The effect of external factors on industry performance: the case of Lalibela City micro and small enterprises, Ethiopia – Journal of Innovation and Entrepreneurship

External factors and their influence on the performance of MSEs

There are a number of financial challenges that face small enterprises. They encompass the high fee of credit, excessive bank prices, and fees. Lack of access to credit/finance is almost universally indicated as a key problem for MSEs. Credit constraints function in variety of methods in Ethiopia where undeveloped capital accumulation and saving (Nabintu, N. Factors affecting the performance of small and micro enterprises, Unpublished). According to Akinruwa et al. (2013), finance and performance in MSEs are significantly related with 0.000 at 5% significant level. This emphasizes that finance has a significant effect on the business overall performance. Most MSEs failed in most developing international locations because of their incapability to gain get admission to credit score facilities.

On the other hand, meagerness of the physical infrastructure is a precept cause of low ranges of funding and unsatisfactory overall performance of micro and small enterprises (Kebede & Simesh, 2015). World Bank group enterprise survey (WBG, 2011) has identified poor infrastructure as a necessary issue that constrains commercial enterprise overall performance in Ethiopia. The infrastructure problem comprises of bad nation of roads, inaccessibility to land, workspace, electrical energy, and utility. Lack of allocation of suitable land to MSEs in most city and rural areas is a fundamental obstacle to growth and development in the industry.

Factors such as legal and bureaucratic restrictions, unfavorable tax system, complicated rules and regulations political stability, strategic development objectives, the government accomplished institutional promoting and regulatory policy, the government’s aid and the business of an institution’s regulating legislation, and other political-legal environment will influence industry performance directly or indirectly (Davidsson, 1989).

Abera’s (2012) study revealed that marketing factor is consisted of seven items. From these factors, inadequacy of market, difficulty in searching new market, lack of demand forecasting, lack of market information, and absence of relationship with an organization/association that conduct marketing research are critical factors that affect the performance of MSEs engaged in all sectors. In contrast, UNDP (2004), cited in Mengstie (2016), presented market access as a seven-element factor comprising market research, market information, trade fairs, product exhibitions, advertising, packaging, marketing trips and meetings, and subcontracting and outsourcing. Federal Public Procurement Administration Agency has set a rule that enforces public institutions to source positive component of their annual procurement from MSEs. That is, MSEs are given precedence in authorities’ procurement.

The other crucial factor for MSEs’ growth is working space. In response, although the government has massively built working spaces for MSEs in major cities and towns, working space remains a critical challenge. Amwele (2013) entitled empirical investigation into the elements affecting the overall performance of SMEs in the retail quarter in Windhoek, Namibia, revealing that rent or lease a place for their commercial enterprise in Windhoek has prevented their performance. He discovered that it was once pricey to hire a working vicinity for business use in their present-day locations; therefore, most MSEs are unable to grow financially as the massive element of the income goes in the rental expenses. Access to land for business use in Windhoek used to be one additionally that hinders business performance.

The trade fair factor including trade show, trade exhibition, or expo is an exhibition organized so that companies in a specific industry can showcase and demonstrate their latest products and services, meet with industry partners and customers, study activities of rivals, and examine recent market trends and opportunities. In contrast to consumer fairs, only some trade fairs are open to the public, while others can only be attended by company representatives (members of the trade, e.g. professionals) and members of the press; therefore, trade shows are classified as either “public” or “trade only”. There are presently many trade shows held every year, and several online directories have been established to help organizers, attendees, and marketers identify appropriate events (Morgan, 2014).

Overall performance is the act of performing or of doing something successfully; the use of knowledge as unique from in basic terms possessing it. However, performance seems to be conceptualized, operationalized, and measured in one-of-a-kind ways as a result making cross-comparison difficult. Business organizations should measure its overall performance with the use of set of financial and non-financial symptoms which provide statistics on degree of accomplishing their objective and result. Organizational overall performance entails the use of sources wisely to keep away from wastage. Given through the interaction between groups and environment, it follows that overall performance relates to how an employer reacts and is aware of the effect on positive surroundings change Global Entrepreneurship Monitor (GEM, 2004). Kamunge et al. (2014) used special performance warning signs like extend in sales, enterprise expansion, client retention, and increase in stock, waste reduction, and value discount in their study of elements affecting the performance of micro and small enterprise, while Mashimba and Kühl (2014) analyzed enterprise performance in phrases of business enterprise income and employer capital investment in machinery as a measure of performance. Moreover, Abera (2012) used profitability as a measure of performance in his evaluation of factors affecting the performance of micro and small companies in Arada and Lideta sub-cities of Addis Ababa. Based on assessment of related literature, performance of MSEs can be measured in terms of financial and non-financial symptoms, that is, increasing profit, growing sales/product or services, and capital developing for this study.

Empirical reviews

Vast number of studies performed on the overall performance of MSEs with a number of factors that determine enterprise surroundings of micro and small enterprises. Therefore, some of empirical research mentioned comply with:

Abdissa and Fitwi’s (2016) study recognized that the exterior and internal factors affected overall performance of MSEs and their existence could improve the everyday operation of micro and small firms’ performance. The study indicates variables such as political, legal, financial, marketing, working premises, infrastructural, probability seeking, persistence, commitment to the work, demand for affectivity and quality, goal setting, hazard taking, data seeking, and self-confidence are positively affecting the performance of MSEs (profit) in the study area. Similarly, for capital, variables such as political, legal, financial, marketing, working premises, technological, probability seeking, persistence, commitment to the work, demand for effectivity and quality, risk taking, statistics seeking, and self-confidence positively affected the overall performance of MSEs (capital) and significantly affect the performance of MSEs. In addition, for range of employees, variables such as political, financial, marketing, working premises, chance seeking, persistence, commitment to the work, demand for efficiency and quality, data seeking, and intention setting have positive impact on the performance of MSEs and substantially have an effect on overall performance of MSEs in phrases of quantity of employees. Hence improving these variables increases the overall performance of MSEs (profit, capital, and variety of employees).

Kebede and Simesh’s (2015) studied the influence of internal and external enterprise environmental elements on the overall performance MSEs in East Gojam Zone, Ethiopia. Results from the study exhibit that infrastructure and monetary environment, technological surroundings, and factors associated with entrepreneurial commitment have a clear substantial relationship with performances of MSEs. Furthermore, based on the signal of the slope coefficients researchers located that infrastructure and finance had wonderful impacts on the overall performance of MSEs, while the rest has poor roles.

According to Fetene’s (2017) study, results have shown that the eight hypothesized factors financial, management, marketing, entrepreneurial, technology, politico-legal, infrastructural, and working premises factors have been discovered substantially affecting the business performance of SMEs working in the study area and it was found that the monetary elements have been the most influencing predictor variable for SMEs’ overall performance followed through infrastructure and politico-legal factors. Working premises were at the fourth role in phrases of its electricity in influencing commercial enterprise overall performance followed through administration and advertising and marketing factor.

Abera (2012) finds out the eight most important challenges which appear to affect overall performance of MSEs which include inadequate finance, lack of working premises, advertising and marketing problems, inadequate infrastructures, negative management practices, and technological, entrepreneurial, and politico-legal problems which include bureaucratic bottlenecks system. The findings similarly point out that there exists linear and superb massive ranging from tremendous to strong relationship which was located between independent variables and dependent variable

Conceptual framework

According to (Nabintu N. Factors affecting the performance of small and micro enterprises, Unpublished), conceptual framework is a diagrammatic presentation of the relationship between dependent and independent variables (Fig. 1). In this study, the dependent variable is performance of SMEs while independent variables are financial factors, marketing factors, infrastructure factors, legal factors, and trade fair factors.