Factors Impacting MSE Performance in Asella Town, Ethiopia

FACTORS AFFECTING MICRO AND SMALL ENTERPRISES IN ASELLA
TOWN ADMINISTRATION OROMIA REGIONAL NATIONAL STATE,

ETHIOPIA
A THESIS SUBMITED TO PARADISE VALLEY COLLEGE, DEPERTMENT

OF BUSINESS ADMINISTRATION IN THE PARTIAL FULLFILMENT OF
THE REQUIREMENT FOR THE MASTER DEGREE IN BUSINESS
ADMINSTRATION
BY
GEMECHU ABBE
ADVISOR: BOGALE ALEMU (PhD)
ADAMA, ETHIOPIA
AUGUST, 2020
Declaration
I, Gemechu Abbe, hereby declare that the thesis entitled “Factor Affecting performance of micro
and small business enterprises' performance in Asella Town” submitted by me for the award of
MBA program in Business Administration, is an original work carried out by me and it has not
been submitted previously in part or full to this or to any other University for the award of any
Degree or Diploma or Prize.
Researcher Name Date Signature

Gemechu Abbe___________________ ________________
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Certificate
I hear certify that I have read this thesis entitled “factors affecting performance of micro and
small business enterprises' performance in Asella Town prepared under my direction and
recommend that it is accepted as fulfilling the thesis requirement.
Main Advisor Name Date Signature

Bogale Alemu (PhD) --------------------- -----------------------------------
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APPROVED BY BOARD OF EXAMINERS
Advisor
_________________________Signature & Date ………………………
Department Head
_________________________Signature & Date……………………….
External Examiner
__________________________Signature & Date………………………
Internal Examiner
___________________________Signature & Date…………………….
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Acknowledgements
In the name of Allah, the most gracious, and the most merciful above all, praise is due to Allah,
the lord of the world, who is worthily to be praised that he made it possible for this thesis to be
completed. My special thanks go to be my advisor Bogale Alemu (PhD) for his genuine,
concerted and invaluable advice for completion of this research. My special thanks also extended
to my Wife Mekida Chala, and Biological family for ideal and material support. Finally my heart
tank was go to my friends and classmate who genuinely cooperated with me through making
available the required data.
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List of Tables
Table 3.1 Sample size determination................................................................................................................18
Table 4.1:- Demographic Characteristics of Respondent.................................................................................21
Table 4.2:- Descriptive statistics on Government policy and regulation factor (means and
standard deviations)..........................................................................................................................................23
Table 4.3:- Descriptive statistics on business information service (means and standard
deviations).........................................................................................................................................................24
Table 4.4:- Descriptive statistics on management experience (means and standard deviations)......................25
Table 4.5:- Descriptive statistics on Financial control mechanism (means and standard.................................27
Table 4.6. Descriptive statistics on market strategy (means and standard deviations).....................................27
Table 4.7:- Descriptive statics on current performance of MSE based on business practice...........................28
Table 4.8: - Comparison of Factors affecting on the performance of SMSEs..................................................29
Table 10 Rules of Thumb Pearson Correlation Coefficient..............................................................................30
List of figures
Figure 2.1 Frame work of the research that shows the relation between the independent variables with
dependent variable.........................................................................................................................................................14
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Abstract
This study was designed to assess factors affecting success of micro and small business
enterprise performance in Asella Town. The involved on 5 sector of MSE (manufacturing,
construction, urban agriculture, trade and service) business category, Employing a stratified
random sampling, 124 respondents were selected using Taro Yemane (1967) sample size
determination formula. Data were analyzed using measures of central tendency and tests of
correlation with SPSS version 22.00.Results show that there is significant relationship between
government regulation, business information service, management experience, financial control
mechanism, marketing strategy and MSE business performance. Based on the findings it was
recommended that government and micro finances institutions should improve access to finance
through offering a better lending terms and conditions and government to establish a centrally
managed marketing sites that will equally give access to market, business information service
and also training program that enhance management skill in order to improve performance of
MSEs in Asella Town.
Key words: Enterprise, factors, micro enterprise, small enterprise
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Acronyms and Abbreviation
BDS………………………Business Development Service
CSA……………………….Central Statistics Agency
EU………………………...European Union
FeMSEDA………………..Federal Micro and Small Enterprises Development Agency
GTP…………………... …Growth and Transformation Plan
IADB……………………...Inter-America Development Bank
ILO………………………... International Labor Organization
IMF……………………..…International Monetary Fund
LMIC………………………. Low and Middle Income Country
MoFED..........................…...Ministry of Finance and Economic Development
MSE…………………..……Micro and Small Business Enterprise
MSME…………………..…Micro Small and Medium Enterprises
OECD ……………………Organization for Economic Cooperation and Development
PC-GNI …………………..Per Capital -Gross National Income
UNDP……………………..United Nations Development Program
UNCTD…………………...United Nations Conference on Trade and Development
UNIDO ……………………United Nations Industrial Development Organization
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Table of Contents
List of figures--------------------------------------------------------------------------------------------------------------------- v
Abstract---------------------------------------------------------------------------------------------------------------------------- vi
Acronyms------------------------------------------------------------------------------------------------------------------------- vii
CHAPTER ONE---------------------------------------------------------------------------------------------------------------- 10
1. INTRODUCTION------------------------------------------------------------------------------------------------------- 10
1.1. Background of the Study---------------------------------------------------------------------------------------- 10
1.2. Statement of the problem---------------------------------------------------------------------------------------- 12
1.3. Research Questions----------------------------------------------------------------------------------------------- 13
1.4. Objectives of the Study------------------------------------------------------------------------------------------ 13
1.4.1. General objective of the study---------------------------------------------------------------------------13
1.4.2. Specific objectives of the study--------------------------------------------------------------------------13
1.5. Significance of the study----------------------------------------------------------------------------------------- 13
1.6. Research Hypothesis---------------------------------------------------------------------------------------------- 14
1.7. Scope of the Study----------------------------------------------------------------------------------------------- 14
1.8. Organization of the Study--------------------------------------------------------------------------------------- 14
2. REVIEWS OF RELATED LITERATURE------------------------------------------------------------------------15
2.1. Definition of Micro and Small Enterprises------------------------------------------------------------------15
2.2. Survival Vs Growth-Oriented Enterprises-------------------------------------------------------------------16
2.3. Micro and small Enterprises Development strategy in Ethiopia----------------------------------------17
2.4. Factors affecting Micro and small Enterprises--------------------------------------------------------------18
2.4.1. Inadequate finance------------------------------------------------------------------------------------------ 18
2.4.2. Marketing factors------------------------------------------------------------------------------------------- 19
2.4.3. Problem of skilled manpower----------------------------------------------------------------------------19
2.4.4. In adequate infrastructure--------------------------------------------------------------------------------- 19
2.4.5. Policy and regulatory factors-----------------------------------------------------------------------------20
2.4.6. Working premise and Factors----------------------------------------------------------------------------20
2.5. Empirical Studies on Micro and Small Enterprises in Ethiopia-----------------------------------------20
2.6. Conceptual Framework of the study-----------------------------------------------------------------------21
CHAPTER THREE------------------------------------------------------------------------------------------------------------ 23
3. METHODOLOGY OF STUDY----------------------------------------------------------------------------------------- 23
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3.1. Introduction------------------------------------------------------------------------------------------------------------ 23
3.2. Study Area------------------------------------------------------------------------------------------------------------- 23
3.3. The Research Approach------------------------------------------------------------------------------------------ 25
3.4. Research Design--------------------------------------------------------------------------------------------------- 25
3.5. Sampling Techniques and Sample Size----------------------------------------------------------------------25
3.6. Data Collection Techniques and Procedures----------------------------------------------------------------26
3.7. Data Analysis Techniques--------------------------------------------------------------------------------------- 27
3.8. Research quality issues----------------------------------------------------------------------------------------- 27
3.9. Ethical considerations-------------------------------------------------------------------------------------------- 28
CHAPTER FOUR-------------------------------------------------------------------------------------------------------------- 29
4. RESULTS AND DISCUSSIONS------------------------------------------------------------------------------------ 29
4.1. Introduction--------------------------------------------------------------------------------------------------------- 29
4.2. Response Rate------------------------------------------------------------------------------------------------------ 29
4.3. Demographic Characteristics of Respondents--------------------------------------------------------------29
4.4. Descriptive Statistics--------------------------------------------------------------------------------------------- 30
4.5. Comparison of Factors affecting on the Performance of SMSEs---------------------------------------36
4.6. Inferential Analysis---------------------------------------------------------------------------------------------- 37
4.6.1. Correlation Analysis-------------------------------------------------------------------------------------------- 37
CHAPTER FIVE--------------------------------------------------------------------------------------------------------------- 42
5. SUMMARY, CONCLUSION AND RECOMMENDATION---------------------------------------------42
5.1. Summary of the Finding--------------------------------------------------------------------------------------------- 42
5.2. Conclusions------------------------------------------------------------------------------------------------------------- 45
5.3. Recommendations----------------------------------------------------------------------------------------------------- 46
6. References----------------------------------------------------------------------------------------------------------------- 48
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CHAPTER ONE
1. INTRODUCTION
1.1. Background of the Study
Governments all around the world now recognize the role of Micro and Small Enterprises as an
engine of economic growth and sustainable development (Wasihun, 2010;Shitu, Neshamba and
Valero-Silva, 2016; Mrope and Mhechela,2015). They are also seen as key instruments of
economic diversification, income generation and distribution, and accelerating the economy of a
country (Seyoum, 2015; Lenjisa, 2014; Gebreeyesus, 2014; World Development, 2012).
Getahun(2016); Abawa and Raghurama(2017) Argue that Small Enterprise is considered as a
backbone of the economic growth. Countries from developing nations are advised to use the
potential of Small business, mobilize resources and production activities leading to employment
and income generation for those who cannot work in high-skill demanding business companies.
Most developing countries proved MSEs as a powerful propellant effect for rapid economic
growth because of virtue of their size, location, capital investment and their capacity to generate
greater employment. Because MSEs sector do not request high-level training, much capital and
sophisticated technology, the sector recognized as an instrument in bringing about economic
transition.(Wolde, 2013; Drbie and Kassahun, 2013; Seyoum,2015).
Employment is the gateway out of poverty for many and an important cornerstone of economic
and social development (UN- Habitat, 2016).The contribution of Micro and Small Enterprises to
GDP and employment is considerably high. In India For example, the manufacturing and export
related contributions of MSEs were 45% and 40%, respectively. In Japan MSEs contributed for
53.3% of the manufacturing output. MSEs are also home for innovation and supply of raw
materials for bigger industries as well as outsourcing functions (Ministry of urban development
and housing, 2016, p.4-14). in Malawi Micro and Small Enterprises (MSEs) contributed income
to about 25% of Malawian households, employed about 38% of the country‘s labor force, and
contributed about 15.6% to GDP(MOIT,2012,pp.9) . While In Ethiopia, The MSEs Sector is the
second largest employment generating sector for low income groups next to the agriculture
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sector (Tefera,et al., 2013). According to CSA (2011) almost 50% jobs created in Ethiopia are
attributable to small business.
In Ethiopia the role of Micro and Small Enterprises (MSEs) is seen as crucial in poverty
reduction through employment generation, income and skill (scarce capital) mobilization.
Cognizant of this, the government formulated national MSEs Development Strategy in 1997.The
MSE Policy envisages poverty reduction in urban areas and developing entrepreneurship and
laying the foundation for industrial development. The strategy was revised in 2010/11 with
renewed interests and more ambitious targets on employment creation, entrepreneurship
expansion and transition of MSEs to medium and large size companies (Assefa, et.al. 2014, and
p.19-31). In line with the country strategy, Oromia regional National state bureau of and Asella
town Industry and Enterprise development has responsible for promotion and development of
Micro and Small Enterprises in order to generate income and provide job opportunity for
unemployed people in urban centers. According to Asella town Industry and Enterprise
development report, Micro and Small Enterprises created employment opportunities for 5123
peoples in 2020 in town.
In Asella town Industry and enterprise development Office is responsible to promote and
facilitate the development of MSEs to play their crucial role in solving unemployment problem
and provide job opportunities for unemployed people including those graduated from university
and TVET.
The extant literature has attributed the dismal contributions of Micro and Small Enterprises
(MSEs) to GDP and employment in most economies, the effectiveness of the sector depends on
the nature, performance and available resource. Lack of working premises, Limited access to
financial services, lack of market, absence of technical and business skills are among the major
problems of the sector (Muleta 2016).
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1.2. Statement of the problem
Most developing countries like Ethiopia have been formulated and implemented different Micro
and Small Enterprise development strategy to support the development of the sector, thereby
transforming economies and generate substantial employment opportunities. As per Berhanu
(2014), Micro and small enterprises sector are major income generating and basic means of
survival for the poor.
Despite the mentioned facts above, the growth of MSEs faces a number of constraints that
hinders its rapid growth and development at one hand and its ultimate goal of reducing poverty
and unleashing its potential contribution to the national economic transition. The factors that
undermine the growth of MSEs in Ethiopia include among others access to technology, adequate
skills, capital and lack of conducive and working markets. The negative attitude towards MSEs
by the people is also a core factor. The attitude factor takes different manifestations of which the
most important are: The attitudes that considering engagement in MSEs is a sign of poverty and
backwardness and discounts their potential role because of this narrow perspective, preference
for paid employment, dependency (an expectation of receiving subsidies and charity rather than
working and investing in one‘s own future) is seen manifesting among the society and those
who participate in MSEs in Ethiopia (ministry of urban development and housing 2016, p.61-63)
In Ethiopia according to (Assefa, et.al, 2014) key constraints of Micro and Small Enterprises
includes access to finance, collateral factors, marketing factors, working and sales space
constraints, institutional coordination problem, attitudinal factors, licensing and registration
factors, capital goods and machinery factors. While major factors identified by ministry of urban
development and construction ( 2013) are access to finance, access to land or work or work
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space, access to input, lack of managerial skill, lack of technical knowledge access to market .
Among these the major ones are lack of finance (42%), lack of working premise (28.3%) and
lack of access to market or absence of linkage to market (18.1%) among others like access to
input , lack of managerial skill and lack of technical knowledge.
Several studies have been identifying factors affecting performance of Micro and Small
Enterprises in different regions of Ethiopia. For instance the findings of Seyoum (2015) shows
that external factors those influence the performance of enterprises are location of working
premises, access to credit, training, market. While study conducted by (Kefyalew and Jembere,
2016) Micro Finance Institutions in East Shoa and Dawro zones revealed that MSEs operators do
not access adequate loan for business start-up, a long bureaucratic procedure to secure the credit
and lack flexibility in loan repayment arrangements in formal lending institutions compared to
the informal sources. Moreover, high collateral requirement the interest rate charged by formal
institutions is high to credit access. Hence, Micro and Small Enterprise operators are forced to
use the informal institutions as a source of finance. While critical problems of the MSEs sector in
Addis Ababa includes Market-related problems, Institution-related problems and financial factor
Admasu, (2016).
As indicated in review of literatures above, most of the previous study result shows differences.
This difference shows that the key factors affecting MSEs growth vary from town to town and
place to place. Hence this study is therefore aims to find out the key factors affecting Micro and
Small Enterprises that are operating in the Asella town.
1.3. Research Questions
The study raised the general question whether the persisting factors affecting MSEs in Asella
town Oromia regional state of Ethiopia has hampered the role of MSEs in poverty
reduction, employment creation, income earnings for individuals engaged in the sector.
The specific research questions of the study area as follows
1. Does significant relationship between Government policy and regulation factor
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with MSE performance in Asella Town?
2. Does significant relationship between accessibility of business information service and MSE
business performance in Asella Town?
3. Does significant relationship between management experience and MSE business
performance in Asella Town?
4. Does significant relationship between financial control system and MSE business
performances in Asella town?
5. Does significant relationship between marketing strategy and MSE business performance in
Asella Town?
1.4. Objectives of the Study
1.4.1. General objective of the study
The general objective of the study was to analyze the factors affecting the performance of MSEs
in Asella town Oromia regional state of Ethiopia.
1.4.2. Specific objectives of the study
 To assess relationship between Government policy and regulation factor with MSE
performance in Asella Town;
 To examine the relationship between accessibility of business information service and MSE
business performance in Asella Town
 To analyze relationship between management experience and MSE business performance in
Asella Town
 To assess relationship between financial control system and MSE business performances in
Asella town
 To investigate relationship between marketing strategy and MSE business performance in
Asella Town
1.5. Significance of the study
This study has important contributions to the local government, Micro and Small Enterprises
operators and the local community to understand the factors affecting Micro and Small
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Enterprises development. It is hoped that they used it as an input to enhance the activities of
Micro and Small Enterprises in town. Furthermore, the findings of this study was inform
academic researchers as a reference for further researches as well as comparative study from data
results and evidence substantiated
1.6. Research Hypothesis
The following hypotheses are developed and to be tested using Analysis of Pearson correlation
coefficient to determine relationship between the variables.
H1: There is no significant relationship between Government policy and regulation factor and
MSE performance found in Asella Town
H2: There is no significant relationship between accessibility of business information service and
MSE business performance found in Asella Town
H3: There is no significant relationship between management experience and MSE business
performance found in Asella Town
H4: There is no significant relationship between financial control system and MSE business
performances found in Asella town.
H5: There is no significant relationship between marketing strategy and MSE business
performance found in Asella Town.
1.7. Scope of the Study
The scope of the study was limited to assess the factors and prospects facing Micro and
Small enterprises in Asella town. The factors that affecting MSE was changeable from time to
time and from place to place, but this paper limited to Government Regulation and policy, access
of information about their business, experience of managing their business, how to control
finance and market segmentation strategy, using descriptive and qualitative research design.
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Furthermore, the study area was chosen because it is relatively better centre of business activities
and chief town within the zone. MSEs Sector comprises manufacturing, construction, service,
trade and urban agriculture sectors in Asella town.
1.8. Organization of the Study
The study was organized in to five major parts. The first part comprises background of the study,
statement of the problem, objectives of the study, significance of the study, and scope of the
study, hypothesis and organization of the paper. The second part incorporates on reviewing of
related literature on the issues under study. The third part clarifies on the research methodology
adopted. The fourth part present the major findings of the research and the last part provide
summary, conclusions and pertinent recommendations.
CHAPTER TWO
2. REVIEWS OF RELATED LITERATURE
5.1. Definition of Micro and Small Enterprises

It is hard to find universally acceptable definition of Micro and Small Enterprises (The World
Trade Report, 2016:16; Haile, Girmay and Hagos, 2014:135; Hawando: 2017) .Some countries
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even have multiple definitions across different government institutions. This is so because the
criteria and ways of categorizing enterprises as Micro, Small and Medium vary from country to
country and from organization to organization. The most commonly used criteria are
employment, turnover and productive assets (Reinecke, and J.White, 2004; World Bank, 2013).
The definition used to define MSE sector in Kenya is based on three criteria: the number of
workers, the turnover and assets of the enterprises. Micro Enterprises are defined as firm, trade,
service, industry or a business activities whose annual turnover that does not exceed 500,000
Kenya Shillings and whose total employees are less than 10 people meanwhile Small Enterprises
are those firms, trade, service, industry or business activities that post an annual turnover of
between Ksh500, 000 and Ksh5 million and have an employee list of 10 to 50 (Kenya‘s Micro
and Small Enterprises Act, 2012:7).
In Ethiopia, there is no consistently placed definition for the Micro and Small Enterprise sector
by different organization. Federal Ministry of trade and industry has defined Micro Enterprises
as an enterprise with a total asset of less than 20,000 Birr ($1200) and Small Enterprises as
Enterprises with a total asset of Birr 500,000 ($30,000) or less. While Central Statistics Agency
used type of technology adopted and the size of man power to define the sub sector.
Accordingly, Handicraft and cottage industries in which a single person or family members
perform their activities mainly by hand and using non-power driven machineries; and Small
manufacturing enterprises engaging less than 10 persons and using motor driven machinery
(MoTI,1997).
However the country has revised the definitions of MSEs in 2011 to align with at least some
countries and an international organization (Abawa & Raghurama, 2017), to consider the
limitations of previous definitions, to integrate the development of the sector with the country‘s 5
year (2008-20012 E.C) Growth and Transformation Plan (GTP-II) and hoped to bring about
rapid economic growth and lift up the country to middle income level. In the new definition,
some of the attributes used by other countries and international organizations such as considering
job creation, size, asset base and differentiating Minimum asset requirement for services and
industry are addressed (MoUDH, 2016). Accordingly; Micro Enterprises are those enterprises
having 5 workers including family members and its total asset not exceeding Birr 100,000 for
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Manufacturing enterprises and Birr 50,000 for service providing enterprises. Small Enterprises
are those enterprises having 6-30 workers and its total capital not exceeding Birr 1.5 million for
manufacturing enterprise and Birr 500,000 for service providing enterprises. When ambiguity is
encountered between manpower and total assets as explained above, total asset is taken as
primary yardstick (Federal Micro and Small Enterprise development agency, 2011). In this
research the revised definition MSEs by FeMSEDA is used.
5.2. Survival Vs Growth-Oriented Enterprises

Categorizing micro enterprise as survival and growth-oriented is use full to analyze the extent of
their contribution to economic development and it would facilitate the identification of the
appropriate support policies to such enterprises (Kanothi, 2009).
Survival based micro enterprises according to Mashigo(2015) are referred to as enterprises that
cannot create extra employment opportunity other than the operators and minimal asset value or
activities by people unable to find alternative jobs before starting the businesses, with no skills
training in the particular field and only limited opportunities for growth into a viable business.
Apart from the survivalist micro enterprises, growth oriented enterprises are businesses that
always re-invest in the business and employ additional labor which may enhance their credit
worthiness and for that matter increase their chances of growth (Hallow, 2016).
Rogerson (1996: 171) states both categories of enterprises as follows:
The first category is survivalist enterprises which represent a set of activities undertaken by
people unable to secure regular wage employment or access to an economic sector of their
choice. Generally speaking, the incomes generated from these enterprises, the majority of which
tend to be run by women, usually fall short of even a minimum standard of income, with little
capital investment, virtually no skills training and only constrained opportunities for expansion
into a viable business. Overall, poverty and a desperate attempt to survive are the prime defining
features of these enterprises.
The second category is growth oriented enterprises which are very small businesses, often
involving only the owner, some family members and at most one to four paid employees. These
enterprises usually lack all the trappings of formality, in terms of business licenses, formal
xviii
premises, operating permits and accounting procedures, and most have only a limited capital
base and their operator only rudimentary business skills. Nonetheless, many micro-enterprises
have the potential to develop and flourish into small and medium enterprises.
In Ethiopia However, the micro and small enterprises sector is categorized in to Start-ups,
Growing-middle and Maturity depending on stages of development to facilitate and provides
appropriate policy support (Assefa, et.al. 2014:9-10).
5.3. Micro and small Enterprises Development strategy in Ethiopia

Nowadays, the significant contribution and potentials of the MSE sector in poverty reduction has
been recognized in Ethiopia (Adam, 2014). In line with, federal government of Ethiopia has
adapted MSE development strategy to promote the sector in 1997.The objective of the strategy is
to create enabling environment for the sector (MOTI, 1997). MSE Policy targets reducing
poverty in urban areas and laying the foundation for industrial development. The strategy was
revised in 2010/11 with renewed interests and targets but having similar objectives. According to
revised (MSEs) Development Strategy of Ethiopia, the main focus of the government is to create
Job opportunities through MSEs development, in order to reduce unemployment problem,
alleviate poverty and promote industrial development by considering the MSEs as a base (Joshi
and Mihreteab,2015).
The revised MSE strategy has two major dimensions of MSE development stages. The first is the
transition of an enterprise from Micro to Small and from Small to Medium Enterprise level. The
second is the process whereby MSEs maintain and strengthen their competitiveness within their
own category of MSE. MSE development, being one of the key focus areas of the country‘s
development strategy, receives massive support from the government in the form of access to
finance, market, technology, training and working space (MoUDH, 2016). As stated by Assefa,
et.al. (2014:9-10) and Seyoum, Aragie, and Tadesse(2016:584-585):
Policy support for MSE development in Ethiopia depends on stages of development in which
MSEs are categorized into Start-ups, Growing-middle and Maturity. Start-up stage Enterprises
refers to those enterprises found at their establishment stage and comprises a group or individual
aspiring entrepreneurs that seek various supports to make their enterprise operational. The basic
factors at this stage include lack of initial and working capital, poor knowledge of business
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management and entrepreneurship and lack of knowhow about the different government policies
and directives related to the sector.
In order to mitigate these factors, FEMSEDA has designed a strategy that focuses on facilitating
access to initial capital, supporting MSEs in formalization and legalization process and provision
of training on business management, entrepreneurship and production technique. Growing stage
Enterprises refers to those enterprises that are competent in the market in terms of price and
quality and successfully utilize the various government support packages and are profitable in
their business. However, Enterprises at this stage also suffer from different factors like financial
constraint, lack of appropriate technology and technical skill, absence of sufficient working and
sales premises and rent seeking behavior. To alleviate these specific factors, FEMSEDA has
formed a national strategy that focuses on facilitation of financial support and skill and
technological development program. On the other hand, Enterprises are considered to have
reached the maturity stage when they are fully profitable and engaged in further expansion and
investments in the sector. At this stage FEMSEDA has a strategy that aims to strengthen
Enterprises in terms of productivity and product quality. Moreover, at this stage, knowledge of
international standards and better production technology are disseminated to Enterprises
5.4. Factors affecting Micro and small Enterprises

Sitharam and Hoque(2016) defined the business environment as factors both internal and
external to the organization, influencing the continued and successful existence of the
organization. Accordingly this part assesses the most serious factors that constrain the
development of Micro and small Enterprises.
5.4.1. Inadequate finance

One of the major factors pointed out as hindering the development and survival of start-up MSEs
is access to finance (MOTI, 1997, pp, 10; Engida,et al,2017,pp.11;Fadahunsi ,2012). MoUDC
(2013) and Tadesse(2014) also identified that financing has become a principal factor to Micro
and Small Enterprises in Ethiopia; banks in Ethiopia do not provide finance in the form of loan
to MSE‘s due to collateral obligations and other requirement. More over the study conducted by
(Kefyalew, 2016)revealed that MSE lack adequate loan to start-up their business, long process to
secure the credit, high collateral requirement and high interest rate of loan service by lending
institutions.
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Alemu,2015;Admasu,2016;Gebreyohannes,2015) pinpointed that the loan MSEs is not
sufficient to start business, run and expand business because enterprises need finance to purchase
equipment and machinery, to expand their market and to cover working capital shortages. Since
there is high interest rate and collateral requirement, most MSEs have been forced to use the
informal institutions for credit. The research conducted by Bernard; Sare, and Musah,(2014) in
Ghana also confirms that high interest rate is the leading factor in constraining MSEs
development.
5.4.2. Marketing factors

Presence of market for the products and services is one the driving forces behind the success of
Micro and Small Enterprises and some efforts available by the governments; marketing is among
the major factors for the development the sector. MSEs in Ethiopia are encounter access to
sufficient and sustainable market, lack of suitable working and selling premises and inadequate
market competition and knowledge.
5.4.3. Problem of skilled manpower

For Micro and Small Enterprises, Training is the main means to gain the relevant and business-
specific know-how and abilities to start and grow their own businesses in low and middle income
countries (German Development Institute, 2013).However, studies by Abera(2012); Kebede
(2015) mentioned that Lack of entrepreneurship training is one the hindering factors for the
success of their business.
5.4.4. In adequate infrastructure

In most developing countries infrastructural facilities are grossly inadequate
Olalekan(2014).Inadequacy of the physical infrastructure is among the causes of low levels of
investment and unsatisfactory performance of Micro and Small Enterprises. Study conducted by
Abdissa and Fitwi (2016) in south west of Ethiopia, most MSE operators opined that lack of
adequate infrastructural facilities especially insufficient and interrupted electric power and water
supply. Abera(2012);Cherkos( 2017) ; Demeke (2016) also mentioned factors like interruption of
electric power, interruption of water supply ,lack of road facilities and interruption of
telecommunication service are constraining factors of MSEs development.
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5.4.5. Policy and regulatory factors
Having the right business policy, regulations and related institutions is vital for the health of an
economy (Doing Business, 2014; Belás and Sopková (2016). However, enabling policy
environment itself may not be sufficient to ensure optimal results because the response to the
enabling policy environment depend on, among other things, the degree to which MSE operators
can access resources such as skill, technologies, finance, infrastructure, markets, etc( Ageba and
Amha,2006). (Bekele and Mezgebe, 2016; Abera, 2012) study results reveals that most of the
Enterprises are not getting support from government. (Abera, 2012; Admasu, 2016) also states
that bureaucracy in company registration is the main factor that affects the performance of the
sector in addition to unreasonable tax and related issues.
5.4.6. Working premise and Factors

For successful and sustainable growth of Enterprises, working premise is one of the main
components (Haile et. al, 2014). However, the shortage of such infrastructure has also been one
of the main obstacles to the development of the sector in many urban areas of the country. For
instance, the findings of (Haile et. al, 2014) shows that MSEs that have own working premise
grow faster than those that operates at rented and at family working premise. In addition, the
studies conducted by Adego( 2014);Berhanu (2014); MoUDC( 2013) and Cherkos et.al (2017 )
states that among obstacles experienced by entrepreneurs operating MSEs sector is unavailability
of work premises.
5.5. Empirical Studies on Micro and Small Enterprises in Ethiopia

Tarfasa, et al. (2016) conducted a research to assess the Determinants of growth of Micro and
Small Enterprises by using a random sample of 300 MSEs selected from manufacturing,
construction, service, trade and urban agriculture in Addis Ababa. According to this research,
among manager‘s or owner‘s characteristics, age, marital status and education were important
factors affecting growth of both Micro and Small Enterprises. The finding of this study reveals
that weak business environment influences the growth of firms. In particular, frequent power
interruptions, lack of access to credit, and shortage of water is inversely correlated with growth
of Micro and Small Enterprises In his research, Cherkos et.al (2017) studied significant factors in
Micro and Small Enterprises performance in Amhara region. In his study, working premises,
access to finance, infrastructure, entrepreneurship and business managerial problems are found to
be the most critical factors and took majority of the share for the causes of 50% drop-out. The
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study also shows that even though working areas are built, they are not functional due to lack of
facilities. Moreover, due to infrastructure problem of daily power interruption, 25% of their work
time is lost.
Leza , Rajan and Kuma(2016)conducted research with the intention of investigating the key
determinants of employment growth among MSEs, based on interview schedule consisting 352
randomly selected enterprises in three administrative towns in East Shoa Zone, finding that
Shortage of working premises, power supply, other infrastructures and inputs rising costs are
among the problems of challenging the proper functioning of the MSEs. Available working
premises and other infrastructure in most cases are inconvenient to accommodate business tasks
and related requirements. Kefale and Chinnan (2012: 25) identified major problems that hindered
employment growths are market problems, lack of working capital among others such as
Seasonality work; input supply problem, power fluctuation, and lack of skilled manpower, high
rent, high input price, unfair competition and utilities expense are also encountered by Micro and
Small Enterprises. This indicated the fact that market problem, working capital problem and lack
of working place coupled with other factors stated above has negative impact on the employment
growth in small and micro enterprises. Similarly, key informants and group focus discussion held
to identify major constraints that hindered employment growth in Micro and Small Enterprises.
Study by Kibret, et al. (2015: 19-20) identified major problems experienced by MSEs in Gedeo
Zone, where high tax, inefficient tax administration, prices of inputs, bureaucratic burden, lack of
raw materials, inadequate skills, and high interest rate . Furthermore, high collateral requirement
was another major hindering factor. This is due to the reason that commercial banks considered
Small businesses as high risk clients with little or no resources to provide collateral.
5.6. Conceptual Framework of the study

Conceptual framework means a written or visual presentation of the main things to be studied
that can be explained either graphically or in narrative form. Previous related works were
reviewed to develop the conceptual framework. The variables that this study focused on were
factors affecting Micro and Small Enterprises. The factors affecting MSEs include: Regulatory
and policy factors, working premises, technological, infrastructural, marketing and financial
factors.
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Furthermore if the MSEs achieved positively, the enterprises under study was expanded and the
Participants have got improved access to basic needs. This is shown in the following diagram.
Conceptual Framework: On factors affecting Micro and Small Enterprises in Asella town.
Out comes
Performance of SME
(Profit)
Challenges of MSEs
 Government policy and regulation factor

Figure 2.1 Frame work of the research that shows the relation between the independent variables with
dependent variable
 Financial control factor
 Management experience factor
Figure 2.1 Frame work of the research that
shows the relation between the independent variables
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CHAPTER THREE
3. METHODOLOGY OF STUDY
3.1. Introduction
This chapter gives an overview of the research methodology used in this study. The chapter
describes the study area and research design adopted and the population. It then gives a
detailed description of the sample and the sampling procedure used in this study and closes
with types of data, techniques used in data collection and the methods of data analysis.
3.2. Study Area
The study was conducted in Ethiopia, Oromiya Regional National State Arsi Zone Asella town.
The town of Asella was located 175 Km South of Finfine. The total area of the town is about
4,630 hectare of land. The town is located between 7 o51′51″ to 7o54′19″N latitude and 39o32′43″
to 39o37′05″E longitude. The town is one of the major transport nodes in the some part of the
Arsi zone and connecting central urban center including Adama with Bale zones of Oromia
Regional State. According to the 2007 the national census reported that a total population of
Asela town has 67,269 of whom 33826 are men and are 33443 women. Currently, 180
enterprises were engaged in micro and small-scale enterprises (Asella Town Industry and Small
scale enterprise office 2020 report,).
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Figure 3.1: Location of Asella Town in Oromia National Regional State of Ethiopia
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3.3. The Research Approach
In the study, both a qualitative and qualitative research approach was used. Qualitative data was
associated with the opinions of the respondent and different scholars regarding the influence of
various factors to business performance.
3.4. Research Design
The study used both descriptive and explanatory research design. According to (Schindler and
Cooper, 2001) descriptive study is defined as one that is concerned with the description of
phenomena and characteristics associated with a subject population (finding out who, what,
when, where and how of a topic). The research design is expected to be appropriate, and the
researcher needs to find out the impact of Government policy and regulation factor , business
information service, management experience, financial and market strategy factors on the
performance of MSE businesses. An explanatory research design was used to examine the effect
of those factors on the performance of MSEs, which have been indicated in the conceptual
framework of the study.
3.5. Sampling Techniques and Sample Size
Stratified random sampling has been used to get information from different sizes of the MSEs.
This technique is preferred because it is used to assist in minimizing bias when dealing with the
population. With this technique, the sampling frame can be organized into relatively
homogeneous groups before selecting elements for the sample. According to Janet (2006:94),
this step increases the probability that the final sample were being representative in terms of the
stratified groups. In this study to select sample size, a list of the population formally registered
MSEs until June 2012(budgeting year EC) by the Industry and micro enterprise development
office of Asella town. The total population of the study was 180 enterprises. The researcher used
the sample Size determination formula, which is developed by Yamane (1967:886), to determine
the sample size of MSEs for the study:-
 n=N/ (1+N (e) 2) Where n is the sample size; N is the total MSEs legally Registered in 2012
EC in selected office. The unit of analysis of the study is the individual i.e. owner of the
enterprise. The investigator decided the confidence level of the study to be at 95%
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consequently the level of precision (e) is +5. Accordingly, 124 respondents were selected
from the legally registered in 2012 EC in selected office MSEs, which are 180 enterprises.
For the purpose of the study the researcher used probability sampling method (Stratified
sampling) which may have resulted in more reliable and detailed information and also helps to
draw sample representative from population of the study that does not constitute homogeneous
group. In order to form stratum, the researcher was used the stated enterprise categories and
followed proportional allocation method from each stratum. And after allocating the sample size
of each stratum researcher drawn items using simple random sampling.
Table 3.0-1 Sample size determination
Stratum based on category Population(N) Proportion of population Sample size from each
in stratum (Pi
stratum (n)
Construction 41 41/180 = 0.23 28
Manufacturing 21 21/180 = 0.12 15
Urban agriculture 12 12/180 = 0.07 8
trade 48 48/180 = 0.27 33
Service 58 58/180 = 0.32 40
total 180 180/180 =1.00 124
3.6. Data Collection Techniques and Procedures

The study was based on primary and secondary sources. The literature review totally depends on
secondary sources while the analysis depends on primary sources specifically questionnaires and
interview. Primary data collected from MSE operators through questionnaire and interview. This
was completed by the owner managers/or operators of the enterprises.
The questionnaire is dividing into three main sections. The demographic and general data
regarding the owner and the enterprise are discussed on the first section. While the second
section includes group factors that affect the performance of SMEs, these are: management
experience of the owners’, business information service, Government policy and regulation
factor and policy, financial control and planning and marketing skill and strategy mechanism
of the principal owner. This section is designed according to a five points in Likert scale form.
The scale for each factor ranged from 1= strongly disagree to 5= strongly agree. However the
last sections were open ended question if any of the respondents like to mention any comments
that could be useful for the study.
xxviii
3.7. Data Analysis Techniques
The purpose of data analysis is to reduce accumulated data to a manageable size, developing
summaries, looking for patterns, and applying statistical techniques (Cooper and Schindler,
2011). The collected questionnaire was first edited for clarification in case of any
inconsistencies. The response was then coded, and scores from the questionnaire summarized.
The data analysis is quantitative in nature and uses descriptive statistics where mean and
standard deviation, frequency and percentage were applied. Data was organized in terms of the
research questions and presented using tables. The most significant factors in the questions were
being found on the basis of the mean of the answers. If the mean of the answers is high compared
to the means of the other answers, the factor were being meaningful, and if the mean of the
answers is low compared to the others, the factor were being of little importance. Lin (1998).
Additionally, inferential statistics allows inferring from the data through analysis, the
relationship between two or more variables and how several independent variables might explain
the variance in a dependent variable. So for the study purpose the researcher used use Pearson
correlation coefficient to determine relationship between the variables and testing the
hypotheses.
3.8. Research quality issues
Various techniques were employed to ensure data reliability and validity.
Reliability: In order to collect reliable data, the researcher designed the key informant
interview guides, FGD guides and questionnaires through an elaborated procedure which
involves a series of revisions under the guidance of the research supervisor/advisor to enhance
data quality. Also quotes from interview and statement from questionnaires were used as
references to ensure reliability. The researcher has used checklist of questions when making
personal interviews with respondents so as to achieve data consistency and completeness.
Validity: To ensure validity the study has applied the triangulation technique by using
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questionnaire, key informant interviews, FGDs and secondary data sources concurrently. In
addition, data collection instruments were presented and refined to ensure lucidity of contents in
context of aim of each question. Whereas the quantitative data collection instruments focus on
objective responses, qualitative datacollection instruments are designed in such a way that they
measure attitudes and opinions of respondents to the maximum degree possible. In addition,
before data entry into computer a series of pretest has therefore been conducted. The data
scanning and scrutiny technique has also been employed from available questionnaires from
respondents to examine and validate the survey instrument so as to ensure content validity and
reliability.
3.9. Ethical considerations

The researcher considered the research values of voluntary participation, confidentiality,
anonymity to ensure protection of respondents from any possible harm that could arise from
participating in the study. Thus, the researcher clearly introduced the purpose of the study as a
partial fulfillment of a Masters‟ study programme and requested the respondents to participate in
the study on a voluntary basis such that refusal or abstaining from participating was permitted.
The researcher also assured the respondents confidentiality of the information given and
protection from any possible harm that could arise from the study since the findings would be
used for the intended purposes only. The respondents were promised to be provided with
feedback about the findings of the tudy
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CHAPTER FOUR
4. RESULTS AND DISCUSSIONS

4.1. Introduction
This chapter presents the presentation of data, analysis and interpretation. During the study,
questionnaire paper was distributed to collect the necessary data. The data collected from
employees using the questionnaire distributed is presented by using descriptive statistics. The
employee demographic characteristics such as gender, age, education level, and job category and
service year were being presented.
4.2. Response Rate
For this study, a total of 124 questionnaires were distributed to the individuals/members/
currently working in stated MSE that found in Asella town those grouped in 5 sectors of business
to assess impact of factors affect success of MSE. Out of total questionnaires distributed 90%
returned.
4.3. Demographic Characteristics of Respondents
This part begins with the analysis of the demographic data gathered from the respondents using
frequencies and percentages. Accordingly, the general respondent’s characteristics including:
sex, age, marital status, educational level and work experience are presented in Table 4.1 below
Table 4.1:- Demographic Characteristics of Respondent

Demographic Characteristics Frequency Percentage
Gender
Male 73 65.2%
Female 39 34.8%
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Age
20-30 55 49%
31- 40 44 39.3%
41- 50 13 11.6%
Education level
10+ 1-3 31.25%
35
Diploma 46.4%
52
Degree 22.3%
2
Age of the business
1-3 35 33%
4-6 62 55.35%
7 and above 13 11.6%
From the Table 4.1 above, it is possible to realize the following facts. The devastating majority
of the respondents 73 (65.2%) were males and the rest 39 (34.8%) were females. This implies
that enterprise was dominated by male individuals more.
As per the above table, 49% of the respondents were below 30 years, 39.3% were between 31-40
years, 44% were between 31-40 years and 11% were between 41-50 years. The age of the
respondents was important as different age groups have different challenges in operating their
businesses. Young businessmen may not be having enough experience and capital to grow their
businesses while aged businessmen may be.
Related with qualification, 31.25 % of respondents indicated that had 10 +1-3 as their highest
level of education, 46.4 % said they were college graduates in diploma and 22.3 % of the
respondents were university graduates while. These findings show that the respondents had
attained different levels of education. Education levels affect the management levels hence the
higher education level attained by the businessman the more it is assumed that they can make
better decisions to grow the business. This however may vary from one businessman to another
From the table 33% had being in operation for less than 3 years, Majority 55.35% for between 3
6 years and 11.6 % were above 7 years. These findings show that the respondents had operated
in the market for different period ranging from less than 3 years to more than 7 years. These
findings show that the respondents had operated their business within the market for a long
period hence is more informed on the factors affecting SMEs performance
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4.4. Descriptive Statistics
Under this section the data collected through questionnaire from selected sample size of
organization under the study are presented. The central tendencies measurement of construct in
this part was to illustrate the value of mean and standard deviation for the dependent variable and
the independent variables. In section B, there is total 25 questions contained in the questionnaire
were introduced. All the questions were being examined by using the SPSS software and also
measured by using the Likert Scale. For example, 1 indicated “Strongly Disagree”, 2 indicated
“Disagree”, 3 indicated “Neutral”, 4 indicated “Agree”, and lastly 5 indicated “Strongly Agree
Table 4.2:- Descriptive statistics on Government policy and regulation factor (means and
standard deviations)
Statement Mean Standard Rank

License processing to start the business affect 4.36 0.614 1st
Taxation policy and regulation affect business performance of SME 4.23 0.568 2nd
Effect of government policies and regulations affect performance of 4.2 0.714 3rd
SME Through provision of training and development
Government policy and regulation factor on liberalization of the 4.16 0.647 4th
economy affects business performance of SME
Grand Mean and Standard Deviation 4.24 0.622
Source, own data 2020
Therefore, from here it can be concluded that among the government policy and regulation
factors the License processing to start the business was the major obstacle for the startup and
expansion of business performance (MN=4.366, SD=0.61). According to interviewees, there still
exists an overly bureaucratic government system that often results in unnecessary delays in
compliance and is extremely costly.
This includes a complex system, lengthy procedures and rules. For example, registration of a
business, getting working places, payment of stamp duty among others. For enterprises found in
Asella, these attitudes a major challenge and cost as the owners of the business would need to
close for days in order to travel to concerned governmental offices to access these services
sometimes without success. The case of MSEs to do business they have to get registered and
licensed. Every registered business has to record their costs, revenues and give receipt for
customers. But other small businesses initiated by owners do not go through those processes
xxxiii
which gives them advantages of paying tax random estimation. But for MSEs organized by
government, everything is difficult to get receipt for merchandise or material purchase which
leads to generalization of least costs and high revenue. Finally this shows high false profit. Due
to this, majority of MSEs prefer not to continue in such manner, but either to leave the work or to
return the license.
From the in-depth interview with different parties, they do not need to rent a place for running
their currently working without taking license from government office. According to World
Bank (2005), in developing countries such as Ethiopia the legal and policy framework that
govern the business environment is heavily regulated. Consequently, SMEs’ operate in this
difficult policy and regulatory environment have two alternative options; to compliance with
rules and regulations and or to operate the business in informal manner.
Table 4.3:- Descriptive statistics on business information service (means and standard
deviations)

Business information is readily available in this market 4.16 1 .08 1st
The information available is relevant for our business 3.32 0.95 4th
The information available informs us of the changes in the 3.72 0.89 2nd
business environment
The information available inform us of the business 3.3 0.60 3rd
registration requirements
The information necessary for our business growth is 3.18 0.62 5th
availed on time
On whether the business information was readily available to them at their business environment
they strongly agreed as shown by a mean of 4.16. Oshikoya and Hussain (2007) argue that
accessing business information services has over the years been greatly enhanced with the
emergence of various information and communication technologies. The businessmen could
easily communicate with different players in the market using their mobile phones hence were
able to access information concerning the operations of their systems on time.
When asked whether the information available was relevant for their business they also agreed as
supported by a mean of 3.32. For the businessmen to make better decisions, the information
xxxiv
available needs to be timely and accurate. With the advancements in communication technology,
the businessmen were able to access information concerning their operations in a timely manner
hence better decision making on matters affecting the performance of their businesses.
On whether the information available informed them of the changes in the business environment,
the respondents agreed as supported by a mean of 3.72. Accessing business information services
on a timely basis helps businessmen to develop mechanisms that would enable them face the
challenges and emerge successful in their businesses. Due to the developments in
telecommunications industry, the businessmen were able to access information on a timely basis
hence able to develop quality decision in countering the challenges that could face them in their
operations.
On whether the information available informed them of the business registration requirements
they also agreed as indicated by a mean of 3.3. Scholars argues that the developments in
telecommunication industry have leveraged business operations especially in as far as
registration details are concerned because information is readily availed in different platforms
that can be accessed by businessmen When asked whether the information necessary for their
business growth was availed on time, they agreed as supported by a mean of 3.18. In order for
businessmen to make timely and quality decisions concerning their business operations, it is
important that they access information about the market in a timely manner. Information needs to
be timely and accurate for businessmen to rely on when making their decisions. Respondents
were interviewed issues related to business information services some entrepreneurs complained
they have no information specifically on market access. That there was no clear bidding and if
any, a very short period (maximum of one day or less)
Table 4.4:- Descriptive statistics on management experience (means and standard deviations)

Are you well prepared to face changes in the business 4.066 0.583 3rd
environment and to plan appropriate changes in technology
Managerial skills as the most important constraint faced while 4.033 0.718 4th
enhancing business performance of SME.
Lack of Managerial Experience affect performance of business 4.0 0.587 1st
Management provision of training and development program 4.23 0.568 5th
affect performance of SME.
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Basic managerial function (planning, organizing, staffing 3.9333 0.583 2nd
directing and controlling) are important in improving business
performance of SME.
When asked whether they are well prepared to face changes in the business environment and to
plan appropriate changes in technology the respondent agreed to a mean of 4.06667. With regard
to Managerial function (Planning, organizing, staffing, directing and controlling) respondents
agreed to the mean of 3.933.
Managerial skills as the most important constraint faced the respondent agreed to a mean of
4.0333. Experience is important in any business because it determines the quality of decisions
made and how they impact on the performance of an organization. By seeking to understand the
managerial experience of entrepreneurs in the study area, the study is able to determine how the
entrepreneurs have been able to utilize their managerial experience for the success of their
organizations.
Managerial experience is important in guiding the path which an organization is to follow in

order to arrive at the designated goal. Managers control that acts of other staff and guide them to
ensure that they build synergy for the attainment of organizational goals. Managerial experience
among SMEs is important as it was influence the manner in which the SMEs operation hence
how it is able to interact with the environment. Through better and experienced management, an
organization is able to access financial assistance as the financial and other recorded requested
by lenders may be easily availed. Management is therefore necessary to enable group or business
goals to be accomplished through the functions of planning, staffing, directing, controlling
activities, coordination and directing.
Table 4.5:- Descriptive statistics on Financial control mechanism (means and standard

The source of capital (bank, saving institution donation from 4.633 0.568 1st
family and friends) affect performance of the business
Good financial communication within the organization efficiently 4.03333 0.718 5th
and effectively
Lack of Managerial Experience affect performance of business 4.5 0.587 2nd
Certify completion of the reconciliation process. 4.46667 0.683 3rd
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Verify that all transactions initiated posted in a reasonable period. 4.05 0.532 4th
The table above showed that extent to which financial control related statement affect the
performance of those MSE selected as organization of the study. From the above table we
understand that with regard to question on impact of source of capital on performance of the
enterprise mean of 4.633 agreed that source of fund affect performance of the business. High
collateral requirement from lending institutions, Shortage of working capital, High interest rate
by lending institutions and complicated loan application procedures was identified as an
important factor for the performance of enterprises.
Shortage of capital was identified as the prime factor for startup and expansion of micro
enterprises, operators search to raise finance within their reach i.e. the informal sectors and from
personal savings, the formal institutions were not easily accessible due to high collateral, high
interest rate and difficult loan application procedures. And also from the above table we
understand that the basic financial control method and accounting principles has impact on
performance of the business.
Table 4.6. Descriptive statistics on market strategy (means and standard deviations)

Inadequate market for my product 4.28 0.66 1st
Searching new market is so difficult 4.16 0.68 3rd
My products are Poor quality for the market. 4.21 0.85 2nd
Lack of establishing a market network. 4.15 0.79 4th
Lack of promotion to attract potential users 4.05 0.66 5th
Among the marketing factors that affected the performance of enterprises: Inadequate market,
difficulty of searching new market, Poor quality product for the market, Lack of establishing a
market network and Lack of market information, the respondents were agreed that these factors
are important in affecting the performance of enterprises, the response of all sectors showed that
a grand MN score of above 4-point scale implies it is above agreed point and below strongly
agreed point. In an interview conducted with an operator of the MSE, it was confirmed that
xxxvii
production area is inaccessible for market hence forced to rent a shop which in turn incurred
additional costs to firms, promotion of products, searching of market and networking took more
time and cost as a starter. Some of the operators believed that personal factor is significantly
played a role in succeeding in marketing. From here it can be concluded that marketing factors
are linked to infrastructural (access, transportation, amenities), entrepreneurial, working place,
management and personal factors of customer handling, this interconnection made the marketing
factors more significant. Lack of market to products emerged from the various marketing factors
hence inefficiency on the other factors lead to lack of market.
Table 4.7:- Descriptive statics on current performance of MSE based on business practice
Statement Mean Standard

The business is profitable 4.14 0.75
There is good sales turnover 3.32 0.65
There is good progress to reduce unemployment rate 3.34 0.69
From the table above it can be understood that all the sectors agreed on the profitability of the
business they are engaged in this was demonstrated by the MN score observed above 4 and the
SD showed that there is low variation in among the responses. From here it can be concluded
that regardless of other factors the business engaged by operators are profitable. For most of
enterprises are not keeping record profitability is justified by survival and covering household
expenditures.
4.5. Comparison of Factors affecting on the Performance of SMSEs

Even though, all the management experience of the owners’, business information service,
Government policy and regulation factor and policy, financial control and planning and
marketing skill and strategy factors affect the performance of MSEs, this does not necessarily
mean that all factors have equal impact. The following table clearly compares the overall impact
of all key factors discussed in detail above.
Table 4.8: - Comparison of Factors affecting on the performance of SMSEs
Statement Mean Standard

Government policy and regulation factor 4.24 0.71
Financial control factor 4.33 0.65
Management experience factor 4.02 0.64
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Marketing skill and strategy factor 4.16 0.7
Business information services factor 3.53 0.8
The most significant factors in the questions were being found on the basis of the mean of the
answers. If the mean of the answers is high compared to the means of the other answers, the
factor were being meaningful, and if the mean of the answers is low compared to the others, the
factor were being of little importance.
It can now be seen that Financial and Government policy and regulation factor has the biggest
potential to contribute to the performance, followed by Marketing, Management, and Business
information services factor. In another words, the result shows that Financial and Government
policy and regulation factors were the two top most factors that affected the performance of MSE
in the selected area.
4.6. Inferential Analysis

4.6.1. Correlation Analysis
4.6.2. Pearson Correlation Coefficient
A Pearson Correlation Coefficient is used to measure the direction, strength and significance of
the relationship among the variables that measured in the form of ratio level and interval level. In
addition, Hair et al. (2007) put forward the rules of thumb about the coefficient range and the
strength of association.
Table 4.8 Rules of Thumb Pearson Correlation Coefficient
Coefficient Range Strength of Association

Table 4.9 Rules of Thumb Pearson Correlation Coefficient
Coefficient Range Strength of Association

±0.91 to ±1.00 Very Strong
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±0.71 to ±0.90 High
±0.41 to ±0.70 Moderate
±0.21 to ±0.40 Small but definite relationship
±0.01 to ±0.20 Slight, almost negligible
Source: Hair, J.F, Jr., Money, A.h., Samouel, P. & Page, M. (2007). Research methods for
Business Chichester West Sussex: John Wiley & Sons, Inc
Table 4.10 Correlation Analysis
Correlations
Human Accessibility
Resource of business Financial
management Government information Management control Marketing
practices regulation service experience mechanism Strategy
Human Pearson
1 .734** .516* .620* .856** .815**
Resource Correlation
management
practices
Sig. (2-tailed) .001 .001 .002 .000 .000
N 243 124 124 124 124 124
Government Pearson
.0734** 1 .783** -.051 .792** .759**
regulation Correlation
Sig. (2-tailed) .001 .001 .428 .000 .000
N 124 124 124 124 124 124
Accessibility Pearson .516* .783** 1 .415 .546 .714*

of business Correlation
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information Sig. (2-tailed) .001 .001 .073 .05 .001
service
N 124 124 124 124 124 124
Management Pearson
.620* .551 .115 1 .795* .557*
experience Correlation
Sig. (2-tailed) .002 .002 .073 .000 .000
N 124 124 124 124 124 124
Financial Pearson
.856** .792** .046 .795* 1 .690*
control Correlation
mechanism
Sig. (2-tailed) .000 .000 .474 .000 .000
N 124 124 124 124 124 124
Marketing Pearson
.815** .759** .214** .557* .690* 1
Strategy Correlation
Sig. (2-tailed) .000 .000 .001 .000 .000
N 124 124 124 124 124 124
**. Correlation is significant at the 0.01 level (2-tailed).
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A. Government regulation
Hypotheses 1
H0: There is no significant relationship between government regulation and MSE performance.
H1: There is significant relationship between government regulation and MSE performance.
The result shows there is positive relationship between government regulation and MSE
performance because positive value of correlation coefficient. The government regulation
variable has a 0.734 correlation with the MSE performance variable. Thus, when government
regulation to encourage MSE business enterprise, their business performance is high, the value
of this correlation coefficient 0.734 is fall under the coefficient range from ±0.41 to ±0.70.
Therefore, the relationship between government regulation and MSE business performance is
high.
xlii
Significance
The relationship government regulation and MSE business performance is significant. It is

because the p-value <0.001 is less than alpha value of 0.05. These further support that the
government policy and regulation can positively to improve the performance of MSE.
B. Accessibility of business information service
Hypotheses 2
H0: There is no significant relationship between accessibility of business information service and
MSE business performance.
H1: There is significant relationship between accessibility of business information service and
MSE business performance.
The result shows that there is positive relationship between accessibility of business information
service and MSE business performance. Because positive value of correlation coefficient. The
promotion variable has a 0.516 correlation with the job performance variable. Thus, when
accessibility of business information service is high, MSE business performance is high. The
value of this correlation coefficient 0.516 is fall under the coefficient range from ±0.41 to ±0.70.
Therefore, the relationship between accessibility of business information service and MSE
business performance is moderate.
Significance
xliii
The relationship between promotion and job performance is significant. It is because the p-value
<0.001 is less than alpha value of 0.05. The result supports that accessibility of business
information service has positive significant relationship with SME performance. It is because it
able to provide information related with the business that help them to conduct daily business
activity and to forecast future scenario.
C. Management experience
Hypotheses 3
H0: There is no significant relationship between management experience and MSE business
performance.
H1: There is significant relationship between management experience and MSE business
performance.
The result shows that the positive relationship between management experience and MSE
business performance. Because of the positive value for correlation coefficient, Management
experience variable has a 0.620 correlation with the job performance variable. Therefore, when
management experience is high, MSE business performance is high.
The value of correlation coefficient 0.620 is fall under coefficient range from ±0.41 to ±0.70.
According to Rules of Thumb Person Correlation Coefficient; ±0.41 to ±0.70 has a moderate
strength of association. Thus, the relationship between management experience and MSE
business performance is moderate.
Significance
The connection between training and job performance is significant. It is because P Value is less
than alpha value 0.05. The result supports that management experience has positive significant
relationship with MSE business performance. It is because management experience can provide
learning opportunities and prepared them for more challenging task. Without good management
experience the business will only stay on their comfort zone and unable to handle more
xliv
challenging task. Therefore, Management experience is essential in every organization to
improve their reputation, morale, and attitude and improve productivity in the competitive
environment.
D. Financial control mechanism

Hypotheses 4
H0: There is no significant relationship between financial control system and MSE business
performances.
H1: There is significant relationship between financial control system and MSE business
performance.
From the result there is a positive relationship between financial control system and MSE
business performance. It is because financial control system and MSE business performance
have a positive value of correlation coefficient. Variable of financial control system has a 0.856
correlation with MSE business performance variable. Therefore, when financial control
mechanism t is comfortable, MSE business performance are high.
According to Rules of Thumb Person Correlation Coefficient; ±0.71 to ±0.90 has a high strength
of association. Thus, the relationship between financial control mechanism and MSE business
performance is high. Significance
The connection between financial control mechanism and MSE business performance is
significant. It is because P-Value <0.001 is less than alpha value of 0.05. It shows that the
financial control mechanism is playing an important role to the business organization because a
proper financial control system able to increase business performance.
xlv
Without a good financial control system, business tends to become not succeed. Thus this will
affect the business productivity and performance.
E. Marketing Strategy
Hypotheses 5
H0: There is no significant relationship between marketing strategy and MSE business
performance.
H1: There is significant relationship between marketing strategy and MSE business performance.
From the result there is a positive relationship between marketing strategy and MSE business
performance. It is because marketing strategy and MSE business performance have a positive
value of correlation coefficient. Variable of marketing strategy has a 0.815 correlation with MSE
business performance variable. Therefore, when marketing strategy applied accordingly, MSE
business performance is high.
According to Rules of Thumb Person Correlation Coefficient; ±0.71 to ±0.90 has a high strength
of association. Thus, the relationship between financial control mechanism and MSE business
performance is high
xlvi
CHAPTER FIVE
5. SUMMARY, CONCLUSION AND RECOMMENDATION
This study sought to examine factors that affect the performance of MSEs in Asella town. The
study was guided by research questions to establish relationship between some major factors and
performance of SMEs businesses. The findings from this study may be imperative because, from
the analysis of key variables, the researcher be able to come up with recommendations on the
key factors to be considered in performance of the enterprises.
This chapter provides the results and findings of the primary data which was obtained through
questionnaire guide. The chapter provides analysis of the obtained data with the aim to respond
to the statement problem of the study.
5.1. Summary of the Finding

The analysis show that, the age interval of the respondents in this regard, the majority 49 % of
the respondents in the organization were found in the age interval of 20-30 years and 39.3 % of
the respondents were found in the age interval of 31-40 years and the remaining percentage were
above 41 years which signifies that the organization has majority of productive age group
employee, related with the respondent’s level of education, 22.3% of the total respondents were
first degree holders.
xlvii
Majority of the respondent 46.4 % and 25% were diploma and 10+ 1-3 holders respectively. This
signifies that the majority of respondents were diploma holders in terms of their educational
level.
With regard to service year of the business majority of the respondent 55.35 % of their business
service year is between 4-6 years and 33 % of the respondent respond that their business has
service year of 1-3 years and the remaining composition (11.6%) has service year above seven
years. Related with category of their business type 46.4% were construction enterprise, 28.6%
were food and beverage enterprise and the remaining 25% categorized under metal and wood
work enterprise. In general, the results of the demographic characteristics of the respondents
indicate that they can clearly understand and respond to the questions provided to them to gather
the primary data.
From the findings of the descriptive analysis of factors , the study established that financial
control and planning affected the performance of SMEs as supported by a high mean on the
respondents responses First the study established that the sources of capital for SMEs differed
ranging from own savings, bank loans, and donations from family and friends among other
sources. However, the entrepreneurs in this market were found not to have enough capital to
finance their business operations. They only had access to moderate capital which limited their
ability to take advantage of opportunities as and when they arose.
The study concludes that most of the respondents measured the performance of the business the
number of customers and that the government policy and regulations affect the performance of
the business to strongly agree through taxation, licenses, through creation of support funds and
through liberalization of the economy.
The availability of managerial experience affected the performance of SMEs. The entrepreneurs
were well prepared to face changes in the business environment and to plan appropriate changes
in technology. Managerial skills were found to be the most important constraint faced the
respondent. Managerial experience is important in any business because it determines the quality
of decisions made and how they impact on the performance of an organization Further this study
indicates that, marketing factor includes inadequacy of market, difficulty of searching new
market, lack of demand forecasting, lack of market information and absence of Relationships
xlviii
with an organization/association that conduct marketing research are the major obstacles of
financial performance of MSEs.
Finally findings of the study established that accessibility to business information services
affected the performance of SMEs. Even though, all the management experience of the owners’,
business information service, government regulation and policy, financial control and planning
and marketing skill and strategy factors affect the performance of MSEs, this does not
necessarily mean that all factors have equal impact. Financial and Government policy and
regulation factor has the biggest potential to contribute to the performance, followed by
Marketing, Management, and Business information services factor.
The result from Pearson Correlation Coefficient test shows that all independent variable has
significant relationship with employee MSE business performance. The value of three variables
is within the range of coefficient range of ±0.41 to ±0.70 which consider the relationship of
independent variable and dependent variable is moderate and also the value of two variables is
within the range of coefficient range of ±0.71 to ±0.90 which consider the relationship of
independent variable and dependent variable is high. The result show that government regulation
is 0.734, business information service value is 0.516, management experience value is 0.620, and
financial control mechanism variable value is 0.856 and marketing strategy variable value is
0.815.
The outcome of the research shows that all MSE business success factors have positive and
significant impact on business performance of MSE. The research able to provide bench mark
for the organization to realizes the importance and ways of improving those success factors in
order to enhance MSE enterprise.
xlix
5.2. Conclusions
This research was conducted with the prime objective of assessing the relationship between MSE
and factors affecting the performance of MSE operators engaged in 5 work sectors of MSEs
Namely, manufacturing, construction, urban agriculture, Trade and service in Asella town.
Specifically, the study attempted to examine the relationship between government regulation,
business information service, Management experience, financial control mechanism and
marketing strategy and performance of MSEs. Based on the findings of the study, the following
conclusions were drawn.
In line with the result of the findings, the correlation result of this particular study showed all the
variables (factors) included in this particular study were statistically significant and therefore,
affects the performance of SMEs and also has relationship with performance of the business in
the study area.
The result from Pearson Correlation Coefficient test shows that all independent variable has
significant relationship with employee MSE business performance. The value of three variables
is within the range of coefficient range of ±0.41 to ±0.70 which consider the relationship of
independent variable and dependent variable is moderate and also the value of two variables is
within the range of coefficient range of ±0.71 to ±0.90 which consider the relationship of
independent variable and dependent variable is high. The result show that government regulation
is 0.734, business information service value is 0.516, management experience value is 0.620, and
l
financial control mechanism variable value is 0.856 and marketing strategy variable value is
0.815.
The outcome of the research shows that all MSE business success factors have positive and
significant impact on business performance of MSE. The research able to provide bench mark
for the organization to realizes the importance and ways of improving those success factors in
order to enhance MSE enterprise
5.3. Recommendations
As per the study find out, factors like government regulation, business information service,
management experience, financial control and marketing strategy determine micro and Small
Enterprises performance found in Asella Town. Thus, micro and Small Enterprise managers,
directors, governmental bodies and all stakeholders should consider about factor that encourage
business performance of MSE in designing out strategies to improve their performance.
 Regarding the factors related with management experience of enterprises owned by

individuals with previous management experience have better performance as compared with
those MSEs Operators who have no previous management experience. Therefore, MSE
enterprise and other government bodies are better to work on preparing training programs on
management issues and creating experience sharing opportunities especially to those enter
into the sector without any previous business background.
 Moreover, the government bodies, non-government bodies sub city Industry and Enterprise
Development and the other stakeholders are better to assist them by searching market for
their products which is produced by the MSEs operators, by doing this, they are try to save
them from losses.
 To overcome the problems related to establishing and starting the MSEs businesses, it is
needed primarily to conduct market assessment. This can identify and prioritize the type of
li
MSE business, to pin point the sources of inputs to identify the working place and other
premises to establish and to start the type of business.
 Moreover, it is required to train and council the MSEs in developing saving culture and to
generating initial capital by themselves. Concerning to the source of finance, the major
sources of finance or funds for most of MSEs operators at the study area are by borrowing
money from microfinance institutions. The reason for emphasizing on informal sector is that
the requirement of collateral/guaranty is relatively rare as compared with formal sectors like
banks but the informal sectors like MFIs are unable to provide/supply enough credit to them
as they want.
 Therefore, Asella town Industry and Enterprise Development in cooperation with other
government bodies have to develop comfortable source of finance for MSEs by organizing
and supporting the performance of MFIs and other source of finance.
 This can be done by communicating with the banks and other credit institutions to minimize
their requirements to provide fund. By doing so, the MSEs can get enough access to finance
for their business activities. Having identified some of the challenges facing SMEs in Asella
town, the researcher prescribed some strategies that the government and its agencies
responsible for SMEs, and SMEs themselves may adopt.
 The government should play a leading role in educating SME practitioners on the incentives
available to them and how to access them. These incentives should be delivered through an
establishment that really cares for the success and sustainability of SMEs in the country.
 Finally, the study sought to investigate the internal and external factors that influence
performance of SMEs that operates in Asella town.
lii
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lxiii
Questionnaire for the survey on the analysis and description of the factors that affect success of
micro and small business enterprises in Asella Town
Researcher:
The main purpose of this questionnaire is to gather information about the Impact of success
factors of micro and small business enterprises in Asella Town the partial fulfillment of the
requirements for Masters of Business Administration. The outcome of this study will be used for
academic purpose only. Therefore, your genuine response to the questions is vital for the quality
and successful completion of the study. The accuracy of the information you provide highly
determine the reliability of the study.
With Best Regards!
lxiv
Part I: Demographic profile of respondents Please indicate the following information by
ticking [x] on the space provided.
1. Gender: 1-Male 2- Female
2. Age A. 18-25 b 26-33 C 33- 41 D 41 and above
3. Educational status: A. 10+1-3 B Diploma C Degree D others
PART II: ISSUES RELATED WITH THE STUDY AREA
Here are some statements as regards the influence of accessibility to business information
Services, managerial experience, marketing strategy and financial control system on the
performance of micro and small Business enterprise. On a scale of 5-1 where 5=strongly agree,
4= agree, 3= neutral, 2= disagree, 1= strongly disagree; please indicate your level of agreement
with each statement by ticking.
lxv
S.N O Items Rating Scale
1(SD) 2(D) 3(N) 4(A) 5(SA)
Government Regulation
1. The government policies and regulations affect

performance of SME businesses.
2. Taxation policy and regulation affect business

performance of SME.
3. License processing to start the business affect business

performance of SME.
4. Government regulation on liberalization of the

economy affects business performance of SME.
Availability of business information system
5. Business information is readily available to us
6. The information available is relevant for Our business.
7. The information available informs us of the changes in

the business environment
8. The information available inform us of the business

registration requirements
lxvi
9. The information necessary for our business growth is
availed on time
Management experience
10. Managerial skills as the most important constraint

faced while enhancing business performance of SME.
11. Lack of Managerial Experience affect performance of

business
12. Management provision of training and development

program affect performance of SME.
13. Basic managerial function (planning, organizing,

staffing directing and controlling) are important in
improving business performance of SME.
Financial Control Mechanism
14. The source of capital (bank, saving institution,

donation from family and friends) for your business
are sufficient
15. Good financial communication within the organization

efficiently and effectively
16. Certify completion of the reconciliation process.
lxvii
17. Verify that all transactions initiated posted in a
reasonable period.
18. Ensure the reliability and integrity of financial

information.
Marketing Practice
19. Inadequate market for my product
20. Searching new market is so difficult
21. My products are Poor quality for the market.
22. Lack of establishing a market network.
23. Lack of promotion to attract potential users
PART III: NTERVIEW QUESTIONS FOR MSE OPERATORS
1. What were the problems you face?
A. at the time of establishment of the business
____________________________________________________________________
lxviii
_____________________________________________________________________
____________________________________________________________________
B. at the running of the business
____________________________________________________________________
_____________________________________________________________________
____________________________________________________________________
2. What were your solutions?
A. For problems at the time of establishment of the business
____________________________________________________________________
_____________________________________________________________________
____________________________________________________________________
B. For problems at the time of running the business
____________________________________________________________________
_____________________________________________________________________
____________________________________________________________________
lxix

Factors Impacting MSE Performance in Asella Town, Ethiopia

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FACTORS AFFECTING MICRO AND SMALL ENTERPRISES IN ASELLA

TOWN ADMINISTRATION OROMIA REGIONAL NATIONAL STATE,

A THESIS SUBMITED TO PARADISE VALLEY COLLEGE, DEPERTMENT

ADVISOR: BOGALE ALEMU (PhD)

Researcher Name Date Signature

Main Advisor Name Date Signature

Key words: Enterprise, factors, micro enterprise, small enterprise

The specific research questions of the study area as follows

1. Does significant relationship between Government policy and regulation factor

1.4. Objectives of the Study

1.4.1. General objective of the study

2. REVIEWS OF RELATED LITERATURE

5.1. Definition of Micro and Small Enterprises

5.2. Survival Vs Growth-Oriented Enterprises

Rogerson (1996: 171) states both categories of enterprises as follows:

5.3. Micro and small Enterprises Development strategy in Ethiopia

5.4. Factors affecting Micro and small Enterprises

5.4.1. Inadequate finance

5.4.2. Marketing factors

5.4.3. Problem of skilled manpower

5.4.4. In adequate infrastructure

5.4.6. Working premise and Factors

5.5. Empirical Studies on Micro and Small Enterprises in Ethiopia

5.6. Conceptual Framework of the study

 Government policy and regulation factor

3.2. Study Area

Table 3.0-1 Sample size determination

3.6. Data Collection Techniques and Procedures

3.8. Research quality issues

Various techniques were employed to ensure data reliability and validity.

3.9. Ethical considerations

4. RESULTS AND DISCUSSIONS

Table 4.1:- Demographic Characteristics of Respondent

Statement Mean Standard Rank

Statement Mean Standard Rank

Statement Mean Standard Rank

Managerial experience is important in guiding the path which an organization is to follow in

Statement Mean Standard Rank

Statement Mean Standard Rank

Statement Mean Standard

4.5. Comparison of Factors affecting on the Performance of SMSEs

Table 4.8: - Comparison of Factors affecting on the performance of SMSEs

Statement Mean Standard

4.6. Inferential Analysis

4.6.2. Pearson Correlation Coefficient

Table 4.8 Rules of Thumb Pearson Correlation Coefficient

Coefficient Range Strength of Association

Coefficient Range Strength of Association

Table 4.10 Correlation Analysis

N 243 124 124 124 124 124

Sig. (2-tailed) .001 .001 .428 .000 .000

N 124 124 124 124 124 124

Accessibility Pearson .516* .783** 1 .415 .546 .714*

N 124 124 124 124 124 124

Sig. (2-tailed) .002 .002 .073 .000 .000

N 124 124 124 124 124 124

Sig. (2-tailed) .000 .000 .474 .000 .000

N 124 124 124 124 124 124

Sig. (2-tailed) .000 .000 .001 .000 .000

N 124 124 124 124 124 124

**. Correlation is significant at the 0.01 level (2-tailed).

The relationship government regulation and MSE business performance is significant. It is