FACTORS INFLUENCING THE GROWTH OF SMALL AND MEDIUM

ENTERPRISES ALONG DELGADO STREET

IN ILOILO CITY

A Research Paper

Presented to

Faculty of College of Commerce

University of San Agustin

Iloilo City

In Partial Fulfilment

of the Requirements for the Course

Applied Business Research

by

Vanessa Asong

Allyssa Mae Mospo

Julliene Subacio

Jairus Villanueva

Drew Suñe

October, 2018
 Chapter 1

INTRODUCTION

Background of the study

As mentioned in the State of the Nation Address of the president of the Philippines,

that small and medium shall be developed and sustained in the locality. The role of small

and medium enterprise in the national economy cannot be underestimated. These

enterprises are being given increasing policy attention in recent years, particularly in third

world countries partly because of growing disappointment with results of development

strategies focusing on large scale capital intensive and high import dependent industrial

plants. The impacts of small and medium enterprise is felt in many ways like greater

utilization of local raw materials, employment generation, encouragement of rural

development, development of entrepreneurship, provision of avenue for self employment

and provision of opportunity for training managers and semi skilled workers(Levy and

Powell, 2010).

Overall economic development, a critically important role is played by small and

medium enterprise. Small and medium enterprises advocates firstly, it endurance

competition and entrepreneurship and hence have external benefits on economy wide

efficient, and productivity growth. Secondly, proponent of small and medium enterprise

support frequent claim that SMEs are generally more productive than large firms but

financial market and other institutional improvements (World Scholars, 2012).

Small and medium enterprises examine an expanded database of firms in the

formal manufacturing sector with fewer than 10, 20, 100 or 250 employees. Various

indicators are used to measure growth and there doesn’t seem to be any
general measurement. Measuring sales growth and relative employment growth during a

specific time period is the most common indicators used. Indicators such as assets,

market share, profits and output are also commonly used, however not as commonly as

sales and employment. Output and market share vary greatly within industries and is

therefore hard to compare, total assets also depends on the industry’s capital intensity and

changes over time and profits is not that relevant unless measuring size over a long

period of time. Therefore sales and employment were the two most important indicators

measuring firm’s size and growth. Sales figures are on the other hand affected by

inflation and exchange rates and it is difficult to compare sales figures between industries

(Davidsson, Delmar & Gartner, 2006).

The study begins with the hypothesis that countries with larger Micro-enterprise

(ME) or small and medium enterprise sectors have more rapid economic growth in per

capital income (Leegwater & Shaw, 2010).

Overall, SMEs face numerous constraints to further growth and productivity,

including credit constraints, cumbersome registration procedures and strict regulatory

environments. SMEs, especially start-ups, have lower probabilities of survival than larger

firms, leading to high rates of market entry and exit across nearly all economic sectors.

SME’s can be established in any locality for any kind of business activity in urban or

rural area (Khalique, et al., 2011).

Life of the students as consumers and that of businessmen go hand in hand. Since

we are Business Management major, we intended to be involved in business world

someday. We choose to this topic the factors influencing the growth of small and medium

enterprises in Brgy. San Agustin in Iloilo City besides the University that is easy to
gather the data necessary to employ among businesses. The study attempts to know and

understand the nature and activities of growth-oriented owned businesses in Iloilo City by

highlighting the problems faces by entrepreneurs during the growth process. If these

small and medium enterprises could grow they would greatly affect the economy of Iloilo

City. The purpose of this research will be able to study the growth factors of small and

medium enterprises, their growth potential, and what are the obstacles for them to

develop their businesses in Iloilo City. The objective of this study is to know if some

factors such as competition, employment, flexibility, globalization, initial capital,

innovation, and years of operation can influence greatly to the growth of small and

medium enterprise.

Statement of the Problem

This study aims to determine the factors influencing the growth of small and

medium enterprises along Delgado street in Iloilo City for the year 2018.

Specifically, this study seeks to answer the following question;

1. What is the profile of the respondents?

2. What are the factors that influence the growth of small and medium enterprises

in terms of competition, employment, flexibility, globalization, and innovation when

respondents are taken as a whole are classified according to age, initial capital, sex, and

years of operation?

3. Are there significant differences among the factors influencing the growth of

small and medium enterprises in terms of competition, employment, flexibility,

globalization, and innovation when the respondents are classified according to age, initial

capital, sex and years of operation?

 4. Are there significant relationships among the factors influencing the growth of

small and medium enterprises in terms of competition, employment, flexibility,

globalization, and innovation?

Hypotheses of the study

The null hypotheses will be tested;

1There are no significant differences among the factors influencing the growth of

small and medium enterprises in terms of competition, employment, flexibility,

globalization, and innovation when the respondents are classified according to age, initial

capital, sex and years of operation.

2. There are no significant relationships among the factors influencing the growth

of small and medium enterprises in terms of competition, employment, flexibility,

globalization, and innovation.

Theoretical and Conceptual Framework

This study will be anchored to the concept of Levy and Powell (2005) which states

that the factors influencing the growth of Small and Medium Enterprises are the

competition, employment, flexibility, globalization and innovation. According to Levy

and Powell, the most important factors that influence the growth of small and medium

enterprises are the employment, flexibility and globalization. Employment is the most

evident public benefit of small business growth and it is the contribution made by Small

and Medium Enterprise. Small and Medium Enterprise’s play a big role in the creation of

jobs and country’s employment rate (Levy and Powell, 2005).

A key characteristic of an SME is flexibility, the ability to adapt to changing

environment. Companies are facing external pressures like a transforming market and a
high speed technological change. The Small and Medium Enterprise owner has

considerable personal influence over a firm’s strategies, tactics and operations to engage

in decision process across the firm. As a result, although a flat, informal organizational

structure is likely to exist, decisions making tends to be quite centralized around the

owner (Levy and Powell, 2005).

The impacts of globalization as a factor to the growth of SMEs have pressured

SMEs to greater demands. Perhaps the most significant source of change impacting many

organizations today is the increasing globalization of organizations and management.

This occurs because firms to control costs, especially to reduce labour costs. Of course

another reason why firms are becoming more global is the response to competition

(Griffin & Moorhead, 2009). SMEs that are internationally active are generally growing

faster than their domestic equivalents. This gives pressures to SMEs to develop

environmental strategies to remain competitive. Many SMEs lack the resources to meet

the global challenge to internationalize. Other factors that can influence the growth of

small and medium enterprises are competition, and innovation. Competition is a threat to

survival; it is the competition that drives firms to improve productivity and therefore

drives growth (Hamann, 2013).

Innovation also plays a crucial role in now day business and it is regarded as a key

characteristic of SMEs, mainly due to the attitude of the manager. Innovative companies

are able to respond within the bounds of the knowledge about existing products or

services to changes required by the customer within their niche market (Levy & Powell,

2005).
 The competition, employment, flexibility, globalization, and innovation are the

dependent variables of the study. On the other hand, age, initial capital, sex and years of

operation are the independent variables of the study.

Most reviews and studies of work performance have not established a relationship

between decreased job performances with increasing age and conclude that job

performance is generally the same across all age groups. It was concluded that when

abilities match job requirements and when experience is taken into account, there is little

difference between the performance of older and younger workers (Benjamin and Wilson,

2005).

Initial capital is essential when you start your own business. Unless you can count

on the bank of your relatives you will need financial backing such as a bank loan or

venture capital supplied by investors. A business plan is critical for securing your own

capital (Guffey, 2011).

Sex-based differences in each of these areas have a profound effect on economic

opportunities for men and women, the productivity of men and women’s labor, the

performance and potential of their businesses, and the incentives facing men and women

as economic agents (Klasen, 2012).

Years of operation is another factor for growth in most businesses today, the most

valuable asset they manage is their people and employee engagement and satisfaction are

strategic imperatives that every leadership team should understand and explore

proactively. Make money and add value to the community it exists to serve (Shawn Parr,

2013).
 PARADIGM OF THE STUDY

The paradigm below illustrates the conceptual framework of the factors influencing

the growth of Small and Medium Enterprises at Barangay San Agustin in Iloilo City.

Profile of the respondents

Antecedent Variables Independent Variables
Factors influencing the Dependent
Growth ofVariables
SMEs
*Age growth *Assets
*Initial Capital *Competition *Market share
*Employment *Sales 8
*Sex
*Years of Operation *Flexibility *Profit
*Globalization
1.Innovation
Fig.1 The Independent and Dependent Variable of the study.

Definition of terms

To give clarity on the terms used in this study, the following terms will be defined

conceptually and operationally:

Age is the length of time that a person or thing is existed (American Heritage 5th

edition, 2011).

In this study, age was classified as and.

Assets refers to monetary value that is owned by a firm or an individual (Scott,

2013).

In this study, assets can help you to secure finance, if you need it. However, this is

not the only reason for looking after your assets. Protecting your assets can help reduce

risk to your business.

Competition exists when two or more organizations act independently to supply

their products to the same group of consumers (Delmar, 2013).

In this study, competition drives firms to improve productivity and therefore drives

growth.
 Employment is an occupation by which a person earns a living (Modern Language

Association, 2016).

In this study, employment will determine if the enterprise is improving.

Factor is a constituent or element that brings about certain effects or results, or

indicates a specific multiple, number, or quantity (Business Dictionary, 2016).

In this study, factor is a variable that have a capacity to bring effects in the

enterprise.

Flexiblity is an ability to adapt an operating system to respond to the changes in

environment (Matthew Torren, 2014).

In this study, flexibility referred to the the ability for a company to make whatever

internal changes are necessary to respond effectively to the changing outward

environment, as quickly as possible.

Globalization is a process by which the international exchange of goods, services,

capital, technology and knowledge becomes increasingly interconnected (Boundless,

2014).

In this study, globalization refers to the factor to the growth of SMEs and has

pressured SMEs to provide greater demands.

Growth is the process of improving some measure of an enterprise's success

(Business Dictionary, 2015).

In this study, growth refers to the increase in the market value of the goods and

services produced by an enterprise over time. Employment numbers is also a measure

that is easily accessible, since it is an important figure for governments. Sales figures are

on the other hand affected by inflation and exchange rates and it is difficult to compare
sales figures between industries. That is why it is important to use multiple growth

indicators to study firms growth.

Influence is the ability to have an effect on people or events (Cambridge Business

English Dictionary, 2013).

In this study, influence refers to the value of an independent variable on the value

of a dependent variable.

Initial Capital is the initial investment or money used to start a

business (Business Dictionary, 2015).

In this study, initial capital refers to the initial investment of the enterprise. In small

enterprise, the initial capital ranged from P3-P15 million while the medium enterprise’s

initial capital ranged from P15-P100 million.

Innovation is the act that endows resources with a new capacity to create wealth

( Peter Drucker, 2015).

In this study, innovation refers to the results when ideas are applied by the

company in order to further satisfy the needs and expectations of the customers.

Innovative companies were able to respond within the bounds of the knowledge about

existing products or services to changes required by the customer within their niche

market.

Market Share is the proportion of industry sales of a good or service that is

controlled by a company (Scott, 2003).

In this study, market share tells us how we are doing relative to our competition.
 Profit is the surplus remaining after total costs are deducted from total revenue, and

the basis on which tax is computed and dividend is paid. It is the best known measure of

success in an enterprise (Will, 2015).

Profit is reflected in reduction in liabilities, increase in assets, and/or increase in

owners' equity. It furnishes resources for investing in future operations, and its absence

may result in the extinction of a company. Also called earnings, gain, or income

(http://www.businessdictionary.com).

In this study, profits provide a measure of success of a business which is important

for new businesses. Profits are the best source of finance/capital to invest in expanding

the business. Profits are act as a magnet to attract further funds from investors enticed by

the possibility of high returns on their investment.

Sales is the total amount of money that a business receives from selling goods or

services (Merriam-Webster, 2016)

Sex - indicates whether the respondent is male or female (Business Dictionary,

2013)

In this study, sex indicates whether the respondent is male or female.

Small and Medium Enterprise - Non-subsidiary, independent firms which employ

fewer than a given number of employees (OECD, 2013).

In this study, small and medium enterprise refers to a convenient term for

segmenting businesses and other organizations that are somewhere between the small

office-home office size and larger enterprise. It is the focus of the study.

Years of Operation - is the state of being active (Farlex Dictionary, 2016).

 In this study, years of operation refers to the age of the enterprise or years the

enterprise is operating or existing.

Significance of the study

The study would provide significant benefits to the following:

Owners of Small and Medium Enterprises. These findings could guide the

owner/owners on how his/their management qualities could influence the way business is

being run smoothly and may gain insights about Small and Medium Enterprise to further

evaluate and develop the growth of their enterprise

Faculty of the College of Commerce. Through this study, the faculty will be able to

evaluate and get information about Small and Medium Enterprises along Barangay San

Agustin in Iloilo City and can use this information in their teaching.

Researchers. The researchers would be able to gain knowledge about the factors

influencing the growth of Small and Medium Enterprises along Barangay San Agustin in

Iloilo City and can use these information in their field.

Future Researchers. This study will also provide additional information about

factors influencing the growth of Small and Medium Enterprises along Barangay San

Agustin in Iloilo City and will serve as a basis for further studies.

Scope and Limitations of the study

This study focused on the factors influencing the growth of small and medium

enterprises specifically along Delgado strees in Iloilo City only for the year 2018

The study determines how dependent variables like competition, employment,

flexibility, globalization and innovation influences the Small and Medium Enterprise’s
growth. The study also used independent variables limited to age, initial capital, sex, and

years of operation.

The respondents of the study will be the owners of small and medium enterprise

along Barangay San Agustin particularly Jalandoni street.

Variables considered were limited only to the owners of Small and Medium

Enterprise. The researcher-made instruments will be used to determine the factors that

influenced the growth of small and medium enterprise.

The statistical tool to be used for descriptive data analysis will be frequency counts,

percentages, means, and standard deviations while Mann-Whitney U test, Kruskal Wallis

test, and Spearman rho for the inferential data analysis. All inferential statistics will be set

at .05 level of significance.

 Chapter 2

REVIEW OF RELATED LITERATURE

This chapter represents the review of literature and studies that were related to the

past investigation of the factors influencing the growth of Small and Medium Enterprise.

Small and Medium Enterprises

SMEs play a big role in the creation of jobs and a country’s employment rate. The

most evident public benefit of small business growth is the contribution made by SMEs

to employment. A large number of studies carried out in various countries have

concluded that small business plays major role in job creation. (Hamilton, 2007, 297).

SME were usually independent non subsidiary firms which employ certain

number of employees. In the European union the most frequent upper limit designation

an SME is 250 employees, but some countries can set the limit to 200, while over the sea

The United States considered SMEs to include firms with fewer than 500 employees.

(OECD 2005, 17)

SMEs assist in regional and local development as they accelerated the

industrialization in rural areas by linking them with the more organized urban sector and

help achieve fair and equitable distribution of wealth by regional dispersion of economic

activities (SME Bank 2009).

Small and Medium Enterprise (SME) in Indonesia plays an important role in social

and economic growth, due to great number of industry, GDP contribution and total

employment. SMEs, characteristic was more agile and adaptable that capable to survive

and raise their performance during economical crisis than larger firm. But the increasing

of business competition, in particular against large and modern competitor, put SMEs in a
vulnerable position. The development of sustainable SMEs became an important step to

strengthen and sustain Indonesian economy. According to previous studies, factors

affecting success among Indonesian SMEs were marketing, technology, capital access

and human resources quality. Unfortunately, all of these factors still becoming problem in

Indonesian SMEs. Open innovation was proposed methodology to overcome because

several s match with open innovation implementation (ICSMED, 2012).

Age

Age of owner/manager and its influence on growth. Available theoretical

discussion explaining the influence of the age of the owner/manager advocates for the

younger owner/manager; the argument here rests on the fact that the younger

owner/manager has the necessary motivation, energy and commitment to work and is

more inclined to take risks.The logic is that the older owner/manager was likely to have

reached his/her initial aspiration (Storey, 1994; Watkins et al., 2003).

Assets

Something of monetary value that was owned by a firm or an individual (Scott,

2013).

Assets underpin an increasing number of small businesses’ competitive advantage

and future earnings, and they help to create the uniqueness that was a characteristic of the

UK’s SME community. Yet little research exists that explores the issue of SMEs and

intangible assets. ACCA together with the Department of Trade and Industry and the

Intellectual Property Institute have attempted to fill this gap and have commissioned Dr

Chris Martin to conduct a major piece of research into the issue. The research, published
in December 2006, offers a unique insight into the way SMEs created, value and protect

their intangible assets (accaglobal.com).

Assets can be transferred to a new owner, on some occasions the process may be

problematic. For example, the transfer of assets that were inextricably linked to the owner

poses problems. In such cases it is important for the buyers and sellers to examine

strategies that address the problem of transfer; for example, an earn-out scheme. It was

important that business advisers are used as a source of guidance to owners in developing

such strategies (Andrew, 2012)

In order to ensure the successful transfer of SME intangible assets, the SME must

take steps to ‘strengthen’ individual intangible assets. This can be done through

formalizing customer agreements, documenting processes, exploiting the registered rights

available and taking appropriate advice. This process was often not the first priority in the

minds of owners preparing for exit and transfer and so there is role for government and

the private sector to improve the awareness of the need to complete these activities

(Drucker, 2009).

Competition

It was important that in any discussion of competition is to recognized that,

entering into competition and organization is seeking competitive advantage; this

competitive advantage was the key of corporate success. (Walley, 2011, 186).

Competitive markets allow a nations resources to be used to best effect in the

production of goods and services. For example, both theoretical and empirical research in

recent years has emphasized the productive and dynamic efficiency gains from

competition. Competition gives firms continuing incentives to make their production and
distribution more efficient, to adopt better technology, and to innovate. These sources of

productivity improvement lead to growth5 and poverty reduction (Uchida and Cook,

2014 p26).

Competition can be affected greatly by a country’s trade policy and industrial

policy. While policies that restrict import or export trade might have adequate

justification in terms of national priorities, it cannot be assumed without investigation

that this was necessarily the case. Competition was central to the operation of markets,

and fosters innovation, productivity and growth, all of which created wealth and reduced

poverty. However, markets do not always work well, and competitive markets were often

those that matter most for the poor. This paper outlines the direct and indirect, and often

complex, linkages between competition, competition policy, private sector development,

growth and poverty reduction. The existence and importance of these linkages was still

not sufficiently recognized in the developing world (Metcalfe and Ramlogan, 2009).

Market competition has a larger affect for SMEs chance of survival and uncertainty

was high as most of the smaller companies tend to have smaller share of the capital. This

leads SMEs to have one or two major customers and were do not have big influence on

prices. Larger companies with higher market share usually determined prices. (Levy &

Powell2005, 21) Another major factors influencing SME growth in Kosovo was

competition, and especially unfair one. Many countries such as Serbia, Montenegro,

Turkey and Albania produce similar products as Kosovar businesses. Complicated and

costly procedures for starting a firm deter entrepreneurs for investing, or push them into

the informal economy. This complicated procedures leads to less competition, unfair

competition and affects negatively I investments. (World Bank 2010, p 23)

 To any individual firm, competition poses a threat to survival, but in the same time

competition was the main factor of economy growth as it derived firms to improve

productivity and therefore drives growth. (Dinh, Mavridis & Nguyen 2010, 11)

External barriers experienced from entrepreneurs doing business in Kosovo are

hardly observed elsewhere. For example, in the post-war period (2000-2002), the

business environment was heavily characterized by the institutional vacuum followed by

the lack of basic economic laws that would stop corruption and unfair competition.

During recent years, there has been progress in establishing rule of law, but still it

remains as main barrier for SMEs to success in Kosovo. (Hoxha& Capelleras 2010, 352)

Employment

A key aspect to employment was that of the workplace, as it was a space where

work itself takes place. Current literature indicates that this was a gendered and

specialized space which, depending on the biological, cultural and ideological

characteristics of the various employers and employees, was experienced unevenly

(Valentine, 2001).

Employment was the indicator whether the enterprise is growing or not. Among the

best SME models, are those of some European countries like Germany. Most of German

exports were driven by highly innovative SMEs rather than large corporations. SMEs

constitute over 99 per cent of all companies, employing almost 80 per cent of all

employees in Germany. Compared to SMEs in advanced economies, Oman's SME sector

was at a nascent stage, but experts believed that if Oman's renewed focus was

successfully translated into creating a vibrant SME sector then it could become a key

contributor to economic growth (Muskat, 2014).

 Employment was at least one hour of work done in the past week by a person aged

16 or older. That person can be either a paid employee or self-employed. It even includes

unpaid workers in a family-owned business, as long as they work at least 15 hours a week.

The BLS also includes people who didn't work during the week if they were just

temporarily absent, such as a vacation or illness (Kimberly Amadeo, 2016).

Employment benefits other people. Employment was important for businessmen and

other commercial institution as they cannot solely rely on their skills in order to

successfully build a business. They need to employ workers that will help them achieve

their goal (Zou and Witt, 2012)

Employed persons were an asset to society. Employment generates income not only

to the person working but also to the company he or she is associated with. In return, that

company pays taxes to its ruling government thus generating income for the country that

will be used for the benefit of the people such as road works and infrastructures or to

support government related projects such as housing, education and health (Hisrich, 2013).

Flexibility

Flexibility has often been defined as the ability of a system to respond effectively

to changing circumstances (Piore, 2011).

This broad definition, used at least implicitly in some of the literature, does not

contribute to the task of making the concept more operational. The rather narrow

definitions used in most of the literature, where flexibility was usually associated only

with the scope of the product line, do not contribute to operationalizing the concept either

(Jaikumar and Kulatikala, 2010).

 Flexibility was an approach to variation and uncertainty that was both proactive

and reactive. It was proactive in that the institution prepares for volatility. And it was

reactive management initiative in that the institution was prepared to react to information

or an event when it is known or become apparent (Butler and Ewald, 2012).

Flexibility has an ability to change readily in a new business situation. It was the

capability for business process to be elastic enough to face the revolution of business

environment, so a company can remain in the competitive confrontation (Qui and Luo,

2007).

Flexibility, despite its popularity, was not yet an academically mature concept

compared with optimality and robustness, for example. Flexibility was nevertheless

recognized as a critical attribute of a system, a process, or an organization; it is needed in

order to cope with uncertainty and change, and implies an ability to change and adapt to a

range of conditions. An interesting observation has been made that the concept of

flexibility today were the notion of quality was some 20 years ago, ‘vague and difficult to

improve, yet critical to competitiveness. In this paper, we review the concept of

flexibility as discussed in a number of academic disciplines that have grappled with this

concept, and highlight the major themes, challenges, and limitations in each case. We

analyze flexibility in the context of decision theory, real options, manufacturing systems,

and engineering design. We also provided a critical assessment of the use and abuse of

the word flexibility in the technical literature. Finally, we proposed a series of research

questions that can help transform flexibility into a quantifiable engineering attribute and

grow this concept to the level of maturity of optimization and robustness in system

design(Jospeh H. Saleh, 2007).

Globalization

Perhaps the most significant source of change impacting many organizations today

was the increasing globalization of organizations and management. This occurs because

firms to control costs, especially to reduce labor costs. Of course another reason why

firms were becoming more global is the response to competition. (Griffin & Moorhead

2009, 28)

SMEs that are internationally active are generally growing faster than their

domestic equivalents. This gives pressures to SMEs to develop environmental strategies

to remain competitive. Many SMEs lack the resources to meet the global challenge to

internationalize (Hamann, 2013).

The impact of globalization in the country can spell success or failure of Philippine

economic development. At the firm level,enterprises seem to be adjusting very quickly to

the new environment. Some of the bigger players, as in the retail trade are way ahead in

positioning themselves against foreign competitors. Their pro active moves have in fact

slowed the entry of multinational retailers in the Philippines.Globalization plays a big

part in Kosovo’s Economic growth. Most of the products and services are from abroad,

and this of course affects in domestic companies. Domestic companies cannot compete

with large companies because of the lack of resources. (Leano, 2015).

Globalization, the new economy and the increasing geographic mobility of high

productivity employment have all concentrated government attention on competing

successfully in the global, knowledge-based economy. The quality of a country’s labor is

seen as crucial determinant of its global competitiveness. (Mustafa et al 2004, 27)

 Globalization has made economies and businesses become more interdependent

for survival and growth. This situation enhances the role of small and medium enterprises

for job creation and economic growth. As globalization creates new opportunities for

SMEs, it also creates new challenges for them. A rapid advancement in communication

technology would easily be the primary contributor to the accelerated development and

intensification of contemporary globalization. Foreign direct investment (FDI,

international trade, migration of jobs and migration of workers are the key drivers of

globalization. In economic terms, FDI is becoming probably the most important and

possibly the most visible aspect of globalization in many economies(Sydney, 2013).

Initial capital

Initial capital is the top most problems faced by SMEs. Hence, initial capital as

above mentioned is of factors determining business success (Kristiansen, Furuholt &

Wahid, 2003).

According to Sri Adiningsih, 2014, problem Indonesian SMEs faced are financial

problems and non-financial problems. Financial problems are such as access to banking

and formal capital resource, high cost transaction. Non financial problems are limitation

of production technology and quality control, disadvantages in marketing, lack of human

resources quality and lack of understanding about financial and accounting (Adiningsih,

2014).

According to Guffey business plan is essential when you start your own business.

Unless you can count on the bank of your relatives you will need financial backing as

initial capital such as a bank loan or venture capital supplied by investors. A business

plan is critical for securing financial support. (Guffey, 2008, 401).

 Throughout the region, SMEs do not have an easy access to credit and equity

finance. This is because of the weak banking institutions in the region, the absence of

capital markets, and the weak legal framework for credit and collateral. Initial capital in

general are critical issues for growing businesses, forming the primary resource base

from which other factor inputs are acquired. There are various ways the business owners

can finance the growth of their firms but the fundamental decision is whether or not to

accept external equity finance return for part ownership of the business. If owners allow

external equity finance they choose to relinquish part of their control to either a financial

institution or other individuals (World Bank 2012).

Innovation

Management attitude has a crucial role in innovation. In Kosovo the managers

recognized the importance and role of innovation, but as SMEs they did not yet have any

research and development operations. Innovation greatly relies on investments on

research and development. In Kosovo those investments are still small, if existing, so

innovation in Kosovo SMEs is mostly still only an idea and not specifically implemented.

Innovation can of course be seen in the managers multitasking of roles in the company

(Levy and Powell, 2005).

SMEs in Kosovo still have to be dedicated and courageous to tackle the

competition in the globalizing world and especially in the unequal environment that

Kosovo still is in. One has to stand out with a quality, competitive and well marketed

product (Eveliina Soini & Labinot Veseli, 2013).

SME’s innovation and economic development SMEs are considered as the

backbone of the economy. SME sector is well recognized worldwide due to its significant
contribution inc socio-economic development. This sector has contributed significantly in

higher growth of employment, output, promotion of exports,and fostering

entrepreneurship. Many countries have given sufficient emphasis to micro, small, and

medium enterprises, and have identified them as a building block for their economic

development. Market conditions have changed for SMEs after economic reforms;

organizations are in constant pressure to perform well,deliver quality, and keep their

operational cost low. To sustain in today's market and meet customers', it has become

important for organizations to differentiate themselves on the basis of capabilities and

competencies. They need to compete on different dimensions such as design and

development of products, manufacturing, cost, distribution, communication, and

innovative ways of marketing. These challenges call for reorientation of SMEs, so that

the demand for high dynamism, flexibility, and innovativeness can be met (Lokhande,

2011).

Innovation has contribution in a vibrant economy . Innovation is the critical driving

force of economic growth . Innovation required the ability to learn and create novel

knowledge. The ability to learn and create novel knowledge is needed to face the

environment uncertainty and creating value. Creating value is a key to make economic

growth. Innovation also has an important role in entrepreneurship. Innovation is a new

combination of factors of production that are made by entrepreneurs . Innovation is the

heart and the way of thinking of entrepreneurship (Drucker; Lumpkin and Dess; 2009).

Market Share

market share, CFIB offers a unique perspective on the relative dominance of the

financial institutions in the SME segment, namely by the number of businesses. Based on
2015 data, there are clear leaders in the SME market but there are also signs that efforts

to win SMEs have dwindled over the last few decades among certain large banks. Most

notably, CIBC has dropped their market share by half over the last few decades which

translates into lost opportunities to expand other banking and payment services in the

SME market. Although Royal Bank still retains its first place position, it has lost

significant ground over the last few decades. Bank of Montreal has also been on the

decline since 1997 but gained slightly in market sharefrom 2012 to 2015. In contrast,

Scotiabank and TD Canada Trust have crept up to second and third place as market share

leaders over the last few decades (Guffey , 2013).

Sales

Most SMEs also remain positive about their future sales growth over the next three

years. The majority (56%) expect their sales to grow either moderately (between 1% and

10%) or significantly (12% expect to grow between 11% and 20% and 8% expect to grow

more than 20%). Only 18% of firms expect no growth, while 7% forecast a decline in sales.

The survey reports that SMEs were innovative over the two-year span. More than a

third of businesses (38%) introduced at least one type of innovative activity between 2009

and 2011. Product innovation (24%) was the most common type, followed by marketing

innovation (17%), organizational innovation (15%) and process innovation (15%). For

many SMEs, introducing these innovations resulted in increased sales (70%) and increased

market share (61%).

Sex

Gender-based differences in each of these areas have a profound effect on economic

opportunities for men and women, the productivity of men’s and women’s labor, the
performance and potential of their businesses, and the incentives facing men and women as

economic agents (Klasen, 2002). Sex has come to refer to the biological aspects of being

male and female (Hesse-Biber, S. and Carger, G. L., 2010).

Sex of the owner/manager and its influence on growth. Research on sex of

owner/manager tends to focus on the male owner/managers, as the proportion of firms

owned by men exceeds those owned by women (Kentor, 2001; Chell, 2001).

With most studies reporting that failure rates for female owned firms are higher

than those for male. Reasons for this include limited access to finance, stringent collateral

requirements, women’s double duties (Riding and Swift, 2012; Carter and Jones-Evans,

2012).

Forty percent of women and 15 per cent of men had sought business advice from

their bank, but that for both genders it was infrequent and there was a perception that

“banks do not understand small business”(World Bank, 2014).

Barrett found that men were more likely than women to use advice from

customers, investors, lenders, strategic partners, the management team and paid

professionals (e.g. lawyers) – whereas there were no gender differences for suppliers,

professional acquaintances and family and friends. In contrast, she reported that women

actually found investors, suppliers, the management team and business acquaintances

more useful than men did (Barrett, 2010).

Robson et al (2011) found that women had a slightly higher use of accountants and

banks and a significantly greater level of use of Government backed business advice, but

concluded that size (employees) and exporting activity was more influential than sex.
Years of Operation

The statistics indicate the first four to five years are the "survival years." Each year,

one out of 12 businesses in the United States closes its doors, but this rate is one in six in

the first four to five years. A recent study of new businesses in British Columbia found

"there is no abnormally dangerous year among the first five. By the same token, the risk

of going out of business does not lessen in any of the first five years."Of course, not all

businesses that close are failing (Calib, 2013)

In fact, the IRS tells us that 57 percent of business owners with employees and 38

percent of those without employees who went out of business reported they were

successful at the time of closure. Consider, for example, the home-based worker whose

major client offers her a job she cannot refuse (ENT, 2016).

Years of operation is another factor for growth in most businesses today, the most

valuable asset they manage is their people and employee engagement and satisfaction are

strategic imperatives that every leadership team should understand and explore

proactively. Make money and add value to the community it exists to serve (Shawn Parr,

2013).

Synthesis

SMEs play a big role in the creation of jobs and a country’s employment rate. The

most evident public benefit of small business growth was the contribution made by SMEs

to employment. A large number of studies carried out in various countries have

concluded that small business plays major role in job creation (Hamilton, 2007).

SME were usually independent non subsidiary firms which employ certain number

of employees. In the European Union the most frequent upper limit designation an SME
is 250 employees, but some countries can set the limit to 200, while over the sea The

United States consider SMEs to include firms with fewer than 500 employees. SMEs

that are internationally active are generally growing faster than their domestic equivalents.

This gives pressures to SMEs to develop environmental strategies to remain competitive.

Many SMEs lack the resources to meet the global challenge to internationalize

(Hamann, 2013).

SMEs, innovation and economic development SMEs are considered as the

backbone of the economy. SME sector is well recognized worldwide due to its significant

contribution inc socio-economic development. This sector has contributed significantly in

higher growth of employment, output, promotion of exports,and fostering

entrepreneurship. Many countries have given sufficient emphasis to micro, small, and

medium enterprises, and have identified them as a building block for their economic

development. Globalization, the new economy and the increasing geographic mobility of

high productivity employment have all concentrated government attention on competing

successfully in the global, knowledge-based economy. The quality of a country’s labor is

seen as crucial determinant of its global competitiveness. (Mustafa, et al., 2004).

Competitive markets allow a nation’s resources to be used to best effect in the

production of goods and services. For example, both theoretical and empirical research in

recent years has emphasized the productive and dynamic efficiency gains from

competition. Competition gives firms continuing incentives to make their production and

distribution more efficient, to adopt better technology, and to innovate. Competition is

central to the operation of markets, and fosters innovation, productivity and growth, all of

which create wealth and reduce poverty (Metcalfe and Ramlogan, 2009).
 Employment is the most evident public benefit of small business growth and it is

the contribution made by Small and Medium Enterprise.Employment benefits other

people. Employment is important for businessmen and other commercial institution as

they cannot solely rely on their skills in order to successfully build a business. They need

to employ workers that will help them achieve their goal (Zou and Witt, 2012)

Based on the information gathered by the researchers, small and medium

enterprises benefits a lot of people in terms of the social and economic growth, and also

increases employment rates. The competition, employment and flexibility are depending

to the age of the owner or the manager and sex because a younger owner or manager is

more motivated and more inclined to take risks same with the sex, where the work

productivity is based on the gender. According to the review of literature and studies

collected, small and medium enterprises also helps the local development as they

accelerate in the rural areas. Small and medium enterprises are vastly important to the

country’s well-being, both in terms of creating jobs and generating tax revenues.
 Chapter 3

METHODOLOGY

This chapter presents the research design, respondents of the study, data gathering

instrument, data gathering procedure, content validity of the questionnaire, reliability of

the questionnaire, and statistical data analysis.

Research Design

This study will utilize the survey-correlational research design. The

descriptive-correlational research design will be considered an appropriate design for this

study because it aims to find out the direction and extent of relationship between two or

more paired variables or two or more sets of data. This type of design allows estimation

of relationship between study variables. It will help the researcher to find out whether the

relationship between variables is positive or negative as well as to determine how much

variation is caused by one variable in relation with the variation caused by another

variable. Correlational research, on the other hand, investigates the possibility of

relationship between only two variables It involves collecting data to determine whether,

and to what degree, a relationship exists between two or more quantifiable variables

(Fraenkel & Wallen, 2010).

Respondents of the study

The respondents of the study will be the owners and managers of selected small

and medium enterprises along Delgado street in Iloilo City. For choosing the sample, we

will be using the Convenience sampling wherein our samples vary according to the

availability of the owners of small and medium enterprise, keeping in mind the objective

of researching the SME’s.

Data Gathering Instruments

The instrument will be a researcher-made questionnaire for the SME’s

owner-entrepreneurs. The questionnaire will compose of two parts. Part I which include

the personal details of the owner and his/her business specifically age, sex, initial capital

and years of operation. Part II which include the questionnaire proper in terms of

competition, employment, flexibility, globalization, and innovations. A letter of

permission stating the purpose of the study will be sent to the owner or manager of

different enterprises.

The questionnaire proper, focused on the level of the factors influencing the growth

of small and medium enterprises along Delgado street in Iloilo City.

The following will be used to guide the respondents answering the questionnaire.

Numerical Scale Description Interpretation

5 Always Highly influential

4 Frequently Influential

3 Sometimes Moderately Influential

2 Rarely Slightly Influential

1 Never Not Influential

Data Gathering Procedure

The study will be conducted along Delgado street in Iloilo City. The permission to

conduct the study will be requested from the adviser and Dean of the College of

Commerce. A letter of permission stating the purpose of the study will be sent to the

owner or manager of the enterprise. The respondents will be asked to read and answer the
questions themselves. Aside from the questionnaire, a letter for the respondent will be

attached. This form will ask permission from the respondents to gather relevant data

necessary for the study and also giving thanks to their sincere and active participation to

our research study. The consent also guarantees the confidentiality of the information

gathered from the respondents.

The respondents will take their time to answer the questionnaire. After the

respondents have answered the questionnaires, this will be gathered and checked by the

researcher for completeness. The data will be gathered, encoded and tabulated using the

appropriate statistical tool. The mean scores will be interpreted as follows:

Mean Interpretation

4.21- 5.00 Highly Influential

3.41- 4.20 Influential

2.61- 3.40 Moderately Influential

1.81- 2.60 Slightly Influential

1.00- 1.80 Not Influential

Content validity of the questionnaire

The research instrument will be validated by a two researcher-statistician, and one

owner-managers of the enterprise. Their suggestions regarding the instrument will

consider in the final version and in data collection.

Reliability of the questionnaire

After the validation of the questionnaire and found to be valid it would be trial tested

for reliability. The questionnaires will be administered to 30 randomly chosen

respondents at selected small and medium enterprises in other place who are not

respondents of the study.

Cronbach’s alpha will be the most common measure of internal consistency

(“reliability”). It is the most commonly used when you have multiple questions in a

surveys/questionnaire that form a scale and you wish to determine if the scale is reliable.

Each item in the instrument must have an alpha coefficient of at least 0.70 to be

considered reliable (Lund Research, 2013).

Statistical data analysis

The statistical used to study will be the frequency counts, percentages, mean,

standard deviation Mann-Whitney U-Test, Kruskal Wallis and Spearman rho correlation

coefficient.

The mean will be used to describe the level of the factors influencing the growth of

small and medium enterprises when taken as a whole and when grouped according to age,

sex, years of operation and initial capital.

Standard deviation will be used to measure the spread of scores within a set of data

to determine the homogeneity and heterogeneity of groupings.

Frequency counts will be used to determine the average and number of occurrences

of the variables.

Mann-Whitney U test is non parametric test and to be used to determine the

significant differences between two variables.

Kruskal Wallis is non parametric test and to be used to determine the significant

differences between three or more variables.

 Spearman rho rank correlation is non parametric test and to be used to determine the

significant relationships between two variables.

The level of significance specified for inferential is 0.05.

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