Assignment Task: Nurturing the success of small businesses in South Africa
Globally, micro, small and medium-sized enterprises (MSMEs) constitute a large part of every economy, both developed and developing. As the MSME sector has a crucial role in creating new jobs, economic growth and competitiveness, equity and redistribution, poverty alleviation and innovation, these economic units are acknowledged worldwide as the key actors of socioeconomic development (Aris‚ 2007; Sharma & Kumar, 2021; Salavou et al.‚ 2004).
Due to the considerable contribution to the growth of national economies, many researchers across the world have studied MSMEs thoroughly in different contexts. The unmistakable consensus among researchers of the MSME sector is that many of such enterprises have very short lifespans (Ganesh & Mehta‚ 2010). According to Jones (2009), the average life span of many MSMEs is five years. Over the past few years, the failure rate of MSMEs has fluctuated between 70 to 90%, on the average, depending on the country and industry (Kaminskaite‚ 2017). Millions of start-ups are created every year, and of those that survive, 96% remain small (Kaminskaite‚ 2017).
Small enterprises defined:
In March 2019, acting in terms of section 20(2) of the National Small Enterprise Act, 1996 (Act No. 102 of 1996), the Minister of Small Business Development published a new government gazette amending the definitions of micro, small and medium enterprises in South Africa. The new Schedule defines 'small enterprise' using two proxies - 'total full-time equivalent of paid employees' and 'total annual turnover'. The new Schedule has removed the previous third proxy of 'Total Gross Asset Value' in the current definition as the proxy is deemed inappropriate and difficult to measure. In addition, the previous 'very small enterprise' size or class category has collapsed into the 'micro enterprise' category. This was necessitated by the concern that many users found this previous size or class category unhelpful and inconsistent with international practice. Moreover, the new turnover threshold values have been updated to account for inflation in view of the fact that the Schedule was last revised in 2003.
In accordance with the new Schedule, the term 'small enterprise' encompasses a micro, a small or a medium enterprise and is defined as "a separate and distinct business entity, together with its branches or subsidiaries, if any, including cooperative enterprises, managed by one owner or more and predominantly carried on in any sector or subsector of the economy and classified as a micro, a small or a medium enterprise by satisfying the criteria: 'total full-time equivalent of paid employees' and 'total annual turnover' as described in the Schedule" (Department of small Business Development, 2019).
Entrepreneurial capabilities:
According to the global MSME entrepreneurship literature, entrepreneurial capability is the critical ingredient for the sustainability of MSMEs. Under the fierce pressure of the dynamic environments that broadly characterise emerging economies, entrepreneurs - the enablers of the MSME sector - must develop capabilities such as autonomy, innovativeness, risk-taking, and proactiveness to survive the competition (Cui, Sun, Xiao and Zhao, 2016).
The majority of academic papers adopting the term 'entrepreneurial capability' are written at the level of the firm, and build on literature predominantly associated with strategic management and the resource-based view (RBV) of the firm (Wilson & Martin, 2015:160). Capabilities are generally defined in terms of organisational resources, which are the "stocks of available factors that are owned or controlled by the firm" and organisational capabilities, which constitute "a firm's capacity to deploy resources, usually in combination, using organizational processes, to effect a desired end" (Amit and Schoemaker, 1993:35). Makadok (2001:389) was more direct in defining capabilities as "a special type of resource specifically an organisationally embedded non-transferable firm-specific resource whose purpose is to improve the productivity of the other resources possessed by the firm".
The distinction between resources and capabilities is the source of the uniqueness of firms across the market. Although firms have access to common resources, it is their unique capabilities to configure and deploy these resources and to obtain distinct services from these resources, which leads to a differentiated offering, a real source of heterogeneity.
At a fundamental level, organisational capabilities emerge out of the unique orchestration of organisational resources, organisational routines, and the interactions through which the firm's resources are coordinated (Barney & Arikan, 2017; Chadwick, Super, & Kwon, 2015; Wang & Wang, 2017). Organisational routines are intrinsically related to resources orchestration processes, learning, know-how accumulation and organisational expertise. It is conceivable that, over time, merging with innovations, in-process, or via technological artifacts, routines endow capabilities that contribute to diversifying the portfolio of outputs that ultimately add value to a company's operations (Costa Júnior, Mendes Primo & Jerônimo, 2021).
A firm's resources vis-à-vis its competitors are the equivalent of the positions of pieces on a chessboard. They represent the "state" of the game, and each player tries to optimise this state in its favour. What sets apart the game of business from the game of chess is uncertainty. Unlike a game of chess in which making a move leads to a certain outcome on the board, investing in resources and capabilities usually does not carry such guarantees, especially if it is in an intangible resource such as technology. This is primarily due to the fact that organisational capabilities are rooted in tacit knowledge; thus, conferring a high degree of inimitability and non-substitutability. In addition, their interaction-based nature and the casual ambiguity associated with them often create a barrier to duplication by competitors (Miller and Le Breton-Miller, 2021; Wibbens, 2021).
Hard truths about the South African MSME sector
MSMEs are seen as the streams that feed into big business, keeping big business going, and is the fuel required for the economic engine to purr. However, like many developing countries, South Africa faces a great development problem relating to the high failure rate of MSMEs, a phenomenon that has been attributed to the fact that entrepreneurs are not able to turn their businesses into sustainable venture. While MSMEs are generally inexpensive to start and have the potential to generate massive economic growth in South Africa, there are persisting challenges that plague the South African MSME sector.
In a recent study, Leboea (2017) investigated the factors that influence MSME failure in South Africa and reported that, among others, financial constraints, shortage of skilled labour, poor human resources practices, poor management corruption, poor infrastructure and power failure are some of the major factors that account for the high MSME mortality in South Africa.
Source: the note above was synthesised from multiple sources.
A motivation for the proposed study
If South Africa's triple challenge of unemployment, inequality and poverty is going to be addressed in the foreseeable future, there is a need not only to accelerate the creation of new MSMEs across all sectors of the South African economy, but also to investigate the range of challenges confronting the MSME sector with the aim of developing evidence-informed strategies and practices for the sector.
As an organisational researcher with a keen interest in the development of MSMEs across South Africa, you are part of a team of researchers that has proposed a study aimed at investigating the role of entrepreneurial capacity in the performance and sustainability of MSMEs at selected number of districts and municipalities. The team is convinced that by unpacking the impact of entrepreneurial capacity on the performance and sustainability of MSMEs across a broad selection of districts and municipalities, an aggregate picture of the relational dynamics between entrepreneurship and business development can be deconstructed.
Part I: With a positivist stance in mind, the team has formulated the following research questions for the proposed study
1. How do the entrepreneurs who build sustainable MSMEs develop entrepreneurial capability?
2. What is the relationship between entrepreneurial capacity and the sustainability of MSMEs?
3. What is the relationship between entrepreneurial capacity and the performance of sustained MSMEs?
4. What practical recommendation can be made to new MSMEs in terms of how they can achieve sustainability and superior performance?
Part II: Propose a suitable method of sampling for the study and explain why the method you have proposed is appropriate for the study.
The Method of Data Collection for the proposed study:
1. What instrument and or method of data collection would you use in the proposed study? Provide a rationale for, and justify the appropriateness of, the proposed data collection method.
2. Briefly explain how you would pilot the data collection instrument before administering it to respondents in the proposed study.