The influence of strategic management on successful small & medium businesses in the South African context

Abstract

The importance of small and medium businesses, (SMB's), and specifically the important role that they perfonn in a country's national economy, have long been realized. In South Africa, the emphasis being placed on promoting small businesses in the government's GEAR strategy is an indication of how important small and medium businesses are regarded, even at national government level. Statistical evidence underlining the valuable contribution ofSME's is frequently quoted in the literature. The following statistics are an indication of the contribution of SME's to the South African economy: • in 1991 there were approximately 800 000 formal businesses in South Africa of which approximately 700 000 or 85% could be classified as 5MB's; • their estimated contribution to the GDP at that stage was in the region of30%; • in 1991 SME's employed more than 2.4 million people (2.7 million people in 1994) which represented about 17% ofthe economically active population of 14.3 million at that stage; • "informal" Small Enterprises in 1991 was thought to be employing about 4.4 million additional people. If the high rate of insolvency's amongst SME's, relative to larger businesses in the economy are to be taken as a guideline, it is clear that the financial risks involved in managing, owning and/or investing in a small to medium sized business are relatively high. With the above being a stated filct, the question was asked as to what can be done to make this important sector ofthe economy more effective. A great deal ofresearch was done in the past as to what actually causes 5MB's to go bankrupt. Problem factors ranging from a lack of funding, high interest rates, hostile labour relations and inflation to unsupportive governments were named in various studies as primary reasons for the failure of these businesses. Previous research has also found that the use ofstrategic management as a management tool in smaller businesses, such as 5MB's, is being neglected by the managers/owners ofSME's.