Determinants of Small and Medium Enterprise’s Growth The Case of Small and Medium Enterprise in Zanzibar.

Abstract

Despite the paramount importance and significance of Small and medium enterprises to the contribution of economic growth of developing nations like Tanzania, SMEs across the whole world are still facing numerous challenges that inhibit SMEs’ growth. The general objective of this study was to determine the influence of internal and external factors on the growth of Small and medium enterprises in Zanzibar North ‘A’ district. Six hypotheses relating internal (management competence, business plan, and technology) and external factors (access to finance, taxes, and markets) to Small and medium enterprises growth were tested. Theoretically, two theories- the Resource dependence theory and transactional cost theory guided the study. The conceptual framework was developed in line with the specific objectives and hypotheses as presented in chapter one. Questionnaire instrument used to collect the primary data. The study used survey design with a targeted population of 130 registered SME’s in Zanzibar. A sample of 98 registered SME’s was involved in this study. Descriptive statistics, reliability analysis, validity analysis, correlation analysis and multiple regression analysis were used as presented in chapter four. The results of six hypotheses: H1 indicate that that there are significant effects of management competence (p-value = 0.001), H2 indicate non-significant effect for business plan at (p –value = 0.078, p > 0.05), H3 indicated significant effect for firm technology p-value = 0.016 on growth of SME’s in Zanzibar. On the other side for H5 the study also found negative effects of high tax (p-value = 0.016) and H6 market constraints on SME’s growth (p-value = 0.007). Unfortunately, for H4 the study found no significant effect of financial constraints on Small and medium enterprises growth in Zanzibar. The study concludes that SME’s growth in Zanzibar and Tanzania at large are hindered by internal (management competence and firm technology) and external factors (high taxes and market constraints). The study recommends that Small and medium enterprises have to ensure improving the levels of managerial competence and skills in order to foster Small and medium enterprises growth, ensure effective preparation, use of business plans and ensure adoption of new technology for Small and medium enterprises.