Essay Small, Medium Enterprises (SME) are Important to the Economic Growth – Management Assignment Help

Assignment Task:

Task:

1. Introduction[MM2] 

            Small, Medium Enterprises (SME) are important to the economic growth of the country,

job creation and national competitiveness

(Ye & Kulathunga, 2019;

Gupta & Gregoriou, 2018; Ipinnaiye, Dineen, & Lenihan, 2017)

.

Sexton and Van Auken (1985)

found in their longitudinal analysis that the survival rates of SME that apply formal strategic planning are higher.

Boyd (1991)

found that the probability of survival is substantially smaller for non-planning enterprises.

Birley and Niktari (1995)

found an association between the failure of small firms and a lack in business planning.

Castrogiovanni (1996)

linked the lack of strategic planning with higher mortality rates of SMEs.

Miller and Cardinal (1994)

claimed that planning produces better results than non- planning.

Michalisin et al (1997)

stated that firms can achieve sustainable competitive advantage from such resources as strategic planning.

The reason strategic

planning

for sustainable business is important can be observed from the following example. The South African formal business sector, generated R10,5 trillion in total turnover in the 2019 financial year, of which small businesses were responsible for generating 22% and medium sized businesses contributed 10% of the turnover

(Statistics South Africa, 2020)

.

This shows the increasing role that SMEs are playing as an economic driver

. Therefore, maintaining a lucrative business should be an interest for all SME owners and the Government because of the associated economic opportunities. Furthermore,

the SME sector, collectively, employ about 47% (10.8 million) people in South Africa, accounts for 66%

[MM3] 

of all formal jobs, with the contribution of more than 20% of the country’s GDP and pay 6% in corporate taxes

(Krishnan

&

Scullion, 2017;

Masarira & Msweli, 2018; de Bruyn, 2019

).

However, SMEs are characterised by a high failure rate and often low performance. According to Bushe (2019),

Bruwer and Smith (2018)

and

Otieno, Namusonge and Mugambi, (2018)

over 70 percent of small enterprises don’t survive within the first 3 -5 years of inception and there has not been a general agreement between scholars and policy makers as to why this is the case. Lai, Lin and Wang (2015), state that only 10% survive past the 10 year mark. Consequently, it has become even more important to understand under what circumstances SME’s can achieve sustainable performance and growth (Altinay, Madanoglu, De Vita, Arasli, &Ekinci, 2015,

Neis et al. 2017

). Therefore, this study seeks to find if there is any impact of strategic planning towards the sustainability of SMEs. Implementing strategic planning has been said to have the potential to assist SME owners by accessing information that might contribute to the sustainability of the enterprise (Erbas, 2019;

Gomera, Chinyamurindi, & Mishi, 2018)

.

Chapter one discusses the nature and background of the problem associated with strategic planning and business sustainability for Small, Medium Enterprises in South Africa. In this chapter the background and rationale of the study is presented. Then followed by the identification of the research problem, and further the aim and objectives of the study are stated.

2. Background to the Research Problem

There is a common consensus among economists, business experts and Government at large that small and medium enterprises (SMEs) are the key drivers of economic prosperity globally.  According to Karadag (2015), the importance of SMEs in the economy has been widely recognized since the 1980s, wherein the focus has shifted from large organisations to smaller enterprises. These economic hubs have since then, been regarded as fundamental to the development of the macro and socioeconomic policies, poverty alleviation, unemployment reduction, wealth generation and they ignite the economic growth of many developed and developing or emerging countries (Samson & Mahmood, 2015;

Toulova, Votoupalova, & Kubickova, 2015;Atiase,Mahmood, Wang & Botchie, 2018

).This is echoed by van Scheers (2018) who states that SMEs contribute significantly to job creation, social stability and economic welfare.

SMEs are expected to play a vital role in addressing the challenges of job creation, sustainable economic growth, and equitable distribution of income, alleviation of poverty and the overall stimulation of economic development. In the 2019 State of the Nation address,

President Cyril Ramaphosa stated that, in light of the economic crisis, he reiterated the fact that the progress of the South African economy largely depends on the growth of SMEs. He further stated that the Government will extend equitable support rendering to the advancements of the SMEs

(South African Government, 2019)

. All these are suggestively directed to deal with the large-scale unemployment and financial crises within the country. South Africa has a huge problem of high unemployment rate and therefore,

it is imperative that SMEs are successful.

This is echoed by Sibiya and Kele (2019) who state that the growth of SMEs’ has the potential to effectively contribute to addressing a country’s socioeconomic challenges. Therefore, building strong SMEs cannot be overemphasised.

Despite much promise and reliance from the Government, many SMEs have not delivered on their potential (Urban,2016;

Ijir & Gbegi, 2015

).SMEs in Africa struggle to grow as expected and South Africa is no different

(Ebitu, Basil, & Ufot, 2016)

. According to, Peprah, Mensah and Akosah (2016);

Otieno, Namusonge and Mugambi (2018)

a significant number of SMEs do not make it beyond the inception phase.

[MM4] 

. Making a profit and sustaining growth over the long-term is the most challenging fact business leaders face (Gupta, 2017). The specific business problem however, is that most SMEs lack strategic planning and management strategies to sustain their business longer than 5 years (Bushe, 2019; Grimmer, Miles, Byrom, & Grimmer, 2017). According to Gomera et al (2018), SMEs employ about xxxx of the SA workforce.

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 [MM1]

Please ensure there is a correct flow edit and proof read, where applicable please address comments from supervisor and ensure golden thread.