What are the factors limiting the success and/or growth of ...

[Pages:86]What are the factors limiting the success and/or growth of small businesses in Tanzania? ? An empirical study on small business growth

Enock Nkonoki

Arcada University of Applied Sciences International business Helsinki 2010

DEGREE THESIS Arcada Degree Programme: Identification number: Author: Title:

Supervisor (Arcada): Abstract:

International business 9397 Enock Simon Ngussa Nkonoki What are the factors limiting the success and/or growth of small businesses in Tanzania? ? An empirical study on small business growth Henry Ericsson

The aim of this study was to determine the factors that limit the growth/and or success of small businesses in Tanzania and to try and suggest solutions to these factors. Nine interviews were conducted which included six small business owners and three officials representing three organizations. The results obtained identified a number of limiting factors to small firm growth. The author saw it as a merit to group the results into two groups; limiting factors that are internal to the firm (Inadequate education and training, lack of a proper business plan, capital constraint etcetera) and those that are external to the firm (comprising things like corruption, government policy, bureaucratic processes etcetera). The author concludes by making following main recommendations; firstly a reform of the SME policy by the government, a search of an adequate business education by the small business community and trying to develop services and the maintenance of good relationships with small business owners by other stakeholders like the financial institutions.

Keywords:

Small firm, business growth, growth barriers ,Tanzania,

Number of pages: Language: Date of acceptance:

56 English

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TABLE OF CONTENTS

LIST OF FIGURES .......................................................................................................................5 LIST OF TABLES .........................................................................................................................5 ABBREVIATIONS ........................................................................................................................6 ACKNOWLEDGEMENTS ........................................................................................................... 8 1. INTRODUCTION....................................................................................................................10

1.1 Background ....................................................................................................................................... 11 1.2 Motivation for choice of topic........................................................................................................... 11 1.3 Thesis aim ......................................................................................................................................... 12 1.4 Research questions ............................................................................................................................ 12 1.5 Limitations ........................................................................................................................................ 13 1.6 Tanzania fact file ............................................................................................................................... 13 2. SMALL BUSINESS CONCEPT.............................................................................................15 2.1 Defining a small business.................................................................................................................. 15

2.1.1 Contradicting definitions ............................................................................................................ 15 2.1.2 Definition adopted by the Tanzanian government ..................................................................... 18 2.2 Significance of small businesses in the Tanzanian context ............................................................... 19 3. THEORY...................................................................................................................................21 3.1 Short review of literature on small business growth ......................................................................... 21 3.2 Towards a theoretical framework for this particular study................................................................ 23 3.2.1 Factors influencing growth in small firms.................................................................................. 24 3.2.2 Barriers to growth....................................................................................................................... 28 4. METHODOLOGY (secondary research) ..............................................................................29 4.1 Expert interview ................................................................................................................................ 29 4.2 Criteria used to choose the respondents (interviewees)..................................................................... 29 4.3 The respondents................................................................................................................................. 30 4.3.1 Actual small firms ...................................................................................................................... 31 4.3.2 Organizations.............................................................................................................................. 32 4.4 What was done .................................................................................................................................. 33 5. RESULTS..................................................................................................................................34 5.1 Internal factors limiting small firm growth ....................................................................................... 35

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5.2 External factors limiting small firm growth ...................................................................................... 37 6. DISCUSSION ...........................................................................................................................39

6.1 Motivation and drive ......................................................................................................................... 39 6.2 Background and experience .............................................................................................................. 39 6.3 In-access to finances and capital constraint....................................................................................... 40

6.3.1 In-access to finances................................................................................................................... 40 6.3.2 Capital constraint........................................................................................................................ 41 6.4 Lack of business plan/vision for the business ................................................................................... 41 6.5 Theft, cheating, lack of trust and Corruption .................................................................................... 42 6.5.1 Theft, cheating and lack of trust ................................................................................................. 42 6.5.2 Corruption .................................................................................................................................. 42 6.6 Poor management .............................................................................................................................. 43 6.7 Running informal/unregistered businesses........................................................................................ 43 6.8 Education and training and improper record keeping ....................................................................... 44 6.8.1 Education and training................................................................................................................ 44 6.8.2 Improper record keeping ............................................................................................................ 44 6.9 People factor...................................................................................................................................... 45 6.10 Professional advice and consultation............................................................................................... 45 6.11 Competition ..................................................................................................................................... 46 6.12 Government policy .......................................................................................................................... 46 6.13 Technological barrier ...................................................................................................................... 47 6.14 Bureaucratic processes .................................................................................................................... 47 6.15 Unfavorable economic conditions ................................................................................................... 47 7. CONCLUSIONS AND SUMMARY.......................................................................................48 8. RECOMMENDATIONS .........................................................................................................50 8.1 To the small firm community ............................................................................................................ 50 8.2 To the Government............................................................................................................................ 51 8.3 To other stakeholders ........................................................................................................................ 53 LIST OF REFERENCES ............................................................................................................55 APPENDICES

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LIST OF FIGURES

Figure 1: location of Tanzania in Africa. (Source: Wikimedia commons website) Figure 2: Map of Tanzania (Source: CIA World fact book) Figure no 3: Growth in small firms (source: D.J. Storey 1994)

LIST OF TABLES

Table 1: Showing Bolton committee definitions of a small firm (source: Bolton 1971) Table 2: Showing categories of SME's in Tanzania Table 3: Management role and style in the five stages of small business growth Table 4: Factors influencing growth in small firms Table 5: Internal factors limiting small business growth Table 6: External factors limiting small business growth

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ABBREVIATIONS

AIDS ? Acquired Immune Deficiency Syndrome BIT ? Board of Internal Trade CBE ? College of Business Education CIA ? Central Intelligence Agency (USA) EC ? European Commission GDP ? Gross Domestic Product HIV ? Human Immuno Deficiency Virus IFC ? International Finance Corporation IFM ? Institute of Finance Management ILO ? International Labor Organization MSME ? Micro, Small and Medium Enterprises NBS ? National Bureau of Statistics PCCB ? Prevention and Control of Corruption Bureau SADC ? Southern African Development Community

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SIDO - Small Industries Development Organization SME ? Small and Medium Enterprises TCCIA ? Tanzania Chamber of Commerce, Industry and Agriculture THA - Tanzania Harbors Authority TSHS - Tanzanian shillings U.K. ? United Kingdom UDBS ? University of Dar es salaam Business School UNDP ? United Nations Development Programme UNIDO ? United Nations Industrial Development Organization USA ? United States of America USD ? United States Dollars (Currency of the United States of America) VLC - Virtual Learning Centre Tanzania

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ACKNOWLEDGEMENTS

This study is a final thesis report marking the ending of my undergraduate studies in International business. The idea of this study was to highlight the factors limiting the growth/success of small firms in Tanzania and eventually make suggestions/recommendations on what should be done by the involved parties to curb the situation.

I would like to express my gratitude to all whom in one way or another made the accomplishment of this piece of work possible. First of all to the Almighty God for the health, open mind, agape love and a gift of life.

In addition, my greatest thanks to my beloved parents for the upbringing, love, support and the best education I have been able to gain through the years. This is a dedication to them, Proffesor Simon R Nkonoki wherever you are, I love you and I miss you (RIP) and Mrs. Elizabeth Nkonoki.

Furthermore, I recognize the unconditional support I have received from my siblings, friends and colleagues. If it wasn't for you, there wouldn't be no me and that's why am going to ride with you forever more.

Last but not the least, my appreciation to Mr. Henry Ericsson for his professional advice, practical ideas and his readiness to listen to whatever irrelevant junk I had to bother him with whenever I needed help.

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