Abstract
The relatedness of the factors that slow down the sustainability and growth of SMEs in emerging markets is discussed in this chapter. The chapter further argues that even though the factors that have encumbered SMEs have gained traction in enterprise development and business management research, how their multidimensional interrelationship can harm the sustainability and growth of SMEs in emerging markets is yet to receive considerable attention. The entrepreneurial ecosystem framework of Mazzarol is used to present a novel approach in this review by attempting a richer explanation of the extent of the mutual connectedness of these factors and how they shape the entrepreneurial ecosystem. This chapter concludes that the factors that inhibit the realization of an impressive sustainable growth of SMEs are interrelated. For instance, the high cost of electricity significantly reduces the profit that can be made by a small business owner, and, in this case, the small business owner may have difficulty paying back a loan obtained in favor of the business.
TopIntroduction
This chapter addresses the relatedness of the factors that slow down the sustainability and growth of SMEs in emerging markets. The chapter also shows how the interconnectedness of the factors considerably hinder small and medium enterprises from remaining in operation for longer periods.
This chapter further argues that even though the factors that have encumbered SMEs have gained traction in enterprise development and business management research, how their multidimensional interrelationship can harm the sustainability and growth of SMEs in emerging markets is yet to receive considerable attention. Understandably, the degree of impact of these factors varies from one region, country, and continent to another. Several research reports (for example Asitik, et al., 2016; Amoako-Adu & Eshun, 2018; Asah, et al., 2020) have indicated the massive debilitating influence of factors such as insufficient capital to start a business, the absence of requisite infrastructure, poor management skills of owners and managers of small businesses, poor and or inconsistent government rules and regulations, and the influence of culture. Specifically, this chapter explores a critical appraisal of the multifaceted connection amongst physical infrastructure, red-tape, access to finance, and business education. Drawing from the entrepreneurial ecosystem framework of Mazzarol (2014), this chapter presents a novel approach in this review by attempting a richer explanation of the extent of the mutual connectedness of these factors and how they shape the entrepreneurial ecosystem (Figure 1).
Figure 1. Entrepreneurial ecosystem
Mazzorol’s (2014) entrepreneurial ecosystem framework depicts a relationship that is shared amongst several elements that have a strong influence on the growth of SMEs. In describing sources of sustainability for SMEs in emerging markets, one can advance a nuanced analysis of the connection among the elements in Figure 1. For instance, drawing from Valerio (2015), the promotion of inclusive economic growth requires the prioritization of SME development which means that governments should encourage investments in SMEs through a funding practice that allows for easy access to finance, creation of networks that offer mentorship, and other assistance as well as instituting a culture that values entrepreneurship. In galvanizing entrepreneurial mindset, Mazzarol (2014) argues for a morally, ethical government that prioritizes the appointment of persons to portfolios that will meaningfully encourage fostering enterprise development and innovation. In other words, to expect meaningful economic growth through investment in SMEs necessitates some strategic elements such as the development of sustainable physical infrastructure, removal of unnecessary red tape which hampers the registration of business, sourcing finance, and access to business education.
TopBackground
Several reports suggest that owing to a host of challenges small and medium-sized enterprises (SMEs) do not survive beyond 2-3 years despite their popularity as an important solution to the three-pronged challenges - unemployment, poverty, and low economic growth - of emerging markets. These challenges necessitate not only the establishment of new business ventures but also the need to provide support to existing ones to ensure that SMEs remain important contributors to the development of economies and continue to provide jobs and improve citizens’ livelihoods, thereby reducing poverty levels (Ahl, 2006). To speed up the realization of SME's potential, especially in developing economies, there is the need to encourage entrepreneurial activities to provide the much-needed jobs and creativity stimulus for economic growth (Herrington, Kew & Kew, 2010).
Simply put, even though SMEs are beneficial to a nation's economy, it is hard to consider their performance in emerging markets as satisfactory because of some reasons such as poor governance structures, dilapidated or non-existent infrastructure, insufficient finance, and financing systems. Aside from appreciable efforts to grow their economies, governments of emerging economies continue to experience high levels of unemployment, poverty, and low economic growth. BRICS, an influential contributor to the world economy has four of the largest emerging markets (Vadra, 2017; Giwa, 2020). South Africa, unlike other BRICS nations, for example, reported an unemployment rate of 30.1% (StatsSA, 2020). India, Brazil, China, and Russia fare better (see Table 1).
Key Terms in this Chapter
Enterprise Development: Is the one advanced by the University of Stellenbosch Business School (USB-ED, 2019) thus: “the act of investing time and capital to help people establish, expand or improve business. Enterprise development helps people earn a living or find a way out of poverty, and leads to long-term economic growth for themselves, their families and their communities”. It is therefore understandable why governments are pillars of enterprise development as they, along with the private sector, drive socioeconomic development by providing infrastructure (economic, capital, health, etc.).
Emerging Economies: Are known as countries that have not fully industrialized but are pursuing those qualities that are synonymous with developing countries. Often with emerging economies, unemployment and poverty levels are high. There are several emerging economies with superpowers among them being China and Russia.
Small and Medium Enterprises (SMEs): Are known variously as drivers of economic growth, agents of economic transformation of nations, the pillars of economic transformation of developing nations. SMEs are also characterized in terms of their size, annual turnover and size of workforce. What many know about them is that they contribute to job creation, reduction of poverty and the strengthening of standards of living. Interestingly, despite their avowed contribution to global economic growth, they encounter numerous challenging ranging from finance – access, collateral, etc. – to literacy, absence of supportive infrastructure, and frustrating government policies.
Infrastructure: Refers to transport, communications, power generation, water supply, sanitation facilities, educational and health-care facilities. It is understood that the absence of these does not bode well for any economy. In fact, it is argued that the reason why there is no visible economic growth in some emerging economies and developing ones is because of the stark absence of these infrastructures. In the developing countries, funding constraints has necessitated the collaboration of the government with the private sector to finance infrastructure development for its growing population.
Sustainability: Term is described in many ways by many people. However, what stands out about the term is that everyone accepts the notion of avoiding the depletion of a resource that keeps something in existence. Basically, sustainability means ‘to maintain a process or something’. So, when one speaks about sustaining a business for instance, one is referring to keeping the business ‘alive’ for the purpose it was set up.
Coronavirus (COVID-19/SARS-CoV-2): Originated from Hubei Province in Wuhan, China, and has since killed over a million people around the world. Because of the virus, countries across the globe were on lockdown resulting in massive job losses and income as movement of people and goods was limited.
Red-Tape: Is normally seen as obstructive, unnecessary regulation of the business ecosystem. Red-tape may come in the form of excessive administration or too much paper work for registering a business. Researchers have written about the discouraging nature of red-tape and as such there is too little entrepreneurial advancement in nations where there is ‘too much red-tape’. There are some such as the International Labour Organisation (ILO) who think red-tape can be good as it helps to curtail the usurping of a process even though they agree that red-tape can be stifling.
BRICS: Within emerging economies are several groups of countries that have carved out a niche for themselves. One of such niches is the BRICS. BRICS is an acronym for Brazil, Russia, India, China and South Africa.