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The Role of Small and Medium Enterprises on the Market: Importance and Upcoming Threats

Paper Type: Free Assignment Study Level: University / Undergraduate
Wordcount: 2985 words Published: 26th Feb 2020

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Small and medium enterprises(SMEs) are easy to write off especially given the insignificance a single one by itself would have compared to a large company. A person looking for a job is likely to drop their CV at a large corporation as opposed to a small one just because they think they would benefit more from the large company. Given the undeniably important role these multinational companies play, it is common to overlook the role played by small and medium businesses.

Research Question

  •                  How would the market change if small businesses became extinct?
  •                  What are the threats to SMEs existence?
  •                  How can the risks be reduced?

Research Objective

  • First objective is highlighting the vital role played by SMEs and how much the market would suffer if they ceased to exist.
  • Second objective is to identify the threats to SMEs existence.
  •  Third objective is discussing ways to remedy them.


Conceptual Model

This study was guided by Schumpeter’s (1993) theory of entrepreneurship. The author defines an entrepreneur as a change agent seeking to solve pertinent societal challenges using creative means. Hebert and Link’s (1989) theory further builds this study by indicating that an entrepreneur is a person who is a risk taker and alters the existing products to create new and most convenient ones by building sustainable SMEs. Given that SMEs face several challenges, Schumpeter states that it is important that entrepreneurs break the norms to survive in an environment that is regulated by strict laws and guidelines. As such, the SMEs play an important role in an economy despite facing several challenges. Therefore, understating the challenges, their roles, their survival strategies, and what their exit could mean to an economy is vital in helping new ventures succeed. J


Gay (1992) asserts that for survey design, a sample of at least 20 per cent is justifiable for the study. On this strength, the researcher will take a sample size of 114 SMEs. Consequently, the sample size of 114 finance managers will, therefore, be satisfactory for the study, given cost and time constraints. Table 3.2 shows the sample size. Table 4.1: Determination of Sample Size across Strata
Stratum Population Sample Percentage
Wholesalers & Retailers 89 17 20%
Manufacturing & Agriculture 133 26 20%
Financial Services and Related Services 133 26 20%
Other Services 239 45 20%
Total 574 114 20%
To make the strata on financial services, related services and other services clearer, they were further disaggregated into constituent substrata. Table 4.2: Determination of Sample Size across Stratum
Sub-Strata Population Sample
Other Services
Airline 16 3
Hotels 43 8
Education 10 2
Health 16 3
Commercial 32 6
General Services 16 3
CFC 106 20
Total 239 45
Financial Services and Related Services
Construction 72 14
Financial Services 15 3
NGOs 15 3
Real Estates 31 6
Total 133 26
Source: Research (2011) The rule of 20% as envisaged by Gay (1992) has been upheld in Table 4.1 and Table 4.2.



Regarding the role of the SMEs, the respondents indicated that SMEs have been wholly perceived by governments and advancement specialists as the principal motor of financial development and a primary consideration in advancing private segment improvement and association. The advancement of the SME subsequently speaks to a fundamental component in the development system of most economies and holds specific essentialness. SMEs do not contribute substantially to enhanced expectations for everyday comforts, business age, and neediness lessening. However, they likewise realize considerable household or nearby capital development and accomplish abnormal amounts of profitability and capacity. From an arranging stance, SMEs are progressively perceived as the crucial means for achieving evenhanded and effective mechanical broadening, development, and dispersal. In many nations like Japan, USA, and others, SMEs represent a well-finished portion of the aggregate offer of business, deals, esteem added and henceforth commitment to GDP. A noteworthy hole in most nation mechanical advancement process in the previous years has been the nonattendance of a robust and virile SME sub-division. With more than a considerable number of individuals, tremendous gainful and arable farmland, a rich assortment of mineral stores and other characteristic assets. SMEs have not played the noteworthy and critical part they are relied upon to play in financial development, advancement, and industrialization. It is hard to comprehend out the motivation behind why the SMEs would not prompt the economic improvement and mechanical change as the same has driven different nations to their modern advancements and quality expectations for everyday comforts. The discoveries of this examination point to two principle causative factors concerning why SMEs are performing beneath standard. One is 'interior' and identifies with our states of mind, propensities, and mindset and getting things done while alternate identifies with our condition including our instructive framework, culture, government, dull way to deal with arrangement articulation and poor execution among others. The answer to the issues of SMEs must be acknowledged if both the pioneers and the subjects deliberately cooperate. The legislature needs to lead the pack by stretching out the present changes to the instructive and mechanical segments mainly as respects arrangement detailing and usage, ports changes, transportation area changes, patching up the infrastructural offices, esteem reorientation and a decrease of pay off and defilement to the barest least if not add up to destruction. For the solutions to the challenges the SMEs face, the interviewees reported that given proficient and compelling execution of all these and the political will and significant administration and great followership, the SMEs will surely be a powerful instrument for quick industrialization of the economy. SMEs are to a great extent not appropriately organized, are casual, work in dangerous environments, have brought together or concentrated administration, are fundamentally engaged with exchanging exercises and disrupted because of low-level limit in administration, showcasing and specialized know-how and low-level learning of legitimate and administrative practices, strategies and bookkeeping hone. The SME area is loaded with a considerable number of issues some of which are characteristic for it while others, for example, the absence of an empowering domain as far as a weak or non-existent foundation like terrible streets, water, power, strict regulatory requirements, and access to back are to a great extent outside. However, regarding the regulations, the interviewees explained it is vital to start the registration process ahead of time, adhere to taxations requirements, and work with lawyers. A significant number of the SMEs that connected for subsidizing did not have a very much verbalized strategy for success, not to discuss vision, mission, center, administration profile, budgetary projections and whatever is left of the pre-requirements for setting out on endeavor advancement.


SMEs confront challenges from expanded rivalry, the capacity to adjust to quickly changing business sector request, a mechanical change, and limit imperatives identifying with learning, development, and imagination. For some SMEs, their potential is regularly not wholly acknowledged because of elements identified with their little scale: absence of assets (back, innovation, talented work, showcase access, and market data). Lack of economies of scale and degree; higher exchange costs in respect to huge undertakings; absence of systems that can add to a lack of data, know-how, and experience of local and universal markets; expanded market rivalry and fixation from substantial multinational endeavors caused by globalization and financial mix; a failure to go up against more prominent firms as far as R&D consumption and development (item, process, and association); being liable to "agitating" and flimsiness; and an absence of entrepreneurial enthusiasm, limit, and know-how. The mortality rate among SMEs is high inside their initial five years of presence. The purposes behind the high death rate incorporate the accompanying among others: Many forthcoming business people don't have a clear vision and mission of what they mean to do. A large number of the SMEs are not business particular and thus have no concentration and are overwhelmed efficiently by the breeze. They tend to imitate or duplicate other fruitful SMEs with no arranging of their own. Numerous neglect to design well and waste a lot of assets on handouts and other trivial items because of no engaged and legitimate methodology or enunciated plan of activities. Different oversights by startup SMEs incorporate setting commercials without quality and equivalent merchandise and enterprises to coordinate, advancing themselves rather than the business in essence, advancing the company in the wrong condition, stopping at encountering a slight difficulty or frustration, not inquiring about the market well in front of beginning, not being unique and ceasing showcasing too early. The rate of development of SMEs is hindered because of the accompanying vital reasons: absence of entrepreneurial soul and drive, dread of disappointment of the undertaking, dread of starvation for a couple of months in the wake of stopping a paid activity, powerlessness to create or pay for an attainability study or strategy for success, mentality that "it won't work" or "I won't succeed" and the preferences. Capacity building, especially regarding business knowledge, self-confidence, skills and attitude, acquisition and development of entrepreneurial spirit and right business motivation and ability to set goals, are imperatives for entrepreneurial success. Infrastructure has remained the most significant problem of the manufacturing subsector of SMEs. Power supply poses the most significant challenge as most of them have turned to generating sets for regular power supply at a debilitating cost. Many also have to contend with constructing their road network and providing their water system even at huge prices.


Certain limitations were encountered in the course of this study. Key among these include;

Unavailability of Data:

One of the most significant challenges the researcher faced in this study relates to access to and collection of hard data due to extreme data gaps and paucity. This compelled the researcher to limit the survey to Small and Medium Scale Enterprises thus excluding Cottage and Micro Enterprises whose challenges though comparable, could be fundamentally different from those of SMEs. The Cottage and the Micro Enterprises have been acclaimed to have significantly impacted on the grassroots by way of poverty alleviation and reduction. On an entirely related note, there also appears of late to be a lot of Non-Governmental Organizations, Bilateral and Multilateral Agencies and Organizations, which focus their attention on and channel their support and donations towards the Micro and Cottage Enterprises to contribute towards poverty reduction. Research has also proved that Micro and Cottage Enterprises have a better credit rating than the SMEs. In some places, Micro Credits have less than one percent (1%) average default rate while the same cannot be said of SMEs.

Time and Funds:

Another limitation of this study relates to time, funds and logistics constraints, which limited the intensity of the spread or area of coverage of the study. Even though SMEs are spread throughout the length and breadth, though with negligible concentrations in some States and less urban areas, this study focused mainly on SMEs in major cities and their environs where there is a relatively high concentration of the SMEs. This notwithstanding, the researcher, to ensure fair coverage, applied the 80/20 rule at the national level in the selection of the sample while ensuring that every state and the Federal Capital Territory was represented.

Resistance of Respondents:

The researcher was also limited by the reluctance of some respondents to complete the questionnaires promptly and those who even failed to complete them at all. This thus limited the number of respondents involved in the study despite the researcher’s efforts and approaches to them explaining the potential benefits of the research to them.


The mass literature on SMEs in scattered form abound but published data on categorizing and ranking of problems facing SMEs as well as the contributions of SMEs to the national economic growth and development proved somewhat tricky to come by. It was easier for the researcher to access data relating to the performer of SMEs in other parts of the world. This factor thus limited the depth of discussions in the area of contributions of SMEs to the economic development and growth.


What this exploration has accomplished must be thought to be close to nothing, accordingly requiring further research work. Future examination should connect financing of Small and Medium Enterprises to their Performance to determine how the two relate in regard to each other. There is require likewise to complete the investigation in all regions where there is presence of this organizations nationwide, to attempt and see if the discoveries from one area can really speak to the whole nation. A replication of this examination ought to be done after some an opportunity to see whether there are any progressions that may have occurred because of time contrast and afterward correlations with be made with the present information, so practical suggestions can be drawn.


  • Hébert, R. F., & Link, A. N. (1989). In search of the meaning of entrepreneurship. Small business economics1(1), 39-49.


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