AN INVESTIGATION ON THE PERCEIVED BARRIERS EXPERIENCED BY SMMEs IN THE BUFFALO CITY METROPOLITAN MUNICIPALITY

AN INVESTIGATION ON THE PERCEIVED BARRIERS
EXPERIENCED BY SMMEs IN THE BUFFALO CITY METROPOLITAN

MUNICIPALITY
A PROPOSAL SUBMITTED IN PARTIAL FULFILLMENT OF THE

REQUIREMENTS FOR THE HONOURS PROGRAMME
IN BUSINESS MANAGEMENT
FACULTY OF MANAGEMENT AND COMMERCE
BY
SIVE MZANANDA
UNIVERSITY OF FORT HARE
SOUTH AFRICA
NOVEMBER 2015
SUPERVISOR: MS E. C. RUNGANI
ABSTRACT
Small Medium and Micro Enterprises (SMMEs) within townships play a crucial role in
developing communities in order to reduce unemployment which is faced by the
globe. However, the problem that still haunts SMMEs is that there is still a gap in
education also lack of flexibility from entrepreneurs. For some new ventures to start
up find it difficult due to some of the barriers which are faced by SMMEs, as they can
be financially. This study investigated the barriers experienced by township SMMEs
in the Buffalo City Metropolitan Municipality. The primary objective of this study was
to determine the perceived barriers faced by SMMEs in townships. The secondary
objectives were to identifying the barriers SMMEs experiencing when establishing
their business, financial barriers experienced by SMMEs, to ascertain the barriers
SMMEs experience when managing their business and to determine the barriers
SMMEs experience when accessing markets for their business. Both primary and
secondary data was used in this study. This research study made use of quantitative
research design. A simple random method was used as the sampling method. A self-
administered questionnaire was used as a measuring instrument. The Statistical
Packaging for Social Science (SPSS) was used to analyse the data including
descriptive statistics. The research findings showed that Township SMMEs are
facing financial barriers, marketing constraints, lack of education and skills and
regulatory barriers. However, it is recommended that the government should
intervene and help these SMMEs.
i
DECLARATION
I, the undersigned, Sive Mzananda student number 201203230, hereby declare that
this dissertation is my own original work and that it has not been submitted, and will
not be presented at any other University for a similar or any other degree award.
………………………………………………..
Signature
………………………………………………
Date
ii
PLAGIARISM DECLARATION
I, Sive Mzananda student number 201203230, hereby declare that l am fully aware
of the University of Fort Hare’s policy on plagiarism and l have taken every
precaution to comply with the regulations.
................................................
Signature
………………………………………………
Date
iii
ETHICAL CLEARANCE DECLARATION
I, Sive Mzananda student number 201203230 hereby declare that l am fully aware of
the University of Fort Hare’s policy on research ethics and l have taken every
precaution to comply with the regulations.
...........................................
Signature
………………………………………………
Date
iv
ACKNOWLEDGEMENTS
I wish to express my heartfelt gratitude to the Almighty God and all those who
assisted me to complete this dissertation.
I appreciate the efforts and love of the following people:
First of all, I would like to thank the Almighty God for his daily protection,
guidance and the strength he has given me to complete this work.
My supervisor, Miss Ellen Rungani and Mr. Chimucheka for their guidance
and support.
My grandfather Mr. W. Mzananda for his support, love and guidance
The whole family and friends for their love and support throughout the year.
Asisipho Yekelo for her support, love and care.
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DEDICATION
I dedicate this work to:
Almighty God for the strength he gave me to make the impossible possible.
My Grandmother and Grandfather for their support and love.
My mother Thembela Mzananda for her love.
My aunt, Nothemba, Nombulelo Mzananda and my uncle Mzoxolo Mzananda.
My young sisters, Siphesihle and Zenande Mzananda.
My cousins, Likho, Hlumelo, Zukisani Mzananda.
The girl who supported me throughout the year, Asisipho Yekelo.
All my friends.
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LIST OF TABLES
Table 4.1: Barriers perceived when establishing businesses
Table 4.2: Start-up capital
Table 4.3: Problems experienced in respect of financial support
Table 4.4: Obstacles faced when accessing funds from financial institutions
Table 4.5: Entrepreneurship
Table 4.6: Type of training
Table 4.7: Management Skills
Table 4.8: Awareness of Government Programmes
Table 4.9: Following Government Programmes
Table 4.10: Barriers when accessing new markets and government provision
Table 1.1: financial barriers
Table 1.2: Chi-Square Tests
Table 2.1: Managerial skills and training skills
Table 2.2: Chi-Square Tests
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LIST OF FIGURES
Figure 4.1: Gender
Figure 4.2: The age of the respondents
Figure 4.3: The population group of the respondents
Figure 4.4: The highest educational level of the respondents
Figure 4.5: Years in business operations
Figure 4.6: Type of goods or services offered
Figure 4.7: Position or role in business
Figure 4:8: BARRIERS
Figure 4.9: Start-up capital
Figure 4.10: Entrepreneurship
Figure 4.11: Type of Training
Figure 4.12: Awareness of Government Programmes
Figure 4.13: Ntsika Enterprises Finance Agency (NEFA)
Figure 4.14: Khula Enterprises Finance Limited (KEFL)
Figure 4.15: Department of Trade and Industry (DTI)
Figure 4.16: SEDA
Figure 4.17: Lack of penetrating new markets
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TABLE OF CONTENTS
ABSTRACT …....………………………………………………………………………… i
DECLARATION…………………………………………………………………………. ii
PLAGIARISM ….…………………….…………………………………………..……… iii
RESEARCH ETHICS CLEARANCE…………………………………………………. iv
ACKNOWLEGDEMENT……………………………………………………….………. v
DEDICATION …………………………………………………………………………… vi
LIST OF TABLES ……………………………………………………………………… vii
LIST OF FIGURES ……………………………………………………………………. viii
CHAPTER ONE
1.1 INTRODUCTION AND BACKGROUND OF THE RESEARCH …….....…… 2
1.2 STATEMENT OF THE PROBLEM ……………………………………………. 3
1.3 OBJECTIVES OF THE RESEARCH …………………………………………. 4
1.3.1 Primary objective ……………………………………………………………. 4
1.3.2 Secondary objectives ……………………………………………………….. 4
1.4 RESEARCH QUESTIONS ……………………………………………………… 4
1.5 RESEARCH HYPOTHESES …………………………………………………… 5
1.5.1 Primary Hypotheses ………………………………………………………….. 5
1.5.2 Secondary Hypotheses ………………………………………………………. 5
1.6 SIGNIFICANCE OF THE RESEARCH ………………………………………… 5
1.7 LITERATURE REVIEW ………………………………………………………….. 6
1.7.1 Theoretical Framework ………………………………………………………. 8
1.7.1.1 The finance Gap Theory ……………………………….............................. 8
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1.7.1.2 Psychological Entrepreneurship Theories ………………… ……………. 8
1.8 RESEARCH METHODOLOGY ………………………………………………… 9
1.8.1 Research Design and Plan …………………………………………… ……. 9
1.8.2 Population and Sampling …………………………………………………… 9
1.8.3 Data Collection Instrument, Sources and Procedures ……………. ……. 10
1.8.4 Data Analysis Procedure ……………………………………………… ……. 10
1.9 RELIABILTY AND VALIDITY OF THE STUDY ………………………………. 10
1.10 ETHICAL CONSIDERATIONS ………………………………………………… 11
1.11 LIMITATIONS OF THE STUDY ……………………………………………….. 11
1.12 OUTLINE OF PROPOSED RESEARCH REPORT ………………………… 12
1.12.1 Chapter one: Introduction and background to the study ……………… 12
1.12.2 Chapter two: An overview of Small Medium and Micro Enterprises …. 12
1.12.3 Chapter three: Research Methodology ………………………………….. 12
1.12.4 Chapter four: Research Findings ……………………………………....... 12
1.12.5 Chapter five: Conclusions, Recommendations and Limitations ……... 12
1.13 CHAPTER SUMMARY ………………………………………………………… 12
CHAPTER TWO
2.1 INTRODUCTION …………………………………………………………………...

14
2.1.1 DEFINITION OF ENTREPRENEURSHIP ………………………………….. 14
2.1.2 DEFINITION OF SMMEs ……………………………………………………... 15
2.1.3 THE INTERNATIONAL PERSPECTIVE OF SMMEs ……………………… 15
2.1.4 The South African Perspective of SMMEs ………………………………….. 15
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2.2. Contribution of SMME sector to the economy of South Africa ………………. 17
2.2.1 SMME contribution to the Gross Domestic Product………………………... 17
2.2.2 SMME contribution to Job creation ............................……………………….18
2.2.3 SMME contribution to Poverty alleviation ....................................................18
2.3. IMPORTANCE OF SMMEs ……………………………………………………….19
2.4. BARRIERS EXPERIENCED BY SMMEs IN SOUTH AFRICA ………………19
2.4.1 Financial barriers ……………………………………………………… ………20
2.4.2 Economic barriers ………………………………………………………………20
2.4.3 Economic barriers ……………………………………………………… ……... 20
2.4.4 Marketing constraints ………………………………………………….. ……... 21
2.4.5 Lack of education, training and skills ………………………………………. 21
2.5. THEORATICAL FRAMEWORK ………………………………………………… 23
2.5.1 The Finance Gap Theory …………………………………………………….. 23
2.5.1.1 Demand side perspective …………………………………………………. 23
2.5.1.2 Supply side perspective …………………………………………………… 24
2.5.2 The Psychological Entrepreneurship Theory ……………………………… 24
2.5.2.1 Personality traits for entrepreneurs ………………………………………. 24
2.5.2.1.1 Need for achievement …………………………………………………… 24
2.5.2.1.2 Internal Locus of control ……………………………………………….. 25
2.5.2.1.3 Risk taking propensity …………………………………………………… 25
2.6. APPLICABILITY OF THE THEORIES ………………………………………….. 26
2.6.1 The Finance Gap Theory ……………………………………………………... 26
2.6.2 The Psychological Entrepreneurship Theory ……………………………… 26
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2.7 CHAPTER TWO SUMMARY …………………………………………………….. 26
CHAPTER THREE
3.1 INTRODUCTION ………………………………………………………………….. 28
3.2 RESEARCH DESIGN AND APPROACH ……………………………………… 28
3.3 THE FOCUS OF THE STUDY …………………………………………………… 29
3.3.1 The primary objective ………………………………………………………… 29
3.3.2 The key research questions are as follows ………………………………… 29
3.3.3 The hypotheses of this study ………………………………………………… 29
3.4 RESEARCH SCOPE ……………………………………………………………… 30
3.4.1 Study Area ……………………………………………………………………… 30
3.4.2 POPULATION ………………………………………………………………….. 30
3.4.3 SAMPLING …………………………………………………………………….. 30
3.4.4 SAMPLING METHODS ………………………………………………………. 31
3.4.4.1 Non-probability sampling …………………………………………………. 31
3.4.4.2 Probability sampling ……………………………………………………….. 31
3.4.4.3 Simple random sampling ………………………………………………….. 31
3.4.4.4 Sample size ………………………………………………………………….

32
3.5 DATA COLLECTION ……………………………………………………………. 32
3.5.1 Research Instrument ………………………………………………………… 33
3.5.2 PRE- TEST THE QUESTIONNAIRE ………………………………………. 37
3.6 RELIABILITY AND VALIDITY ……………………………………………………37
3.7 DATA ANALYSIS AND STATISTICAL TECHNIQUES ……………………. 38
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3.7.1 Descriptive statistics …………………………………………………………. 39
3.7.2 Inferential statistics …………………………………………………………… 39
3.7.3 Pearson correlation ………………………………………………………….. 39
3.8 ETHICAL CONSIDERATION …………………………………………………….. 40
3.9 LIMITATION OF THE STUDY …………………………………………………… 40
3.10 CHAPTER THREE SUMMARY ………………………………………………… 41
CHAPTER FOUR
4.1 INTRODUCTION ………………………………………………………………….. 43
4.2 RESEARCH FINDINGS ………………………………………………………….. 43
4.3 TESTING HYPOTHESES ………………………………………………………… 63
4.3.1 Primary Hypothesis ……………………………………………………………. 63
4.3.2 Secondary Hypotheses ……………………………………………………….. 64
4.4 CHAPTER FOUR SUMMARY …………………………………………………… 68
CHAPTER FIVE
5.1 INTRODUCTION ………………………………………………………………….. 70
5.2 SUMMARY OF THE CHAPTERS ………………………………………………. 70
5.2.1 OTHER FINDINGS OF THIS STUDY ……………………………………….. 72
5.3 RECOMMENDATIONS …………………………………………………………… 72
5.3.1 Government agencies …………………………………………………………. 73
5.3.2 Government ……………………………………………………………………. 73
5.3.3 Tertiary Institutions …………………………………………………………….. 73
5.3.4 Financial Institutions ………………………………………………………….. 74
5.4 LIMITATIONS OF THE STUDY …………………………………………………. 74
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5.5 AREAS FOR FURTHER RESEARCH …………………………………………. 75
5.6 CONCLUSION …………………………………………………………………….. 75
BIBLIOGRAPHY ………………………………………………………………………… 76
APPENDIX A: QUESTIONNAIRE
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CHAPTER 1
INTRODUCTION AND BACKGROUND OF THE STUDY
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1.1 INTRODUCTION AND BACKGROUND TO THE RESEARCH
As many small, medium and micro-enterprises (SMMEs) are growing or improving
across the globe, they contribute most importantly in providing new jobs, especially
for people who are unemployed (Ladzani and Van Vuuren, 2002:2). Fin Mark Trust
(2006) also reasoned that these SMMEs are important to destitution mitigation,
salary fairness, work and reasonable financial development in South Africa. The
small medium and micro enterprises (SMMEs) and entrepreneurship became a key
focus of many research studies in recent years because they operate only for 1 or 2
years after that they are gone and most of the entrepreneurs are lacking education,
training and skills to manage their own businesses also to maintain external
competition (Herrington, Kew and Kew, 2009:13; Chimucheka, 2012:2).
Entrepreneurs in the entire universe are causing strong emotion on revolution that is
revitalising economies as (Toit, Erasmus and Strydom, 2010:43), emphasised that
the establishment of emerging businesses and the magnification of surviving ones
are responsible for most of the products and accommodations that change the lives
of people within our societies. It is paramount not to overstate the desire of township
entrepreneurs to withstand their businesses. The South African government has
acknowledged that small businesses diminish the levels of high unemployment rates
which is seen as the major problem that the government is facing (Tustin 2001;
Ladzain & van Vuuren, 2002; GEM, 2006). An holistic picture in the entrepreneurial
society is that a successful small firm starts as entrepreneurial and then transforms
in exploiting the formula that underlies its success and the market it has found
(Bjerke, 2007:20:21).
SMMEs are particularly beneficial for previously disadvantaged communities. There

is clear evidence that SMMEs play a critical role in economic development (DTI,
1995:3). It is therefore important to encourage growth in this sector by limiting
barriers experienced by this sector. The study which was conducted by (Abor and
Quartey, 2010) estimated that 91% belongs to established (registered) businesses
which include SMMEs that contribute (52% - 57%) to GDP and 61% provided to
reduce unemployment in South Africa.
National Credit Regulator (NCR) in 2011 indicated that, there are still numerous
challenges that face the SMMEs as they contribute to economic growth, as South
2
Africa is not the only country which is affected or face these challenges and these
challenges makes it difficult for entrepreneurial growth. The GEM (2010) reported
that SA small businesses withal still grieve the pain of low management skills as a
result of the past as many of them were previously disadvantaged and they are not
well educated and trained. This shows how the rate of SMMEs that do survive is so
low in South Africa when it is compared to other countries. Although the government
is endeavouring to promote SMMEs there are still challenges.
According to (Maphalla, Nieuwenhuize and Roberts, 2010) the majority of those

unemployed in South Africa that benefits from those jobs created through by means
of SMME entrepreneurial activity happen to reside in what has come to be known as
townships. Townships are concrete areas outside major cities where the
apartheid system coerced ebony Africans to reside separate from other races.
Although SMMEs receive much attention from the government there are still
challenges which they experience in establishing, sustaining, maintaining and
growing these enterprises. Chimucheka (2013:4) argued that, the challenges that
SMMEs are facing in the Eastern Cape region include that, most people are not
educated and they do not have skills. They also have limited access to financial
resources which it makes it to be hard for sustainable growth. The purpose of this
investigation is to outline and unpack the momentous issues of the perceived
barriers that are experienced by SMMEs in the Buffalo City Municipality.
1.2 STATEMENT OF THE PROBLEM

It was explicit to everyone that long after 1994 townships perpetuated to be
dormitories of labour where denizens lived, but went in search of work in better
endowed areas. Ligthelm (2008) observed that most of residents in townships are
unable to purchase goods within their residential areas because there are limited
goods within their areas. Kongolo (2010), small medium and micro-enterprises are
experiencing quandaries not only during the stage of economic downturns but
additionally during the stage of economic development. In which these quandaries
during economic development are those barriers that makes it infeasible for SMMEs
to maintain magnification. According to Chimicheka and Rungani (2013), in Eastern
3
Cape and South Africa at large the unemployment rate is high and the establishment
of SMMEs will help in reducing these challenges that are perceived by the nation.
(Marnewick, 2008) expressed on his study that these SMMEs within townships plays
a crucial role in developing communities in order to reduce unemployment which is
faced by the globe. However, the problem that still haunts SMMEs is that there is still
a gap in education also lack of flexibility from entrepreneurs. As it is consequential
for entrepreneurs to benefit themselves and find ways to improve the organisation of
their businesses, and the skills of their employees. For some new ventures to start
up find it difficult due to some of the barriers which are faced by SMMEs, as they can
be financially. Thus, it is important to investigate and provide solutions to these
barriers faced by SMMEs in townships. It is important to identify these barriers that
make it difficult for SMMEs to sustain growth.
1.3 OBJECTIVES OF THE RESEARCH

The following objectives were formulated:
1.3.1 Primary objectives(s)

To determine the perceived barriers faced by SMMEs in townships
1.3.2 Secondary objective(s)

To identifying the barriers SMMEs experiencing when establishing their
business
To identify the financial barriers experienced by SMMEs
To ascertain the barriers SMMEs experience when managing their business
To determine the barriers SMMEs experience when accessing markets for
their business
Provide recommendations on how to overcome these barriers
1.4 RESEARCH QUESTIONS
What are the barriers that SMMEs in Buffalo City Metro Municipality
experience in establishing, sustaining, maintaining and growing enterprises?
4
What are the possible solutions to these barriers?
1.5 RESEARCH HYPOTHESES

The following hypotheses will be useful on covering the wider perspective of the
research and it will be vigilant in determining the content of the research instrument
(questionnaire).
1.5.1 Primary Hypothesis

H0: There are no significant barriers faced by SMMEs in townships
H1: There are significant barriers faced by SMMEs in townships
1.5.2 Secondary Hypotheses

H0: There are no significant barriers SMMEs experience when establishing their
businesses
H2: There are significant barriers SMMEs experience when establishing their
businesses
H0: SMMEs do not significantly face financial barriers
H3: SMMEs are significantly facing financial barriers
H0: There are no significant barriers that SMMEs experience when accessing
markets for their businesses
H4: There are significant barriers that SMMEs experience when accessing markets
for their businesses
1.6 SIGNIFICANCE OF THE RESEARCH

It is a prevalent phenomenon throughout the globe that SMMEs plays a significant
role in absorbing labour, perforating emerging markets, availing in the engenderment
and expansion of markets. The findings of this research will provide empirical
evidence that can be used by existing SMMEs, entrepreneurs and business
organisations to ascertain the appropriate strategies for improving the SMME sector
also help those new ventures. The research can therefore help mitigate the rate at
which SMMEs are failing during the first few years of operation.
5
1.7 LITERATURE REVIEW
Many studies have been conducted focusing on SMMEs in townships. Maphalla et.al
(2010) identified some major barriers to entrepreneurship in Mamelodi. These
barriers include:
Lack of access to finance: The capability of enterprises to obtain

financial services which include credit was restricted by high interest
rates and bank charges affect their operating costs. Many could obtain
loan due to the colour of their skin, others they did not have credit
record.
Lack of work experience: As many individuals leverage from their
related work experience to form their own businesses, using the skills
and the training that they had acquired through their previous work
environment to start their own businesses.
Lack of training and development: The amount of competition within
businesses is growing in every industry, as lack of training and
development will lead to the difference between maintaining success,
and ultimate failure.
However, apart from this perceived barriers identified it additionally emerged that
lack of entrepreneurial orientation can lead to entrepreneurial activity at a later stage.
Mandisa Mpahlwa in 2006, on the report he was presenting that by that time small
business sector comprised (2 million) small businesses representing 98 per cent of
the total number of firms within South Africa. When analysing the legacy of
apartheid, Mpahlwa (ibid) identified the following salient obstacles that can be drawn
from apartheid, also quoted by Sanchez (2008) which are:
Deliberate discriminatory policies inhibited access to capital and

inculcation and restricted fundamental convivial and economic rights.
A situation subsisted where most black South Africans were obviated
from managing businesses.
6
Black people were restricted by the Bantu Education system to explore
opportunities for the acquisition of skills and entrepreneurial orientation,
which could have encouraged the youth to adapt an entrepreneurship
culture.
The legacy of these boundaries affected the magnification of the SMME sector in the
townships and stifled those that dared start by depriving them of any fortification.
Bond (2000) went further on calling it a theory of uneven development, which draws
from Marx’s capital concentrations of wealth for capitalism and poverty and
oppression of workers.
One of the challenges (Chimucheka, 2013:5) acknowledged is inaccessibility to

markets. Chimucheka (2013) accentuated that in order for SMME owners and
managers to survive and to achieve prosperity they require to have an understanding
of the competition with their industry and additionally create some skills that will give
them a sustainable comparative advantage.
Failures that some SMMEs have due to access markets in the area of Eastern Cape
can be attributed to industry competition, which is tenacious by what was expounded
by Porter as the five competitive forces that shape every industry.
Porter’s Five Forces model
Competitors: When enterprises compete for the same customers and

try to win market share at the others‟ expense, all must react to and
anticipate their competitors‟ actions. When competition between
enterprises is intense, profitability will be lower because businesses will
compete by giving away value.
Supplier: A powerful supplier has an advantage to influence for higher
prices and that will lead to lower profits for others. If enterprises
depend on any powerful supplier they are at disadvantage.
Buyer: Customers purchase the products or services an enterprise
offers a powerful buyer can influence for lower prices and good quality
of goods and services. They easily switch to other competitor if they
are not getting what they want from a specific competitor.
7
Substitute: Substitute product or services can limit another industry’s
revenue potential. Put a ceiling on prices the enterprise can charge
without decreasing sales.
New entry: It lower the industries profits as prices will be kept down to
make entry less attractive as enterprises have to spend more to keep
their customers.
1.7.1 Theoretical Framework

The finance gap theory and entrepreneur traits and characteristics theory will form
the frame work of this study.
1.7.1.1 The Finance Gap theory

According to Bolton (1971); Chimucheka & Mandipaka (2015), assumed that the
components such as knowledge gap and supply gap are the two sets of barriers
faced by the SMMEs. Bolton (1971) went on to argue that SMMEs lack awareness
about available sources of external finance but once these are resolute, SMMEs
have trouble slaking the imp rest requisites from the external financier. Furthermore,
those SMMEs that could utilize funds efficaciously if they were available to them are
unable to obtain finance from the formal financial system as other financiers do not
substantial information about the entrepreneur (Bolton, 1971). Therefore, this means
that the only possible way for SMMEs to access capital is through personal savings,
friends, and family members (Chimucheka & Mandipaka, 2015).
1.7.1.2 Psychological entrepreneurship theories

According to (Landstrom, 1998), numerous studies analyse psychological theory as
the individual. The psychological theories accentuate the personal characteristics
that define entrepreneurship. In terms of Coon (2004) personality traits as “stable
qualities that a person shows in most situations”. Even if there are obstacles they
can manage to succeed with these characteristics or behaviours associated. Toit
et.al (2010) points out that the decisions to enter into business are influenced by
many variables such as traits and characteristics. The traits and characteristics
which are typical for entrepreneurs are achievement motivation, locus of control,
innovation and ingeniousness and risks takers.
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1.8 RESEARCH METHODOLOGY
Research methodology can be defined as the general research strategy that plans
and structure the way in which research is to be undertaken and, among other things
to identify ways to be utilized.
1.8.1 Research design and plan

Creswell (2009) define research design as the plan and system for research where
decisions are derived from broad assumptions to more detail of data analysis. There
are two basic types of research designs that can be used in conducting primary
research; quantitative and qualitative.
Qualitative research aims at understanding of attitudes and opinions of participants

involved in the research. It asses the depths and breadths of those attitudes and
opinions. With this type of research, it does not aim at measuring the amount of
emotion or opinion, it rather aims at indicating the “dominant feeling” (Brendt &
Petzer, 2011: 230) the participant reveals.
The type of research that was used in this study was a quantitative research method.
Quantitative methods of research have proper sampling that then allows for the
measurement of many subject reactions to a set of questions, (SEEP-AIMS 2000). In
this method the results can then be compared and also analysed statistically. The
number of respondents in this approach is quite high.
1.8.2 Population and Sample

According to O’Sullivan & Rassel (1989), population can be described as the entire
set of individuals or units in which researcher is intrigued, that is, the more
immensely colossal set from which the sample is drawn. A part of the population is
called sample. The sampling frame represents the elements of the target population
(Malhotra, 2012). The study only covered the SMMEs in the retail sector,
construction sector, manufacturing sector, wholesale and service sector that are part
of the sample frame attained from the Eastern Cape Development Corporation
(ECDC). The population for this study was 130 SMMEs.
The simple random method will be used as the sampling method. The population of
the study will be the total of all the registered SMMEs in Buffalo City Metro
Municipality. The sample size was drawn from a population of 130 registered
9
SMMEs in the Buffalo City Metropolitan Municipality (King Williams Town and
Dimbaza). The sample that was drawn the targeted population was 60 SMMEs.
Statistical software named RAOSOFT sample size calculator is the one that was
occupied.
1.8.3 Data collection instruments, sources and procedures

Both the primary and secondary data was utilized in this study to accumulate data.
Primary data will be invented by an investigator for the concrete purport of
addressing the quandary by means of questionnaires or interviews (Malhotra and
Birks, 2006). Secondary data is that data which already exists prior to the research
(Cant, 2005: 69). In this study, secondary data will be collected from text books,
journal articles, previous dissertations, essays and from internet sources.
In order to perfect the primary research objective of the study, a self- administered
questionnaire was developed to accumulate primary data from SMME owners
around Buffalo City Metropolitan Municipality area. A questionnaire is described by
Roberts-Lombard (2002:202) as a set of questions formalised to obtain data from
respondents. According to McDaniel and Gates (2001), questions that are open-
ended tend to be subsidiary when the researcher is unsure of the replication.
1.8.4 Data analysis and procedure

SPSS-Analysis Statistical package for the social science is what was used to
measure the scales for this research. The descriptive statistic was used for age and
gender, some statistical analysis include Cronbach’s alphas to test reliability
Quantitative data, and Correlation analysis can be used to test hypotheses
(Mgcokoca, 2014).
1.9 RELIABILITY AND VALIDITY OF THE STUDY

Reliability relates to consistency of a measure (Shukla, 2008:83). A scale is reliable
when consistent results are engendered and when reiterated quantifications are
made. As Russel (2011) states that, validity is the precision and trustworthiness of
instruments, data and findings in research. In this study Pearson correlation will be
habituated to determine whether a sodality or relationship between the independent
and dependent variables subsisted.
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1.10 ETHICAL CONSIDERATIONS
Ethics are very important when carrying out any type of research. This research is
done ethically and legally. The researcher made sure that the participants are
informed of the research before they get involved and also outline to the participants
what the research is about and then ask for their consent to take part. The
researcher has a moral responsibility to protect participants from any harm. The data
provided by the participants was kept with strict confidentiality. Confidentiality means
that the respondent’s identity will only be known to the researcher but protected from
the public exposure. The researcher was obliged not to compromise the respondents
but to keep the data collected at the highest level of confidentiality (Kolb, 2008:13).
1.11 LIMITATIONS OF THE STUDY

This study was only conducted in Buffalo City Metro Municipality, Eastern Cape
Province of South Africa. Thus, this is the major shortcoming of the research
because the outcomes of this research cannot be generalised to all SMMEs in South
Africa. Buffalo City Metropolitan Municipality is not a representative of the entire
South Africa. Thus, the fact that this research will be conducted within one year, the
findings of this research might only be relevant to the period in which the research is
carried out. Hofstee (2006:60) points out that when it comes to academic research,
limitations are intrinsic.
1.12 CHAPTERS OUTLINE
1.12.1 Chapter One: Introduction and Background of the study

An introduction and background of the study will be covered in this chapter. It
provides a brief literature review and discusses the research problem, research
objectives, and hypotheses of the research and the significance of the study. The
research methodology and design and limitations of the study were also highlighted
in this chapter.
11
1.12.2 Chapter Two: An overview of Small Medium and Micro Enterprises in
South Africa and perceived barriers that SMMEs experience in townships
Chapter two provides a comprehensive literature study on the definition of SMMEs
and an overview in South Africa and global perspective. The importance and
contributions of SMMEs in the economy will be discussed in this chapter as well as
perceived barriers experienced by SMMEs in South Africa.
1.12.3 Chapter Three: Research Methodology

Chapter four deals with the research methodology applied in this study. This includes
the research design, and plan, population and sample, data collection instrument,
validity and reliability of the study as well as the ethical consideration.
1.12.4 Chapter Four: Research Findings

This chapter discusses the finding of the research as well as analysis and
interpretations of the collected data.
1.12.5 Chapter Five: Conclusions, Recommendations and Limitations

Chapter six looks at the conclusion and recommendation on the findings of this
study. This chapter will also include a discussion of the limitation of the study.
12
CHAPTER2
LITERATURE REVIEW
13
2.1 INTRODUCTION
This chapter reviews the literature that currently exists with regard to perceived
barriers experienced by township SMMEs in South Africa. According to Fink (2010)
proposed that research literature review, is the analysis and examination of
completed and recorded work from different researchers in a particular field of
interest.
This chapter will firstly explore the nature of SMMEs and a broad definition of
entrepreneurship and discusses the contribution and importance of the SMMEs.
According to the study prepared for National Credit Regulator (2011), some various
experts from different fields (economists, business experts and policy makers)
agreed that SMEs increase the amount of goods and services produced within a
particular country. A vigorous SMME sector adds value to the economy through
investment, GDP, poverty alleviation and creating more job opportunities. However,
there are barriers which are experienced by SMMEs regardless of the positive
contributions to the economy. These barriers include financial barriers, economic
barriers and government regulations.
In addition this chapter also attempt to provide solutions that currently exist to
address these barriers.
2.1.1 DEFINITION OF ENTREPRENEURSHIP

In most studies entrepreneurship is perceived as key to economic welfare, and is
likely to contribute to poverty alleviation and employment creation has been well
sourced. Morris (1998) defines entrepreneurship as the process that creates value
for individuals and groups, as they make use of the available resources and explores
the opportunities in the environment. It can befall in any organisational context and
positively result in a multiplicity of potential outcomes that include producing products
and services of high quality and advance in technology. The definition by Sharma &
Chrisman (1999) is adopted, as the one appropriate for this study, stating that
entrepreneurship includes organisational creation acts, establishment, or innovation
that occur inside or outside an existing organisation.
14
2.1.2 DEFINITION OF SMMEs
According to (Storey, 1994; Aigbavboa & Thwala, 2014:772), there is no well-known
explanation for small firms. The major concern in most countries including South
Africa is the matter of what institutes a small or medium enterprise. In numerous
studies different definitions are given to this category of business (Mahembe,
2011:24). The definition given by the European Commission (2003) focuses on the
number of employees being employed and turnover made by enterprise. Falkena
et.al and Standard Bank defines SMEs as enterprises that has R150 000 to R5
million per annum turnover.
2.1.3 THE INTERNATIONAL PERSPECTIVE OF SMMEs

Ahiawodzi & Adade (2012:37) cited a definition of small-scale enterprises, it state
that a firm with not more than 9 employees, and has tangible assets (which exclude
property, and vehicles) not more than GH₵ 10 million (Ghanaian cedes). In Canada,
SME are defined as businesses that employ not more than 500 workers. Katu (2014)
further define SMEs as one that will employ fewer than 100 employees and fewer
than 50 employees, respectively, as the business is a goods-producing and is a
service-based business. According to Zheng, O’Neill & Morrison, 2009; Cunningham
& Rowley, 2007; Katu (2014:462) in China, SMEs are classified by the number of
people they employ, sales volume or output, and assets value. The European
Commission (1996) established the first definition of SMEs, appropriate to the entire
region of the EU, stating that SME companies are regarded to have less than 250
workers, with a yearly turnover that is less than forty (40) million Euros and balance
sheet total of twenty seven (27) million Euros (Robu, 2013:85). The European
Commission reviewed the definition and added some alterations (2003) these broad
some few changes on the values of annual turnover and the annual balance. SMEs
can have a yearly turnover of fifty (50) million Euros with a balance sheet total of
forty three (43) million Euros.
2.1.4 The South African Perspective of SMMEs

The National Small Business Amended Act (No. 29 of 2004) provides a broad
definition for small business enterprise as “a separate and distinct business entity
which includes co-operative enterprises, non-governmental organisations that are
managed by one or more owners including its branches or subsidies, if any, is
predominantly carried on in any sector or subsector of the economy.” The Act sets
15
measures that should be used to group businesses into categories of four, (Gauteng
SMME Policy Framework, 2009-2014:2). Table 2.1 below summarises SMMEs
definitions of different categories in South Africa.
Table 2.1 Definitions of different categories of SMMEs in South Africa
Enterprise Size Employees Number Annual Turnover (in Gross Assets

South African Rand) (Excluding Fixed
Property)
Medium less than 100 to 200 Less than R4 000 000 Less than R2 000 000
workers, reliant on to R50 000 000 to R18 000 000 reliant
industry annual turnover reliant on industry
on industry
Small less than 50 workers Less than R2 000 000 Less than R2 000 000
to R25 000 000 to R4.5 000 000 reliant
annual turnover reliant on industry
on industry
Very Small less than 10-20 Less than R200 000 Less than R150 000 to
workers reliant on to R500 000 annual R500 000 reliant on
industry turnover reliant on industry
industry
Micro Less than 5 workers Less than R150 000 Less than R100 000
annual turnover
Source: Falkena et.al (2001)
16
Ntsika (2001:13); Njiro, Mazwai, & Urban (2010) the informal business comprise
survivalist enterprises activities on pre-entrepreneurial level. It includes street sellers,
vendors and survival farmers; usually people unable to find paid jobs. Njiro et.al
(2010:8); Mahembe (2011:25) states that micro enterprises lack formality in terms of
registration for business licences and taxation limit of R150 000 per year. An
example of micro enterprise is a spaza shop. However, several micro-enterprises
sustain so much growth in a long run. Their earning levels differ widely, which
depends on a specific sector, also on the relevant support and the success of
business (DTI, 1995:8). In terms of the number of employees they employ 5 or less.
With very small enterprises, according to Mahembe (2011:25) these are enterprises
that employ less than 10 workers that are being paid, excluding huge sectors (such
as, construction sector, electricity sector, manufacturing sector and mining sector),
where the employment figure is more than 10 workers. They usually have access to
technology and function in the formal market (Mahlanza, 2011:6). In terms of small
enterprises they are traditionally recognised before very small enterprises and
display more complex business ethics (Falkena et.al). As for medium enterprises
includes businesses in mining, manufacturing and construction sectors with the
maximum number of employees between 100 – 200 people (Falkena et.al; DTI,
1995).
2.2 CONTRIBUTION OF SMME SECTOR TO THE ECONOMY OF SOUTH

AFRICA
Abor & Quartey (2010:223) ascertain that the contribution of SMMEs to a country’s
gross national product it can be either by producing high quality goods or services
towards consumers and other enterprises. According to Mahembe (2011:13) informs
that a vigorous SMMEs prominently contribute to the economy by producing high
volumes of production, employment creation and promote exports. The small
medium and micro enterprises sector is perceived as a vital force to create jobs and
more unbiased distribution of income, rivalry amongst each other and this stimulates
economic development. The small business sector plays definitely important role in
fulfilling at least the minimum needs of the people and in assisting disadvantaged
groups, for instance, families in rural areas, people that are disabled and black
17
woman to start their own businesses (Mahlanza, 2011:24. The following section
discusses other contributions made by SMMEs to the economy.
2.2.1 SMME contribution to the Gross Domestic Product

Investopedia explains GDP as an indicator to a healthy economy of a country, also
to measure a country’s standard of living. The contribution of SMMEs to the GDP
becomes difficult to analyse because the GDP accounts only for official
undertakings. This becomes challenging as most SMMEs are operating in the
informal sector (Mahlanza, 2011:26). According to Abor & Quartey (2010:223)
ascertain that the contribution of SMMEs to a country’s gross national product it can
be either by producing high quality goods or services towards consumers and other
enterprises. Chimucheka (2013:785) states that estimates in the year (2009),
indicates that in South Africa, the contribution made by SMMEs is more than 35% of
the total GDP. Though this contribution may be seen as low it may be considered as
significant.
2.2.2 SMME contribution to Job creation

The definition by The International Labour Organisation as cited by Sibanda
(2014:17) defines unemployment according to the number of those people that are
unemployed and has a desire to work. Throughout the recession period of 2009-
2010 many people were retrenched and since then the rate of unemployment
increased in most of the countries. According to FinMark Trust (2006), small
businesses redress the unemployment situation, as they create employment and to
encourage development in SMMEs. The South Africa Statistics (2014) shows that
unemployment rate in South Africa ranges between 23% - 24% of the economically
active population unemployed. As noted on the study conducted by Abor & Quartey
(2010) it was estimated that SMMEs contribute approximately 61% of employment in
South Africa. Small medium and micro enterprises reduce the rate of unemployment
as they create jobs for people and also ensure black empowerment is practical. This
gives owners of SMMEs to create more wealth as the government redress the
inequalities of the apartheid era for themselves and their families as they get
involved in small businesses. These SMMEs allows young entrepreneurs to start
new ventures as a result of creating employment for them.
18
2.2.3 SMME contribution to Poverty alleviation
Since the end of apartheid era poverty reduction has been seen as one of the key
issues facing South Africa (Agupusi, 2007:2). The author further acknowledged that
57% of South Africans were living below the minimum level of income believed to be
adequate in a particular country (poverty line) which constituted 95% of blacks.
Chimucheka (2013:785) noted that poverty occurs globally. Therefore, it is merely
the level of poverty that differs. SMMEs played a crucial role as they ensured that
those who were previously disadvantaged could be employed by these businesses
and get the support from the government to start their own businesses to reduce
poverty and unemployment. These SMMEs create jobs so that people can get a
source of income to meet the standard of living for them. According to Agupusi
(2007:8) other contribution of SMMEs is to improve the much-needed infrastructure
and service in the community.
2.3 IMPORTANCE OF SMMEs

As many small, medium and micro-enterprises (SMMEs) are growing or improving
across the globe, they contribute most importantly in providing new jobs, especially
for people who are unemployed (Ladzani & Van Vuuren, 2002:2). FinMark Trust
(2006) also reasoned that these SMMEs are important to destitution mitigation,
salary fairness, work and reasonable financial development in South Africa.
According to Abor & Quartey (2010:218) as cited by Sibanda (2014) small medium
and micro enterprise play an important role and there is growth in economic
development, also define SMMEs as effective and job creators. David (2012:28)
describe their role as to provide jobs to those that are unemployed as well as
entrepreneurship opportunities to those who want to start their own businesses.
Molapo (2007) also emphasize that SMMEs creates more jobs and reduces the level
of unemployment. According to the speech made by the deputy Minister of Finance,
Nhlanhla Nene (2014) in South Korea where he was invited to talk about the
importance of SMMEs, he mentioned that these SMMEs have positive impact on the
employment of any country as they employ more people.
19
2.4 BARRIERS EXPERIENCED BY SMMEs IN SOUTH AFRICA
Abor & Quartey (2010) cited that despite all the contributions made by SMMEs to
create jobs and accelerate growth in emerging countries. There are a number of
barriers that shake their ability to maintain sustainable growth. There are barriers
that are experienced by SMMEs and they include financial barriers, economic
barriers, Regulation barriers, Marketing constraints, lack of training and
development. Chimucheka (2012:3) referenced in his study from an article of
EntreNews (2004:1) that the main challenge that is facing most of the countries
including South Africa is the virtue on how to motivate individuals to become
successful entrepreneurs and how to equip them with suitable skills for them to
explore those opportunities in front of them into successful ventures.
2.4.1 Financial barriers

The issue of finance is one of the major barriers experienced by SMMEs all over the
world. When it comes to short term funds in South Africa, are not easily available to
the small entrepreneur (Mutezo, 2005:39). According to Fatoki & Garwe (2010:731)
as mentioned by Chimucheka (2013:787) confirm that financial barriers are seen as
the second most informed supplier to failure of the SMMEs compared to education
and training. However, lack of capital is one of the largest restraints experienced by
these enterprises. In South Africa three quarters (75%) of bank application loans
made by SMMEs are vetoed (Foxcroft, Wood, Kew, Herrington & Segal, 2000;
Chimucheka, 2013:787). However, most of these SMMEs lack security for collateral.
Chimucheka (2013:787) further acknowledged that the other reason for SMMEs to
fail is access to bank finances in South Africa is due to bad credit records and poor
presentation of business plans. According to Chimucheka & Rungani (2013:19)
argue that the problem of moral hazard and adverse selection in banking attribute to
small business operators as they fail to access funds.
2.4.2 Economic barriers

The recent recession was found to be the highest economic barrier for SMMEs
which occurred in the period between 2009 and 2010. According to Maphalla
(2010:108) the effects of recession resulted in high unemployment rate as many
people lost their jobs and became “jobless”, turnover and profits declined due to
limited funds at people’s disposal. Other significant barriers to the economy include
inflation and exchange rate. Inflation is the general rise in prices. Inflation has an
20
effect on SMMEs as the survey conducted worldwide by OECD (2004) showed that it
affect the growth of SMMEs more than large enterprises. Exchange rates fluctuate
on day-to-day basis (Sibanda, 2014). When the rand is relatively weak, more focus
on niche market, but lack of capital prohibits these local SMMEs (Maphalla, 2010).
2.4.3 Regulation barriers

For any enterprise large or small to maintain growth it has to comply with laws and
regulations imposed by the government. According to (Theron & Godfrey, 2000:53;
Mahlanza, 2011) state that governmental laws and regulations are not clear as they
are also not easy to follow or apply. The legal framework has negative impact on
SMMEs especially when they are starting up new ventures. Sibanda (2014) states
that before these SMMEs can commence, they must first apply for business licence
which is not easily obtained due to many capital requirements. On the study
conducted by Berry et.al (2002:56), observed some major regulatory barriers are the
inflexibility of labour law which are said to increase the employment costs,
particularly of lower-skilled employees and Broad Based Economic Empowerment.
According to Wiid (2014:25) black economic empowerment policy before 1994 was
not a serious threat to businesses, but by 2013 it has become vital for businesses to
comply with it to do business with other institutions. The government must try to set
legal framework that will favour the SMMEs so that they can easily operate.
2.4.4 Marketing constraints

According to Van Scheers (2012) and Chimucheka (2013:709) the concept of
marketing is an important task for SMMEs yet most are still struggling to implement
it. Marketing is seen as the most negative influence on enterprises exerts factors
such as intense competition, poor location, inefficient competitive advantage
strategies, wrong price strategies, lack of or inability to identify new sources of
demand. Sinxoto (2007) indicates that SMMEs are still experiencing the challenge
to access markets due to a lack of quality systems to exploit new opportunities, that
is, both local and foreign markets. Van Scheers (2011) highlighted that in South
Africa most SMMEs fail to successfully penetrate into markets due to lack of funds to
invest in research. If the business does not invest in marketing research, then it
becomes impossible to carry out objective marketing research. Thus, this will then
lead to insufficient information about customers taste and preference, competitive
strategies used by competitors and marketing in general ((Van Scheers, 2012).
21
2.4.5 Lack of education, training and skills
Training and development in a workforce is an important aspect as it improves
business performance. The amount of competition within businesses is growing in
every industry, as lack of training and development leads to the difference between
maintaining success, and ultimate failure. Lack of education, training and skills can
attribute to establishment, maintaining and growing failure of SMMEs around
townships. Management skills, human resource skills, financial and marketing skills
are crucial for SMMEs in South Africa which they lack currently. According to
Chimucheka (2013:787) education and training benefit SMMEs to maintain success
and also develop management competencies. The author continues by saying that
lack of education and skills contribute to the failure of SMMEs when establishing new
ventures and low levels of entrepreneurial creation in South Africa. Owners and
managers of SMMEs also need to be trained with right skills and knowledge to be
able to start their own businesses that will survive for long time as Fatoki and Garwe
(2010:711) mentioned that lack of education and training is seen as one of the main
motive for high failures for new ventures.
Previous studies have shown that limited access to financial resources is seen as
the leading barrier perceived by SMMEs in order to maintain success or growing the
enterprises. Theoretical empirical literature review based on the Finance Gap Theory
and the Psychological Entrepreneurship Theory will be discussed on the following
page.
22
2.5 THEORATICAL FRAMEWORK
2.5.1The Finance Gap Theory

There are many different definitions of the financial gap. On the report presented by
OECD (2006) it is being said that the term is fundamentally used to mean that most
of effective and efficient small businesses cannot get funds from financial institutions.
Moreover, it is assumed that those SMMEs that are in need of funds, if they were
made available to them, they would use them effectively. Many observers have
proposed a “financing gap” for small and medium and micros enterprises (SMMEs),
meaning that there are significant numbers of SMMEs that could use funds
effectively and efficiently if they were made available to them, but formal financial
system couldn’t provide those funds. According to Bolton (1971); Chimucheka &
Mandipaka (2015), assumed that the components such as knowledge gap and
supply gap are the two sets of barriers faced by the SMMEs. Furthermore, those
SMMEs that could utilize funds efficaciously if they were available to them are
unable to obtain finance from the formal financial system as other financiers do not
substantial information about the entrepreneur (Bolton, 1971). Therefore, this means
that the only possible way for SMMEs to access capital is through personal savings,
friends, and family members (Chimucheka & Mandipaka, 2015).
23
2.5.1.1 Demand side perspective
The issue of SMME access to finance has been the core factor for many academic
researches (Ramlee & Berma, 2013:116). The authors continue to point out that one
of the major challenges opposing SMEs is lack of funds, especially when they are
established and to maintain growth (Ramlee & Berma, 2013). According to Harsmar
& Chalmers (2014:17) demand side raises the need for businesses and interest in
the external funding. Berger & Udell (1998); Petersen & Rajan (1994), state that a
mutual theoretical argument for finance gap is information asymmetry leading to
credit limitations on the part of bank lenders. The definition given by Baldock &
Whittam, 2008:19) describe asymmetric information as an insufficient information
that is provided by entrepreneurs on the proposals they present to bank offices as
they will not have ‘perfect’ information about the person who applies for loan.
2.5.1.2 Supply side perspective

Studies relating to supply side that are specific on bank finance compared to other
studies in forms of SME’s finance are scare. According to Harsmar & Chalmers
(2014:17) supply side raised the need for investors to invest or provide funds for
small businesses. Lean and Tucker (2000) discovered that financial providers had
issue with lack of knowledge about the nature of the client’s business. Contrary to
the findings of Lean and Tucker (2000), however, most of the business owners also
lack knowledge about the criteria and procedures of the banks for lending (Baldock &
Whittam, 2008:19)
2.5.2 The Psychological Entrepreneurship Theory

According to (Landstrom, 1998), numerous studies analyse psychological theory as
the individual. The psychological theories accentuate the personal characteristics
that define entrepreneurship.
2.5.2.1 Personality traits for entrepreneurs

In terms of Coon (2004) personality traits as “stable qualities that a person shows in
most situations”. Even if there are obstacles they can manage to succeed with these
characteristics or behaviours associated. According to Mahlanza (2011:8) these
traits refer to the person’s mind-set and include self-confidence, persistence, passion
and the desire to achieve.
24
2.5.2.1.1 Need for achievement
According to McClelland’s Motivation Theory (1961) as cited by Sibanda (2014:21)
stresses that money does not influence entrepreneurs with high need for
achievement even external incentives. Furthermore, McClelland states that the
theory of need for achievement is used mainly in social negotiations and setting
motivational factors of specific people. It is been said by Suter & Bwisa (2013:107)
achievement need drive the entrepreneurs to be successful. According to Shaver &
Scott (1991); Suter & Bwisa, (2013) the need for achievement leads to creativity
within business enterprises. McClelland (1965) further verbalizes that culture and
socialization has an influence in determining the degree of desideratum for
achievement. The desiderata are learned through socialization and not established
biologically.
2.5.2.1.2 Internal Locus of control

Another psychological characteristic is internal locus of control that has been seen to
entrepreneurs. This concept refers to the confidence that individuals have which can
determine their fate through their own behaviour (Low & MacMillan, 1988:147).
Individuals believe that they are able to manage their life events in terms of internal
locus of control (Simpeh, 2011). Business owners when compared to other
populations are said to have higher internal locus of control as they think that they
can control what is happening inside the business (Rauch and Frese, 2000; Simpeh,
2011). However, internal locus control is seen as the most valuable characteristic by
(Brockhaus, 1982; Sexton & Bowman, 1985; Gasse, 1982, Low & MacMillan,
1988:147) than the need for achievement in distinguishing the entrepreneur from the
non-entrepreneur. When it comes to external locus control individuals trust, most of
what is happening in their lives results from being blessed or being at the right place
at the right time (Okhomina).
2.5.2.1.3 Risk taking propensity

Risk- taking propensity forms part of psychological characteristics that often ascribed
to entrepreneurs. Sexton & Bowman (1985), state that entrepreneurs are sensible
risk takers and they do not differ from the general population or managers. Risk
taking forms part of the entrepreneurial process whether it is financial risk, social
risk, or psychological risk (Hisrich and Peters, 1998; Nkonde, 2012:55).
25
2.6 APPLICABILITY OF THE THEORIES
2.6.1 The Finance Gap Theory

The SMME sector has been addressed for employment creation and improving the
economic growth in South Africa, financial challenges are seen as the main problem
for SMMEs (Nkonde, 2012:60). According to Agyapong et al. (2011:132);
Chimucheka & Rungani (2013:19) the problem of asymmetric information occurs
when two parties get into a contract and only one party does not provide important
information that has material effect on the contract, whereby the other party is not
aware of. This asymmetric information leads to unavailability of funds, as banks will
not provide funds to SMMEs due to limited information about them.
2.6.2 The Psychological Entrepreneurship Theory

According to Littunen (1997); Nkonde (2012:54) the characteristics that these
entrepreneurs have are not born with, but they can be learned through life difficulties.
However, Littunen (1997) continue by saying that characteristics of successful
entrepreneurs include being able to take risk, creativity, understanding the marketing
26
environment. As they overcome those barriers that they experience or perceive
when establishing their businesses and growing them.
2.7 SUMMARY
The chapter was reviewing literature on SMMEs and discussed about barriers that
are perceived or experienced by SMMEs. This chapter produced a broad definition
of entrepreneurship, SMMEs definition and the international perspective of SMMEs.
The importance and the contributions of SMMEs to the economy of South Africa
were also discussed. The second part was the theories that provided an
understanding why the SMMEs perceive or experience barriers. The theories
discussed include the finance gap theory and psychological entrepreneurship theory.
The next chapter (chapter 3) will be the methodology of this research study. It will
provide an analysis manner in which this study will be carried out, this include:
research design, population and sample size, data collection instruments and
procedures, data analysis, validity and reliability as well as ethical consideration.
27
CHAPTER 3
METHODOLOGY
3.1 INTRODUCTION
Research methodology is defined as the study of technique by which knowledge is
gained. Its purpose is to outline the way in which research is to be undertaken
(Rajasekar, Philominathan & Chinnathambi, 2013:5). The purpose of this study is to
investigate the barriers that are experienced by township SMMEs in the Buffalo City
Metropolitan Municipality (King Williams Town and Dimbaza).
This chapter discusses the research design, the physical area where the research is
carried out, the population and sample, the instrument used to collect data,
28
procedures of data analysis, including validity and reliability of the instrument and
ethical consideration.
3.2 RESEARCH DESIGN AND APPROACH

The research design is very important as it determines the success or failure of the
study. It is defined by Birks & Malhotra (2006:58), as a detailed plan or ‘blueprint’ to
carry out a research project. This contains the essential procedures to gather the
necessary information needed to construct or solve research problems. According to
David (2012:72), it is the plan or strategy in terms of which the research is carried
out to obtain answers to research questions of the study.
The researcher employed a quantitative research approach. According to (Bless &

Hinson-Smith, 1995; David, 2012:2), the quantitative research method is used to
answer question s about relationships between variables with the aim of explaining,
predicting and controlling phenomena. Hopkins (2000), describe quantitative
research as a method that measure relationship between the independent and
dependant variables using statistics such as correlations, relative frequencies.
Sukalmolson (2005:4) as cited by Sibanda (2014:30) indicates that quantitative
research can be classified into survey, correlation, experimental and casual
comparative researches. The researcher made use of the survey. According to
Robson (1993), survey is one of the methods which are being used in the research
methodology to collect data from a specific population or a sample drawn from that
population and typically uses a questionnaire or an interview as the survey
instrument.
3.3 THE FOCUS OF THE STUDY

This study investigated the barriers that SMMEs perceive or experience when being
established in the buffalo City Metropolitan Municipality, South Africa. We recap the
objectives, research questions as well as the hypotheses.
3.3.1 The primary objective:

• Determine the perceived barriers faced by SMMEs in townships.
29
3.3.2 The key research questions are as follows:
• What are the barriers that SMMEs in Buffalo City Metro Municipality
experience in establishing, sustaining, maintaining and growing
enterprises?
• What are the possible solutions to these barriers?
3.3.3 The hypotheses of this study are:

businesses
businesses
These research objectives, questions and hypotheses are deduced from the topic,
so as to critically analyse the barriers perceived or experienced by township SMMEs
in the Buffalo City Metropolitan Municipality. The survey conducted in line with the
objectives outlined in this research.
3.4 RESEARCH SCOPE

The research scope will generally outline the population where the study will be
conducted as well as the sampling framework.
30
3.4.1 Study Area
This study was carried out, in the Buffalo City Metropolitan Municipality, in the
Eastern Cape region, South Africa. King Williams Town and Dimbaza are the two
towns where data will be collected. The area is 200 km radius from the University of
Fort Hare Alice main campus.
3.4.2 POPULATION
According to David (2012:74), population is a collection of all explanations of a
random variable under the research is trying to draw conclusion in practice. De Vos,
Strydom, Fouche & Delport (2005:193); Maphalla (2010:69) define population as a
set of entities in which all measurement of interest to the investigator are
represented. Population is simply described by Zikmund (2003:369), as a broad
group of persons that have identical set of characteristics that are relevant to the
research. The researcher made use of all registered and unregistered SMMEs in the
BCMM.
It becomes easy to construct a so-called sampling frame after decided on the

population.
3.4.3 SAMPLING
Cooper and Schindler (2006:441); Chikumbu (2012:39) states that, sampling is a
process of selecting some elements of the target population from the entire
population. Sampling frame is a list of all the units in a population, the actual sample
will be drawn from that list as described by David (2012:74). According to Birks and
Malhotra (2006:351) sample is much more favourable in terms of budget and time
limits compared to census. It saves time and the cost of sampling errors is low.
3.4.4 SAMPLING METHODS

The sampling methods include: non-probability and probability sampling.
3.4.4.1 Non-probability sampling

According to Fischler, non-probability sampling is when the researcher selects
participants because they are available, convenient or have the characteristics the
researcher wants to study. This type of sampling method relies on the decision of the
researcher rather than on chance selection procedure. It is the subjective procedure
31
in which it entails zero selection probability and also unknown before the sample is
drawn as described by Chinyamurindi (2014).
3.4.4.2 Probability sampling

Probability sampling is when individuals are selected from the population they
represent (Fischer,). According to Barreiro and Albandoz (2001:4) refer to probability
sampling as one that each sample will have the same chance of being selected.
Chinyamurindi (2014) identify it as an objective procedure in which it entails non-zero
selection probability and also known in advance for each population unit. But this
type of sampling procedure is more expensive than non-probability sample. Latham
(2007) and Chikumbu 2012:39) express that, the choice to use probability or non-
probability sampling relies on the aims or goals set by the investigator.
In this study, the researcher made use of a probability sampling method. As it is

been stated with this method each unit has an equal chance of being selected
(Cooper and Schindler, 2008:180). The reason for the researcher to choose the
probability sampling method is because with this type of method everyone in the
population of the SMMEs in the Buffalo City Metro Municipality has an equivalent
chance of being included in the sample (David, 2012:75).
3.4.4.3 Simple random sampling

According to David (2012:75), simple random sampling is a probability in which each
population unit has an equal and known chance of being selected by the researcher.
The researcher uses the sample random sampling method because it eliminates
bias among respondents.
The researcher made use of the simple random sampling to select the respondents
from the population.
3.4.4.4 Sample size

According to Shapiro (2013) states that sample size of an investigation refers to the
number of elements or units that were used to collect data. Sign (2007:41) as cited
by Manyakanyaka (2012:35) agree that the sample size should be bigger enough to
be seen as an accepted representation of the targeted population. Thus, the sample
size must be small enough as it would save time and money. To determine the size
of a sample, there is no formal procedure which must be followed (Manyakanyaka,
32
2012:35). However, it will rest on the landscape of the targeted population or data to
be collected. The Raosoft simple size calculator will be valid to calculate the sample
size.
The sample size was drawn from a population of 130 registered SMMEs in the
Buffalo City Metropolitan Municipality (King Williams Town and Dimbaza). The
sample size of SMMEs drawn from the targeted population was 60.
3.5 DATA COLLECTION

In most of the studies it becomes impossible, inefficient and costly to carry out a
research on the entire population; therefore samplings offer a feasible resolution to
gather data on the population identified. Both the primary and secondary data was
utilised in this study to accumulate data. Primary data will be invented by an
investigator for the concrete purport of addressing the quandary by means of
questionnaires or interviews (Malhotra and Birks, 2006). Secondary data is that data
which already exists prior to the research (Cant, 2005:69). In this study, secondary
data will be collected from text books, journal articles, previous dissertations, essays
and from internet sources
According to Hackley (2003:25), mentioned that investigators must have a certain

principle or certain procedures which they follow when selecting an adequate sample
to guarantee that the data is collected in a systematic manner, also in line with the
research objectives. Cooper and Schindler (2006:390) state that there are three
methods of collecting primary data (experiment, observation and survey methods).
This study made use of survey method. A survey involves questions that are directed
to respondents and can then be analysed at the end of the survey (Chikumbu,
2012:40)
3.5.1 Research Instrument

McDaniel and Gates (2001:62) and Matikiti (2011:89) points out, that a research
instrument contains different types of questions which are generated for the
necessary data to be collected to accomplish objectives of the study. According to
Craziano and Raulin (1999:68) in each scientific research both independent and
dependant variables should be measured.
33
There are four basic types of measurement option that are identified by Mutezo
(2005:61). These basic types of measurement include:
Nominal scales: This is known as the lowest level of measurement, it has the
least matching to the number system (Craziano and Raulin, 1998:71). There
is no difference measured among the objects and people (Elliot, 2015:11). For
example, the province numbers (Gauteng 1, Western Cape 2, Northern Cape
3), assigned number for gender (Female1, Male2).
Ordinal scale: The larger number for the object is truly larger in some sort of
amount (Elliot, 2015:11). This represents ranking or ordering information.
Elliot (2015:11) further acknowledged that there is no exactly measured
difference between the objects. For example, class test results (1 st= 90%,
2nd= 82%, 3rd= 65%) there is no neutral difference between these results.
Thus, the marks between the results are not equal.
Interval scales: According to Elliot (2011:11), this type of measurement is

similar to ordinal, that there is a rank for the objects or people, but there is
also measurement for the ranking. Also referred to as Likert scales as it
ranges from strongly disagree, disagree, neutral, agree and strong agree.
Ratio scales: Mutezo (2005:62) refer to ratio scales as measurements where

there is equal distance between the objects or numbers, as with interval
scales, yet it also has an absolute zero.
This study made use of one instrument, as it is aimed for the population targeted: All
SMMEs around the area of Buffalo City Metropolitan Municipality. This measurement
instrument will take the format of a questionnaire. Shukla (2008:86) defines a
questionnaire as a dignified set of questions for gathering data needed by the
researcher from respondents. It is been said that a questionnaire is a structured
method for collecting primary data which consist of a sequence number of questions,
written or that a respondent answers verbally.
Irrespective of the form of administration, a questionnaire is branded by the three

main objectives (Shukla, 2008:86). The following objectives for a questionnaire as
described by Birks and Malhotra (2006:62) include:
34
Needed information must be interpreted into a set of questions that the
respondent can and be willing to answer,
respondents must be uplifted, motivated and encouraged to become involved

and cooperate well when answering a questionnaire
A questionnaire must reduce response error.
Advantages of a questionnaire are:
It becomes possible to survey a broader population as the survey can be

emailed,
They are cheap and easy than one-on-one interviews, lastly
Anonymity plays crucial part, as it is guaranteed people may be willing to be

honest
The questionnaire (types of questions)
Unstructured questions
They are also known as open ended questions which respondents answer them in
their own words (Birks and Malhotra, 2006:335)
Martins, Loubster and Van Wyk (1999:229); Matikiti (2011:91) states that, open-
ended questions are usually used when the researcher is not quite sure of the
answers that he or she will obtain from the respondent. Malhotra and Birks
(2006:335), argue that open-ended questions enables respondent to express their
feelings, which can help the researcher to analyse the response to structured
questions. Matikiti (2011:89) feels that, the usage of open-ended questions makes
coding difficult as the ‘coding of responses is costly and time-consuming’.
Structured question
According to Birks and Malhotra (2006:335) state that planned questions, identify the
set of response alternatives and the response layout. A structured question could be;
closed-ended questions, multiple choice, dichotomous and Likert scale type
questions.
35
Closed-ended questions
According to Wheather and Cook, 2002:142, as cited by Rungani (2010:102)

profound that this type of questions provides the respondent with different option,
due to the fact that the questions does not require detailed explanation from the
respondent. Thus, it increase chances of participation by the respondent and lastly, it
is easily analysed as answers are given in numbers or value so that statistical
interpretation can be made.
Multiple- choice questions
An extension is provided by the multiple- choice questions, where the respondent is

allowed to choose from alternatives and can choose more than one alternative
(Shukla, 2008:89). This structure will be used as it provides the ease of coding.
Dichotomous questions
According to Matikiti (2011:90) a dichotomous question refers to a question that

offers two choice answers to select from. For example, questions with answers like
Female or Male, Yes or No, Agree or Disagree, 1 or 2. This will be applicable in this
study.
Likert type scale question
Likert scale is one of the extremely used scales in most studies which focus on
degree of agreement and disagreement (Shukla, 2008:77). Five-point Likert type
scale will be used, as they are adopted from Rensis Likert who developed the scale.
It ranges from strongly disagree to strongly agree.
Format of the questionnaire
A questionnaire will be distributed to township SMMEs in the Buffalo City

Metropolitan Municipality Area as unit of analysis. The questionnaire structure will be
as following:
Section A: Demographic Information
This section made use of closed-ended questions to gather information such as age,
gender, home language, and education background. The questions in this section
36
are multiple choice questions, dichotomous questions where the respondent is
expected to elect one or more alternatives in some instances.
Section B: Barriers experienced or perceived by SMMEs
This section focuses on the years of business operations, the nature of industry
which the business operates, what type of goods or services they offer, the position
of the participant or the role in the business. Participants are also asked to identify
which type of barriers they experienced or perceived.
Section C: Financial Barriers
This section focuses on the financial barriers that the participant have experienced
when establishing their businesses. The obstacles that they perceive when
accessing funds from financial institutions.
Section D: Managing the business
This section focuses on the management of the business. The participants will be
asked about the skills they need to train their employees.
Section E: Barriers when accessing markets and Government support
This section focuses on the barriers perceived or experienced when accessing

markets and government support which is provided to these businesses.
3.5.2 PRE- TEST THE QUESTIONNAIRE

According to (Hair et al., 2006:660; De Vos, 2002:59; Matikiti, 2011:92) defined that,
a pre-testing method refers to imitation of administration of a designed questionnaire
or instrument to a small group of respondent with the identical characteristics as
those of the targeted group. This is seen as an important step to test questionnaire
because it can provides an enhancement on the questionnaire structure (Matikiti,
2011:92, and Chikumbu, 2012:41). The questionnaire was tested on SMMEs around
Alice town, prior to the administration of the questionnaires. This is also known as
pilot testing. According to Shukla (2008:91) it provides all aspects of a questionnaire
content, wording, order, form and layout. Those respondents that are selected for the
pilot test must have identical background characteristics, familiarity with the topic and
37
attitude and behaviours of interest with those who will be included in the target
population.
3.6 RELIABILITY AND VALIDITY

According to Sudman and Blair (1998:300); Sattari (2007:54); Chimucheka
(2012:106), identified that, it is possible that some questions could cause problems,
therefore, to eliminate those problems questionnaire testing is crucial. They ascertain
that it gives rise to the need to ensure validity and reliability.
Validity refers to the extent at which the test should measure. Shukla (2008:82)
defines validity as a scale measuring what it is inevitable to measure. As Russel
(2011) states that, validity is the precision and trustworthiness of instruments, data
and findings in research. Validity refers to how truthful the research results are
(Babbie and Mouton, 2002:15). According to Moyo (2012:92) validity also denotes
whether an instrument used measures what is supposed to measure, given the
environment in which it is applied. In this study Pearson correlation will be adapted to
determine whether a sodality or relationship between the independent and
dependent variables existed. Babbie and Mouton (2002:15) identified four types of
validity. These are content or face validity, internal and external validity and
statistical validity.
Content (Face) Validity
Content validity is also known as face validity, it is a subjective but methodical

evaluation of how well the content of a scale represents the measurement task at
hand (Birks and Malhotra, 2006:314). Musa (2010:103) face validation is seen as a
judgement process, which can be done in various ways. This type of validity involves
a panel of experts to review the items and give a comment on whether the items
cover a representative sample of the behaviour domain (Rungani, 2010:113).
Internal Validity
Internal validity refers to the confidence that is been placed in the cause and effect
relationship (Rungani, 2010:113). According to Babbie and Mouton (2001) internal
validity addresses the question of to what extent does the research design allows us
38
to say that the independent variable causes some changes in the dependent
variable.
Reliability measures the ability of a research instrument to perform of produce

consistent results everything used (Babbie and Mouton, 2001:15). Reliability is more
concern with the consistency of measures (Matikiti, 2011:94). According to Shukla
(2008:83) reliability in research is concern of consistency results which are produced
when repeated measurements are undertaken. A scale is reliable when consistent
results are engendered and when reiterated quantifications are made. The
consistency of a scale of measurement can yield consistent results overtime only if
the measurement itself and the measuring situation are standardized. Standardized
measurement implies that the conditions of the test situation should be kept
consistent for everyone being assessed as well as during different assessment
situations (Schreuder & Coetzee, 2010).
3.7 DATA ANALYSIS AND STATISTICAL TECHNIQUES

Cooper and Schindler (2006:87) identify data analysis as a process of transforming
raw data into useful, meaningful and valuable information that can be used and
easily understood or interpreted. Data collected will be analysed in the form of tables
and graphs so that it can be easily interpreted. The data gathered in this research
study, was analysed by quantitative analysis approach. According to Mouton (1996)
the quantitative analysis approach refers to the point where the researcher after
applying numerous statistical and mathematical techniques, it then focuses on a
specific variable separately. The collected data was analysed by the Department of
Statistics at the University of Fort Hare through the Statistical Package for Social
Sciences (SPSS), because of its capacity to examine both quantitative and
qualitative data as it integrates the statistical data analysis methods and formulas
(Matikiti, 2011:15).
3.7.1 Descriptive statistics

The use of descriptive statistics is to analyse the data obtained by the researcher.
From an anonymous author it has been said that descriptive statistics deals with the
presentation of statistical facts or data which can be put in a graph or table form, with
the methodology of analysing the data. Meaning for descriptive statistics, it is a set of
39
descriptive factors that recapitulate a given data set, which can either be an
illustration of the entire population or a sample. The methods to measure and
describe the data set include measures of central tendency and measures of
variability or dispersion. According to Mikki Hebl, descriptive statistics are numbers
which are used to abridge and analyse the data. The author further acknowledges
that descriptive statistics are just descriptive; they do not contain generalising
elsewhere beyond the data at hand.
3.7.2 Inferential statistics

Inferential statistics was also used in this research study, to analyse the data
collected. According to Upon and Cook, 2008, defines inferential statistics as a
process of deducing (inferring) properties of an underlying distributions by analysis.
Inferential statistical analysis deduces properties about a population, this include
testing hypotheses and deriving estimates. The precision and reliability of the
inferences it helps to grow must also be considered (Chikumbu, 2012:43). The
reason the researcher made use of an inferential statistics is to give meaning to
research findings.
3.8.3 Pearson correlation

The Pearson correlation test was useful in this research study. The Pearson
correlation technique investigates the relationship between quantitative variables.
The Pearson correlation test also determines the strength of the association between
the two variables (independent and dependent variables).
3.8.4 Chi-square Test

According to Chimucheka (2012:112), chi-square is a statistical test that is
commonly used to compare observed data with data we would expect to obtain
according to a specific hypothesis. The Chi-square test is used to determine whether
there is a significant difference between the expected frequencies and the observed
frequencies in one or more categories. The Chi-square test is always testing what
scientists call the null hypothesis.
3.8 ETHICAL CONSIDERATION

Ethics provide guidelines for decision making and determine the organizations
socially responsive actions (Cant, Gerber-Nel, Nel and Kotze, 2005:11). Ethics are
40
very important when carrying out any type of research. This research was done
ethically and legally. The researcher made sure that the participants are informed of
the research before they get involved and also outline to the participants what the
research is about and then ask for their consent to take part. The researcher has a
moral responsibility to protect participants from any harm. The data provided by the
participants was kept with strict confidentiality. Confidentiality means that the
respondent’s identity will only be known to the researcher but protected from the
public exposure. The researcher attained ethical clearance certificate from the
University of Fort Hare’s Research Ethics Committee.
3.9 LIMITATION OF THE STUDY

This study was only conducted in Buffalo City Metro Municipality, Eastern Cape
region, South Africa. Thus, this is the major shortcoming of the research because the
outcomes of this research cannot be generalised to all SMMEs in South Africa.
Buffalo City Metropolitan Municipality is not a representative of the entire South
Africa. Thus, the fact that this research was conducted within one year, the findings
of this research became only relevant to the period in which the research was carried
out. Hofstee (2006:60) points out that when it comes to academic research,
3.10 SUMMARY
In this chapter research methodology, research design and approach, sampling and
population, data collection methods, data analysis and statistical techniques, validity
41
and reliability, ethical consideration and some limitation that were discovered in this
study. The chapter which is following will be dealing with research findings. The
research findings will be analysed data in the form of tables, charts and graphs.
42
CHAPTER 4
RESEARCH FINDINGS
4.1 INTRODUCTION
Chapter 3 described the research methodology (including research design, the
population and sampling method, the data collection instrument and data analysis
43
methods) that will be used in this research study. This chapter presents the analysis
and interpretation of the primary data that was collected to identify these barriers that
are perceived or experienced by township SMMEs in the Buffalo City Metropolitan
Municipality. The research findings are translated into integrated and meaningful
statistics and findings. According to Cooper and Schindler (2006:87) data analysis
refers to the translation of primary data into meaningful, useful and organised
information that can be easily understood and used for other studies. The data is
presented as it appears on the research instrument on a question by question basis.
For empirical analysis to be possible, the results of descriptive analysis are
presented first, and then the inferential statistics analysis will follow. The inferential
statistics is based on hypotheses that are generated from the objectives of the study.
The research results are discussed in the sections that follow.
4.2 RESEARCH RESULTS

A QUESTIONNAIRE DESIGNED FOR THE PERCEIVED BARRIERS
EXPERIENCED BY SMMEs IN THE BUFFALO CITY METROPOLITAN
MUNICIPALITY.
SECTION A: PERSONAL INFORMATION
This section will cover the personal information given by the respondents relating to
issues of gender, age, population group, highest educational level, years of
business. The respondents were asked to identify type of barriers they experienced
or perceived and whether it would be easy for them to start their own businesses, if
there are no barriers perceived when they establish their businesses.
Question 1: Gender
This question focuses on the gender of respondents. The information is presented

on figure 4.1.
FIGURE 4.1: GENDER
44
GENDER
Male Female
40%
60%
The above figure indicates that male entrepreneurs constitute 60% of the
respondents were female entrepreneurs constitute 40% which is remaining.
According to the Department of Trade and Industry (2005) report which stated that
female entrepreneurs represents 33% of existing businesses and are most affected
by SMME failure, which the findings of the research study is in line with the
percentage.
Question 2: Age group
This question will provide the researcher with personal information in relation to the
age of the respondents. The information will be presented on the figure 4.2 below.
FIGURE 4.2: THE AGE OF THE RESPONDENTS
AGE
35%
30%
25%
20%
15% AGE
10%
5%
0%
18-25 26-33 34-41 42-49 50+
Figure 4.2 indicates that 20% of the respondents were in the range of (18-25years),
the range of (26-33years) comprise 30%, the range of (34-41years) comprise 23%,
45
the range of (42-49years) comprise 20% and 0.7% were over the age of 50 years.
The results were consistent with the international studies on gender and small
business. According to Coleman (2000) in his study indicates that women business
comprise one third of all small businesses as the remaining two third belongs to
men. Rungani (2009:164) concluded that the reason that women own fewer
businesses is because of lack of business knowledge which has a negative impact
when starting their own businesses.
Question 3: Population Group
This question provides the researcher with personal information in relation to the
population group the respondents belong. The information will be presented on the
figure 4.3.
FIGURE 4.3: THE POPULATION GROUP OF THE RESPONDENTS
POPULATION GROUP
White Coloured Black Asian Other
4% 0%
23%
53% 20%
4.1
The above figure 4.3 indicates that 23% belongs to White population group, 20%
belongs to Coloured population group, 53% belongs to Black population group, and
4% belongs to Asian population group. These findings show that the majority of the
respondents belong to Black population group as many townships are owned by this
population of blacks. Agupusi (2007:2) acknowledged that 57% of South Africans
were living below the minimum level of income believed to be adequate in a
particular country (poverty line) which constituted 95% of blacks in township areas.
Question 4: Highest Educational Level
46
This question focuses on the highest educational level of the respondents, as they
range from Grade R-11 to University level. The information will be presented on the
figure 4.4.
FIGURE 4.4: THE HIGHEST EDUCATIONAL LEVEL OF THE RESPONDENTS
EDUCATIONAL LEVEL
University
Public FET
EDUCATIONAL LEVEL
Matric
Grade R-11
0% 20% 40% 60%
The above figure indicates that 26% belong to Grade R-11, Matric consist of 47%,
Public FET consist of 13% and 14%belongs to respondents who went to University.
These findings are consistent with the results of Shafeek (2006:101), as he stated
that more than 70% of the respondents on SMMEs in the Eastern Cape Province
had a post-secondary qualification (matric, FET and University). In a study that was
conducted by McCormick (2001), it shows that those respondents without matric
education will start micro businesses and those with matric, higher certificates,
diplomas and degrees will go for small or medium enterprises.
Question 5: Years in Business
This question provides the researcher with personal information in relation to the
years that the business has been operating.
FIGURE 4.5: YEARS IN BUSINESS OPERATIONS
47
Years of operation
60%
40%
20%
0%
Years of operation
The graph above shows that 47% of the SMMEs have been operating between 0 to
3 years, 23% between 5-10 years, 17% between 10 – 15 years 13% between 15 -20
years of operation. These results were with the studies drawn by Borton and Gordon
(2000) and Rungani (2009:126); they concluded that most of the SMMEs face a lot
of challenges which delay their growth. They also stated that financial barriers make
it quite difficult for many SMMEs to expand and grow.
Question 6: Please specify the type of goods or services which you offer
This question will provide the researcher with personal information about type of
goods or services being offered by the respondents. The results will be depicted in
figure 4.6 below
FIGURE 4.6: TYPE OFGOODS OR SERVICES OFFERED
type of goods or service offered

40%
35%
30%
25%
20%
15% type of goods or service
10% offered
5%
0%
48
20% of the respondents sold clothing items, 35% of the respondents sold fast foods,
30% of the respondents sold groceries, and 10% sold hardware and 5% sold other
goods and services.
Question 7: What is your position or role in business?
This question focussed on managers and owners of SMMEs. This question will
provide the researcher with personal information about position or role of the
respondents. The results will be depicted in figure 4.7 below
FIGURE 4.7: POSITION OR ROLE IN BUSINESS
Position in Business
Owner Manager Both Other
0%
30%
47%
23%
The figure above indicates that 30% of the respondents are owners of the SMMEs,
23% of the respondents are managers and 47% of the respondents belong to both
the owners and managers. Lee and Wong (2001:11) ascertain that, most of the
entrepreneurs want to be their own boss and work at their own pace without being
told. These findings show that most of the respondents are both managers and
owners as it reflects that they are their own bosses as this is in line with the study of
Lee and Wong.
QUESTION 8: Indicate the type of barriers you experienced or perceived when

you establish their businesses
49
This type of question will provide the researcher with barriers that are experienced
by the respondents. The results will be depicted in figure 4.8 below
FIGURE 4.8: BARRIERS
100% 90%
90%
80%
70%
60% 50%
50% 43% 40%
40%
30%
20%
10%
0%
financial barriers Lack of marketing regulatory
education and constrains barriers
skills
barriers experienced
The above figure 4.8 shows that 90% of the respondents experienced financial
barriers as 50% of the respondents indicated that lack of education and skills is the
challenge they face, 43% of the respondents experienced marketing constraints and
40% of the respondents complained about regulatory barriers.
Question 9: Do you think it would be easy for individuals to start their own
businesses, if there are no barriers perceived when establishing their
businesses?
Table 4.1: Barriers perceived when establishing businesses
Strongly Agree Neutral Disagree Strongly

Agree Disagree
Frequency 26 22 12 0 0
Percentage (43.33%) (36.67%) (20.00%) (0.00%) (0.00%)
According to the above Table 4.1, none of the respondents strongly disagree and
disagree with the statement that it would be easy for individuals to start their own
50
businesses, if there are no barriers perceived when establishing their businesses, 12
(20%) of the respondents are being neutral, 22 (36.67%) of the respondents agree,
26 (43.33%) of the respondents strongly agree that it would be easy for
entrepreneurs to start their own businesses, if there are no barriers.
SECTION B: FINANCIAL BARRIERS
This section focuses on the financial barriers that most of the participants have
experienced. Importantly those obstacles which are experienced by owners or
managers of SMME when accessing funds from financial institutions. This section
also seeks to identify financial barriers experienced by SMMEs.
Question 10: Where did you get the capital to start your business?
Table 4.2: START-UP CAPITAL
Start-up Family Own Financial Large Other Total

Capital Savings institution companies
Frequency 23 20 17 0 0 60
Percentage 38.33% 33.33% 28.33% 0.00% 0.00% 100.00%
Figure 4.9: START-UP CAPITAL
Capital to start business

40%
35%
30%
25%
20%
15%
10%
5% Capital to start business
0%
51
The results indicate that 23 (38.33%) of the respondents were given start-up capital
by family members, 20 (33.33%) of the respondents used their own savings, 17
(28.33%) of the respondents obtained start-up capital from financial institutions.
None of the respondents were given by large companies or any other place. This
shows that majority of respondents had to use their own savings and family savings
to start their own businesses.
Question 11: Please indicate the problems which you have experienced in your
business (you can select more than one).
Table 4.3: Problems experienced in respect of financial support
Financial Support Barriers Frequency Percentage
Lack of start-up capital 41 68.33%
Lack of establishing capital 18 30.00%
Lack of expansion capital 14 23.33%
Lack of credit facility from suppliers 4 6.67%
Other 0 0.00%
According to the above table 4.3, indicates that 41 (68.33%) of the respondents
experienced lack of start-up capital in respect of financial support, 18 (30.00%) of the
respondents experienced lack of establishing capital, 14 (23.33%) of the
respondents experienced lack of expansion capital and 4 (6.67%) of the respondents
experienced lack of credit facility from suppliers as one the problems in respect of
financial support.
52
Question 12: The following are believed to be key obstacles that you
experienced when accessing funds from financial institutions
Table 4.4: Obstacles faced when accessing funds from financial institutions
OBSTACLES Strongly Agree Neutral Disagree Strongly

Agree n(%) n (%) n (%) n (%) Disagree
n(%)
Lack of Collateral 8 26 14 10 2
13.33% 43.33% 23.33% 16.67% 3.33%
Lack of business skill 4 34 8 14 0
6.67% 56.67% 13.33% 23.33% 0.00%
Bad credit record 10 22 8 18 2
16.67% 36.67% 13.33% 30.00% 3.33%
12.1 Lack of collateral
The results depicted on table 4.4, indicates that 8 (13.33%) of the respondents
strongly agree that lack of collateral is the key obstacle when accessing funds
financial institutions, 26 (43.33%) agree with the statement, 14 (23.33%) of the
respondents are being neutral, 10 (16.67%) disagree and 2 (3.33%) of the
respondents strongly disagree with the statement, as to lack of collateral is the key
obstacle for lack of funds from financial institutions. These findings are in line with
literature of this study as it noted by (Foxcroft, Wood, Kew, Herrington & Segal,
2000; Chimucheka, 2013:787). In South Africa three quarters (75%) of bank
application loans made by SMMEs are vetoed. However, most of these SMMEs lack
security for collateral.
12.2 Lack of Business Skills
The results shown in table 4.4, indicates that 4 (6.67%) of the respondents strongly
agree, 34 (56.67%) majority of the respondents agree, they believe that lack of
business skills is the key obstacle when accessing funds from financial institutions, 8
(13.33%) of the respondents are neutral, 14 (23.33%) disagree that lack of business
skills is the key obstacle when accessing funds from financial institutions. These
53
research findings of this study are in line with the findings of Muteza (2005) on
obstacles in the access to SMME finance in Tshwane where more than 49% of the
respondents agree that lack of business skills contribute to lack of finance for
SMMEs.
12.3 Bad Credit Record
It is illustrated in table 4.4 that it appears that 10 (16.67%) of the respondents

strongly agree, 22 (36.67%) of the respondents agree that bad credit record plays a
crucial role for entrepreneurs not to obtain funds when accessing funds from
financial institutions, 14 (23.33%) of the respondents are neutral as to it can be
because of bad credit record or it cannot be of bad credit record for entrepreneurs
not to obtain funds from financial institutions, 18 (30.00%) of the respondents
disagree and 2 (3.33%) strongly disagree that bad credit record is seen as an
obstacle when accessing funds from financial institutions. The results are consistent
with the literature of this study as Chimucheka further acknowledged that the other
reason for SMMEs to fail is access to bank finances in South Africa is due to bad
credit records and poor presentation of business plans.
SECTION C: MANAGEMENT OF THE BUSINESS (BUSINESS MANAGEMENT)
This section focuses on the management of the business. The owners or managers
are asked about the skills or training they require for their employees and if they do
get those necessary skills will it improve the performance of the business.
Question 13: Do you believe entrepreneurs need training?
Table 4.5: Entrepreneurship
Yes No Total
Frequency 60 0 60
Percentage 100.00% 0.00% 100.00%
Figure 4.10: Entrepreneurship
54
entreneurs need training
entreneurs need training
120%
100%
80%
60%
100%
40%
20%
0% 0%
Yes No
The above table 4.5 and figure, both indicates that all the respondents 60 (100.00%)
believe that entrepreneurs do need training.
Question 14: If you select yes, in question 13 above, please indicate in which
field the need for training exists
Table 4.6: Type of training
Frequency Percentage
Motivation Skills 48 80.00%
Entrepreneurial skills and 54 90.00%

training
Business Skills 38 63.33%
Other Skills 10 16.67%
Figure 4.11: Type of Training
55
Type of training
motivation skills entrepreneurial skill and training
business skills other skills
7%
32%
25%
36%
According to the above table 4.6 and figure 11, it is stated that 48 (80.00%) of the
respondents believe motivation skills need to be provided, 54 (90.00%) of the
respondents believe that entrepreneurial skills and training are necessary for
entrepreneurs, 38 (63.33%) of the respondents believe that there’s still a shortage of
business skills and 10 (16.67%) of the respondents believe that there are other skills
such as finance and marketing skills which entrepreneurs do need. The results are
consistent with the findings of Mutezo (2005), as all the respondents feel that training
for entrepreneurs is needed. Training and development in a workforce is an
important aspect as it improves business performance. The amount of competition
within businesses is growing in every industry, as lack of training and development
leads to the difference between maintaining success, and ultimate failure. Lack of
education, training and skills can attribute to establishment, maintaining and growing
failure of SMMEs around townships.
QUESTION 15: Management skills for smooth operation
Table 4.7: Management Skills

Agree n (%) n (%) n (%) Disagree
n (%) n(%)
Entrepreneurs who lack human 6 36 14 4 0
resource skill will not be able to
manage its staff 10.00% 60.00% 23.33% 6.67% 0.00%
56
Do you think SMMEs 10 30 20 0 0
performance will improve if
government promote with staff 16.67% 50.00% 33.33% 0.00% 0.00%
training
Managerial skills improve the 4 36 20 0 0
performance of the business 6.67% 60.00% 33.33% (0.00%) (0.00%)
15.1 Entrepreneurs who lack human resource skill will not be able to manage
its staff
The results portrayed on table 4.7, indicates that 6 (10.00%) of the respondents
strongly agree that entrepreneurs with no human resource skill will not be in a
position to manage its staff, 36 (60.00%) of the respondents agree with the above
statement, that, entrepreneurs who lack human resource skills will be unable to
manage its staff, 14 (23.33%) of the respondents are neutral, 4 (6.67%) of the
respondents disagree and believe that entrepreneurs who lack human resource skill
will manage its staff, it has nothing to do with human skill when managing
employees.
15.2 Do you think SMME’s performance will improve if government promote

with staff training
According to table 4.7, it is stated that 10 (16.67%) of the respondents strongly

agree, if the government can promote with staff training the performance of SMMEs
will improve, the majority of the respondents 30 (50.00%) agree with the above
statement, 20 (33.33%) of the respondents are neutral whether it will or not improve
the performance of the business, if the government does provide with staff training.
15.3 Managerial Skills improve the performance of the business
The results illustrated on table 4.7, shows that 4 (6.67%) of the respondents strongly
agree with the above statement, the majority of the respondents 36 (60.00%) agree
that managerial skills improve the performance of the business, 20 (33.33%) are
being neutral.
SECTION D: Barriers when accessing markets and government support
57
This section focuses on the barriers perceived or experienced when accessing new
markets and the government support which is provided to these businesses. It also
focuses whether the entrepreneur is familiar with government programmes that
assist SMMEs.
Question 16: Are you aware of the government programmes that assist
SMMEs?
Table 4.8: Awareness of Government Programmes
Yes No Total
Frequency 38 22 60
Percentage 63.33% 36.67% 100.00%
Figure 12: Awareness of Government Programmes
Awareness of government
programmes
Yes
37%
63%
It is illustrated on both table 4.8 and figure 12, that it appears that 38 (63.33%) of the
respondents are fully aware of the government programmes that assist and support
SMMEs and 22 (36.67%) of the respondents are not aware of the government
programmes that assist SMMEs.
Question 17: Have you ever heard of any of the following government
programmes that assist SMMEs
Table 4.9: Following Government Programmes
Government Programmes Yes No

n (%) n (%)
58
Ntsika Enterprises Finance Agency 26 34
(43.33%) (56.67%)
Khula Enterprise Finance Limited 16 44
(26.67%) (73.33%)
Department of Trade and Industry 30 30
(50.00%) (50.00%)
SEDA 40 20
(66.67%) (33.33%)
n= frequency or number of respondents, %= percentage
17.1 Ntsika Enterprises Finance Agency (NEFA)
Figure 13: NEFA
NEFA
60.00%
50.00%
40.00%
NEFA
30.00%
20.00%
10.00%
0.00%
Yes No
The above table 4.9 and figure 13, indicates that 26 (43.33%) of the respondents
have heard of Ntsika Enterprises Finance Agency and 34 (56.67%) of the
respondents never heard of Ntsika Enterprises Finance Agency.
17.2 Khula Enterprises Finance Limited (KEFL)
Figure14: KEFL
59
KEFL
Yes No
27%
73%
The above table 4.9 and figure 14 shows that 16 (26.67%) of the respondents have
heard of Khula Enterprises Finance Limited and 44 (73.33%) of the respondents
never heard of Khula Enterprises Finance Limited.
17.3 Department of Trade and Industry (DTI)
Figure 15: DTI
DTI
Yes No
50%
50%
It is portrayed on table 4.9 and figure 15, that 30 (50.00%) of the respondents have
heard of Department of Trade and Industry, 30 (50.00%) of the respondents never
heard of Department of Trade and Industry.
17.4 Small Enterprise Development Agency (SEDA
Figure 16: SEDA
60
SEDA
No
SEDA
Yes
0.00% 20.00% 40.00% 60.00% 80.00%
The above table 4.9 and figure 16, indicates that 40 (66.67%) of the respondents are
quite familiar with Small Enterprises Development Agency, 20 (33.33%) of the
respondents never heard of Small Enterprises Development Agency.
Question 18: Indicate barriers experienced when assessing new markets and
government support
Table 4.10: Barriers when accessing new markets and government provision.

Agree n (%) n (%) n (%) Disagree
n (%) n(%)
Lack of knowledge about 4 24 14 18 0
international markets is the reason
for not engaging in international (6.67%) (40.00%) (23.33%) (30.00%) (0.00%)
trade
Lack of funds contribute to the 8 44 8 0 0
failure of penetrating new markets
(13.33%) (73.33%) (13.33%) (0.00%) (0.00%)
SMMEs need to use technology to 24 36 0 0 0
keep abreast of environmental
changes (40.00%) (60.00%) (0.00%) (0.00%) (0.00%)
Lack of support from the DTI has 14 26 20 0 0
an impact on the success of
SMMEs (23.33%) (43.33%) (33.33%) (0.00%) (0.00%)
61
SMMEs need government 22 28 10 0 0
intervention and support for them
to grow (36.67%) (46.67%) (16.67%) (0.00%) (0.00%)
It is easier to acquire finance from 0 0 16 34 10
the government financial
institutions (0.00%) (0.00%) (26.67%) (56.67%) (16.67%)
Entrepreneurs are aware of the 0 2 34 24 0
DTI’s services
(0.00%) (3.33%) (56.67%) (40.00%) (0.00%)
18. Barriers experienced when accessing new markets and government

support.
18.1 Lack of knowledge about international markets is the reason for not
engaging in international trade
The above table 4.10, represents that 4 (6.67%) of the respondents strongly agree,
24 (40.00) of the respondents agree with the above statement that lack of knowledge
about international markets is the reason for many businesses not engaging in
international trade, 14 (23.33%) are being neutral, 18 (30.00%) of the respondents
disagree with the above statement, lack of knowledge about international markets
has nothing to do with businesses not engaging in international trade.
18.2 Lack of funds contribute to the failure of penetrating new markets
FIGURE 17: Lack of penetrating new markets
62
lack of penetrating new markets
strongly agree agree neutral
1% 5%
94%
The table 4.10 and figure17 above indicates that 8 (13.33%) of the respondents
strongly disagree, the majority of the respondents 44 (73.33%) agree that lack of
funds do contribute to the failure of penetrating new markets and 8 (13.33%) of the
respondents are neutral.
18.3 SMMEs need to use technology to keep abreast of environmental changes
The table above 4.10, indicates that 24 (40.00%) and 36 (60.00%) of the
respondents, respectively, strongly agree and agree, that SMMEs need to use
technology to keep abreast of environmental changes. To make use of the internet
know more about their competitors, also social networks (Facebook, WhatsApp etc.)
to communicate with its customers. The results were consistent with the study David
(2012), as technology is an important tool in giving SMMEs a competitive advantage
over its competitors.
18.4 Lack of support from the DTI has an impact on the success of SMMEs
The results shown in table 4.10, indicates that 14 (23.33%) of the respondents
strongly agree with the above statement, 26 (43.33%) of the respondents agree that
lack of support from DTI has an impact on the success of the SMMEs and 10
(16.67%) respondents are neutral. The findings are consisted with a study conducted
by David (2012), as 43.33% of the respondents agree that lack of support from DTI
has a greater impact in the sustainability of the SMMEs.
63
18.5 SMMEs need government intervention and support for them to grow
The results portrayed on table 4.10, shows that 22 (36.67%) of the respondents
strongly agree intervention from government will improve and build SMMEs, 28
(46.67%) of the respondents agree that government should intervene so that
SMMEs can grow and 10 (16.67%) of the respondents are neutral whether if the
government intervention will help SMMEs in maintaining growth. The results are
consistent with a study conducted by David (2012), that largest group of the
respondents agree that the government should intervene so that these SMMEs will
survive more that short term period.
18.6 It is easier to acquire finance from the government financial institutions
The results indicates that none of the respondents agreed with the above statement,
due to the fact that most of the respondents indicated that they are not aware of
government programmes, 16 (26.67%) are being neutral, 34 (56.67%) and 10
(16.67) of the respondents, respectively, disagree and strongly disagree, that it is not
easy to acquire finance from the government financial institutions. The results were
consistent with the study of David (2012), as he found out that entrepreneurs were
not aware of government support, as the majority of respondents strongly disagree
with the above statement that was easy to acquire funds from the government.
18.7 Entrepreneurs are aware of the DTI’s services
The results on table 4.10, indicates that 2 (3.33%) of respondents agree with the
above statement, the majority of respondents 34 (56.67%) are being neutral and 24
(40.00) of the respondents disagree with the statement that entrepreneurs are aware
of the DTI’s services.
The next section of this chapter will discuss the hypothesis testing. According to
Zindiye (2008:222) and Chimucheka (2012:152), hypothesis testing is associated
with statistics measures to determine the probability that will show a given
hypothesis is true or not (accepted or rejected).
64
4.3 TESTING HYPOTHESIS
This research study was conducted to investigate the perceived barriers experienced
by township SMMEs in the Buffalo City Metropolitan Municipality in the Eastern Cape
Province of South Africa. The hypotheses are as follow:
H3: There are significant barriers SMMEs experience when managing their
businesses
Each of these hypotheses is tested individually in the following section:
4.3.1 Primary Hypothesis
Hypothesis 1
Hypothesis one was the primary hypothesis of the study and was envisioned to
determine the perceived barriers experienced by Township SMMEs in the Buffalo
City Metropolitan Municipality.
Table 4.11 Barriers faced by SMMEs in Townships
Variables DF Chi-Square P-Value

Financial Barriers 3 49.773 0.078
Lack of skills and 3 44.767 0.000
education
Marketing 2 41.673 0.000
Constrains
Regulatory barriers 2 45.899 0.000
65
The results of chi-square are shown in the above table 4.11. Results from the chi-
square test above indicate that there are barriers faced by SMMEs as p-values are
less than 0.05. Therefore, we conclude by saying that we reject the null hypothesis
and fail to reject the alternative hypothesis. Therefore, it can be said that there are
significant barriers faced by SMMEs in townships.
4.3.2 Secondary hypotheses

Hypothesis 2
businesses
businesses
Table 4.12 Establishment Barriers
Variable DF Chi-Square P-Value
Barriers when 12 54.653 0.001
establishing
The results from the above table 4.12, indicates that chi-square value is 54.653, 12
degrees of freedom with a p-value of 0.001 which is less than 0.05. The null
hypothesis is rejected and we cannot reject the alternative hypothesis. Therefore, we
conclude that there are significant barriers SMMEs experience when establishing
their businesses. The results are in line with Chimucheka (2012:157); Isaacs et al.,
(2007:614) that barriers for establishment do exist as they are the issue for the
survival of SMMEs.
Hypothesis 3
Table 4.13 Financial Barriers

Variables DF Chi-Square P-Value
Financial Barriers 3 49.773 0.078
66
Results from the chi-square test above indicates that there are financial barriers
faced by SMMEs as p-value = 0.078 which is less than 0.05. Therefore, we conclude
by saying that we reject the null hypothesis and we do not reject the alternative
hypothesis. Therefore, it can be said that there are significant financial barriers
facing SMMEs. These results were consistent with the findings of Maphalla
(2010:105) and Kunene (2008) that there are key obstacles when SMMEs access
capital from financial institutions for start-up capital. Lack of collateral is among the
barriers that make it difficult for SMMEs to access finance.
Hypothesis 4
H0: There are no significant barriers that SMMEs experience when managing their
businesses
H4: There are significant barriers SMMEs experience when managing their
businesses
Table 4.13 Management Barriers

Management skills 6 62.914 0.000
From the above results, a chi-square value of 62.914 and 6 degree of freedom with a
p-value of 0.000 was obtained in this research. The p-value of 0.000>0.05, therefore
this means that we reject the null hypothesis and we do not reject the alternative
hypothesis. It is concluded that there are significant barriers SMMEs experience
when managing their businesses. The results are in line with David (2012) who
mentioned that most of SMMEs do face management barriers as to lack of
managerial skills and lack of knowledge about government support has impact on
SMMEs growth, as managerial skills plays a crucial role in SMMEs growth.
Hypothesis 5
67
Table 4.15 Barriers when accessing new markets

Penetrating new 3 18.895 0.000
markets
The results from the above table 4.15, shows that p-value of 0.000 is less than 0.05,
with chi-square value of 18.895and 3 degrees of freedom. We reject null hypothesis
and fail to reject alternative hypothesis. We, therefore, conclude that there significant
barriers that SMMEs experience when accessing new markets for their businesses.
The results of this study are consistent with the findings of OECD conducted as they
show that barriers when accessing new markets are caused by limited firm
resources and international contacts as many township SMMEs don’t have
international contacts as well as lack of requisite managerial knowledge about
internationalisation.
68
4.4 SUMMARY
The questionnaire was very useful in terms of gathering the data to help the
investigator to grasp certain conclusions based on the formulated hypothesis. This
chapter focused on the presentation and analysis of the result of this study. The
analysis was done through SPSS (Statistical Packaging Social Science) software
program, with the assistance of the University of Fort Hare’s Statistics Department.
Through these results, the researcher discovered that most of the SMMEs are still
facing barriers such as financial barriers, lack of skills and education, marketing
constrains and regulatory barriers. Thus, those barriers make it impossible for
SMMEs to maintain long term survival. The following chapter provides a
comprehensive discussion of conclusions drawn from these findings. The next
chapter will also highlight on recommendations and suggested areas for further
research.
69
CHAPTER 5
CONCLUSIONS, RECOMMENDATIONS AND AREAS FOR FURTHER

RESEARCH STUDY
70
5.1 INTRODUCTION
This research study was undertaken to investigate the perceived barriers
experienced by SMMEs in the Buffalo City Metropolitan Municipality. This chapter
further discusses the research findings and the recommendations. In addition, also
highlight areas for further research. The chapter proceeds as follows:
Firstly, section 5.2 of this chapter provides an overview of the research problem,
research objectives, the literature review relevant to the main findings and research
design as well as data analysis interpretations.
Secondly, section 5.3 will highlight the study recommendations including further
research areas.
5.2 SUMMARY OF THE CHAPTERS

Chapter One Outline
This chapter covered a discussion on the background of the study, the research
problem and the hypothesis. It was noted that many small, medium and micro-
enterprises (SMMEs) are growing or improving across the globe, they contribute
most importantly in providing new jobs, especially for people who are unemployed
(Ladzani and Van Vuuren, 2002:2). Fin Mark Trust (2006) also reasoned that these
SMMEs are important to destitution mitigation, salary fairness, work and reasonable
financial development in South Africa. There is clear evidence that SMMEs play a
critical role in economic development (DTI, 1995:3). It is therefore important to
encourage growth in this sector by limiting barriers experienced by this sector. The
primary objective was to determine the barriers faced by township SMMEs in the
Buffalo City Metropolitan Municipality. The significance, the research methodology,
validity and reliability and limitations of the study were included in this chapter.
Chapter Two Outline: Literature review
This chapter examined the definition of SMMEs both in International and South
African perspective. The importance and contribution of the SMMEs in the South
African economy in terms of employment and poverty alleviation was also discussed.
According to Fin Mark Trust (2006), small businesses redress the unemployment
situation, as they create employment and to encourage development in SMMEs. As
71
noted on the study conducted by Abor & Quartey (2010) it was estimated that
SMMEs contribute approximately 61% of employment in South Africa. Finally, it was
noted that most of South African SMMEs still face a number of challenges which
makes it difficult for SMMEs to sustain growth and development. Access to finance
and lack of education are the biggest challenges which are faced by SMMEs.
Chapter Three Outline: Research Methodology
Chapter three concentrated on the empirical research phase. The researcher made
use of both primary and secondary data. The type of research method that was used
was quantitative research method. The simple random method was used as the
sampling method. Data was collected through the use of self-administered
questionnaire, and the Statistical Package for Social Science (SPSS version 23) was
used to analyse the data. Validity and reliability of the study as well as the ethical
consideration were precisely dealt with in this chapter.
Chapter Four Outline: Research Findings (Data Analysis)
This chapter discussed the findings of the research as well as analysis and
interpretations of the collected data.
Null Hypotheses Decision
There are no significant barriers faced by SMMEs in townships REJECT
There are no significant barriers SMMEs experience when REJECT

establishing their businesses
SMMEs do not significantly face financial barriers REJECT
There are significant barriers SMMEs experience when managing REJECT

their businesses
There are significant barriers that SMMEs experience when REJECT

accessing markets for their businesses
72
It is concluded that township SMMEs do perceive and experience barriers in the
Buffalo City Metropolitan Municipality. The primary objective was to determine the
perceived barriers faced by SMMEs in townships and the results showed that there
are financial barriers, lack of education and skills, marketing constraints and
regulatory barriers. These barriers make it impossible for township SMMEs to
survive for long term success. These results were consistent with the findings of
Mutezo (2005:6) who stated that SMMEs require support if they are to grow. Nieman
and Nieuwenhuizen (2009:35); Chimucheka (2012:160) stress that those SMMEs
that are managed by people with entrepreneurial skills and knowledge, are more
successful and make more profit, if you can compare them with those who are
managed by people who lack these crucial skills.
5.2.1 OTHER FINDINGS OF THIS STUDY

The majority of the respondents indicated that they used their own savings
and also family members helped them to start their businesses.
Only 20% of the entrepreneurs were between the ages of 18-25% which
shows that there is still a shortage of young entrepreneurs.
Most of the township SMMEs operate for 0-5 years after that most of them
collapse in the Buffalo City Metropolitan Municipality
36% of the respondents are not aware of government programmes that assist
SMMEs.
5.3 RECOMMENDATIONS
It has been highlighted that SMMEs play an imperative role in our economy, but
many struggles to function as they face complex challenges which restricts them for
long term survival and success. Even though, these challenges or obstacles are
universal. For instance, the study shows that financial barriers and lack of education
and skills are leading challenges or obstacles that affects township SMMEs in the
Buffalo City Metropolitan Municipality. The recommendations of this study are as
follow:
73
5.3.1 Government agencies
Government agencies should provide services to those SMMEs that are in need
efficiently. These government agencies include Khula Enterprise Finance, Ntsika
Enterprise Finance Limited, the Department of Trade and Industry as well as Small
Enterprise Development Agency (SEDA) and other government establishments. The
government should implement strategies that can help to improve SMME
performance in the Buffalo City Metropolitan Municipality. Government agencies
should target young entrepreneurs and empower them to become employment
creators rather than normal job seekers. Chimucheka (2012) suggested that the
government agencies should work hand in hand with the banks to ease access to
finance by SMMEs. The mission of SEDA is to develop and promote small
enterprises to ensure their growth and sustainability in co-ordination and partnership
with other role players.
5.3.2 Government
The role that is played by the SMMEs in the Buffalo City Metropolitan Municipality in
reducing unemployment and poverty, the government should constantly evaluate the
performance of SMMEs, and help provide resources, where necessary, but in a
more sustainable manner. The government should provide resources in a manner
that will benefit all SMMEs around the Buffalo City Metropolitan Municipality.
The government is recommended to promote entrepreneurship education

programmes within the townships of the Buffalo City Metropolitan Municipality as
most of the business owners or managers are still facing literacy challenges, as they
cannot do their business books and are not familiar with Business Management and
Financial Management courses. The government can achieve this through organised
workshop programmes or short term courses. This will be effective when the
government invest in education as to promote township SMMEs.
5.3.3 Tertiary Institutions

Institutions of higher learning need to play a vital role in providing entrepreneurship
education as they have the skills, expertise and resources to do so. Awareness
campaigns need to be carried out at universities and colleges to motivate students to
register for entrepreneurship courses. Entrepreneurship courses need to be offered
74
across all disciplines, this means that it should not be limited only to commerce
students. There is also a need to market entrepreneurship as another career
alternative for students. This will motivate students to start their own businesses and
employ other people rather than just becoming job seekers. It is also important that
entrepreneurship education by universities and colleges should not be only limited to
registered students, it should be extended to the people around university and
college communities, through community engagement projects. Institutions of higher
learning should teach people in their communities to create economic opportunities
for themselves rather than being dependent on employers or the government.
5.3.4 Financial Institutions

The findings of the research shows that 43.33% of the respondents agree that lack
of collateral is the key obstacle experienced when accessing funds from financial
institutions. Thus, financial institutions should help ease the problem of access to
finance of SMMEs. They should set monitor and assess the potential of SMME
operators, rather than only considering collateral security that most SMME owners
and managers lack. They should also help in improving the knowledge base and
skills of SMME owners and managers that will have applied for finance. It is
recommended that banks provide financial resources to SMME operators who show
potential for success. Some of the SMMEs operate in a low information environment
so financial institutions must try to make information about lending available to
SMMEs. The findings of this research shows that most of the entrepreneurs got
start-up capital from their family members and used some of their own savings only
29% of them got it from financial institutions, that should be improved funds must be
available to those who want to start their own businesses.
5.4 LIMITATIONS OF THE STUDY

A significant limitation of this study is that the researcher only focused on the
SMMEs around Buffalo City Metropolitan Municipality region not on the entire South
Africa. The participants most of the time were not in their businesses that delayed
the study. Thus, the fact that this research will be conducted within one year, the
findings of this research might only be relevant to the period in which the research is
carried out. Hofstee (2006:60) points out that when it comes to academic research,
75
5.5 AREAS FOR FURTHER RESEARCH
Area for advance research study leads to some clarifications that future researchers
will be interested, as they represent the seed from which further research can be
developed.
It is suggested that the same study be carried out at a national level.
An investigation on the failure of SMMEs to secure finance from financial

institutions.
To determine alternative strategies that can be applied to assist township
SMMEs in their activities.
The effectiveness of government agencies to SMMEs in the Buffalo City
Metropolitan Municipality also need to be evaluated.
5.6 CONCLUSION
SMMEs sector in South Africa cannot be undermined as they provide solutions to
high rates of unemployment and a means to increase the growth rate. Though, the
government intervention is not being felt, as it is shown on the study that there’s a
high rate failure of SMMEs due to financial barriers, Lack of education and skills,
marketing constraints and regulatory barriers. The government should support these
SMMEs in terms of finance and try to implement new strategies to tackle these
challenges that are being faced by SMMEs.
76
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APPENDICES
QUESTIONNAIRE FOR SMALL MEDIUM AND MICRO- ENTERPRISES SURVEY
DEPARTMENT OF BUSINESS MANAGEMENT
FACULTY OF MANAGEMENT AND COMMERCE
Dear Respondent,
My name is Sive Mzananda. I am an honours student in the Department of Business

Management at the University of Fort Hare. The purpose of this questionnaire is to
collect information regarding the “Barriers perceived or experienced by township
SMMEs in Buffalo City Metropolitan Municipality, South Africa”. You are kindly
asked to spend few minutes of your time in answering this questionnaire. All
information obtained will be used to identify some barriers that SMMEs perceive or
experience. I assure you that all the information will be treated with strict
confidentiality and will be used for academic purposes only. Please feel free to
contact the researcher or the supervisor if you have any queries.
Thank you for your time.
Researcher: Sive Mzananda
Cell: 0719737344
Email: 201203230@ufh.ac.za
Supervisor: Ms Ellen Rungani
82
Email: ERungani@ufh.ac.za
INFORMED CONSENT
I hereby agree to participate in research regarding “An investigation on the

perceived barriers experienced by township SMMEs in the Buffalo City
Metropolitan Municipality”. I understand that I am participating freely and without
being forced in any way to do so. I also understand that I can withdraw from
participating and that this decision will not in any way affect me negatively.
I understand that this consent form will not be linked to the questionnaire, and that
my answers will remain confidential.
Should I have any questions the contact details of the researcher are made
available. I understand that my feedback will be part of the University research
paper.
……………………………..
Signature of participant Date:…………………..
83
SECTION A
Personal Information
Please select an option by using an X in the correct box
1. Please indicate gender Male Female
2. Age 18-25 26-33 34-41 42-49 50+
3. Please indicate to which population group you belong

White Coloured Black Asian Other
If other, please specify …………………………………………
4. Highest Educational Level

Grade Matric Public University
R –11 FET
5. Years of business operation

0–5 5 – 10 10– 15 – 20
years years 15years years
6. Please specify type of goods or services which you offer

Clothing Fast Groceries Hardware Other
foods
If other, please specify ………………………………………………………………
7. What is your position/role in the business

Owner Manager Both Other
If other, please specify ………………………………………………………………
84
8. Indicate the type of barriers you experienced or perceived from the
following list (you can choose more than 1)
Financial Lack of skills Marketing Regulatory
barriers and education constrains barriers
9. Do you think it would be easy for individuals to start their own

businesses, if there are no barriers perceived when establishing their
businesses?
Strongly Disagree Neutral Agree Strongly
Disagree Agree
SECTION B
Financial barriers
Please select an option by using an X in the correct box
10. Where did you get the capital to start your business?
Family Own Financial Large Other
members savings institutions companies
If other, please specify …………………………………………………………….
11. Please indicate the problems which you have experienced in your
business from the following list in respect of financial support?
Lack of start- Lack of Lack of Lack credit Other
up capital establishing expansion facility from
capital capital suppliers
If others, please specify …………………………………………………………...
12. The following are believed to be the key obstacles that you experienced
when accessing funds from financial institutions
Obstacles Strongly Disagree Neutral Agree Strongly

Disagree Agree
Lack of collateral
85
Lack of business skills
Bad credit record
Other
SECTION C
Managing the business
14. Do you believe entrepreneurs need Yes 13. No
training?
15. If you select yes, in question 15 above, please indicate in which field the
need for training exists
Motivation Entrepreneurial Business Other
skills skills and training skills skills
If other skills, please specify …………………………………………………
16. Management skills for smooth operation

Strongly Disagree Neutral Agree Strongly
Disagree Disagree
Entrepreneurs who lack human
resource skill will not be able to
manage its staff.
Do you think SMMEs
performance will improve if
government promote with staff
training
Managerial skills improve the
performance of the business
86
SECTION D
Barriers when accessing markets and government support
17. Are you aware of the government Yes No

programmes that assist SMMEs?
18. Have you ever heard of any of the following government programmes
that assist SMMEs
Government Programmes Yes No
Ntsika Enterprises finance agency
Khula enterprise finance limited
Department of Trade and Industry
SEDA
19. Please select the most appropriate response for each statement in
relation to barriers experienced when accessing new markets and
government support. Indicate the extent you agree with the following
statements. (1=strongly disagree; 2=disagree; 3=neutral; 4=agree; 5
strongly agree)
1 2 3 4 5
Lack of knowledge about international markets is the reason
for not engaging in international trade
lack of funds contribute to the failure of penetrating new
market
SMMEs need to use technology to keep abreast of
environmental changes
Lack of support from the DTI has an impact on the success
of SMMEs
SMMEs need government intervention and support for them
to grow
It is easy to acquire finance from the government financial
institutions
Entrepreneurs are aware of the DTI’s services
87
88

AN INVESTIGATION ON THE PERCEIVED BARRIERS EXPERIENCED BY SMMEs IN THE BUFFALO CITY METROPOLITAN MUNICIPALITY

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AN INVESTIGATION ON THE PERCEIVED BARRIERS EXPERIENCED BY SMMEs IN THE BUFFALO CITY METROPOLITAN MUNICIPALITY

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AN INVESTIGATION ON THE PERCEIVED BARRIERS

EXPERIENCED BY SMMEs IN THE BUFFALO CITY METROPOLITAN

A PROPOSAL SUBMITTED IN PARTIAL FULFILLMENT OF THE

FACULTY OF MANAGEMENT AND COMMERCE

UNIVERSITY OF FORT HARE

I appreciate the efforts and love of the following people:

Table 4.2: Start-up capital

Table 4.3: Problems experienced in respect of financial support

Table 4.5: Entrepreneurship

Table 4.6: Type of training

Table 4.7: Management Skills

Table 4.8: Awareness of Government Programmes

Table 4.9: Following Government Programmes

Table 1.1: financial barriers

Table 1.2: Chi-Square Tests

Table 2.1: Managerial skills and training skills

Table 2.2: Chi-Square Tests

Figure 4.2: The age of the respondents

Figure 4.3: The population group of the respondents

Figure 4.4: The highest educational level of the respondents

Figure 4.5: Years in business operations

Figure 4.6: Type of goods or services offered

Figure 4.7: Position or role in business

Figure 4:8: BARRIERS

Figure 4.9: Start-up capital

Figure 4.10: Entrepreneurship

Figure 4.11: Type of Training

Figure 4.12: Awareness of Government Programmes

Figure 4.13: Ntsika Enterprises Finance Agency (NEFA)

Figure 4.14: Khula Enterprises Finance Limited (KEFL)

Figure 4.15: Department of Trade and Industry (DTI)

Figure 4.16: SEDA

Figure 4.17: Lack of penetrating new markets

PLAGIARISM ….…………………….…………………………………………..……… iii

RESEARCH ETHICS CLEARANCE…………………………………………………. iv

LIST OF TABLES ……………………………………………………………………… vii

LIST OF FIGURES ……………………………………………………………………. viii

1.1 INTRODUCTION AND BACKGROUND OF THE RESEARCH …….....…… 2

1.2 STATEMENT OF THE PROBLEM ……………………………………………. 3

1.3 OBJECTIVES OF THE RESEARCH …………………………………………. 4

1.3.1 Primary objective ……………………………………………………………. 4

1.3.2 Secondary objectives ……………………………………………………….. 4

1.4 RESEARCH QUESTIONS ……………………………………………………… 4

1.5 RESEARCH HYPOTHESES …………………………………………………… 5

1.5.1 Primary Hypotheses ………………………………………………………….. 5

1.5.2 Secondary Hypotheses ………………………………………………………. 5

1.6 SIGNIFICANCE OF THE RESEARCH ………………………………………… 5

1.7 LITERATURE REVIEW ………………………………………………………….. 6

1.7.1 Theoretical Framework ………………………………………………………. 8

1.7.1.1 The finance Gap Theory ……………………………….............................. 8

1.8 RESEARCH METHODOLOGY ………………………………………………… 9

1.8.1 Research Design and Plan …………………………………………… ……. 9

1.8.2 Population and Sampling …………………………………………………… 9

1.8.3 Data Collection Instrument, Sources and Procedures ……………. ……. 10

1.8.4 Data Analysis Procedure ……………………………………………… ……. 10

1.9 RELIABILTY AND VALIDITY OF THE STUDY ………………………………. 10

1.10 ETHICAL CONSIDERATIONS ………………………………………………… 11

1.11 LIMITATIONS OF THE STUDY ……………………………………………….. 11

1.12 OUTLINE OF PROPOSED RESEARCH REPORT ………………………… 12

1.12.1 Chapter one: Introduction and background to the study ……………… 12

1.12.2 Chapter two: An overview of Small Medium and Micro Enterprises …. 12

1.12.3 Chapter three: Research Methodology ………………………………….. 12

1.12.4 Chapter four: Research Findings ……………………………………....... 12

1.12.5 Chapter five: Conclusions, Recommendations and Limitations ……... 12