To give a theoretically sound and empirically validated explanation of MSME

survival, this section reviews several theories that aim to explain MSMEs survival. This

section also discusses the approaches scholars have proposed to examine the MSMEs

growth.

Most scholars consider MSMEs survival as one stage in their life-cycle. This

argument can be seen, for instance in Goergivski (2011) and Watson (2010) who

defined MSMEs survival as a circumstance where their business operation endures for

an indefinite period of time. Relying on Cochrans (1981) definition of firm survival,

Watson (2010) highlighted that MSMEs survival has the opposite meaning to their

mortality. He suggested that MSMEs survival is the condition where they are able to

maintain the continuity of business operations. However, the survival is not solely

associated with continuity of production or operation, but it also refers to the stage of

development where the firm has the potential to develop including increasing

competition level; increasing financial needs for working capital and inventory: and

earning marginal returns. Thus, MSMEs survival should not be determined by one

manifest indicator only but it should also be examined through the latent parameter of

firm development (Lewis and Churchill, 1983 and Scott and Bruce, 1987).

The importance of MSMEs potential for development to determine their survival.

They consider MSMEs survival as the period following start-up during which MSMEs

may not grow but are nevertheless working hard to maintain their position and

struggling to establish as viable enterprises. This definition rejects previous

assumptions linking MSMEs survival to a static stage of development. MSMEs

encounter increasing competition and generate marginal returns because of emerging

newcomers. Thus, MSMEs need financial support to anticipate this situation (Bridge and

ONeill, 2013).

In general, theories explaining the stages of MSME development can be

classified into four main groups: static-equilibrium theories, stochastic models of firm

growth, strategic-management perspective and theories originating in the field of

economics. Static-equilibrium theories are derived from the field of industrial economics

and focus on MSMEs accomplishment of economies of scale and minimization of long-

run unit costs. Stochastic models of firm growth consider that MSMEs survival is

determined by various factors; thus, according to this group of theories, there is no

dominant explanation for MSMEs growth. Strategic-management theories focus on

strategic dimensions of MSMEs in achieving sustained growth and the way the owner-

managers respond to business and personal environmental indicators. MSME growth

view MSMEs growth as a series of phases of development through which the business

may pass in an enterprise lifecycle (OFarrell & Hitchens, 1988)

In addition, Schmitt-Degenhardt et al (2002) argued that OFarrell and Hitchenss

classification of business-growth theories could be reduced to two ; dynamic and static

approaches. They also argued that most theories of MSME development in OFarrell

and Hitchenss classification were based on experiences in industrialized countries.

Thus, these theories are unlikely to explain conditions in developing countries. Schmitt-

Degenhardt et al (2002) consider that dynamic and static approaches to MSMEs

development may be able to explain the different contexts of industrial and developing

countries.
 In the dynamic approach, the developmental phase of MSMEs is considered to

the life-cycle of living organisms: over time MSMEs pass through different stages of

development. This approach mostly includes theories of economics and industrial 39

economics. The static approach considers that MSMEs developmental process is

affected by both external and internal factors. These factors may support or hamper the

dynamic of MSMEs growth and lead MSMEs to achieve different size levels and form

themselves into different types. Stochastic models of firm growth and strategic-

management theories can be put into this group.

Lewis and Churchill (1983) and Scott and Bruce (1987) proposed a model

explaining MSMEs developmental stages. According to their model, MSMEs grow

through five stages of development: existence/inception, survival, success/growth, take

off/expansion and maturity. Similarly, ESCAPs (2009) study proposed four stages for

MSMEs development: market entry, survival, prosperity and exit. This study also

indicated that some MSMEs may experience just one or two of these stages (such as

entry and exit), while other MSMEs may experience all four. By adding two early stages

of MSME development: preparing for business start-up, and getting started, Bridge and

ONeill (2013) offered seven developmental stages of MSMEs. They argued that these

early stages will encourage, feed, and support the seeds and growing MSMEs.

However, the dynamic approach cannot explain the conditional factors affecting

the MSMEs achievement on certain stage. Therefore, context-sensitive explanatory

models that take internal and external factors of MSMEs growth into account are

important in explaining MSMEs growth (Gibb & Davies 1990). OFarrell and Hitchens

(1988) argued that strategic management, as one static approach to MSMEs

development, can provide explanations of why some MSMEs grow and others do not.

By focusing on the identification of the owner-managers policies and strategies for the

conduct and development of the business, strategic- 40 management theory claims that

MSMEs growth processes are determined by the owner-managers desire or capability

in term of resources and expertise. Thus, MSMEs survival is not necessarily associated

with poor performance of the MSMEs themselves.

This stance of theory argues that not all MSME owner-managers have the desire,

or indeed the capability in terms of resources and expertise, to grow their business

(OFarrell & Hitchens 1988). The underlying reasons for such reluctance or lack

capability range from personal wishes regarding lifestyle to a reluctance to surrender

control and/or be accountable to others within and without the business. Gorgievski et al

(2011) and Ahmad et al (2011) found that personal orientations of MSMEs manager-

owners, such as contributing to society, pursuing personal satisfaction, satisfying

stakeholders (employees and customers), worklife balance and achieving public

recognition, may stimulate them to maintain their MSMEs in a particular stage of

survival. Informality and family ownership also contribute to the static stage of MSMEs.

Several studies reveal that owner-managers of MSMEs often limit their business

orientation to fulfilling family need and providing employment for the family (Westhead &

Cowling 1997; Turner 2005; Hipser 2010), generating nano-economic benefit for family

and society (Athanassiou et al. 2002; Chrismana et al. 2003; Habbershon et al. 2003;

Arregle et al. 2007) or creating socio-emotional wealth for the family (Gmez-Meja et

al. 2007).
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