Results and Discussions - Mauritian SMEs - Free Essay Example

5.0 RESULTS AND DISCUSSIONS 5.1 INTRODUCTION The study of Mauritian SMEs was done with particular reference to the following 3 sectors: Leather and Garments Wood and Furniture Paper products and Printing Both face to face interview and questionnaires were used to obtain the required information. The data collected were entered into SPSS 20 and the results were analysed using the figures and tables obtained. 5.2 COMPANY DATA (a) Age of entrepreneurs Figure 5.1: Age Group of Owner/Manager It is disturbing to note that only 5% of the entrepreneurs surveyed were below 30 years and only 32.5% below 40 years. This is a matter of concern and indicates that not many young people are prepared to take risks in entrepreneurship and to deal with administrative hassles associated with the setting up of an enterprise. The difficulty in having access to finance in the absence or insufficient collateral at a young age may also be a cause. During discussions, a few of them have indicated that their children, after having pursued higher education, have stayed abroad and are not interested in taking over the business although the parents have succeeded in the enterprise. (b)Year s in operation Figure 5.2: No. of years company is in operation Only 10% of enterprises have been established within the last three years whereas 65% have more than 15 years. This is rather worrying. A partial explanation may reside in the fact that some of the new enterprises are in the infant stage and are still micro enterprises. With adequate support, many of them will grow. In Mauritius and elsewhere in the world, there are instances where micro enterprises have grown into large and even very large enterprises. (c) Family members working in the enterprise Figure 5.3: Family members working for the company 28 SMEs i.e 70% have family members working in the enterprise either full time, part time or during peak periods only. Of these, 19 SMEs have family members working full time, 3 SMEs having family members working part time and 6 SMEs having family members working during peak periods only. The 6 SMEs having family members working during peak periods only are probably not paid or paid below market rate. This suggests that they have recourse to bootstrapping finance at times. 5.3 MARKETING (a) Budget for marketing Figure 5.4: Budget for Marketing Marketing is an expensive activity. 42.5% of SMEs do not provide a budget for marketing. Often, they are well established in the locality where they operate and do not seek to enlarge their market. They do not have a clear vision of their business in the medium and long term and possibly lack ambition too. The opportunity for growth is greatly reduced in the absence of marketing. Owing to the size of the enterprise and the limited financial resources, 23.5% of them find marketing too expensive and 58.8% does marketing by word of mouth only. (b) Marketing/Promotional tools 57.5% of the SMEs have a marketing budget. Of these,43.4% participates extensively or moderately in regional or international trade fairs. The Government refund scheme per SME to the tune of Rs 200 000 per annum for participation has been an encouraging factor. Table 5.1: An indication about how the marketing/promotional tools are used. Extensively % Moderately % Irregularly % Very little % Not at all % Local advertising (TV, radio, newspapers, billboards, leaflets etc) 4.3 39.1 30.4 4.3 21.7 Local trade fairs 26.1 34.8 13.0 4.3 21.7 Regional or International Trade fairs 21.7 21.7 8.7 13.0 34.8 Professional Marketing Services 8.7 13.0 8.7 13.0 56.5 Personal Selling/Direct Marketing 60.9 21.7 4.3 0 13.0 Web Page/ Email/ Facebook/Twitter/ Sms etc. 34.8 8.7 17.4 4.3 34.8 (c) Effect of marketing budget on level of sales 21 SMEs answered this question. Of these, 15 respondents considered the marketing budget have a moderate effect and 6 respondents as having a high effect on level of sales. (d) Product concept v/s Conventional Marketing Product concept: The product is developed first and then the firm searches for market. Conventional marketing: The customersà ¢Ã¢â€š ¬Ã¢â€ž ¢ needs and preferences are identified first and the product is developed accordingly. Figure 5.5: Concept adopting for marketing 8.7% of SMEs surveyed adopt the product concept compared to 34.8% adopting the conventional marketing and 56.5% using both of them. It is encouraging to note that 91.3% adopt the conventional marketing for at least part of their production. This is indicative of the awareness of entrepreneurs on the necessity to continually innovate and to satisfy the needs and tastes of customers and to follow the market trend. FINANCE Finance to start business 41% of SMEs surveyed reported that they started their business with either their personal savings or their personal savings plus help from friends and relatives. It is indicative of a strong equity base and risk takers who do not hesitate to venture into enterprises with their own funds. Figure 5.6: The source of finance of surveyed SMEs Awareness of loans offered at concessionary rate Table 5.2: Awareness of loans offered at concessionary rate Sector operating * Awareness of loans offered at concessionary rates by Government agencies Crosstabulation % of Total Awareness of loans offered at concessionary rates by Government agencies Total Not informed at all Not well informed So/So Moderately informed Well informed Sector operating Leather and Garments 5.0% 2.5% 10.0% 12.5% 12.5% 42.5% Wood and Furniture 2.5% 2.5% 10.0% 7.5% 7.5% 30.0% Paper products and printing 2.5% 2.5% 12.5% 10.0% 27.5% Total 7.5% 7.5% 22.5% 32.5% 30.0% 100.0% Table 5.2 indicates the degree of awareness of loans offered at concessionary rates. It is noted that only 62.5% of SMEs surveyed stated that they are either moderately informed or well informed. The activities of Government agencies should be further advertised through the media and through talks in various localities. Their services should be made known to entrepreneurs and potential entrepreneurs. Access to Finance Table 5.3: Access to Finance Sector operating * Rate access to finance for SMEs Crosstabulation % of Total Rate access to finance for SMEs Total Easy Reasonable So/So Difficult Very difficult Sector operating Leather and Garments 2.6% 15.4% 2.6% 20.5% 41.0% Wood and Furniture 10.3% 10.3% 10.3% 30.8% Paper products and printing 5.1% 5.1% 5.1% 10.3% 2.6% 28.2% Total 7.7% 30.8% 17.9% 41.0% 2.6% 100.0% It is somewhat worrying to note that 41% of SMEs surveyed consider access to finance as difficult. The Leather and Garments sector is particularly affected and it is indicative that the financial institutions are rather pessimistic about the business prospects in this sector. Loans from Commercial Banks Figure 5.7: Main obstacle for obtaining loans from Commercial Banks Almost half of them considered the high interest rate as the main obstacle. Since commercial banks are very cautious in advancing loans to SMEs, Government has set up in the 2014 budget a scheme whereby it will guarantee loans to SMEs directly to commercial banks up to 70% of any amount of loss incurred. This will be of help to them. Different loan schemes offered by DBM Ltd Figure 5.8: Different loan schemes offered by DBM Ltd Figure 5.8 indicates that 68.8% consider the different loan schemes offered by DBM Ltd as either satisfactory or very good. Time required for approval of loan by DBM Ltd Figure 5.9: Time required for approval of loan by DBM Ltd. It is distressing to note that 76.6% of SMEs surveyed consider the time required for disbursement of loans from DBM Ltd to be long or very long. This is a major hurdle to entrepreneurs and would be entrepreneurs. SMEs may encounter a temporary problem with cash flow/working capital and may need financing rather quickly. On the other hand, most would be entrepreneur cannot afford to wait long and at the end may set aside their projects. Cost of finance for SMEs Figure 5.10: Cost of finance for SMEs 44.4% of SMEs consider the cost of finance as reasonable, 36.1% as expensive and 16.7% as very expensive. Leasing as an alternative source of finance Table 5.4: Leasing as an alternative source of finance Sector operating * Are you prepared to consider leasing as an alternative source of financing? Crosstabulation % of Total Are you prepared to consider leasing as an alternative source of financing? Total No Yes Sector operating Leather and Garments 22.5% 20.0% 42.5% Wood and Furniture 7.5% 22.5% 30.0% Paper products and printing 17.5% 10.0% 27.5% Total 47.5% 52.5% 100.0% 52.5% are prepared to consider leasing, particularly in the wood and furniture sector. Summary of financial problems encountered by SMEs Although 62.5% are moderately or well informed about loans at concessionary rates by Government agencies, only 17.9% turns towards DBM Ltd compared to 38.4% for Commercial banks, although the latters charge higher interest rates. SMEs view the bureaucratic procedures at DBM Ltd as burdensome and the long time for disbursement of loans as discouraging. On the other hand, commercial banks view SMEs as higher risk clients and demand relatively high collateral. Consequently, 43.6% of SMEs surveyed consider access to finance to be difficult or very difficult. 5.5 IT, TECHNOLOGY INNOVATION AND QUALITY IMPROVEMENT (a) Production process Figure 5.11: Production process of SMEs The study reveals that only 12.5% of SMEs are using high tech and computerised equipment in their production process. The use of obsolete machines with inefficient technology affects productivity, product quality and output. Although 90% of the SMEs surveyed are aware of the advantages of IT and te chnology innovation, only 62% are taking advantage of them. As for the rest, investment in equipment is considered too expensive and lack of knowledge in using IT is an impediment. (b) Investment in IT or technology improvement as a percentage of total assets Figure 5.12: Investment in IT or technology improvement as a percentage of total assets for the past 5 years. (c) Foreign technical advice or consultancy 41% of the SMEs benefitted from foreign technical advice or consultancy during the past 5 years. Of these more than three quarters was the result of their personal initiative. (d) Technical advice or technical assistance from local support institutions 36.4% of SMEs benefitted from technical advice or technical assistance in technology improvement from local support institutions during the past 5 years. (e) E-commerce and website 36% uses e-commerce and 54.5% have a website for their business. To promote the visibility of SMEs and to help in the marketing and export activities, Government has announced that it will provide a free basic website for all SMEs. 5.6 COMPETITIVENESS AND EXPORT Nature of market Figure 5.13: Nature of market The survey shows that most of the product as destined to the domestic market as shown in Figure 5.13. Some SMEs do export from time to time, principally to the region but not on a regular basis. Difficulties encountered in the export market. Figure 5.14: Difficulties encountered in the export market Only 18 respondents answered this open-ended question and the 6 reasons given are presented in Figure 5.14. Logistics hurdles were the most frequently mentioned followed by uncompetitive prices on the export market. The risk of default in payment is also an important factor that SMEs take into consideration in view of their relatively modest financial resources. A number of SMEs are not interested in export activities. The figure is indicative of the rather low competitiveness of Mauritian products as a result of expensiveness of imported raw materials compounded with high transportation costs and probably with relatively higher wages. Some SMEs have stated that even in the SADC and COMESA market, the advantage of the relative proximity is nullified by the high charges claimed by the freight forwarders and shipping lines and the higher cost associated with modest volumes of exports. Competition Figure 5.15: Competition SMEs view imported goods as the strongest competitor in the domestic market as shown in Figure 5.15. Trade liberalisation and the lowering of tariffs as per WTO regulations have benefited big foreign producers with economies of scale. Lowering of transportation and communication costs in general have also been beneficial to them. One SME in the wood and furniture sector mentioned that foreign companies established in Mauritius manufacturing furniture to measure as its strongest competitor. The preliminary works and measurements are done by the local subsidiary, the production done overseas and subsequently installation done by the local subsidiary. The major drawback is the time taken to complete the work. Foreign partner Table 5.5: Working with a foreign partner (a)Are you already working with a foreign partner? Frequency Percent Valid Percent Cumulative Percent Valid No 38 95.0 95.0 95.0 Yes 2 5.0 5.0 100.0 Total 40 100.0 100.0 Table 5.6: Considering to join with a foreign partner (b)Are you considering to join with a foreign partner? Frequency Percent Valid Percent Cumulative Percent Valid No 32 80.0 80.0 80.0 Yes 8 20.0 20.0 100.0 Total 40 100.0 100.0 Tables 5.5 and 5.6 are self-explanatory. However, during discussions, it is noted that SMEs are aware of the advantages of such venture in terms of equity participation, access to new markets and acquisition of innovative technology. A number of them do not wish to join with a foreign partner because they are satisfied with the current situation, want to retain their independence or are too old. Clustering Table 5.7: Clustering Sector operating * Do you favour the concept of clustering? Crosstabulation % of Total Do you favour the concept of clustering? Total No Yes Sector operating Leather and Garments 17.9% 25.6% 43.6% Wood and Furniture 17.9% 12.8% 30.8% Paper products and printing 15.4% 10.3% 25.6% Total 51.3% 48.7% 100.0% Table 5.7 shows that 48.7% favour the concept of clustering. The higher percentage in favour comes from the leather and garments sector. From discussions, it is felt that there is a lack of trust among Mauritian SMEs. Some fear that the other SME may become a potential competitor if they get a better idea of: Their production process Their volume of production Their markets And make acquaintance with their workforce. While acknowledging that clustering can be beneficial to SMEs, they believe that it will take years before Mauritians will put this concept into practice. However, one of the respondents is already engaged in à ¢Ã¢â€š ¬Ã…“International Clusteringà ¢Ã¢â€š ¬Ã‚  whereby the raw materials and semi-finished product is from a foreign country and the rest is completed in Mauritius. Sub-contracting Figure 5.16: Sub-contracting Only 25% of SMEs benefit sub-contracting works from large Mauritian firms. This is unfortunate as SMEs usually have lower overheads. They have a greater flexibility, can specialise in some types of production and be useful in peak periods to help large companies to meet tight deadlines. To encourage large businesses to sub contract work to SMEs, the Ministry of Business, Enterprise and Cooperatives will come forward with a National Inclusive Business Award to reward and recognize efforts made by large enterprises in this direction. Export potential Figure 5.17: Export potential Whereas some of the SMEs have learnt about export potential through their business contacts and some through SMEDA, most of them turn to Enterprise Mauritius as shown in Figure 5.17. Although EM caters for both SMEs and large enterprises, the perception is that EM is more focused on bigger volumes of export from large companies. Since the volumes of export from SMEs are limited, EM had recourse to groupage of cargo from different SMEs for export. Achieving ISO/Various National Standards Figure 5.18: Achieving ISO/National Standards Only 15.4% of SMEs did receive help from national support institutions to improve their product quality. The Mauritius Standards Bureau only tests the conformity to specific standards. 5.7 MISCELLANEOUS Industrial space Figure 5.19: Renting industrial space Only 10% of SMEs surveyed are renting industrial space from Government agencies. Half of them find the rental rate expensive. Some even find that private industrial spaces are cheaper. To address this issue, Government will grant a rent subsidy of 50% on new industrial units for the first three years. Time to start operations Figure 5.20: Time to start operations Only 42.5% consider the time to start operation as reasonable. It is indicative of the bureaucratic procedures and administrative hurdles encountered by SMEs before setting up a business. There is a need to simplify and streamline all the procedures so as not to discourage the potential entrepreneurs. Additional service Figure 5.21 Only 15 SMEs answered this open-ended question. Of these, more than half would like to have additional support in the export market as shown in Figure 5.21. Business prospects for the next 3 years Figure 5.22: Business prospects for the next 3 years This question has been answered by all participants. The figure speaks by itself and reflects the mood of the SMEs at the present time.