SMEs’ impact on World Economy

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CHAPTER TWO: LITERATURE REVIEW

Introduction

The performance of SMEs worldwide has led to a growing interest and recognition of this sector by many researchers who have gone on to widely investigate this area and these include Apulu (2012), Brown (2000), Abor and Quartey (2010), and Staley and Morse (2012). This chapter aims at presenting different trends that are found in literature and seeks to identify theoretical fundamentals for this study as it reveals significant findings from other scholars related to the field that is under consideration. These fundamentals will facilitate the identification of key constructs that will be part of the ICT adoption framework

SME characteristics

The significance and role of SMEs in the development of any economy cannot be ignored and Zimbabwe is no exception. Aruwa and Gugong (2007), point out that a comprehensively accepted definition of an SME lacks because of the diversity of variables that are often used to define SMEs and because the idea of SMEs is dynamic and relative. Rahman (2001), argues that sales volumes, structure, age, location and size should be the key elements used in defining SMEs.
The definition of SMEs varies from one country to another and it is in most cases dependent on a combination of assets and employment. Kim and Gallent (2000), ascertain that the role that SMEs are expected to play in any economy is usually a key ingredient that many countries use in deriving the SME definition. However, despite the lack of a universal definition the most applied and extensively used in any case is one that primarily considers the turnover and number of employees within the SME (Mutula & van Brakel, 2007)
Hill (2001), gave an SME definition from an economic standpoint where he argued that an SME is an entity that: has an informal management structure; a small market share; is independent of any large enterprise and most often is wholly run by its owners. In most European countries, SMEs fall under 3 major categories namely micro (with a turnover of £2m and up to ten workers), small (£10m turnover and up to 50 workers),
and medium (turnover between £43m and £50m and up to 250 workers) (Arokiasamy & Ismail, 2009). In China, an SME is defined by having not more than 100 workers whereas in Thailand and Singapore, an SME has up to 200 employees (Djatikusumo, Talukder & Quazi, 2012). The Asian perspective of an SME also takes into consideration asset capital and volumes of sales (Djatikusumo et al., 2012).

The nature of SMEs

The expression « nature » alludes to the fundamental attributes and characteristics of a man or thing (Djatikusumo et al., 2012). Since the economies of nations contrast, it is hard to give a generally acknowledged meaning of an SME. Some critical attributes of SMEs however, can be distinguished. In developing nations, with a deficiency of capital and developing work surpluses, the following qualities of SMEs are observed (Cronje, Du Toit & Motlatla, 2010):

• SMEs are for the most part more labour intensive than bigger organisations;
• SMEs produce more straightforward, and perhaps at the same time more circuitous employment opportunities per unit of contributed capital. In the service sector the capital contributed per work opportunity is even less;
• SMEs are an instrument for using the talents, energy and entrepreneurship of people who can’t achieve their maximum capacity in extensive organisations;
• Smaller organisations frequently thrive by rendering services to a small or limited market which bigger organisations don’t find alluring;
• SMEs are a reproducing ground for entrepreneurial ability and a fertile ground for new ventures;
• SMEs make a significant contribution to the aggressiveness of the economy; and
• SMEs contribute towards social stability and cause less harm to the physical environment than large manufacturing plants, stimulate personal savings, increment success in rural regions and improve the populace’s general level of economic

SMEs additionally offer adequate open doors for personal initiative, advancement and the improvement of products, services and systems. Due to the competition that SMEs induce, they fill in as a foundation of free markets. SMEs likewise assume an imperative part in the social existence of the free-market framework as they enhance competition in the business environment. This competition takes out monopolies and supports unhindered trade which brings about quality services and products (Longenecker, Moore & Petty, 2012).
The SME is an accomplice to large organisations and offers services and products that regularly cannot be offered by large enterprises (Longenecker et al., 2012). This they accomplish through uncommon niche markets and the niche may comprise of an extraordinarily specific product or service, or it might emphasise on serving a specific geographic zone. By finding an exceptional niche, an SME may evade extreme rivalry from large corporates. An SME gives a business owner a chance to enter the business world. In some cases, an SME is the main supplier of important services and products in meagrely populated and marginalised markets (Longenecker et al., 2012).
In Zimbabwe, the Ministry of Small and Medium Enterprises categorises SMEs as micro, small and medium enterprises. The small enterprise is expected to employ not more than 20 people whilst the medium employs between 21 to 100 people (Tsarwe, 2014).

SMEs’ impact on World Economy

Abor and Quartey (2010), ascertain that SMEs create more than 70% of new jobs in most world economies and have been a key ingredient in GDP enhancement. In today’s economies, the expansion of the entrepreneurial base has been accounted to SMEs including the provision of a flexible adaptation to market change (Kuratko, 2005). The influence of SMEs in developed countries has positioned them as a significant and dominant force of economic growth and employment creation (Quaddus & Hofmeyer, 2007). They also highlight that the global SME sector growth has since surpassed the overall growth in the industrial sector due to the sector’s low capital demand and employment potential.
According to Kongolo (2010), SMEs provide economic efficiency and facilitate the exploitation of idle resources which include raw materials, capital and labour, hence they also enhance the industry system efficiency. The emergence of SMEs also allows the discovery and development of entrepreneurs and future managers of industry (Quaddus & Hofmeyer, 2007). Manpower and wealth development within any country is also attributed to SMEs as they make a considerable contribution towards capital savings (Kongolo, 2010). Any country’s efforts towards self-reliance is often enhanced through SMEs, who in most cases grow to commanding heights in most global economies (Kuratko, 2005).
SMEs also play a critical social and economic role in developing countries through income generation and societal development which positively impacts the fight against poverty (Abor & Quartey, 2010). Olutunla and Obamuyi (2008), also point out that 98% of industry initiatives in most industrialised countries is accounted to the SME sector.
According to Kongolo (2010), SMEs have the potential to drive innovation and expand the tax base in any economy. He also adds that SMEs are the main channels through which entrepreneurs enhance the socio-economic landscape through fresh ideas, innovations and skills. The consensus is that SMEs hold the keys that will unlock and enhance socio-economic prosperity in global economies (Normah, 2007). The full potential of SMEs in most economies is yet to be realised, due to various cultural, institutional and governance factors (Normah, 2007).
In Asia, SMEs have been positioned as pillars of an impressively performing industry sector through focusing the attention of academic practitioners and policymakers on the prominence of SMEs in industrial development (Radaev, 2001). In Russia and Poland, SMEs have successfully exploited market niches that were no longer profitable for large-scale enterprises, which has facilitated a review of rural development and decentralisation policies (Radaev, 2001). The Malaysian SME sector has experienced massive growth in recent years with GDP contributions over 32% and it employs 57% of the population (Omar, Arokiasamy & Ismail, 2009). A survey conducted indicates that over 76% of SMEs in Malaysia have experienced a 10% revenue increase in recent years (Levy & Powel, 2015).
In India, 35% of manufacturing output is accounted to SMEs which includes exports of over 33% (Levy & Powel, 2015). Thailand and Vietnam have experienced an upsurge in the number of SMEs in 2012 and have created over a million jobs (Zindiye & Roberts-Lombard, 2012). Indonesian statistics confirm that the number of SMEs was edging towards 43 million by the end of 2003 with a GDP contribution of 56.7% (Radaev, 2004). China has just over 10 million SMEs which account for just under 99% of all enterprises in China (Levy & Powel, 2015). These SMEs are responsible for 60% of industrial output and 70% of the GDP.
SMEs in Europe are estimated to be just over 23 million, accounting for 93% of all businesses in the European Union and providing work for over a 100 million people (Zindiye & Roberts-Lombard, 2012). This has seen the increase in knowledge spilling over European borders and the subcontracting of SMEs by large enterprises as Europe continues to experience an upsurge in the globalisation of economic activities (Zindiye & Roberts-Lombard, 2012). In the Netherlands, SMEs make up 98% of the private sector and have a GDP contribution of 32% (Indarti, & Langenberg, 2008). In Italy, over 2.2 million people are employed in SMEs with an export contribution ranging over US$35 million dollars (Levy & Powel, 2015).
In most African countries, growth stimulation has been championed by SMEs and most governments have had to coin policies that facilitate their role (Ayanda & Laraba, 2011). SMEs in Africa have helped in addressing resource optimisation and rural- urban migration (Ahiawodzi & Adade, 2012). The contributions of SMEs in African economies include an improved inventory and resource system for large-scale enterprises and a source of innovation and the enhancement of the economic development structure (Oh, Cruickshank & Anderson, 2009). SMEs in Africa however, still face a number of political, social, economic, and technological challenges that hinder their full potential from being tapped (Zindiye & Roberts-Lombard, 2012).

SMEs in Zimbabwe

Generic components to the Zimbabwean SME definition

According to Zindiye and Roberts-Lombard (2012), the characteristics that encompass the Zimbabwean and global meaning of SMEs are comparable and generic in nature. These components are included in every one of the SME definitions. The basic components used in defining SMEs in Zimbabwe are the number of employees, assets, capital base and the registration status of the SME. The following is a discourse of the generic components of the definition of SMEs.

Employees

Employees which are frequently alluded to as human resources are a standout amongst the most imperative assets of a business organisation. The development of a business may be measured by using the number of workers. An increase in the number of employees might signify the development and improvement of a business element and it may likewise be a characteristic of the level of progress and how well the business is performing (Aruwa & Gugong, 2007).
An examination of both the Zimbabwean and the universal meanings of SMEs demonstrates that there is presently agreement in the matter of what constitutes an SME as far as the number of employees. The base number of employees is 50 for small enterprises and 100 for medium enterprises depending upon the business or industry sector. Small undertakings have in the vicinity of 1 and 20 employees and this to a great extent relies upon the industry. However, the manufacturing sector in Zimbabwe often utilises the highest number of workers in both small and medium entities.

Capital base

A distinguished business opportunity requires resources, and capital is one of the fundamental assets that enhance the exploitation of an opportunity. Without capital, a business enterprise will not go far. The capital needs of Zimbabwean SMEs vary depending on the sector or industry. However, SMEs in Zimbabwe are classified under the US$800,000 base (Zindiye & Roberts-Lombard, 2012). What is of significance is that adequate capital must be made accessible, so that the SMEs will be fruitful and have the capacity to develop and innovate (Zindiye & Roberts-Lombard, 2012).

Assets

Assets are critical to the success and productivity of any business. Assets are often divided into two main segments; current assets and non-current assets. Non-current assets are comprised of buildings, machinery, goodwill, land, equipment and vehicles. Current assets include money in the company bank account, inventory and debtors. Non-current assets which are key to the production process are the elements utilised in the definition of SMEs. The day to day operating expenses of a firm requires current assets. The asset base utilised for the definition varies across borders, however, it is critical for a firm to have a sufficient capital base for the purposes of production and for day to day operations (Zindiye & Roberts-Lombard, 2012).

Registration

In any global economy, there exist both informal and formal entities. The formal organisations are registered for the purposes of paying taxes whilst for the informal organisations are not registered and they don’t normally pay taxes. Most governments, in computing their GDP and Gross National Product (GNP), concentrate on the formal and enlisted business associations (Tsarwe, 2014). There is by all accounts an agreement in both the Zimbabwean and the universal meanings of SMEs that an SME must be registered and be formal. This is basic as it empowers governments to survey the commitments of SMEs to the economy on the basis that they are appropriately registered (Tsarwe, 2014).
The main governing authority of SMEs in Zimbabwe is the Ministry of Small and Medium Enterprises Development (MSMED). The MSMED insists that for an organisation to be defined as an SME in Zimbabwe it should meet certain criteria that relate to legal structure, number of employees and asset base (Republic of Zimbabwe, 2002). The table below highlights the main classifications of SMEs in Zimbabwe which will also be adopted by this study.

ACKNOWLEDGEMENTS 
DEDICATION 
ABSTRACT 
KEYWORDS 
CHAPTER ONE: INTRODUCTION
1.1 Background information
1.2 Problem statement
1.3 Research questions
1.3.1 Main research question
1.3.2 Sub-research questions
1.4 Research objectives
1.5 Motivation and significance of the study
1.6 Limitations
1.7 Chapter overview
1.8 Conclusion
CHAPTER TWO: LITERATURE REVIEW 
2.1 Introduction
2.2 SME characteristics
2.2.1 The nature of SMEs
2.2.2 SMEs’ impact on World Economy
2.3 SMEs in Zimbabwe
2.3.1 Generic components to the Zimbabwean SME definition
2.4 SMEs and the Zimbabwe operating environment
2.5 Contribution of SMEs to the Zimbabwean Economy
2.5.1 Employment creation
2.5.2 Contribution to economic growth
2.5.3 Poverty alleviation
2.6 Zimbabwean government support for SMEs
2.6.1 The Government of Zimbabwe’s policy on SMEs
2.6.2 Challenges to policy implementation
2.7 Information and Communication Technology (ICT)
2.7.1 ICT and SME business processes
2.7.2 ICT innovation adoption stages
2.7.3 ICT in Zimbabwe
2.8 ICT adoption factors
2.8.1 Individual context factors
2.8.2 Organisation context factors
2.8.3 Technological factors
2.8.4 Environmental factors
2.8.5 Summary of ICT adoption factors
2.9 ICT adoption theories
2.9.1 The Diffusion of Innovation (DOI) Theory
2.9.2 The Technology, Organisation, and Environment (TOE) framework
2.9.3 The Unified Theory of Acceptance and Use of Technology (UTAUT) model
2.10 Tentative ICT adoption framework
2.11 Conclusion
CHAPTER THREE: RESEARCH METHOD
3.1 Introduction
3.2 The Design Science Research approach
3.3 Design Science approach to framework development
3.3.1 Hevner’s framework using DSR cycles
3.4 The DSR philosophical grounding
3.5 The Design Science Research process
3.6 Research strategy and design
3.7 The DSR approach applied in this research
3.7.1 Problem awareness
3.7.2 Suggestion
3.7.4 Demonstration
3.7.6 Communication
3.8 Ethics
3.8.1 Informed consent and voluntary participation.
3.8.2 Permission
3.8.3 Confidentiality and privacy
3.9 Conclusion .
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS 
4.1 Introduction
4.2 Overview of SMEs interviewed
4.3 Government role in ICT adoption
4.4 ICT importance and extent of use
4.5 Adoption of sophisticated ICTs
4.6 ICT Impact on operational costs and performance
4.7 Owner/Manager involvement and attitude towards ICT aspects
4.8 Factors limiting ICT adoption
4.9 Factors that drive successful ICT adoption
4.10 Other comments and recommendations
4.11 Summary of research findings
CHAPTER FIVE: DISCUSSION AND FINAL FRAMEWORK DEVELOPMENT 
5.1 Introduction
5.2 Zimbabwean government role in SME ICT adoption and use
5.3 Factors that limit ICT adoption
5.4 Factors that drive successful ICT adoption
5.5 Operational/performance effect of ICT in SMEs
5.6 Adoption and use of sophisticated ICTs
5.7 Recommendations and success strategies
5.8 Proposed ICT adoption and effective utilisation framework for Zimbabwean SMEs
5.9 Conclusion
CHAPTER SIX: RESEARCH VALIDATION
6.1 Introduction
6.2 The notion of validation
6.3 Validation of a framework
6.4 Validation methods
6.5 Summary
CHAPTER SEVEN: CONCLUSIONS AND RECOMMENDATIONS 
7.1 Introduction
7.2 The research overview
7.3 Summary of research findings and outcomes
7.4 Research contributions
7.5 Implications of the research
7.6 Research limitations
7.7 Recommendations for further study
7.8 Summary
REFERENCES
Appendix A- Interview questions
Annexure B – Informed Consent Letter/Form
Appendix C- Validation Workshop Questionnaire
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