Hospitality entrepreneurs managing

quality of life and business growth

Mike Peters,Andreas Kallmuenzer &Dimitrios Buhalis
Abstract

The hospitality industry is dominated by small- and medium-sized enterprises

(SMEs).They are often led by entrepreneurs who face the challenge of
simultaneously managing business decisions and their own wellbeing. The
competitiveness of tourism destinations often depends on these entrepreneurs
and therefore understanding their motivations and work patterns is critical.
Research on individual wellbeing increasingly builds on the concept of quality
of life (QoL). Hospitality and tourism literature so far predominantly focused on
investigating QoL for tourists and residents, rather than for entrepreneurs’
QoL, even though being key stakeholders in the hospitality industry.
Therefore, this study explores the factors influencing hospitality entrepreneurs’
quality of life (“HE-QoL”) and how these relate to business growth. Results of
a 380 hospitality entrepreneurs’ survey identify six distinct factors of HE-QoL.
Two groups of HE-QoL are identified with significant differences in fitness
level activity, entrepreneurial competencies and business growth. Findings
lead to recommendations to reduce stress to improve HE-QoL, and to develop
entrepreneurial competencies, which help to cope with entrepreneurial
challenges. Tourism destinations and politics can support hospitality
entrepreneurs in these actions by creating conditions that foster social
exchange in regional communities and trust in political and economic stability.
Keywords: quality of life, business growth, wellbeing, entrepreneurship, hospitality

Introduction

Small- and medium-sized enterprises (SMEs) dominate the hospitality industry

globally (Getz & Carlsen, 2005). In contrast to international hotel chains, which
operate where profit margins are maximized, SMEs are deeply rooted to the
local and regional economy as they attract capital from the region and usually
employ family members and local people (Getz & Carlsen, 2000; Peters &
Buhalis, 2013; Peters, Frehse, & Buhalis, 2009). They usually operate
differently to larger entities that primarily aim to grow. Hospitality organizations
are primarily responsible for co-creating tourism experiences with guests,
through the delivery of accommodation, food and drink as well as cultural and
entertainment experiences (Buhalis, 2000; Mistilis, Buhalis, & Gretzel, 2014).
Understanding the prime motivations of hospitality entrepreneurs and their
business objectives is critical for the competitiveness of tourism destinations.
It is the taking advantage of intelligent networks of like-minded entrepreneurs
at the regional network that can maximize destination competitiveness and
sustainability (Neuhofer, Buhalis, & Ladkin, 2015; Xiang, Tussyadiah, &
Buhalis, 2015). Entrepreneurs target to balance their quality of life (QoL) and
the management of their business (Morrison, 2006). In industries dominated
by SMEs such as the hospitality and tourism industry, with a high degree of
owner-managers, understanding their priorities and motivations is of
paramount importance for competitiveness (Getz & Carlsen, 2000; Peters &
Buhalis, 2013; Peters et al., 2009).

In SMEs, business decisions are only partly taken in favour of economic

rationality (Andersson, Carlsen, & Getz, 2002; Legohérel, Callot, Gallopel, &
Peters, 2004). Often, private life considerations can be the motives and also
these are against further business expansion (Peters & Schuckert, 2014). So-
called lifestyle entrepreneurs, as frequently seen in the hospitality tourism
industry, often focus on satisfying their own QoL and balancing this with
moderate business goals (Ahmad, 2015; Ateljevic & Doorne, 2000;
Gomezelj, 2016; Shaw & Williams, 2004; Skokic & Morrison, 2011).

QoL can be interpreted as a multidimensional construct of factors contributing

to QoL, as subjectively perceived by individuals (Felce & Perry, 1995; Neal,
Sirgy, & Uysal, 1999). QoL is a combination of both life conditions or domains
(i.e. Physical, Material, Social and Emotional Wellbeing as well as
Development and Activity according to Felce and Perry (1995), phrased
“leisure experience” in Neal et al. (1999)) and the individual’s satisfaction with
these domains. Spending time with the family, own health concerns and other
personal and social reasons often determine the business activity and are all
potential factors contributing to entrepreneurs’ QoL (Weiermair &
Peters, 2012). However, in prior research it remains unclear which of these
factors constitute QoL of entrepreneurs in the tourism and hospitality industry.
Also, it remains unclear how QoL in tourism and hospitality is related to
business growth, considering that the success of entrepreneurial actions taken
might correlate to entrepreneurs’ QoL (Carree & Verheul, 2012). Previous
tourism research so far predominantly focused on investigating the concept of
QoL for the case of tourists (McCabe & Johnson, 2013; Sirgy, Kruger, Lee, &
Yu, 2011) and/or residents (Perdue, Long, & Kang, 1999). It neglected an
analysis of QoL of entrepreneurs as key stakeholders in the tourism industry
(Marchant & Mottiar, 2011; Peters & Schuckert, 2014; Uysal, Sirgy, Woo, &
Kim, 2016).

This article thus aims at exploring the factors describing QoL for hospitality
entrepreneurs. It explores the effect of QoL on business growth by conducting
a survey of 380 SMEs in the Tyrolean hospitality industry (Austria). Six,
partially adapted dimensions of QoL for the case of the hospitality industry,
namely: Physical Wellbeing, Material Wellbeing, Social Wellbeing, Mental
Wellbeing, Regional Wellbeing and Civilian Wellbeing can be identified. In
addition, findings show that all but two of these factors (Mental
Wellbeing and Regional Wellbeing) have a significant positive influence on the
entrepreneurs’ business growth. Furthermore, to gain a deeper understanding
of hospitality entrepreneurs’ quality of life (“HE-QoL”), the study aims at
investigating characteristics of unlike clusters of entrepreneurs showing
different perceptions of QoL. Results show that the sample can be split in two
groups of QoL, with entrepreneurs showing significant differences in fitness
level activity, entrepreneurial competencies and business growth.

The article aims to make a contribution to entrepreneurship theory, by

exploring the impact of QoL on business growth, particularly in the tourism
and hospitality industry where a large proportion of entrepreneurs are lifestyle
entrepreneurs. It also makes a contribution to tourism and hospitality
literature, as deepening the understanding of key motivations and
considerations of entrepreneurs enables tourism destinations to better
coordinate their resources and tourism experience co-creation efforts.

The remainder of this article is structured as follows: First, a literature review

on QoL is conducted, with an emphasis on its application in the hospitality and
tourism industry. Second, the research design and measures of the empirical
study are explained. Third, results from an exploratory factor analysis and
subsequent regression and cluster analyses are presented. Fourth, findings
are discussed and embedded in relevant literature. Fifth and concluding,
theoretical as well as policy and management implications are drawn.

Theoretical background

Understanding decision-making in SMEs is of critical importance both at the

micro/organisation level, where the operations, management and aspirations
of organizations are concerned as well as on the macro/destination level,
where these often explain how tourism destinations can be developed and
operated. Internal factors (e.g. leadership, goals and education of the
entrepreneur) and external factors (e.g. competition, social or political factors)
affect decision-making of entrepreneurs (Birley & Westhead, 1990). In SMEs,
entrepreneurs often take decisions without the help of a board or other actors
in the organization, relying on their own competences and experience (Man,
Lau, & Chan, 2002; Peters & Buhalis, 2013; Stoner, 1987). Entrepreneurial
competencies are manifold (Rezaei-Zadeh, Hogan, O’Reilly, Cunningham, &
Murphy, 2016) and range from skills (e.g. conceptual and analytical skills)
(Hynes & Richardson, 2007) to personality traits (such as the need for
autonomy) (Schjoedt, 2009), or focus on the ability to cope with certain
functional areas in the business (e.g. product development, marketing)
(Mitchelmore & Rowley, 2010). Understanding the preoccupations and key
objectives of entrepreneurs is paramount in order to be able to help them
achieve their objectives, understand their limitations and appreciate how they
can be motivated to co-create tourism experiences at the destination level.
Quality of life (QoL) in SMEs

Particularly in SMEs, one key element contributing to these business

decisions is the wellbeing of the entrepreneur (Love & Crompton, 1999;
McCabe & Johnson, 2013; Morrison, 2006). Wellbeing and QoL are concepts
related to people’s own attitude towards life (Neal et al., 1999). The wellbeing
perspective is often used in the context of analysing workplace attractiveness,
and its proponents argue that wellbeing, “the presence of positive emotional
states and positive appraisals of the worker and his or her relationships within
the workplace accentuate worker performance and quality of life” (Harter,
Schmidt, & Keyes, 2002). The term “wellbeing” is often used to describe the
components or factors of QoL (see, e.g. WHOQOL Group, 1994).

QoL can be defined as “as an interaction between the circumstances or mode

of a person’s life, their satisfaction with its various facets, and their personal
goals and values” (Perry & Felce, 1995, p. 2). Individual attitudes towards life
are a function of personal assessment of the individual lifestyle and
components of life. Scholars linked satisfaction with the different aspects of
life and found that an individual person is more happy and satisfied with its
own life if he or she is satisfied with different components of life including
health, work, family and work-life balance (Pechlaner, Innerhofer, &
Bachinger, 2010).

In literature, QoL is often described with five factors (Physical

Wellbeing, Material Wellbeing, Social Wellbeing, Emotional Wellbeing as well
as Development and Activity) that contribute to the perception of QoL (Carr,
Thompson, & Kirwan, 1996; Felce & Perry, 1995). Physical
Wellbeing, Material Wellbeing and Social Wellbeing were found to be the most
important for the overall QoL (Pukeliene & Starkauskiene, 2011). The
factor Physical Wellbeing addresses the general health situation and physical
fitness, balancing exercise and recreation. It can objectively be measured with
blood pressure or cholesterol levels (Ivancevich, Matteson, & Preston, 1982).
However, in many studies Physical Wellbeing is measured as a subjective
perception of the overall individual wellbeing (Diener, Diener, & Diener, 1995).
The factor Material Wellbeing refers to income and property. This contributes
to QoL as most entrepreneurs aim for materialistic wealth. There is a strong
debate about the impacts of income change on one’s wellbeing and the
results are controversial (Diener, Suh, Lucas, & Smith, 1999). However, more
recent results show that income in relation to other reference groups shows to
be relevant for wellbeing (Ferrer-i-Carbonell, 2005). Closely related to this
dimension are individuals’ perceptions about political and legal conditions in
their business environment. Particularly in the tourism and hospitality industry,
SME entrepreneurs refer to politically and legally induced barriers of growth
(Pechlaner, Raich, Zehrer, & Peters, 2004). There is a trend however away
from wellbeing determined by economic and political conditions and towards
an understanding of wellbeing determined by “personal lives” (Simpson &
Murr, 2014; Sointu, 2005, p. 261). Social Wellbeing can be defined as “the
appraisal of the quality of one’s relationship to society and community”
(Keyes, 1998, p. 121). It consists of two main aspects: interpersonal
relationships and participation in society. This does not only encompass the
relationships in the entrepreneurial family, but also to relatives and friends.
Participation in society can be referred to as the active contribution to clubs,
events, or similar (Felce & Perry, 1995).

As another component of QoL, Emotional Wellbeing is composed by

emotions, achievement, stress, mental condition, self-esteem, social status
and respect, religion and sexuality. This construct is investigated in various
disciplines, mainly in the health and psychology fields and is often defined as
minimal depressive symptomatology (Radloff, 1977; Ying & Liese, 1991),
hedonic wellbeing or experienced happiness (Kahneman & Deaton, 2010).
The achievement of Emotional Wellbeing can overlap with the
accomplishment of social and materialistic goals. Finally, the
dimension Development and Activity or individual development wellbeing
(Pukeliene & Starkauskiene, 2011) relates to the importance of work in
comparison to leisure and education time as well as work conditions and the
perceived productivity and contribution of individuals (Felce & Perry, 1995).

HE-QoL, business growth and competencies

Entrepreneurs are often motivated by non-pecuniary benefits

(Hamilton, 2000), however, the perception of the success of their
entrepreneurial actions taken, measured as business growth might be strongly
correlated with the perception of the entrepreneur’s own QoL (Carree &
Verheul, 2012).

In hospitality and tourism literature, it is generally accepted that QoL and

business growth are related (Gray, Matear, & Matheson, 2000; Love &
Crompton, 1999; Morrison, 2006; Peters et al., 2009). Particularly in industries
such as tourism and hospitality where business and private life are highly
intertwined, entrepreneurs have to take business expansion decisions under
consideration of their QoL perception (Getz & Carlsen, 2000; Peters &
Buhalis, 2013).

Most extant literature on QoL so far focused on the demand side. It rarely
investigated the supply side and the side of entrepreneurs (Koh, 2006),
despite the fact that entrepreneurial activity is influenced by QoL
considerations and vice versa. These considerations encompass less
economic, but more emotional, individual, social (Neal et al., 1999) and often
family-related issues (Peters & Kallmuenzer, 2018). Entrepreneurs perceive
the need to balance between business growth and QoL (Peters &
Schuckert, 2014).
What is particularly missing from the literature is the factors of HE-QoL, and
how QoL factors and business growth are interconnected. First empirical
insights show that hospitality entrepreneurs consider stress, negative health
consequences, financial pressure and an abundance of regulations and rules
as factors to decide against business expansion (Komppula, 2004; Peters &
Schuckert, 2014; Weiermair & Peters, 2012). Entrepreneurs showed to value
their QoL consisting of personal health, happiness, time for oneself, time for
family and for socializing. Furthermore, physical wellbeing and the
appreciation of the region and its leisure options were found to have a strong
correlation with hospitality entrepreneurs’ perception of QoL (Peters &
Schuckert, 2014).

Another factor identified as helping to take business decisions and to gain

competitive advantages in SMEs are entrepreneurial competencies (Man
et al., 2002) which can be defined as “combined and integrated components
of knowledge, skills, and attitudes.” (Kyndt & Baert, 2015, p. 14).
Entrepreneurial competencies are related to managerial competencies
(Boyatzis, 1982; Pechlaner et al., 2004; Peters, 2001) ranging from
opportunity, relationship and conceptual competencies to organizing, strategic
or commitment competencies (an overview is given by Man et al. (2002)). The
existence and quality of such entrepreneurial competencies influence the
performance and the outcome of entrepreneurship (Davig, 1986;
Ibrahim, 1991). Entrepreneurial competencies were studied in the past and
range from leadership, to personality traits (e.g. self-control or self-
determination) to precise skills required as an entrepreneur (e.g. negotiation
skills) (Robles & Zárraga-Rodríguez, 2015).

In hospitality and tourism, prior studies analysed major areas of

entrepreneurial competencies that were perceived to be most important for
future business growth (Pechlaner et al., 2004; Peters, 2001). In recent
studies, hospitality entrepreneurs rated the following competencies as crucial
for their long-term success: human resource management and development,
accounting and marketing (especially complaint management and quality
management), product development and leadership (Foss & Peters, 2016;
Pechlaner et al., 2004; Peters, 2008).

Although previous research showed that QoL plays a decisive role in taking
business decisions towards future business growth there is less clarity on how
in fact HE-QoL influences business growth. Factors blocking the decision to
grow are often related to negative QoL, which includes stress perception,
financial pressure and/or difficult political conditions. Therefore, in return,
positive QoL perception can influence business growth. This study thus
explores, in a first stage, the factors constituting QoL of hospitality
entrepreneurs. In a second stage, the study tests the relationship of HE-QoL
and business growth. In a third stage, the research explores how the
perception of QoL, entrepreneurial competencies and business growth are
related for different clusters of entrepreneurs.
Research design

To assess the entrepreneurs’ perception of QoL, entrepreneurial

competencies and business growth perceptions in the hospitality industry, in
2015 a survey was conducted at Tyrol, Austria. This Alpine region was chosen
as the context for the study due to its established hospitality and tourism
industry (Strobl & Kronenberg, 2016), represented largely by SMEs
(Doerflinger, Doerflinger, Gavac, & Vogl, 2013). Tyrol is known as a popular
winter tourism destination in Austria, with tourism generating 18% of the
overall GDP of Tyrol (Tirol Werbung, 2015).

The study used the electronic survey generator Unipark as a tool for the online
questionnaire. A survey pre-test with two trained professionals was conducted
to increase the quality of the questionnaire (van Teijlingen, Rennie, &
Hundley, 2001), mainly for checking the correctness of measurement scales.
In addition, the study was piloted with two practitioners, mainly for checking
the clarity of questions and resulted in minor necessary changes. After
correcting, the survey was finalized and reset to begin with the actual research
study. The link to the questionnaire was sent via newsletter from the Tyrolean
Chamber of Commerce to all tourist SMEs that are a member of this group.
This encompasses all members classified as being SMEs (less than 250
employees; European Commission, 2009) in the tourism and leisure category
of the Tyrolean Chamber of Commerce, currently equalling 9,474 members
(WKO, 2013). The survey was made available online and 408 questionnaires
were answered back, of which 28 questionnaires were incomplete, leaving a
total of 380 questionnaires to be analysed.

This sample of 380 persons consists of 141 female and 221 male
entrepreneurs, 18 persons did not indicate. 26.8% of businesses were
founded between 1971 and 1990, 20.0% in the 1990s and 2000, and 24.2%
since 2001. 62.4% are active in the hotel industry, while 36.1% run their
business in gastronomy. Furthermore, 17.6% are in the sports industry and
6.1% are travel agencies. Concerning these shares, it has to be considered
that some of the businesses are operating in more than one industry. Table
1 presents the overall sample description.

Table 1. Description of the sample.

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A questionnaire was developed, based on items of QoL identified in the

literature review (Diener, Emmons, Larsen, & Griffin, 1985; Diener, Napa
Scollon, & Lucas, 2009; Peters & Schuckert, 2014; WHOQOL Group, 1994).
The questionnaire relied on a five-point balanced Likert-scale, ranging from
strong disagreement (= 1) to strong agreement (= 5), and measured given QoL
items. In detail, sources for QoL items can be retrieved from Table 2.
 Table 2. Factors and items for QoL.
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As a common measure from previous literature, business growth was

measured as the respondents’ satisfaction with business growth relative to
competitors in the past three years (Lumpkin & Dess, 2001). Further
descriptive measures (Table 6) and evaluations of entrepreneurial (strategic
and operational) competencies in comparison to competition (Table 6, Likert-
scale, ranging from “very weak” (= 1) to “very strong” (= 5)) were based on
prior empirical research in the field of tourism business growth (Pechlaner
et al., 2004; Peters, 2001, 2008).

To implement data collection for this study, items that were originally in
English language were translated into German for data collection and back
into English for this article, and those originally created in German were
eventually translated into English. Ensuring a meaningful and accurate
translation, two researchers, as well as a professional language editor were
consulted during the translation process (e.g. Salvato & Corbetta, 2013).

Results

Factors of HE-QoL

Conducting an exploratory factor analysis in a first stage, the main factors of

HE-QoL are identified. Table 3 presents the factor loadings and the rotated
varimax solution with six final factors that were then labelled according to the
content of items.

Table 3. Factor analysis of QoL items.

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From the original list of 24 items measuring the QoL as perceived by

hospitality entrepreneurs, 18 items showed satisfying loadings on six
extracted factors. The cut-off level for satisfying factor loadings was >.5, which
is considered sufficient for significance in larger samples (>300) (Hair, 2006).
This exploratory analysis led to the following factors of “HE-QoL” reaching
satisfying levels of factor loadings and Cronbach’s Alpha, which were labelled
according to the content of items forming the factor (for a detailed item list and
factor loadings see Table 3):

1. Social Wellbeing (factor loadings from .572 to .763; α = .779). This

HE-QoL factor was formed by five items that measure the enrichment of
life through social relations, and the respect from others.
2. Physical Wellbeing (factor loadings from .577 to .861; α = .782). This
HE-QoL factor was formed by three items that measure the content with
the own health constitution, and enjoyment of work.

3. Mental Wellbeing (factor loadings from .643 to .753; α = .689). This

HE-QoL factor was formed by four items that measure the desire for
leisure and privacy, as well as the stress in the business and during work.

4. Regional Wellbeing (factor loadings from .772 to .896; α = .732). This

HE-QoL factor was formed by two items that measure the embedment
and activities in the region.

5. Material Wellbeing (factor loadings from .709 to .888; α = .698). This

HE-QoL factor was formed by two items that measure income and
property in relation to others.

6. Civilian Wellbeing (factor loadings from .868 to .886; α = .769). This

HE-QoL factor was formed by two items that measure the satisfaction with
politics and legal regulations.

Effect of HE-QoL factors on business growth

In a second stage, the study analysed the effect of HE-QoL factors on

business growth, measured by the satisfaction with business growth in
comparison to competition (Lumpkin & Dess, 2001). Correlations (see Table
4) show that levels multicollinearity is not a serious concern for the data, as all
values among the constructs are found to be rather low and below the
recommended threshold of .65 (O’brien, 2007; Oliveira, Carvalho, &
Esteves, 2016; Tabachnick & Fidell, 2012). In addition, to test for common
method variance, a Harman’s one-factor test was conducted (Podsakoff &
Organ, 1986). In this single-factor test, all items are subject to an exploratory
factor analysis. Common method variance can be assumed if (1) a single
factor emerges from an unrotated factor solution, or (2) the first factor explains
the majority of the variance in the variables (Podsakoff & Organ, 1986). This
analysis produced 6 factors (explaining 67.12% of the variance), with the first
factor explaining 24.29% of the variance. As no single factor emerged, and as
the first factor did not explain the majority of the variance, common method
variance was not found to be a major issue.

Table 4. Descriptive statistics and correlations.

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To identify the effect of HE-QoL factors on business growth, hierarchical OLS

regressions were conducted, using the firms’ industry categorization as a
control dummy variable (“0” = not active in this industry; “1” = active in this
industry). In the regression analysis, the variables were mean centred to
reduce multicollinearity concerns (Aiken & West, 1991).
In the first model, only the control variables were considered (see Table 5). In
the second model, the direct effects of the six HE-QoL factors on the
dependent variable business growth were incorporated. The first model with
the control variables yields an adjusted R 2 value of .034 (F = 2.490; p < .05), in
which only the influence of the sports industry (ẞ = .129; p = .042) is significant.
The second model for the direct effect of HE-QoL on business growth gives a
final adjusted R 2 value of .305 (F = 10.336; p < .001). Results show that all but
two HE-QoL factors (Mental Wellbeing and Regional Wellbeing) positively
affect business growth as perceived by the entrepreneurs on significant levels
(see Table 5). In detail, values are significant for Social Wellbeing (p = .007),
Physical Wellbeing (p = .000), Material Wellbeing (p = .002) and Civilian
Wellbeing (p = .040).

Table 5. Results of multiple regression analysis.

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HE-QoL and entrepreneurial competencies

In a third stage of analysis, the study identified how QoL, entrepreneurial

competencies and business growth are related for different groups of
entrepreneurs in the sample. To be able to distinguish between respondents’
characteristics, entrepreneurial competencies and perceptions of business
growth, a k-means cluster analysis using QoL dimensions was conducted.
This analysis helped to identify two different groups of entrepreneurs
(see Figure 1): Cluster 1 describes individuals that have a more negative
perception of QoL factors (“disapprovers”), while Cluster 2 was labelled the
“approvers”, a group of hospitality entrepreneurs that, according to the results,
generally evaluated their QoL more positively. When comparing the mean
values of the six QoL factors (see Figure 1), results showed to differ for the
two groups on all six extracted HE-QoL factors. 158 entrepreneurs fell into the
category of HE-QoL Disapprovers, while 222 were labelled as HE-QoL
Approvers.

Figure 1. Clusters of Hospitality Entrepreneurs’ Quality of Life (“HE-QoL”)

Perception. Note: values range from “1 = totally disagree” and “5 = totally
agree”; higher values indicate higher perceptions of items constituting the
factors.

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Comparison of cluster characteristics, entrepreneurial competencies and

business growth perceptions with independent t-test for means (see Table 6)
showed that HE-QoL Approvers are significantly more satisfied with their
business growth than HE-QoL Disapprovers during the last three years. In
terms of gender, HE-QoL Approvers consist of significantly more men than
women. Concerning age, years of experiences in the company, industry and
other industries, no significant differences between the two clusters could be
identified. While working hours do not significantly differ between the two
groups, HE-QoL Approvers take significantly more holidays and work out
more often (fitness level activity).

Table 6. Mean comparison of cluster characteristics.

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Results on entrepreneurial competencies show that HE-QoL

Disapprovers perceive their overall business competence, leadership abilities
and operational competencies significantly weaker than HE-QoL Approvers.
Concerning operational competencies, in more detail, values particularly differ
in the areas of human resource management, marketing, human resource
development, complaint management, quality management and product
development: HE-QoL Approvers show strong confidence in all these
competencies, while HE-QoL Disapprovers perceive major competence gaps
in these areas.

Discussion

Entrepreneurs are theoretically considered to be growth-oriented, innovative,

creative and risk-taking (Lumpkin & Dess, 2001). However, tourism and
hospitality attracts a large proportion of lifestyle entrepreneurs that are
motived by QoL reasons. This article analysed how entrepreneurs in
hospitality SMEs integrate their individual QoL in business growth decisions.
In hospitality and tourism SMEs, business growth decisions are often
influenced by the individual perception and evaluation of life circumstances
(Ateljevic & Doorne, 2000; Peters & Schuckert, 2014). Entrepreneurs are
usually deeply embedded in their home regions and regional societies
(Deephouse & Jaskiewicz, 2013). Thus, business decisions can be expected
to be directly related to the entrepreneurs’ wellbeing and surrounding. In
addition, individual wellbeing can be expected to influence business decisions.
At the macro level, the sustainable development of destinations is dependent
on the ability of entrepreneurs to co-create tourism experiences and enhance
the collective competitiveness of all organizations. Understanding the factors
that affect the QoL and wellbeing of entrepreneurs is therefore paramount.

To develop a more detailed understanding of HE-QoL, an exploratory factor

analysis was conducted in a first step. This analysis showed that the created
construct HE-QoL can be described with the six dimensions Physical
Wellbeing, Material Wellbeing, Social Wellbeing, Mental Wellbeing, Regional
Wellbeing and Civilian Wellbeing. The four factors Social Wellbeing, Physical
Wellbeing, Material Wellbeing and Mental Wellbeing are a combination of
individual and altruistic items: while recognition from others and the society
play an important role (Social Wellbeing), the physical (Physical Wellbeing)
and mental (Mental Wellbeing) condition, as well as Material Wellbeing are
important factors that create QoL for hospitality entrepreneurs. The
embeddedness into the region (Regional Wellbeing), but also the Civilian
Wellbeing are other dimensions supporting the positive perception of
QoL: Regional Wellbeing is key to hospitality firms, which are strongly
embedded in their region with business, private life and family bonds
(Kallmuenzer & Peters, 2017). Especially in rural regions, these network
bonds strongly influence business development and entrepreneurs’ success
and the destination as a whole (Buhalis, 2000; Komppula, 2014; Mistilis
et al., 2014; Strobl & Kronenberg, 2016). Civilian Wellbeing, expressed by the
legal and political situation, shows to be key for business growth of hospitality
entrepreneurs (see also Pechlaner et al., 2004, 2010; Peters, Pechlaner, &
Mayr, 2007).

Results of hierarchical regressions showed in a second step that all HE-QoL

dimensions except for Mental Wellbeing and Regional Wellbeing significantly
contribute to the firms’ business growth. The four dimensions Physical
Wellbeing, Material Wellbeing, Social Wellbeing, and Civilian Wellbeing show
to positively affect business growth. These findings show that satisfaction with
own health, financial endowment, familial embeddedness and sound
political/economic conditions are necessary prerequisites for firm growth. This
confirms what was assumed in prior explorative research (Peters &
Schuckert, 2014; Weiermair & Peters, 2012).

Finally, in a third step a cluster analysis helped to identify two major groups of
entrepreneurs showing different perceptions of QoL and entrepreneurial
competencies: the so-called HE-QoL Approvers showed to be much more
confident when they evaluated strategic and operational areas within their
business (e.g. marketing, human resource development). HE-QoL
Disapprovers evaluated their competencies significantly lower in these areas
(e.g. leadership and product development) and their overall business growth
significantly worse than HE-QoL Approvers. HE-QoL Approvers show more
confidence in their competencies, but also manage to relax (more holidays)
and work on their health (more physical exercise).

Results indicate a particularly relevant relationship between entrepreneurs’

fitness level activity, entrepreneurial competencies and firm growth (see also
Love & Crompton, 1999). Physical fitness, broad business competences and a
positive perception of business growth show to be characteristics of QoL
Approvers. Results also showed that HE-QoL Approvers are significantly more
satisfied with the business growth in the past three years than HE-QoL
Disapprovers. This difference indicates how intertwined entrepreneurs
interpret QoL and business growth are. This observation points toward prior
research on work-life-balance in tourism and hospitality (Reijonen &
Komppula, 2007).
Conclusion

This study identifies the main extracted factors of QoL as perceived by

hospitality entrepreneurs. In addition, it identifies the effect of this HE-QoL on
business growth, as well as characteristics and entrepreneurial competencies
of two major groups of entrepreneurs with a different perception of QoL.

The study also faces a number of limitations. First, the study only assessed
subjective business growth measures as perceived by the entrepreneurs. In
future studies, despite the fact that self-reported data correlates with actual
objective performance (Brush & Vanderwerf, 1992), objective measures of
business growth might be helpful to improve accuracy of business growth
measurement. Second, the study was conducted in Tyrol, Austria and thus
might be influenced by the rural tourism industry structure and cultural
peculiarities of this regional context. Third, the study was distributed as an
online survey and therefore did not address those entrepreneurs in rural
tourism regions who might be reluctant to using online or internet-based tools.

A fruitful avenue for future research on QoL in hospitality and tourism might be
to consider that the industry is dominated by family firms. Decision-making in
these firms is highly affected by family-related interests (Nordqvist,
Habbershon, & Melin, 2008), which add a new component to QoL
considerations, e.g. through goals of passing on the firm to future generations.
In addition, these businesses often interpret business growth differently and
evaluate growth by the socio-emotional wealth they perceive (Berrone, Cruz,
& Gómez-Mejía, 2012; Gómez-Mejía, Haynes, Núñez-Nickel, Jacobson, &
Moyano-Fuentes, 2007).

In addition, it is necessary to further develop and test items to create a

validated HE-QoL scale. This study suggests three new dimensions for HE-
QoL (Mental Wellbeing, Regional Wellbeing and Civilian Wellbeing) in
comparison to existing QoL scales with only two items each. For a validated
scale, at least three items can be recommended. Further exploration in how
far QoL measurement items for residents and tourists can also be used for the
measurement of HE-QoL is needed.

Managerial and policy implications can be derived from the findings

particularly relevant to HE-QoL and its partially positive effect on business
growth: First, hospitality firms need to assure their Mental Wellbeing as a new,
specific component of HE-QoL, which includes low levels of stress that could
also be reduced by an increased fitness activity level. Second, politics and
tourism destinations need to support firm management by creating better
business conditions for hospitality entrepreneurs. Developing networks of
tourist experience co-creation, based on factors influenced by QoL for
entrepreneurs will only strengthen destination sustainability and
competitiveness (Neuhofer et al., 2015; Xiang et al., 2015). This way, tourism
policy can support Regional Wellbeing as second, newly identified HE-QoL
factor, by fostering social exchange and communication in regional
communities. Third, referring to the third newly identified factor of HE-
QoL, Civilian Wellbeing, politics can provide conditions for hospitality firms
that foster trust in political and economic stability. This factor also showed to
positively affect the firms’ business growth, indicating that Civilian
Wellbeing directly relates to economic prosperity.

Finally, HE-QoL Approvers’ optimism relies on entrepreneurial competencies

and associated business growth. Therefore, it is recommended to offer
leadership education to develop entrepreneurial competencies, through
providing tailor-made business school programmes. These suggestions are
also in accordance with prior research that identified a general shortage of
strategic leadership and planning in hospitality and tourism SMEs (Lerner &
Haber, 2001; Morrison & Teixeira, 2004; Zehrer, 2009).
A comparative study of the financial problems faced
by micro, small and medium enterprises in the
manufacturing sector of Fiji and Tonga
By suwastika naidu

Abstract
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Purpose - Globally, there is an increased recognition of the important role played by micro, small
and medium enterprises (MSMEs) in the economic development of a country. Similarly, in the
South Pacific region, MSMEs is the main engine behind the economic growth. In particular,
MSMEs is one of the biggest contributors to GDP, employment and plays a core role in the
supply chain of large businesses. One of the major problems faced by MSMEs in South Pacific
Island countries is a lack of finance to advance business growth. Against this backdrop, the
purpose of this paper will be to examine the financial obstacles faced by MSMEs.
Design/methodology/approach - The main objective of this study is to explore the financial
obstacles faced by MSMEs in the manufacturing sector of Fiji and Tonga. In particular, this
research tries to evaluate the severity of the impact of each of the financial obstacles on the
growth and survival of MSMEs in Fiji and Tonga. Findings - The research involved conducting a
survey of 200 MSMEs in Fiji and Tonga. The study concluded that
financial problems faced by the MSMEs could be divided into three broad categories:
financing problems; operational and administrative problems; and sales and debtors problems.
The 19 financial obstacles tested in this research falls under these broad categories.
Originality/value - This research is original and highly value to a wide range of readers. Scholars,
practitioners, aid donors are widely interested to understand the status of MSMEs in Fiji and
Tonga. Research of this nature has never been conducted in Fiji.

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1 Introduction

Micro, small and medium enterprises (MSMEs) in the manufacturing sector of Fiji are mainly
export oriented and include industries such as textiles, garments, footwear, sugar, food
processing, beverages (including mineral water) and wood-based industries. The manufacturing
sector of Tonga mainly provides its output to the local Tongan economy. The manufacturing
sector has been one of the major contributors to gross domestic product (GDP), employment and
foreign exchange earnings. Particularly, the MSMEs in the manufacturing sector of Fiji and
Tonga have made remarkable contributions to economic growth, employment, innovation,
competition and poverty reduction ([21] Browne and Scott, 1989; [29] Coley, 1993; [37] Fiji
Bureau of Statistics, 2011). Financing the MSMEs is one of the
major problems faced by contemporary owners/managers of MSMEs in the manufacturing sector
of Fiji and Tonga. Problems include: an inability to obtain external financing; inability to obtain
internal financing; insufficient capital, heavy start-up costs; expensive raw materials; high
wholesale price; large losses due to scrap rate, sabotage, breakage and crime; decline in sales
volume; bad debts and write offs; heavy equipment and maintenance costs; high government
tax, VAT and customs duty; heavy advertising and promotional costs; high payroll, rent and
utilities; high transportation and petrol costs; high interest rates on loans; inability to meet
financial obligation; high training and development costs; and high insurance costs and delay in
account receivables payment.

In this context, this paper aims to examine these financial obstacles based on three important
themes such as:

financing problems;

operational and administrative problems; and

sales and debtors problems ([49] Huang and Brown, 1999; [32] Cromie, 2009; [44] Gitman and
McDaniel, 2009).

The paper will also provide some important recommendations for owners/managers of MSMEs
and government policy makers so that the growth and survival of MSMEs in the manufacturing
sector of Fiji could be secured.

2 Background of the MSMEs in the manufacturing sector of Fiji and Tonga

2.1 Overview of MSMEs in the manufacturing sector of Fiji

The Fiji islands belong to the island group of Oceania in the South Pacific and have a total land
area of 18,270 km2 . Notably, the Fijian archipelago constitutes 322 islands of which only 110 are
inhabited. The arable land area of the Fiji islands is 10.95 percent of the total land area ([24]
Central Intelligence Agency, 2009). The GDP at factor cost in 2008 was FJ$4,861.4 million and
in 2009 it was FJ$4,761.1 million. The annual growth rate of GDP at factor cost in 2008 was 4.6
percent, and in 2009 it was negative 2.1 percent. Importantly, the manufacturing sector of Fiji has
made significant contributions to Fiji's economy. The GDP at constant prices of 2005 of the
manufacturing sector at factor cost was FJ$606,697,000 in 2008 and FJ$594,526,000 in 2009. In
2005 the manufacturing sector provided employment to 15,492 males and 10,035 females. Out
of this, 22,852 were wage earners and 2,657 were salary earners ([37] Fiji Bureau of Statistics,
2011). According to the Commonwealth Secretariat's definitions of MSMEs, small island states
tag a limit between one and ten employees (1 > n ≤ 10) as micro enterprises, 11-50 employees
(11 > n ≤ 50) as small enterprises and 51-200 employees (51 > n ≤ 200) as medium-sized
enterprises. Table I [Figure omitted. See Article Image.] shows the number of MSME
establishments in Fiji.

Table I [Figure omitted. See Article Image.] shows that there are 449 (54 percent) micro
enterprises, 266 (32 percent) small enterprises and 116 (14 percent) medium enterprises in the
manufacturing sector of Fiji.

2.2 Overview of the MSMEs in the manufacturing sector of Tonga

Tonga is a archipelago in Oceania that has a total area of 748 km2 (land is 718 km2 and sea is 30
km2 ). The culture of Tonga is very conservative and the Tongans still follow indigenous
governance. In 1845, the archipelagos of "The Friendly North Islands" were united into a
Polynesian Kingdom. Further, in 1875, Tonga became the constitutional and, in 1970, it became
a British Protectorate. Tonga is the only Monarchy in the Pacific Island Countries ([24] Central
Intelligence Agency, 2009). Over the last six years the Tongan economy has been subject to
fluctuations. During 2006-2007 Tonga's economy contracted by 1.2 percent and it expanded by 2
percent during 2007-2008 in real terms and later during 2008-2009 it again contracted by 0.4
percent. Over the last eight years the real growth rate of the Tongan economy has averaged
around 0.9 percent per annum. During the period 2008-2009 the estimated GDP at constant
prices was T$378.3 million ([90] Tonga Department of Statistics, 2010a). The manufacturing
sector of Tonga has played a key role in the development of the Tongan economy in terms of
providing employment, earning foreign exchange earnings and contribution to GDP. Table II
[Figure omitted. See Article Image.] shows the summary of the contribution of the manufacturing
sector to the Tongan economy in 2006.

Table II [Figure omitted. See Article Image.] shows that there are 120 registered manufacturing
companies in Tonga. These companies are mainly involved in manufacturing activities such as
food products and beverages, publishing and printing, chemicals and chemical products, non-
metallic mineral products, fabricated metal products, manufacture of furniture and other
manufacturing industries. The manufacturing industry in Tonga provides employment to 1,267
Tongans, pays T$5,663,000 in wages and salaries and the output per company is T$228,000.
Table II [Figure omitted. See Article Image.] shows the number of MSMEs in the manufacturing
sector of Tonga.
Table III [Figure omitted. See Article Image.] shows that there are 44 (37 percent) micro
enterprises and 76 (63 percent) small enterprises in the manufacturing sector of Tonga.

3 Literature review

Small businesses have been the pillars of economic growth and development both in developed
and developing countries. Notably, in many countries small businesses have surpassed their
large counterparts in terms of innovation, creativity and job creation. Recently, there have been
various debates concerning the importance of small businesses and the various
constraints faced by MSMEs. Apparently, such debates have been polarised by [35] Edmister
(1972), [81] Schworm (1980), [71] Pettit and Singer (1985), [36] Fazzari et al. (1988), [99] Yusuf
(1995), [8] Berger and Udell (1995), [2], [3] Baldacchino (1995, 1999), [75] Rajan and Zingales
(1998), [80] Rue and Ibrahim (1998), [22] Carpenter and Petersen (2002), [60] Lownes-
Jackson et al. (2003), [67] Palliam (2005), [82] Scott (2007), [84] Simens (2007), [97]
Wonglimpiyarat (2007), [98] Wu et al. (2008), [43] Giroux (2009), [33] Datta (2010) and [68]
Pandaram and Amosa (2010). These studies are both quantitative and qualitative in nature. In
this section we will provide a brief overview of selected studies related to our study.

One of the most prominent studies conducted by [60] Lownes-Jackson et al. (2003) emphasised

11 financial obstacles faced by African-American entrepreneurs. These financial variables are,
namely: inability to obtain outside financing; insufficient capital; heavy operating expenses; poor
money management; large losses due to crime; meeting the payroll; inability to obtain trade
credit; insufficient profit; ability to meet financial obligations; and health insurance costs and cost
of workers' compensation. Apparently, the inability of small businesses to obtain internal and
external financing has been continuously emphasised by academics and practitioners in the
extant literature ([71] Pettit and Singer, 1985). Keeping all the other variables such as
creditworthiness constant, Blacks are twice likely to be denied credit. Statistical evidence on
short-term business loans suggest that Blacks are approved loans 62 percent of the time,
Hispanics are approved loans 87 percent of the time followed by 90 percent for Whites and 96
percent for Asians ([63] Marable, 2000; [23] Cavalluzzo, 2002; [48] House-Sorekemun, 2002;
[42] Giloth, 2007). The African-American business owners believe that their capital needs cannot
be entirely met by the banking system ([14] Blanchflower et al. , 1998; [7] Bates, 1993; [28]
Coleman, 2002). According to [9], [10] Berger and Udell (1998, 2002) banking crisis, capital
shortfalls and regulatory difficulties have caused drastic reductions in banks providing credit to
MSMEs in countries such as Japan, Korea the Scandinavian countries, the USA and the others.
Further the banking crisis is followed by periods of recession and reduced economic growth,
hence this contributes to increasing interest rates on loans by the banks to the MSMEs ([74]
Radelet and Sachs, 2001; [47] Hoelscher and Quintyn, 2003).
Evidently, [26] Chow and Fung (2000) conducted a study on liquidity constraints in financing
small business development in the manufacturing sector of Shanghai. The research findings from
this study contribute to the existing debate on small business finance literature, hence
emphasising that external finance is more expensive to small business as compared with internal
finance. Notably, factors such as transaction costs, agency problem and asymmetric information
have created such constraints for small businesses in China ([92] Tsang, 1994; [96] Winn, 1994;
[95] Watson et al. , 1998; [49] Huang and Brown, 1999; [11] Berger et al. , 2001; [19] Bracker et
al. , 2006; [98] Wu et al. , 2008; [33] Datta, 2010). Building onto these studies, [94] Wang (2004)
highlighted that small and medium enterprises are playing a vital role in China's economic reform
and development. However, the small and medium enterprises in China are facing difficulties
such as lagging in the banking system, inadequate financial structure and lack of a guarantee
system. Similar research findings are also obvious in Thailand. Contemporary studies
conducted by [1] Abe (1999), [85] Somboonsuke and Shivakoti (2000) and [65] Ngamkroeckjoti
and Johri (2003) highlighted that the 1997 Economic Crisis in the South East Asian countries
posed a highly turbulent and changing economic environment; hence SMEs in Thailand were
facing difficulties in obtaining internal and external finance. One of the most prominent studies
was conducted by [70] Peterson and Shulman (1987), who provided international evidence that
formal financing to SMEs by banks could be divided into four stages of development; namely,
start-up, survival, growth, and establishment. The main research findings from this study
highlighted that at the start-up stage of business development, 91 percent of SMEs in West
Germany had bank loans, 56 percent in Canada, 21 percent in Japan and 32 percent in The
Netherlands. Notably, at the survival stage of business development 87 percent of SMEs in West
Germany had bank loans, 73 percent in Canada, 61 percent in Japan and 60 percent in The
Netherlands. Further, at the growth stage of business development 84 percent of SMEs in West
Germany had bank loans, 77 percent in Canada, 84 percent in Japan and 71 percent in The
Netherlands. Finally, at the survival stage of business development 86 percent of SMEs in West
Germany had bank loans, 67 percent in Canada, 81 percent in Japan and 67 percent in The
Netherlands.

Apparently the debate amongst academics and practitioners in the contemporary literature
emphasizes that financial constraints faced by SMEs in India, Sri Lanka, Indonesia and Malaysia
are significantly higher than marketing or management constraints ([56] Levy, 1993; [87]
Tambunan, 2008). [5] Bandari and Bajpai's (2005) study concluded that SMEs in India are more
likely to have debt burdens as compared with their large counterparts. This financial situation
arises because SMEs are not able to compete with their large counterparts. [88] Thevaruban
(2009) examined small-scale industries and their financial problems in Sri Lanka. He
underscored that MSMEs of small-scale industries in Sri Lanka find it extremely difficult to get
outside credit because the cash inflow and savings of the MSMEs in the small-scale sector is
significantly low ([40], [41] Ganesan, 1982, 2000; [46] Gunatilaka, 1997; [55] Laxmi and Kumar,
1999). Hence, bank and non-bank financial institutions do not place much emphasis on credit
lending for the development of the MSMEs in the small-scale sector in Sri Lanka. Studies
conducted in Indonesia by [15], [16] Bolnick (1982, 1983), [69] Patten and Rosengard (1991),
[62] McLeod and Bouman (1994) and [83] Sim (1999) underscored that the role of the formal
finance is to complement but not to supplant the informal sector. These studies affirm that
Indonesia's financial policy in the 1970s and 1980s was mainly directed to repress informal
finance, boosting the formal sector and financial repression. Building onto these studies, [50]
Indarti and Langenberg (2004) conducted a survey of 100 SMEs in Indonesia. This study
disclosed that some of the critical success factors of SMEs in Indonesia are marketing,
technology and capital access. Out of these, the most significant factor that determines the
success of small businesses in Indonesia is capital access. Similar research findings are also
evident in Malaysia. According to [25] Chee (1986), many Malaysian SME owners find difficulty in
obtaining loans because of lack of capital. Other studies such as [17] Boocok and Wahab (1999),
[34] Ede et al. (2000) and [79] Rose et al. (2006) highlighted that SME owners in Malaysia face
financial constraints because they do not have specific competency in the area of finance.

In the context of South Pacific Island countries, studies have been conducted by [99] Yusuf
(1995), [3], [4] Baldacchino (1995, 1999) and [68] Pandaram and Amosa (2010) on the
financial problems faced by SMEs. Essentially, [99] Yusuf's (1995) study surveyed 220
entrepreneurs from Melanesian Papua New Guinea (PNG), Vanuatu, Polynesian Western
Samoa, the Micronesian state of Marshall Islands and Fiji. This study concluded that indigenous
and non-indigenous entrepreneurs had different views on the critical success factors of their
businesses. The non-indigenous entrepreneurs viewed access to capital as a much less critical
factor because they have a network of business contacts, good reputation, and significant control
of prime business locations. Indigenous South Pacific entrepreneurs stated that they lack the
capacity to access the lending facilities of the bank and non-bank financial institutions because of
the strict requirements imposed by formal and institutional capital sources. [3], [4] Baldacchino
(1995, 1999) highlighted that small island states such as Fiji, as compared with its counterparts,
lack the investment capital that can be permeated into the development of MSMEs. Building onto
these studies, [68] Pandaram and Amosa (2010) examined opinions from family business
entrepreneurs concerning the impact of family and business factors in the general operations of
their businesses. Particularly, the business factors of great importance to family business
entrepreneurs were corporate taxes, customer pricing demands, political stability and increasing
costs of labour and materials. Notably, the family factors of significant importance to the family
business entrepreneurs were succession planning and the risk of the firm being in-grown ([78]
Rogers, 2003; [72] Pinson and Jinnett, 2006; [86] Strauss, 2008; [39] Fredrick and Kuratko,
2010).
To conclude, there is a large degree of consensus in the studies that financial obstacles are one
of the key exploratory determinants of the growth and survival of small businesses.

4 Research methodology

The main objective of this study is to explore the financial obstacles faced by MSMEs in the
manufacturing sector of Fiji and Tonga. In particular, this research tries to evaluate the severity of
the impact of each of the financial obstacles on the growth and survival of MSMEs in Fiji and
Tonga. According to the [30] Commonwealth Secretariat (2009), the definition of MSMEs is
combination of indicators, namely, employee numbers and financial criteria (revenue, asset base,
capital, etc.). The Commonwealth Secretariat tags a limit between one and ten employees (1
> n ≤ 10) as micro enterprises, 11-50 employees (11 > n ≤ 50) as small enterprises and 51-200
employees (51 > n ≤ 200) as medium-sized enterprises. This definition of MSMEs was used for
tabulating and analysing the size distribution of the sample. After conducting the literature review
and preliminary interviews with owners/managers of MSMEs in Fiji and Tonga, a self-
administered questionnaire was designed and delivered to the owners/managers of MSMEs in
the manufacturing sector of Fiji and Tonga. The 19 financial obstacles that were tested in the
study were derived from literature reviews and preliminary interviews with owners/managers of
MSMEs in Fiji and Tonga. Self-responsibility was taken in the delivery and assortment of the
questionnaire because the response rate seems higher than it is for straightforward mail surveys
([31] Corbetta, 2003; [2] Babbie, 2010; [13] Blaikie, 2010). The owners/managers were asked to
use their experiences in their business to rate the questions on a five-point Likert scale where (1)
signified not important and (5) signified extremely important ([18] Brace, 2008; [54] Kumar,
2008). The questionnaire was developed using the previous questionnaires developed by [59]
Lownes-Jackson (1997), [60] Lownes-Jackson et al. (2003) and [77] Reynolds (1998) for their
studies. The questionnaires used for these studies were further modified to reflect the South
Pacific context. The questionnaire was pre-tested with 40 owners/managers of MSMEs in the
manufacturing sector of Fiji and Tonga. The owners/managers comments were gathered and the
questions were revised accordingly. The revised version of the questionnaire was delivered to
370 owners/managers of MSMEs in the manufacturing sector of Fiji and Tonga.

Evidently, out of 370 questionnaires distributed in Fiji and Tonga, 200 (54.1 percent)
owners/managers returned usable questionnaires. Table IV [Figure omitted. See Article Image.]
shows the demographic characteristics of the owners/managers of MSMEs in Fiji and Tonga.
The demographic indicators considered were gender, ethnicity, age, working experience, years
of entrepreneur experience and education level. Out of the 200 manufacturing enterprises
studied, 86 (43 percent) were micro businesses, 94 (47 percent) were small businesses and 20
(10 percent) were medium enterprises. There were 181 (90.5 percent) males and 19 (9.5
percent) females. Of the 200 respondents to the ethnicity item, 21 (10.5 percent) were Ethnic
Fijians, 51 (25.5 percent) were Indo Fijians, 23 (11.5 percent) were Chinese, 11 (5.5 percent)
were Part Europeans and 94 (47 percent) were Tongans. The distribution of the age item is as
follows: 72 (36 percent) were between 20 and 30 years of age, 102 (51 percent) were between
31 and 40 years and 26 (13 percent) were more than 40 years old. A vast majority of the
owners/managers working experience concentrated between six and ten years (88
owners/managers; 44 percent) followed by one to five years (58 owners/managers; 29 percent),
more than ten years (29 owners/managers; 14.5 percent) and no working experience (25
owners/managers; 12.5 percent). With 200 total respondents, the distribution of the highest
education level is as follows: 87 (43.5 percent) had primary school education, 72 (36 percent)
had high school education, 34 (17 percent) had vocational diploma, 7 (3.5 percent) had graduate
degree.

5 Analysis and discussion

The 200 owners/managers of the manufacturing sector of Fiji and Tonga emphasised many
financial problems that they were facing in the contemporary dynamic business environment.
Some of the common financial problems faced by MSMEs are, namely: inability to obtain
external financing; inability to obtain internal financing; insufficient capital, start-up costs;
expensive raw materials; high wholesale price; large losses due to scrap rate, sabotage,
breakage and crime; decline in sales volume; bad debts and write offs; heavy equipment and
maintenance costs; government tax, VAT and customs duty; payroll, rent and utilities;
transportation and petrol costs; high interest rates on loans; ability to meet financial obligation;
and insurance costs and delay in account receivables payment. These financial problems can be
categorised into various themes such as:

financing problems;

operational and administrative problems; and

sales and debtors problems ([49] Huang and Brown, 1999; [32] Cromie, 2009; [44] Gitman and
McDaniel, 2009).

The financial problems faced by MSMEs are discussed under these three important categories.

Table VI [Figure omitted. See Article Image.] shows the mean values and the t -values of the
financial obstacles faced by owners/managers of MSMEs in Fiji and Tonga.

5.1 Financing problems

The literature review revealed that one of the most

significant problems faced by owners/managers of small businesses is financing problems.
Essentially, this study is not an exception to this. Table V [Figure omitted. See Article Image.]
shows that financing problems, namely, inability to obtain external (FJ =4.58, t =19.30, p <0.01;
TG=4.89, t =60.10, p <0.01) and internal financing (FJ=4.55, t =19.19, p <0.01;
TG=4.83, t =48.47, p <0.01), insufficient working capital (FJ=4.1, t =11, p <0.05;
TG=4.25, t =28.72, p <0.01), high start-up costs (FJ=4.84, t =49.95, p <0.01;
TG=4.89, t =60.10, p <0.01); high interest rates on loans (FJ=4.68, t =35.83, p <0.01;
TG=4.25, t =28.72, p <0.01) and inability to meet financial obligation (FJ=2.92, t =-2.93, p >0.05;
TG=4.77, t =41.85, p <0.01) had high mean values and significant p- values. The mean
and p- values of financial obstacles such as inability to obtain external and internal financing,
insufficient working capital, high start-up costs and inability to meet financial obligation are
greater for Tonga as compared with Fiji because the Tongan economy is largely subsistence-
oriented and small, hence the owners/managers in the manufacturing sector in Tonga face
more problems in securing loans. During the start-up stage of a MSME, the owners/managers
will have to depend on both formal and informal channels of financing ([58] Longenecker et al. ,
2006; [12] Bianchi and Bivona, 2000). MSMEs are faced with heavy start-up costs because they
need to secure enough finance for purchase of assets and meeting daily operational expenses
([61] Lumme et al. , 1998; [57] Levy et al. , 1999). The need for finance by the MSME fluctuates
due to the MSME's stage of maturity in the pecuniary life cycle ([76] Read, 1998; [66]
Organisation for Economic Cooperation and Development, 1999). Owners/managers of MSMEs
will distinctively rely on internal and external sources of funds to finance their businesses ([6]
Baron and Shane, 2008; [64] Mises, 2002). MSMEs in the manufacturing sector of Fiji and Tonga
find that debt financing is necessary. Particularly, internal sources of finance for the
owners/managers of MSMEs include personal savings and loans from family and friends. When
the internal financing is insufficient then the owners/managers of MSMEs will resort to external
sources of funds. The external sources of financing for owners/managers in the manufacturing
sector of Fiji and Tonga include banks, business suppliers and asset-based lenders. Table VI
[Figure omitted. See Article Image.] shows interest rates on MSME loans charged by banks in Fiji
and Tonga.

Table VI [Figure omitted. See Article Image.] shows that ANZ in Fiji charges 10.95 percent, Fiji
Development Bank charges 6.5 to 9.6 percent, Westpac Banking Corporation in Fiji charges 9.99
percent, Baroda in Fiji charges 11 percent, ANZ in Tonga charges 10.95 percent, Westpac
Banking Corporation in Tonga charges 9.99 percent and Tonga Development Bank charges 6.0
to 9.4 percent. These interest rate charges of the banks in Fiji and Tonga are very high for the
owners/managers of MSMEs.

5.2 Operational and administrative problems

Government financial regulation on MSMEs has significantly disadvantaged the MSMEs as

compared with their large counterparts. Specifically, the financial regulations imposed on MSMEs
such as government tax, VAT and customs duty has various implications on the success and
survival of small business. More importantly, government has provided enormous tax breaks to
large employers who operate in tax-free jurisdictions-tax-free zones. Owners/managers of
MSMEs in the manufacturing sector in Fiji and Tonga usually have the political clout to enjoy
such tax-free advantages however, the idea of MSMEs tax-free zones have not yet been
implemented in Fiji and Tonga. For instance, in Fiji the owners/managers of the manufacturing
sector are charged 31 percent income tax on their profits and 12.5 percent VAT, and, particularly
in 2011, the VAT charges will increase to 15 percent ([53] Interview with Taxation Officer, 2010).
In Tonga, the owners/managers of the manufacturing sector are charged 25 percent income tax
on their profits and 15 percent VAT ([89] Tonga Customs, 2011). This is clearly evident from the
high mean and p- values for government income tax, VAT and customs duty from
owners/managers from the manufacturing sector of Fiji (FJ=4.78, t =42.75, p <0.01;
TG=4.73, t =38.77, p <0.01).

MSMEs in the manufacturing sector of Fiji and Tonga are handicapped with low echelon of
process automation and elevated cost of importing better technology. The imported technologies
and the software solutions are not customised and further the cost of customisation is exorbitant.
More importantly, the maintenance is expensive and time consuming. In particular, the
manufacturing sector in Fiji and Tonga is also faced with large losses due to scrap rate,
sabotage, breakage and crime. Simultaneously, MSMEs have to develop an insurance plan for
their business. MSMEs in the manufacturing sector of Fiji and Tonga often insure for property
and liability insurance. Of greater significance is the fact that having a property and liability
insurance cover for MSMEs helps in securing good customers. This is clearly evident from low
mean and p- values for heavy equipment and maintenance costs (FJ=2.9, t =-1.00, p >0.05;
TG=2.75, t =-5.74, p >0.05), large losses due to scrap rate, sabotage, breakage and crime
(FJ=1.90, t =-36.48, p >0.05; TG=1.91, t =-37.90, p >0.05) and insurance costs (FJ=2.87, t =-
3.846, p >0.05; TG=2.83, t =-4.50, p >0.05), heavy advertising and promotional costs
(FJ=1.45, t =-31, p >0.05; TG=1.44, t =-31.27, p >0.05) and training and development costs
(FJ=2.45, t =-11, p >0.05; TG=1.81, t =-30.18, p >0.05). Apparently, expensive raw materials
(FJ=4.80, t =44.77, p <0.01; TG=4.85, t =51.56, p <0.01), high wholesale price
(FJ=4.77, t =41.85, p <0.01; TG=4.82, t =47.14, p <0.01), payroll, rent and utilities
(FJ=4.1, t =11, p <0.05; TG=4.25, t =28.72, p <0.01), and transportation and petrol costs
(FJ=4.55, t =31, p <0.01; TG=4.7, t =36.91, p <0.01) had high mean and p- values. This simply
indicates that MSMEs' primary goal is to survive in the contracting economic environment of Fiji
and Tonga.

5.3 Sales and debtors problems

Managing sales and debtors in small businesses is one of the most
crucial problems faced by MSMEs in the manufacturing sector of Fiji and Tonga. According to
one of the owners of a MSME in Tonga:

[...] the sales over the past few years have been going down and the debtors are also delaying in
making payments on time. Even though we send several reminders for them to pay they are still
asking us to give them some more time. I do not know how my business is going to survive if the
debtors are going to delay their payments [...]

Statistical evidence suggests that, in 2009, Fiji's economy contracted by an estimated 2.5
percent ([45] Government of the Fiji Islands, 2010) and Tonga's economy contracted by 0.4
percent ([90] Tonga Department of Statistics, 2010a). Apparently, this contraction in the economy
has resulted in declining sales volume (FJ=4.55, t =31, p <0.01; TG=4.25, t =28.72, p <0.01),
delays in accounts receivable payments (FJ=4.83, t =48.47, p <0.01; TG=4.85, t =51.55, p <0.01)
and high bad debts and write offs (FJ=4.1, t =11, p <0.05; TG=4.79, t =43.72, p <0.01).

6 Recommendations

6.1 Minimum government regulation and tax

Notably, one of the serious complaints from owners/managers of MSME is the impact of
regulation on MSMEs and particularly the disproportionate impact of government regulations on
MSMEs in Fiji and Tonga. The disproportionate impact of the government regulation and taxation
system hinders the growth and survival of MSMEs in Fiji and Tonga and might otherwise drive
out some of these MSMEs who make a substantial contribution to the economy ([73] Price, 1999;
[72] Pinson and Jinnett, 2006). Essentially, from the public policy perspective, both the direct cost
of regulation and the cost of compliance of the regulation should be reduced. For instance, in Fiji
on January 1, 2006 an income tax incentive scheme was introduced by the government to
support the establishment of MSMEs in sectors such as agriculture, fishing projects, supportive
projects to tourism industry, tourism projects and social services. This tax incentive scheme
required that the income derived from agriculture, fisheries or tourism activities of the relevant
SMEs that have gross sales not exceeding FJ$300,000 per annum be exempt from tax. This tax
incentive scheme should be expanded to include other industries such as apparel, jewellery,
bakery and logging ([38] Fiji Islands Revenue and Customs Authority, 2010).

6.2 Better access to finance

Commercial markets work extremely well in providing financial services to the MSMEs. Apart
from the obvious banking services, more specialist services such as term loans, factoring,
invoice financing, leasing and venture capital are offered by firms which rigorously compete with
one another to maximise their profits. Also part of this competition, MSMEs find it difficult to
compete with their large counterparts and access the services on offer. This constrains their
growth and survival. It is essential for policy makers to recognise that there need to be a
cohesive and precise public policy targeted at MSMEs that will ensure that they are well
protected in this dynamic and competitive environment. This recognises the need for an
extensive range of diverse and well-targeted programmes such as ([20] Bragg and Burton, 2006;
[27] Cohen, 2006):

- loan guarantee programmes;

- regulating the interest rate charged on MSME loans by the commercial markets;

- establishment of a well-established venture capital market;

- establishment of markets for private placements and initial public offerings of varying sizes;

- government-sponsored programs for delivering credit and equity funds of small business units;

- creating good awareness of the financial programs available to small businesses; and

- ensuring that MSMEs keep proper financial records.

6.3 Proper cash and credit management practices

MSME owners/managers need to realise that the real success of a business is based on its
ability to keep close control over cash flows, avoiding holding excessive stocks and collecting
debts on time. Many MSMEs in Fiji have failed because the owners/managers focused more on
technical matters and forgot about cash flow. MSMEs still believe that delivering a quality service
ensures timely payment however, owners and managers of MSMEs in Fiji and Tonga need to
recognise that they need to do something positive to ensure timely payment from debtors.
Owners/managers of MSMEs have to ensure that they send timely invoices to their customers.
Overdue credit accounts avert further sales to the slow paying customer. This overdue account
ties up seller's working capital and can also lead to losses from bad debts. There are four key
items that the MSMEs need to tightly manage ([93] Tuller, 1997; [78] Rogers, 2003):

annual profit growth percentage, to equal or exceed sales growth percentage;

cash flow effectiveness to minimise external debt;

efficient use of assets that are as slim as possible to achieve sales; and

interest avoidance since the cost is a drain on profits.

7 Conclusion

This study analysed the importance of 19 financial obstacles facing owners/managers of

MSMEs. Financial obstacles of great concern to owners/managers of MSMEs are as follows:
inability to obtain external financing; inability to obtain internal financing; insufficient capital; start-
up costs; expensive raw materials; high wholesale price; large losses due to scrap rate,
sabotage, breakage and crime; decline in sales volume; bad debts and write offs; heavy
equipment and maintenance costs; government tax, VAT and customs duty; payroll, rent and
utilities; transportation and petrol costs; high interest rates on loans; ability to meet financial
obligation; and insurance costs and delay in account receivables payment. Financial obstacles
that are of less significance to the owners/managers are heavy advertising and promotional
costs; and training and development costs. These financial problems have been categorised into
various themes such as:

- financing problems;

- operational and administrative problems; and

- sales and debtors problems and have been discussed accordingly.

It is envisaged that this research will provide an explicit picture to both the academic and policy
community with regard to the financial obstacles faced by owners/managers of MSMEs in Fiji
and Tonga. It should assist the policy makers in designing and implementing specific and well-
targeted policies for the overall benefit of MSMEs in the South Pacific region. Importantly, this
research will also help the aid agencies to make informed choices about the financial sector
development in the South Pacific region.
Financing Constraints Faced by Small and Medium
Tourist Businesses in India
Sandhu, Navjot; Hussain, Javed.European Conference on Innovation and Entrepreneurship;
Reading : 618-625. Reading: Academic Conferences International Limited. (Sep 2015)

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This paper reports the preliminary results of an empirical investigation into access to finance for
small and medium-sized enterprises (SME) in general and related to tourism specifically in the
India. This exploratory study examines data gathered through in-depth, face to face interviews,
using semi-structured questionnaire amongst 100 matched businesses related to tourism in
various parts of India. The propensity to employ internal and external sources of finance was
monitored at the start-up, after two years and over the next five years of the business activity.
The survey requested quantitative and qualitative information on sources of finance, both
preferred and actually used by owner/managers, during three stages in their firm's business
cycle: at start up, after two years and over the next five years. This paper reports that family and
informal lenders were very important for the support of SMEs in India in general. In terms of initial
start-up funding, a large proportion of respondents relied exclusively on financial support from
their immediate family and informal lenders.

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Abstract: This paper reports the preliminary results of an empirical investigation into access to
finance for Small and Medium-sized Enterprises (SMEs) in general and related
to tourism specifically in the India. Methodology: This exploratory study examines data gathered
through in-depth, face to face interviews, using semi-structured questionnaire amongst 100
matched businesses related to tourism in various parts of India. The propensity to employ
internal and external sources of finance was monitored at the start -up, after two years and over
the next five years of the business activity. The survey requested quantitative and qualitative
information on sources of finance, both preferred and actually used by owner/managers, during
three stages in their firm's business cycle: at start up, after two years and over the next five
years. Findings: This paper reports that family and informal lenders were very important for the
support of SMEs in India in general. In terms of initial (start-up) funding, a large proportion of
respondents relied exclusively on financial support from their immediate family and informal
lenders. After two years in business, respondents exhibited a higher reliance on own savings and
to a lesser extent on financial support of bank and other financial institutions. In contrast, at the
end of five years of uninterrupted economic activity, the need of institutional borrowing increased
considerably. Whilst the financial support from informal lenders, personal finance and family
declined over the years. We also found that owners/ managers showed a preference for more
user friendly financing options, which operated on the element of trust and allow them to remain
in full control of their businesses. However with better networking ties generally SMEs
owner/managers can access adequate external resources through informal channels. Research
Limitations/implications: The research sample used in this study is small and selective. It is not
meant to represent a statistically significant selection of Indian SMEs from tourism sectors. The
main limitation concerns the extent to which these findings can be generalised to other contexts,
outside the specific location within which it was undertaken. Originality/ Significance: The
financing preferences of owner/managers in the sample have been influenced by their perception
of the relative strength and weaknesses of domestic finance infrastructures. The results of this
research study is indicative of SME owner/managers' financing needs, attitudes and perceptions.
The research shows the importance of user-friendly financing options for SMEs owner/managers.
Nevertheless this paper fulfils an identified need for studying how SMEs in emerging economies
make the financing decisions necessary to expand and grow. Social implication: Economies
which provide sufficient financing support to SMEs generally enjoy a higher standard of living
than the societies which don't. Thus the policymakers should be aware of how financing
preferences and decisions made by SME owner/managers impact on the development of SMEs
when developing mechanism to support them.

Keywords: finance, entrepreneurs, financing preferences, personal finance, SMEs, India, tourism

1. Introduction

In today's globalised world, tourism related services are inevitable. Tourism is an essential

activity as it has direct effects on social, cultural, educational and economic sectors of the society
at large. The contribution of tourism industry in world trade is 30 percent and it contributes 2.9
percent towards the world gross domestic product and employment
generated by tourism industry was 221.57 million worldwide, which was 3.4 percent of the total
employment and by 2024 will account for 126,257,000 jobs, an increase of 2.0 percent over the
next ten years (United Nations World Tourism Organisation UNWTO, 2005; World Travel
and Tourism Council, 2014). Tourism can contribute to the fight against poverty in developing
countries, and more specifically in the least developed countries. However, this potential is
closely linked to the accessibility of financing sources for small and medium tourism enterprises
(UNWTO, 2005). The contribution of SMEs as an essential tool for employment creation,
innovation, poverty alleviation, wealth creation and fostering competitiveness worldwide has
been well recognised in the academic literature (Ramaswamy, 2014; Beck et al., 2011; Kalhoro
et al., 2011; European Union, 2009; Storey, 1994). It has been acknowledged in literature that
while small and medium sized enterprises (SMEs) are an important parts of the tourism industry,
they are underreprese nted in the academic literature (Getz and Nilsson, 2004). Of the small
business research that has been conducted, a sizeable portion has focused on industries other
than tourism (Jaafar, et al., 2011). The tourism-specific research on SMEs has predominately
been conducted in Western Europe, Australia and New Zealand and has frequently focused on a
single segment of the industry, often the small accommodation sector. Despite the familiarity of
this sector in the western world, developing countries governments have not
given tourism development a high priority in national budgets, and some of the major
international funding agencies have provided little support. High interest rates, and the
conspicuous presence of foreign ownership and management, have not always helped in the
promotion of the industry. Although small firms in tourism have featured on the agendas of
policy-makers for several decades, academic interest over the same period has fluctuated. Many
studies have looked at the financial constraints faced by small and medium enterprises in the
developed and developing countries. In contrast, studies on entrepreneurship and tourism are
limited. Little research of this nature has been done in the Indian context. This study was
conducted in India and investigates the financial constraints faced/ encountered by small and
medium tourism enterprises. Therefore, this study focused on small tourism business owners/
managers and examined three main aspects: their motivations for starting/purchasing the
business and how they financed their business at the different stages of the business cycle and
the experiences they had while running the business. The research also set out to examine the
demography of Indian tourism SME owners and how they defined small business. These traits
have been recognised as significant attributes that contribute to the success of the entrepreneur.
This paper traces progress in this field by reviewing inter-, multi- and disciplinary studies that
contribute to current understanding of small firms in tourism and ho w this understanding
articulates with wider debates within tourism studies. In so doing, it challenges some
conventional wisdom and provides an agenda for future research.

2. Financing of SMEs in India

Finance is needed right from the beginning to promote or establish the business, acquire fixed
assets, etc. (Sharma and Gupta, 2002). Hence adequate flow of institutional finance is essential
for the development of small and medium enterprises (Dhar, 2001). Many authors (e.g., Getz et
al., 2004; King, Solomon and Fernald, 2001; Morrison and Teixeira, 2004b) have acknowledged
that financing can be a large hurdle in the way of owner - operators realising their dream of
opening a tourism business. While the belief that tourism businesses require little capital in some
instances is true, it is not always the case. Morrison and Teixeira (2004b) found that the only
apparent barrier to tourism business creation was financing. The capacity to implement an
appropriate tourism infrastructure and supportive environment for small firms is even more
restricted because access to marketing, training, finance and technology is limited. Financial
capital is relevant to entrepreneurship because limited access to capital is often blamed for
preventing numerous potential entrepreneurs from pursuing their innovative ideas and causing
high rate of failure in many start-up attempts. (Bruno and Tyebjee, 1985). Hence finance has
been as major obstacles to SME development and innovation (Carlisle, S. et al., 2013). Although
SMEs are being considered as the priority sector within the Indian economy, they continue to
face problems relating to finance. There is no doubt that bank finance is an important source of
finance for SMEs worldwide. Banks have a traditional way of lending to SMEs against collateral,
therefore, due to the lack of collateral SMEs end up being underfinanced (Das, 2008; Suresh and
Shashidhar, 2007). However, the government of India has set up various schemes such as the
Credit Linked Capital Subsidy Scheme, MSME (Micro, small and medium enterprise) Cluster
Development Scheme and Reimbursement Credit Scheme to help the SMEs procure adequate
and timely funds (Suresh and Mohideen, 2012). Moreover, the government encouraged the
banks to lend Rs. 0.50 million without collateral under the Credit Guarantee Scheme, though this
is not sufficient to fund SMEs development needs. Despite concerted efforts made by RBI
(Reserve Bank of India) not to insist upon collateral against a loan for small enterprises, still the
absence of performance based incentive system for proactive bankers constricts easy flow of
loan finance to small firms (Das, 2008; Mohan, 2003). In addition, due to information asymmetry
and lack of collateral, banks consider small enterprises as a risky client because fairly significant
proportions of loans given to small enterprises in the past have compounded the problem of non
- performing assets (NPAs). Therefore, banks prefer lending to larger enterprises over the small.
Consequently, the flow of credit towards the small scale enterprises decreased from 16 per cent
in 1990-91 to 9 per cent in 2004-05; on the contrary, relatively larger units got the advantage of
access to credit (Das, 2008). Henceforth, in 2005 the government increased the flow of credit to
small and medium enterprises by introducing a Policy Package for Stepping up Credit to Small
and Medium Enterprises. Subsequently, with constant monitoring and efforts made by the
Government, the credit flow from Public Sector Banks to the small and medium enterprises has
registered a growth of 47.4 per cent (2007-08), 26.6 per cent (2008-09) and 45.4 per cent (2009-
10) respectively (GOI, 2011). Notwithstanding decades of small industry policy, even during the
reforms period, there has been a definite decline in the access to credit by small enterprises.
Regardless of rigorous efforts made by the governments, still Indian Small industries face delays
in getting credit sanctioned from banks and claiming incentives from other government agencies.
The literature suggests that small businesses tend to operate with higher levels of debt than
larger firms and exhibit heavy reliance on short term finance (Holmes and Kent, 1991).
Subsequently SMEs have a higher failure rate than their large counterparts. Researchers
(Gautam et al., 2011; Ghatak, 2008; Morris et al., 2001) suggested that there are strong
structural underpinnings to the inadequate flow of credit which has created a specific bias against
small loan portfolios. However, financing preferences of Indian SMEs are not consistent with
Myers' (1984) pecking order theory as the SMEs have limited access to external debt (bank
finance), hence most SMEs could not move up the pecking order of financing sources as the
theory envisages (Newman et al., 2011; Ayyagari et al., 2008). Researchers argue that financial
theories of capital structure might not be applicable to firms in emerging economies because of
institutional and cultural differences such as weak legal and financial systems (Sarria-Allende
and Zaidi, 2006). Nonetheless these theories could not describe SMEs financing preferences
and decisions in emerging economies because of the different sociological and psychological
paradigm and various other types of obstacles faced by SMEs owner/managers (Newman et al.,
2011).The studies examined above investigated the role of SMEs in the development of
economies nationally as well as internationally. The conclusion reached by Hussain and Matlay
(2007), also applicable to Indian SMEs is that access to finance limits their growth. The above-
mentioned studies provide an insight into the nature of the obstacles faced by SMEs at large, but
there is a lack of in-depth studies with policy recommendations to propose effective solutions in
order to overcome the financing constraints faced by Indian small and medium tourist firms in
general and Punjab specifically. Financial institutions can play a vital role for the growth and
development of tourism industry. Proper finance is must for the upliftment of
state tourism industry in all domains, because finance is most important ingredient for industrial
development. Lack of adequate and timely allocation of fund is one of the main causes of slow
growth of tourism industry in Punjab. Therefore, in this paper we focus upon a relatively under
researched area or segment of the small business population by evaluating three main questions
from Indian Punjab's SMEs perspective: What is the motivation behind starting tourist firms?
Does the importance of collateral decline with the age of business? Do changes in financing
preferences by owner/managers increase the availability of finance for SMEs?

2.1 Methodology

Based on a thorough review of survey-based papers in financing of SMEs and growth literature
(for example Hussain and Matlay, 2007; Hussain et al., 2006), we developed our survey
questionnaire with special attention to obtain quantitative as well as qualitative information on the
actual and preferred sources of finance accessed by the participants and perceived or actual
barriers experienced by SMEs owner/managers during various stages of the business cycle in
Indian Punjab. The final version of the survey included 25 questions; five -point Likert scale was
also used to document SMEs perceptions regarding the banks. The original questionnaire was
piloted on a small sub-sample of firms adjusted to reflect the feedback received from these
respondents. This main study was conducted on SME owner/ managers living in Punjab one of
the main state of India. A total of 220 questionnaires were administered to selected SMEs and
122 valid responses were returned, giving a response rate of 55 percent. The respondents who
answered the questionnaires were believed to be most appropriate persons to be interviewed.
Interviews were also carried out with SMEs owner/managers who were willing to cooperate for
the in-depth interviews, lasting 30-50 minutes. However, this was a purposive selection; efforts
were made to ensure representation of a variety of SMEs from tourism sector operating hotels,
planning or arranging trips, booking domestic and international flights, etc. The respondents were
selected using a snowball-sampling technique which involved using authors' networks, local
knowledge and also asking the first respondents who have been chosen to suggest other
respondents who they believe could be of interest. Moreover the information was collected from
various other sources such as Internet, pamphlets and observations by researcher during the
conduct of the survey. These techniques made it possible to access small and
medium tourism enterprises in Indian Punjab. The survey did not need to be translated into
Punjabi or Hindi for the participants since almost all the SME owner/managers can read and
write English. Moreover, one of the researchers was also available there for translation. All the
individuals who were approached were ensured that their names will not be disclosed and
confidentiality will be strictly maintained.

3. Findings

3.1 Profile of SME owners (entrepreneurs) and their business (SMEs)

Age profile of entrepreneurial firms as indicates that out of the 122 organizations (firms) covered
under the study, 30 were less than two years of age, 68 were less than five years and 16 were
less than seven years of age. These businesses are not very old except some hotels. Majority
started business during final crisis some lost their jobs. Therefore, it shows that most of these
SMEs were launched in the last decade. This confirms that with the entry of the private sector,
especially small and medium enterprises, the industrial sector is picking up in Indian Punjab. It
has been found during the survey that 50 firms' were launched by those people who moved from
farming to business activities due to less productivity into the agriculture sector. 30 SME
owner/managers reported that they sold off their land to open up new business and moved to the
urban areas while 20 owner/ managers although they were still into farming but have diversified
their economic activities by engaging in non- agricultural activities. This provides agriculture with
the status of supplementary occupations. In our survey, argue to earn more money to uplift the
living standard or improve upon their current financial positions, generate profit, difficult to find
alternative paid employment as the most important push factor amongst the surveyed firms to
start up their own business. This sector is mainly dominated by Males but very less
owned by female although there were significant number of female employees, working as
receptions or customer care executive. As one of the respondents mentioned that there are very
less females own this business, tourism industry is mainly for the male. There are female
involved in this sector but at the ownership level their involvement is indirect. In our sample out of
these 122 SMEs, 20 businesses were owned by female entrepreneurs and these were small
ventures, launched between last 2-5 years, which were basically ticket booking agencies held in
joint partnership with their family members. Academically, 65 per cent SME owners were
graduates, 17 per cent were postgraduates and the remaining 17 per cent have acquired
technical diplomas from professional technical schools. It illustrate that education was not an
issue for the entrepreneurs in Indian Punjab. A significant amount of the smes owner/manage do
not have specialisation related to tourism. While need for entrepreneurship related training has
emerged as an important issue. In our sample only 12% had specialisation in hotel, tourism or
hospitality management. The respondents feel that as long as you have interest into the business
you are fine. One does not need to have specialised education . In terms of work experience
significant 75 percent don't have related work experience when they started the business, while
others had working experience in management, administration, marketing, etc. Most
entrepreneurs especially those with farming background insisted on the need for business
related training especially financial management skills. Majority of the surveyed SME owners
reported that due to lack of knowledge about financial matters, they heavily rely on accountants
and lawyers who charge huge amount of money. In almost all the firms, more than one family
member is involved in the business. While only 30 per cent have also hired professional
managers to look after their business. This indicates that businesses require multiple skills and
competencies, which a single person may not possess. Most of these firms are self ownerships
and family-run businesses except 3 are partnership firms.

It should be noted that SMEs in India are defined on the basis of investment. Hence the SMEs in
the selected sample have been defined according to definition given by Indian SSI (Small Scale
Industry). All the owner/managers included in this study belonged to the SME sector of Indian
Punjab. In total 50 owner/managers in Indian Punjab operated micro-businesses; amongst them
10 employed between 1-9 employees and 40 employed 10-49 employees. 52 were small
businesses amongst them 22 employed between 10-49 employees and remaining 20 have 50-
249 employees. Medium size were represented by 20 businesses amongst them 10 businesses
employed 50-249 employees and the remaining 10 employ more than 250 employees. Initially,
the SME owner/manager they tended to recruit their workforce from their close associate network
but as the business grew, employee diversity according to their skills improved accordingly. The
analysis of the demographic characteristics of Indian tourism SME owners/managers confirmed
that they possess similar motivations, measurements of success and experiences as their
national and international counterparts.

4. Financing preferences of SME owner/ managers

In Figure 1 & 2, the financing preferences and the sources of finance actually used over the last
five years of their business activity by the Indian Punjab SME owner/managers in the sample
were analysed.

Figure 1, shows interesting and significant longitudinal changes in the financing preferences of
SMEs over a five year period. It appears that owners personal savings, family and friends and
informal lenders are very important sources of finance for SMEs. It emerges that SMEs rely
considerable upon informal lenders. After three years, bank finance in the sample exceeded
owners' family and friends and between 3-4 years it has overtaken owners' personal savings. It
appears that as the business mature, SME owner/ managers gain financial awareness and
develop trading track records as well as relationships with the banks. A closer examination of the
sources of finance used by SME owner/ managers indicates that over the years reliance on the
borrowing from family and friends has decreased, while reliance on informal sources has
increased to 45 per cent. These findings corroborate with some of the earlier findings (Hussain
and Matlay, 2007; Ward, 1986) and establish that the significance of financial support from the
owners' family and friends tends to decline as the firms matur e. Interestingly, despite of increase
in bank borrowing (25 per cent) in year five, relatively significant amount of SMEs still rely on
informal lenders for funding. The findings suggest that SMEs in Indian Punjab are highly
embedded in family and private borrowing especially on informal lenders. These informal lenders
were not recorded anywhere hence were not easily identifiable and they operate on the unique
element of trust. In case of loss of trust they adopt illegal means to extract money back from the
Borrowers.

It is quite evident from the above-mentioned data (Figure 1) that most of the SMEs in the sample
have undergone sufficient development to alter their continuation finance mix as well as the
relevant financing preferences of the owner/manager in the research. By comparing the Figure 1
and 2, it appears that the financing preferences of owner/managers in Indian Punjab changed
according to the development needs of their SMEs. Interestingly, the foregoing analysis suggest
that SMEs in the growth stage rely more on bank finance, in contrast to the evidence from the
developed countries such as UK SMEs rely more on trade credit (Matlay and Hussain, 2007).
Moreover the SME owner/managers they did not mention to use trade credit or a preferred
source due to some social or cultural factors.

As shown in Figure 2, bank finance and personal sources of finance appear to be the most
preferred and significant source of finance used by SMEs and equity finance as the least
preferred. The foregoing analysis put forward that SMEs in Indian Punjab tend to be family-run
businesses hence discline toward equity financing where partners / investors participate in
profits, ownership and control of their business regardless of the consideration of enlargement of
financial resource base and sharing of business risk. Most of the respondents mentioned that
they prefer bank finance and raise their concern that most of them did not approach bank at start
up stage with the fear of rejection.

The findings proposed (Table I) that 76 per cent SMEs approached bank and their application
was rejected irrespective of the age of the business and the remaining 24 per cent did not
approach due to the fear of rejection. It has been found (II) that the fear of rejection rate was very
high in case of small, medium and large enterprises except micro enterprises. It was enormous in
the start-up stage and low at the growth stage. It appeared that SMEs at the advance (growth)
stage approached bank; unfortunately, they do get rejected due to the lack of collateral. Whilst on
further exploration in interview the respondents opined that a single micro enterprise might not
need access to formal credit markets, but once entrepreneurs expand their business size, the
need for access to formal credit market becomes essential.

Therefore, the survey group of SMEs finds bank finance to be a significant constraint. In the
interviews the 75 per cent of the respondents suggested that growth potential is highest among
the micro and small enterprises. When asked further 52 per cent SMEs mentioned that they
would like to achieve 20-50 per cent growth in the next 2 year time, while 41 per cent intend to
attain 50-100 per cent growth rate in the impending 5 year period. The descriptive data also
prove what was highlighted by previous researches such as Storey (1994) and Davidsson
(1984), that not all entrepreneurs are willing to pursue growth. In our sample, significant (52 per
cent) amount of SME owner/mangers have expressed their intention to growth.

However the lack of access to bank finance limits SMEs' access to credit and their growth
becomes strongly tied to fluctuations in retained earnings, which are highly correlated with
macroeconomic fluctuations. With constant investment opportunities, it is precisely in times of
declining internal finance that SMEs cannot obtain finance on the margin for capital spending
projects. Furthermore, as SMEs face asymmetric information problems in the credit markets,
they are likely to need to pay a premium to obtain credit outside equity. The reluctance of lending
institutions to lend to SMEs can be explained as the small amount of loans that SMEs normally
apply for, create high per unit loan costs for banks, making it uneconomical for them to lend to
SMEs. SMEs suffer from poor track record and weak financial accounting systems. Therefore,
this underpins the banks demand for adequate collateral.

Interestingly, results emerged from this study suggest that financing mix helped SMEs owner/
managers to sustain their SMEs. 75 per cent of the respondents mentioned that such
preferences enabled owner/ managers to sustain their businesses and use cost effective
technology up to some extent, while preventing long-term planning and restricting the provision
of training, securing expansion of the business. However, the analysis indicates that changes in
the financing preferences of SMEs owner/managers, increases the access to alternative sources
of finance, resultantly have a significant positive impact on the growth of the firms.

5. Conclusion

Due to the significant increase in the number of tourists visiting country and going out of country
every year provides good business opportunities for the tourist firms. The potential
of tourism sector in generating income for many supporting sectors should be viewed as a strong
economic contribution to the country. On the basis of a sample of 122 SMEs, this research
helped to understand that there are significant positive relationships between access to finance
and SMEs development. It reveals that the changing financing preferences of the SMEs
owner/managers over the period of time have a positive influence on SMEs growth and
development. This research supports that the owner/managers tended to organise their finance
structure to obtain optimal capital debt and equity ratio, but preferred those financing options that
facilitated maintaining control of their business. The findings revealed a significant finance gap
for SMEs in Indian Punjab. However due to the lack of access to formal finance the majority of
the businesses rely on informal lenders, which are not easily identifiable (unrecorded and
unregulated bodies) and operate on the element of trust. However to stimulate the growth of
industry in Indian Punjab the credit markets need to be corrected. Given the problem associated
with the cost of finance and collateral requirements, it is important that the policy makers should
consider identifying and developing appropriate instruments to alleviate the credit constraints on
micro, small and medium enterprises and integrate these firms into the formal market. In
conclusion, the success of these firms is highly dependent on the role played by financial
institutions, government and entrepreneurs. Therefore, government should provide assistance to
these firms and work closely with them. It is suggested that government should provide advice
and courses that can include training for these owner managers and their staff. This will help
them to improve their business activities; adequate funds, intensive promotion and excellent
support services can have significant influence on the competitive advantage of small and
medium tourist firms.