SMALL BUSINESSES

MANAGEMENT AND THE

SMALL BUSINESS
ENVIRONMENT IN TANZANIA
 LECTURE OBJECTIVES
2

 To define what constitutes a small

business.
 To identify the key characteristics that
make small businesses different from
other types of business organizations.
 To outline the importance of small
businesses to a country’s economy.
 To examine the business environment of
Tanzania.
 INTRODUCTION
3

 Small businesses have played a

significant role in history since practically
the beginning of recorded time.
 The status of small businesses has been
rising globally.
 There are dozens of publications devoted
to small businesses today because of
their contribution to economic
development.
 Small businesses play an important role
as an engine of growth and as a major
source of employment.
 DEFINING SMALL BUSINESS
4

 There is no generally agreed definition of

the “small business”.
 Businesses are viewed as big or small
depending on the yardsticks and cutoff
points used.
 However, small businesses can be defined
by using quantitative and qualitative
yardsticks which are used to measure
sizes of those firms.
 QUALITATIVE YARDSTICKS
5

 Small businesses’ growth occur through changes in the

firm and its owners or managers.
 They are independently owned and operated.
 Owners contribute most, if not all, of the capital and
therefore face financial loss if the venture fails.
 Owners can make choices freely without external
interference.
 Have small market shares, and often rely on small
numbers of customers.
 Owners/managers run the businesses in a personalized
way, without formal management structure in place.
 QUANTITATIVE YARDSTICKS
6

 Quantitative growth has to do with

changes that are readily measurable
  A small business is defined quantitatively
according to:
• Number of its employees,
• The business’s sales revenue,
• The value of asset,
• Share of ownership held by the owner(s),
 SMALL BUSINESS DEFINITIONS
7

A small business is a firm with the following

features:
1. Its share of the market is relatively small,
2. Capital is supplied and ownership is held by
an individual or a small group, and
3. Area of operation is mainly local. Workers
and owners are in one community, but
markets need not necessarily be local.
(American Committee for Economic
Development)
 SMALL BUSINESS DEFINITIONS
8

- Economically- a small firm has a relatively

small share of the market.
- Managerially- it is administered by its
owners or part owners in a personalized
way, rather than a formalized management
structure.
- Financially - it is independent, therefore
owner-managers are free in taking their
principal decisions.
(Bolton Committee, UK)
 SMALL BUSINESS DEFINITIONS
9

 It is apparent that a small firm in the UK,

Japan, China, or USA might not be small in
Tanzania, or alternatively a large firm in
Tanzania might not be large in the above
countries.
 Accordingly Tanzanian SME scholars,
policy makers and other stakeholders in
2003 agreed that it is appropriate to adapt
a combination of variables.
 TANZANIAN DEFINITION OF SMES
10
THE STRENGTH OF SMALL
BUSINESS
11

 Financial performance
In many industries, they can respond
more quickly and at less cost than big
businesses to the changes in products
and services, processes and markets.
Small manufacturers earn a higher
return on owners equity that large ones.
They have become more attractive to
talented individuals, both men and
women.
THE STRENGTH OF SMALL
BUSINESS
12

 Innovation
In small business, ideas are easily
implemented
Incentives to innovate are greater because:
 small businesses have potentials to quickly
create or capture a sizable market in an
industry than big businesses, which normally
tend protect their market niches.
 There are prospects of generous financial
rewards.
 Small businesses’ creative drive is higher.
 WHY THERE IS MUCH INTEREST IN
SMALL BUSINESS
13

 They help to diversify a nation’s economic

base and provide it with the opportunity to
respond to various market conditions.
 Provide individuals with the opportunity to
overcome social inequality and the capacity
to respond to new market trends and
opportunities.
 Provide healthy competition and support to
bigger business.
 WHY THERE IS MUCH INTEREST IN
SMALL BUSINESS
14

 Assist in the development and dissemination

of technology and innovations.
 Many of them are responsible for new
product innovations that result in adding
value to a country’s economy.
 They cater for market segments and niches
that are not catered for by large corporations,
which might have perceived them as too
small and unprofitable.
 They are important contributors to an
economy’s employment growth.
 ADVANTAGES OF OWNING A SMALL
BUSINESS
15

 Being one’s owner boss provides the small

business operator considerable freedom,
autonomy and the capacity to inject their
“personal touch” into the business.
 The owner can align the business with his
or her personal goals and interests.
 There are potential financial rewards.
 Offers an opportunity to contribute to the
society.
 Permits the owner to provide support,
employment and other opportunities to
family members.
 DISADVANTAGES OF OWNING A
SMALL BUSINESS
16

 Constant change and volatile markets induce

an uncertain existence, including uncertain
income,
 Long hours and hard work,

 Stress,

 Potential for financial loss,

 Increased responsibilities, including looking

after employees,
 The need to do multiple tasks means the
owner must be multi-skilled.
 ROLES PLAYED BY SMALL
BUSINESSES IN TANZANIA
17

 Source of income to over 70% of the population,

 Employ over 70% of the labour force,
 Source of government revenue – tax payment,
 Provide affordable goods and services to low
income earners,
 A market for large organizations,
 Training ground/seedbed for entrepreneurs,
 Available in almost all regions hence support for
equitable development.
LEVELS OF THE SMEs ENVIRONMENT
18

1. Macro – Policies, Regulatory framework,

culture, etc.
2. Meso/Medium – Institutional framework
for supporting SMEs e.g. financial
institutions, boards, sectoral level, etc.
3. Micro- firm level features, strategies, etc.
 TRADITIONAL MACRO ISSUES
19

 Costly and cumbersome regulatory

framework/Unsupportive policies,
 Administrative bureaucracy,
 An under-developed enterprise culture,
 Poor/costly infrastructure,
 Corruption,
 Contract enforcement,
 Property rights,
 Access to land (serviced),
 Etc.
 NON-TRADITIONAL MACRO ISSUES
20

 Globalization/global competition,
 Foreign Direct Investments,

 Subsidies by foreign governments,

 Substandard and used (very cheap) goods,

 Trade Agreements – Reciprocal/non-

reciprocal,
 HIV/AIDS.
 MESO-LEVEL ISSUES
21

 Institutional support framework,

 Access to finance,

 Competition based challenges/ many

SMEs are not demand-driven,
 Limited outreach/limited deployment of
local and foreign markets.
 SOME GOVERNMENT INSTITUTIONS
DEALING WITH SMES
22
 BUSINESS ADVOCACY
ORGANIZATIONS
23

 Tanzania Chamber of Commerce, Industry

and Agriculture (TCCIA),
  Confederation of Tanzanian Industries
(CTI),
 Federation of Associations of Female
Entrepreneurs in Tanzania (FAWETA),
 Jumuia ya Viwanda na Biashara
Ndogondogo (VIBINDO) ,
 ADVOCACY ORGANIZATIONS
24

 Artisans’ Development Agency – Tanzania

(ADAT),
 Tanzania Food Processors Association
(TAFOPA),
 The Tanzania Private Sector Foundation
(TPSF),
 National Business Council.
 ACCESS TO FINANCE
25

Some key financial challenges include:

 Collateral,

 High interest rates,

 Low amounts of loans,

 It takes too long to process loan,

 Low capacity of most banks and

financial institutions in dealing with
SMEs.
 MICRO-LEVEL ISSUES
26

 Owners/managers/employees capabilities
Attitudes
Knowledge
Skills/exposure
 Strategies for, and management of growth

 Networking

 Family businesses and succession

 Gender and entrepreneurship

 SME RELATED OPPORTUNITIES
27

 Most developments in the external

environment can be a source of
opportunities for SMEs:
Economic liberalisation,
Economic intergration,
Privatisation,
 There are a lot of specific product/market
opportunities, which are under or
unexploited
 SME RELATED POLICIES/
PROGRAMMES IN TANZANIA
28

 A number of policies and programs have been

put in place over time in order to improve the
business environment in Tanzania: These include:
 The SME Policy, 2003,
 Strategic Trade Policy, 2003,
 The Land Act, 1990,
 National Microfinance Policy, 2000,
 Poverty Reduction Strategy Paper (PRSP), 2001,
 The Agriculture Sector Development Strategy
(ASDS), 2000.
(ALL THESE ARE AVAILABLE ONLINE – PLEASE
READ)
 SME DEVELOPMENT POLICY (2003-2013)
29

Improved Legal and Regulatory Framework,

Improved Physical Infrastructure,
Entrepreneurship and Business Training,
Improved Access to Information,
Improved Access to Technology,
Improved Marketing Services,
Enhanced Access to Finance,
Improved Institutional Framework for SMEs Development,
Enhanced Rural Industrialisation,
Cross-cutting issues: Environment, Gender, HIV/AIDS.
 STRATEGIC TRADE POLICY, 2003
30

 The objective is to raise efficiency in domestic

production and building a diversified export sector.
 Specific objectives include building an integrated,
diversified and competitive economy capable of
participating more effectively in the multilateral
trading system, stimulation and encouragement of
adding value of domestic products, stimulation of
investment flows in areas where Tanzania has a
comparative advantage and attainment of long-term
current account and balance of payment.
NATIONAL MICRO-FINANCE POLICY, 2000
31

 Its overall objective is to provide a basis

for the evolution of an efficient and
effective micro-financial system in the
country that serves the low segment of
the society and thereby contribute to
economic growth and reduction of poverty.
 POVERTY REDUCTION STRATEGY PAPER
(PRSP), 2001
32

 Provides a framework which ensures that

resources released from decreased debt
service are used for poverty reduction.
Approaches include;
1. Sustaining macro-economic stability;
2. Rural sector development and export
growth;
3. Private sector development.
AGRICULTURAL SECTOR DEVELOPMENT
STRATEGY (ASDS), 2000
33

 Key Issues:
1. Strengthening the institutional framework for
managing agricultural development.
2. Increasing private sector participation through
creation of a favourable climate for commercial
activities
3. Clarifying public and private roles in improving
support services
4. Improving net returns from farms in the short term
and commercialising agriculture in the medium to
long term.
 BUSINESS ENVIRONMENT
STRENGTHENING FOR TANZANIA
34

Aims at ensuring that the services that government

provides to the private sector are efficient and
effective”
Components:
 Achieving better regulation,

 Improving commercial dispute resolution,

 Strengthening Tanzania Investment Centre (TIC),

 Changing culture of government, and

 Empowering private sector advocacy.

RURAL DEVELOPMENT STRATEGY
35

 Strategies to stimulate rural development:

1. Rural industrialisation - incentives for attracting
SMEs to locate in rural areas,
2. Districts allocate specific areas for SMEs to
operate,
3. Establishing an enabling environment at the local
level,
4. Introducing private sector development
programme at district level,