation terminated at iteration number 7 because

parameter estimates changed by less than .001.
 43

a. Estimation terminated at iteration number 7 because parameter estimates changed by less

than .001.

In this summary -2 Log likelihood (goodness of fit test) is 206.180. By itself, this number is
not very informative this statistic measures how sustainability status the model predicts the
decisions (Karl L.Wuensch, 2014). The p-value for our overall model is less than 0.05, which
means that null hypothesis is rejected and there is evidence that at least one of the explanatory
variables contributes to the prediction of the outcome.

Cox & Snell R square and Nagelkerke R square are both methods of calculating the explained
variation. The Cox & Snell R2 can be interpreted like R2in a multiple regression but cannot
reach a maximum value of one. The NagelkerkeR2can reach a maximum of one (Karl
L.Wuensch, 2014). For our model, the explained variation ranges from 0.462 to
0.662depending on whether we reference Cox & Snell R square or Nagelkerke R square,
respectively. Nagelkerke R square is the modification of Cox & Snell R square and is more
preferable to use. From the Table 13, we can conclude that between 46.2 percent and the
model can explain 66.2.percent of the variation in suitability. In our case it is 0.662, indicating
a moderately strong relationship of 66.2 percent between the predictors and the prediction.

Table 13: Classification 2

Classification Tablea
Observed Predicted
Sustainability Percentage
Closed Existing Correct
Step 1 Sustainability Closed 77 25 75.5
Existing 15 242 94.2
Overall Percentage 88.9

a. The cut value is .500

The classification Table tells us how good the fitted model is for prediction purposes. Based
on Table 13 SPSS output result 359 SMEs included in the analysis, 88.9 percent of them (or
77+242=319) are classified correctly on the basis of their SMEs characteristics.

This Table is the equivalent to that in Block 0 table 11 but is now based on the model that
includes our explanatory variables. As you can see, our model is now correctly classifying the
outcome for 88.9 percent of the cases compared to 70.6 percent in the null model.
 44

4.4.4. Hosmer and Lemeshow Test

The Hosmer-Lemeshow test shown in Table 14 explores whether the predicted probabilities
are the same as the observed probabilities. An overall goodness of fit of the model is indicated
by p-values > 0.05 (Hosmer and Lemeshow, 2000 pp 150). This model produced a significant
difference between the observed and predicted probabilities indicating a sustainability model
fit.

Table 14: Hosmer and Lemeshow Test

Hosmer and Lemeshow Test
Step Chi-square Df Sig.
1 8.071 8 .427

The null hypothesis of this test is that the model fits the data well. As can be seen from the
Table 14 the Chi-square test statistic is insignificant p-value 0.427 (as the p-value exceeds 5
percent).Thus, we can conclude that the model fits the data well.

4.4.5. Interpretation of the model

The next Table 15 provides the regression coefficient (B), the Wald statistic (to test the
statistical significance) and the all-important Odds Ratio (Exp (B)) for each variable. When If
the odds ratioExp (B) is less than one, then this means that a one-unit decrease explanatory
variable the odds (or the likelihood) of being sustainable is decrease by the factoroddsratioExp
(B. In the other way, deduct the odds ratioExp (B) from one, then probability of odds, a one-
unit increase explanatory variable the odds (or the likelihood) of being sustainable is increase
bythe factor odds ratioExp (B).

Table 15: Variables in the Equation

Variables in the Equation

B S.E. Wald Df Sig. Exp(B) 95% C.I.for

EXP(B)
Lower Upper
Step 1 a
HCF -.879 .425 4.287 1 .038 .415 .181 .954
MSF -2.686 .510 27.721 1 .000 .068 .025 .185
IF .266 .319 .697 1 .404 1.305 .699 2.437
GF -1.373 .384 12.784 1 .000 .253 .119 .538
FF -1.998 .445 20.172 1 .000 .136 .057 .324
MCF -1.362 .474 8.269 1 .004 .256 .101 .648
Consta 35.591 4.202 71.741 1 .000 2864750
nt
 45

a. Variable(s) entered on step 1: Human Capital, Marketing Strategy, Infrastructural Factors,

Governmental Factors, Financial Factors, and Managerial Competence.
*** Significant at 10%; ** Significant at 5%; * Significant at 1%
(Source: output, SPSS V24, 2020)

The variable human capital factor is significant at the 5 percent level of significance(p-value
0.038). The odd ratio for human capital factor is 0.415Human capital factors a one-unit
Human capital factor decreases the likely of being sustainability of SMEs decreases by 41.5%.
Or a one –unit human capital increases the likely of being sustainableof SMEs increases by
58.5%.

The variable marketing factor is significant at the 5 percent level of significance(p-value

0.000). The odd ratio for marketing factor is 0.068 indicates one unit marketing factor
decreases the likely of being sustainabilityof SMEs decreases by 6.8%.or a one –unit
marketing factor increases the likely of being sustainableof SMEs increases by 93.2%.

The variable governmental factor is significant at the 5 percent level of significance (p-value
0.000). The odd ratio for governmental factor is 0.253indicates a one–unit governmental
factor decreases the likely of being sustainability of SMEs decreases by 25.3 %.or a one-unit
governmental factor increases the likely of being sustainable of SMEs increases by 74.7 %.

The variable infrastructural factor isn’t significant at the 5 percent level of significance (p-
value 0.404). The odd ratio for human capital factor is 1.305 and can’t be interpreted.

The variable Financial Factors is significant at the 5 percent level of significance (p-value
0.000). The odd ratio for Financial Factors is 0.136indicates a one-unit Financial Factors
decreases the likely of being sustainability of SMEs decreases by 13.6 %.or a one-unit
financial factors increases the likely of being sustainableof SMEs increases by 86.4%.

The variable Managerial Competence is significant at the 5 percent level of significance (p-
value 0.004). The odd ratio for Managerial Competence is 0.256indicates a one-unit
Managerial Competence decreases the likely of being sustainability of SMEs decreases by
25.6%.or a one-unit managerial competence increases the likely of being sustainableof SMEs
increases by 74.4%.

The general equation is like: In [p/ (1-p)] =a+b1X1+ b1X2+ b3X3+ b4X4+ b5X5+ b6X6

In [p/ (1-p)] = 35.591-0...879HCF-2.686MSF+0.266 IF-1.373GF-1.998FF-1.362MCF.

 46

Table 16: Spearman’s Rho independent variable Correlations

Correlations
HCF MSF IF GF FF MCF
Spearman's rho HCF Correlation 1.000 .313** .160** .366** .278** .172**
Coefficient
Sig. (2-tai Sig. (2-. .000 .002 .000 .000 .001
tailed)
N 359 359 359 359 359 359
MSF Correlation .313** 1.000 .243** .351** .288** .175**
Coefficient
Sig. (2-tailed) .000 . .000 .000 .000 .001
N 359 359 359 359 359 359
IF Correlation .160** .243** 1.000 .566** .333** .085
Coefficient
Sig. (2-tailed) .002 .000 . .000 .000 .108
N 359 359 359 359 359 359
GF Correlation .366** .351** .566** 1.000 .514** .272**
Coefficient
Sig. (2-tailed) .000 .000 .000 . .000 .000
N 359 359 359 359 359 359
FF Correlation .278** .288** .333** .514** 1.000 .197**
Coefficient
Sig. (2-tailed) .000 .000 .000 .000 . .000
N 359 359 359 359 359 359
MCF Correlation .172** .175** .085 .272** .197** 1.000
Coefficient
Sig. (2-tailed) .001 .001 .108 .000 .000 .
 47

N 359 359 359 359 359 359

**. Correlation is significant at the 0.01 level (2-tailed).
(Source: own survey, SPSS 2020)

S.No Hypothesis Result The closer

ris to zero
1 There is positive relationship between Accept
Managerial Competence and sustainability of the weaker
SMMIs
the
2 There is positive relationship between Financial Accept
associatio
Factors and sustainability of SMMIs
n between
the ranks.
3 There is positive relationship between Reject
Measures
Infrastructural Factors and sustainability of
technique
SMMIs
which can
4 There is positive relationship between Accept
be used to
Governmental Factors and sustainability of
summarize
SMMIs
the
5 There is positive relationship between marketing Accept
strength
strategy factors and sustainability of SMMIs
and
6 There is positive relationship between human Accept
capital factor and sustainability of SMMIs direction
(negative
or positive relation between two variables the result always is between 1 and minus 1.

As we can see from table 8 there is no strong pair-wise correlation between sustainability
(Independent Variables). As a rule of thumb, Bryman and Cramer (1999,) stated that the
independent variables that show a relationship at or in excess of 0.80 suspected of exhibiting
multicollinearity. In this study as shown in table 16, there is no relationship that equals or
exceeds spearman correlation coefficients of 0.80. Table 16 below generally indicates that the
correlation coefficients for the relationships between independent variables are linear and
positive ranging from substantial to minimum correlation coefficients.

4.5. Hypothesis Testing Result

Table 17: Table Hypothesis Summary

 48

(Source: Hypothesis testing result, 2020)

The first hypothesis result shows unexpected result in relation with many studies. For instance
(dun and Bradstreet,2010) mentioned that, Irrespective of the size of any business large,
medium or small, several researches and statistics appear to have ranked poor management or
management inability the main cause of business failure. Hill, 2007 also stated that Many
SME owners and managers lack managerial training and experience. In this study also
revealed that there is significant problem concerning management factor.

The second hypothesis studies agreed with the financial, problems of SMEs. Ademola&
Michael also identified key challenges of SMEs among them poor accounting method and
practices have been mentioned (Ademola and Michael, 2012). (Nega&hussein, 2016) also
revealed that The constraints that Ethiopian small and medium enterprises encounter include
access to land; tax rate and administration; labor constraints; and access to finance issues and
this study was also supported. In the case of access to finance SMEs should have to provide
clear business plans and financial statements to be trusted by banks during loan application.
Moreover the government should create incentives for banks to increase their SME lending
capacity. And the stakeholders should increase access to micro credits and create awareness to
easily lend for SMEs.
 49

The fourth hypothesis governmental factors is significant factor and accepted for
sustainability of small and medium manufacturing industries which according to (Mann,2014)
also makes observation on political- legal factor mainly on government regulation about
wages, taxation, licensing and others are among the important reasons why the informal sector
business failed

Besides this (Derese,2014) supported this study and infrastructural factor is not significant the
government should address infrastructure problems to small and medium Enterprises as it is
rated in data collections electricity supply, water supply, communication Services aren’t
affecting positively their sustainability of Small and Medium Enterprise.

CHAPTER FIVE

CONCLUSION AND RECOMMENDATIONS

5.1. CONCLUSION
 50

This thesis evaluates factors that affecting Sustainability of Small and Medium Manufacturing
enterprises. It contributes to identify factors affecting sustainability of small and medium
manufacturing industries, in order to minimizing the failures of SMEs and maximizing the
economic contribution of the economy. Although from the sub cities administration, it was
found that there is no clear data that specified factors affecting sustainability of SMEs of
closed and existing enterprises,

The researcher goes far in stating what has been done by the government to solve the
problems of SMEs sustainability in Addis Ababa in the past years due to the delimitation of
the research since 1996, Addis Ababa started organizing structured small and medium
enterprise agency. It is a large-scale approach to create employment, import substitution,
innovation and contributing to the economy by organizing and supporting the enterprises
access to finance, export promotion, business development services, capacity building
maximizing entrepreneur’s skills to improve, product quality. Currently Small and medium
manufacturing industries fails time to time and reducing their contribution to economic
growth and development.

The data collected from 359 SMEs managers’ owners and employers both “closed SMEs” and
“existing SMEs”. The dependent variable took 2 values: “0” or “1” depending on whether the
respondents were closed SMEs or existing SMEs based current financial sustainability. 6
explanatory variables were included in the model. 6 of them were continuous variables. The
study conducted binary logistic regression in IBM SPSS software version 24, which
calculated the predicted probability of the event. This paper rather tried to identify internal
and external obstacles of facing financial sustainability of enterprises using SMEs survey data
2020.

The paper concludes econometric results reflected in this study indicated that SMMIs a one –
unit marketing strategy increases the likely of being sustainable increases 93.2%, Financial
factors a one-unit increases the likely of being sustainable increases by 86.4%, MCFa one -
unit increases the likely of being sustainable increases by 74.4%, and As Human capital a one
unit increases the likely of being sustainable increases by 58.5% whereas Infrastructural
Factors was insignificant.

The empirical study elicited major internal and external factors which seem to affect
sustainability of SMEs. According to the participants’ perception, the study revealed that the
most important internal factors that influence SMEs sustainability are managerial and human
 51

capital factors and marketing, financial and governmental factors are major external factors
that affecting SMEs sustainability.

The paper also concludes that management factors which include Poor Management Skills
which includes Lack of Monitoring and Evaluation, Lack of clear mission and vision, Lack of
skills to handle new technology, Lack of multi- skill training to perform multiple tasks and
Human Capital Factor the key internal variables that affect sustainability of Addis Ababa
SMEs.
On the other hand, marketing variables (Poor customer handling system, Lack of available
market information, Lack promotion, Lack of connection with successful and other business,
Lack of adaptability), financial variables (Lack of access to finance, poor Book keeping and
accounting system, High interest rate, Shortage of working capital and Insufficient availability
of raw material) and governmental factors (Lack of government support, tax and Lack of
accessible information on government, regulations).

The paper also concludes test significance of the model omnibus test and model summary was
performed; from it can be observed from the table 4.8 omnibus test of the model as whole is
significant. X2 (6, N=359) =222.113, P<0.000. And the model summary Cox & Snell and
Nagelkerke R Square indicated 46.1.5% and 66.2% of the variation in sustainability is
explained by independent variables.

The binary logistic regression equation [p/(1-p)]=35.591-0...879HCF2.686MSF+0.266IF-

1.373GF-1.998FF-1.362MCFwas used to testsixhypothesizes as shown in table 4.5 Based on
that human factor (β =.0...879, p= .038) and marketing strategy factor (β = -2.686, p=. 000)
Governmental Factors (β = -1.373, p= .000) Financial Factors (β =-1.998, p= .000), and
Managerial Competence (β=-1.362,p=.004) have significant relationship with sustainability.
The remaining factors; Infrastructural Factors (β = 266, p= 0.404), insignificant relationship
with dependent variable sustainability of SMEs.

5.2. Recommendations

In Addis Ababa small and medium manufacturing enterprise failuresdevastates the economy
by extreme increasing unemployment, low economic contribution, dependency, inequalities
lack of export and import substitution, ineffective and inefficient utilization of local raw
materials and participation to the economy due to different factors. The results and analyses
 52

above suggest that policy interventions are necessary to identify factors of sustainability to
reduce failures of SMMIs in Addis Ababa in general.

Based on the empirical findings, the following recommendations were forwarded.

1. The results of the study indicate that human capital factor significantly and positively affect
the sustainability financial status of being sustainable. The situation related to
entrepreneurship trainings, education level, educational statues, creativity innovative activities,
upgrading skills with current technology; trainings of owners, managers are basic to solve
such kind of problems and improving the survival of SMEs.

2. The price of raw materials is increasing from time to time; therefore, the distribution of raw
materials must be in the hand of government even if it is difficult. Solving the working
premise by providing suitable site and appropriate tax levied in accordance with their incomes.
In this regard, the tax system needs proper attention as many SMEs have complaints over the
existing subjective method of tax assessment and levied which is based on subjective
estimation and beyond the ability to bear as most of them do not have audited financial
statements (conventional financial record keeping)

3.There is a need to make sure that the SMMIs owners and managers and the community at
large are educated and encouraged to organize themselves in savings and credit cooperative
societies cash flows that will enable them to borrow some money for starting and expanding
business because financial factors are frequently indicated as the explanatory factor for most
problems faced by the studied SMEs therefore, it is necessary to solve this problem.

4.There is also, other way SMEs in Addis Ababa should not totally rely on government
agencies; they should attempt to find their own path of progress by relying on strategies which
allow them to access new markets, increase their revenue and expand their customer base. By
establishing long-term relationships with customers they are able to build customer loyalty
and in turn reduce the cost of operation. Prior research (for example Reicheld 1993;
Ndubisi2003) has shown that it is far cheaper to serve an existing (loyal) customer than to
attract and serve a new one.

5.The major marketing constraint for the SMEs sector include lack of available market
information and lack of creating awareness about the product therefore The culture of
participating in exhibition and bazaar must also give take off since it benefits the economy as
a whole and SMEs operators in particular. And also there is a great lack of information on the
 53

changing environment market information if, small and medium enterprises have to be
sustainable there has to be available information as fast as possible.

6. Finally this type of researches on factors affecting sustainability of SMEs should be

continuously progressed since they can be as an input to policy makers and concerned
stakeholders. Small and Medium Enterprises are one of the building blocks of both developed
and developing economy, and understanding the sustainability behaviors of SMEs is quite
heterogeneous. With aim of that, both firm specific factor including: governmental, human
capital and managerial competence, access to finance, access to market, and infrastructure
were used in this study.

5.3. Limitations of the Study and Areas for Further Research

The major constraints faced by the researcher while conducting this study was first lack of
formal and documented data on closed/failed small and medium manufacturing industries. In
addition to difficulty during data collections & lack of up to dated information from central
statistical agency, the findings of the study can‘t necessarily represent for all SMEs sectors
that are service, construction, agricultural and Trade sectors, because the study was only
manufacturing sector industries SMEs in Addis Ababa even not representation of the entire
SMEs in the country because of shortage of time and financial resource.

Currently, there is also no reliable and current data on the SMMIs sector. Most of the recent
surveys were limited in coverage and compilation of critical data that would facilitate further
analysis on the role of SMMIs from both socio economic and macroeconomic perspectives
(Davis1996).In this case there is a need further studies can be carried on strategies of small
and medium business sustainability.

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APPENDICES

Appendix 1. Survey Instrument

Section 1.The Structured Questionnaire of the study participant

Introduction to the respondent:

I am a postgraduate student of the above mentioned institution. The purpose of this

questionnaire is to collect information on “Factors Affecting Sustainability of Small and

 58

Medium Manufacturing Industries.” The information that you share me will be kept

confidential andonly used for academic purpose and cannot affect you in any case. So, your

genuine, honest and timely response is vital for accomplishment of this study on time.

Therefore, I kindly ask you to give your response to each items/questions carefully.

Sincerely,
BizuworkGetamesay

Instruction
1. No need of writing your name.
2. For multiple choice questions indicate (√) sign in the appropriate block.
3. For likert scale type statements mark (√) sign only once for the given variables depending
on Your level of agreement.

Section2: General Information on the Manufacturing Industries and Participants

1. Gender A. Male B. Female

2. Age A. 18-25 B. 26-30 C. 31-40

D. 41-50 E. 50 and above

3. Education Qualification A. No formal Education B. Primary

C. Secondary D. Diploma E Degree and above

 59

4. Work experience of respondents A. 0- 5 B.6-10

C.11-15 D. 16 and Above

5. Current Status of the enterprise? A. Existing B Closed

6. Legal structure enterprise? A. sole proprietorship B. partnership

C. Corporation D) others
Section 3.Internal and External Factors Affecting Sustainability of Small and Medium
Manufacturing Industries.
Please indicate your opinion regarding following statements,(1.Strongly disagree (SD),
2.disAgree (D), 3.Neutral (N), 4. agree (A), 5. Strongly agree (SA))

Please indicate your opinion regarding following statements (1.Strongly disagree (SD),
2.disAgree (D), 3.Neutral (N), 4. agree (A), 5. Strongly agree (SA))

S.No Financial Factors 1 2 3 4 5

2.1 Insufficient working Capital
2.2 Poor saving habits
2.3 Poor cash flow
2.4 High interest rate
2.5 Lack of access to finance
S.No managerial Competence Factors 1 2 3 4 5
1.1 Poor Management Skills
1.2 Lack of Monitoring and
Evaluation
1.3 Lack of clear mission and vision
1.4 Lack of skills to handle new
technology
1.5 Unable to select proper new
technology
1.6 Lack of multi- skill training to
perform multiple tasks

Please indicate your opinion regarding following statements (1.Strongly disagree (SD),
2.disAgree (D), 3.Neutral (N), 4. agree (A), 5. Strongly agree (SA))
 60

Please indicate your opinion regarding following statements (1.Strongly disagree (SD),
S.No Governmental Policy 1 2 3 4 5
3.1 Inflation
3.2 Political intervention
3.3 government support
3.4 Governmental rules -and policies
affect some business sectors and pose
a stringent burden.
3.5 The tax levied on my business is not
reasonable
3.6 Lack of accessible information on
government regulations that are
relevant to my business

2.disAgree (D), 3.Neutral (N), 4. agree (A), 5. Strongly agree (SA))

S.No Marketing Strategy 1 2 3 4 5
4.1 Lack of promotion to attract potential
users
4.2 Lack of product quality assurance
4.3 Searching new market is so difficult
4.4 Poor Market Research
4.5 Lack of available market information
4.6 Lack of demand forecasting
4.7 High Competitions
4.8 Lack of export your products directly
4.9 Poor customer relationship and
handling

Please indicate your opinion regarding following statements (1.Strongly disagree (SD),
2.disAgree (D), 3.Neutral (N), 4. agree (A), 5. Strongly agree (SA))

S.No Infrastructural Factors 1 2 3 4 5

5.1 Power interruptions
5.2 insufficient and interrupted water
supply
5.3 Lack of sufficient and quick
transportation service
5.4 Lack of appropriate dry waste and
sewerage system
5.5 Poor or interrupted communication
system (mobile and internet)
 61

Please indicate your opinion regarding following statements (1.Strongly disagree (SD),
2.disAgree (D), 3.Neutral (N), 4. agree (A), 5. Strongly agree (SA))

S.No Human Capital Factor 1 2 3 4 5

6.1 Do you think SMMIs sustainability
is affected by education level?
6.2 Have you received any
entrepreneurship trainings?
6.3 Did you get special training which
will upgrade your skill?
6.4 How do you describe innovative
activities in the SMMIs?
6.5 Do you think your education status
affect your enterprise sustainability

SECTION 4: Interview Guidelines for Business owners

1. What are your plans for the future, financial sustainability where do you see yourself and
your business say in 5 years’ time?

2. What possible actions should be undertaken to minimize the problem of small and medium
enterprises sustainability/failure?
 62

SECTION 5: Interview Guidelines for Head of manufacturing industry bureau of Addis

Ababa
1. What is the role of Addis Ababa manufacturing industry bureau in promoting SMMIs
Sustainability?
2. What internal and external factors hampering sustainability/failure of SMMIs?

Thank you!!

ኢትዮ ጲያ ሲቪል ሰ ር ቪስ ዩ ኒ ቨ ር ሲቲ

የ ምጣኔ ሀ ብ ት ት ምህ ር ት ክ ፍ ል

ለ አ ነ ስ ተ ኛ ና መካ ከ ለ ኛ ማን ፋ ክ ቸ ሪ ን ግ አ ምራ ች ኢ ን ዱ ስ ት ሪ ዎ ች የ ተ ዘ ጋ ጀ
መጠይ ቅ
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ክ ፍ ል 1፡ መግ ቢ ያ

ውድ የ ጥ ና ቱ ተ ሳ ታ ፊ ዎ ች ፡ -

እ ኔ ብ ዙ ወ ር ቅ ጌ ታ መሳ ይ የ ኢ ት ዮ ጵ ያ ሲ ቪ ል ሰ ር ቪ ስ ዩ ኒ ቨ ር ስ ቲ ተ ማሪ ስ ሆ ን
መጠይ ቁ ን ያ ዘ ጋ ጀ ሁ ት የ ድ ህ ረ ምረ ቃ የ ጥ ና ት ፅ ሁ ፌ ን ለ መስ ራ ት ነ ው፡ ፡ የ ዚ
ህ ጥ ና ት ዋ ና አ ላ ማ፡ በ አ ዲ ስ አ በ ባ ከ ተ ማአ ስ ተ ዳ ደ ር ያ ሉ በ አ ነ ስ ተ ኛ ና መካ
ከ ለ ኛ ማኑ ፋ ክ ቸ ሪ ን ግ ኢ ን ዱ ሰ ት ሪ ዎ ች ቀ ጣይ ነ ት ላ ይ ተ ጽ እ ኖ የ ሚያ ሳ ድ ሩ ው
ስ ጣዊ ና ውጫዊ ጉ ዲ ዮ ች ላ ይ መረ ጃ ለ መሰ ብ ሰ ብ ነ ዉ፡ ፡ በ ዚ ህ መጠይ ቅ ላ ይ የ ሚ
ሰ ጡት ሀ ሳ ብ ሚስ ጥ ራ ዊ ነ ቱ የ ተ ጠበ ቀ ና ለ ት ምህ ር ት አ ላ ማብ ቻ የ ሚውል መሆ ኑ
ን በ ቅ ድ ሚያ ማስ ታ ወ ቅ እ ወ ዳ ለ ሁ ፡ ፡ በ መሆ ኑ ምየ እ ር ስ ዎ ግ ል ጽ ና እ ውነ ተ ኛ
የ ሆ ነ ምላ ሽ ለ መመረ ቂ ያ ጽ ሁ ፌ በ ጣምአ ስ ፈ ላ ጊ በ መሆ ኑ ከ ዚ ህ በ መቀ ጠል ያ ለ
ት ን ጥ ያ ቄ ዎ ች ን በ ጥ ን ቃ ቄ እ ን ዲ ሞላ ስ ል በ ት ህ ት ና እ ጠይ ቃ ለ ው፡

ከሰላምታጋር

ብዙወርቅጌታመሳይ

መመሪያዎች

በዚህመጠይቅላይስምመጻፍአስፈላጊአይሆንም፡፡

ለምርጫጥያቄዎችከምርጫውአጠግብባለትክፍትቦታዎችይህንምልክት(√)ያስቀምጡ::

ክፍል2፡አጠቃላይመረጃዎች

1.ፆታ A. ወንድ B. ሴት

2. እድሜሀ. 18 እስከ 25 ለ.26 እስከ 30 ሐ.ከ31 እስከ 40

 64

መ. 41 እስከ 50 ሠ.ከ 51 እናከዚያበላይ

3. የትምህርትደረጃሀ. መደበኛትምህርትያልተማረለ.የመጀመሪያደረጃ

ሐ. ሁለተኛደረጃመ. ዲፕሎማሠ. ዲግሪእናከዚያበላይ

4.የስራልምድሀ.ከ1 እስከ 5 ዓመት ለ.ከ 6 እስከ 10 ዓመት

ሐ.ከ11 እስከ 16 ዓመት መ.ከ16 ዓመትበላይ

5.ኢንተርፕራዞችአሁንያሉበትሁኔታሀ. በስራላይሉ.የተቋረጠ

6.የኢንተርፕራዙአደረጃጀትሁኒታሀ.ኃ/የተ/የግል/ማ ለ.ሽርክና

ሐ.ማህበር መ.ሌሎች

ክፍል3፡በአነስተኛእናመካከለኛኢንተርፕራይዞችላይተጽእኖየሚያሳድሩነገሮች

ከዚህበታችከተዘረዘሩትችግሮችየኢንተርፕራይዞችቀጣይነትላይይበልጥተጽእኖየሚያሳድሩትንበደ
ረጃያመላክቱ፡፡ለእያንዲንደጥያቄከአማራጮቹአንደንብቻምልክት(√)
በማድረግምላሽይስጡ፡፡1.በጣምአልስማማም2.አልስማማም3.ለመወሰንእቸገራለው 4.
እስማማለው 5.በጣምእስማማለው
ተ.ቁ ከስራአመራርክህሎትጋርተዛማጅችግሮች 1 2 3 4 5

1.1. አናሳሆነየስራአመራርብቃት
1.2. ግምገማናክትትልያለመኖር
1.3. ጥርትያለራዕይናተልዕኮአለመኖር
1.4. አዲስቴክኖሎጂለመጠቀምአቅምማነስ
1.5 አዲስትክክኛቴክሎኖጅያለመጠቀም
1.6. ግልጽያልሆነበሰራተኞችመካከልየተደረገየስራክፍፍል
ለእያንዲንደጥያቄከአማራጮቹአንደንብቻምልክት(√)
በማድረግምላሽይስጡ፡፡1.በጣምአልስማማም2. አልስማማም3.ለመወሰንእቸገራለው
4.እስማማለው 5.በጣምእስማማለው

ተ.ቁ ከገንዘብጋርየተያያዙችግሮች 1 2 3 4 5
2.1. በቂየሆነየገንዘብምንጭአለማግኘት
2.2. የሂሳብመዝገብአያያዝአለመኖር
2.3. ከፍተኛሆነየብድርወለድ
 65

2.4. የመስሪያገንዘብየሚሆንካፒታልእጥረት
2.5. ለስራውየሚሆኑየጥሬእቃዎችእጥረት

ለእያንዲንዱጥያቄከአማራጮቹአንደንብቻምልክት(√)
በማድረግምላሽይስጡ፡፡1.በጣምአልስማማም2.አልስማማም3.ለመወሰንእቸገራለው4.እስማማለው
5.በጣምእስማማለው

ተ.ቁ ከመሰረተልማትጋርየተያይዙችግሮች 1 2 3 4 5
3.1. የኤሌትሪክሀይልመኮራረጥ
3.2. የተቆራረጠናበቂያለሆነዉሃአቅርቦት
3.3. በቂናፈጣንየሆነየትራንስፖርትአገልግሎትአለመኖር
3.4 በቂየደረቅናፍሳሽቆሻሻማስወገጃስርአትያለመኖር
3.5. ወጥየሆነየኮሚንኬሽንሽፋንአለመኖር

ለእያንዲንዱጥያቄከአማራጮቹአንዱንብቻምልክት(√)በማድረግምላሽይስጡ፡፡1.በጣምአልስማማ
ም2. አልስማማም3.ለመወሰንእቸገራለው 4.እስማማለው5. በጣምእስማማለው

ተ.ቁ መንግስታዊጉዳዮች 1 2 3 4 5
4.1. የመንግስትእርዲታበቂያለመሆን
4.2. በንግድላይየተጣለውግብርተመጣጣኝያለመሆን
4.3. የፖለቲካውበንግደላይጣልቃመግባት
4.4. በቂመረጃያለማግኘትስለፖሲሊእናመመሪዎች
4.5 የመንግስትድጋፍአለማግኜት
4.6 የዋጋንረት

ለእያንዲንዱጥያቄከአማራጮቹአንደንብቻምልክት(√)በማድረግምላሽይስጡ፡፡1.በጣምአልስማማም
2.አልስማማም3.ለመወሰንእቸገራለው 4. እስማማለው 5.በጣምእስማማለው

ተ.ቁ የሰዉሀብትብቃትእንከኖች 1 2 3 4 5

5.1. የትምህርትደረጃበቀጣይነትላይእንከንፈጥሯል
5.2. እዉቀትንለማሻሻልስልጠናዎችወስደዋል
5.3. የentrepreneurshipsስልጠናወስደዋል
5.4. የሰዉሀይልለድርጂትእድገትናቀጣይነትያለዉአስተዋፅኦከ
ፍተኛነዉ
5.5 በድርጂትዎዉስጥያለዉንየስራፈጠራእንዴትያዩታል

ተ.ቁ ከግብይትጋርተዛማጅችግሮች 1 2 3 4 5
 66

6.1. ዝቅተኛየሆነየደንበኛአያያዝ
6.2. የገበያውንመረጃበፍጥነትአለማግኘት
6.3. ስለምርቱበቂየሆነመረጃለማህበረሰቡአለማስተላለፍ
6.4. በስራውዘርፍከተሳካላቸውየንግድማህበራትወይምሰዎችጋር
አናሳየሆነግንኙነት
6.5. በፍጥነትከሚለዋወጠውየገበያሁኔታጋርአብሮአለመሄድ

ለእያንዲንዱጥያቄከአማራጮቹአንደንብቻምልክት(√)
በማድረግምላሽይስጡ፡፡1.በጣምአልስማማም2.አልስማማም3.ለመወሰንእቸገራለው 4.
እስማማለው 5.በጣምእስማማለው

ክፍልአራት፡ለኢንተርፕራዝባለቤቶችየቀረበጥያቄዎች

1.የአነስተኛእናመካከለኛኢንተርፕራይዞችንቀጣይነትባለውሁኔታለማስኬድምንአይነትስራዎች
መሰራትአለባቸውብላችሁታስባላችሁ?

2.የድርጅቱእቅድ፤ፋይናንስአቅምናቀጣይነትየዛሬአምስትአመትምንይመስላልብለክትገምታልክ/ሽ?

ክፍልአምስት፡ለአዲስአበባአነስተኛናመካከለኛማንፋክቸሪንግኢንዱስሪትሪቢሮሀላፊዎችየቀረበጥያ
ቄዎች

1.ለአዲስአበባአነስተኛናመካከለኛማንፋክቸሪንግኢንዱስሪትሪቢሮአምራቾችንቀጣይነትለማጎልበት
ምንይሰራል?

2.በእርሶእይታአነስተኛናመካከለኛማንፋክቸሪንግአምራቾችኢንዱስሪትሪዎችየፋናንስቀጣይነትያሉ
ባችዉዉስጣዊናዉጫዊችግሮችምንናቸዉይላሉ?

አመሰግናለሁ!!

Appendix 2.Descriptive Statistics of the variables

Descriptive Statistics
N M SD
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Human Capital 359 4.2663 .47573

Marketing Strategy 359 4.1411 .50170
Infrastructural 359 3.8195 .73777
Factors
Governmental 359 3.9373 .70514
Factors
Financial Factors 359 4.1749 .66864
Managerial 359 4.4262 .42634
Competence
Valid N 359

Appendex3: Annex to the Logistic Regression Result

TableA.Multicoliarity result

Coefficientsa
Model 95.0% Confidence Interval Collinearity
for B Statistics
Lower Upper Toleranc VIF
Bound Bound e
1 (Constant) 3.863 4.880
HCF -.201 -.045 .852 1.174
MSF -.346 -.197 .845 1.184
GF -.243 -.114 .563 1.777
MCF -.264 -.100 .959 1.043
IF -.033 .077 .713 1.402
FF -.200 -.081 .742 1.348
a. Dependent Variable: Sustainability

TABLE B: Case Processing Summary

Case Processing Summary

UnweightedCasesa N Percent
Selected Cases Included in Analysis 359 100.0

Missing Cases 0 .0
Total 359 100.0
Unselected Cases 0 .0
Total 359 100.0
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Table C: encoding

Dependent Variable Encoding

Original Value Internal Value

Closed 0
Existing 1

Table D: Block 0: Beginning Block

Classification Tablea,b
Observed Predicted
Sustainability Percentage
Closed Existing Correct
Step 0 Sustainabili Closed 0 102 .0
ty Existin 0 257 100.0
g
Overall Percentage 71.6
a. Constant is included in the model.
b. The cut value is .500

Table E: Block 1: Method = Enter

Omnibus Tests of Model Coefficients

Chi-square df Sig.

Step 1 Step 222.113 6 .000

Block 222.113 6 .000
Model 222.113 6 .000

Table F: Model Summary

Model Summary
Step -2 Log likelihood Cox & Snell R NagelkerkeR
Square Square
1 206.393 a
.461 .662
a. Estimation terminated at iteration number 7 because parameter estimates
changed by less than .001.
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Table H: Hosmer and Lemeshow Test Result.

Hosmer and Lemeshow Test

Step Chi-square Df Sig.

1 8.071 8 .427

TABLE G: Classification Table

Classification Tablea
Observed Predicted
Sustainability Percentage
Closed Existing Correct
Step 1 Sustainabili Closed 77 25 75.5
ty Existin 15 242 94.2
g
Overall Percentage 88.9
a. The cut value is .500
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Variables in the Equation

B S.E. Wald df Sig. Exp(B)
Step Managerial -1.362 .474 8.269 1 .004 .256
1a Competence
Financial Factors -1.998 .445 20.172 1 .000 .136
Governmental -1.373 .384 12.784 1 .000 .253
Factors
Infrastructural .266 .319 .697 1 .404 1.305
Factors
Marketing Strategy -2.686 .510 27.721 1 .000 .068
Human Capital -.879 .425 4.287 1 .038 .415
Constant 35.591 4.202 71.741 1 .000 286475041
0000000.00
0
a. Variable(s) entered on step 1: Managerial Competence, Financial Factors, Governmental
Factors, Infrastructural Factors, Marketing Strategy, and Human Capital.

Table H: Variables in the Equation

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Table H: Contingency Table ForHosmer And Lemeshow Test

Contingency Table for Hosmer and Lemeshow Test

Sustainability = Closed Sustainability = Total
Existing
Observed Expected Observed Expected
Step 1 1 33 34.348 3 1.652 36
2 31 28.200 5 7.800 36
3 16 17.487 20 18.513 36
4 9 10.300 27 25.700 36
5 8 6.313 28 29.687 36
6 3 2.986 33 33.014 36
7 1 1.406 35 34.594 36
8 1 .657 35 35.343 36
9 0 .251 36 35.749 36
10 0 .052 35 34.948 35
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Appendix 4: Map of the study area

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Appendix 5: Image sample of SMMIs in the study area

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