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Department of management
Factors affecting small business enterprise in case of Metu town

Research paper submitted to the department of management partial fulfillment of award of BA degree in management

By: Tebeje Girmay Adviser:Zelalem G.

January 2013 Jimma Ethiopia

Table of contents Contents page CHAPTER ONE --------------------------------------------------------------------------------------------1 1. Introduction------------------------------------------------------------------------------------------------1 1.1. Background of study------------------------------------------------------------------------------------1 1.2. Statement of the problem-------------------------------------------------------------------------------2 1.3. Objectives of the study----------------------------------------------------------------------------------2 1.4. Specific objectives----------------------------------------------------------------------------------------3 1.5. Significance of the study--------------------------------------------------------------------------------3 1.6. Scope of the study----------------------------------------------------------------------------------------3 CHAPTER TWO---------------------------------------------------------------------------------------------4 2.1. Literature review-----------------------------------------------------------------------------------------4 CHAPTER THREE------------------------------------------------------------------------------------------6 3.1. Research design-------------------------------------------------------------------------------------------6 3.2.Study site and periods------------------------------------------------------------------------------------6 3.3.Source of data------------------- -------------------------------------------------------------------------6 3.1.4. Sampling technique and sampling size---------------------------------------------------------------6 3.1.5. Data processing and analysis--------------------------------------------------------------------------7 4 .Time and budget scheduling-------------------------------------------------------------------------------8 4.1. Time schedule planning----------------------------------------------------------------------------------8 4.2. Budget schedule -----------------------------------------------------------------------------------------9 5. Bibliography-----------------------------------------------------------------------------------10

CHAPTER ONE 1. INTRODUCTION 1.1 .BACK GROUND OF THE STUDY Small business will be examined in terms of the many services, local professional practice and merchandisers that all of us relay on without clothiers shoe store ,convenience stores, restaurant laundries, gas station and many other enterprises we could not function. Business type which renders services often define the environment of business and in most case the opportunity of small business is defined by the characteristics of a community. The definition of small, medium and large business varies from Country to country. Even with in the same country in may vary from one sector of business another. In Ethiopia small enterprises are those enterprises in engaging less than ten (10) persons and with paid-up capital of above birr 20,000.00 and not exceeding birr 50,000.00 with regarded to the divers nature of micro and small enterprise (MSEs) in Ethiopia the majority of activities are in these sectorsmanufacturing, trade and service 43% of informal sector operators are engaged in manufacturing 38% are in trade hotels, restaurants and 14% in community and personal service. The remaining 5% are engaged in construction 2% in agricultural fishing, hunting, mining and quarrying. There are 31, 863 small scald manufacturing industries all over the community of which 19996 (68%) of them are in urban areas. The small manufacturing industries are mainly engaged in manufacturing of food, fabricated metal, furniture, clothing and wearing apparel.

1.2. STATEMENT OF THE PROBLEMS

This study will conducted to investigated and point out the major factor that affect the growth small business in Mattu town marketing converts such as understanding of customers and their needs innovation should be ground base for operational activities of modern small businessentrepreneurial and managerial skill of the owners of such enterprise are essential to promote growth and profitability ofthebusiness.Owners knowledge managerialskillsandentrepreneur abilities will help the business to be successful in modern complain business operations which will otherwise result in less 0f the business. Farther more the techniques of production, which these enterprises have adopted ,are usually out dated because of their poor financial position, they are not able to buy new equipment .Consequently ,their productivity suffers beside many small business enterprises are suffering with the problem of marketing their products.(Haile G/Tensae,2003:p41) Financing is the lifeblood of any businesses, so a business should find source of capital, should have sufficient capital fund to run its business activities, to meet their customers need through quality product and service delivery. Success for formal and legalized small business is difficult. This is because of the fact that legal and formal businesses are subject to government tax that where as the illegal one is not as a result of the illegal business can sale their product at a lower price and generate income .This problem is special of a paramount in societies of low income level such as Metu town that seek goods and services at low price .This research paper is to investigate: What are the factors that affect of small business in Metu town? What corrective action should be taken to overcome the problem? What is expected from the government to create good environment?

1.3. OBJECTIVES OF THE STUDY

The main objectives of this study is to explore and investigate the major factors that affect small business enterprise in Metu town .

1.4. SPECIFIC OBJECTIVES

To identify the influence of the entrepreneurial and managerial abilities and skills on success of business operation on small business. To assess whether existing or not the influence of government in the activity of these small business. To identify whether existing or not the problem of infrastructure which influence the activity of small business in metu town. To assess source of capital (fund) to finance and impact of lack of source of financial (capital) on business growth. To assess credit facilities.
1.5. SIGNIFICANCE OF THE STUDY

This study has several importance .thus, if this study conducts in property .it has the following significant, these are: It can be used as a supplementary material for interested researchers. Provide basic information about the factors that affect that small business to contemporary researches.
1.6. SCOPE OF THE STUDY

This study will be limited to the major factors affecting small business enterprise in metu town only, because of all needs a lot of fund if the study is not limited to specific town .As the time span covered by the study if in 2013-first semester because of shorter time given and in order to get more reliable and recent data. 3

CHAPTER TWO
2.1 LITERATURE REVIEW In economic terms a small business is one that has relatively small share of its market and is managed by its owners or part owners in a personalized way and not through themedium of a formalized management structure. Moreover, it is independent and in the sense that it does not form part of larger enterprise and the owner (manager)should be free from outside control in taking their principal decisions (Hurst 1960 pg8) A small business is one which is independently owned and operator not dominant in its field of operation (the small business administration ACT . SBA of 1953 CUSA) Such business plays a role for the socio-economic development of nations they are consideredto be of greatest value in promoting economicdevelopment creating employment opportunity promoting the export market etc. One of the characteristics of small business is that the share of its market is one large enough to enable it to influence the price or the market quality of the goods sold to significant extent .it has no power to influence the market price as well as the qualities .it is a price taken not price marker. Most small businesses are unable to exert much influence on the market .for this reason they are price taker in economic sense and likely to face significant competition .this makes the risk of filer high and competitive strategy is one of a paramount importance .however, some small business effectively combats this danger by differentiating their product or services as well as segmenting their market and developing a market for themselves.

Small business is likely to operate in a single market or limited range of markets offering a limited range of product of service. This means that the scope of firms operationis limited and less of strategic issue that in largefirm. It alsomeans that unlike large firms, they also find it more difficult to diversity their business risk. Moreover, this business is likely to be over reliant on small number of customers. This means they are particularly subject to losing any one customer and the effect on the firm of such a loss will be disproportionate large. This is another reason why they are riskier than firms (Christopher 1995:p79)

CHPTER THREE
3.1. RESEARCHDESIGN In this researchsurvey design will be employed, the survey study will be used together data from business person by using question .both qualitative and quantitative description of research will be used .the reason for the qualitative selection is dig out the problem in some detail , where as qualitative will be used for the description of statics or numerical analysis. 3.2. STUDY SITE AND PERIODS The study will be conducted in Metu town ;the town found in Oromia region about ,and 600km away from Addis Ababa in the western part of our country .The number of its population is around43,443 (source Metumunicipal office)the climate condition is hot wet. The town elevation is 1600m above sea level .The economic condition of this town based on agriculture and trade. 3.3. SOURCE OF DATA This research uses both primary and secondary source .primary data will be collected from the business persons and secondary data collected from document of enterprise . 3.4. SAMPLING TECHNIQUE AND SAMPLING SIZE. The study was adopt stratified random sampling procedure, with combination of personal judgment and probability selection with the business owner us an ultimate sampling unit for acquiring the primary data. Three small business sectors merchandizing, service and small scale industries are selected purposively to represent the major business in the town. Theresearcher was used 15 days for filled the questionnaires dealing with 7 individuals per day on the average and the remaining 5 days was used for obtaining information from the Metu town micro enterprise office.

3.5. DATA PROCESSING AND ANALYSIS The relevant data was collected, Processed andanalyzed with totally table and computation of percentage. The data was collected using questionnaire, manually sorted out using totally sheets and at thesame time, information was checked for completeness in the variables under the study.

4. TIME AND BUDGET SCHEDULING 4.1 TIME SCHEDULE PLANNING

No Works to be done 1 2 3 Preparation of research proposal Sending the proposal through mail to the advisor Preparing and writing instrument of

Time January1-31:20p3 February 1-5:20p3

data February

collection analysis interview and questionnaires 4 Revising two proposal sent by advisor and March collecting data tabulating and analyzing data 5 6 Checkingall bodies of the paper through revision April

Writing the conclusion recommendation the May research

Finalizing the research

June

4.2.BUDGETSCHEDULE No Items Price Quantity Birr 1 2 3 4 5 6 7 8 9 10 Paper Pen Pencil Disc Computer cost Personal cost Data collection Secretary Tax Total 2pack 4 2 2 2times 2times 100 3 2 25 500 200 200 500 100 Unit Cent Total Birr 200 12 4 50 1000 200 200 2000 100 3000 Cent -

5. Bibliography
According and Business Research Vol- 30 No, 1-4 (2000). Research Published by institute of chartered accountant in England and Wales Haile G/Silase (2003), Entrepreneurship and Business Management Harvard Business Review, May-June (2000) volume 78, Number 3 Paul Burn and Jim Dew Hurst (1996) Small Business and Entrepreneurship 2ndedition

10

JIMMA UNIVERSITY BUSINESS AND ECONOMICS COLLEGE DEPARTMENT OF MANAGEMENT The purpose of this questionnaireis to secure the relevant information to undertake a student research on major factor affecting the growth of small scale micro enterprises. Thus your response will have paramount input to identify the area of the problem. Section 1.Demography 1. Sex: Male Female 2. Age: 10-30 31-50 51-65 7-8 9-12 Divorced >56 >12 Unmarried Widowed

3. Education Status 1-6 4. Marginal Status Married

Section 2.Basic Business Information 5. Type of business you are running Merchandise Small scale Industry Service

6. When were you starting running the business 1980-1990 1991-1994 1995-present

7. What was your intention (s) for starting the business? (more than one answer is possible) Desire to work for one-self With to accumulate wealth To earn for survival An opportunity presented it self 8. Have you conducted any cost benefit analysis before starting the business? Yes NO 9. If you response No, Why not? Financial problem for conducting Lack of personnel that can do the analysis 10. How is the business managed? Solely by one individual By one individual having consultation from others By two or more individuals 11. Do you prepare a business plan before start to running your business? Yes No

12. If your answer to question No 11 is yes how frequently Monthly Semi-annually Quarterly Annually 13. If your answer to question No 11 is no why not? Lack of ability and skill Thinking not important as The business is simple Others (please state) 14. Has your business been profitable? Yes No

15. If your answer to question No.14 is yes, for what purpose do you use it? Re-invest to the business Totally for house hold consumption Partly consumption and partly re invest Others (state)__________________________ 16.If your response to question No.14 is NO, have you tried to change? Yes No If your answer to question No.16 is no, why not? ________________________________________ 17. Do the type, quality and design your product ,merchandise /service ,get improved from time to time. Yes No Section.3 market condition 18.Do you customer visit you regularly? Yes No 19. Whatmajor action (s) youwould undertake if customers that come to you regularly decrease? (More than one answer is possible) Product quality Reduce the price Seek information Price of competitors Others (specify) ______________ 20.What approach would you successful competitor in the market? (more than one answer is possible) Provision of quality product /service

Proper customer service /treatment Selling at low price 21.Have you adopted the habit of receiving suggestion from your customer concerning your ,service and customer treatment? Yes No

22.If your answer for (Q.21) is NO, WHY NOT? ___________________________________________________ 23. When your completions become dominants in the market in what why do you try to reverse the situation? Imitating their product Imitating and modifying their product Providing unique service Reduction of un necessary cost 24. What is your initial at the start up of the business? 100-500 5001-10,000 10,001-20,000 20,001-30,000 >30,000

25.Do you have adequate capital to run your business ? Yes No

If your response to (Q.25) is no, have access to credit facilities? Yes No

26. If your response to(Q.26)is No, why not? Lack of collateral to be pledged High interest charged by creditors Absence of creditors (micro-finances) Others (specify) ___________________________ 27. Do you want to run a business as partner with some body? Yes No

28. If your response to(Q27) is No, why not? ______________________________________ 29. What financial method(s) in general are you using? Borrowing from banks

Borrowing from peer Grant from relatives Others (specify) _____________________________________

Section 4.Government actions 30. Isthere government restriction on running your business? Yes No

31. If your response to question No13 is yes in what aspects? High taxation Licensing Regulation of operation Others (please state) _________________________

Section 5.Illegal business infrastructure facilities 32. Are there illegal businesses that affect your business operation in the town? Yes No 33. If youre answer to question No 15 is yes do think that trade and transport bureau of Illubabor Zone Metu town this fact? Yes No

34. Do you think that the town has sufficient infrastructure for running business? Yes No

35. In what way do you think sellers of such commodities and illegal business owners have competitive advantage Law selling pricing Door to door selling Provisions of quality goods Others(specify) ______________________________ 36. What do you suggest about illegal business in general? ________________________________________________ 14