The Effectiveness of Business Management and Entrepreneurship

African Journal of Business and Economic Research (AJBER) (Online) ISSN 1750-4562 (Print) ISSN 1750-4554

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Indexed at: EBSCO, ProQuest, J-Gate and Sabinet Accredited by IBSS Vol. 13, (Issue 2), August 2018 pp 81 - 98

The Effectiveness of Business Management and Entrepreneurship Training Offered By SME Service Providers in Namibia Calvin Mukata Mukata* Doctoral Student Department of Business Management College of Economic and Management Sciences University of South Africa Email: [email protected]

Watson Ladzani Department of Business Management University of South Africa Email: [email protected]

Thea Visser Department of Business Management University of South Africa Email: [email protected] *Corresponding Author Abstract Despite the comprehensive business support and advisory services offered to small and medium enterprises in Namibia, the effectiveness of these programmes remains unclear and the rate of business failure continues to increase, with the concomitant high rate of unemployment. This paper assessed the effectiveness of business management and entrepreneurship training offered 81

The Effectiveness of Business Management …

by small and medium enterprise service providers in Namibia. It examined the relevance of the training and assessed whether the training had helped small and medium enterprises to improve their ability to increase sales, profits and number of employees. A sample of 179 enterprises was used in Katima Mulilo, Rundu and Windhoek. The analysis of variance was used to determine if categorical variables were related, and to determine statistically significant differences at a 95% level of confidence. The training was effective as respondents’ training needs were met. The training programme also led to an increase in turnover (sales), profits, and, an increase in the value of business assets. There were, however, statistically significant differences between the means of the impact of the business management and entrepreneurial training programme and the variables of town, age and skills. Training can be linked to business development services, such as microfinance, mentoring, coaching services and technical skills training. It can assist the government, educators, trainers, financiers, consultants and other stakeholders to provide appropriate training support to enhance entrepreneurial capacity in Namibia.

Keywords: Trained small and medium enterprises, business management training,

entrepreneurship training, small and medium service providers, Namibia, skills.

1. Introduction The importance of management training is recognised by the United Nations Conference on Trade and Development (UNCTAD) in promoting the development of countries (United Nations Conference on Trade and Development Secretariat, 2011). Business management training is a common form of active support for new and growing businesses and is a popular policy option for improving productivity and sustaining the competitive advantage and performance of small and medium enterprises (SMEs) (McKenzie & Woodruff, 2014). As a result, it has led governments to invest considerable resources in programmes that encourage the management and employee training of SMEs, and Namibia is no exception. In Namibia, SMEs are classified into two different sectors. In the manufacturing sector, an SME is defined as a business that employs fewer than ten employees, its turnover is less than N$1,000,000, and the capital employed is less than N$500,000. In the service sector, on the other hand, an SME is a business that employs fewer than five people, its turnover is less than N$250,000, and the 82

Calvin, Watson & Thea (AJBER) Volume 13, Issue 2, Aug 2018, Pp 81 - 98

capital employed is less than N$100,000 (Ministry of Trade and Industry, 1997). The government of the Republic of Namibia offers comprehensive business support and advisory services to SMEs to conduct feasibility studies, to develop business plans, and to enhance business skills through tailor-made training, mentorship, and turnaround strategies. These initiatives assist SMEs to enhance their capacity and skills to manage their businesses effectively and to access finances (Ministry of Trade and Industry, 1997; Republic of Namibia, 2017). However, the effectiveness of these programmes remains unclear and the rate of business failure continues to increase, with the concomitant high rate of unemployment. The economic growth rate of Namibia for 2015 and 2016 was 5.3% and 0.2% per annum respectively, and the per capita income increased from US$10,365 in 2015 to US$10,377 in 2016 (Economist Intelligence Unit, 2016). While the economy has grown substantially since independence (1990), this has not contributed to a reduction in unemployment, poverty and/or income inequality. According to the 2016 National Labour Force Survey (Namibia Statistics Agency, 2017), the unemployment rate increased to 34% in 2016 from 27.9% in 2014 and, in terms of income equality, Namibia is the most unequal nation in the world with a Gini coefficient (measure of overall income inequality within an economy) of 0.58 (Namibia Statistics Agency, 2012). In Namibia, the rate of established business activity is lower than in other sub-Saharan African countries (Xavier, Kelley, Kew, Herrington & Vorderwülbecke, 2013). Namibia’s established business activity rate (businesses that have been in existence for more than three and a half years) is 3% (Xavier et al., 2013). This rate is the third lowest amongst 69 countries that participated in the Global Entrepreneurship Monitor (GEM) 2012 Global Report and, it is only higher than that of Russia (2%) and South Africa (2.3%). The established business rate for Namibia is significantly below the average for efficiency-driven countries at 8%, and sub-Saharan African countries at 16% (Xavier et al., 2013). The low percentage of established businesses paints a bleak picture of the potential of the SME sector in Namibia to contribute meaningfully to job creation, economic growth, and equal income distribution. SMEs contribute 12% to gross domestic product (GDP) and to 129,500 job opportunities, which is quite low when compared to other developing countries (Republic of Namibia, 2017). Namibia’s rate of business discontinuation is 12% and is four times its 83


rate of established business activity (Xavier et al., 2013). The development of SMEs in Namibia is constrained by environmental, financial and managerial factors (Brink et al., 2003). In Windhoek (capital of Namibia), causes of business failure include a lack of financial education, proper training, financial support, and management skills (Kambwale, Chisoro & Karodia, 2015). It was also found that in the northern parts of Namibia, notably Katima Mulilo and Rundu, problems encountered in developing and owning a business include a lack of technical and management training, credit for working capital, markets/stalls from which to sell, and start-up capital (Mukata & Swanepoel, 2015). Differences were found to exist between Katima Mulilo and Rundu in terms of the extent to which they perceive the problems relating to developing an own business as being problematic. Researchers have found that business management and entrepreneurial skills are a serious obstacle to increased participation by black people in entrepreneurship activities in South Africa (Preisendörfer, Bitz & Bezuidenhout, 2012:16). Moreover, there is often a significant gap between the perceptions of training providers and those of entrepreneurs, in terms of training needs. What may appear as problem areas to the trainer, may have little importance for the entrepreneur. Low established business activity rates, high failure rates, and a concomitant high rate of unemployment in Namibia indicate that there is a deficit of management and entrepreneurial training. It is therefore vital to research how established business activity rate can be improved, and failure rates be reduced, through management and entrepreneurial training. The choice of country for the study was based on sub-Saharan African countries that had a lower rate of established businesses, and Namibia was chosen because of the availability of documents at the researcher’s practicum site that could best answer the research question. Accordingly, the aim of this paper is to assess the effectiveness of business management and entrepreneurship training offered by SME service providers in Namibia. The objectives are:  To examine relevance of business management and entrepreneurial training in addressing the problems related to management skills of SMEs in Namibia;  To assess whether the business management and entrepreneurial training programme had helped SMEs to improve their ability to increase sales, profits, number of employees and an increase in 84


the net value of their business assets; and  To determine whether there are statistically significant differences between the means of the impact of business management and entrepreneurial training and the variables of town, age, skills, gender, duration of the business (number of years in the business), education level, and managerial experience. The outcomes of the research could assist business management and entrepreneurial training programmes offered by the SME service providers to SMEs in Namibia. It could also help the government, educators, trainers, financiers, consultants and other SME stakeholders to provide appropriate training support and incentives for SMEs to enhance their entrepreneurial capacity. This, in turn, could boost enterprising individuals to survive and grow their businesses, which would ultimately contribute to economic growth and job creation in Namibia. The paper proceeds as follows: the theoretical background is presented; followed by the methodology, results, discussion, and conclusions and implications. 2 Literature review

2.1 Business management and entrepreneurship training Managerial skills concern the ability to manage and organise people and resources, while business management skills include strategy, planning, marketing, financial, project management and time management skills. People management skills include leadership, motivation, delegation, communication and negotiation skills (Westhead, Wright & McElwee, 2011). Entrepreneurial skills focus on the perceived ability to create, identify and exploit opportunities (Westhead et al., 2011). The effectiveness, efficiency and quality of training are measured in four ways, namely: reaction, learning, behaviour and results (Giangreco, Carugati & Sebastiano, 2010). The first level includes the reaction (feelings) that participants have towards the actual training. Steensma and Groeneveld (2010) claim that although this is the most commonly used evaluation form, it is insufficient to establish a positive link between the training, growth of knowledge, and better performance by the business. The second level, learning measures, is concerned with knowledge outcomes or ideas, and information and approaches from the training 85


programme that are understood and retained by trainees. A behavioural measure, which is the third level, indicates the extent to which the training transfers to the job and to the workplace of the trainee. The fourth level, results, indicates if broad and often more long-term organisational goals are attained through the training. Measures used to assess results may vary from profits, an increase in the value of business assets, return on investment, to lower sickness absenteeism, and a reduction in turnover; which may be conceived as the overall end results achieved. According to Powell and Yalcin (2010), training programmes that are evaluated on learning as an outcome result in stronger and more significant effect sizes, regardless of the chosen design of the study.

2.2 Link between training and business practice Studies differ in terms of the specific practices they measure, how comprehensively they measure them, and how (if at all) they aggregate them (McKenzie & Woodruff, 2014). Studies have also found that business owners implement only some training practices while the magnitude of improvement practices is often modest (Karlan & Valdivia, 2011; Mano, Iddrisu, Yoshino & Sonobe, 2012; De Mel, McKenzie & Woodruff, 2014). In a study in Sri Lanka to test if the impact of training alone differs from that of training coupled with access to capital in the form of an unrestricted grant, it was found that training alone leads to some changes in business practices, but has no effect on business profits, sales, or capital stock (De Mel et al., 2014). In contrast, the combination of training and a grant leads to significant short-run improvements in business performance. However, these gains disappear two years after training (De Mel et al., 2014). A study by Karlan and Valdivia (2011) assessed the marginal impact of adding business training to pre-existing clients of the Foundation for International Community Assistance (FINCA) in Peru; a microfinance institution that implements village banking for poor female microentrepreneurs in Lima and Ayacucho. It was found that business knowledge improves, such as the exact activities being taught in the programme. However, no effects on business profits and sales were found (Karlan & Valdivia, 2011). In Botswana, Moremong-Nganunu, Cunningham and Hindle (2008:94) found in their evaluation of the entrepreneurship programme, Start and Improve Your Business (SIYB), which is supported by the International Labour Organisation (ILO) 86


(2012), that businesses who participated in the programme scored higher on the ability to reconcile the family and the business and on the ability to adapt to business needs than those who did not attend the programme. The effectiveness of the programme also increased when training was linked to other business development services such as microfinance, mentoring and coaching services, and technical skills training. Mano et al. (2012) argue that entrepreneurs in developing countries can improve the productivity of their enterprises by mastering management techniques. With regard to the link between business management and entrepreneurship training with profitability and business growth/performance , some studies have failed to establish a link between training and improved business performance (Storey & Westhead, 1996; Matley, 2004; Moremong-Nganunu et al., 2008; Mafela, 2009), However, studies have also detected significant effects of business training on business profits/sales. According to McKenzie and Woodruff (2014), measuring the profits and revenues of the business poses additional problems. Small business owners do not keep written records of these items, while owners of large businesses keep records, but are reluctant to share these records. There is evidence that management training programmes assist business owners to increase profits and sales. Botha, Nieman and Van Vuuren (2007) found that respondents from the Women Entrepreneurship Programme (WEP) in South Africa experienced an increase in the number of business employees, turnover, productivity, and profit; in addition to the acquisition of new entrepreneurial skills and knowledge. Management training increases motivation, professionalism, and temporal energy on an individual level, while also contributing to business development; encouraging potential entrepreneurs to start their own businesses and established entrepreneurs to start multiple businesses (Björklund, Holmgren & Lundström, 2011). It was also found that business training programmes significantly affect business skills, entrepreneurial attitudes, and business practices/outcomes among microfinance clients of the microfinance institution, the “Promotion of Rural Initiative and Development Enterprise” in Tanzania (Berge, Bjorvatn, Juniwaty & Tungodden, 2012). Mano et al. (2012) found a stronger effect of such programmes on the gross profit of the business than on sales revenues. This is due to training programmes emphasising improvements in production management; and specifically, another possible explanation 87


was that participants in the training programme were mainly in the manufacturing industry/sector.

2.3 Business start-up and survival According to Kotey and Folker (2007), training enhances the start-up and survival rate of SMEs, while decreasing business failure. Start-up training assists in starting a business. However, training may merely hasten the entry of firms that would enter anyway and may potentially change the selection of which firms enter (McKenzie & Woodruff, 2014). Mano et al. (2012) found that participation in a basic-level management training programme in Ghana improves business practices and performance, while training programmes also assist prospective owners to launch new businesses more quickly. Berge et al. (2012) attribute this phenomenon to the possibility that training teaches business owners to close ailing businesses. In a study in Sri Lanka by De Mel et al. (2014), it was found that the Start and Improve Your Business (SIYB) training programme led to women opening new businesses quite easily, while also experiencing improved business profitability and business practices. Training targeted at women already in business highlighted limited changes in business practices, and without any effect on business profitability. According to Klinger and Schündeln (2011), the effect of entrepreneurship training on the outcomes of firms in Central America showed that business training significantly increases the probability that training participants would start a business or expand an existing business. In terms of relevance of the Start and Improve Your Business training programme for job creation in emerging economies, the International Labour Organisation’s (2012) study captured data relating to the impact studies as undertaken by the Start and Improve Your Business training programme in different countries. A distinction was made between people who were not yet in business at the time of the training, and those already in business. It was found that new businesses that started after receiving training from the programme generated three jobs, including the business owner. Selected countries included China – 5.3 jobs on average; Vietnam – 3.4 jobs; Papua New Guinea – 2.4 jobs; and Zimbabwe, Zambia and Uganda – 2 jobs each. In existing businesses, between 15% and 30% of those already in business were reported to have expanded their workforce; and on average, 0.6 jobs were generated in existing businesses (International Labour Organisation, 2012). A thorough review of the literature revealed 88


that no study investigated the effectiveness of SME training in Namibia, hence this study. 3. Methodology A quantitative study was used and fieldwork was carried out in three towns (regions) in Namibia: Katima Mulilo (Zambezi); Rundu (Kavango East); and Windhoek (Khomas). To overcome the lack of up-to-date records on trained SMEs in Namibia, all listed SME service providers, 30 in all, by the Ministry of Industrialisation, Trade and SME Development (Namibia) were contacted. The function of the SME service providers was to provide the contact details of SMEs that were trained between 2009 and 2015 in these three towns (regions). The total population of SMEs that were trained by service providers were 715. The total population per town were as follows: Katima Mulilo (157), Rundu (467), and Windhoek (91). With this database as a sampling frame, a random sample of 179 businesses was drawn, 55 from Katima Mulilo, 73 from Rundu, and 51 from Windhoek. The stratified sampling and systematic random sampling were used to select respondents for the study. A measuring instrument (questionnaire) was developed from the literature study and both nominal and ordinal scale type questions (5 Likert-type response scales) were used. The researcher, with the assistance of three fieldworkers, collected the data from 179 trained SMEs. Questionnaires were analysed using the Statistical Package for the Social Sciences (SPSS), version 23. Frequencies, means, standard deviations and percentages were created to compare, analyse and portray information for variables pertaining to the sample and the three towns (regions). For reliability, analyses of variances (ANOVAs) were conducted to determine if there were statistically significant differences between the means of the impact of the training programme, and the variables of town, age, skills, gender, educational level and managerial experience. Statistically significant differences were determined at a 95% level of confidence for constructs, with p-values below 0.05. 4. Results Regarding the overall quality of the business management and entrepreneurial training programmes, most respondents indicated that 89


the quality of training offered by service providers was exceptionally high (35.6%), followed by those who indicated that it was high (35%), and average (26%). An analysis in terms of towns indicated that most respondents in Katima Mulilo (51.9%) rated the training as average; in Rundu, most respondents rated the training as high (56.9%), while most respondents (96.1%) in Windhoek rated the training as exceptionally high. Questions were also asked to assess if the business management and entrepreneurial training programme assisted SMEs to improve their ability to increase sales and profits; if the programme assisted them to increase the number of employees in the business; and, the net value of their business assets. Table 1 indicates that most respondents agreed that the training programme led to an increase in turnover (sales) (4.011), an increase in profits (3.853), and an increase in the value of their business assets (3.606). However, respondents were neutral (3.165) as to whether the training programme led to an increase in the number of employees. Table 1: Means of impact of business management and entrepreneurial training programme Description Increase in turnover (sales) Increase in profits Increase in number of employees Increase in value of business assets Average

Town where the business is located Katima Rundu Windhoek Average Mulilo 3.854 3.638 4.705 4.011 3.709 3.2778 4.823 3.853 2.036 2.916 4.745 3.165 3.09

3.451

4.451

3.606 3.660

There were, however, differences in analysis per town. In Katima Mulilo, respondents agreed that the training programme had increased turnover (3.854) and profits (3.709) but disagreed that the programme had increased the number of employees (2.036). Respondents were neutral regarding the value of their business assets (3.09). In Rundu, respondents agreed that the training programme had increased turnover (3.638); but were neutral on profits (3.2778), an increase in number of employees (2.916), and an increase in the value of business assets (3.451). In Windhoek, respondents strongly agreed that the training had increased 90


turnover (4.705), profits (4.823), the number of employees (4.745), and the value of business assets (4.451). Analyses of variances (ANOVAs) were conducted to determine if there were statistically significant differences between the means of the impact of the training programme, and the variables of town, age and skills. The results in Table 2 show that the factors of town (F (2, 170) = 102.612, p 