CHALLENGES FACED BY SMALL

BUSINESSES
BY
DR S SENA
SENIOR LECTURER
BUSINESS STUDIES DEPT
• SMEs face a lot of challenges that substantially hinder their progress, growth and
subsequently their contribution to economic development.

• SMEs face the unique problems of uncertainty, innovation and evolution.

• The most important problems are:

• political instability,

• law and order situation,

• financial constraints,

• energy crisis,
• taxation problems,
• labour issues,
• lack of coordination and
• regular information exchange mechanisms among institutions.
• SMEs lack the research capacity and ability to take substantial risks
or any other advantage of expansion.
• Most SMEs also lack the capacity to take insurance covers to
cushion them against risks.
• Due to their small size they lack sound experiences and financial
position are less capable of adjusting and carrying on successful
businesses.
• SMEs are also subject to unequal treatment which distorts the
competitive environment of the business.
• The understanding of the problems affecting the survival and growth
of SMEs is essential in developing countries in order to assist in
reducing the rate of business discontinuation and increasing the rate
of business establishment.
• In developing countries SMEs face a myriad of constraints
that make it difficult for them to expand and prosper or to
translate their ideas and energy into action, profit and jobs.

• Because of the different economic situations, rules and

regulations, political systems, market competition and legal
systems there are different barriers to SMEs growth in
different countries of the world.
• The existence of regional differences in entrepreneurship,
regional economic growth, regional entrepreneurial activities
and small business development in China posed some barriers
to SMEs growth in most developing countries and Zimbabwe in
particular.

• The growth opportunities for SMEs is severely hampered by

access to finance, including a lack of starting capital and lack of
access to suitable sources of finance.
• High cost of capital, high collateral requirements, and
bureaucratic procedures of banks and lack of financial support
are major barriers to SMEs development and growth.

• Some common factors that present major obstacles to SME

growth in most developing countries are:

•Lack of management skills,

 Lack of training,
  Lack of infrastructures,
 Insufficient profit, and

• Low demand for products and services.

• Due to limited access to markets SMEs end up competing
for the same customers, a practice that will lead to low sales
and profits, which have ripple effects of discouraging future
investment in businesses and limitation on growth.
• Weakly functioning financial markets and lack of reliable
electricity supply in Sub-Saharan Africa are by far the
most important obstacles for SME entry, growth, and
investment.

• Policy makers have identified financial problems, lack of

skills, and lack of management training as serious
barriers to SMEs development and growth.
•The small size of SMEs implies that it is often
incumbent on the managers (or owners) of these
businesses to perform a wider range of tasks than
employees in larger businesses would be required to
do, as there is less room for specialisation in SMEs
than in larger businesses.
•SMEs managers may not posses the required diverse
skills, particularly in developing countries where the
quality of management education may be lower than
in developed countries, hence training in
entrepreneurship would help those individuals with
latent entrepreneurial talents to awaken and hone
those talents.
• Weakly developed business environments that include excessive
red tape, corruption and complex entry regulations in the sub-
Saharan Africa region, severely hamper SMEs development and
growth.

• Bureaucracy and red tape also hamper entrepreneurial growth

and divert the scarce resources of potentially high-growth
entrepreneurial businesses away from their core business.
• The regulatory frameworks in these countries affect the growth of small
businesses.

• In order to keep themselves below the radars of regulators SMEs would

rather prefer to remain small than graduate into the bigger business
class.

• The domestic markets of most African countries are small, hence, in

order to foster SME growth in production and employment creation,
there is a need to increase regional and international trade.
• On the other hand the developed world should relax the
rules of origin, phase out trade-distorting subsidies and
lower tariffs on African goods.

• However, the problems are not only caused by the

developed world but are exacerbated by the trade barriers
between African countries themselves.
• The development of SMEs in Namibia is constrained by the
following factors:
 Lack of finance,
 Lack of access to appropriate technology,
 Lack of marketing information,
 Lack of information on cheaper sources of goods,
 Rules and Regulations that hamper the development of the sector,
 Lack of management skills and training.
• World Economic Forum (2013) reported that, inadequately educated
workforce, lack of access to financing and the prevalence of corruption
are the most problematic factors for doing business in Namibia.
• In its survey the World Bank (2006) concluded that 20% of businesses
identified labour skill levels in Namibia as a major constraint compared to
the average for Africa of 16%.
• According to Orser, Hogarth-Scott and Riding (2000) the intensity of
several problems faced by small businesses in Namibia differs by sector,
gender of owner, size of the business, legal structure and age of the
business
• According to the IMF, (2012), ‘other important challenges
include:

 Sharp market competition both in existing and new markets.

 Sophisticated consumer preferences and market standards,
 Various non-price factors such as quality, health and safety, and
 Ecological compatibility of products and processes which determine
competitive advantage also pose significant challenges.
  Introduction of new products and processes,
 More innovative design, shorter product cycles and smaller output batches,
 Greater mass customization, and
 More just-in-time delivery have become the critical determinants of survival
and growth of the SMEs policies and strategies for future development of
SMEs in Bangladesh.
• The sector faces a number of challenges that include ‘inability to market
their products, lack of a well-planned marketing strategy.
• SME entrepreneurs are at the bitter end in this respect as they cannot
make adequate investments in marketing and also lack necessary
marketing skills.
CHALLENGES FACED BY SMES IN ZIMBABWE

• Like in any other country worldwide, SMEs in

Zimbabwe face some challenges and Constraints towards
their endeavour to play their mandated roles on
employment creation and poverty alleviation.
• These challenges and constraints include among others:
 Environmental regulations designed for large corporations,
 Uncoordinated Institutional Frameworks,
 Inadequate workspace and poor status of infrastructure,
 Inability to access and apply modern production and
communication technologies,
 Inadequate research and development, and information
dissemination within the sector,
 Lack of managerial and entrepreneurial skills,
 Poor corporate governance and best practices,
 Lack of access to markets,
 Lack of access and high cost of finance,
 High levels of informality,
 Inability to take advantage of intellectual property rights,
 Gender disparities within the MSMEs sector,
 Lack of Innovation and Customer Satisfaction
 Brain Drain, and
 HIV and Aids, Poor Occupational Health and Safety
practices at work places.
 Solutions to the challenges
• Besides these myriad of challenges, SMEs remain a major sector in the
world economy. They will continue to be the major driving force for
income and employment generation

• The world is living in the age of the entrepreneur, with entrepreneurship

endorsed by governments, business communities, educational
institutions, societies, and corporations, development of SMEs is the
need of the hour in order to raise the living standards of people.
In order to circumvent the challenges faced by the SMEs the
following solutions are recommended:

 Enhancing Access to SME Finance

• Access to institutional finance for SMEs is still greatly

limited. Less than 30% SMEs have access to institutional
loans. Enhancing access to institutional finance by 50% of
SME entrepreneurs by providing access to the deserving loan
applicants will strengthen SME foundation in the country.
• Development of SME Infrastructure.
• Infrastructure development is a prerequisite to efficient
development and financing of SMEs.
• As of 2015, the most severe constraint that hindered the
development of SMEs in the country was lack of
infrastructure (roads, buildings and electricity, limited
access to market opportunities, technology, expertise and
business information and communication).
 • Providing appropriate infrastructure for SME growth should be given the
highest order of priority.

• Quality of SME Products.

• Poor quality of products is a big setback for expansion of SME business
and SME sector as a whole in Bangladesh. Measures for quality
improvement and standardization of SME products have to be one of the
targets. The standards association of Bangladeshi must be made more
effective in monitoring quality of products both for domestic market and
for exports.
 Training Facilities for SME workers and Entrepreneur. Some workers are
very good at learning production skills and copying them, however, training
facilities for SME workers and development of entrepreneurial skills are not
adequate in most countries.
 Some training Institutes impart training but they are not utilized properly,
vocational training centers dotted throughout the country.
 Special programs are to be undertaken for the establishment of training
institutes regarding entrepreneurship development.
 Most of the people engaged in SMEs businesses have no proper innovation
skills.
 Organizing Trade Fairs, Symposiums, Workshops on SMEs on
Regular Basis
• At present workshops and symposiums on SMEs are held by
different organizations and think tanks excluding the real
entrepreneurs, but these are held infrequently and not in any
systematic manner.
• A plan for holding seminars, workshops, trade-expos and
trade fairs on a regular basis should be formulated.
• Setting Help Desks in Banks and Business Promotion Bodies with Internet
Facilities

• To extend the outreach of SME development particularly in respect of women

entrepreneurs, a Help Desk with computer and internet facilities should be set
up in bank branches dealing with SME finance as well as in all chambers of
commerce and industry and other trade promotional bodies.

• Use of modern technology Product design and technology is a very important

aspect of SME development.

• Most SMEs are characterized by indigenous technology and they are involved in
improving their existing production techniques and processes.
• If there is no use of modern technology and innovation does not take
place in an indigenous sector, enterprises become uncompetitive.

• Proper implementation of SME policy Government has formulated

SME policy to accept SMEs as an indispensable player in growth
acceleration and poverty reduction.

• To this end government has introduced various strategies and provides

facilities and incentives for development and growth of SMEs.

• So this policy must be implemented properly.