FACTORS AFFECTING BUSINESS PERFORMANCE OF MICROAND

SMALL ENTERPRISES: THE CASE OF EASTERN HARARGHE ZONE

HARAMAYA TOWN

MBA THESIS
BY
GETENET TAKELE

APRIL 2018

Haramaya University, Haramaya

Factors Affecting Business Performance of Micro and Small Enterprises:
The Case of Eastern Hararghe Zone Haramaya Town

By

Getenet Takele

A Thesis Submitted to the Department of Management, Post Graduate

Program Directorate of Haramaya University for Partial Fulfillment of
Requirements for the Degree of Masters of Business Administration

APRIL 2018

Haramaya University, Haramaya

 HARAMAYA UNIVERSITY
SCHOOL OF GRADUATE STUDIES
I hereby certify that I have read and evaluated this Thesis entitled: “factors affecting the
business performance of Micro and Small Enterprises in eastern Hararghe zone: The case of
Haramaya town” prepared under my guidance by Getenet Takele. I recommend that it be
submitted as fulfilling the Thesis requirement.

Robson Mekonnin (Asst.professor) Signature___________ Date ___________

Major Advisor
Bereket Mammo (Asst.professor) Signature____________ Date____________
Co-Advisor

As a member of Board of Examiners of the MBA Thesis Open Defense Examination, we

certify that we have read and evaluated the Thesis prepared by Getenet Takele and examined
the candidate. We recommend that this Thesis be accepted as fulfilling the Thesis requirement
for the Degree of MBA in Management complies with the regulations of the university and
meets the accepted standards with respect to originality and quality.

Signed by the Examining Committee:

Internal Examiner ______________________ Signature____________ Date__________

External Examiner ______________________ Signature____________ Date__________

Chairperson ____________________________ Signature____________ Date__________

 DECLARATION

I, the undersigned, declare that this study entitled “factors affecting the business performance
of Micro and Small Enterprises in eastern Hararghe zone: The case Haramaya town” is my
own work. I have undertaken the research work independently with the guidance and support
of the research advisors. This study has not been submitted for any degree or diploma program
in this or any other institutions and that all sources of materials used for the thesis have been
duly acknowledged.

Declared by

Name: Getenet Takele

Signature: _____________________

Date: _________________________
 STATEMENT OF THE AUTHOR

By my signature below, I declare and affirm that this thesis is my own work and I have
followed all ethical and technical principles of scholarship in the preparation, data collection,
data analysis and complication of this thesis. Any scholarly matter that is included in the thesis
has been given recognition through citation.

This thesis is submitted in partial fulfillment of the requirements for an MBA Degree at the
Haramaya University. The thesis is deposited in the Haramaya University Library and is made
available to borrowers under the rules of the Library. I solemnly declare that this thesis has not
been submitted to any other institution anywhere for the award of any academic degree,
diploma or certificate.

Brief quotations from this Thesis may be without special permission provided that accurate
and complete acknowledgment of source is made. Requests for extended quotations from or
reproduction of this thesis in whole or in part may be granted by head of the School when in
his or her judgment the proposed use of the material is in the interests of scholarship. In all
other instances, however, permission must be obtained from the author of the Thesis.

Name: Getenet Takele

Signature: __________

Date: __________

Department of Management

ii
 BIOGRAPHICAL SKETCH

The author was born in Amhara, awi Zone, guangua Woreda, chagni town on November 29
/11/ 1993. He attended his elementary education at chagni junior elementary School, Senior
Secondary and preparatory education at chagni Preparatory School from 2009 to 2012. He
joined Haramaya University in 2013 and received BA Degree in public administration and
development management on July 2, 2015. After completing BA in public administration and
development management, he employed as Graduate Assistant I in Haramaya University in
2015. He offered different public administration and development management courses for
undergraduate students at Haramaya University. In order to strengthen himself intellectually
and to give a further boost and fillip to his professional career, he joined School of Graduate
Council of Haramaya University for Post graduate programme in masters of Business
Administration as regular student in the year 2017.

iii
 ACKNOWLEDGEMENTS

It is the grace, forgiveness, help and kindness of the almighty God- Jesus Christ that made me
still alive, achieve this success and strength and to go through all the difficult time.

My especial gratitude and appreciation goes to my advisors, Robson Mekonnin

(Asst.professor) and Bereket Mammo (Asst.professor) for their invaluable comments, and
suggestions given throughout the study period.

I would also like to thank the Haramaya town Micro and Small Enterprises development
bureau employees, especially Mr. Addisu melka for giving me useful material and
information. Further, I would like to thank micro and small enterprises „operators and
members for their valuable information and cooperation during data collection with great
commitments.

Finally, I want to forward my thanks to our doctors specially Dr. Arega shumete and Dr.
Mulgeta Damie for their great effort to make capable in my whole works and in the teaching
and learning process.

iv
 LIST OF ACRONYMS

Art. Article
SWOT Strength Weakness Opportunity Threat
CSA Central Statistics Authority
FMSEDA Federal Micro and Small Enterprises Development Agency
GEM Global Entrepreneurship Monitor
FDRE Federal Democratic Republic of Ethiopia
CLEP Commission on Legal Empowerment of the Poor
MSEs Micro and Small Enterprises
MoTI Ministry of Trade and Industry
MUDC Ministry of Urban Development and Construction
MN mean
SD Standard Deviation
SPSS Statistical Package for Social Science
UNIDO United Nations Industrial Development Organizations

v
 TABLE OF CONTENTS

CONTENTS PAGE NO

DECLARATION
STATEMENT OF THE AUTHOR ii
BIOGRAPHICAL SKETCH iii
ACKNOWLEDGEMENTS iv
LIST OF ACRONYMS v
TABLE OF CONTENTS vi
LIST OF TABLES ix
LIST OF FIGURES x
ABSTRACT xi
1. INTRODUCTION
1.1. Background of the Study
1.2. Statement of the Problem 2
1.3. Objectives of the study 4
1.4. Significance of Study 4
1.5. Delimitation of the Study 5
1.6. Limitations of the Study 5
1.7. Organization of the Thesis 5
2. LITERATURE REVIEW 6
2.1. Definition of Micro and Small Enterprises 6
2.2. Definitions of Terms 7
2.3. Role of Micro and Small Enterprises 8
2.4. Factors affect business performance of MSEs 9
2.4.1. Regulatory Constraints 10
2.4.2. Shortage of Working Premises 10
2.4.3. Technology Related Challenges 10
2.4.4. Infrastructure Facilities 11

vi
 2.4.5. Access to Finance 11
2.4.6. Managerial and Technical Skills 11
2.4.7. Entrepreneurial orientation 12
2.4.8. Shortage of Raw Materials 12
2.4.9. Market orientation 12
2.4.10. Recordkeeping Skills 13
2.5. The Concept of Business Performance 13
2.6. Empirical Review 14
2.7. The conceptual framework 17
2.8. Research hypothesis 19
3. RESEARCH METHODOLOGY 20
3.1. Description of the Study Area 20
3.2. Operational definition of Variables 20
3.3. Research Design 22
3.4. Questionnaire Design 23
3.5. Sources of Data 24
3.5.1. Primary Sources 24
3.5.2. Secondary Sources 24
3.6. Method of Data Collection 24
3.7. Sampling Method 25
3.8. Method of Data Analysis 26
3.8.1. Data Processing 26
3.8.2. Data Analysis 27
3.8.2.1. Descriptive Analysis 27

3.8.2.2. Inferential Analysis 27

3.9. Validity and Reliability of Instrument 28

3.10. Ethical Considerations 29
4. DATA PRESENTATION, ANALYSIS AND INTERPRETATION 30
4.1. Introduction 30
4.2. Demographic and Enterprise Information of the Respondents 30
4.3. Factors Affecting the Business Performance of Micro and Small Enterprises 36

vii
 4.3.1. Results of Measures of Central Tendency and Dispersion 36
4.4. Factor analysis 59
4.5. Reliability test 62
4.6. Normality test 62
4.7. Multicollinearity test 63
4.8. Heteroskedasticity test 64
4.9. Pearson‟s Product Moment Correlation Coefficient 65
4.10. Multiple Linear Regressions Analysis 66
5. CONCLUSIONS AND RECOMMENDATIONS 71
5.1. CONCLUSIONS 71
5.2. RECOMMENDATIONS 75
REFERENCE 79
APPENDICES 85

viii
 LIST OF TABLES

Table No. Table Title Page No.

3.1. Sample proportion for the study 26

4.1. Gender of the respondents of MSEs 30

4.2. Marital status of the respondents of MSEs 31

4.3. Age of the respondents of MSEs 31

4.4. Educational level of the respondents of MSEs 32

4.5. Regulatory factors that affect the performance of MSEs 36

4.6. Working Place Factors that affect the performance of MSEs 38

4.7. Technological factors that affect the performance of MSEs 40

4.8. Infrastructural g factors that affect the performance of MSEs 42

4.9. Financial factors that affect the performance of MSEs 44

4.10. Management factors that affect the performance of MSEs 46

4.11. Entrepreneurial factors that affect the performance of MSEs 49

4.12. Raw Materials factors that affect the performance of MSEs 51

4.13. Marketing factors that affect the performance of MSEs 54

4.14. Recordkeeping factors that affect the performance of MSEs 56

4.15. Business performance of MSEs 58

4.16. Construct Items, Factor Loading and Tolerance results 59

4.17. Reliability test result 62

4.18. The relationship between independent variables and performance 65

4.19. Result of multiple linear regressions analysis 67

ix
 LIST OF FIGURES

Figure No. Figure Title Page No.

2.1. Conceptual frameworks, 18

4.1. Type of enterprise they are involved in micro and small enterprises 33

4.2. Factors that motivated them to involve in micro and small enterprises 34

4.3. The source of their start-up capital of micro and small enterprises 35

4.4. Regression residual distributed on normality 63

4.5. Scatter plot, the variance of error term constant 64

4.6. Normal P-P Plot regression standardize Residual 70

x
 Factors Affecting Business Performance of Micro and Small Enterprises in
Eastern Harargee Zone: Case of Haramaya Town

ABSTRACT

The purpose of this research was to investigate factors affecting the business performance of
micro and small enterprises with a special emphasizes on manufacturing, urban agriculture,
service, trade and construction, in Haramaya town, in eastern Harargee zone Oromia region.
The types of research method used under this study were descriptive and explanatory
research. The major purpose of descriptive research was description of the state of affairs as
it exists at present and explanatory was to show relationship between variables was correlated
with an aim of estimating the integrated influence of the factors on business performance. The
data was collected through questionnaire from a sample of 223 operators selected by using
stratified sampling technique and face-to-face interviews were conducted with 10 operators of
MSEs selected by using convenience sampling technique out of 641 MSEs owners/managers in
Haramaya town. Questionnaires were analyzed using statistical analysis such as descriptive
and inferential analyses and the interview questions were analyzed using descriptive
narrations through concurrent triangulation strategy. The empirical study elicited ten major
factors which seem to affect business performance of MSEs in Haramaya town which include:
regulatory, shortage of working premises, technological, infrastructural, finance,
management, entrepreneurial orientation, shortage of raw materials, market orientation and
record keeping factors were discussed. The findings show that technological, infrastructures,
management, entrepreneurial orientation, market orientation and record keeping are
positively and significantly affect the business performance of MSEs. However shortage of raw
material is negatively and significantly affects the business performance of MSEs. On other
hand; variables, such as regulatory and finance are positively affect the business performance
of MSEs, while shortage of working premise is negatively affect the business performance of
MSEs. Developing economies see SMEs as a path out of poverty, unemployment and
household income generation, thereby realizing industrialization and sustainable growth.
There should be a keen interest to adopt proactive policies so as to create competitive
domestic industries. The present paper confirms previous findings and contributes additional
evidence that suggests working on factors affecting MSEs would improve performance and
compensate the multidimensional constraints imposed by the existing market in developing
economies. The finding of this study offers important insights for government bodies, to
operators of MSEs and suggestions for other researchers are forwarded.

Keywords: micro and small enterprises (MSEs); enterprise (internal) and institutional
(external) factors; and business performance.

xi
 1. INTRODUCTION

1.1. Background of the Study

Micro and small enterprises play an important role in lifting people out of poverty and
recognized as an integral component of economic development of countries economic
(Wolfenson, 2007). In developing countries in particular, micro and small enterprises (MSEs)
contribute to economic growth by creating employment opportunities, generating income to
low-income group, ensure equitable income distribution, and thus help people to improve their
lifestyle and livelihood performance (Workneh, 2007).

With regard to employment opportunities creation, MSEs employ a large number of people
with modest skills without requiring high-level training, large sums of capital or sophisticated
technology (Habtamu et al, 2013).

In Ethiopia, for example, MSEs employ a large number of labour forces a national survey in
48 major towns by CSA (2005) reports that nearly 585,000 and 3,000 operators are engaged in
micro and small scale manufacturing industries, respectively, which absorb about 740,000
labor forces. These MSEs contribute about 3.4% to the Ethiopian GDP and 52% to the
manufacturing sector of the country (CSA, 2005).

MSEs are also contributing to poverty reduction and economic growth by providing products
to low-income consumers with reasonable quality and reasonable price (Workeneh, 2007).
Operating on small-scale production system, MSEs exploit niche markets, activate
competition and provide an enabling environment for (micro and small) entrepreneurs to
create their own opportunities, as well as explore, recognize and exploit existing ones (MoTI,
1997).

While MSEs play a significant role in poverty reduction and economic growth by engaging in
diversified businesses, they face a magnitude of factors to successfully and sustainably operate
in the market environment (Carrier 2008). So far, studies conducted among MSEs identify the
main factors to the successful and sustainable operation of the MSEs.
 2

Hanna (2010) and MUDC (2013) found out that though their extent varied across regions and
cities in Ethiopia, lack of working premises, insufficient startup and working capital, and
access to land are the major obstacles of the enterprises. As Aregawi and Tilaye (2014),
MUDC (2013), and Habtamu et al (2013) found out the facilitation and adjustment of the
startup and working capital sources, infrastructure, working premises and management support
for MSEs area key problems for MSEs to function successfully.

As such, studies so far give large emphasis to creating an enabling institutional factors, and
little attention to the enterprise factors, such as: managerial or technical skills, entrepreneurial
orientation, shortage of raw materials, market orientation and recordkeeping factors that the
owners of the micro and small business enterprises require to implement and exercise business
principles and practices essential to run profitable and successful business.

Therefore, the purpose of this research was to analyze both enabling institutional and
enterprise factors affecting the business performance of MSE‟s in Haramaya town which was
purposively selected area.

1.2. Statement of the Problem

There are inherent problems which affect long term survival and business performance of
MSEs such as lack of financial resources, management experience, poor location, poor
infrastructure, low demand for products or services, corruption and shortage of raw materials
(Akabueze, 2002).

In most developing countries, MSEs face constraints both at start up phases and after their
establishment, it is typical of MSEs in Africa to be lacking in business skills and collateral to
meet the existing lending criteria of financial institutions (World Bank, 2004).

In this regard, Hanna (2010) and MUDC (2013) found out that though their extent varied
across regions and cities in Ethiopia, lack of working premises, insufficient startup and
working capital, and access to land are the major obstacles of the enterprises.

As Aregawi and Tilaye (2014), MUDC (2013), and Habtamu et al (2013) found out the
facilitation and adjustment of the startup and working capital sources, poor infrastructure,
 3

working premises, over-taxation, enterprise linkage and management support for MSE‟s area
key problems for MSEs to function successfully.

Most of the previous and existing literature indicated that the poor performances or failure of
MSEs are because of lack enabling institutional factors like: shortage of working premises,
insufficient startup and working capital, inadequacy of infrastructure facilities and giving less
attention to enterprise factors in MSEs that makes them target to harassment and exploitation
which in the long term was expensive, disrupts business and affects its performance ( Admasu
Abera, 2012, Mekonnin Debbie and Tilaye Kassahun , 2013, Gemechu Abdissa and
Teklemariam Fitwi, 2016, Tomas et al, 2017 and James et al, 2013).

But it is notable that enabling institutional factors alone cannot majorly affect the performance
of MSEs. Having this in mind this study newly claims that the failure of MSEs may be due to
failure in enterprise factors such as: managerial or technical skills, entrepreneurial orientation,
shortage of raw materials, market orientation and recordkeeping factors.

This study therefore aims to provide investigation of both institutional and enterprise factors
affecting the business performance of MSEs through a comprehensive review of literature and
empirical study available on the area. This resulted in the development of a theoretical
framework and, it serves not only to provide a self-check to current enterprise sector, but also
to increase the involvement in business activities through a better understanding of the
determinants of the business performance of the enterprises. In particular, the study was
initiated to address the following basic research questions:

 What institutional factors do affect the business performance of MSEs in the study
area?
 How do the enterprises level factors affect the business performances of MSEs in the
study area?
 What is the business performance level of micro and small enterprises in the study
area?
 4

1.3. Objectives of the study

The general objective of the study was to investigate factors that are affecting the business
performance of MSEs in Haramaya town.
Given this, the study has the following specific objectives:
 To investigate the institutional factors that affects the business performance of MSEs
in the study area.
 To examine the enterprise related factors that affect the business performances of
MSEs in the study area.
 To identify the business performance level of MSEs in the study area.

1.4. Significance of Study

Findings this study will help academicians as secondary data in obtaining an understanding of
the institutional and enterprise related factors that influence (promote or undermine) the
performance of MSEs in eastern Ethiopia.

The findings of this study will help MSEs and stakeholders in Haramaya town and other areas,
to gain an insight on the factors that helps MSEs to function successfully and the factors that
undermine the success and sustainability of business performance of MSEs. With such
understanding the stakeholders‟ could take measure by designing interventions that remove or
minimize the factors that affect business performance of MSEs.

It will also increase the body of knowledge to the people who are interested in starting new
MSEs by making them aware with the factors that would affect the performance to their
businesses. This would enable them to start businesses which are sustainable.

The government can use the findings of this study to assist in policy formulation and
development for a framework for critical finance, marketing, work premises and other factors
that affect the business performance of MSE. Moreover, the findings of this study will help the
policy makers and financial institutions how to encourage establishing or expanding MSEs. It
also enables them to know what kind(s) of policies should be framed.
 5

1.5. Delimitation of the Study

The study was delimited geographically in investigating factors affecting the business
performance of MSEs in eastern Harargee, zone particularly in Haramaya town and
conceptually delimited to only MSEs business Performance and its factors that affect their
performance. This study was delimited to the regulatory, shortage of working premises,
technological, infrastructural, financial, management, entrepreneurial orientation, shortage of
raw material, market orientation, and recordkeeping factors. This study was spread across
MSEs especially in the business sector of manufacturing, urban agriculture, Service, trade and
construction.

1.6. Limitations of the Study

It was very difficult for the researcher to undertake the research absolutely without any
problem or limitation. Similar to every research, this study had the following limitations: some
respondents did not return the questionnaires on the promised time which resulted to some sort
of delay to the researcher in submitting the report on proposed time and they do not give
values to the questionnaire and some others did not return it totally. Finance was the critical
constraints on the research and another limitation to this study was respondents did not tell
their profit and sales that forced the researcher to use five point likert scales to measure
business performance of MSEs.

1.7. Organization of the Thesis

This paper is organized under five chapters: The first chapter is introduction part, which deals
with the general aspect of the study, which includes background to the study, statement of the
problem, research objectives, scope, and significance of the study, limitation of the study and
organization of the research paper. The second chapter is devoted to the review of related
literature, conceptual frame work and hypothesis. The third chapter deals with the
methodology part of the paper and it encompasses the research design, data source and
collection techniques, sampling technique and sample size determination, method of data
analysis, operational definition of terms, validity and reliability and ethical consideration,
Chapter four deals with result and discussion, The fifth chapter presents the conclusion and
recommendations.
 6

2. LITERATURE REVIEW

2.1. Definition of Micro and Small Enterprises

The MSE sector everywhere is characterized by highly diversified activities which can create
employment opportunities for a substantial segment of the population. This implies that the
sector is a quick remedy for unemployment and poverty problem. The realization of a modest
standard of living through curbing unemployment and facilitating the environment for new job
seekers and self-employment requires a direct intervention and support of the government and
other concerned stakeholders (Mulugeta, 2011).

However, there is no single and universally acceptable definition of a small enterprise

(Kayanula and Quartey, 2000). This is so because the criteria and ways of categorizing
enterprises as micro and small vary from institution to institution and from country to country
depending essentially on the country‟s level of development. Even within the same country,
definitions also change overtime due to changes in price levels, technology advancements or
other considerations (Emma et al., 2009).

United Nations Industrial Development Organizations (UNIDO) gives definition MSEs for
developing countries. Accordingly, it defines micro enterprises as the business firms with less
than 5 employees and small enterprises as the business firms with 5-19 employees (UNIDO,
2006).
In Kenya micro enterprises are those that employ 10 or fewer workers and small-scale
enterprises are those that employ 11-50 workers. The same study argued that the above
definitions are based on one of the three criteria mainly used in literature to define MSEs-
number of employees. The second criterion relies solely on the degree of legal formality and is
mainly used to distinguish between the formal and informal sectors and the last criterion
defines MSEs by their limited amounts of capital and skills per worker (Ronge et al., 2002)..

Similarly, in Ethiopia there is no uniform definition at the national level to have a common
understanding of the MSE sector. According to the official definitions of MoTI, micro
enterprises are businesses enterprises found in all sectors of Ethiopian economy with a paid up
 7

capital (fixed assets) of not more than Birr 20,000, but excluding high technology consultancy
firms and other high technology establishments. Small enterprises are business enterprises
with a paid up capital of more than Birr 20,000 but not exceeding Birr 50,000 and excluding
high technology consultancy firms and other high technology establishments (MoTI, 1997).

The central statistical authority has attached various definitions to enterprises based on capital,
level of technical and technological capacities. In 2003 the CSA based its definition of MSEs
on the size of employment and extent of automation for small scale enterprises and used a
combination of these criteria for defining such enterprises.

According to regulation, “micro enterprise” means an enterprise having a total capital,

excluding building, not exceeding Birr 50,000 in the case of service sector or not exceeding
Birr 100,000 in the case of industrial sector and engages 5 workers including the owner, his
family members and other employees (Art. 2(1)). The same regulation defines “small
enterprise” as an enterprise having a total capital, excluding building, from Birr 50,001 to
500,000 in the case of service sector or Birr 100,001 to Birr 1,500,000 in the case of industrial
sector and engages 6 to 30 workers including the owner his family members and other
employees (Art.2).

2.2. Definitions of Terms

Cooperatives: association of at least 10 individuals who are from the same area.
Enterprise: It refers to a unit of economic organization or activity whether public or private
engaged into the manufacturing of goods.
Micro enterprise: means commercial enterprise whose capital is not exceeding birr 20,000
other than high technology and consultancy services.
Performance: in this paper performance defined in terms of profitability of the MSEs.
Partnership: involves two or more individuals who have a partnership agreement to operate a
business and share the earnings and liabilities of the venture.
Respondent: respondents are those individuals who are owner, managers or operators of an
enterprise.
 8

Small enterprise: means a business engaged in commercial activities whose capital is

exceeding birr 20,000 and not exceeding 50,000 birr, other than high technology and
consultancy service institutions.

2.3. Role of Micro and Small Enterprises

Roy and Wheeler (2006) indicated that MSE provide a substantial source of employment.
There by contributing to get rid of poverty to the urban poor. According to them, the main
reason for the urban poor to be absorbed in the MSE is due to the fact that the formal sector
does not have the capacity to absorb this growing demand for jobs, and for this reason many
have had to look for alternative means to generate a livelihood. Hence, participation in the
informal sector is often the only option available as a source of income, and so the sector has
absorbed many of the unemployed who have been neglected by the formal sector in the region.
They pointed that the income generated from being engaged in MSEs primarily used to satisfy
the poor„s own physiological needs and those of their family, and then to provide a home and
security for the household. They specifically claimed that MSEs help the urban poor by
making them financially secure which in turn limits or reduces the misery, vulnerability and
material and non-material hardships that come with poverty.

In most fast developing countries, MSEs by virtue of their size, location, capital investment
and their capacity to generate greater employment have proved their powerful propellant effect
for rapid economic growth. The sector is also known as an instrument in bringing about
economic transition by effectively using the skill and talent of the people without requesting
high level of training, much capital and sophisticated technology. The micro and small
enterprise sector is also described as the national home of entrepreneurship. It has the potential
to provide the ideal environment for enabling entrepreneurs to optimally exercise their talents
and to attain their personal and professional goals (Etsegenet, 2000; Ali and Sims, 2001).

In all successful economies, MSEs are seen as an essential springboard for growth, job
creation and social progress. The small business sector is also seen as an important force to
generate employment and more equitable income distribution, activate competition, exploit
 9

niche markets, and enhance productivity and technical change and through the combination of
all of these measures, to stimulate economic development (Nuno Santos, 2003).

For Ethiopia, while the importance of large industrial and other enterprises for the growth of
the be economy cannot be denied, there is an ample evidence that the labor absorptive capacity
of the small business sector is high, the average capital cost per job created is usually lower
than in big business and its role in technical and other innovation activities is vital for many of
the challenges facing the country (Gebrehiwot and Wolday, 2005).

The rationale behind such an approach is that small industries provide substantial scope for
increasing employment as they are labor-intensive, and they require comparatively less capital.
They have lesser gestation period and can easily be set up in rural areas or in backward areas.
They need relatively smaller markets to be economical and hence they have advantage in
being set up as ancillary units. They stimulate growth of entrepreneurship and promote a more
decentralized pattern of ownership and location (Gebrehiwot and Wolday, 2005).

According to Beck and Levine (2005) the small industries have been growing during the last
three decades on account of their significant role in attaining the major objectives as under:
removal of economic backwardness, attainment of self-reliance, reduction of regional
imbalance, reduction in disparities in income, wealth and consumption standards facilitate
mobilization of resources, capital and skills and their optimum utilization, create greater
employment opportunities and raise levels of output, income and standard of living; and meet
substantial part of the economy„s requirement of consumer goods and simple producer goods.

2.4. Factors affect business performance of MSEs

Even though MSE‟s have important roles in economic development, poverty alleviation,
employment opportunity, they are critically certain impeding factors to sustain within the
sector. The research conducted by Bowen, Morara and Mureithi (2009) in Kenya revealed that
three out of five micro and small businesses failed within the first few months of operation due
to competition, managerial inefficiency, insecurity, debt collection, lack of working capital,
power interruptions, political uncertainty, cost of materials and low demand of the products.
 10

The problem confronting MSE‟s appears to be similar in least developed or developing

countries. However, the extent of the problems varies from country to country and industry to
industry; and it depends on firms‟ characteristics (Aremu and Adeyemi, 2011). Currently,
there are many enterprise and institutional factors face MSE‟s in their operations and hinder
their growth in Ethiopia (MUDC, 2013). A hard look at various studies has revealed a number
of deterrents to the growth and survival of the MSEs. These are summarized as under.

2.4.1. Regulatory Constraints

Registration and licensing, and the extent of government official involvement and accessibility
of rules and regulations have impacts on MSE‟s. High start-up costs for licensing and
registration requirements, cost of settling legal claims and excessive delays in court
proceedings can impose excessive and unnecessary burdens on MSE‟s operations.(MUDC
2013).

2.4.2. Shortage of Working Premises

Working premises with leasing price adjustment is the first requirement and taken as
mandatory to the government (FDRE, 2011). According to the three years performance report
of FMSEA (2013), the government has supplied 23,263,938 Sq. kilometers land to buildings,
sheds and displaying places. Although these efforts have been made, it is the second ranked
challenges in regional towns and Addis Ababa (Habtamu, et al., 2013). Thus, the problem
requires attention to gain MSE‟s expected benefit.

2.4.3. Technology Related Challenges

According to Beck and Levine (2005), technology designates a combination of machinery,

labour, skills and techniques. These technologies need to be consistent with local resources
and conditions in order to make effective use of the relatively abundant resources. However,
the issue of adopting appropriate technology and the limited access to this type of technology
has presented serious problems and obstacles for operators of micro and small-scale
enterprises
 11

2.4.4. Infrastructure Facilities

A research conducted by Daniel (2012) stated that unfavorable roads, power interruption,
shortage of water, and inaccessible telecommunications are the major challenges and without
which primary, secondary and tertiary production cannot function. Furthermore, Habtamu et al.
(2013) indicated that MSE‟s operating with available infrastructure facilities has higher
probability of long lasting existence and growth as compared to those MSEs that are operating
without adequate infrastructures; and electric power interruption and inadequate water supply
in Ethiopia was highly affected the growth of the business. Therefore, emphasis should be
given since the success or failures of MSE‟s business growth and development depend on the
availability and efficiency of infrastructure utilization.

2.4.5. Access to Finance

Financial constraints such as inadequate investment capital, insufficient loan, and inefficient
financial market are the major obstacles in doing business, and most MSE‟s are highly risky
ventures involving excessive administrative costs and lack of experience in dealing with
financial institutions (CLEP, 2006). According to Habtamu et al. (2013), financial institutions
such as microfinance and the banking systems in Africa are not in a position in providing
enough financial support to the expansion of micro and small businesses. MUDC (2013) also
identified that financing has become a principal challenge to micro and small scale enterprises
in Ethiopia; except City administrations and regional microfinance institutions, their savings
and family supports, banks in Ethiopia do not provide finance in the form of loan to MSE‟s
due to collateral obligations and other requirement.

2.4.6. Managerial and Technical Skills

The problems of MSE‟s management arises from the limited knowledge and ability of the
owner or shortage of competent staff to advice the owner on management policies (Stephen
&Wasiu, 2013). Decision-making skills, sound management and accounting practices are very
low for MSE operators in developing countries (Aremu&Adeyemi, 2011). In addition, lack of
managerial skills leads to problems in production due to lack of coordination of production
process, and inability to troubleshoot failures on machinery and/or equipment‟s and they
 12

cannot afford to employ specialists in the fields of planning, finance and administration (CLEP,
2006).

2.4.7. Entrepreneurial orientation

Entrepreneurial orientation describes an entrepreneurial approach to the styles, ways and

practices of decision making (Wiklund and Shepherd, 2005). Entrepreneurial firms are
characterized as autonomous, aggressive toward competition, proactive, innovative and
willing to take risks. The three latter characteristics especially are considered to be part of
entrepreneurial orientation (Wiklund and Shepherd, 2005). Innovativeness refers to a firm‟s
tendency to take on board and foster new ideas and experimentation that may result in new
offerings or processes is needed so that the firm can fulfill potential customer needs (Li et al.,
2008).
Proactiveness relates to the firm‟s stance toward competition and is demonstrated through a
combination of proactive and aggressive moves, such as being the first to introduce new
products to markets or anticipating future demand and thus shaping the market (Keh et al.,
2007). Furthermore, entrepreneurial firms are willing to take risks in the hope of high returns
(Li et al., 2008).

2.4.8. Shortage of Raw Materials

Linking MSEs to production input suppliers, improving suppliers‟ capacity and regular supply
of quality information on input supply sources have positive effects on the success of MSE‟s
(Siva, 2012). As MUDC (2013) has pointed out one of the major problems constraining the
MSE‟s development in Ethiopia was found to be shortage of raw materials. To ameliorate such
a problem, an aggressive strategy needs to be crafted to promote business ventures which
supply inputs by local and international investors.

2.4.9. Market orientation

The marketing concept holds the key to organizational success through the determination and
satisfaction of the needs, wants and aspirations of target markets (Blankson and Cheng, 2005).
Laukkanen et al. (2013) argue that MO is highly linked with firm‟s emphasis on creating and
maintaining superior customer value while being mindful of interest of other key stakeholders,
 13

in addition to provision of norms for behavior regarding the organizational development of

and responsiveness to market information.
Market orientation enhances a firm‟s capacity to adjust its operations to its target markets. By
gathering relevant information from the environment and disseminating it, the firm increases
its chances of developing and implementing strategies that are adapted to the opportunities and
threats in the markets (Gonzalez-Benito et al., 2009).

2.4.10. Recordkeeping Skills

MSEs Owners have many tasks; one of the most important and vital to the success of their
business is keeping good records. Germain (2010) observes that most business operators
especially those in MSE perceive recordkeeping as a task that must be done to simply get back
some much needed cash at the end of a particular period of time for example after a year.
However, actually, accurate recordkeeping is not as important to many business operators.
With this perspective, it is no wonder so many of these businesses fail from the beginning.

Proper record keeping provides evidence of how the transaction was handled and substantiates
the steps that were taken in order to comply with business standards. Record keeping is the
foundation on which a compliance program should be built upon measures should be put in
place to capture the documentation and events that take place throughout a transaction
commencing from delivery and payment (Reed, 2010).

Bowen (2009) observes that there is a strong relationship between business performance and
the level of training in the business management especially in business finance record keeping.
Business management entails keeping proper records of the business transactions. Knowledge
and skills in bookkeeping is especially one major factor that impacts positively on
sustainability and growth of SMEs.

2.5. The Concept of Business Performance

According to Martin (2010) performance is defined simply in terms of output terms such as
quantified objectives or profitability. Global Entrepreneurship Monitor (GEM) defined
Performance as the act of performing; of doing something successfully; using knowledge as
 14

distinguished from merely possessing it (GEM, 2004). However, performance seems to be

conceptualized operationalzed and measured in different ways thus, making cross comparison
is difficult. Among the most frequently used operationalisations are survival, growth in
employees and profitability.

Wiklund and Shepherd (2005), stress that it‟s advantageous to integrate different dimensions
of performance in empirical studies. Consequently, using a combination of financial
performance (gross margin, profitability and cash flow) and growth measurement scale (sales
growth rate and employee growth) is more accurate and accessible (Wiklund and Shepherd,
2005; Kraus et al., 2012).
Increase in Sales: Brush (2006), has observed that the frequently used measure business
performance as annual sales, number of employees, growth in sales and growth in employees
number. Therefore, annual increase in sale of a business can serve as a yard stick to measure
performance of a firm (Brush, 2006).

Alkali (2012) has stated that the business performance is measured by an increase in the
number of employees. The empirical study supports the fact that an increase in the number of
employees is a criterion for the measure of business performance of enterprises.

Ahmed Abdelrahim (2007) has observed that the frequently used measurement of business
performance is increasing profits. Therefore, increasing profits has been widely adopted by
most researchers and practitioners in measuring business performance models. So profit of a
business can serve as a yard stick to measure performance of enterprises.

The framework has identified three indicators as dimensions of performance. These were:
profitability, sales growth rate and employee growth.

2.6. Empirical Review

A study by Mwania, (2011) on the effect of Biashara Boresha Loan (BBL) on Performance of
Micro and Small enterprises owned by Kenya Commercial Bank (KCB) Ruiru branch
customers with objectives to review the lending procedures of Biashara Boresha loan, to
 15

assess the effect of BBL on MSEs performance and to find out the challenges faced in lending
to SMEs, found out that besides BBL, there are other factors believed to have an effect on
business performance. It also found no conclusive results on the relationship between
entrepreneurs‟ level of education and business performance. Of the 51% respondents who
received training in their areas of business, 49.5% reported that their businesses were doing
well, concluding that relevant training can produce positive results in the running of
businesses.

Kinyua (2014), researching on factors affecting the performance of small and medium
enterprises in the Jua Kali Sector in Nakuru town, Kenya with objectives to investigate the
role of finance, management skills, macro-environment factors and infrastructure on
performance of small and medium-sized enterprises in the Jua Kali sector in Nakuru town. The
findings indicated that; that access to finance had the potential to positively affect performance
of SMEs; management skills were found to positively and significantly affect performance of
SMEs; macro environment factors were found to significantly affect performance and
Infrastructure did not significantly affect performance of SMEs in the study area. The study
results also indicated that as number of years in operations increased the performance in SMEs
increased. The study recommended that banks should improve access to finance through
offering better lending terms and conditions and collateral requirements; focus on acquiring
appropriate management skills such as financial, marketing and entrepreneurial skills and
effectively strengthen the macro environment in order to increase SMEs performance.

In Ethiopia, the MSE sector has high capacity in absorbing high labor force; this is because the
sector is characterized by diversified activities due to its contribution for alleviating the
poverty of the low income people and of course with a number of constraints micro and small
enterprises get the attention of many researchers.

Accordingly, Daniel (2007) with having an objective to assess the impact of group-based
MSEs on poverty alleviation conducted a research in Nekemte city of the Oromia Regional
State of Ethiopia. According to this study, 48% of the surveyed respondents are of a view that
their income has increased while 22.7 % said that their income has decreased as a result of
 16

their engagement in the studied MSEs. The study further indicated that the studied respondents
consumption expenditure has increased after they start to work in MSEs, which has resulted in
the improvement of the operators consumption and ownership of water, housing, household
assets, education and medication. The same study showed that MSEs have a protective role on
averting vulnerability of their members to risks such as food shortage, unemployment and lack
of income. Most importantly, the research pointed that MSEs have helped for the economic
empowerment of women. Lastly the study identified that Lack of market, stiff competition,
lack of working capital, raw material shortage and poor managerial skills are among the
problems that MSEs are encountering.

Ephrem (2010) indicated that MSEs are contributing a lot for poverty alleviation but they are
facing multi-dimensional problems both at start up and operational levels. Considering the
main problems of the enterprises in different sectors this researcher reveals that, startup capital,
high interest rates, skilled personnel, production place, unaffordable tax and /or rent,
inadequate support from Government/NGO, working capital or lack of credit facilities, lack of
access for training were among the major impediments for operator/manager at the grass root
level of MSEs activities.

Mulugeta (2011) in his study entitled the livelihoods reality of micro and small enterprise
operators identified and categorized the critical problems of the MSEs in to market-related
problems, which are caused by poor market linkage and poor promotional
efforts;institutionrelated problems including bureaucratic bottlenecks, weak institutional
capacity, lack of awareness, failure to abide policies, regulations, rules, directives, absence of
training to executives, and poor monitoring and follow-up ; operator-related shortcomings like
developing a dependency tradition, extravagant and wasting behavior, and lack of vision and
commitment from the side of the operators; MSE-related challenges including lack of selling
place, weak accounting and record keeping, lack of experience sharing, and lack of
cooperation within and among the MSEs; and finally society-related problems such as its
distorted attitude about the operators themselves and their products.
 17

Most of the previous and existing literatures said that the poor performances or failure of
MSEs are because of lack enabling institutional factors like: regulatory, shortage of working
premises, technological, infrastructural and financial factors and also most of the previous
research concentrate on businesses that are operated in the cities administration and highly
urbanized centers.

In reality, literature on MSEs in Ethiopia is scanty and most of the available studies were not
conducted in line with business performance aspects of micro and small enterprises. However,
this research tries to study The enterprise factors that affect the firm‟s business performance
can be classified as management, entrepreneurial orientation, shortage of raw material, market
orientation and record keeping factors that affect the performance of MSEs by giving high
attention in addition to institutional factors and in a holistic way by targeting and deeply
investigating those operators (MSEs) engaged in manufacturing, urban agriculture, Service
trade and construction in Haramaya town.

2.7. The conceptual framework

Conceptual framework means that concepts that relate to one another are used to explain the
research problem.Since business performance is influenced by enterprise and enabling
institutional factors, MSEs need to understand what influence businesses to reach optimal
performance. The factors must be closely monitored to ensure that stringent measures are
taken within the best time to either take advantage of the opportunities or combat the threats
found in the external environment. The enterprise factors that influence the firm‟s performance
of MSEs internally. To align the conceptual framework with the research objectives, business
performance is the dependent variable where as enterprise and institutional factors are all
independent variables. The relationship can be expressed and shown in figure 2.1
 18

ENABLING INSTITUTIONAL
(External) FACTORS

Regulatory Constraints
Shortage of Working Premises:
Technology Related factor
MSE PERFORMANCE
Infrastructure Facilities
Sales growth rate
Access to finance:
Growth of number of
employees

Profitability
ENTERPRISE (Internal) FACTORS

Managerial and Technical Skills

Entrepreneurial orientation

Shortage of Raw Materials

Market orientation
Recordkeeping

Figure 2.1 Conceptual frameworks, Source: (from literature review)

 19

2.8. Research hypothesis

After careful concern of all independent variables and the dependent variable of the study, the
following hypotheses were developed.

H1: Regulatory factor is significantly associated to business performance

H2: Shortage of working premises is significantly influence business performance

H3: technology is significantly related to business performance

H4: infrastructure is significantly influence business performance

H5: finance is significantly related to business performance

H6: Management is significantly associated to business performance

H7: entrepreneurial orientation is significantly associated to business performance

H8: Shortage of raw material is significantly influence business performance.

H9: market orientation is significantly related to business performance

H10: recordkeeping factor is positively influence business performance

 20

3. RESEARCH METHODOLOGY
3.1. Description of the Study Area

The study would conduct in Oromia region of eastern Hararghe zone Haramaya town. The
town has latitude and longitude of 9°24′N 42°01′Ecoordinates: 9°24′N 42°01′E with an
elevation of 2047 meters above sea level.

Haramaya town is found 17 km west of Harar, on the road to Dire Dawa. Based the Central
Statistical Agency in 2005, Haramaya has an estimated total population of 15,317 of whom
7,796 are men and 7,521 were women. The 1994 national census reported this town had a total
population of 8,560 of whom 4,228 were males and 4,332 were females. It is the largest of the
three towns in Haramaya woreda.

3.2. Operational definition of Variables

Dependent variable, Business Performance is defined as the action or achievement

considered in relation to how successful the enterprise is and business performance of SMEs is
measured using a combination of financial performance and growth measurement scales
(Kraus et al., 2012).

Accordingly, the two commonly used methods in several studies cover both financial and
growth measure Growth as a measure of performance may be more accurate and accessible
than accounting measures of financial performance (Wiklund and Shepherd, 2005). Therefore,
to accurately measure the overall performance of MSEs, both dimensions should be integrated.
Financial performance was measured from profitability perspectives, while sales and
employee growth rate were used as growth measurement scale. A five-point Likert scale was
used and respondents were inquired to rate MSEs financial performance and to assess growth-
oriented measures in their enterprise.

Independent variables the following were the independent variables used in this study:

Regulatory Constraints: - registration and licensing, and the extent of government official
involvement and accessibility of rules and regulations employed in controlling and directing
an activity, organization and system (MUDC 2013), measured by 5 point likert scale
 21

Shortage of Work premises: the government has supplied. Land to buildings, sheds and
displayingplacesand other designated structure. The exact premises may be important indeterm
ining if an outbuilding insured or whethera person accused of burglary has actually entered a st
ructure (FMSEA 2013), measured by 5 point likert scale.

Access to Technology: technology designates a combination of machinery, labour, skills and

techniques. These technologies need to be consistent with local resources and conditions in
order to make effective use of the relatively abundant resources (Beck and Levine (2005),
measured by 5 point likert scale.

Infrastructure: is the availability of fundamental facilities and systems serving a country,

city, or other area including the services and facilities necessary for its economy to function. It
typically characterizes technical structures such as roads, water supply, electrical grids, and
telecommunications (Habtamu et al. 2013), measured by 5 point likert scale.

Access to finance: The availability of financial sources or adequate capital, sufficient loan,
and financial market in terms of facilitating financial resources to micro and small enterprises
MUDC (2013); measured by 5 point likert scale.

Management skill: the ability to make business decisions and lead subordinates within the
company the three most common skills includes human skills- the ability to entract and
motivate, technical skills- the knowledge and proficiency in the trade, conceptual skills- the
ability to understand concepts develop ideas and implement strategies and communication
skills- communication ability, response behavior and negotiation tactics (CLEP, 2006),
measured by 5 point likert scale.

Entrepreneurial orientation: Like managerial competencies, entrepreneurial

competencies can be defined as underlying characteristics such as generic and specific
knowledge of innovation and skills which result in finding new opportunity, how better
perform than competitors, (Wiklund and Shepherd, 2005), measured by 5 point likert scale.

Shortage of raw material: are materials or substances used in the primary production or
manufacturing of goods. Raw materials are often referred to as commodities, which are bought
and sold on commodities exchanges around the world. Raw materials are sold in what is called
 22

the factor market, because raw materials are factors of production along with labor and capital
that firm used to produce output (Siva, 2012), measured by 5 point likert scale.

Market orientation: the management process through which goods and services move from
concept to the customer, Level of commitment to serve customers, understanding of customer
needs and wants, employees‟ contribution to create customers value and how to get strategy
for competitive advantage (Laukkanen et al. 2013), measured by 5 point likert scale.

Record keeping: This is the practice of maintaining and monitoring the history of financial
activities by an individual or organization or a system provide a source of information to
owners and managers of MSEs operating in any enterprise for use in the measurement of
financial performances (Germain, 2010.), measured by 5 point likert scale.

3.3. Research Design

Research design is the blueprint for fulfilling research objectives and answering research
questions (John et al., 2007). In other words, it is a master plan specifying the methods and
procedures for collecting and analyzing the needed information. It ensures that the study
would be relevant to the problem and that it uses economical procedures. The same authors
discusses three types of research design, namely exploratory (emphasizes discovery of ideas
and insights), descriptive (concerned with determining the frequency with which an event
occurs or relationship between variables) and explanatory (concerned with determining the
cause and effect relationships).

The types of research uses under this study were descriptive and explanatory research. The
major purpose of descriptive research was description of the state of affairs as it exists at
present. Then this study describes and critically investigates the factors affecting the business
performance of MSEs in Haramaya town. Second, the study employs explanatory in that the
relationship between variables was correlated with an aim of estimating the integrated
influence of the factors on business performance.

Moreover, the study utilized cross-sectional in the sense that all relevant data was collected at
a single point in time. The reason for preferring a cross-sectional study was due to the vast
nature of the study and the limitation of time. And obtaining information from a cross-section
 23

of a population at a single point in time is a reasonable strategy for pursuing many descriptive
researches (Janet M. Ruane, 2006).

According to Mark et al. (2009) mixing qualitative and quantitative approaches gives the
potential to cover each method‟s weaknesses with strengths from the other method. In this
study, a combination of qualitative and quantitative approaches of doing research were
employed

3.4. Questionnaire Design

The layout of the questionnaire was kept very simple to encourage meaningful participation by
the respondents. The questions were kept as concise as possible with care taken to the actual
wording and phrasing of the questions. The reason for the appearance and layout of the
questionnaire are of great importance in any survey where the questionnaire is to be completed
by the respondent (John et al., 2007).

The research instrument (Questionnaire) was designed based on the extensive range of
literature on regulatory, shortage of working premises, technological, infrastructural, financial,
management, entrepreneurial orientations, shortage of raw material, market orientations and
record keeping factors.

Besides, some questions in the questionnaire were adapted from other sources such as,
regulatory, shortage of working premises, technological, infrastructural, financial and
management questions were adapted from (Admasu Abera, 2012; Mulugeta, 2010), shortage
of raw material and record keeping were adapted from (Endalkachew Desta, 2016) and
entrepreneurial orientation and market orientation were adapted from (Tommi et al., 2013).
The questions that were used in the questionnaire were five-point likert scale type (strongly
agree to strongly disagree) for independent variables and (highly decreased to highly
increased) for dependent variables.
 24

3.5. Sources of Data

The study uses both primary and secondary sources of data.

3.5.1. Primary Sources

In order to realize the target, the study used well-designed questionnaire as instrument. This
would be completed by the owner managers or an operator of the enterprises and structured
and unstructured interviews with the MSEs Operators and the relevant owner managers who
heads the enterprises in the selected sectors was conducted. The interview method of data
collection was preferred due to its high response rate. That it gives the people concerned an
opportunity to interact and get details on the questions and answers. Through interviews,
clarification of issues was easily achievable leading to accuracy of data from the respondents.

3.5.2. Secondary Sources

Secondary data from files, office manuals, and annual reports were used to provide additional
information where appropriate. Besides, variety of books, published and unpublished
documents and reports were reviewed to make the study fruitful.

3.6. Method of Data Collection

To collect relevant quantitative data from the selected samples questionnaires which consists
closed ended questions would be applied. The questionnaires were prepared in English
language; however, it was translated into the local language (Amharic) in order to make the
questions simple, clear, and understandable to respondents. The pilot test (pre-test) was
conducted prior to the actual survey questionnaires. This would help the researcher to see
whether there were any difficulties in relation to the questionnaire and to modify based on the
feedback of the pre-test or to check the reliability and validity of the data that the researcher
collect. The questions that would use in the questionnaires were five-point likert scale type
questions. The range of the scale used ranging from a value of 1 for strongly disagree response
up to the value of 5 for strongly agree responses.
 25

The other qualitative data collection instrument was interview. The information gathered
through this method was used to triangulate and complement the information collected
through other methods. The data was gathering by interviewing MSEs operators. In this study,
the key respondents were the main actors of the study area such as MSE managers. Face-to-
face interview was held about the various issues of the enterprise in order to identify the true
nature of the problem.

3.7. Sampling Method

Stratified random sampling was used to get information from different sizes of the MSEs.
This technique was preferred because it was used to assist in minimizing bias when dealing
with the population. With this technique, the sampling frame could be organized into relatively
homogeneous groups (strata) before selecting elements for the sample. This step increases the
probability that the final sample would be representative in terms of the stratified groups. The
strata‟s were sectors including: manufacturing, urban agriculture, Service, trade and
construction.

According to Catherine (2009), the correct sample size in a study is dependent on the nature of
the population and the purpose of the study. Although there are no general rules, the sample
size usually depends on the population to be sampled. In this study to select sample size, a list
of the population formally registered MSEs from 2007-2009 E.C based on areas of engaging
in Haramaya town MSE office. The total populations of the study were 641 enterprises in
construction (61), manufacturing (77), and urban agriculture (48). Service (206) and trade
(249) (Haramaya town MSEs Office, 2017).

With regard to sample size, a simplified formula provided by Yamane (1967) was used to
determine the minimum sample size at 95% level of confidence, 5% degrees of variability and
precision level (e)
 26

n= = =247

Where

n was the minimum sample size

N was the total number of the study population and

e was the level of precision.

Table 3.1 Sample proportion for the study

Micro and Small Total number of micro sample size of micro and small
enterprise sectors (strata) and small enterprises per enterprises per stratum(n)
stratum (N)
Trade 249 96
Service 206 79
Urban agriculture 48 18
Manufacturing 77 30
Construction 61 24
Total 641 247
Source: Haramaya town MSEs Office, 2017

3.8. Method of Data Analysis

3.8.1. Data Processing

The method of data processing in this study was manual and computerized system. In the data
processing procedure editing, coding, classification and tabulation of the collected data would
be used. The collected raw data was edited to detect anomalies, errors and omissions in
responses and checking that the questions were answered accurately and uniformly. The
process of assigning numerical or other symbols came next which was used to reduce
responses into a limited number of categories or classes. After this, the processes of
classification or arranging large volume of raw data into classes or groups on the basis of
common characteristics were applied. Data having the common characteristics was placed
 27

together and in this way the entered data were divided into a number of groups. Finally,
tabulation and pie charts would be used to summarize the raw data and displayed in the form
of tabulation for further analysis.

3.8.2. Data Analysis

This is the further transformation of the processed data to look for patterns and relationship
between or among data groups by using descriptive and inferential statistical analysis. The
Statistical Package for Social Science (SPSS) version 20 was used to analyze the data obtained
from primary sources. Specifically, descriptive statistics (mean standard deviation and charts)
and inferential statistics (correlation and regression) were taken from this tool.

3.8.2.1. Descriptive Analysis

Descriptive analysis was used to reduce the data in to a summary format by tabulation (the
data arranged in a table format) and measure of central tendency (mean and standard
deviation). Moreover, pie charts were used to describe the general characteristics of enterprises.
The reason for using descriptive statistics was to compare the different factors. Besides, the
interview questions were analyzed using descriptive narrations strategy.

3.8.2.2. Inferential Analysis

According to Sekaran (2000), inferential statistics allows to infer from the data through
analysis of the relationship between two or more variables and how several independent
variables might explain the variance in a dependent variable. In this study the Pearson Product
Moment Correlation Coefficient and multiple regressions was employed.

The equation of regressions on this study was generally built around two sets of variables,
namely dependent variable (performance) and independent variables (institutional and
enterprise).
 28

The basic objective of using regression equation on this study was to make the study more
effective at describing, understanding and predicting the stated variables. Regress Performance
on Selected Variables.

Yi = β0+ β1X1 + β2X2 + β3 X3 + β4X4 + β5X5 + β6X6 + β7X7 + β8X8 + β9X9 + β10X10 +
Ԑi
Where: Y is the response or dependent variable- performance X1= regulatory, X2= shortage
of working premises, X3= technology, X4= infrastructure, X5= finance, X6= management
skills, X7= entrepreneurial orientation, X8= shortage of raw material, X9= market orientation
and X10= recordkeeping are the explanatory variables. β0 is the intercept term- constant
which would be equal to the mean if all slope coefficients are 0, Ԑi is error term.
β1, β2, β3, β4, β5, β6, β7, β8, β9 and β10 are the coefficients associated with each
independent variable, which ought to be estimated through employing the appropriate
regression model. They are coefficients that explain variation in of the dependent Y, per unit
of change in the respective independent variables

3.9. Validity and Reliability of Instrument

Validity is the degree to which a test measures what it purports to measure (Creswell, 2009).
Validity defined as the accuracy and meaningfulness of the inferences which are based on the
research results. It is the degree to which results obtained from the analysis of the data actually
represents the phenomena under study. He contends that the validity of the questionnaire data
depends on a crucial way the ability and willingness of the respondents to provide the
information requested.

A pilot study was conducted to refine the methodology and test instrument such as a
questionnaire before administering the final phase. Questionnaire was tested on potential
respondents to make the data collecting instruments objective, relevant, suitable to the
problem and reliable as recommended by John et al. (2007). Issues raised by respondents were
corrected and questionnaire was refined. Besides, proper detection by advisors was also taken
to ensure validity of the instruments. Finally, the improved version of the questionnaire was
printed, duplicated and distributed.
 29

The reliability of instruments measures the consistency of instruments. Creswell (2009)

considers the reliability of the instruments as the degree of consistency that the instruments or
procedure demonstrates.

In this study each statement rated on a 5 point likert response scale which includes strongly
agree, agree, undecided (average), disagree and strongly disagree. Based on this an internal
consistency reliability test was conducted in Harar-city with a sample of 30 operators and the
Cronbach's alpha coefficient for the instrument was found more than .70 which is highly
reliable. Typically an alpha value of 0.70 or higher is taken as a good indication of reliability,
although others suggest that it is acceptable if it is 0.67 or above (Cohen et al., 2007). Since,
instruments were developed based on research questions and objectives; it was possible to
collect necessary data from respondents. Then, instruments were consistent with the objectives
of the study.

3.10. Ethical Considerations

According to Bryman and Bell (2003) plagiarism refers to passing off another person„s work
as if it were your own, by claiming credit for something that was done by someone else. It is
taking and using another person„s thoughts as if they were your own. Because of that the care
was taken to ensure that all work borrowed from other scholars was acknowledged.

Mugenda (2003) notes that participation in research is voluntary and subjects are at liberty to
withdraw from the study at any time without any consequences. The researcher was required
to communicate this to the respondents before starting of the study. The researcher through the
trained assistants ensured that all respondents fully understood all the details pertaining to the
study. No respondent was forced to take part in the study but this was done voluntarily. So for
this study all participants have been properly informed about the purpose of the study and thus
responses to the questionnaires have all been based on informed consent. All the sources used
in this research work were appropriately acknowledged. Besides, certain ethical considerations
have been sufficiently observed while collecting the data through the questionnaires.
 30

4. DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.1. Introduction

This section is organized by presenting the general information about MSEs, are presented and
analyzed and data collected through questionnaires and interviews are analyzed at the same
time. On top of that, the results of Pearson‟s Product Moment Correlation Coefficient and
regressions are also analyzed and presented.

A total number of tow hundred forty seven questionnaires were distributed and among them
223 were completed by the respondents and returned back; this represented 90% response rate.
Out of the total sample of 247 questionnaires administered 30 were for Manufacturing, 18
were for urban agriculture, 79 were for service, 96 were for trade and 24 were for Construction
MSEs sectors. The number of questionnaires filled and returned back from Manufacturing,
urban agriculture, service, trade and Construction were 30, 16, 75, 82 and 20 showed a
response rate of 100%, 89%, 95%, 86% and 83% respectively.

4.2. Demographic and Enterprise Information of the Respondents

Table 4.1.Gender of the respondents of micro and small enterprises

Gender Frequency Percent

Male 147 65.9

Female 76 34.1

Total 223 100.0

Source: Field survey, 2018

Since sex is one of the characteristics, respondents were asked about their sex. In table 4.1,
shows the proportion of men in MSEs Covers 65.9% and women constitute only 34.1%,
demonstrating that there is a clearly observable gender gap. From the findings it is evident that
 31

both males and females are involved in the management of MSEs Business although males are
the majority.

Table 4.2. Marital status of the respondents of micro and small enterprises

Marital status Frequency Percent

Married 153 68.6

Single 50 22.4
Divorce 20 9.0

Total 223 100.0

Source: Field survey, 2018

As is shown in the table 4.2 above, out of the 223 respondents in the selected enterprises,
(68.6%) of respondents are married while (22.4%) of the respondents are single. The divorced
sample respondents accounted for about (9.0%). Hence this table 4.2 shows that most
proportions of married, single and divorced women and men are able to participate in MSEs
and the sector is capable of absorbing all individuals indiscriminately.

Table 4.3. Age of the respondents of micro and small enterprises

Age of respondents Frequency Percent

25-35 133 59.6

36-45 62 27.8
>45 28 12.6

Total 223 100.0

Source: Field survey, 2018

Table 4.3 above, the age groups are divided into three. The respondents within 25-35 years of
age are (59.6%), 36-45 are (27.8%), and greater than 45 are (12.6%). The information suggest
that most of the people investing in MSEs are middle aged who were trying to invest in
 32

business in order to become their own boss because there is high rate of unemployment and
the best way to make it in life is having their own business.

Table4.3 above, presents the age distribution of the respondents and clearly shows that
majority of them fall in the working age group. Such productive work force is often believed
to be an engine for the overall development of a country. With this reservation, therefore, it
can be drawn that majority of the MSE owners age are youth who has better energy and speed
that would help to produce more is among the ones the country‟s desired economic
development can be attained by this age group.

Table 4.4. Educational level of the respondents of micro and small enterprises

Educational level Frequency Percent

12 completed 41 18.4
TVET 47 21.1
Diploma 44 19.7
BA/BS Degree 82 36.8
Masters 9 4.0

Total 223 100.0

Source: Field survey, 2018

From the findings in the above table 4.4, indicates information on educational level of
respondents to identify the skill of the respondent based on their level of education. High level
of human capital and research and development are positively associated with the performance
of firms. They promote the growth of firms from low level of activities to large and better
enterprises. From Table 4.4 above, it can be observed that the majority of education levels are
from BA/BS Degree (36.8%), TVET (21.1%), the respondents with diploma level of
education, 12 completed and Masters Degree holders‟ accounts for (19.7%), (18.4%) and
(4.0%) of the sample respondents respectively. It can be clearly observed from the finding that
majority of the MSE operators have BA/BS Degree level of education which is (36.8%) of the
total respondents. This shows that various university and college graduates are starting to
engage in the MSEs Sector due to government encouragement by providing loans and other
 33

services. As a result the MSEs Sector has more owners who have attended high levels of
education like other sectors.

Figure 4.1. Type of enterprise they are involved in micro and small enterprises

8.97 %
13.90%
Trade
6.73% Service
Manufacturing

36.77% Construction
Urban agriculture

33.63%

Source: Field survey, 2018

As shown in figure 4.1 above, the sample firms are operating in five different sectors on the
economy. Most of them are engaged in trading (36.77%) followed by service (33.63%),
manufacturing (13.90%), construction (8.97 %) and urban agriculture (6.73%). This division
of MSEs by sector type is believed to be helpful to study each sector critical factors that affect
the performance of MSEs. This is because firms in different sectors of the economy face
different types of problems. That means the degree of those critical factors in trade sector may
differ from the factors that are critical to service, manufacturing, construction and urban
agriculture sectors.
 34

Figure 4.2. Factors that motivated them to involve in micro and small enterprises

21.52 % 17.04%
Employment alternatives
Previous experience
Profitability

Government support
9.87 %

51.57 %

Source: Field survey, 2018

The results in figure 4.2 above indicate that, more than half of the respondents (51.57%) are
engaged in MSEs due to lack of other job alternatives. This is followed by previous experience
in the same business (21.52%) which means that a person who was hired by other or person
who was failed in the same business enterprises, profitability (17.04%) and expectation of
good government support (9.87%) respectively. In other words, the finding of this research
indicates that the MSEs accommodate the most active and productive age group of people and
creating a fertile ground mostly for the youth and adults by providing employment
opportunities.
 35

Figure 4.3. The source of start-up capital to involve in micro and small enterprises

10.76%
Own saving

Family transfer
25.56% Micro finance

Bank

39.91%
23.77%

Source: Field survey, 2018

In the figure 4.3 above respondents were asked to identify their startup capital for their
business (39.91%) of the respondents main source of start-up fund was from their own
personal saving, (25.56%) of the respondents shows that their business start up fund source
was their family, (23.77%) of the respondents got their business capital from micro finance
institution, and (10.76%) get assistance from banks respectively. This implies that for the most
MSEs in Haramaya town; personal saving is the main source of finance to start their business.

Besides, the result of interview shows that majority of MSEs in the study area uses informal
sources like iqub and friends/relatives play the greatest role. The formal financial institutions
have not been able to meet the credit needs of the MSEs. According to majority interviewee,
the reason for emphasizing on informal sector is that the requirement of collateral/guarantor is
relatively rare since such sources usually take place among parties with intimate knowledge
and trust of each other. But the supply of credit from the informal institutions is often so
limited to meet the credit needs of the MSEs. To wind up, such constraint of finance for MSE
affects their performance directly or indirectly.
 36

4.3. Factors Affecting the Business Performance of Micro and Small Enterprises

Respondents were asked different questions regarding the factors affecting the business
performance of MSEs in Haramaya town. Their responses are organized in accordance with
acceptable procedures below.

4.3.1. Results of Measures of Central Tendency and Dispersion

This part explains the descriptive statistics calculated on the basis of the factors that affect the
business performance of MSEs. The results for measures of central tendency and dispersion
are obtained from the sample of respondents of manufacturing, urban agriculture, service;
trade and construction are shown in the following tables.

Table 4.5. Regulatory factor that affect the performance of MSEs

Item Manufact Urban Service Trade Constructi

uring agriculture on
Regulatory factors MN SD MN SD MN SD MN SD MN SD

Grand mean/standard deviation

The tax levied on my 3.87 .71 3.8 .67 4.12 .59 4.01 .40 3.8 .69
business is not fair
Bureaucracy in enterprise 3.61 .80 3.2 1.01 3.53 .81 3.66 .90 3.35 .98
registration and licensing
Limited analysis of 3.61 .80 3.26 1.03 3.17 1.09 3.35 .86 3.25 1.01
policy constraints and
opportunities to MSEs
Lack of accessible 3.51 .81 3.13 1.06 3.30 1.19 3.46 1.00 3.2 1.00
information on
government regulations
that are relevant to my
business
Grand 3.65 .78 3.35 .94 3.53 .74 3.62 .79 3.4 .92 3.51 .83
Source: Field survey, 2018 MN=Mean, SD=Standard deviation

As it is indicated in table 4.5 above, the mean and standard deviation for the legal factors are
calculated. The table shows that MSEs engaged in manufacturing, urban agriculture, service,
trade and construction sector, the tax levied on their business is not faire. The agreement on
the unfairness of the tax amount is justified by the calculated means of 3.87, 3.8,, 4.12, 4.01
and 3.8 with standard deviation of .71, .67, .59, .40 and .69 respectively. Therefore, it may be
 37

concluded that unfairness of the tax amount levied on their business is the main factor that
affects the business performance of all sectors.

According to the table 4.5 above, the bureaucracy in company registration and licensing has a
mean score of 3.61, 3.56 and 3.66 with a standard deviation of .80, .81 and .90 for MSEs
engaged in manufacturing, service and trade sector. Therefore, it may be concluded that
bureaucracy in company registration and licensing is the main factor that affects the business
performance of the sectors. However MSEs engaged in urban agriculture and construction
sectors have the mean score of3.2 and 3.35 with standard deviation of 1.01 and .98 that shows
neither „agreed‟ nor „disagreed‟(undecided) with this problem.

on the same table 4.5 above MSEs engaged in urban agriculture , service, trade, and
construction sector are neither „agreed‟ nor „disagreed‟(undecided) for the question, limited
analysis of policy constraints and opportunities to MSEs .The agreement on this is justified by
the calculated means of 3.26, 3.17, 3.35 and 3.25 with standard deviation 1.03, 1.09, .86 and
1.01 respectively. But MSEs engaged in manufacturing sectors are agreed for, limited analysis
of policy constraints and opportunities is one of the regulatory factor that is the main factor
that affect business performance of MSEs engaged in the above sector which is justified by
mean score of 3.61 and standard deviation of .80 respectively.

Lastly, the MSEs engaged in urban agriculture, trade, service and construction sectors are
neither „agreed‟ nor „disagreed‟(undecided) with related to lack of necessary information on
government regulations. That is a mean score of 3.13, 3.30, 3.46 and 3.2 with standard
deviation of 1.06, 1 .19, 1 and 1 respectively. But MSEs engaged in manufacturing sectors are
agreed with related to lack of necessary information on government regulations with the mean
score 3.51 and standard deviation of .81 respectively.

According to Dlitso and Peter. (2000), high start-up costs for licensing and registration
requirements, cost of settling legal claims and excessive delays in court proceedings can
impose excessive and unnecessary burdens on MSE‟s operations.

When the above responses compared with the interview conducted with operators of MSEs, it
is confirmed that there are problems related to government bodies at Haramaya town. The
interviewees are said implementation problems is widely observed on the side of the heads
 38

and lower level experts and employees of government sector offices such as lack of
responsiveness to the demands of the MSEs sectors. This arises either from the deliberate
tendency of the executives to be bureaucratic or their lack of awareness about the procedures,
policies and proclamations that favor MSEs.

Generally the grand mean and standard deviation shows that Regulatory factor is mentioned
among the constraints to enterprises in the field survey, it is recognized that these factors are
classified as a high constraints in MSEs engaged in manufacturing, service and trade sectors in
Haramaya town.

Table 4.6. Shortage of Working Place Factor that affect the performance of MSEs

Item Manufactu Urban Service Trade Constructi

ring agriculture on
Shortage of working MN SD MN SD MN SD MN SD MN SD
place factors

Grand mean/standard
Absence of own 3.68 1.01 3.27 .96 4.35 .70 3.96 .71 3.2 1.19
premises
Current working place is 3.65 1.08 2.86 1.12 4.09 .73 3.73 .77 2.25 1.01
not convenient

deviation
The rent of house is too 3.29 1.10 2.8 1.01 2.50 .99 2.64 1.06 2.2 .89
high
Location is far from 3.55 1.05 3.06 1.09 4.02 .77 3.91 1.05 2.25 1.01
market
Grand 3.54 1.06 3 1.04 3.74 .79 3.56 .89 2.47 1.02 3.26 .96
Source: Field survey, 2018 MN=Mean, SD=Standard deviation

Table 4.6 above shows, the work premises factors that hinders their business performance are
absence of their own premises is the major problem that face in MSEs engaged in
manufacturing, service and trade which are justified by the mean of 3.68, 4.35 and 3.96 with
standard deviation of 1.01, .70 and .71 respectively. But MSEs engaged in urban agriculture
and constructions sectors are neither „agreed‟ nor „disagreed‟ (undecided) with this problem
which is justified by the mean of 3.27 and 3.2 with standard deviation of.96 and 1.19
respectively.

Table 4.6 above shows, the respondents of MSEs engaged in manufacturing, service and trade
agreed with their current working place is not convenient to run business. Their mean scores
 39

are 3.65, 4.09 and 3.73 with standard deviations are 1.08 .73, .77 and 1.18 respectively. But,
MSEs engaged in urban agriculture and construction are (undecided) and disagreed with their
current working place is not convenient to run business that mean scores and standard
deviations of 2.86 and 1.12 for urban agriculture respectively and that of that mean scores and
standard deviations of 2.25 and 1.01 for construction sectors respectively.

Table 4.6 above shows, with regard to high rent of house, the respondents of MSEs engaged in
manufacturing, urban agriculture trade and service, are neither „agreed‟ nor
„disagreed‟(undecided) with this problem. The mean scores are 3.29, 2.8, 2.5 and 2.64 and
standard deviations are 1.1, 1.01, .99 and 1.06 respectively. But respondents of MSEs engaged
in construction are disagreed with regard to high rent of house by calculated mean scores and
standard deviations for 2.2 and .89 respectively.

Table 4.6 above shows, lastly with regarding to Location is far from market, the respondents
of MSEs engaged in manufacturing, service and trade are agreed that it is the main problem
that affect their business performance which is shown on the table 4.6 above with the mean
scores are 3.55, 4.02 and 3.91 and standard deviations are 1.05, .77 and 1.05 respectively. On
other hand the respondents of MSEs engaged in urban agriculture sector are neither „agreed‟
nor „disagreed‟(undecided) with this problem. The mean score 3.06 and standard deviations
1.06 and similarly the respondents of MSEs engaged in construction are disagreed with regard
to Location is far from market that indicated by mean score 2.25 and standard deviations 1.01
respectively.

The government has supplied land to buildings, sheds and displaying places. Although these
efforts have been made, it is the major ranked challenges in regional towns and in city
administrations (Habtamu, et al., 2013).

In an interview conducted with managers or owner of MSEs engaged in trade, service and
manufacturing it is confirmed that, they operated in current working place is not convenient
and Location is far from market that causes decreased in sale and profit those two factors are
the vital problems in work place factor that highly affect the business performance of their
businesses .while, in an interview conducted with owner managers of construction pointed out
theses idea According to them, there is no significant effect on their business to run business.
 40

Generally the grand mean and standard deviation shows that shortage of Working Premises
factor is mentioned among the key constraints to enterprises, it is recognized that these factors
are classified as the major constraints in MSEs engaged in manufacturing, service and trade
sectors in Haramaya town.

Table 4.7. Technological factor that affect the performance of MSEs

Item Manufact Urban Service Trade Constructi

uring agricultur on

Grand mean/standard deviation

e
Technological factors MN SD MN SD MN SD MN SD MN SD
Lack of appropriate 4.22 .49 4 .53 2.69 1.01 2.78 .96 4.1 .55
machinery and equipment
Lack of skills to handle 3.97 .70 4.33 .48 2.50 1.10 2.76 1.18 4.45 .60
new technology
Lack of money to acquire 4.03 .40 4.06 .45 2.59 1.04 2.76 1.11 4.35 .58
new technology
Unable to select proper 4.09 .47 4.2 .41 2.50 1.04 2.71 1.10 4.35 .58
technology
Inability of technology 4.09 .47 4.2 .41 2.58 1.07 2.73 1.16 4.35 .58
transformation
Grand 4.08 .50 4.16 .46 2.57 1.05 2.75 1.10 4.32 .58 3.58 .74
Source: Field survey, 2018 MN=Mean, SD=Standard deviation

Table 4.7 above shows that, lack of appropriate machinery and equipment is the main problem
of MSEs engaged in manufacturing, construction and urban agriculture. They are agreed with
the mean scores are 4.22, 4.1 and 4 with standard deviations are, .49 .55 and .53 respectively.
While MSEs engaged in trade and services are neither „agreed‟ nor „disagreed‟ (undecided)
with this problem. The mean scores are 2.78 and 2.69 and standard deviations are .96 and 1.01
respectively. With regarding to lack of skills to handle new technology is also an other main
problem of MSEs engaged in construction, urban agriculture and manufacturing and The
mean score are 4.45, 4.33 and 3.97 and standard deviation are .60, .48 and .70 respectively.
While MSEs engaged in trade and services are neither „agreed‟ nor „disagreed‟ (undecided)
with this problem. The mean scores are 2.76 and 2.50 and standard deviations are 1.18 and
1.10 respectively.
 41

According to table 4.7, for MSEs engaged in construction, urban agriculture and
manufacturing, lack of money to acquire new technology is highly affects their business
performance. That is a means and standard deviations of 4.35, 4.06 and 4.03 with .58, .45 and
.40 respectively. While MSEs engaged in trade and services are neither „agreed‟ nor
„disagreed‟ (undecided) with this problem. The mean scores are 2.76 and 2.59 and standard
deviations are 1.11 and 1.04 respectively. With regard in unable to select proper technology
seen the above table 4.7 is the problem that highly affects their business performance of MSEs
engaged in construction, urban agriculture and manufacturing. The mean scores are 4.35, 4.2
and 4.09 with standard deviations are .58, .41 and .47 respectively. While MSEs engaged in
trade and services are neither „agreed‟ nor „disagreed‟ (undecided) with regarding to unable to
select proper technology. The mean scores are 2.71 and 2.50 and standard deviations are 1.10
and 1.04 respectively.

Lastly with regarding to inability of technology transformation, the table 4.7 above indicates
that the respondents of MSEs engaged in construction, urban agriculture and manufacturing
agreement scale are agreed. That is the mean scores are 4.35, 4.2 and 4.09 with standard
deviations are .58, .41 and .47. While MSEs engaged in trade and services are neither „agreed‟
nor „disagreed‟ (undecided) with regarding to Inability of technology transformation. The
mean scores are 2.73 and 2.58 and standard deviations are 1.16 and 1.07 respectively.

According to the interview with the operators, especially MSEs engaged in construction, urban
agriculture and manufacturing are said that technological factor is highly affecting their
business performance, because of they face problem in employees skill to utilize new
technology select appropriate equipments, limited initiation of the enterprise in searching
benchmark (good practices) from other medium or large enterprises. Besides of these the main
constraint is having low finances to purchase equipments and materials from both formal and
informal sources. But MSEs engaged in trade and services are pointing out there is no doubt
on technological factors in their business performance in Haramaya town.

Generally the table 4.7 shows that MSEs engaged in construction, urban agriculture and
manufacturing are highly affected by technological factor on their business performance
which is justified with grand mean are 4.32, 4.16 and 4.08 with grand standard deviations are
.58, .46 and .50 respectively. While MSEs engaged in trade and services are affected by
 42

technological factors is minimal which is justified with grand mean scores are 2.75 and 2.57
with grand standard deviations are 1.10 and 1.05 respectively in Haramaya town.

Table 4.8. Infrastructural factor that affect the performance of MSEs

Item Manufactur Urban Service Trade Constructio

ing agriculture n

Grand mean/standard
Infrastructural factors MN SD MN SD MN SD MN SD MN SD
electricity Insufficiency 4.03 .31 2.2 .94 3.92 .58 4.03 .45 3.2 1.10
Insufficient water supply 4 .25 2.73 .96 3.93 .62 4 .44 3.25 1.11
Lack of sufficient 3.58 .80 2.8 .94 3.05 1.01 2.85 1.17 2.5 1.14

deviation
transportation service
Lack of appropriate dry 3.32 1.08 2.8 1.20 2.73 1.04 2.51 1.15 2.5 1.14
waste and sewerage
system
Grand 3.73 .61 2.63 1.01 3.40 .81 3.35 .80 2.86 1.12 3.19 .87
Source: Field survey, 2018 MN=Mean, SD=Standard deviation

Table 4.8 shows that electricity insufficiency and insufficient water supply are the main
problem that retard the business performance of MSEs engaged in trade, manufacturing and
service sectors. The mean scores of electricity insufficiency are 4.03, 4.03 and 3.92 with
standard deviations of .45, .31 and .58 and the mean scores of insufficient water supply are 4,
4 and 3.93 with standard deviations of .44, .25 and .62 respectively. But MSEs engaged in
construction are indicated undecided agreement scale with mean scores of electricity
insufficiency and insufficient water supply are 3.2 and 3.25 with standard deviations are 1.10
and 1.11 respectively. While MSEs engaged in Urban agriculture sectors with regarding to
electricity Insufficiency and Insufficient water supply are presented in the table 4.8 above
shows that it fall under disagreed and undecided agreement scale with mean scores of
electricity Insufficiency and Insufficient water supply are 2.2 and 2.73 with standard
deviations are .94 and .96 respectively.

On the other hand, the table 4.8 indicates that the MSEs engaged in service, trade, Urban
agriculture and Construction sectors are neither „agreed‟ nor „disagreed‟ (undecided) with
related to lack sufficient transportation service. The mean scores of 3.05, 2.85, 2.8 and 2.5 with
standard deviations of 1.01, 1.17, .94 and 1.14 respectively, but only MSEs engaged in
Manufacturing sectors, lack of sufficient transportation service is the major problem next to
 43

electricity insufficiency and insufficient water supply that affects their business performance
which is justified by mean scores of 3.58 and standard deviations of .80. While lack of
appropriate dry waste and sewerage system, for mean scores are 3.12, 2.8, 2.73, 2.51 and 2.50
with standard deviations are1.08, 1.20, 1.04, 1.15 and 1.14 fall under all MSEs engaged in
Manufacturing, Urban agriculture , Service, trade and Construction sectors are neither „agreed‟
nor „disagreed‟ (undecided) agreement scale respectively.

A research conducted by Daniel (2012) stated that unfavorable roads, power interruption,
shortage of water, and inaccessible telecommunications are the major challenges and without
which primary, secondary and tertiary production cannot function. Furthermore, Habtamu et
al. (2013) indicated that MSE‟s operating with available infrastructure facilities has higher
probability of long lasting existence and growth as compared to those MSEs that are operating
without adequate infrastructures; and electric power interruption and inadequate water supply
in Ethiopia was highly affected the growth of the business.

Accessibility of a location is the ease with which it can be accessed by different modes of
transport (Brown and Lloyd, 2002). Divergent from these aspects, however, most of the
studied area is situated far from the main asphalt road and the condition of the road leading to
the cluster from the main road is extremely poor. This poor state of the road condition of
locality has culminated in high transportation service costs to the MSEs, in addition to making
the sector difficult for accessibility by the existing and potential customers.

In the view of majority operators engaged in manufacturing, example wood work, metal work
and brick work etc interviewed, according to interviewees of the sector, electricity
insufficiency and interruption, insufficient water supply and the increasing cost or price of
transportation service especially unaffordable (highly expensive) price of those private cars on
which the operators load raw materials from places of supply because of unsuitability of the
road facility in their working site the main problem of infrastructural factors that are highly
affecting business performances of MSEs engaged in manufacturing sectors, while according
to interviewees of the MSEs engaged in Urban agriculture , Service, trade and Construction
sectors are said that electricity insufficiency and interruption, insufficient water supply are
the main infrastructural factors that affect their business performance.
 44

Generally the table 4.8 above shows that MSEs engaged in Service, trade, Construction and
urban agriculture sectors, infrastructural factor does not significantly affect their business
performance. This is justified by calculated grand mean for 3.40, 3.35, 2.86 and 2.63 with
grand standard deviation for .81, .80, 1.12 and 1.01 respectively. But infrastructural factor is
relatively affect their business performance MSEs engaged in manufacturing sectors with
calculated grand mean of 3.73 and grand standard deviation of .61 in Haramaya town.

Table 4.9. Financial factor that affect the performance of MSEs

Item Manufact Urban Service Trade Construct

uring agricultur ion
e
Financial factors MN SD MN SD MN SD MN SD MN SD
Inadequacy of credit 2.87 .95 2.66 .81 2.56 .96 2.84 1.07 2.65 .87
institutions
High collateral 4.45 .67 4.33 .48 4.17 .82 4.21 .60 4.05 .75

Grand mean/standard deviation

requirement from banks
and other lending
institutions
High interest rate charged 3.74 .72 3.8 .94 3.57 .94 4.01 .59 3.65 .81
by banks and other
lending institutions
Access to financing is 3.64 .75 3.86 .99 3.57 .96 4.02 .52 3.65 .81
important for growth of
SMEs
Most financial institutions 3.80 .79 3.86 .91 4.08 .83 4.10 .41 3.75 .55
are reluctant to provide
Long-term credit to SMEs.
Grand 3.7 .77 3.7 .82 3.70 .86 3.83 .63 3.55 .75 3.7 .76
Source: Field survey, 2018 MN=Mean, SD=Standard deviation

Regarding to inadequacy of credit institutions indicates that the respondents‟ of the MSEs
engaged in Manufacturing, trade, urban agriculture, Construction and service sectors
agreement scale is undecided. The results in table 4.9 above shows that the means scores are
2.87,2.84,2.66, 2.65 and 2.56 with standard deviation .95, 1.07,.81, .87 and .96 respectively.

Table 4.9 above shows that MSEs engaged in Manufacturing, urban agriculture, service, trade
and Construction sectors are have faced the problem related to high collateral requirement
from banks and other lending institutions respectively. These are justified by calculated mean
 45

scores of 4.45, 4.33, 4.17, 4.21and 4.05 with standard deviation of .67, .48, .82, 60 and .75
for high collateral requirement from banks and other lending institutions respectively.

On the other hand High interest rate charged by banks and other lending institutions and
Most financial institutions are reluctant to provide Long-term credit to SMEs are also the main
problems that are the boatel neck to retard the business performance of MSEs. the mean score
of , 3.74,3.8, 3.57, 4.01 and 3.65 with standard deviation of .65, .66 and .70 for High interest
rate charged by banks and other lending institutions and the mean score of 3.80, 3.86,
4.08,4.10 and 3.75 with standard deviation of .79, .91, .83, 41 and .55 for Most of financial
institutions are reluctant to provide Long-term credit to SMEs which is shown on table 4.9 on
those MSEs engaged in Manufacturing, urban agriculture, service, trade and Construction
sectors respectively.

finally respondents of the mean score of 3.64, 3.86, 3.57,4.02 and 3.65 with standard deviation
of .75, .99, .96, 52 and .81 with regarding to Access to financing is important for growth of
SMEs which is shown on table 4.9 is also one problem faces on those MSEs engaged in
Manufacturing, urban agriculture, service, trade and Construction sectors respectively.

MUDC (2013) also identified that financing has become a principal challenge to micro and
small scale enterprises in Ethiopia; except City administrations and regional microfinance
institutions, their savings and family supports, banks in Ethiopia do not provide finance in the
form of loan to MSE‟s due to collateral obligations and other requirement.

This is also consistent with previous findings. For instance, according to Woldehanna et al.,
(2008) stated that formal money lending institutions have so far failed to produce innovative,
affordable and user friendly financial services with a particular view to assist the struggling
MSE sector in Ethiopia

Respondents are also interviewed to give their opinion regarding financial factors, majority of
them say that they have faced the problem related to high collateral requirement from banks
and other lending institutions , High interest rate charged by banks and other lending
institutions and Most financial institutions are reluctant to provide Long-term credit and
limited sources of capital that forced them to go for searching finance from informal sectors
 46

because the informal sources are consisted of loan from other fellow operators, family,
relatives and friends based on mutual trust.

To conclude, finance is relatively affect the business performances of all MSEs engaged in
Manufacturing, urban agriculture, service, trade and Construction sectors as shown in table 4.9
above, which is justified by grand mean and of each sectors are 3.7, 3.7, 3.7, 3.83 and 3.55
with grand standard deviation of .77, .82, .86, .63 and .75 respectively.

Table 4.10. Management factor that affect the performance of MSEs

Item Manufact Urban Service Trade Construct

uring agricultur ion
e
Management factors MN SD MN SD MN SD MN SD MN SD
Lack of clear division of 3.25 1.1 3.66 .97 3.37 1.06 3.5 1.19 3.75 .91
duties and responsibility
among employees

Grand mean/standard deviation

Weak organization 3.25 1.1 3.93 .96 3.42 1.08 3.59 1.17 3.85 .93
structure and ineffective
communication
Lack of well trained and 3.93 .77 3.93 .96 4.02 .83 4.30 .58 3.9 .85
experienced employees
Lack of low cost and 3.93 .77 4.06 .79 4.06 .85 4.35 .59 3.85 .81
accessible management
training facilities
Inability to manage all the 3.90 .74 3.93 1.0 4.02 .88 4.32 .58 3.9 .71
enterprise activities
Lack of formal long-term 4 .68 4.13 .74 4.04 .90 4.3 .70 3.9 .71
strategic business plan
Grand 3.71 .86 3.94 .90 3.82 .93 4.06 .80 3.86 .82 3.88 .86
Source: Field survey, 2018 MN=Mean, SD=Standard deviation

As shown in table 4.10 above, the respondent of MSEs engaged in Manufacturing and service
sectors are neither „agree‟ nor „disagree‟ with the issue of Lack of clear division of duties and
responsibility among employees and Weak organization structure and ineffective
communication. That is means scores of 3.25 and 3.37 with standard deviations of 1.1 and
1.06 respectively. But the mean scores and standard deviations of lack of clear division of
duties among employees and Weak organization structure and ineffective communication
clearly shows an agreement scale is „agreed‟ which is the mean scores 3.66, 3.5 3.75 and with
 47

standard deviations of .97, 1.19 and .91 for the issue of lack of clear division of duties among
employees and the mean scores 3.93, 3.59 and 3.85 with standard deviations of.96, 1.17 and
.93 for the issue of Weak organization structure and ineffective communication on MSEs
engaged in urban agriculture, trade and Construction sectors respectively.

On the other hand as shown in table 4.10 above, Lack of well trained and experienced
employees and Lack of low cost and accessible management training facilities are the main
problems that hinder the performance of MSEs all sectors. It shows a mean score of 3.93, 3.93,
4.02, 4.30 and 3.9 with a standard deviation of .77, .96, .83 .58 and .85 for Lack of well
trained and experienced employees and mean score of 3.93, 4.06, 4.06, 4.35 and 3.85 with a
standard deviation of.77, .79, .85, .59 and 81 for Lack of low cost and accessible management
training facilities in their business on MSEs engaged in Manufacturing, urban agriculture,
service, trade and Construction sectors respectively.

Table 4.10 indicates, With regard to inability to manage all the enterprise activities and lack of
formal long-term strategic business plan are the vital problems that confront the journey all
MSEs engaged in Manufacturing, urban agriculture, service, trade and Construction sectors
which are justified by calculated mean scores of 3.90, 3.93, 4.02, 4.32 and 3.9 with standard
deviation of .74, 1.0, .88, .58 and .71 for inability to manage all the enterprise activities and
similarly mean scores of 4, 4.13, 4.04, 4.3 and 3.9 with standard deviation of .68, .74, .90, .70
and .71 for lack of formal long-term strategic business plan respectively.

The problems of MSE‟s management arises from the limited knowledge and ability of the
owner or shortage of competent staff to advice the owner on management policies (Stephen &
Wasiu, 2013).

Zeleke (2009) conducts a study on the efficiency of management as a determinant of long-term

survival in micro, small and medium enterprises in Ethiopia, and his research ascertains that
high level of managerial skills significantly promotes long-term survival and profitability in
small businesses and enterprises. Successful businesses are significantly associated with the
ability to generate profit on a sustainable basis. Profitability has enabled successful businesses
to achieve their next level of growth as well as the potential to stay competitive in business
 48

Mbonyane & Ladzani (2011) found that more than 50 percent of micro-enterprises lack
training in proper business management. As a result, there is lack of technology available to
micro and small businesses enterprises. The results of this research show that the government
does not have enough support mechanisms available to ensure that small business owners and
their employees receive the training that would enable them to run the business successfully

In this regard in an interview conducted with operators of MSEs, they say that they have many
management problems which come from factors such as lack of training, high cost of training
for paying to those both trainees and trainers, shortage of accessing training facilities, inability
of managers or owners quick and sound decision in management aspects and the most and the
crucial one is no one of MSEs sectors have formal long-term strategic business plan that made
them poor in management of their enterprises wisely. Another problem which pointed out by
the interviewees are the problem of lack of co operation between members of the enterprises
and conflicts of interest among them in case of task assignment and revenue sharing time
which is some members want to re-invest the profit they have gotten while other want their
divided for personal consumption that hinders the business to promote to the next medium or
large enterprise and they are still named under micro and small enterprises.

To conclude, managerial factor is relatively affect the business performances of all MSEs
engaged in Manufacturing, urban agriculture, service, trade and Construction sectors as shown
in table 4.10 above, which is justified by grand mean and of each sectors are 3.71, 3.94, 3.82,
4.06 and 3.86 with grand standard deviation of .86, .90, .93, .80 and .82 respectively.
 49

Table 4.11. Entrepreneurial orientation factor that affect the performance of MSEs

Item Manufact Urban Service Trade Constructi

uring agricultur on
e
Entrepreneurial MN SD MN SD MN SD MN SD MN SD
orientation factors
Relative to our 2.09 .59 2.2 .56 2.28 .84 2.17 .97 2.2 .61
competitors, our enterprise
has higher tendency to
engage in strategic
planning activities
Relative to our 2.29 .78 2.46 .63 2.42 .96 2.39 .93 2.45 .75
competitors, our enterprise
has higher ability to
identify customer needs
and want
Relative to our 2.29 .82 2.4 .91 2.64 .92 2.51 1.02 2.45 .82
competitors, our enterprise

Grand mean/standard deviation

has higher level of
innovation
Relative to our 2.58 1.0 2.66 1.1 2.66 1.09 2.80 1.18 2.6 1.09
competitors, our enterprise
has higher ability to
persevere in making our
vision of the business a
reality
Relative to our 2.54 1.0 2.66 1.1 2.74 1.05 2.81 1.24 2.35 1.03
competitors, our enterprise
has higher ability to
identify new opportunities
Grand 2.36 .84 2.48 .86 2.55 .97 2.54 1.07 2.41 .86 2.46 .92
Source: Field survey, 2018 MN=Mean, SD=Standard deviation

As shown in table 4.11 above, the respondents all of MSEs engaged in Manufacturing, urban
agriculture, service, trade and Construction sectors are „disagreed‟ with the questions of
relative to their competitors, their enterprises have higher tendency to engage in strategic
planning activities and relative to their competitors, their enterprises have higher ability to
identify customer needs and wants that are indicated by mean scores of 2.09, 2.2, 2.28, 2.17
and 2.2 with standard deviation of .59, .56, .84, .97 and .61 for the questions of relative to their
competitors, their enterprises have higher tendency to engage in strategic planning activities
 50

and similarly mean scores of 2.29, 2.46, 2.42, 2.39 and 2.45 with standard deviation of.78,
.63, .96, .93 and .75 for the questions of relative to their competitors, their enterprises have
higher ability to identify customer needs and wants respectively.

On other hand the same is true like the above issue that respondents of MSEs engaged in
Manufacturing, urban agriculture and Construction sectors are „disagreed‟ With the regarding
to relative to their competitors, their enterprises have higher level of innovation which is
shown on the table 4.11 above with the mean scores of 2.29, 2.4, and 2.45 with standard
deviation of.82, .91, and .82 and MSEs engaged in service and trade sectors are neither „agree‟
nor „disagree‟ (undecided) with the mean scores of 2.64 and 2.51 with standard deviation of
.92, 1.02 respectively. However, all of MSEs engaged in Manufacturing, urban agriculture,
service, trade and Construction sectors are neither „agree‟ nor „disagree‟ (undecided) with
regarding to the factor, relative to their competitors, their enterprises have higher ability to
persevere in making their vision of the business a reality which is shown on the table 4.11
above with the mean scores of 2.58, 2.66, 2.66, 2.80 and 2.6 with standard deviation of 1, 1.1,
1,09, 1.18 and 1,09 for the factor relative to their competitors, their enterprises have higher
ability to persevere in making their vision of the business a reality respectively.

As shown in table 4.11 above, the respondent of MSEs engaged in Manufacturing, urban
agriculture, service and trade sectors are neither „agree‟ nor „disagree‟ (undecided) agreement
scale with regarding to relative to their competitors, their enterprises have higher ability to
identify new opportunities. The mean scores are 2.54, 2.66, 2.74 and 2.81 with standard
deviation of 1, 1.1, 1.05 and 1.24 respectively. However, the respondent of MSEs engaged in
Construction sectors are „disagreed‟ with regarding to relative to their competitors, their
enterprises have higher ability to identify new opportunities which is the mean score 2.35 with
standard deviation of 1.03 respectively.

Wiklund and Shepherd (2005) suggest that entrepreneurial orientation can be used to
overcome environmental and resource constraints and that enterprises in these circumstances
can become superior performers if they adopt high levels of entrepreneurial orientation.
Entrepreneurial orientation enhances firms‟ ability to take risks and be innovative and
proactive. These abilities may be especially important for firms operating in markets where
 51

competition is intensifying and new market segments as well as new products and
technologies are emerging.

Starting with lack of motivation and drive, this has to do with the main reason(s) for the
entrepreneur(s) establishing the business and the relationship of this with the performance of
the firm (Enock N., 2010)

Generally the table 4.11 above shows that MSEs engaged in Manufacturing, Urban agriculture
and Construction sectors, Entrepreneurial orientation factor is relatively affect their business
performance. This is justified by calculated grand mean for 2.36, 2.48, and 2.41 with grand
standard deviation for .84, .86 and .86 respectively. But infrastructural factor does not
significantly affect their business performance MSEs engaged in service and trade sectors with
calculated grand mean of 2.55 and 2.54 with grand standard deviation of .97 and 1.07 in
Haramaya town.

Table 4.12. Shortage of Raw Materials factor that affect the performance of MSEs

Item Manufact Urban Service Trade Constructi

uring agriculture on
Shortage of raw MN SD MN SD MN SD MN SD MN SD

Grand mean/standard deviation

material factors
Purchase input on credit 2.29 .97 2.06 .70 2.8 1.2 2.9 1.1 2.8 .95
Input transportation 1.9 .57 1.9 .45 2.6 .92 2.6 1.0 2.2 .69
facility is easily
available
Raw materials are 2 .74 2.26 .70 2.8 1.04 2.76 1.1 2.75 .96
accessible nearby
enterprise
The price of raw 2.03 .65 2.46 1.06 2.68 1.15 2.9 1.19 2.75 1.06
materials are low in the
area which enterprise
operated
Grand 2.05 .73 2.17 .72 2.72 1.07 2.79 1.09 2.6 .91 2.46 .90
Source: Field survey, 2018 MN=Mean, SD=Standard deviation

As shown in table 4.12 above, the respondents of MSEs engaged in Manufacturing and urban
agriculture sectors are „disagreed ‟with Purchase input on credit since inputs are so expensive
in the market so that no one MSEs sector purchase on credit from any suppliers. This is
 52

pointed by the mean scores of 2.29and 2.06 and with standard deviation of .97 and .70
respectively. The respondents of MSEs engaged in service, trade and Construction sectors are
neither „agree‟ nor „disagree ‟(undecided)‟with Purchase input on credit. This is pointed by the
mean scores of 2.8, 2.9 and 2.8 and with standard deviation of 1.2, .1.1 and .95 respectively.

table 4.12 presents, with regarding to availability of input transportation facility those of
MSEs engaged in Manufacturing, urban agriculture and Construction sectors are „disagreed‟
which means that there is a problem in availability of input transportation facility for their
enterprises. The mean scores shows 1.9, 1.9 and 2.2 with standard deviation of.57, .45 and .69
respectively. But those of MSEs engaged in service and trade sectors are neither „agree‟ nor
„disagree ‟(undecided) With regarding to availability of input transportation facility. The mean
scores show 2.6 and 2.6 with standard deviation of .92 and 1 respectively.

According to table 4.12 above, shows that MSEs engaged in Manufacturing and urban
agriculture, sectors are‟ disagreed ‟with the factors, raw materials are accessible nearby
enterprise and the price of raw material is low in the area which enterprise operated that is
justified by calculated mean scores of, 2 and 2.26 with standard deviation of .74 and .70 for
the factor raw materials are accessible nearby enterprise and calculated mean scores of 2.03
and 2.46 with standard deviation of .65 and 1.06 for the factor the price of raw materials are
low in the area which enterprise operated respectively.

On other hand According to table 4.12 above, shows that MSEs engaged in service, trade and
Construction sectors are‟ disagreed ‟with the factors, raw materials are accessible nearby
enterprise and the price of raw material is low in the area which enterprise operated that is
justified by calculated mean scores of 2.8, 2.76 and 2.75 with standard deviation of 1.04, 1.1
and .96 for the factor raw materials are accessible nearby enterprise and calculated mean
scores of 2.68, 2.9 and 2.75 with standard deviation of 1.15, 1.19 and1.06 for the factor the
price of raw materials are low in the area which enterprise operated respectively.

As MUDC (2013) has pointed out one of the major problems constraining the MSE‟s
development in Ethiopia was found to be erratic supply of raw materials. To ameliorate such a
problem, an aggressive strategy needs to be crafted to promote business ventures which supply
inputs by local and international investors.
 53

Raw material is a basic component for the existence of the MSEs since they create a backward
linkage and demand for other sector products. The high cost is the key raw material problem
for the growth of enterprises. Lack of standardization, raw material storages, and poor quality
of raw materials are also major problems (Rahel & Paul, 2010).

In this regard in an interview conducted with operators of MSEs they support the ideas that
access to inputs and Production materials are important aspects of production in order to
efficiently produce and compete in the market for the MSEs. Not only the inputs but also the
quality, distance from production site, competitive price, and the capacity of the supplier to
deliver the inputs to the producer affects the competitiveness of the MSEs. According to
interviewees confirmed that this challenge is prevalent in Haramaya town. This shows that
most of the MSEs are facing a challenge to access these materials easily which would by one
or another way increase their production cost and the cost of transportation of inputs from
supplies to their enterprises to easily compete in the market.

Generally the table 4.12 above shows that shortage of Raw Material Factor is relatively
affecting the business performance of each MSEs engaged in Manufacturing, urban
agriculture, service, trade and Construction sectors are. This is justified by calculated grand
mean for 2.46 with grand standard deviation for .90 respectively in Haramaya town.
 54

Table 4.13. Market orientation factor that affect the performance of MSEs

Item Manufact Urban Service Trade Construct

uring agricultur ion
e
Market orientation MN SD MN SD MN SD MN SD MN SD
factors
Our business objectives 1.93 .35 1.93 .25 2.16 .67 2.20 .62 2.1 .55
are driven by customer
satisfaction.
We monitor our level of 2.12 .76 2.2 .67 2.14 .78 2.36 .74 2.3 .82
commitment to serving
customers‟ need.
Our strategy for 2.12 .71 2.33 .97 2.49 .94 2.39 .73 2.4 .82
competitive advantage is

Grand mean/standard deviation

based on our
understanding of customer
need.
Our business strategies are 2.83 1.0 2.6 .94 3.22 1.06 2.91 .98 2.8 1.1
driven by our beliefs about
how we can create greater
value for customers.
Our enterprise understands 2.8 1.0 2.73 .96 3.06 1.14 2.81 1.03 2.6 1.1
how everyone in our
enterprise can contribute
to creating customer value
environments.
Grand 2.36 .76 2.35 .76 2.61 .72 2.53 .82 2.44 87 2.46 .79
Source: Field survey, 2018 MN=Mean, SD=Standard deviation

As it can be seen in the table 4.13 above that their business objectives are driven by customer
satisfaction and their strategy for competitive advantage is based on their understanding of
customer needs are the major problem that affect their business performance of all of MSEs
engaged in Manufacturing, urban agriculture, service, trade and Construction sectors as the
mean scores indicates „disagreed‟ agreement scale. Calculated mean scores of 1.93, 1.93, 2.16,
2.20 and 2.1 with standard deviation of .35, .25, .67, .62 and .55 for their business objectives
are driven by customer satisfaction and similarly mean scores of 2.12, 2.2, 21.4, 2.36 and 2.3
with standard deviation of.76, .67, .78, .74 and .82 for the monitor their level of commitment
to serving customers need respectively.
 55

table 4.13 above shows, with regarding to the question, their strategy for competitive
advantage is based on their understanding of customer need is also a problem that affect
business performance of MSEs engaged in Manufacturing, urban agriculture, service, trade
and Construction sectors that the mean scores of 2.12, 2.33, 2.49, 2.39 and 2.4 with standard
deviation of .71, .97, .94, .73 and .82 indicate „disagreed‟ agreement scale respectively.

As it is indicated in table 4.13 above, shows that their business strategies are driven by their
beliefs about how they can create greater value for customers has the mean score of 2.83, 2.8,
3.22, 2.91 and 3.1 with a standard deviation of 1, .94, 1.06 .98 and 1.1 for MSEs engaged in
Manufacturing, urban agriculture, service, trade and construction sectors respectively.
Similarly their enterprise understands how everyone in their enterprise can contribute to
creating customer value environments has mean score of 2.8, 2.93, 3.06, 2.81 and 2.8 with a
standard deviation of 1, .96, 1.14, 1.03 and 1.1 for MSEs engaged in Manufacturing, urban
agriculture, service, trade and construction sectors respectively. Therefore, it may be
concluded that their business strategies are driven by their beliefs about how they can create
greater value for customers and their enterprise understands how everyone in their enterprise
can contribute to creating customer value environments rely on neither „agree‟ nor „disagree‟
(undecided) agreement scale MSEs engaged in Manufacturing, urban agriculture, service,
trade and construction sectors respectively.

Zhou et al. (2007) argue that knowing customers in developed markets can prove highly
beneficial as demanding customers are more acutely aware of the differences in offerings and
they appreciate tailoring. A brand offers a good way of communicating the special
characteristics of an offering: how it differs from others and how it meets the needs of certain
types of customers in transitional markets, where customer preferences are rapidly changing
and new offerings are constantly emerging.

It could be speculated that if firms concentrate excessively on identifying and satisfying

customers‟ present and explicit needs they may not do as well in the competition as those
firms who anticipate and respond to customers‟ future and implicit needs. Inability to sell the
products and services; lack of adequate marketing channels, and lack of marketing skills are
the problems to the starting of business and further growth of the sector (MUDC, 2013)
 56

In an interview conducted with an operator of the sectors, it is confirmed that absence of

selling place has aggravated the already existing „inadequacy and crowdedness‟ of the internal
working space of the shades. The operators intelligently argued that lack of selling place is a
direct contributor for their inadequate market hence low income of the studied MSEs. Absence
of selling place obviously narrows the chance to access new customers.

Table 4.14. Recordkeeping factor that affect the performance of MSEs

Item Manufactu Urban Service Trade Constructi

ring agriculture on
Recordkeeping factors MN SD MN SD MN SD MN SD MN SD
In our business 2.54 1.09 2.8 1 2.58 .95 2.3 1.09 2.6 .89
recordkeeping is a tool
in resource allocation

Grand mean/standard deviation

and performance
planning.
In our businesses there 2.4 .95 3 .84 2.48 1.03 2.13 .69 2.45 1.01
is an updated and
accurate record in each
transaction.
In our enterprise to 2.45 .92 2.73 1.16 2.36 .90 2.17 .75 2.4 .82
enhance the capacity of
employees; training is
imparted on
recordkeeping
techniques.
Grand 2.46 1.03 2.84 .92 2.47 .94 2.2 .83 2.48 .89 2.49 .92
Source: Field survey, 2018 MN=Mean, SD=Standard deviation

As shown in the table 4.14 above the respondents of MSEs engaged in Manufacturing, urban
agriculture, service and Construction sectors in the question, recordkeeping is a tool in
resource allocation and performance planning are neither „agree‟ nor „disagree‟ (undecided)
agreement scale which is indicated on the above table 4.10 mean scores of 2.54, 2.8, 2.58 and
2.6 with standard deviation of 1.09, 1, .95 and .89 respectively .but MSEs engaged in trade
sectors are facing the problem to use, recordkeeping is a tool in resource allocation and
performance planning that shows the „disagreed‟ agreement scale which is indicated on the
above table 4.14 mean scores of 2.3 and with standard deviation of 1.09 respectively.
 57

As shown in the table 4.14 above, with regarding to in their businesses there is updated and
accurate records in each transaction has mean scores of 2.4, 2.48, 2.13 and 2.45 with standard
deviation of .95, 1.03, .69 and 1.01 which indicates there is no updated and accurate records in
their business to those MSEs engaged in Manufacturing, service, trade and Construction
sectors that shows the „disagreed‟ agreement scale respectively. While MSEs engaged in urban
agriculture sectors that shows neither „agree‟ nor „disagree‟ (undecided) agreement scale
which is indicated on the above table 4.14 mean scores of 3 and with standard deviation of .84
respectively.

In other way as shown in the table 4.14 above the respondents of MSEs engaged in
Manufacturing, service, trade and construction sectors are „disagreed‟ on the question; in their
enterprise to enhance the capacity of employees; training is imparted on recordkeeping
techniques that is justified by mean scores of 2.45, 2.36, 2.17 and 2.4 with standard deviation
of .92, .90, .75 and .82 respectively. But the respondents of MSEs engaged in urban
agriculture sectors are neither „agree‟ nor „disagree‟ (undecided) that is justified by mean
scores of 2.73 and standard deviation of 1.16 respectively.

Bowen, et al (2009) observes that there is a strong relationship between business performance
and the level of training in the business management especially in business finance record
keeping. Business management entails keeping proper records of the business transactions.
Knowledge and skills in bookkeeping is especially one major factor that impacts positively on
sustainability and growth of SMEs.

Germain (2010) observes that most business operators especially those in MSE perceive
recordkeeping as a task that must be done to simply get back some much needed cash at the
end of a particular period of time for example after a year. However, actually, accurate
recordkeeping is not as important to many business operators. With this perspective, it is no
wonder so many of these businesses fail from the beginning

Generally the table 4.14 above shows that Recordkeeping Factors is relatively affecting the
business performance of each MSEs engaged in Manufacturing, urban agriculture, service,
trade and Construction sectors are. This is justified by calculated grand mean for 2.49 with
grand standard deviation for .92 respectively in Haramaya town.
 58

Table 4.15. Business performance of MSEs

Item Manufact Urban Service Trade Construct

uring agricultur ion
e

Grand mean/standard deviation

Business performance MN SD MN SD MN SD MN SD MN SD
Sales growth over the past 2.48 .81 2.93 .88 2.6 .85 2.58 .87 2.8 .83
three years

Growth in the number of 2.41 .71 2.86 .74 2.58 .83 2.56 .80 2.8 .83
employees in the last three
year

profitability over the past 2.41 .76 3 .84 2.58 .83 2.58 .81 2.8 .83
three years

Grand 2.43 .76 2.93 .82 2.58 .84 2.57 .83 2.8 .83 2.66 .82

Source: Field survey, 2018 MN=Mean, SD=Standard deviation

As shown in the table 4.15 above the respondents response that there is no change in sales
volume growth in the MSEs those engage in urban agriculture, service, trade and construction
sectors that are justified by calculated means of 2.93, 2.6, 2.5 and 2.8 with standard deviation
of .88, .85, .87 and .83 respectively. However, MSEs those engage in manufacturing sectors
are responded that there is decreased in sales volume in their business which the mean score
indicates2.48 and standard deviation .81 respectively.

As shown in the table 4.15 with regarding to ,Growth in the number of employees in the MSEs
engaged in urban agriculture, service, trade and construction sectors are the same or
unchanged that the means scores show 2.86, 2.58, 2.56 and 2.8 with standard deviation of .74,
.83, .80 and .83 respectively. But in MSEs those engage in manufacturing sectors are
decreased that the mean score shows 2.41 and standard deviation .71 respectively.

Finally as shown in the table 4.15 above profitability of the business in the MSEs engaged in
urban agriculture, service, trade and construction sectors is also constant or unchanged that is
justified by the means scores of 3, 2.58, 2.58 and 2.8 with standard deviation of .84, .83, 81
and .83 respectively. However MSEs engage in manufacturing sectors is decreased that the
mean score shows 2.41 and standard deviation .76 respectively.
 59

Generally the tables 4.15 above shows that Business performance of MSEs is relatively remain
unchanged. This is justified by calculated grand mean for 2.66 with grand standard deviation
for .82 respectively in Haramaya town.

4.4. Factor analysis

To assess construct validity of each measure, factor analysis using principal component
analysis with Varimax rotation was performed. Andy, (2005) suggests that if the test result is
0.5 and it is a bare minimum, values between 0.7 and 0.8 are good and values between 0.8 and
0.9 are great predictors of each measure.

The resulting tolerance level values of each independent variable are summarized in table
4.16. Acceptable level of tolerance ranges from 0.1 to 1.0. For this study, the highest and the
lowest values of tolerance include 0.901. Total variance explained by question on each factors
and the factor loading using principal component analysis are presented in table 4.16 below.

Table4.16. Construct Items, Factor Loading and Tolerance results

Factor Analysis Collinearity

Statistics
Measure Item Factor Loading Toleranc
e
Business performance
Sales growth over the past three years .982
Growth in the number of employees in the last .992
three year
Profitability over the past three years .985

Regulatory .849
The tax levied on my business is not faire .395
Bureaucracy in enterprise registration and .784
licensing
Limited analysis of policy constraints and .903
opportunities to MSEs
Lack of accessible information on government .885
regulations that are relevant to my business
 60

Shortage of Working premises .702

Absence of own premises .848
Current working place is not convenient .904
The rent of house is too high .544
Location is far from market .863

Technology .799
Lack of appropriate machinery and equipment .606
Lack of skills to handle new technology Lack of .936
money to acquire new technology Unable to .960
select proper technology .975
Inability of technology transformation .930

Infrastructure .784
electricity Insufficiency .804
Insufficient water supply .843
Lack of sufficient transportation service Lack of .701
appropriate dry waste and sewerage system .602

Finance .628
Inadequacy of credit institutions .413
High collateral requirement from banks and other .942
lending institutions
High interest rate charged by banks and other .959
lending institutions
Access to financing is important for growth of .927
SMEs
Most financial institutions are reluctant to provide .608
Long-term credit to SMEs.

Management .666
Lack of clear division of duties and responsibility .628
among employees
Weak organization structure and ineffective .674
communication .926
Lack of well trained and experienced employees
Lack of low cost and accessible management .937
training facilities
Inability to manage all the enterprise activities .923
Lack of formal long-term strategic business plan .873

Entrepreneurial orientation .872

Relative to our competitors, our enterprise has .694
higher tendency to engage in strategic planning
activities
 61

Relative to our competitors, our enterprise has .858

higher ability to identify customer needs and want
Relative to our competitors, our enterprise has . 988
higher level of innovation
Relative to our competitors, our enterprise has .890
higher ability to persevere in making our vision of
the business a reality
Relative to our competitors, our enterprise has .809
higher ability to identify new opportunities

Shortage of Raw Materials .872

Purchase input on credit .792
Input transportation facility is easily available .746
Raw materials are accessible nearby enterprise .743
The prices of raw materials are low in the area .700
which enterprise operated

Market orientation .862

Our business objectives are driven by customer .560
satisfaction
We monitor our level of commitment to serving .702
customers‟ need
Our strategy for competitive advantage is based .778
on our understanding of customer need
Our business strategies are driven by our beliefs .809
about how we can create greater value for
customers
Our enterprise understands how everyone in our .789
enterprise can contribute to creating customer
value environments.

Recordkeeping .901
In our business; recordkeeping is a tool in .818
resource allocation and performance planning
In our businesses there is an updated and accurate .881
record in each transaction
In our enterprise to enhance the capacity of .819
employees; training is imparted on
recordkeeping techniques

Source: Field survey, 2018

 62

4.5. Reliability test

Cronbach‟s alpha helps to measure “unidimensionality” or the extent to which the scales
measures one underlying factor or construct (Andy, 2005). Therefore, a value of 0.8 is
appropriate for cognitive test, while 0.7 is more suitable for ability test; however, for studies
dealing with psychological constructs, values even below 0.7 can, realistically, be expected
because of the diversity of constructs being measured. The Cronbach‟s alpha test for each
construct indicates that the measurement scale adapted for this study is internally consistent,
values range from 0.707 to 0.986.

Table 4.17 reliability test result

Construct RF WPF TF IF FF MF EOF RMF MOF RKF BP
Cronbach’s
alpha .768 .800 .932 .707 .824 .892 .886 .730 .781 .808 .986

Source: Field survey, 2018

4.6. Normality test

The standardized normal distribution is a purely theoretical probability distribution, but it is

useful distribution in inferential statistics. The normal distribution is a comparatively simple
distribution involving only two parameters i.e. mean and standard deviation.

According to Gujarati (2004) if we are dealing with a small, or finite, sample size, say data of
less than 100 observations, the normality assumption assumes a critical role. However, the
sample size is reasonably large; we may be able to relax the normality assumption. Moreover,
Jeffrey (2012) strengthens of Gujarati that "we know that normality plays no role in the
unbiasedness of OLS or does it affect the conclusion that OLS is the best linear unbiased
estimator under the Gauss-Markov assumptions. But exact inference based on t and F statistics
requires.”

Based on the above assumptions this study finds out the mean of -5.78 and standard deviation
0.977 with a picked distribution seen in Figure 4.4.
 63

Figure 4.4 Regression residual distributed on normality

Source: Field survey, 2018

4.7. Multicollinearity test

Model test was use to test the validity of the model was accurate. Multi Collinearity in
regression occurs when predictor variables (independent variables) in the regression model
were more highly correlated with other predictor variables than with the dependent variable.
Hence, as necessary, tests for multi Collinearity. Tests for multi Collinearity is done using
variance inflation factor (VIF) and tolerance level. As a rule of thumb, Acceptable level of
tolerance and VIF ranges from a tolerance value of 0.1 to 1.0 and VIF value of 1-10. For this
study, the highest and the lowest values of tolerance include 0.901 and 0.628, and VIF value
includes 1.591to 1.110. Therefore the mean values of tolerance and VIF in this study are 0.79
and 1.28, so there is no multi Collinearity problem which is result of tolerance level and the
associated variable inflation factor (VIF) value of each independent variable are summarized
in table 4.16.
 64

4.8. Heteroskedasticity test

Heteroskedasticity implies that the variances i.e. - the dispersion around the expected mean of
zero of the residuals are not constant, but that they are different for different observations. This
causes a problem: if the variances are unequal, then the relative reliability of each observation
used in the regression analysis is unequal (Gupta, 1999).

The biggest weakness of SPSS, with respect to basic econometric analysis, is that it does not
allow for easy diagnostic checking for problems like misspecification and another way to
investigate the existence of heteroskedasticity in the sample data collected is the informal way
which is done through graphs and therefore we call it the graphical method (Gupta, 1999)

If the errors do not have a constant variance, we say they are heteroskedastic. To detect this
problem through formal tests for heteroskedasticity, like Breusch- Pagan test of
heteroskedasticity was done by running hettest command in stata 14. In the figure 4.2 the
variance of error term is constantly scattered hence, it shows homoscedasticity and also the
null hypothesis which states that the error term has constant variance (homoskedastic) is
accepted since the Chi-square calculated is less the table value.
Figure 4.5 Scatter plot, the variance of error term constant

Source: Field survey, 2018

 65

Breusch-Pagan / Cook-Weisberg test for heteroskedasticity

Ho: Constant variance
Variables: fitted values of BP

chi2 (1) = 0.49

Prob > chi2 = 0.815

4.9. Pearson’s Product Moment Correlation Coefficient

According to Phyllis and his associates (2007), inferences have a very important in
management research. This is so because conclusions were normally established on the bases
of results.

In this study Pearson‟s Product Moment Correlation Coefficient is used to determine whether
there is significant relationship between regulatory, shortage of working premises,
technological, infrastructural, financial, management, entrepreneurial orientation, shortage of
raw material, market orientation and recordkeeping variable with performance. The following
section presents the results of Pearson‟s Product Moment Correlation on the relationship
between independent variables and dependent variable. The table below indicates that the
correlation coefficients for the relationships between performance and its independent
variables.

Table 4.18. The relationship between independent variables and performance

Correlations
RF WPF TF IF FF MF EOF RMF MOF RKF BP
RF 1 . . .

WPF .312** 1
TF -.050 -.296** 1
**
IF .072 .306 .013 1
FF -.036 .134* .190** .317** 1
* ** **
MF -.029 .166 .099 .339 .525 1
EOF -.115 .005 -.017 .064 -.094 .067 1
** **
RMF .207 .215 -.119 -.005 -.004 -.063 -.077 1
MOF -.099 -.019 .102 -.023 .155* .103 .257** .104 1
** *
RKF .037 -.013 .216 .023 -.046 .083 .047 -.169 -.013 1
BP .007 -.086 .283** .191** .077 .228** .359** -.171* .301** .230** 1

**. Correlation is significant at the 0.01 level (2-tailed). Source: Field survey, 2018
*. Correlation is significant at the 0.05 level (2-tailed).
 66

RF= regulatory, WPF= shortage of working premises, TF= technological, IF= infrastructural,
FF= financial, MF= management, EOF= entrepreneurial orientation, RMF= shortage of raw
material, MOF= market orientation, and RKF= recordkeeping factors and BP= business
performance

Table 4.18, presents the correlation matrix; Positive or negative and significant first-order
correlation exists between the predictor and dependent variable, yet it varies in magnitude and
extent. Meyers et al. (2005) underlined that for a sample size around 100 and more, Pearson R
value of 0.20 is significant at significant level of 0.05. The predictor variables such as: TF, IF,
MF, EOF, MOF and RKF have a strong statistically significant association with business
performance at 99% confidence level. However there is weak statistically significant
association between RMF with business performance at 95% confidence level. The overall
highest value in the correlation matrix is 0.359 and lowest being - 0.171. However, to ensure
that there is no Collinearity problems, different tests are conducted like tolerance level and the
associated variable inflation factor (VIF).

4.10. Multiple Linear Regressions Analysis

Multiple regression analysis takes into account the inter-correlations among all variables
involved. This method also takes into account the correlations among the predictor scores
(John A. et al., 2007). This method is used to determine if the independent variables would
explain the variance in dependent variables

For the purposes of determining the extent to which the explanatory variables explain the
variance in the explained variable, regression analysis is employed. The results of such
analysis are narrated under.
 67

Table 4.19. Result of multiple linear regressions analysis.

Model Summary
R R Square Adjusted R Std. Error of the Sig.
Square Estimate
.587a .344 .313 .677 .000
Model Unstandardized Standardized t Sig. VIF
Coefficients Coefficients
Variables B Std. Error Beta
(Constant) -.403 .494 -.816 .416
RF .134 .072 .112 1.849 .066 1.177
WPF -.100 .067 -.099 -1.489 .138 1.424
TF .153 .049 .195 3.141 .002 1.252
IF .205 .076 .169 2.688 .008 1.276
FF .107 .091 .083 1.183 .238 1.591
MF .173 .077 .154 2.257 .025 1.501
EOF .271 .060 .270 4.538 .000 1.147
RMF -.126 .062 -.121 -2.025 .044 1.147
MOF .298 .076 .236 3.932 .000 1.161
RKF .133 .059 .132 2.257 .025 1.110
Source: Field survey, 2018

a. Predictors: (Constant), RF= regulatory, WPF= shortage of working premises, TF=

technological, IF= infrastructural, FF= financial, MF= management, EOF= entrepreneurial
orientation, RMF= shortage of raw material, MOF= market orientation, and RKF=
recordkeeping factors.

Table 4.19 above displays the estimates of the multiple regression of performance against its
variables for the sample of 223 operators that institutional (external) and enterprise (internal)
factors do affect the business performance of MSEs engaged in Manufacturing, urban
agriculture, service, trade and Construction sectors in Haramaya town.

Previous studies conducted by Weldegbriel Mezgebe (2012) seem to suggest that rules and
regulation related factors were not a major and significant challenge to MSEs. So this research
supported the above finding that Regulatory factor is not significant for the business
performance of MSEs since the P value =.066. Thus, this research may reject the null
hypothesis (H1)
 68

Table 4.19 above displays shortage of work premises has P value .138. This show that
shortage of Work premises factor does not have significant relationship with the performance
of MSEs. Work premises factor has been made major challenges to MSEs (Habtamu, et al.,
2013). However, this research may reject the null hypothesis ( H2)

The table 4.19 above indicates that technology has P-value .002. This shows that technological
factor has a significant positive impact on business performance of MSEs. Thus, researcher
may accept the null hypothesis (H3).

according to Habtamu et al. (2013) indicated that MSE‟s operating with available
infrastructure facilities has higher probability of long lasting existence and growth as
compared to those MSEs that are operating without adequate infrastructures; and electric
power interruption and inadequate water supply in Ethiopia was highly affected the growth of
the business. So this research supported the above finding and the finding of this research
infrastructure problem has significant relationship with the performance of MSEs that P-value
is .008. Thus, this research may accept the null hypothesis (H4)

Previous studies conducted by Weldegbriel Mezgebe (2012) seem to suggest that a financial
factor was not a major challenge to MSEs. This research supports the above finding and finds
that financial factor has the P value .238 as non significant factor though it has a positive
impact. Thus, this research may reject the null hypothesis (H5)

Previous studies suggested by Zeleke (2009) conducts a study on the efficiency of

management as a determinant of long-term survival in micro, small and medium enterprises in
Ethiopia, and his research ascertains that high level of managerial skills significantly promotes
long-term survival and profitability in small businesses and enterprises. This research supports
above finding which indicates that management has P-value .025. Thus, researcher may accept
the null hypothesis (H6).

Table 4.19 above displays entrepreneurial orientation have significant positive relationship
with the performance of MSEs that indicated by P-value is .000. Hence, this research may
accept the null hypothesis ( H7)
 69

Table 4.19 above displays shortage raw material has P value .044. This indicates that shortage
of raw material is statistically significant factor that affects the performance of MSEs
negatively. Thus, researcher may accept the null hypothesis (H8).

Zhou et al. (2007) argue that knowing customers in developed markets can prove highly
beneficial as demanding customers are more acutely aware of the differences in offerings and
have significantly affect performance of MSEs. This research therefore supports above finding
which is market orientation has P-value .000. Thus, researcher may accept the null hypothesis
(H9).

Table 4.19 above displays recordkeeping has P-value .025. As shown in the regression output
it has positive and significant relationship with the performance of MSEs. So this, researcher
may accept the null hypothesis (H10).

The table 4.19 shows that, the correlation between the observed value of performance and the
optimal linear combination of the independent variables (regulatory, shortage of working
premises, technological, infrastructures, finance, management, entrepreneurial orientation,
shortage of raw material, market orientation and recordkeeping factors) is 0.587 as indicated
by multiple R. Besides, given the R2 value of 0.344 and the model summary of regression
analysis in which adjusted R2 explain how much change is occurred in business performance
due to regulatory, working premises, technological, infrastructures, finance, management,
entrepreneurial, raw material, marketing and recordkeeping factors. The value of adjusted R2
(0.313) showed that 31.3% change in business performance occurred due to change in
regulatory, shortage of working premises, technological, infrastructures, finance, management,
entrepreneurial orientation, shortage of raw material, market orientation and recordkeeping
factors. The remaining 68.7 % of the variance is explained by other variables not included in
this study.

The resulting variable inflation factor (VIF) values of each independent variable are
summarized in table 4.19. Acceptable level of VIF ranges from 1-10. For this study, the
highest and the lowest values of VIF value includes 1.591to 1.110.
 70

Maximizing adjusted R2, which is, choosing the model that gives a high adjusted R2 but this
may be dangerous, for in regression analysis our objective is not to obtain a high adjusted R2
percent but rather to obtain dependable estimates of the true population regression coefficients
and draw statistical inferences about them. Therefore, the researcher should be more
concerned about the logical or theoretical relevance of the explanatory variables to the
dependent variable and their statistical significance (Guajarati, N. 2004).

The standardized coefficients B column, gives us the coefficients of the independent variables
in the regression equation including all the predictor variables as indicated below.

Predicted performance score = -.403 + .112 (regulatory) -.099 (shortage of working premises)
+ .195 (technological) + .169 (infrastructures) + .083 (financial) + .154 (management) + .270
(entrepreneurial orientation) -.121 (shortage of Raw material) + .236 (Market orientation) +
.132 (Recordkeeping).

Figure 4.6 Normal P-P Plot regression standardize Residual

Source: Field survey, 2018

 71

5. CONCLUSIONS AND RECOMMENDATIONS

5.1. CONCLUSIONS

It was known that a lot of effort has been made by the government to improve the performance
and contribution of MSEs in poverty reduction, industrial transformation, and reduction of
unemployment and overall economic development. Despite MSEs playing a great role so far,
the performance and the impact on economic development are not based on the expected level.
MSEs are still facing severe constraints in their activities; their promotion and development
are, therefore, hampered.

This research was conducted in eastern Hararghe zone Haramaya town with the prime intent of
critically examining the factors affecting the business performance of MSEs operators engaged
Manufacturing, urban agriculture, service, trade and Construction sectors. Specifically, the
study attempted to examine the enterprise (internal) and institutional (external) factors that
affect the business performance of MSEs, to describe the characteristics of small enterprises
operating in the study area and to recommend possible solution to alleviate the problem of
MSEs. Based on the objectives and findings of the study, the following conclusions are worth
drawn.

The participants from the finding indicate that in Haramaya town MSEs, 65.9% of the
enterprise owners or managers are male whereas about 34.1% of the participants are female.
From the findings it‟s evident that both males and females are involved in the management of
MSEs Business although males were the majority.

The other demographic variable is marital status of the respondents from those managers or
owners, to this respect, 68.6% of them are married and 22.4% and 9.0% of them are single and
divorced respectively. The age wise 59.6% participants fall between 26-31 years. Most of
micro and small enterprise managers or owners educational qualification is BA/BS Degree
followed by TVET and diploma.

Majority of the respondents are engaged in trade 36.77% followed by service 33.63%,
manufacturing 13.90%, construction 8.97 % and Urban agriculture 6.73% and more than half
of the respondents 51.57% join to MSEs due to lack of other job alternatives. This was
 72

followed by previous experience in the same business 21.52% .Similarly respondents were
asked to identify their startup capital for their business 39.91% of the respondents main source
of start-up fund was from their own saving, 25.56% of the respondents respond that their
business start up fund source was their family, 23.77% of the respondents got their business
capital from micro finance institution, and 10.76% get assistance from banks respectively.

The main factors/problems that limits small firm‟s performance are grouped into two; first is
the factors that originate from within the firm (in other words they are internal to the firm) and
the second group is factors that originate from outside the firm (these are external to the firm).

Regarding infrastructural facilities, most of MSEs operators have no adequate infrastructural

facilities at the given study area, specially insufficient and interrupted electric power and water
supply. In addition to unavailability of appropriate dry waste and sewerage system and poor
transportation facility near the working site were found to be among the problems confronting
MSEs. These lead to them, unable to generate adequate profit by satisfying the needs of the
customers. Infrastructural problem is not only the problem of the study area problem it is a
country wide problem, therefore this problem is not solved by the MSEs operators rather than
by the government of the country

Regarding other external factors, majority of MSEs operators engaged in construction, urban
agriculture and manufacturing highly are affected by technological related problem such as
lack of appropriate machinery and equipment, lack of skills to handle new technology, lack of
money to acquire new technology, unable to select proper technology and inability of
technology transformation at the given study area which made them unsuccessful. Technology
has a direct and statistically significant influence on business performance of MSEs.

Even though, Regulatory factor has no statistically significant and direct influence to business
performance in the regression, most of MSEs operators face regulatory problems like, tax
levied on their business is not fair, bureaucracy in enterprise registration and licensing, limited

analysis of policy constraints and opportunities to MSEs, lack of accessible information on

government regulations that are relevant to their business. According to the findings, the
reason ranges from lack of visible commitment of some governmental bodies to lack of
 73

regular integration between the MSEs Operators and the concerned bodies of the government
are also another problem.

The result of the finding shows that majority of MSEs operators in the study area do not have
own working premises. Because of this, the MSEs operators are not performing their business
related activities effectively and efficiently. And also , the location of the working premises is
not suitable as well as Location is far from market for attracting the new customers that means,
the working premises have no access to market. Majority of the enterprises in manufacturing,
service and trade sectors faced a serious problem of shortage of working place have negative
and indirect effect on the business performance of MSEs.

Even though access to finance has no statistically significant and direct contribution to
business performance in the regression, high collateral requirement from banks and other
lending institutions, high interest rate charged by banks and other lending institutions and most
financial institutions are reluctant to provide Long-term credit to SMEs are the main financial
problems of MSEs in Haramaya town. Finance has positive and indirect influence on the
business performance of MSEs.

The main internal problem identified in the finding is management factor which include lack
of clear division of duties and responsibility among employees, weak organization structure
and ineffective communication, lack of well trained and experienced employees, lack of
formal long-term strategic business plan and costly and inaccessible training facilities. The
finding of this research shows that, most of the MSEs operators have no efficient experience
and management knowhow to perform their activities effectively and efficiently. These lead to
them unsuccessful because they run their business activities without having adequate
knowledge about the business environment. Management factor has statistically significant
positive effect on their business performance.

The major entrepreneurial orientation factor include relative to their competitors; their
enterprise has lower tendency to engage in strategic planning activities, , their enterprise has
lower ability to identify customer needs and want, their enterprise has lower level of
innovation, their enterprise has lower ability to persevere in making their vision of the
business a reality and their enterprise has lower ability to identify new opportunities are the
 74

main constraints in MSEs specially engaged in Manufacturing, Urban agriculture and

Construction sectors. Entrepreneurial orientation factor has statistically significant positive
effect on their business performance.

The shortage of raw martial is also statistically significant negative influence on business
performance of MSEs. Enterprises purchase input on credit is so difficult, input transportation
facility is not easily available, lack of access to raw material nearby enterprise, the prices of
raw materials are expensive in the area which enterprise operated that can produce profitable
products in MSEs specifically engaged in Manufacturing, Urban agriculture sectors.

This research clearly noted that market orientation factor such as their business objectives are
not driven by customer satisfaction, there is low level of commitment to serving customers‟
need, their strategy for competitive advantage is not based on their understanding of customer
need, their business strategies are not driven by about how they can create greater value for
customers, there is low enterprise understands how everyone in their enterprise can contribute
to creating customer value environments and absence of selling place are the bottleneck to
MSEs. Market orientation factor has a statistically significant positive contribution on business
performance of MSEs.

This research identified MSEs are failed to keep adequate records this leads to major problems
that lead to them unsuccessful because they run their business activities without having
adequate recordkeeping habit. The finding shows that in their business; recordkeeping is not
used as a tool for resource allocation and performance planning, In their businesses there is no
updated and accurate record in each transaction and in their enterprise to enhance the capacity
of employees; training are not imparted on recordkeeping techniques. Recordkeeping factor
has a statistically significant positive contribution on business performance of MSEs.

Finally, the study has further identified that the different influences in which each of the
factors under study have in different categories of the business. The research clearly illustrates
that, even if the degree of those critical factors differ from one sector to another, most of the
factors are considerably common for five sectors. It has been noted that the enterprise
(internal) had very high effects on the business performance of MSEs compared to
institutional (external) factors in the research area.
 75

5.2. RECOMMENDATIONS

As observed from this study, both internal and external factors influence MSEs business
performance in eastern Hararghe zone Haramaya town. Thus, MSEs managers, directors,
governmental bodies and all stakeholders should not only be concerned about internal
structures and policies, but also must consider the external environment together in designing
out strategies to improve their business performance. Suggestions for corrective and
complementary measures to enhance the potential business performance of MSEs are
essential. Such recommendations demand an in-depth analysis of the influence of different
factors regarding the MSEs sector. Based on the findings and conclusions of the study, the
following recommendations are forwarded.

Regarding to management skill, MSEs operators should work on preparing training programs
on management issues and creating experience sharing opportunities especially to those other
enterprise. Assigning clear division of duties and responsibility among employees, make
smooth organization structure and effective communication they should train by professionals
how to develop formal long-term business plan.

The MSEs Operators should start for improving basic entrepreneurial orientation such as
relative to their competitors, they should be innovative, recognize and exploit the available
business opportunities, refining or improving existing products and conducting „„SWOT”
analysis to make informed investment decisions. This will enhance their entrepreneurial skills
that will enable them to perform better than their competitors and to get competitive
advantage.

MSEs should form a supply chain management and support each other to minimize their
shortage of raw material related problems. Enterprises should be organized in a way that an
enterprise will be able to get raw material from other enterprises in the production process.

The MSEs operators should enhance their market orientation through proper training and
experience sharing with other successful medium and large scale enterprises, setting
competitive price for their products, create good interpersonal relationship with customers and
 76

the way of promoting their outputs to the customers in an effective manner .their business
objectives should be driven by customer satisfaction, they should committed to serving
customers‟ need, design strategy for competitive advantage should be based on their
understanding of customer need and about how they can create greater value for customers,
measuring employees contribute to creating customer value environments and Moreover, the
government bodies such Haramaya town micro and small enterprise office and the other
stakeholders are better to assist them by searching market for their products which were
produced by the MSEs operators and providing of selling place , by doing this, they are try to
save them from losses.

The findings show that there is lack of knowledge of recordkeeping by the owners or
managers of the MSEs. So they should initiate recordkeeping training programs for employees
and owners, update and make it accurate record in each transaction and use it as a tool for
resource allocation and performance planning in running micro and small businesses.

The government institutions at different levels should play a major role in influencing the
development of MSEs, thus to reduce delays in processing legal requirements. The
government through various relevant departments should specialize more in taking up a
facilitative role, especially by reviewing all the blockings by laws, to address issues of getting
a license or getting a premises on which to operate. A number of factors should be considered
in designing all-encompassing policy for the promotion of the sectors.

The government should move in quickly to create policies that favor the growth and expansion
of SMEs. The government should develop comfortable location of the working premises that
is suitable for market to attracting the new customers, equitable working premises provision
and they should undertake detailed study on the appropriateness of the working place to be
given to each type of the enterprises.

Haramaya town micro and small enterprise office should collaborate with Haramaya
university in accessing appropriate machinery and equipment, provide training how to handle
new technology, how to select proper technology and technology transformation at the given
 77

study area which made them successful. MSEs Operators should work together with that of
both governmental and private organizations to get such benefits.

There is infrastructural facility problem in the study area, like power interruption, inadequate
supply of water, and transportation problems. Therefore, the government and the other
concerned body have to give attention to minimize such kind of problems to improve the
performance of MSEs.

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 personal saving. The reason for
emphasizing on informal sector is that the requirement of collateral or guaranty is relatively
rare as compared with formal sectors like banks but the informal sectors like MFIs are unable
to provide or supply enough credit to them as they want. Therefore, Haramaya town micro and
small enterprise agency 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 funds. By doing so, the
MSEs can get enough access to finance for their business activities.

Though enterprise (internal) and institutional (external) factors affect business performance of
MSEs, internal factors need high effort to address. It is shown on the regression that
addressing internal factors could promote the overall business performance of MSEs than
external factors. Therefore, this research recommended focusing and striving on solving the
internal factors by themselves rather than waiting other party solutions as of the external
factors. Moreover, by applying the SWOT analysis tool may help MSEs to prioritize affecting
factors.

Finally, conducting a more comprehensive and rigorous research work based on the whole
area coverage is crucial to obtain the right information and identify the factors which influence
MSE‟s operation since this study was conducted on Haramaya town. Hence, it is the
researchers' suggestion that future research work could focus on the other town, districts and
 78

cities. Simultaneously the researchers' suggestion that future research work could focus on
regulatory, working promises and financial factors which were statistically insignificant on
business performance of MSEs on the study area in order to come up with specific findings
which will contribute a lot in MSE‟s overall development in general and alleviating their
immediate problems in particular.
 79

REFERENCE

Admasu Abera, 2012, Factors Affecting the Performance of Micro and Small Enterprises in
Arada and Lideta Sub-cities, Unpublished Master‟s Thesis, Addis Ababa University.
Ahmed Abdelrahim. 2007. Critical Analysis and Modeling of Small Business Performance
(Case Study: Syria). Journal Of Asian Entrepreneurship And Sustainability, 3(2):6-13.
Akabueze, B. 2002. Financing Small And Medium Enterprises (SMEs): The Small And
Medium Industries Equity Investment Scheme (SMIEIS) Option. Lagos.
Ali, S.and Sims, R. 2001. Successful Small Business: An Approach To Identifying Business
With A Predisposition To Growth, Business Economics: Victoria University Of
Melbourne, 18: 213-226.
Alkali, M, Isa, A. H. And Baba, H. 2012, Interdisciplinary Journal Of Contemporary Research
In Business, September 2012, vol. 4, no.5, Available At www.ijcrb.webs.com.
Andy, F. 2005, Discovering Statistic Using SPSS, 2nd ed., Sage Publications, London.
Aregawi Gebremichael. And Tilaye Kassahun, 2014. Entrepreneurial Orientation As Growth
Predictor Of Small Enterprises Evidence From Tigray Regional State Of Ethiopia.
Developing Country Studies Vol.4, No.11.
Aremu, M. A. And Adeyemi, S. L. 2011, Small And Medium Scale Enterprises As A Survival
Strategy For Employment Generation. Journal Of Sustainable Development, 4 (1),
200-206.
Beck, F. And Levine, R. 2005.Small And Medium Enterprises Growth And Poverty. The
World Bank.
Blankson, C. and Cheng, J.M. 2005, “Have small businesses adopted the market orientation
concept? The case of small businesses in Michigan”, Journal of Business and
Industrial Marketing, Vol.20 No.6,pp.317-330.
Bowen, M. Morara, M. And Mureithi, S. 2009. Management Of Business Challenges Among
Small And Micro Enterprises. Kca Journal Of Business Management, 2(1), 16-31.
Brown, A. And Lloyd-Jones, T. 2002. Spatial Planning Access and Infrastructure on Urban
Livelihoods: A People-centered Approach to Reducing Poverty, London, Earthscan.
Brush, C. 2006. Women And Entrepreneurship: Contemporary Classics (Vol. 2). Edw.
Bryman, A. and Bell, E.2003, Business Research Methods. New York: Oxford University
Press Inc.
Carrier,C. 2008. Entrepreneurship In Large Firms And SMEs: A Comparative Study,
International Small Business Journal, 12(3): 11-23.
 80

Catherine, D. 2009. Introduction To Research Methods: A Practical Guide For Any One
Undertaking A Research Project, Fourth Edition, United Kingdom, Books Ltd.
CLEP, 2006. Entrepreneurship: Unpublished Manuscript, Addis Ababa, Ethiopia.
Cohen, L. Manion, L. and Morrison, K. 2007. Research Methods In Education, 6th Edition.
USA, Routledge
Creswell J. W. 2009: Research Design: Qualitative, Quantitative, and Mixed Methods
Approaches, 3rd edition, Landon, Sega publications.
CSA. 2005. Report On Bi – Annual Employment, Unemployment Survey. 1st Round 2
Statistical Bulletin 301.
Dalitso, K. and Peter, Q., 2000. The Policy Environment for Promoting Small and Medium
Sized Enterprises in Ghana and Malawi, University of Manchester.
Daniel Woldekidan. 2007. Micro And Small Scale Enterprises And Their Influences In
Alleviating Urban Poverty In Nekemte City, Oromiya Regional State. MA Thesis In
Regional And Local Development Studies, Addis Ababa University.
Daniel, A. 2012. Micro, Small And Medium Scale Enterprises In Ghana: Challenges And
Prospects: A Case Study Of Sekondi- Takoradi Metropolis. Unpublished Master‟s
Thesis,Kwame Nkrumah University.
Emma .I. Okoye A,And Ndidika. L. 2009. Repositioning Micro And Small Enterprises
(MSES) In Orumba South L.G.A. Of Anambra State. Multidisciplinary Journal Of
Research Development, 12 (3): 1-9.
Endalkachew Desta, 2016. Assessment on the Determinant Factors on the Performance of
Micro and Small Enterprises: The Case of Hosanna Town in Hadiya Zone,
Unpublished Master‟s Thesis, Haramaya University.
Enock Nkonoki. 2010. What are the factors limiting the success and/or growth of small
businesses in Tanzania?–An empirical study on small business growth; Arcada
University of Applied Sciences, Tanzania
Ephrem Setegn 2010. The Role Of Micro And Small Enterprises In Poverty Alleviation In
Gulele Sub City, Addis Ababa Ethiopia.MA Thesis In Public Admistration, Addis
Ababa Universit.
Etsegenet A. 2000. The Survival And Growth Of Micro Enterprise In Ethiopia: The Case Of
Two Peasant Associations In Baso Woreda, North Shoa. Unpublished Master‟s Thesis
Addis Ababa Universit. Addis Ababa, Ethiopia.
FDRE, 2011, Micro And Small Enterprise Development Strategy: Provision Framework And
Methods Of Implementation In Gulele Sub City, Addis Ababa Ethiopia.
FMSEDA, 2013, Micro and Small Enterprises Performance Report. Addis Ababa. Ethiopia.
 81

Gebrehiwot And Wolday. 2005. Policy Impact And Regulatory Challenges Of Micro And
Small Enterprises In Ethiopia Presented At The Second International Conference On
The Ethiopian Economy In The Ethiopian Economic Association, Addis Ababa.
GEM. 2004. Women And Entrepreneurship. Center For Women„s Leadership Banson College
MA, USA Ard Elg Ar Publishing.
Gemechu Abdissa and Teklemariam Fitwi 2016 Factors Affecting Performance of Micro and
Small Enterprises in South West Ethiopia: The Case of Bench Maji, Sheka, and Kefa
Zones Global Journal of Management and Business Research: A Administration and
Management Volume 16 Issue 10 Version 1.0
Germain, P, J. 2010. Small Business Bookkeeping. Ezinearticles.com
Gonzalez-Benito, O., Gonzalez-Benito, J. and Muno ˜z-Gallego,P. 2009, “Role of
entrepreneurship and market orientation in firms‟ success”, European Journal of
Marketing, Vol. 43 No. 3, pp. 500-522.
Gujirati, D.N., 2004, Basic Econometrics. 4th ed. S.L.: McGraw-Hill Companies.

Gupta, V., 1999,SPSS for Beginners. S.L.:VJ Books Inc.

Habtamu T., Aregawi G. And Nigus, A. 2013. Growth Determinants Of micro And Small
Enterprises: Evidence From Northern Ethiopia. Journal Of Economics And Sustainable
Development, 4(9), 128-135.
Hanna Ketselemaryam 2010. Success Factors In Micro And Small Scale Enterprises Cluster
Development: Case Of Gulele Clusters In Ethiopia. Unpublished master‟s Thesis,
University Of South Africa.
James K. Mbugua ,Susan N. Mbugua, Magdaline Wangoi, Joash O. Ogada and Jane N.
Kariuki 2013:Factors Affecting the Growth of Micro and Small Enterprises: A Case of
Tailoring and Dressmaking Enterprises in Eldoret .International Journal of Business
and Social Science Vol. 4 No. 5;
Janet M. Ruane. 2006. Essentials of Research Methods, a Guide to Social Science Research.
USA, Blackwell Publishing.
Jeffray, M., 2012, Introductory Econometrics A modern Approach. 5th ed, Masson, OH, USA,
South- Western Cengage learning.

John, A. Hafiz, K. Robert, R. And David, W. 2007. Research Methods For Graduate Business
And Social Science Students. California, Sage.
Kayanula, D. And Quartey, P. 2000. The Policy Environment For Promoting Small And
Medium Sized Enterprises In Ghana And Malawi, Institute Of Development Policy
 82

And Management, University Of Manchester, Available From

http://www.man.ac.uk/idpm. Accessed 2 February 2012.
Keh, H.T., Nguyen,T.T.M. and Ng, H.P. 2007, “The effects of entrepreneurial orientation and
marketing information on the performance of SMEs”, Journal of Business Venturing,
Vol. 22 No. 4, pp. 592-611.
Kinyua, A. N. 2014. Factors Affecting The Performance Of Small And Medium Enterprises In
The Jua Kali Sector In Nakuru Town, Kenya Egerton University Nakuru.
Kraus, S., Rigtering, J.P.C., Hughes, M. and Hosman, V. (2012), “Entrepreneurial orientation
and the business performance of SMEs: a quantitative study from the Netherlands”,
Review of Management Science, Vol. 6 No. 2, pp. 161-182.
Laukkanen, T., Nagy, G., Hirvonen,S., Reijonen, H. and Pasanen, M. 2013, “The effect of
strategic orientations on business performance in SMEs”, International Marketing
Review, Vol. 30 No. 6, pp.510-535.
Li, Y., Zhao, Y., Tan, J. and Liu, Y. 2008, “Moderating effects of entrepreneurial orientation
on market orientation-performance linkage: evidence from Chinese small firms”,
Journal of Small Business Management, Vol. 46 No. 1, pp. 113-133.
Mark, S. Philip, L. And Adrian, T. 2009. Research Methods For Business Students. Fifth
Edition FT Prentice Hall.
Martin O. 2010. An Investigation In To The Effect Of Management Factors On Performance
Of Micro, Small And Medium Enterprises In Kenya. International Journal Of Business
And Management, 5(11):66-73.
Mbonyane, B. And Ladzani,W. 2011, “Factors that hinder the growth of small businesses in
South African townships,” Pretoria European business review, 23/ 6, 550-560
Mekonnin Debbie And Tilaye Kassahun, 2013. Deterrents to The Success of Micro And Small
Enterprises in Akaki-Kality Sub-City. Journal of Business Administration Study 5:1–
33
Meyers, S.L., Gamst, G. and Guarino, A.J. 2005, Applied Multivariate Research: Design and
Interpretation, Sage Publications, Thousand Oaks, CA.
MoTI. 1997. Micro And Small Enterprises Development Strategy. Addis Ababa, Ethiopia.
MUDC. 2013. Survey On Micro and Small Scale Enterprises In Selected Major Cities Of
Ethiopia. Addis Ababa, Ethiopia.
Mugenda.O.M. 2003. Research Methods: Quantitative and Quantitative approach. .
Nairobi: ACTS press.
 83

Mulugeta Yohanes. 2011. The Livelihoods Reality Of Micro And Small Enterprise Operators:
Evidences From Woreda One Of Lideta Sub-city, Addis Ababa. Master‟s Thesis,
Graduate School Of Development Studies, Addis Ababa University, Ethiopia.
Mwania, M. 2011. The Effect Of Biashara Boresha Loan On Performance Of Micro And
Small Enterprises Owned by KCB Ruiru Branch Customers.
Nuno S. 2003. Financing Small, Medium And Micro Enterprises In Post-Conflict Situations
Microfinance Opportunities In The Democratic Republic Of Congo,
Kinshasa.Washington,DC:WorldBank.Availableathttp://documents.web.org/curented/e
n/2003/03/3260989/financing.
Phyllis Tharenou, Ross Donohue, Brian Cooper. 2007. Management Research Methods. New
York, Cambridge University Press
Rahel Wasihun & Paul, I. 2010. Growth Determinants Of Women-Operated Micro And Small
Enterprises In Addis Ababa. Journal of Sustainable Development in Africa, 12/6, 233-
246.
Reed, R. 2010. Good Small Business Guide; How to start and Grow Your Own Business; 2nd
Edition, A and C Black publishers Ltd, London.
Ronge, E., Ndirangu, L. And Nyangito, H. 2002 Productive Sector Division, Kenya Institute
For Public Policy Research And Analysis, KIPPRA Discussion Paper No. 20,
November 2002. Journal of Business and Entrepreneurship, 9, 47-58.
Roy, M. And Wheeler, D. 2006.A Survey Of Micro Enterprise In Urban West Africa: Drivers
Shaping The Sector. Development In Practice, (16):452-464.
Sekaran, U. 2000. Research Methods For Business Skill Building Approach (3ed.). New
York.John Wiley And Sons, Inc.
Siva, S. 2012. A Study On Problems Faced By Entrepreneurs Of Small Scale Industries. Asian
Stephen, E., O., And Wasiu, A., B. 2013. The Contribution Of Small Scale Industries To The
National Economy. Journal Of Business Management, 1(2), 60 71.
Tomas Cherkos1, Muluken Zegeye1, Shimelis Tilahun1, Muralidhar Avvar, 2017, examining
significant factors in micro and small enterprises performance: case study in Amhara
region, Ethiopia. Journal of Industrial Engineering, Institute DOI 10.1007/s40092-017-
0221-y
Tommi Laukkanen, Gábor Nagy, Saku Hirvonen, Helen Reijonen and Mika Pasanen,
2013,"The effect of strategic orientations on business performance in SMEs",
International Marketing Review, Vol. 30 Iss 6 pp. 510 – 535
UNIDO, 2006. Effective Policies For Small Business: A Guide For The Policy Review
Process And Strategic Plans For Micro, Small And Medium Enterprise Development.
© OECD Istanbul.
 84

Weldegbriel Mezgebe, 2012, Problems of Micro and Small Enterprises in Addis Ababa: The
Case of Kirkos, Kolfe, and Yeka Sub Cities, Unpublished Master‟s Thesis, Addis
Ababa University.
Wiklund, J. and Shepherd, D. 2005, “Entrepreneurial orientation and small business
performance: a configurational approach”, Journal of Business Venturing, Vol. 20 No.
1, pp. 71-91.
Woldehanna, N. Jones, B. Tefera. 2008. The Invisibility of Children's Paid and Unpaid Work:
Implications for Ethiopia's National Poverty Reduction Policy. Journal of Childhood,
15(1):177-201.
Wolfenson, J. D. 2007. The Challenges Of Globalization: The Role Of The World Bank. Paper
Presented At The Address To The Bundestag Berlin, Germany.
Workneh Fiseha. 2007. The Constraints of Micro and Small Scale Enterprises in Addressing
Employment Opportunity: The case Of Kolfe Keraneo Sub-city, Addis Ababa. MA
Thesis In Regional And Local Development Studies, Addis Ababa University.
World Bank. 2004. Small And Micro Enterprises. World Bank Group Review Of Small
Business Activities. Washington, DC: World Bank.
Yamane T. 1967. Statistics And introductory analysis, 2nd Edition. Harper And Row Inc. New
York. P. 345.
Zeleke Worku. 2009. Efficiency In Management As A Determinant Of Long-term Survival In
Micro, Small And Medium Enterprises In Ethiopia. Problems And Perspectives In
Management, 7(3):1-9.
Zhou, K., Brown, J., Dev, C. and Agarwal, S. 2007. The Effects Of Customer And Competitor
Orientations On Performance In Global Markets: A Contingency Analysis”, Journal Of
International Business Studies, Vol. 38 No. 2, Pp. 303-319.
 85

APPENDICES

QUESTIONNAIRE

HARAMAYA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT

MBA PROGRAM

Dear respondent, I am post graduate student in Master of Business Administration in the

department of management Haramaya University. Currently, I am undertaking a research
entitled „Factors affecting the business Performance of Micro and Small Enterprises in
HaramayaTown. You are one of the respondents selected to participate on this study. Please
assist me in giving correct and complete information to present a representative finding on the
current status of the factors affecting the business performance of Micro and Small enterprises
in Haramaya Town. Your participation is entirely voluntary and the questionnaire is
completely anonymous.

Finally, I confirm you that the information that you share me will be kept confidential and
only used for the academic purpose. No individual‟s responses will be identified as such and
the identity of persons responding will not be published or released to anyone. All information
will be used for academic purposes only. Thank you in advance for your kind cooperation and
dedicating your time.

Contact phone No 0918669064 Sincerely,

Email:getnettekele3@gmail .com Getenet Takele

Instructions

No need of writing your name

For multiple choice questions indicate your answers with a thick mark (√) in the appropriate
block.
 86

PART 1: DEMOGRAPHIC INFORMATION OF THE ENTERPRISE OWNER OR

MANAGER

1. Gender: Male Female

2. Marital status: Married single Divorced

3. Age of the principal enterprise owner or manager.

25-35 36-45 Above 45

4. Education level of the enterprise owner or manager. Grade 12 complete TVET

graduate Diploma BA/BS Degree Masters Degree

SECTION 2: GENERAL INFORMATION ON BUSINESS ENTERPRISES

1. What is the type of enterprise you are involved in?

Manufacturing Urban agriculture

Service Trade Construction

2. What are factors motivated you to involve in this business?

Profitability of the business Lack of employment alternatives

Good government support previous experience ifother specify______

3. What was the source of your start-up capital?

Banks Own savings

Micro finance institution Family transfers if other specify______

SECTION 3: FACTORS AFFECTING THE PERFORMANCE OF MICRO AND

SMALL ENTERPRISES

The major factors that affect performance of MSEs are listed below. Please indicate the degree
to which these factors are affecting the performance of your business enterprise. After you
read each of the factors, evaluate them in relation to your business and then put a tick mark (√)
under the choices below. Where, 1= strongly disagree, 2 = disagree, 3 = undecided, 4 =
agree and 5 = strongly agree,
 87

1. Please indicate the degree to which you agree with the following statements concerning
Regulatory Factors

Regulatory Factors 1 2 3 4 5
No
1 The tax levied on my business is not faire
2 Bureaucracy in enterprise registration and licensing
3 Limited analysis of policy constraints and opportunities to MSEs
4 Lack of accessible information on government regulations that
are relevant to my business

2. Please indicate the degree to which you agree with the following statements concerning
working place factors

No Working Place Factors 1 2 3 4 5

1 Absence of own premises
2 Current working place is not convenient
3 The rent of house is too high
4 Location is far from market

3. Please indicate the degree to which you agree with the following statements concerning
technology factors

No Technological Factors 1 2 3 4 5
1 Lack of appropriate machinery and equipment
2 Lack of skills to handle new technology
3 Lack of money to acquire new technology
4 Unable to select proper technology
5 Inability of technology transformation

4. Please indicate the degree to which you agree with the following statements concerning
infrastructural factors

No Infrastructural factors 1 2 3 4 5
1 electricity Insufficiency
2 Insufficient water supply
3 Lack of sufficient transportation service
4 Lack of appropriate dry waste and sewerage system
 88

5. Please indicate the degree to which you agree with the following statements concerning
financial factors

No Financial Factors 1 2 3 4 5
1 Inadequacy of credit institutions
2 High collateral requirement from banks and other
lending institutions
3 High interest rate charged by banks and other lending
institutions
4 Access to financing is important for growth of SMEs
5 Most financial institutions are reluctant to provide
Long-term credit to SMEs.

6. Please indicate the degree to which you agree with the following statements concerning
management factors.

No Management Factors 1 2 3 4 5
1 Lack of clear division of duties and responsibility among
employees
2 Weak organization structure and ineffective
communication
3 Lack of well trained and experienced employees
4 Lack of low cost and accessible management training
facilities
5 Inability to manage all the enterprise activities
6 Lack of formal long-term strategic business plan
7. Please indicate the degree to which you agree with the following statements concerning
entrepreneurship factors

No Entrepreneurial Factors 1 2 3 4 5
1 Relative to our competitors, our company has higher
tendency to engage in strategic planning activities
2 Relative to our competitors, our company has higher
ability to identify customer needs and want
3 Relative to our competitors, our company has higher
level of innovation
4 Relative to our competitors, our company has higher
ability to persevere in making our vision of the business
a reality
5 Relative to our competitors, our company has higher
ability to identify new opportunities
 89

8. Please indicate the degree to which you agree with the following statements concerning
raw material factors

No Raw Materials Factors 1 2 3 4 5

1 Purchase input on credit
2 Input transportation facility is easily available
3 Raw materials are accessible nearby enterprise
4 The prices of raw materials are low in the area which
enterprise operated

9. Please indicate the degree to which you agree with the following statements concerning
marketing factors.

No Marketing skill Factors 1 2 3 4 5

1 Our business objectives are driven by customer
satisfaction
2 We monitor our level of commitment to serving
customers‟ need
3 Our strategy for competitive advantage is based on our
understanding of customer need
4 Our business strategies are driven by our beliefs about
how we can create greater value for customers
5 Our company understands how everyone in our company
can contribute to creating customer value environments.
10. Please indicate the degree to which you agree with the following statements
concerning Recordkeeping Factors

No Recordkeeping Factors 1 2 3 4 5
1 In our business; recordkeeping is a tool in resource
allocation and performance planning

2 In our businesses there is an updated and accurate record

in each transaction

3 In our enterprise to enhance the capacity of employees;

training is imparted on recordkeeping techniques
 90

Performance will be measured by using a 5 point likert scale that ranges from 1 to 5. After you
read each of the variables, evaluate them in relation to your business and then put a tick mark
(√) under the choices below. Where 5=highly increased 4= increased 3 =unchanged
(constant) 2=decreased 1= highly decreased

No Business performance 1 2 3 4 5
1 Sales growth over the past three years

2 Growth in the number of employees in the last three year

3 profitability over the past three years

Interview questions with MSE Operators

1. What problems did you face while running your business in relation to
institutional (external) factors that affect business performance of MSEs?

2. What problems did you face while running your business in relation to
enterprise (internal) factors that affect business performance of MSEs?

3. What are other problem(s) did you faced regarding the overall business
function of your activity?
 91

መጠይቅ

ሐራማያ ዩኒቨርስቲ

የቢዝነስና ምጣኔ ሀብት ኮላጅ

የማኔጅመንት/ክፍሌ

የቢዝነስ አስተዲዯር ማስተርስ ኘሮግራም

ውዴ የጥናቱ ተሳታፊዎች እኔ ጌትነት ታከሇ በሐራማያ ዩኒቨርስቲ የማኔጅመንት ትምህርት

ክፍሌ የቢዝነስ አስተዲዯር የዴህረ ምረቃ ተመራቂ ተማሪ ስሆን፤ በአሁን ሰዓት የመመረቂያ
ፅሁፌን በማዘጋጀት ሊይ እገኛሇሁ፡፡ የጥናቴ ርዕስም “ሐራማያ ከተማ የሚገኙ የጥቃቅንና
አነሰተኛ ተቋማት የቢዝነስ አፈፃፀም ሊይ ተፅእኖ የሚያሳዴሩ ተግዲሮቶችን”
ይመሇከታሌ፡፡እርስዎም በዚህ ጥናት እንዱሳተፉ ተመርጠዋሌ፡፡ እባክዎ እንዱተባበሩኝ
በማስታወስ እርስዎ የሚሰጡትን ትክክሇኛውን መረጃ ሇጥናቱ ውጤታማነት በጣም አስፈሊጊ
መሆኑን በመገንዘብ መጠይቁን በጥንቃቄ እንዱሞለ እጠይቃሇሁ፡፡ ተሳትፎዎ በእርስዎ በጎ
በፈቃዯኝነት ሊይ የተመሰረተ መጠይቆቹ የሚሞለ ይሆናሌ፡፡ በመጨረሻም የሚሰጡት መረጃ
ሚስጥራዊነቱ የተጠበቀና ሇዚህ ጥናት ዓሊማ ብቻ እንዯሚውሌ አረጋግጣሇሁ፡፡ የማንኛውም
መሌስ ሰጪ ማንነት በማንኛውም መሌኩ የማይታተምና የማይሰራጭ ይሆናሌ፡፡ ሁለም
መረጃዎች ሇትምህርታዊ ዓሊማ ብቻ ይውሊለ፡፡ ጊዜዎን ሰውተው ስሇሚያዯርጉሌኝ ትብብር
በቅዴሚያ አመሰግናሇሁ፡፡

ስ.ቁ 0918669064

Email:getnettekele3@gmail .com ጌትነት ታከለ

ማሳሰቢያ - በመጠይቁ ሊይ ስም መፃፍ አያስፈሌግም፡፡

- መሌስዎትን በሳጥኑ ውስጥ የእርማት ምሌክት (√) ያስቀምጡ፡፡

 92

ክፍሌ1፡ስሇቢዝነስ ባሇቤት/አስተዲዯር አጠቃሊይ መረጃ

1. ጾታ: ወንዴ ሴት

2. የጋብቻ ሁኔታ ያገባ ሊጤ የፈታ

3. የባሇቤቱ/የአስተዲዯሩ እዴሜ. 25-35 36-45 45 በሊይ

4. የቢዝነሱ የባሇቤቱ /የአስተዲዯሩ ትምህርት ዯረጃ. 12 ክፍሌ ያጠናቀቀ ቴክኒክና

ሙያ ዱኘልማ ዱግሪ ማስተርስ

ክፍሌ2፡ ስሇቢዝነስ ተቋማት አጠቃሊይ መረጃ

1. የተሰማሩበት የስራ መስክ ምንዴን አይነት ነው?

አምራች የከተማ ግብርና

አገሌግልት ንግዴ ግንባታ

2. ወዯዚህ ቢዝነስ እነዱሰማሩ ያነሳሳዎት ምክንያት ነው?

የቢዝነሱ ትርፋማነት የስራ አማራጭ አሇመኖር

መሌካም የመንግስት ዴጋፍ ከዚህ በፊት ሌምዴ ላሊካሇይግሇፁ ______

3. ስራውን ሲጀምሩት የገንዘብ ምንጭ ከየት አገኙ?

ከባንክ ከግሌቁጠባ

ከማይክሮፋይናንስ ከቤተሰብ ላሊካሇይግሇፁ ______

ክፍሌ3፡ በጥቃቅንና አነስተኛ ተቋማት የስራ እንቅስቃሴ ሊይ ተፅእኖ የሚያሳዴሩ ጉዲዮች

ከዚህበታች ሇጥቃቅንና ና አነሰተኛ ተቋማት የአፈፃፀም ችግር ሉሆኑ የሚችለ ነገሮች

ተዘርዝረዋሌ፡፡ ከተዘረዘሩት ችግሮች የእርስዎን የስራዘርፍ ይበሌጥ ተፅእኖ የሚያሳዴሩትን
በዯረጃ ያመሊክቱ፡፡ሇእያንዲንደ ጥያቄ ከአማራጮቹ አንዴ ጊዜ ብቻ የ(√) ምሌክት በማዴረግ
ምሊሽ ይስጡ፡፡ 5 = በጣምእስማማሇሁ 4 = እስማማሇሁ 3 = ሇመወሰን እቸገራሇሁ
2 = አሌስማማም 1 = በጣም አሌስማማም
 93

No ህጋዊ ጉዲዮችና ተዛማጅ ችግሮች 1 2 3 4 5

1 ተመጣጣኝና ምክንያታዊ ያሌሆነ የስራ ግብር፡፡
2 በቢሮክራሲያዊ ማነቆ የተተበተበ የምዝገባና የንግዴ ፈቃዴ
አሰጣጥ ሂዯት፡፡
3 በቂያ ሌሆነ የመንግስት ማበረታቻ፡፡
4 ከስራዬ ጋር ተዛማጅ የሆኑ ህጎች፣ዯንቦችና አዋጆች ተዯራሽ
አሇመሆን፡፡

No የስራቦታና ተዛማጅ ችግሮች 1 2 3 4 5

1 ስራዬን የሚያካሄዴበት የግሌ ቦታ አሇመኖር፡፡
2 አሁን ያሇሁበት ቦታዉ ሇስራዬ አመቺ አሇመሆን፡፡
3 ከፍተኛ የሆነ የቤት ኪራይ መጠን፡፡
4 የሰራ ቦታዉ ከገበያዉ የራቀ ነው፡፡

No ቴክኖልጂና ተዛማጅ ችግሮች 1 2 3 4 5

1 ሇስራዬ ተገቢ የሆነ የቴክኖልጂ ግብዓት አሇመኖር፡፡
2 በቂ የሆነ የቴክኒክ ክህልት አሇመኖር፡፡
3 በገንዘብ እጥረት ምክንያት አዲዱስ የቴክኖልጂ
ውጤቶችን አሇማግኘት፡፡
4 ሇስራዬ ተገቢ የሆነ የቴክኖልጂ ውጤት መምረጥ
አሇመቻሌ፡
የቴክኖልጂ ሽግግር ማዴረግ አሇመቻሌ፡፡

No ከመሰረተ ሌማት ጋር የተያያዙ ችግሮች 1 2 3 4 5

1 በቂ ያሌሆነ የኤላክትሪክ ሀይሌ አቅርቦት፡፡
2 በቂያ ሌሆነ የውሃ አቅርቦት፡፡
3 በቂ የሆነ የትራንስፖርት አገሌግልት አሇመኖር፡፡
4 በቂ የዯረቅ ና ፈሳሽ ቆሻሻ ማስወገጃ ስርዓት አሇመኖር፡፡

No ከገንዘብ ጋር የተያያዙ ችግሮች 1 2 3 4 5

1 በቂ የሆኑ የብዴር ተቋማት አሇመኖር፡፡
3 ባንኮች ና ላልች አበዲሪ ተቋማት ሇማበዯር የሚጠይቁት
ከፍተኛ የማስያዣ መጠን፡፡
4 ባንኮች ና ላልች አበዲሪ ተቋማት የሚጥለት ከፍተኛ
የብዴር ወሇዴ መጠን፡፡
5 የስራ ማንቀሳቀሻ ገንዘብ መገኘት ሇጥቃቅንና አነሰተኛ
ማህበራት እዴገት አሰፈሊጊ ነው፡፡
6 ብዙዎቹ አበዲሪ ተቋማት የረዥም ጊዜ ብዴር ሇጥቃቅንና
 94

አነሰተኛ ተቋማት ሇመሰጠት ፈቃዯኛ አሇመሆን፡፡

No የስራ አመራር ክህልት ጋር የተያያዙ ችግሮች 1 2 3 4 5

1 በሰራተኞች መካከሌ ግሌፅ የሆነ የስራ ና ሀሊፊነት
ክፍፍሌ አሇመኖር፡፡
2 ዯካማ አዯረጃጀትና ውጤታማ ያሌሆነ የግንኙነት
አሰራር፡፡
3 የሰሇጠኑ እና ሌምዴያሊቸው ሰራተኞች አሇመኖር፡፡
4 በዋጋቸው ተመጣጣኝና ተዯራሽየሆኑ የስሌጠና
እጥረት፡፡
5 ሁለንም የማህበራትን ተግባራት መቆጣጠር ያሇመቻሌ

6 የረዥም ጊዜ መዯበኛ የቢዝነስ እቅዴ አሇመኖር፡፡

No የስራ ፈጠራ ክህልትና ተዛማጅ ችግሮች 1 2 3 4 5

1 ከተወዲዲሪዎች አንጻር የኛ ማህበር እስትራቲጃዊ እቅዴ
የመግባት ከፍተኛ የሆነ አዝማሚያ አሇው፡፡
2 ከተወዲዲሪዎች አንጻር የኛ ማህበር የዯንበኞችን ፍሊጎትና
ምኞት የመሇየት ከፍተኛ የሆነ አቅም አሇው፡፡
3 ከተወዲዲሪዎች አንጻር የኛ ማህበር ከፍተኛ የሆነ ስራ
ፈጣራ ዯረጃ አሇው፡፡
4 ከተወዲዲሪዎች አንጻር የኛ ማህበር ራእያችንን እውን
ሇማዴረግ ከፍተኛ የሆነ አቅም አሇው፡፡
5 ከተወዲዲሪዎች አንጻር የኛ ማህበር አዲዱስ እዴልችን
የመሇየት ከፍተኛ የሆነ አቅም አሇው፡፡

No የጥሪ እቃዎች እጥረት ችግሮች 1 2 3 4 5

1 ግብአቶችን በ ደቢ እገዛሇሁ፡፡
2 የግብአቶች ማመሊሇሻ ፋሲሉቲች በቀሊለ ይገኛሌ፡፡
3 ጥሪ እቃዎች በማህበራችን አቅራቢያ ይገኛለ፡፡
4 የጥሪ እቃዎች ዋጋ በማህበራችን አካባቢ ዝቅተኛ ነው፡፡
 95

No ግብይት ና ተዛማጅ ችግሮች 1 2 3 4 5

1 የኛ ቢዝነስ አሊማ ሚነቃቃው በዯንበኞች አርካታ ነው፡፡
2 እኛ የቁርጠኝነት መጠናችንን የ ምንቆጣጠረው
የዯንበኞችን ፍሊጎት ማቅረብ ነው፡፡
3 የኛ እሰትራቴጂ ሇውዴዴራዊ ጥቅም ሇማግኘት መሰረቱ
የዯንበኞቻችንን ፍሊጎት በመረዲት ነው፡፡
4 የኛ እሰትራቴጂ ሚነቃቃው በኛ እምነት እንዳት ትሌቅ
ዋጋ ያሇው ነገር ሇዯንበኞቻችንን መፈጠር እንችሊሇን
በማሇት ነው፡፡
5 የኛ ማህበር እንዳት ሇእያንዲንደ ሰው በማህበሩ ውስጥ
ሇዯንበኞቻችንን ጠቃሚ ሁኔታዎችን በመፍጠር
አስተዋጽኦ ማዴረግ እንዯሚችለ ይረዲሌ፡፡

No የአመዝጋገብ እና መረጃ አያያዝ ተዛማጅ ችግሮች 1 2 3 4 5

1 በኛ ቢዘረነስ ውስጥ የአመዝጋገብ እና መረጃ አያያዝ
ሇንብረት ዴሌዯሊ እና ሇአፈጻጸም እቅዴ እንዯ መሳሪያ
እንጠቀመዋሇን፡፡
2 በኛ ቢዘረነስ ውስጥ የተሻሻሇ እና ትክክሌ የሆነ
የአመዝጋገብ እና መረጃ አያያዝ በያነዲነደ ሌዉዉጥ
ውስጥ አሇ፡፡

3 በኛ ቢዘረነስ የሰራተኞችን ችልታ ሇመጨመር

የአመዝጋገብ እና መረጃ አያያዝ ስሌጠና ይሰጣሌ፡፡

የተቋማት የቢዝነስ አፈፃፀም በአምስት ነጥብ ሉክርት ስኬሌ ሉሇካ ይችሊሌ፡፡ ሁለንም
ተሇዋዋጭ ካነበባችሁ በኋዋሊ ከቢዝነሳችሁ ጋር አመዛዝኑ እና ሇእያንዲንደ ጥያቄ
ከአማራጮቹ አንዴ ጊዜ ብቻ የ(√) ምሌክት በማዴረግ ምሊሽ ይስጡ፡፡5= በጣም ጨምሯሌ
4= ጨምሯሌ 3 = ሇውጥየሇም 2= ቀንሷሌ 1= በጣም ቀንሷሌ

No የቢዝነስ አፈጻጸም 1 2 3 4 5
1 የሽያጭ መጠንናችን በየጊዜ እያዯገ ነው፡፡

2 በሥራሊ ይከተሰማራን ጀምሮ በስራችን የሚሰሩ ሰራተኞች ብዛት

እያዯገ ነው፡፡

3 በተሇያዩ ግዜያት ውስጥ ትርፋማነታችን እያዯገመቶዋሌ፡፡

 96

የቃሇመጠይቅ ጥያቄዎች ከጥቃቅንና አነሰተኛ ማህበራት ባሇቤት/አስተዲዯር ጋር

1. በቢዝነስ ሂዯታችሁ ውስጥ ምን አይነት ችግር ገጥሟችሁ ነበር ዊጫዊ ከሆኑ

ሇጥቃቅንና አነሰተኛ ተቋማት በቢዝነስ የአፈፃፀም ችግር ሉሆኑ የሚችለ ነገሮች ጋር
በተያያዘ?

2. በቢዝነስ ሂዯታችሁ ውስጥ ምን አይነት ችግር ገጥሟችሁ ነበር ውስጣዊ ከሆኑ

ሇጥቃቅንና አነሰተኛ ተቋማት በቢዝነስ የአፈፃፀም ችግር ሉሆኑ የሚችለ ነገሮች ጋር
በተያያዘ?

3. በአጠቃሊይ ምን አይነት ተግዲሮቶች አጋጥመዋችሁ ነበር ይህንን ቢዝነስ ስታስኬደ?