AN ASSESSMENT OF THE EFFECT OF FIRM SIZE

AN ASSESSMENT OF THE EFFECT OF FIRM SIZE ON SMALL TO MEDIUM ENTERPRISES’ EXPORT PERFORMANCE IN THE EXPORT MANUFACTURING SECTOR IN HARARE, ZIMBABWE By MAVETO BOTHWELL S C097281N Supervisor: Mr Gutu A research project submitted to Chinhoyi University of Technology, School of Business Sciences & Management, Department of Marketing, in partial fulfilment of the requirements of the award of the bachelor of science degree in International Marketing Chinhoyi, Zimbabwe YEAR: 2013 RELEASE FORM Name of student: MAVETO BOTHWELL S Title of the research project: AN ASSESSMENT OF THE EFFECT OF FIRM SIZE ON SMALL TO MEDIUM ENTERPRISES’ EXPORT PERFORMANCE IN THE EXPORT MANUFACTURING SECTOR IN HARARE, ZIMBABWE Programme for which the Project was presented: BSc INTERNATIONAL MARKETING Year granted: 2013 Permission is hereby granted to the Chinhoyi University of Technology Library to produce single copies of this project and to lend or sell such copies for private, scholarly, or scientific research purposes only The author does not reserve other publication rights and the project nor extensive contracts from it may be printed or otherwise reproduced without the author’s written permission Permanent address: 12034 Charira Close Zengeza 4, Chitungwiza Student’s signature: …………………………………………… Date: …… /……./…… [2] DECLARATION I, MAVETO BOTHWELL S, hereby declare that this research report is the result of my own work, except to the extent indicated in the acknowledgements, references and by comments included in the body of the report, and that it has not been submitted in part or in full for any other degree to any other university ……………………………………… Name of student ……………………………………… Date [3] APPROVAL FORM The undersigned certify that they have read and recommended to the department of Marketing, School of Business Sciences & Management, Chinhoyi university of Technology for acceptance; a project titled, “AN ASSESSMENT OF THE EFFECT OF FIRM SIZE ON SMALL TO MEDIUM ENTERPRISES’ EXPORT PERFORMANCE IN THE EXPORT MANUFACTURING SECTOR IN HARARE, ZIMBABWE” in partial fulfilment of the requirements for the Bachelor of Science in International Marketing ……………………………………… Name of Supervisor ……………………………………… Signature ……………………………………… Date [4] DEDICATION I would like to dedicate this dissertation to my father and mother, Mr C and Mrs T Maveto who stood by me all the way and lastly but not least to Rumbidzai Chaitezvi whose words of encouragement catapulted me to achieve all I have now, thank you Rumbidzai [5] ACKNOWLEDGEMENTS We sometimes feel what we is just a drop in the ocean But the ocean would be less because of that missing drop - Mother Theresa - Completion of this research project would not have been possible had it not been for the collaborative efforts of various individuals who sometimes went out of their ways to help This represents one piece of work that I am proud of, thus I will forever be indebted to them because I could not have made it on my own First and foremost, I would like to thank the Lord almighty for affording me the chance, making me meet the right people and paving my way into a bright future Thank you Lord and I will always keep the faith Secondly, I would like to express my sincere appreciation to Mr Gutu for the outstanding supervision I received from him while undertaking this research study His support was reinforced by some respondents whose co-operation deserves great appreciation Lastly I would like to thank my friends who helped me realise that a book is never the work of one person but a working together of a number of people [6] ABSTRACT This article presents results of an assessment of the effect of firm size on SME export manufacturing sector of Harare, Zimbabwe undertaken during the second half of 2014 It focuses on the challenges faced by small to medium enterprises in the sector, key determinants for sound export performance and on the possible solutions to mitigate the challenges faced by the sector The nation’s exports have been continuously shrinking since the last decade leading to an adverse balance of payments deficit which is of major concern to macro-economic planners as it is continuously depleting the nation’s meager reserves leaving the nation with sky-rocketing levels of debts to international financial institutions The study concludes that size, experience, and unsupportive business environment are the characteristics that strongly contribute to perceived constraints The study observes that the construct underpinning the current constraints to sound export performance by the sector is inadequate experiential knowledge Scrutiny of the constraint construct shows that organisational characteristics explain both exporter weaknesses and their strategic shortfalls The study concludes that SMEs in the export manufacturing sector of Zimbabwe are faced with a myriad of challenges: shortage of finance, inadequate experiential knowledge, lack of supportive policies, limited access to foreign markets and poor capacity utilization [7] Contents RELEASE FORM ii DECLARATION .iii APPROVAL FORM iv DEDICATION v ACKNOWLEDGEMENTS .vi ABSTRACT .vii CHAPTER .1 Introduction 1.1 Background of the study 1.2 Statement of the problem 1.3 Research Objectives 1.4 Research questions 1.5 Assumptions 1.6 Delimitations (scope of the study) 1.7 Significance of the study (Benefits of the study) 1.8 Limitations of the study 1.9 Definition of key terms 1.10 Organization of research report 1.11 Summary .6 CHAPTER .7 2.0 Introduction .7 2.1 Exporting Direct Export Strategy: Indirect Export Strategy: [8] 2.2 An overview of challenges faced in exporting 2.3 An overview of Export Performance variables .11 2.4 Motives for exporting 16 2.5 Small to Medium Enterprises 17 2.6 Summary .29 CHAPTER .30 3.1 Introduction 30 3.2 Research design .30 3.3 Population and Sample 31 3.4 Sampling procedure 32 3.5 Research Instruments 33 3.6 Data Collection Procedures 35 3.7 Data Analysis and Presentation Procedures 36 3.8 Validity and Reliability 36 3.9 Ethical considerations 38 3.10 Conclusion 39 CHAPTER 40 4.0 Introduction 40 4.1 Response rate 40 4.2 Section A (Background Information of respondents) 40 4.3 Section B: Response to Financial issues .42 4.4 Section C: Response to Production and Quality issues 44 4.5 Section D: Response to management skills 47 4.6 Section E: Response to market Access .50 4.7 Section F: Responses to tax policies and other policies .52 [9] 4.8 Interviews to promotion organisation 53 4.9 Discussion of results 54 4.10 Chapter summary 55 CHAPTER .56 5.1 Introduction 56 5.2 Summary .56 5.3 Conclusions 56 5.4 Recommendations 57 REFERENCES 61 [10] + yrs; 14% - 3yrs; 36% None; 26% Source: primary data From the findings, it can be noted that there is lack of experiential knowledge in most SMEs Findings from the interviews indicated that most firms are suffering from high labour turnover as most key employees are seeking greener pastures in highly renowned organizations This is in accordance with the assertion by Kapil (1997) that human capital is an important input for organizations, especially for the owners’ continuous improvement mainly concerning knowledge, skills, and abilities Furthermore, the Owner - manager relationship is one of the most common characteristics of SMEs, and to elaborate on this, the majority of SMEs are in most cases owned and managed by the same individuals while large firms are normally managed by a team of professionals appointed by the shareholders of the firms (Kapil; 1997) 4.6 Section E: Response to market Access Is your organization facing any challenges in accessing foreign markets? Sixty-four (91%) responses were that SMEs are facing challenges in accessing foreign markets while six respondents (9%) indicated that their organizations are not facing any market access problems [50] Fig 4.6.1 Responses to market access challenges Response No No Yes Yes 10 20 30 40 50 60 70 Value Source: primary data The conclusion is that the performance of exports from SMEs in the manufacturing sector is being hindered by impediments in accessing the international markets This is in accordance UNESCAP (2005)’s note that the challenges facing SMEs in competing on global markets are many and varied Kindly indicate the market access challenges you are facing Of the 66 companies facing challenges in accessing markets, strict sanitary laws scored 10, market information unavailability scored 30, complex customs and shipping procedures scored 40, stiff competition in international markets scored 60, high transportation costs scored 20 and sanctions scored 10 Figure 4.6.2 Market access challenges [51] 40 20 60 10 30 10 Complex customs and shipping procedures Markert information unavailability Sanctions Strict sanitary laws Stiff competiton high transportation costs Source: primary data The findings indicate that SMEs in the export manufacturing sector of Zimbabwe are facing challenges in accessing regional and international markets This strengthens the World Bank's (2004) disclosure that access to markets, both domestic and international, remains a noteworthy stipulation confronting the small-scale entrepreneur The SME sector is not geared for exports and most entrepreneurs find the costs and complications of exporting onerous (ZimTrade; 2012) What measures can be taken to mitigate the challenges? Listed below are the measures to mitigate the challenges propounded by the respondents Acquire ISO certification Clustering so as to gain economies of scales and gain a competitive edge on the export markets Investing in market research Making use of third party logistics firms(3PLs) 4.7 Section F: Responses to tax policies and other policies Is your organization’s export performance affected by government policies? [52] Thirty (85%) responses indicated that government policies have a bearing on the export performance of small to medium enterprises and only five (15%) indicated that government policies had no bearing on the export performance of their organizations Fig 4.7.1 response to impact of government policies 10 yes no 60 Source: primary data Response to the policy/policies affecting organizations’ export performance? Fig 4.7.2 response to effects of government policies on export performance 80 70 60 50 40 30 20 10 66 40 44 30 70 The findings showed that most firms are having problems with Government policies that are hindering their export performance This can be asserted by the contention by Dessing (1990) that the changes in government policies are welcome so as to open opportunities for SME sectors in developing countries [53] 4.8 Interviews to promotion organisation The researcher made interviews to the Ministry of Small to Medium Enterprises (1), and ZimTrade (1), executives in Harare What factors are affecting the export performance of SMEs in the export manufacturing sector? Limited access to finance as majority of SMEs are owner capitalized SMEs also lack the capacity to conduct research and development needed to commercialise ideas and grow businesses Weak business structures; Poorly defined legal and regulatory frameworks; Poor marketing channels; Insufficient management resources; finance, Human Resources and technology What measures are necessary to revamp the SMEs’ export performance? To financial support the respondents cited the following: Diverse credit finance (loan program); Equity finance; Credit Guarantee Schemes for SMEs; and Tax breaks for the sector What entrepreneurship and business support can be extended to the sector? Start up business support; Mentorship programmes and sub-contracting by bigger companies Business diversification support; Strengthening of management base What are the key determinants for sound export performance by SMEs? Top management commitment to exporting Proper planning for export ventures [54] Ability to produce and adapt products with real export potential using cost-effect method Sufficient production capacity such as machinery, factory space, warehousing and access to raw materials and machinery spaces 4.9 Discussion of results The export performance of SMEs in the export manufacturing sector of Zimbabwe is severely affected by a shortage of finance, stringent requirements by financial institutions and high cost of bank loans The sector is operating below capacity and producing products which not conform to the quality requirements of consumers The economic performance of SMEs in the in the assembling division of Harare, Zimbabwe is exceedingly influenced by aptitudes deficiencies These are in particular: general administration, advertising administration, generation administration, monetary administration and human assets administration abilities Access to markets, both domestic and foreign, proves to be a significant challenge faced by small to medium enterprises The SMEs are negatively affected by sanitary laws, stiff competition on the foreign markets, high logistics costs, export documentation and lack of commitment to exporting Lack of supportive policies and economic initiatives have negatively impacted the export performance of SMEs in the manufacturing sector Key factors for successful export performance are, top management commitment, proper planning for export ventures, ability to produce and adapt products with export potential and sufficient production capacity The recovery, growth and competitiveness of Zimbabwe’s export manufacturing sector depend on supportive policies, adequate experiential knowledge, and other factors to be recommended 4.10 Chapter summary The chapter presented the data collected through the use of tables, pie charts and graphs and an analysis of the data was made thereof The next chapter will focus on the conclusions and recommendations of the study Recommendations will be made focusing on how to improve the export performance of the sector [55] CHAPTER CONCLUSIONS AND RECOMMENDATIONS 5.1 Introduction The previous chapter presented and analysed data gathered from the study The chapter also highlighted the major conclusions to the study area This chapter will explain the conclusions derived from the previous chapter in relation to the examination recommendation The conclusions will likewise be contrasted with empirical studies to discover their consistency or conflict Proposals and areas for further studies will be recommended 5.2 Summary The objectives were met and the findings indicated that: SMEs in the export manufacturing sector are facing a lot of challenges which are undermining their export performance, there are [56] key determinants for sound export performance and the sector’s performance can be revived through some policies To identify and understand factors which deter sound export performance by small to medium enterprises in the export manufacturing sector To determine key factors for successful export performance by SMEs in the export manufacturing sector To provide possible solutions to alleviate the challenges faced by SMEs in the export manufacturing sector of Zimbabwe 5.3 Conclusions A number of factors behind the poor export performance of SMEs in the export manufacturing sector have been drawn from the study and these include: The execution of SMEs in the manufacturing sector of Harare is exceedingly influenced by abilities/skills deficiencies Expertise deficiencies are accomplished in the fields of budgetary administration (charge figuring, accounting, venture choices) and promoting administration (publicizing, offering, client mind) SMEs neglect to draw in qualified work force since the larger parts of Zimbabweans view SMEs as offering shaky occupation opportunities because of the high rate of failure The gifted faculty include those representatives with the essential aptitudes needed in the SME sector The sector is operating below capacity and producing products which not conform to the quality requirements of consumers Access to markets, both domestic and foreign, proves to be a significant challenge faced by small to medium enterprises The SMEs are negatively affected by sanitary laws, stiff competition on the foreign markets, high logistics costs, export documentation and lack of commitment to exporting Lack of supportive policies and economic initiatives have negatively impacted on the export performance of SMEs in the manufacturing sector The following factors were indicated by the research findings as key success factors for SMEs: 1) Top management commitment to exporting 2) Proper planning for export ventures 3) Ability to produce and adapt products with real export potential using cost-effect method 4) Sufficient production capacity such as machinery, factory space, warehousing and access [57] to raw materials and machinery spaces 5.4 Recommendations Recovery, growth, and competitiveness of Zimbabwe's export manufacturing sector depend on some of the following factors: Government and other relevant authorities 1) The government should come up with a policy mechanism to monitor and assist small-to medium exporters adjust to external market changes The policies should recognize that small to medium exporters lack the capacity to strategically respond and influence external markets 2) The Zimbabwean government must provide affordable alternative sources of finance for SMEs To address the issue of borrowing constraints the government should act as a guarantor to banks and credit institutions for SMEs That is by making an undertaking to pay the banks in the event of the SMEs failing to pay back 3) The government must also liaise with the banks and credit institutions to lessen their requirements This should be done so that SMEs can get enough access to finance for their business activities 4) The Zimbabwean government, through the Ministry of Education, must make use of Vocational Training Colleges and Polytechnic Colleges to develop programmes which could assist SMEs in developing their skills They can initially start in the larger Metropolitan areas and then expand it to the rural areas and small towns 5) The Zimbabwean government’s economic initiatives must be made available and accessible to all SMEs in the manufacturing sector of Harare The government must further involve these SMEs in policy formulation for the small and medium enterprise sector since they are key stakeholders who are affected by these policies This can be done by involving SMEs in the manufacturing sector of Harare in workshops to discuss issues which affect their daily operations and the challenges which could influence their future survival 6) The government of Zimbabwe must also establish an SME association which represents the sector in direct talks with the government 7) In aiding SMEs in the manufacturing sector of Harare, the Zimbabwean government [58] should put measures in place that make these SMEs accountable when they get assistance from the government They must ensure that SMEs in the manufacturing sector furnish them with financial statements annually In order for these SMEs to furnish the government with the required financial statements, the government must ensure that all SMEs in the manufacturing sector are registered Furthermore, they must have a data base of the SMEs in the manufacturing sector of Harare they would have assisted This will lead to these SMEs being more efficient in their operations in order not to waste and misuse resources 8) The government must consider possibilities for FTAs with middle East countries and three economically vibrant markets in Asia, Korea, Malaysia and Thailand Korea is the world’s 10th largest economy, with an annual GDP rapidly approaching $1 trillion Consumer & industrial demand in traditional markets’ such as Europe and North America, as well as in emerging markets, such as China and India, is healthy and poised for sustained growth Small to Medium Enterprises 1) The exporting companies must reform structurally, attitudinally, and perceptually toward exporting Export competitiveness is not only a question of correctly manipulating marketing mix elements but also a function of commitment of resources and attitudes It is especially the latter form of commitment, which is not being given adequate attention by management What it therefore implies is that until such attitudinal changes take place, growth and competitiveness in exports will remain constricted 2) SMEs must form groups and make use of pooled negotiating power for borrowing purposes They can use such negotiating power to purchase raw materials and receive discounts which might lead to a reduction in the cost of production 3) Through networking, SMEs in the export manufacturing sector of Zimbabwe can be able to exchange services such as bookkeeping, tax calculations and advertising amongst themselves for free This will enhance their competitiveness through a reduction in the cost of production The benefit of sharing such skills for the owners or managers of SMEs is that it will strengthen the future survival, and eventual growth, of SMEs in the export manufacturing sector of Zimbabwe [59] 4) SME owners or managers in the export manufacturing sector of Zimbabwe and the Zimbabwean government must form more direct partnerships to improve the skill levels in the sector This can be done through increased funding for SME staff training by the government 5) SMEs must make use of the Entrepreneurial Development Programme (EDP) which is a programme aimed at improving the skills levels in the SME sector The EDP involves training of potential entrepreneurs in entrepreneurial skills EDP could assist SMEs by lessening the challenge of skills shortages 6) SMEs must have good relationships with suppliers so that they receive stock on time and get quality raw materials This can be done through paying their suppliers on time 7) SMEs can also form quality circles so that they can test the quality of their manufactured products Quality circles involve a group of people on the work place who regularly test products to ascertain if products conform to the required quality standards 8) In order to penetrate foreign markets, SMEs must form cooperatives for advertising whereby they run joint advertising initiatives to minimise costs 9) SMEs must also make use of special promotions in order to lure and maintain customers 10) SMEs must also carry out market research constantly in order for them to stay abreast with the changes in consumer demands, values and attitudes and also to acquire knowledge pertaining variables in new markets 11) On selling their products SMEs must use persuasive selling whereby they encourage people to buy their products and outlining the benefits clearly of the products to the customers 12) SMEs must regularly send their employees on customer care refresher courses which involve customer management and complaints handling [60] REFERENCES Aaby, N E, and Slater, S.F (1989), “Management Influences on Export Performance: A Review of the Empirical Literature 1978-88”, International Marketing Review Albaum et-al (1989), International Marketing and Export Management, Addison-Wesley, Wokingham Alexandrides, C.G (1971), “How the Major Obstacles to Expansion Can Be Overcome”, Atlantic Economic Review, May Anderson, J.C and Narus, J.A (1990), “A Model of the Distributor’s Perspective of Distributor- Manufacturer Working Relationships”, Journal of Marketing, Vol 54 Axinn, C.N (1988), “Export Performance: Do Managerial Perceptions Make a Difference?” International Marketing Review, Vol Bilkey, W.J (1978), “An Attempted Integration of the Literature on the Export Behaviour of Firms”, Journal of international Business Studies, Vol 9, Bilkey, W.J (1982),“Variables Associated with Export Profitability”, Journal of International Business Studies, Vol 13 [61] Burton, F.N and Schlegelmilch, B.B (1987), “Profile Analysis of Non-exporters versus Exporters Grouped by Export Involvement”, International Management Review, Vol 27 No Cavusgil, S.T (1980), “On the Internationalization Process of Firms”, European Research, Vol 8, 10 Cavusgil, S.T (1984), “Organisational Characteristics Associated with Export Activity”, Journal of Management Studies, Vol 21 No 11 Cavusgil, S.T and Kirpalani, V.H (1993), “Introducing Products into Export Markets: Success Factors”, Journal of Business Research, Vol 27, 12 Cavusgil, S.T and Nevin, J.R (1981), “Internal Determinants of Export Marketing Behaviour: An Empirical Investigation”, Journal of Marketing Research, Vol 18, February, 13 Cavusgil, S.T and Zou, S (1994), “Marketing Strategy-Performance Relationship: An Investigation of the Empirical Link in Export Market Ventures”, Journal of Marketing, Vol 58, 14 Christensen, C.H., Rocha, A and Gertner, R.K (1987), “An Empirical Investigation of the Factors Influencing Exporting Success of Brazilian Firms”, Journal of Business Studies, Fall, 15 Cooper, R.G and Kleinschmidt, E.J (1985), “The Impact of Export Strategy on Export Sales Performance”, Journal of international Business Studies, Spring 16 Czinkota, M.R and Johnston, W.J (1983), “Exporting: Does Sales Volume Make a Difference?”, Journal of International Business Studies, Spring/Summer, pp 147-53 17 Czinkota, M and Tesar, G (Eds), Export Management: An International Context, Praeger, New York, NY 18 Dwyer, F.R., Schurr, P.H and Oh, S (1987), “Developing Buyer-Seller Relations”, Journal of Marketing, Vol 51 19 Ford, D and Leonidou, L (1991), “Research Developments in International Marketing”, in Paliwoda, S.J (Ed.), New Perspectives on International Marketing, Routledge, London 20 Heide, J.B and John, G (1988), “The Role of Dependence Balancing in Safeguarding Transaction specific Assets in Conventional Channels”, Journal of Marketing, Vol 52 [62] 21 Hirsch, S (1971), The Export Performance of Six Manufacturing Industries: A Comparative Study of Denmark, Holland and Israel, Praeger, New York, NY 22 Hooley, G.J and Newcomb, J.R (1983), “Ailing British Exports: Symptoms, Causes and Cures”, The Quarterly Review of Marketing, Summer 23 Jackson, G.I (1981), “Export from the Importer’s Viewpoint”, European Journal of Marketing, Vol 15 24 Johanson, J and Vahlne, J (1977), “The Internationalisation Process of the Firm – A Model of Knowledge Development and Increasing Foreign Market Commitments”, Journal of International Business Studies, Vol 25 Johanson, J and Vahlne, J (1990), “The Mechanism of Internationalisation”, International Marketing Review, Vol No 26 Kahn, M.S (1978), “A Study of Success and Failure in Exports”, Akademilitteratur, Stockholm 27 Kirpalani, V.H and MacIntosh, N.B (1980), “International Marketing Effectiveness of Technology-oriented Small Firms”, Journal of International Business Studies, Vol 11 28 Levitt, T (1983), “The Globalization of Markets”, Harvard Business Review, May-June 29 Madsen, T.K (1989), “Successful Export Marketing Management: Some Empirical Evidence”, International Marketing Review, Vol No 30 McCarthy, J.E and Perreault, W.D Jr (1987), Basic Marketing: A Managerial Approach, 9th ed., Irwin, Homewood, IL 31 Narresh k Malhotra et al, 2012, th EDITION , marketing research: an applied approach, Pearson, Essex, England 32 Rabino, S (1980), “An Examination of Barriers to Exporting Encountered by Small Manufacturing Companies”, Management International Review, Vol 20 [63] [64] ... highly informed and a close analysis of the segment can help the researcher to develop an understanding of the structure of the beliefs and attitude in order to aid the interpretation of the factors... international financial institutions 1.3 Research Objectives The study intents to make an assessment of the effect of firm size on the performance of small to medium enterprises in the export manufacturing... one for the purpose of impressing bank officials during loan applications, and one for the tax authorities for the purpose of evading tax The record book for the bank reports profits and the one