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Published: Fri, 02 Feb 2018
Entrepreneurship and the Growth of the SMEs in the Manufacturing
In this chapter we discuss the findings presented in Chapter 7 in the light of the previous studies. We begin by discussing the influence of the demographic characteristics on the growth of SMEs, followed by a discussion of the influence of the personality traits on the growth of SMEs. Next is a discussion not only of the influence of the cognitive characteristics on the growth of SMEs but also of the indirect effects of the personality traits on the growth of SMEs. This is followed by a discussion of the implications of using different choices with respect to growth indicators, formula, and time spans when measuring the growth of a firm. We conclude with a discussion of the applicability of the western theories in the Tanzanian cultural context.
Discussion of the findings
The primary objective of this study was to understand the importance of the characteristics of the owner-manager on the growth of SMEs. Following a comprehensive review of the literature concerning the characteristics of the owner-manager and the growth of SMEs, four research objectives were examined:
the influence of the demographic characteristics of the owner-manager on the growth of SMEs
the influence of the personality traits of the owner-managers on the growth of SMEs
the influence of the cognitive characteristics of the owner-managers on the growth of SMEs
the indirect effects of the personality traits in explaining SMEs growth
Following from the research objectives stated above was the development of four hypotheses for testing. Table 6.1 summarizes the results of the hypothesis testing that has been presented in Chapter 7.
Table 0‑1: Summary of the hypotheses tested
Demographic characteristics of the owner-manager significantly influences the growth of SMEs
Partially accepted (+)
Partially accepted (+)
Owner-manager family background
Fully accepted (+)
Owner-managers personality traits significantly influences the growth of SMEs
Need for achievement
Fully accepted (+)
Locus of control
Fully accepted (+)
Fully accepted (+)
Risk taking propensity
Partially accepted (+)
Tolerance for ambiguity
Partially accepted (+)
Owner-manager cognitive characteristics significantly influencing growth of SMEs
Fully accepted (+)
Attitude towards entrepreneurship
Partially accepted (+)
Partially accepted (+/-)
Partially accepted (+/-)
Personality traits are positively related to cognitive characteristics
Fully accepted (+)
Personality traits have an indirect effect on SMEs growth which is mediated by cognitive characteristics
Fully accepted (+)
From the table above, it is clear that most of the hypotheses formulated regarding the relationships between the characteristics of the owner-manager and the growth of SMEs are fully or partially accepted. A discussion of each hypothesis follows in the next section.
Discussion of the hypotheses
Hypothesis 1: Demographic characteristics
The first hypothesis tested the positive influence of the demographic characteristics on the growth of SMEs. As stated in Chapter Six, four characteristics (owner-manager’s age, education, experience, and family background) were used to represent demographic characteristics. It should also be recalled that the owner-manager’s education and experience were measured in various aspects. For example, three aspects were used to measure education, namely, the level of education, carpentry education and workshops. Likewise, three types of experience were used to measure experience: entrepreneurial, managerial and industrial. The growth of SMEs was measured by sales, asset and employment growth. From the findings, it becomes clear that the owner-manager’s education, previous experience and family background all influence the growth of SMEs.
Specifically, among the variables used to measure education it is only ´workshops attended´ that was found to have a significant influence on the growth of SMEs. This positive relationship between workshop and the growth of SMEs is consistent across all the five approaches used in this study. This result suggests that workshops attended by owner-managers equip them with the knowledge and skills which are needed in order to run a firm successfully. In spite of the importance of workshops on the SMEs growth, the finding shows that most of the owner-managers have never attended workshops since starting their business. In fact, the data suggest that only 43% of the respondents have attended various workshops since starting their current business. This is consistent with the observation of (Webster, Walker, and Brown 2005) that SMEs tend to focus on the informal transfer of skills rather than on formal training. However, those who had attended workshops were more likely to own firms that had experienced business growth in terms of sales, asset, and employment. This is also consistent with the contention of (Brush, Greene, and Hart 2001; Jayawarna, Macpherson, and Wilson 2007) that workshops and training are an important source of skills and technical knowledge for successful entrepreneurship.
Furthermore, we did find that the carpentry education has positive implications for SMEs growth in terms of both sales and asset. This finding suggests that carpentry education obtained from various vocational training colleges in Tanzania has an impact on the formation and growth of SMEs. For this reason, we can also conclude that the right things are taught in the program offered by various vocational training colleges. Thus, our results are consistent with previous research, which has documented that vocational training education influence the formation and growth of SMEs(Pankhurst 2010). This study is also consistent with an African study conducted by (McPherson 1992) in which was found that entrepreneurs with vocational training had firms that grew 9.0 percent faster than firms run by entrepreneurs without such training.
Previous research indicates that the owner-manager’s level of education is a significant determinant of the growth of SMEs (Unger et al. 2009). In this study, although the level of education of the owner-manager is positively related to the growth of SMEs, the strength of this relationship is not statistically significant. This suggests, therefore that the level of education does not matter in explaining the growth of SMEs in Tanzania. Although this result is also found in another African study (McPherson and Liedholm 1996), we do not have a clear explanation of this. In fact, this is surprising and raises an important question regarding the value of the education acquired by these entrepreneurs. It could be possible that the wrong things were taught in the education programme offered to these entrepreneurs. However, this result should be read with some caution, because the lack of significance could be due to the fact that the majority of the owner-managers in this sample have low levels of education. Indeed, in our study 71% were found to have either attained only primary school education or never to have attended school. Alternatively, this finding might in part be due to the fact that only the level, and not the type (that is the subject matter), of the education is considered in this analysis. In fact, this study suggests that in order for the owner-managers to manage the firm successfully they need some business skills. It could be possible that while two owner-managers may have the same level of education, one may have much more relevant business education than the other.
Another interesting finding was the significance influence of previous experience on the growth of SMEs. In particular, this study suggests that owner-managers who had previous experience in the industry in which the current business is in were more likely to see their business growing in terms of sales, asset, and employment. These results support the findings from previous studies in which working experience in the same sector seems to create knowledge and skills which are needed in order to run a firm successfully (Lee and Tsang 2001; Unger, Rauch, Frese, and Rosenbusch 2009a). Moreover, several scholars have pointed out the importance of owner-managers’ previous managerial experience as a predictor of the growth of SMEs (Unger et al. 2009). These scholars argue that the knowledge acquired through business management enhances the entrepreneurs’ ability to manage business successfully. The empirical results in this study show a partial support for these arguments. Consistent with our initial assumption, the results show a positive and significant relationship between managerial experience and the growth of SMEs in terms of sales and assets. This finding is fully consistent with the findings from previous studies discussed in Chapter Three. For example, several studies (Stuart and Abetti 1990; Shane and Khurana 2003; Colombo and Grilli 2005; Unger et al. 2009) have concluded that there is a general positive association between previous managerial experience and the growth of SMEs. One explanation for this result is that those owner-managers who previously managed the business would have gained valuable knowledge in the management of that business. This knowledge would enable them to overcome more easily the problems which are experienced when the business grows (Storey 1994).
Furthermore, there was no evidence to support the significant influence of the entrepreneurial experience on the growth of SMEs. Although this finding may be surprising considering previous research as discussed in Chapter Three, our finding suggests that the growth of SMEs may not primarily be due to the owner-manager’s entrepreneurial experience. This is, however not surprising, because some of the previous studies have also found the same results. Indeed, (Brush, Greene, and Hart 2001) have pointed out that, entrepreneurial experience is often a criterion that influences start-up funding success, rather than something that predicts firm performance. An alternative explanation for the non-significant relationship may be that only knowing whether or not one was involved previously in venture creation does not provide us with accurate information as to whether these start up experiences have yielded the necessary skills that are suggested to influence the growth of SMEs. Therefore, when trying to link the impact of the entrepreneurial experience on the growth of SMEs, it may be plausible to include also the measures that capture the quality of these previous events as well as reasons for leaving the former business. For instance, it is possible that low tolerance for ambiguity influences the start-up experience. In other words it means that when owner-managers face ambiguous situations in a particular business they are more likely to quit that business and look for another business. This finding may also be due to the fact that over half (60%) of the owner-managers in our sample had no prior entrepreneurial experience and the current business was their first venture.
The variable family background is one of the great interests in the research literature. It is suggested that individuals whose parents or close relatives were/are self-employed are not only likely to operate a business, but also to outperform others (Stanworth et al. 1989; Papadaki and Chami 2002). In this study, we also found that the majority of the owner-managers in our sample came from an entrepreneurial family. Furthermore, we found that owner-managers who came from entrepreneurial family backgrounds are more likely to experience growth in their businesses than people without such a background. This is consistent with the contention that children of entrepreneurs are more likely to form successful businesses than children of other people (Storey 1994; Papadaki and Chami 2002; Shane 2007). These owner-managers are more likely to be successful in their business because they had been raised in an environment that facilitates a process of human capital accumulation. Indeed, entrepreneurs raised in the entrepreneurial family background are aware of the challenges they will have to face and are better prepared to seek and give solutions to the problems that will arise (Meccheri et al 2005). Apart from the knowledge accumulation, they may have easier access to informal and formal networks of suppliers, clients and venture capitalists, of which they can take advantage. For instance, we found that the majority of the owner-managers raised in an entrepreneurial family claimed to be involved in various informal networks (See appended Table 0 -4 and Table 0 -5).
Contrary to what was expected, the age of an owner-manager was not significantly related to the majority of SMEs growth measures used in this study. This is, however, not surprising, because some of the previous studies have also found the same results. For instance, Stuart and Abetti (1990b) have found that the age of the entrepreneur has no relationship either to performance or experience. In this study, the non-significant result may be attributed to the fact that the majority of the owner-managers in our sample are in the same age category. Actually, almost half of the respondents were between 30 and 40 years of age at the time of the interview (as seen in descriptive statistic table).
The findings that carpentry education and managerial experience are not related to employment growth were unexpectedly given a prominent role played by the aforementioned factors on SMEs growth. With respect to the carpentry education it is possible that most of the owner-manages who have received carpentry education feel reluctant to employ an additional worker. Since these owner-managers have carpentry skills, then it could be possible that they don’t need an extra carpentry skill through hiring employees who contribute their skills. Perhaps these owner-managers employ an additional worker after a long period of accumulating assets and revenues, which increase operations of enterprise and therefore, demand for more workers. Furthermore, it is difficult to explain why managerial experience was not significant related to the employment growth. The possible reason for this result could be largely attributed to the methodological approaches used. This might be an indication that the factors affecting sales or assets do not necessary affect employment growth. For example, Delmar (1997) examined both growth in sales and in the number of employees and found out that the factors affecting sales were not always the same as those affecting the number of employees. Jansen (2009) and Shepherd (2009) also shared a similar view by suggesting that sales and employment measures are not interchangeable criteria for measuring the growth of SMEs. Alternatively, with respect to the carpentry education it is possible that most of the owner-manages who have received carpentry education feel reluctant to employ an additional worker.
Hypothesis 2: Personality traits
Our study also examined the relationship between personality traits and the growth of SMEs. Personality traits are comprised of characteristics such as the need for achievement, locus of control, risk taking propensity, innovativeness, ambiguity tolerance and self-efficacy. The findings of this study suggest that certain personality traits such as the need for achievement, locus of control, risk taking propensity, innovative behaviour and self-efficacy exert an influence on the growth of SMEs. This finding is consistent with the findings from previous studies (Frese 2000; Rauch and Frese 2007b; Rauch and Frese 2007a; Shane 2007) that put an emphasis on the importance of the personality traits. Indeed, the more emphatic the owner-manager was on the need for achievement, internal locus of control, innovativeness and self-efficacy (persistence) the better the reported growth in sales, assets, and employment. The need for achievement, locus of control, innovativeness and self-efficacy are, therefore, the personality traits that influence the growth of SMEs. This finding also justifies the recent suggestion by (Ardichvili, Cardozo, and Ray 2003; Rauch and Frese 2007b) that personality traits should be included in the studies that aim at understanding the process of how success develops. These findings also mean that the scales used to measure each of these characteristics seem to have great generality and validity across different national contexts.
Furthermore, we did find that the tendency of taking risks has positive implications on business growth in terms of both sales and assets. However, we did not find any significant association between the tendency of taking risks and employment growth. This suggests that owner-managers in our sample may have a higher tendency to take risks in other business outcomes such as sales or asset growth rather than on promoting employment growth. Alternatively, it could be concluded that the factors which affect sales or assets do not necessary affect employment growth.
Contrary to the findings from previous studies, our empirical findings show that tolerance for ambiguity has a negative effect on sales growth. The finding suggests that those owner-managers who scored low on this trait were performing well. On the other hand, those owner-mangers who scored a little bit high on this trait were doing badly. However, this result should be read with some caution, because the negative significance could mean serious consequences to the high number of individuals who, in our sample, had a low level of tolerance. Indeed, the majority of the owner-mangers in our sample scored below the mid-point 3 in this trait. Alternatively, the possible reason for this result could be attributed to the fact that the scale which used to measure ambiguity tolerance lacks face validity. Actually, the measurement scale for tolerance for ambiguity had a low reliability coefficient (Cronbach’s alpha 0.6). On the other hand, it could be that these measures do not capture the tolerance that is conceptualised by the owner-managers of the growing firm. Other explanations for this inconsistency could be that ambiguity tolerance may affect how individuals respond to uncertainty situations, but it may not positively affect the growth of SMEs.
Hypothesis 3: Cognitive characteristics
The third objective of this study was to examine the association between cognitive characteristics and the growth of SMEs. As mentioned in Chapter Six, four characteristics were examined in relation to the owner-manager’s cognitive characteristics. These include: entrepreneurial alertness, attitude towards entrepreneurship, cognitive styles and entrepreneurial motivation. The overall pattern of the results provides general support for the four hypotheses developed with regard to the above-mentioned relationship. Furthermore, these findings also mean that the scales used to measure each of these characteristics seem to have great generality and validity across different national contexts. The findings regarding each of these hypotheses are now discussed.
The first sub hypothesis with regard to cognitive characteristics dealt with the owner-manager entrepreneurial alertness. In research and literature it is often argued that a high level of entrepreneurial alertness provides entrepreneurs with that increased ability to recognise successful opportunities that leads to business growth (Gaglio and Katz 2001). The results in this study seem to support this argument as we found that high levels of entrepreneurial alertness are related to the growth of SMEs. Our empirical findings also suggest that low levels of entrepreneurial alertness hamper the growth of SMEs. This result also supports previous findings that pointed out that individuals with low alertness are more likely to be unaware of the opportunities that may lead to future profits (Olomi 2001).
The next sub-hypothesis dealt with the attitude towards entrepreneurship. Two factors were used to measure owner-manager’s attitudes towards entrepreneurship. These include: a positive attitude towards venture creation and growth and a positive attitude towards risk taking and uncertain situations. In general, our results suggest that attitude towards entrepreneurship has a significant positive effect on a firm’s growth. Specifically, the hypothesis results regarding positive attitudes towards venture creation and growth are supported by all growth measures used in this study. In other words, the majority of the successful owner-managers strongly support the view regarding continued search for growth. This result supports earlier findings that point out that owner-managers’ attitudes towards business growth are the key factors for successful business (Davidsson 1989; Delmar, Davidsson, and Gartner 2003). Further, positive attitudes towards risk taking and uncertain situations were only related to sales and asset growth. This finding suggests that successful owner-managers in our sample are inclined to involve their business in situations that may consider risks. In general, this finding suggests that attitude towards entrepreneurship is not only a good predictor for business creation (as already mentioned by previous studies), but also a good predictor for firm’s growth. In fact, this finding adds to the growing body of research that focuses on understanding the relationship between attitudes towards entrepreneurship and firm performance (Baume, Locke and Smith 2001; Baum and Locke 2004; Rauch and Frese 2007b)
Furthermore, we found a significant association between the cognitive styles’ constructs (knowing, planning, and creating) and the growth of SMEs. More specifically, our results suggest that a creating style is positively related to sales and assets growth while a knowing style is negatively related to these measures. This result suggests that higher levels of creating style influence the growth of SMEs. On the other hand, higher levels of knowing styles hamper the growth of SMEs. Indeed, the knowing style is characterised by a focus on facts and figures, a high level of rationality and avoidance of risks (Cools and van den Broeck 2007). These characteristics might imply that people with these styles see more risks in business and experience a higher level of uncertainty which limits their eagerness to search for growth. Our findings also suggest that the owner-managers of the firms that grew prefer to think in a creative way when making business decisions. These findings may also be viewed in the light of previous research. For example, Allinson et al. (2000) observed that a creating style showed a significant positive relationship with business growth. Different cognitive styles, therefore, do appear to be the relevant factors in explaining the growth of SMEs.
The last hypothesis regarding cognitive characteristics dealt with entrepreneurial motivations. Two factors of entrepreneurial motives that may influence the growth of SMEs were distinguished in this study. These include: start up motives and current motives. With regard to start-up motives, our results support the notions that pull motives have positive implications on business growth in terms of both sales and assets. This is also consistent with other previous studies (Davidson 1989; Kolvereid 1992; Fitzroy and Nolan 2002; Cassar 2007) which showed that owner-managers who are strongly motivated by pull factors perform better in their businesses, since they devote more time and energy to the business. In contrast, push factors appeared to have a negative effect on business growth. This implies that entrepreneurs who start a business because of push factors perform poorly compared to those who start a business for other reasons. An explanation for this could be that owner-managers who enter into business motivated by push factors are less well equipped or less committed to engage in business. Additionally, since their primary goals are only to survive, growth motivations might well as be of little importance to them. Accordingly, they may have a desire to discontinue with their entrepreneurial activity once well-paid employment is available to them. Among the current motives studied, a positive effect is still found between owner-managers’ pull motives and a firm’s growth. This finding suggests that the owner-manager’s primary reasons for continuing doing business do affect the growth of their firms. In fact, those people who are positively motivated are more likely to see their businesses grow. We did not find any significant association between current push motive and the growth of SMEs. However, this finding should be treated with caution, given the fact that a current push factor contained one pull item.
Furthermore, it was found that push factors (or negative motivators) were not very important when starting one’s own firm in Tanzania. This finding suggests that most entrepreneurs in Tanzania are generally motivated by pull factors. This is consistent with other previous studies, which suggest that most of the entrepreneurs are motivated by positive reasons (Mitchell 2004; Kirkwood 2009). However, it contradicts earlier findings that claim that push motives are more important than pull motives in developing countries (Chu et al. 2007; Benzing et al. 2009).
Hypothesis 4: Indirect effect of the personality traits
The fourth hypothesis examined the indirect effect of the personality traits in explaining SMEs growth. Entrepreneurship researchers have pointed to the likelihood that traits work in conjunction with other factors in explaining the growth of a firm (Shane et al 2004; Rauch and Frese 2007c; Chell 2008; Rauch et al 2009). Alternatively, other factors mediate the relationship between the personality traits and the growth of SMEs. This thesis takes into consideration the fact that personality traits will work through cognitive factors in explaining the growth of SMEs. The finding of this study provides a strong support for the hypothesised relationship. In fact, we found that at the structural level the direct relationship between personality traits and SMEs growth is very weak. On the other hand, we found that personality traits have a significant influence on SMEs growth through cognitive characteristics. This finding implies that cognitive characteristics are necessary mediator of the link between personality traits and SMEs growth. That is, without cognitive characteristics, personality traits may have a minimal or no effect on the growth of SMEs. This finding suggests that the personality traits influence the way an owner-manager behaves and makes decisions about the business. For example, higher need for achievement might lead to positive attitude towards venture creation and growth. This finding is consistent with the previous findings and suggestions that some of the factors such as personality traits affect SME growth through other variables such as cognitive characteristics (Krauss et al. 2005; Rauch and Frese 2007b; Shane 2007; Rauch and Frese 2007a; Chell 2008; Rauch et al. 2009). This result offers an explanation as to why other previous researchers have failed to find a significant relationship between personality traits and SMEs growth. The inability to find any significant relationship between personality traits and the growth of SMEs might be attributed to the fact that most of these studies only tested for a direct relationship. This result also offers an explanation as to why other scholars continue to point out the importance of the characteristics of an entrepreneur on the growth of the firms (Rauch and Frese 2007b).
Furthermore, when characteristics of the owner-managers are examined simultaneously in the regression model it becomes clear that most of the personality traits are not directly related to sales and asset growth (see appended Table 0 -6). In fact, the findings suggest that only one personality trait (internal locus of control) has a significant influence on the growth of SMEs. Furthermore, two demographic characteristics (workshops attended, previous experience in the sector which current firm is in) and three cognitive characteristics (entrepreneurial motivations, higher levels of alertness and cognitive styles) are the best predictors of sales and assets growth. These findings continue to suggest that the direct influence of the personality traits on SMEs growth is minimal. On the other hand, the direct influence of the demographic and cognitive characteristics on the growth of SMEs is substantial. The findings showed further that the personality traits and cognitive characteristics are related, suggesting that owner-manager traits are determinants of cognition and behaviour (Baum, Locke and Smith 2001). From this observation, it becomes clear that personality traits are important predictors of SMEs growth, but they work primarily through cognitive characteristics.
Different indicators of growth
Comparing the results for both growth measures used in this study, we see that sales and asset growth are affected by the same variable. Furthermore, the results suggest that among the factors studied only few factors can explain employment growth. Apparently, employment on the one hand and sales and asset on the other are not interchangeable criteria for measuring firm growth (Delmar 1997; Jansen 2009). This finding may also be based on the argument that in measuring the growth of SMEs the number of employees changes slowly compared to other indicators like sales generated or assets accumulated. In fact, it has been argued that sales growth is chronologically the first form of growth followed by other indicators such as employment or assets (Jansen 2009). A possible explanation could be that Tanzanian owner-managers employ an additional worker after a long period of accumulating assets and sales, which increase business operations and therefore, demand for more workers. Additionally, owing to the nature of the businesses studied (furniture industry) another alternative explanation might be that these firms are more likely to bring in more machinery (working tools) than to employ more people, and thus grow without increasing the number of employees. Other factors may also play a role when it comes to hiring additional people: it could be that people are hired because they are relatives or friends. Rather than giving them food for nothing they are given the opportunity to work for the company and thereby have money to buy food. In this respect, employment is not a good indicator of a SMEs growth in Tanzania. Our study also supports the argument posed by Jansen (2009) that employment, sales and assets cannot be considered as interchangeable conceptualisations of the same phenomenon.
In this study, SMEs growth in terms of sales and employment was measured over two time spans, namely growth over a three-year period and growth over a five-year period. After comparing the results across these two time spans, we concluded that both time spans yield similar results. This re
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