THE ROLE OF THEORIES IN SMALL BUSINESS FAILURE RESEARCH

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CHAPTER 3 CONCEPTUAL FRAMEWORK FOR THE RESEARCH

INTRODUCTION

Chapter 2 ended on the note that certain lessons could be learnt from the existing small business failure theories to serve as important input in developing a conceptual framework for this research. These inputs relate to concepts which this research will now consider as essential building blocks necessary for addressing
the objectives of this research.
This chapter will elaborate on those issues under the following broad headings:

  • The need to recognise the importance of grounding business failure research and the corresponding explanatory theories in the context of local realities.
  • The importance of the business owner adhering to certain basic business management principles or rules (causal factors) as a way of avoiding business failure.
  • Recognising and conceptualising the failure factors (causality) as sets of inter-related elements with inherent powers or tendencies to close down businesses.
  • The role of critical realism in addressing the above issues.
  • At the end of the above discussions, the conceptual framework for this research would have been specified for data collection in Chapter 4.
  • Using research findings as frameworks for owner positive change.

GROUNDING RESEARCH IN THE LOCAL CONTEXT

The statistical situation as evidence of small business failure

The importance of grounding social research in local circumstances has been addressed from a number of South African perspectives. Ojala (2002:1), Kiggundu (2002:254), Mellahi & Wilkinson (2004:21) and Arinaitwe (2006:1670), for example, have discussed why the wholesale adoption in developing countries of explanatory models from developed countries would not carry that much relevance. Dockel & Ligthelm (2002:20) and Crutzen & Van Caillie (2007:10) emphasise that no meaningful use can be made of research results and statistics if they are not related to local issues. Sayer (2000:15), Mouton (2002:168) and Fleetwood & Ackroyd (2004:13) make similar statements from the perspective of the critical realist method.
The importance of recognising local statistical realities in business activities has also been discussed by Henderson (1999:281) from the business competitive perspective. Kaplan & Norton (2000:65), Junor (2001:30) and Kam (2005:399) are among others who have stressed the importance of using the grounded theory idea in undertaking and measuring performance in empirical research. From the South African perspective, the reports by the Department of Trade and Industry (dti 2004:4) and Sunter (2000:10), among others, highlight the importance of taking account of issues emanating from local statistics in the conceptualisation of the objects of the research. As has emerged from the literature review, people are constrained and enabled by their local circumstances. This chapter will therefore discuss the relevance of this statement as the backdrop to the conceptual framework for this research.

The number of small businesses in South Africa

As indicated above, one contribution which this research intends to make in terms of the relevant failure causes is to demonstrate how important it is to base the failure explanations on local social and economic conditions. This idea of ensuring that research on the business failure problems needs to be locally-grounded is undertaken by first providing some important statistical information on SMMEs.
Statistical information has been gathered to provide background data regarding the particular position, contributions, challenges, problems and prospects of SMMEs and how such realities should influence research on their failures. It needs to be noted that the discussions in this sub-section of the chapter will focus on the disclosure of the small business-related statistical situation, in view of its importance. This is supplemented by other forms of information to indicate the grounds for ensuring that the explanatory factors reflect local conditions.
The statistical discussion commences with Table 3.1 which gives a summary of the small business sectoral distribution in the provinces of South Africa to appreciate the significance and magnitude of the small business industry.

Job creation by South African small businesses

One sector which creates jobs in South Africa is SMMEs. Table 3.3 provides information about the number jobs being created by SMMEs in South Africa and their contribution to the national economy in the context of the unemployment situation.
With a population of some 45 million, and an unemployment figure of some 4 135 381 in 2004, Table 3.14 paints a bleak picture of the challenge of job creation in South Africa. There are limited job prospects in the formal sector, a high output of secondary school leavers and also high numbers of retrenched workers, all of which justify a programme of job creation through the SMMEs. Table 3.14 indicates that there are about 3 000 000 formal and informal SMMEs in the country which are an important resource for national development.
From the above statistical information, it can be asserted that any analysis of small business failures needs to take account of the problems facing the SMMEs; their potential to create jobs in the South African economy, as well as the necessity of getting access to the owners of small businesses regarding what they think needs to be done about the fate of their ventures. Since the global meltdown of 2008/2009 the shedding of jobs has been increasing in the formal sector. This reality needs to turn attention to small businesses as a key driver to the development of the South African economy.

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CONVENTIONAL CAUSES OF FAILURE BY CATEGORY

The reviewed literature indicates that failure may be categorised as discussed below

 Management-related causes of failure

The evidence of small business failure is now presented in terms of management-related causes, administrative-related causes, operational-related causes, stra-tegic causes as well as the owner-managers’ perceptions-related causes of business failures in both developed and developing countries. Table 3.4 shows the management-related causes of failure.
Table 3.5 highlights that the majority of causes for small business failure emanate from management-related causes. The table gives a breakdown of the administrative or management causes as percentages of overall causes of small business failure.
The model in Figure 3.2 indicates an example of the four business administrative/management principles that need to be adhered to by small businesses including South African SMMEs. The model is used here as a normative tool to guide business owners to success. It gives an idea about some of the conditions that business owners need to address in order to achieve success.
Figure 3.2, therefore, demonstrates that running a small business is a balancing act between internal and external factors (Timmons & Spinelli 2003:261, 2007:91, 2009:561). These assertions make Figure 3.2 even more important in explaining failure in small businesses. Specifically, the owners of small businesses need to strike a balance between the four factors: internal processes, finance, customers, and innovation or development.
Any imbalances, according to Kaplan & Norton (2000:65), predispose small businesses to failure. As confirmation of Kaplan & Norton’s position, Table 3.5 provides evidence on the areas of poor performance that lead to failure in small business and their percentages. For example, according to Burt, Dawson & Sparks (2003:358) underperformance equals failure.

DECLARATION 
ACKNOWLEDGEMENTS 
ABSTRACT 
CONTENTS 
LIST OF TABLES 
LIST OF FIGURES 
ABBREVIATIONS, ACRONYMS AND GLOSSARY 
CHAPTER 1 BACKGROUND AND PROBLEM ORIENTATION
1.1 INTRODUCTION
1.2 BACKGROUND AND ORIENTATION
1.3 SMALL BUSINESS FAILURE THEORIES
1.4 IMPORTANCE OF THE RESEARCH
1.5 PROBLEM STATEMENT
1.6 OBJECTIVES AND PROPOSITIONS OF THE RESEARCH
1.7 DEFINITION OF KEY CONCEPTS
1.8 LIMITATIONS OF THE RESEARCH
1.9 STRUCTURE OF THE THESIS
1.10 RESEARCH ASSUMPTIONS
1.11 CONCLUDING REMARKS
CHAPTER 2 LITERATURE REVIEW: SMALL BUSINESS FAILURE THEORIES 
2.1 INTRODUCTION
2.2 THE ROLE OF THEORIES IN SMALL BUSINESS FAILURE RESEARCH
2.3 DEFINITIONS OF SMALL BUSINESS FAILURE
2.4 AN OUTLINE OF SMALL BUSINESS FAILURE THEORIES
2.5 THREE THEMES OF SMALL BUSINESS FAILURE
2.6 THE ROLE OF VALUE JUDGEMENTS
2.7 LESSONS THAT COULD BE LEARNT FROM THE THEORIES DISCUSSED
2.8 CRITICAL EVALUATION OF PAST SMALL BUSINESS FAILURE RESEARCH EFFORTS
2.9 CONCLUSION
CHAPTER 3 CONCEPTUAL FRAMEWORK FOR THE RESEARCH 
3.1 INTRODUCTION
3.2 GROUNDING RESEARCH IN THE LOCAL CONTEXT
3.3 CONVENTIONAL CAUSES OF FAILURE BY CATEGORY
3.4 CATALYTIC ACTIVITY OF SYSTEMS AS CONSTRAINING AND ENABLING STUCTURES
3.5 CONCLUSION
CHAPTER 4 RESEARCH METHODOLOGY 
4.1 INTRODUCTION .
4.2 RESEARCH DESIGN AS A PROBLEM-SOLVING TOOL
4.3 RESEARCH DESIGN AS A VARIANCE-CONTROLLING TOOL
4.4 STATISTICAL APPLICATIONS AND PROCEDURES
4.5 DATA COLLECTION
4.6 DATA PROCESSING AND ANALYSIS
4.7 CAUSALITY CRITERIA FOR THE FAILURE FACTORS
4.8 LIMITATIONS OF THE METHODOLOGY
4.9 CONCLUSION
CHAPTER 5 FINDINGS AND ANALYSIS 
5.1 INTRODUCTION
5.2 DESCRIPTIVE ANALYSIS
5.3 INFERENTIAL STATISTICS
5.4 CAUSAL MECHANISMS BEHIND BUSINESS FAILURES
5.5 TEMPORAL MODELLING OF THE failure of the businesses studied
5.6 CONCLUDING REMARKS
CHAPTER 6 CONCLUSIONS AND RECOMMENDATIONS 
6.1 INTRODUCTION
6.2 OBJECTIVES REVISITED
6.3 REVISITING THE LITERATURE REVIEW
6.4 REVISITING THE PROPOSITIONS
6.5 RESEARCH CONTRIBUTIONS
6.6 RESEARCH LIMITATIONS
6.7 RECOMMENDATIONS
6.8 FURTHER RESEARCH AREAS
6.9 CONCLUDING REMARKS
REFERENCES
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