UNVEILING THE SME GROWTH-A MUST READ

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DEPARTMENT OF BUSINESS AND
MANAGEMENT STUDIES
Program: BSc. Marketing & Entrepreneurship
CHAPTER TITLE: UNVEILING THE SME GROWTH-A MUST
READ
COURSE CODE: BUME311
TOTAL CREDITS: 3
BY
NGANG PEREZ
(MAJOR 1)
PAN AFRICAN INSTITUTE FOR DEVELOPMENT
-WEST AFRICA (PAID-WA) BUEA
LECTURE NOTES FOR ENTERPRISE
NETWORKING AND CLUSTERING

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WEEK 1: SESSION 1/CHAPTER 1
THE CONCEPT OF GROWTH IN SMEs
1.0 Brief Introduction: The main objective of this course is to provide students with knowledge
and techniques in developing networks and clusters of SMEs. But before we delve into details
of such techniques, it is imperative we understand how these SMEs came about. There are
certain things you need know about SMEs. Don’t you think so? This will trigger the student to
reflect from a broader perspective how to position the concept of networks and clustering
within the confines of SMEs. For example, what are SMEs and what contributions do they
bring to society? Are SMEs in America different from those in Cameroon? If so, what makes
them different and are there similarities between them? A discussion on SMEs is relevant due
to the role they play in employment creation and economic growth worldwide (Fan, 2003;
Tambunan, 2008; Wattanapruttipaisan, 2003). We need to know, enterprises of this category
are attributed as backbones to economic development.
1.2 LEARNING OBJECTIVES
By the end of this session, students should be able to:
➢ Define and contextualize SMEs
➢ State and explain the contributions of the SMEs sector in Africa
➢ Assess Cameroon’s government perspective regarding SMEs
➢ Analyze the Scott and Bruce’s model of Enterprise growth
➢ Examine growth intentions and other determinants of SME growth
1.3 DEFINITION OF KEY TERMS
(a) Very Small Enterprise: According to the Cameroon government, a very small enterprise,
abbreviated as “VSE” shall be an enterprise with no more than 5 (five) employees and an annual
pre-tax of no more than 15 (fifteen) millions CFA francs
(b) Small Enterprise: According to the Cameroon government, a small enterprise abbreviated as
“SE”, shall be an enterprise with 6 (six) to 20 (twenty) employees and an annual pre-tax turnover
of more than 15 (fifteen) million CFA francs and less than 100 (one hundred) million CFA francs.
(c) Medium Enterprise: According to the Cameroon government, a medium enterprise,
abbreviated as “ME” shall be an enterprise with 21 (twenty-one) to 100 (one hundred) employees
and an annual pre-tax turnover of more than 100 (one hundred) million CFA francs and less
1billion CFA francs.

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(d) Enterprise Growth: Growth is a dynamic process, that shows whether SMEs are static or
developing (Nieman, 2006:188). A growing business is one that has a notable performance and is
successful since growth creates an opportunity for businesses to expand their business, as well as
earn higher profits.
1.4 Main Content
This chapter will review definitions attributed to SMEs from an international as well as an African
perspective. This will be followed by a discussion on the contributions of the SME sector in Africa
followed by the government’s perspective of the SME sector. Afterward, concepts of SME growth
will be discussed by focusing on SME growth models. This will be followed by a discussion on
growth intentions and other determinants of SME growth. The final part of this chapter will focus
on the measurement of SME growth.
1.4.1 What are SMEs?
To begin, let me submit to you that there exists a vast array of definitions when it comes to the
concept of SMEs. It is true to say that, the definitions for SMEs varies amongst countries because
of the lack of clear set criteria as to what businesses can be classified under SMEs. Honestly, I tell
you, this is a big problem. You may not understand this at your level, but as you make progress in
the world of business and academics, you will discover this for yourself. Moreover, the definition
of SMEs also varies across sectors. Mahembe (2011) explains that businesses differ in their levels
of capitalization, employment and sales. Hence, definitions which employ measures of size, such
as the number of employees, turnover, profitability and net worth, when applied to one sector,
might lead to all businesses being classified as small, whilst the same size definition, when applied
to a different sector, might lead to a different result. Hope you agree with me? Therefore, there is
no universal definition of SMEs see (Gibson & Van Der Vaart, 2008; Stamatović & Zakić,
2010:152).
However, for the sake of this course, in defining SMEs, there are two kinds of methods that we
can use. They are quantitative and qualitative methods according to the (Organisation for
Economic Co-operation and Development, 2004). In the quantitative method, quantifiable
measures such as number of employees, total net assets, sales, and turnover are used. If you read
the works of Ogechukwu, (2011); Haselip, Desgain, and Mackenzie (2014), you will discover that
the number of employees is the most frequently used quantitative method of defining SMEs, due
to its simplicity and its ease to collect data. In some instances, developed nations such as the United
States, Britain, and other European countries use the number of employees and turnover to define
SMEs (Gbandi & Amissah, 2014). Nevertheless, even when using the number of employees to
define SMEs, there is still dissimilarity between countries and across sectors in setting the upper
and lower size-limit of SMEs. Do you now see the divide? This is because countries are different
in so many ways like demography, technology, natural resources, land surface area, currency
power and many more. Therefore, their scale of operations is bound to be apart. Conversely, we

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discover from the works of Dababneh & Tukan, (2007) that SMEs can be defined in qualitative
terms using their legal status and/or managerial experience. By the term legal status, we mean a
status defined by law or jurisprudence that is the collection of rules imposed by the government.
Hope you understand?
The United Nations Industrial Development Organisation (UNIDO) defines SMEs by using
qualitative and quantitative measures. In quantitative terms, UNIDO defines SMEs by using the
number of employees. It gives different categorizations for industrialized and developing countries
(Elaian, 1996). In industrialized countries, UNIDO classifies businesses with 100-499 employees
as a medium enterprise, whilst businesses with 99 or fewer employees are classified under small
enterprises. On the other hand, in developing countries, businesses are classified under medium if
they have between 20 and 99 employees (Elaian, 1996). Small businesses are those businesses that
have 5 to 19 employees (Elaian, 1996). In its qualitative measurement, UNIDO describes SMEs
as businesses that are labor-intensive, have highly personalized contacts, and have a fragile and
unclear competitive position (Dababneh & Tukan, 2007). Another organization with its own
definition of SMEs is the European Small Business Alliance. This can be seen in Table 1.1 below.
Table 1.1 Definition of SMEs
Source: European Small Business Alliance, 2011
In Cameroon, Law No. 2010/001 to promote small - and medium-sized enterprises in Cameroon
defines an SME with different specifications. According to this law, subsection 3, 4, 5, and 6
defines what a very small, small and medium-sized enterprise is all about.

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Table 1.2 Cameroon’s definition for Very Small and Small Enterprise
Source: Cameroon, Law No. 2010/001 to promote small - and medium-sized enterprises
Table 1.3 Cameroon’s definition for Medium size Enterprise
Source: Cameroon, Law No. 2010/001 to promote small - and medium-sized enterprises
From the above discussion, I hope it is now clear to you that there are various definitions of SMEs.
Different countries, institutions, and sectors also have their own classification of SMEs. Another

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factor that has contributed to the lack of universal definition for SMEs is the diversity in the very
nature of the businesses. The following section will discuss the contributions of the SME sector in
Africa and Cameroon in particular.
1.4.2 Contributions of the SME sector in Africa
The significance of SMEs has been acknowledged worldwide, and most particularly in Africa. In
fact, if Cameroon is what is it today, it is thanks to the works of SMEs to a greater extent. This is
a factual statement. I am not here to “blow the fire” for SMEs but you will agree with me that
SMEs are vital to economic development as they create jobs, contribute to the growth in output,
enhance innovation, contribute to public investment by paying taxes and aid in the equitable
distribution of wealth (Franz, 2000:16; Onwuegbuchunam). Also, SMEs are flexible in creating
products that are more aligned with the needs of the local market. That is, SMEs are able to serve
segmented consumer markets (Atkinson, 2012; Kesper, 2001:1). Furthermore, SMEs are flexible
to adapt to adverse economic conditions. Their flexibility gives them a great advantage over large
companies in that they can run their business in rural areas, which has a positive impact on the
economy. Distribution of economic activities to rural areas results in a reduced economic gap
between rural and urban areas. The distribution of economic activities also leads to the
dissemination of entrepreneurial skills to rural areas and the creation of new jobs, which results in
a more equitable distribution of income (Kayanula & Quartey, 2000).
It is a fact that SMEs particularly play a distinct role in developing countries’ economies. You notice
that the businesses in the SME sector have a tendency to be highly labor-intensive and have low
capital costs associated with job creation. According to Fan, (2003) these factors work in the favor
of developing countries which are characterized by high labor resource. You know, developing
countries, for the most part, are labor-intensive in nature. Thus, with this, SMEs have a high
potential to create new jobs, thereby reducing income-based poverty. For this reason, a growing
SME sector has the power to help countries overcome several development challenges. Moreover,
through fostering innovation and creativity, the SME sector is expected to advance the country’s
product and service output. Hence SMEs have an enormous role to play in overcoming these
challenges.
The SME sector plays a significant role in Africa’s economy and that of Cameroon in Particular.
SMEs account for 95% of the formal business entities in Cameroon, contribute 52-57% to GDP
and provide employment for approximately 61% of the labor force. Another study also showed
the total economic output by SMEs to be close to 50% of the Gross Domestic Product (GDP) and
that the sector accounts for 60% of the employment. In addition to the SME sector’s current
contribution to Cameroon’s economy, the sector can be used to further address the following
economic challenges which the nation (Cameroon) is facing.
Unemployment: The government of Cameroon estimates the unemployment rate in the country
to be at 4% (Trading Economics, 2015). However, In Cameroon, unemployment is widespread

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(Ngek, 2014). The National Institute of Statistics (2010) indicated that the redundancy rate in
Cameroon was between 13 and 15.5%, while the level of underemployment was between 54.4%
and 71.9% for municipal areas and 79.2% for the countryside (African Economic Outlook, 2012).
However, critics have pointed out that the statistics are considerably flawed as the real
unemployment rate exceeds 50% (MSME News Network, 2013). The high unemployment rate,
estimated above 50%, is a major concern for Cameroon. The formal and public sector have failed
to absorb the growing number of job seekers. Thus, in order to tackle the high unemployment
problem in the country, it is suggested that Cameroon needs a dynamic economy with an expanding
and vigorous SME environment. What do you think? Honestly, if you are sincere in your thinking
as I do, you will agree with me, that the multiplicity of Cameroon’s social, economic and political
problems is being fueled by high-level unemployment. As if that is not enough, look clearly and
you will see that SMEs employ individuals whose labor market characteristics make it difficult for
them to get a job. I will explain! It is generally understood that large scale enterprises employ
people with certain specialized skills. That is the reason why such enterprises pay high salaries.
But in the realm of SMEs, the situation is not necessarily the same. We observe SMEs employ
peoples with some types of characteristics that the giant enterprises will not dare to. Amongst these
labor market characteristics are lack of skill and education. It is important to note that the high
proportion of job seekers in Cameroon tend to either be unskilled or have not completed secondary
education. Thus, the ability of SMEs to create jobs for unskilled/uneducated labor is vital for
Cameroon’s labor force. Hope you understand?
Poverty: The SME sector is expected to offer solutions to the high poverty and unequal income
distribution rate in Cameroon. Poverty is a deadly disease, even in your next life never imagine to
be poor. You can’t understand but just take it like that. The poverty rate is estimated at 37.5% in
Cameroon (Statistics Cameroon, 2014). Guess what? Do you know that some governments even
in Africa with high levels of poverty provide financial aid to their citizens to come out of poverty?
This miracle is not only in the developed world, but countries like Mauritania, Seychelles Libya
(before Ghadafi died) and South Africa are also practicing this exercise. For example, South
Africa’s government provides grants for citizens in order to reduce the poverty rate. Please
understand that a staggering 30.7% of South Africa’s population (16.6 million) rely on government
grants as a basic income (South African Social Security Agency, 2015). Wonderful! Who will
advise our government? Please follow carefully and get the sense of what I am trying to
communicate because you may get emotional like I am already. However, according to Hagen-
Zanker, Morgan & Meth, (2011) social grants are not enough to address the poverty problem of a
country. Even though I strongly agree with these guys, but first give the social grants before it is
not enough to address the poverty problem of Cameroon. Ok going back to the focus, it is important
we emphasize that new jobs need to be created, that will allow individuals to earn an income and
therefore reduce poverty. The creation of new jobs is a major characteristic for SMEs than for large
scale corporations.

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Unequal distribution of income: With a Gini coefficient of 0.8, Cameroon has one of the most
unequal income distributions in the world (World Bank, 2014). Do you know what the Gini
coefficient is all about? If you don’t know then let me explain to you. The Gini coefficient
measures inequality on a scale of 0 to 1. The closer the Gini score is to 1, the more unequal the
society’s income is and vice versa. Now concerning Cameroon, even though there has been a
general decline in the inequality after 2014, the disparity between the Francophone majority and
the Anglophone minority in income inequality still remains remarkably high by all standards. On
a broader scale, Africans are much poorer when compared to other races (Leibbrandt et al., 2010).
This is a fact, and several reasons abound both internal and external, but that is not the subject of
our discussion here. Read my lectures on Dealing with Africa’s infrastructural deficit and get more.
Now, the income equality of a country is directly influenced by a lack of jobs and employment
(Leibbrandt et al., 2010). Thus, unequal income distribution can be improved by the creation of
employment opportunities. Therefore, job creation through SMEs can go a long way in reducing
the high-income inequality gap which Cameroon is facing.
1.4.3 The government’s perspective of the SME sector
Countries all over the world have long recognized the importance of SMEs for economic growth.
As a result, they have been coming up with different policy measures and creating organizations
to foster the growth of the sector. Cameroon is no exception. The country’s government sees SMEs
as a key resolution in resolving many socio-economic problems. In addition, the government has
also put a lot of expectation on the SME sector in attaining economic growth and other social
objectives.
Fully aware of SMEs’ importance in any development strategy, Cameroon has been increasing, in
the last few years, its support for them. This includes the creation of the SME Bank on July 20th,
2015 in Yaoundé which was conceived to reduce the challenges faced by SMEs in Cameroon when
seeking financing, and the opening of the Upgrading Office, with the EU’s support, to reinforce
the competitiveness of Cameroonians.
In addition, Cameroon now has an Agency for the Promotion of SMEs, which aims to transition
SMEs from an informal to a formal economy and Tax Management Centres put in place by the
Finance Ministry, where SMEs receive tax advice to better play their part in the development of
the Cameroonian economy.
The government has also been cultivating small-business growth in recent years through initiatives
such as one-stop business registration centers. Since 2004, the Ministry of Small and Medium-
sized Enterprises, Social Economy and Handicraft (Minpmeesa) has striven to make life easier for
Small Medium-scaled Enterprises (SMEs) and their owners. Beginning 2010, Minpmeesa
embarked on a journey to open up Enterprise Creation One-stop-shops better known by its French
acronym CFCE. The shops were opened in all 10 regional capitals of Cameroon. In 72 hours, an
enterprise can be created now in Cameroon.

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1.4.4 SME Growth Models
To begin, let us ponder over a few questions. What do we understand by the term growth? Why
do we need to study growth regarding SMEs? Is growth really a good indicator to measure the
success of a business? This is my take! Growth is a dynamic process, that shows whether SMEs
are static or developing (Nieman, 2006:188). A growing business is one that has a notable
performance and is successful since growth creates an opportunity for businesses to expand their
business, as well as earn higher profits.
The study of SME growth has received a lot of attention. Over the years, different studies have
been conducted to better understand SME growth. However, despite many attempts, there is no
common theoretical framework on the topic. Areas in which the theories vary are the variables
they deem important as a determinant of business growth in addition to the number and type of
variables they used to measure business growth. The theories also vary on the method they use to
examine the growth process. This has made the study of small business growth multidimensional.
Nonetheless, we shall examine the works of Scott & Bruce, (1987), to explain the phenomenon of
enterprise development or growth.
Scott and Bruce’s Stages of Enterprise Development and Growth
Scott and Bruce’s growth model stem from the crisis identified in every stage of the growth Model
of Larry Greiner (1978) who established a 5 phase growth model for Small businesses. These
Crises are Leadership Crisis at Phase 1, Crisis of Autonomy for phase 2, Crisis of Control for
Phase 3, Red tape Crisis for phase 4 and Internal Crisis for Phase 5. This view was accepted by
Scott and Bruce who believed in the importance of crises affecting major change in the transition
from one stage to the next; and that changes in both external and purely internal factors can fasten
these crises. In that light, they pointed out that these crises are extremely important to the
management regarding both the business survival, growth and sustainability.
That was an interesting observation, which appeared to have some support from other more recent
research. The day-to-day management of businesses — small and large — may be characterized
by the need to solve problems. So within a 'stage', it might be argued that the successful resolution
of problems results in evolutionary growth, whereas the successful resolution of a crisis heralds
revolutionary change and a step-change in the growth and management of the business. However,
the authors remain skeptical; suggesting that the identification of crises that trigger movement
from one stage to another may be an untestable proposition. Scott and Bruce present five stages of
enterprise development as described below:
Stage 1 Startup/Inception. The managerial stress at this stage is on the development of a viable
product or service and to do this by establishing a customer base. But other problems may arise
through the various constraints arising from liquidity, resources and customer base. Typical crises,
which if successfully resolved tip the business into a second stage, are to generate a positive cash
flow and make the business profitable, formalize systems, record keeping, and delegate work. The

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management style of the new enterprise is typically 'entrepreneurial.' However, with increasing
demands on the owner-managers time, this signals a need to change the style from 'crisis
management' to a more managerial one of delegation, monitoring and supervision.
Stage 2 Survival. Some growth has been achieved, which suggests the need to finance increased
inventories and market expansion. Crises include over-trading and uncontrolled growth, the need
to hold on to customers and expand the customer base and restructure to accommodate further and
more distant delegation and coordination practices, the need to address the basis of competitive
performance and its implications and information management. The expansion also has important
insinuations for the selection and recruitment of new employees.
Stage 3 Growth. To sustain growth, profits will need to be plowed back into the business. Its
development will mean the need for a more formal organization (moving beyond the simple
structure). Liquidity is likely to continue to be a major problem. The firm must be able to capitalize
on opportunities, which will take it to the next stage of development. Likely crises are from other
larger competitors and the demands that arise due to expansion into new markets. A professional
rather than an entrepreneurial approach to organization management is needed. This suggests the
need for decentralization and heralds a major change in management.
Stage 4 Expansion/Take-off. Increased systematization and formalization of management control
will require the professional management of the company. Issues of long term funding will need
to be addressed, and this may be resolved by taking on equity partners. There may also be a 'crisis
of culture' given that the new professional management will not have the same commitment to the
business as the founding team. The most likely crises are decentralization and the distancing of the
founders with the concomitant dilution of their power base. A greater external focus will be needed
to meet client needs (and as such compete effectively) and consolidate the product/market
portfolio.
Stage 5 Maturity. The company is still likely to be growing, but it will no longer be classed as a
'small business.' There will be some key managerial issues, such as expense control, output and
finding new growth opportunities. Decisions will be taken to make major investments in marketing
the product, upgrading plant, etc. Consolidation may occur with possible shrinkage or growth
through acquisition or flotation. The final crises will be ensuring the future of the company and
managing a diverse problem.

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Table 1.1 Scott and Bruce’s five-stage model of small business growth

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This model suggests that the firm moved through three stages of enterprise development before
reaching the final two stages of professional management. It was the successful management of
crises that typified a particular stage and ensured that the business grew.
1.4.5 Growth intentions and other determinants of SME growth
Growth Intentions
Growth intentions can be defined as “the entrepreneur's goals or aspirations for the growth
trajectory he or she would like the venture to follow” (Dutta & Thornhill, 2008:308). Listen!
Nobody ventures into a business without a reason for doing it. It is this reason that we call
intentions. Why are you going to school? Why am I teaching you? Why do you do what you do?
The answer is because we want to achieve our goals and aspirations. Hope you understand? It is
therefore important to understand what you are doing and why you are doing it. The time has past
when we go to school for the sake of going or because our parents want us to study a particular
field in education. Do what you do to show your approve and not to accomplish the desires of
others. Its high time we make this known to our communities and preach the gospel of freedom of
choice. Understand me! I am not against parental guidance, but if parental guidance will make a
young man or woman become unhappy because of “it daddy choice for me” then to hell with it.

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We have to go back to the drawing board because the destinies and aspirations of many are in
jeopardy because of this neglect.
In the realm of business, growth intention is relevant in the discussion of SME growth. This is
because growth will not take place in SMEs without the owner’s desire or vision to grow the
business (Nieman, 2006). Oh yes, things don’t just happen. Whatever will be, will not be if you
don’t work it out. The owner’s desire to grow and actual growth are highly correlated. Whether
you believe it or not, this is a statement of truth. Please, understand that the concept of growth
intention has been explained in literature by using the theory of planned behavior. The theory was
first proposed by Icek Ajazen in the 1980’s (Wiklund & Shepherd, 2003). The central point of this
theory rests on the study of intention and more specifically on a person’s intention to carry out
certain behavior. Under normal circumstances, this theory assumes that a strong intention of
engaging in behavior leads to performance (Ajzen, 1991:181). This is because intentions are
known to “capture the motivational factors that influence behavior, they are indications of how
hard people are willing to try, of how much of an effort they are planning to exert, in order to
perform the behavior” (Ajzen, 1991:181). We also have to acknowledge that intentions have a
great ability to predict planned behavior. I will tell you why, but for now, let's move on.
Intentions have an important implication on business growth. Recall, I have told you that, the
likelihood that a certain business will grow decreases if the business owner has no intention of
growing it. This is just so true! Because it is difficult to win by accident. And even if you win, you
cannot maintain the championship by accident. I hope you get the point? That is why in PAID-
WA, we encourage our students to get out there and search for jobs. This is not because PAID-
WA cannot make the necessary arrangements with her partners for all our students to get jobs upon
completion of their studies. But the logic is that arrangement and networks or ‘the godfather
concept’ can give you a job but it will not maintain you on the job. This is true! Right? Only the
stress in getting a job is already a lesson on its own on how to protect the job. Therefore, it is a
true statement, when we say a certain business may not grow if the business owner has no intention
of growing it.
Empirical studies that have been conducted to test this role have also confirmed the relationship
between growth intention and actual growth. For example, Hoxha and Capelleras (2013), by
conducting face to face interviews with 500 entrepreneurs, found growth intention to be a strong
determinant of small business growth.
This section explored the influence which growth intention has on actual growth. In addition to
growth intention, there are other factors that have an influence on the growth of SMEs. The
following section will look at the determinants of SME growth
Growth determinants
After reading the works of Smallbone & Wyer, (2000), I discovered that the factors that determine
the growth of SMEs mostly fall into four categories. They are management strategies,

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characteristics of the entrepreneur, characteristics of the business, and environmental/industry-
specific factors. Table 1.2 below provides a highlight of the main growth factors found under the
four categories.
Table 1.2 Determinants of SME growth
Categories Growth factors
Management strategies Growth objectives, employee recruitment, and development,
product market development, marketing strategies, business
collaboration, networking, financial resources.
Characteristics of the
entrepreneur
The entrepreneur’s profile, such as his/her motivation, gender, age,
educational background, previous experience.
Characteristics of the
business
Size, location, ownership, age of the business.
Environmental/industry
specific factors
Demand-side variations, supply-side variations, the size of the
industry and access to external finance.
Source: (Smallbone & Wyer, 2000).
An important point to note, however, is that none of these factors can determine the growth of a
business by themselves. The growth of an SME requires a balanced combination of the
determinants of growth discussed above. Emphasis should be laid on the point that without the
right alignment between growth intention, internal growth factors, and external growth factors,
business growth will be difficult to achieve. From the above discussion, it can be seen that there is
a variety of factors that determine the growth of SMEs. Among these determinants, this course
will focus on the role which networking plays on the growth of SMEs. There many ways of
measuring small business growth. This will be reviewed in the next part of this chapter.
1.4.6 Measurement of SME growth
At this point, let me ask you a simple question. Why do we measure things? To be more precise
why do we measure the growth of SMEs? The answer is simple. We measure to rate our
performance. Because if you don’t measure, it may be difficult to know the actual difference
between what was and what is. So, in order to regard business as growing, Nieman (2006)
identified five categories of growth indicators. They are financial, strategic, structural,
organizational and image. The growth measures along with their implications are illustrated in
Table 1.3 below.

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Table 1.3 Growth indicators for SMEs
Growth indicators Implications
Financial
An increase in:
• Turnover
• Costs
• Investment
• Profits
• Assets
• Value
Strategic
Changes taking place in the small business through:
• Mergers or acquisitions
• Exploiting new markets
• New product development
• Becoming self-sustainable
• Change in organizational form
• Obtaining competitive advantage
Structural
Changes taking place in the business in terms of:
• Managerial roles
• Increasing responsibility of employees
• Reporting relationships
• Communication links
• Internal systems utilized
• Increase in the number of employees
Organizational
Changes taking place in a small business such as:
• Processes utilized
• Organizational culture
• Attitudes of management towards staff
• Entrepreneur’s role
• Leadership style
Image
Changes taking place in a small business such as:
• Becoming more formal e.g. having formal business premises
• Moving to newly built premises
• Redecorating premises
• Moving to new environment
Source: Nieman (2006:189)
According to Nieman (2006), from the growth indicators depicted in Table 1.3 above, the most
significant indicator for small business growth is the financial indicator. This is because financial
growth is a prerequisite to the other growth indicators (Nieman, 2006). Previous studies such as
(Wiklund & Shepherd, 2003; Wiklund et al., 2009) have used different indicators to measure

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growth. The indicators include sales, number of employees, asset value, physical output, profit,
market share and changes in turnover. However, to me depending on the area of focus of the study,
a researcher can choose the variable that is most applicable to his/her study. Isaga (2012:23) points
out that “there is no consensus on the appropriate measures of the growth of SMEs and as a result,
researchers are free to choose one best indicator, create a multiple indicator index or use alternative
measures separately”.
1.4.7 Factors impeding the Growth and Performance of SMEs
In this sub-section, I will try to be contextual to the Cameroonian sector. A lot of theory makes
little or no sense without a corresponding practical or contextuality of the theory. Taking
Cameroon as our center of focus, we can better understand the factors impeding the growth of
SMEs in Africa and the world at large.
Despite the strong role SMEs play in the economy and the initiatives put forth by the government
of Cameroon to promote them, these companies, which are unanimously considered to be engines
of growth, only make up 36% of Cameroon’s GDP according to www.businessincameroon.com.
This notwithstanding, it will be essential for the government to recognize the fact that the reason
why SMEs contribute modestly to the GDP is because of the challenges they still face; challenges
that hinder their growth and performance.
Poor market research
Market research entails identifying and meeting the needs of a targeted group of people. Little or
no market research is conducted by some owners of SMEs; leading to their early death. Given that
they don’t understand market demands, recognize business opportunities nor design perfect
marketing campaigns, they fail and close. The importance of carrying out a feasibility study should
not be underestimated when determining cost, practicality, and success. You know, many people
take road information and build a business on it. Others even take beer parlor discussions and
establish their business on it without proper market research. Cameroonians need to know this,
your capital is not for an experiment. I don’t know what’s wrong with us, but we need to change.
How can a businessman get hearsay information and builds a business empire worth millions of
francs? The question we should ask is, is such a person really serious or is it witchcraft he/she is
practicing? You know, witchcraft is not only limited to flying by night. It is could also be
demonstrated when a person neglects market research and just jumps into a business. We thus
propose that government and various organizations carry out necessary studies to determine best
business opportunities locally and nationwide. This will help investors by offering access to data
and a better understanding of the whats, whys, and wherefores of investment.
Unawareness by SME’s of available facilities established to promote their growth
In Cameroon SMEs have a poor relationship with the agencies and institutions established to
support and promote them; a majority of them do not know that such institutions exist. We strongly
put forth the suggestions that the government creates awareness programs in each locality. For

17
example, many strategies like the agreement between Japan International Cooperation Agency
(JICA) and the government to create development centers for small and medium-sized enterprises
in the country have been established to encourage the growth of SMEs. We question the number
of SMEs familiar with, or taking advantage of, this opportunity.
Inadequate financing
Inaccessibility of financing is a major obstacle to small business growth and development.
Absence of guarantee or inadequate collateral provided by SMEs to banks when requesting a loan
has discouraged these banks from loan approval. Actually, a bank prefers to deal with large, well-
established corporations. Additionally, loan operation expansion continues to be hindered by the
institutions' “limited ability to obtain information on borrowers” solvability, while heavy taxes and
a 15% interest ceiling on loans to small and medium-sized enterprises (SMEs) also causes SMEs
to shy away. In order to ease access to credit by SMEs, the state could grant tax reductions to banks
willing to give loans to SMEs at a lower interest rate. Moreover SMEs should be informed of other
available sources of financing, such as the African Guarantee Fund for Small and Medium sized
Enterprises (AGF), GICAM and a consortium of banks.
Low level of expertise/lack of qualified staff
The management style of these SMEs, which are considered as family businesses, leaves much to
be desired, coupled with a lack of training and professional associations to guide agents. Some
owners of these SMEs, because of lack of required managerial skills, are unable to operate and
grow their business; thus shortening the lifespan of their business. In response to this, SMEs’
personnel should be encouraged to undertake courses that will help in building managerial and
research skills. Courses on cash flow management, marketing, import/export, business planning,
business communication, etc. will be necessary to improve the knowledge and skills of managers,
owners and employees, and will go a long way to lessen or eliminate the risk of closing
prematurely, increase work efficiency and achieve successful business results.
Fiscal bottlenecks
According to the 2018 Doing Business in Cameroon, the effective tax rate stands at 57.7%. Other
government taxation policies include a corporate tax levied at a rate of 35% plus a 10% municipal
tax according to www.expat.com. All this has a negative impact on the growth of SMEs given that
such a high tax rate increases prices of various goods and services which, in turn, leads to higher
production, distribution and selling costs. Hence, higher prices of finished products–the result
being changes in consumer buying behavior. People start reacting to higher prices by buying less
of the product or lesser quality products. I strongly recommend to the Cameroonian authorities
that the tax rate be reviewed and reduced to an extent whereby tax compliance can co-exist with
SME survival.

18
Lack of technical production materials and competition
Most SMEs in Cameroon lack or possess inadequate technical materials of production and are thus
unable to meet demand. They are unable to compete with their foreign counterparts who possess
the necessary tools of production and produce quality goods. The state and other promoters of
SMEs should enter into a partnership with foreign affiliates who not only provide means of
financing but, equally, offer technical equipment assistance. Competition wise, trade fairs should
be organized nationwide in every city, where SMEs could display their goods and compete with
fellow businesses. Prizes might be awarded for the superior goods and/or best business practices.
This will motivate SMEs to produce quality goods and become more competitive at both the
national and international level.
Corruption
Conventionally, corruption is understood and referred to as the private wealth-seeking behavior of
someone who represents the state and the public authority or as the misuse of public goods by
public officials for private benefits according to www.afdb.org. According to Daniel Gbetnkom in
his report “Corruption and small and medium-sized enterprise growth in Cameroon”, the public
officers who most often exercise pressure on SMEs in Cameroon for informal payment (bribes)
include tax, customs and electricity officers. This issue of corruption should be dealt with by
sanctioning, most stridently, any official who requests bribes from owners of SMEs.
1.5 Conclusion
In most of the world’s economies, small and medium-sized enterprises (SMEs) are regarded as
vectors for job and wealth creation. This dynamic presence helps generate growth and redistribute
wealth in developed and developing countries alike. Their important role in reducing poverty in
the African countries is also gaining recognition. However, the venture creation and development
process requires an enabling environment that should provide sufficient quantities and qualities of
physical, financial, human, information and relationship resources. The business environment in
Africa and the mismanagement of resources in the African ecosystem are considered to be among
the continent’s main causes of business failure and poor competitive capacity. Statistics from the
Cameroon Employers Association GICAM, reveals that; 30% of government taxes come from
Small and Medium Medium-Sized Enterprises, Small and Medium-Sized Enterprises also provide
40% of Cameroon’s Gross Domestic Product, About 40% of Small and Medium-Sized Enterprises
in Cameroon close down barely three years after due to financial crisis. An environment that offers
plenty of resources but is deficient in terms of organizational management, resource access and
stakeholder behaviour constitutes an additional challenge for these SMEs. If the African countries
wish to speed up their economic development, they would certainly gain from supporting the
emergence and growth of SMEs. Some have understood this, and have set up dedicated small
business agencies and ministries.

19
1.6 Summary
The chapter reviewed the literature on SMEs. The definitions from both the developed and
developing countries’ perspective have been established. We said the definitions for SMEs vary
amongst countries because of the lack of clear set criteria as to what businesses can be classified
under SMEs. We went further to define the different types of SMEs in Cameroon starting from the
very small, the small and the medium-size enterprises according to Law No. 2010/001 to promote
small - and medium-sized enterprises in Cameroon.
Thereafter we assessed the contributions of the SME sector in Africa. We said the significance of
SMEs has been acknowledged worldwide, and most particularly in Africa. In fact, if Cameroon is
what is it today, it is thanks to the works of SMEs to a greater extent. SMEs are vital to economic
development as they create jobs, contribute to the growth in output, enhance innovation, contribute
to public investment by paying taxes and aid in the equitable distribution of wealth. Also, SMEs
are flexible in creating products that are more aligned with the needs of the local market. That is,
SMEs are able to serve segmented consumer markets. We discussed that the sector can be used to
further address the following economic challenges which the nation (Cameroon) is facing such as;
unemployment, poverty and unequal distribution of income.
We also saw that countries all over the world have long recognized the importance of SMEs for
economic growth. As a result, they have been coming up with different policy measures and
creating organizations to foster the growth of the sector. Cameroon is no exception. Fully aware
of SMEs’ importance in any development strategy, Cameroon has been increasing, in the last few
years, its support for them. This includes the creation of the SME Bank on July 20th, 2015 in
Yaoundé amongst others.
Furthermore, we pondered why do we need to study growth regarding SMEs? And we discovered
that the study of SME growth has received a lot of attention. Over the years, different studies have
been conducted to better understand SME growth. An example was that of Scott and Bruce’s
Stages of Enterprise Development and Growth. We also saw that Growth intentions can be defined
as “the entrepreneur's goals or aspirations for the growth trajectory he or she would like the venture
to follow”. In the realm of business, growth intention is relevant in the discussion of SME growth.
This is because growth will not take place in SMEs without the owner’s desire or vision to grow
the business. After reading the works of Smallbone & Wyer, (2000), we discovered that the factors
that determine the growth of SMEs mostly fall into four categories. They are management
strategies, characteristics of the entrepreneur, characteristics of the business, and
environmental/industry-specific factors. We ended by contextualizing the factors impeding the
growth and performance of SMEs within the Cameroon business environment.

20
1.7 Review Questions
1. There exists a vast array of definitions when it comes to the concept of SMEs. With the aid
of examples define and explain the concept of SMEs from both the national and
international dimensions
2. Taking two local enterprises as examples in Cameroon, how will you differentiate a very
small enterprise from a small enterprise.
3. The significance of SMEs has been acknowledged worldwide, and most particularly in
Africa. Taking Cameroon as your case study, state and explain contributions of the SME
sector in the economy.
4. From your point of view, do you think the government of Cameroon has done enough in
establishing institutions for the promotion of small and medium-size enterprises? Justify
your argument with facts.
5. With the aid of a diagram, describe in details the Scott and Bruce’s Stages of Enterprise
Development and Growth
6. What are growth intentions and how different are they from other determinants of SME
growth?
7. If you are asked to measure the growth of an SME, which indicator to you is most
appropriate and why?
8. Discuss the factors impeding the Growth and Performance of SMEs in Cameroon.
1.8 Task
➢ Read the notes on unit 1.4.1 (Factors impeding the Growth and Performance of SMEs) and
make a powerpoint presentation of not more 10 slides.
1.9 Reading Assignment/Suggested Readings
➢ Read the Cameroon, Law No. 2010/001 to promote small - and medium-sized enterprises.
Accessed from https://investincameroon.net/wp-content/uploads/Law-No.-2010-001-of-
13-April-2010-on-the-promotion-of-small-and-medium-entreprises-in-Cameroon.pdf.
December 7, 2019
1.10 Reading Assignment Supplementary Source
➢ YouTube Video lecture: Unveiling the SME Growth Challenges and Opportunities
➢ Video Highlights: A strategic panel discussion moderated by Ms. Rasha Manna,
Managing Director of Endeavor Jordan, focusing on the key challenges that established
companies face in scaling up their organizations.
➢ Note: To access the video, copy and paste this Playlist
➢ URL: https://youtu.be/neR4Y2brtfI
➢ Source: https://www.youtube.com/watch?v=neR4Y2brtfI

21
1.11 Written Assignment
➢ With the aid of a diagram, describe in details the Scott and Bruce’s Stages of Enterprise
Development and Growth
1.12 Discussion Assignment
➢ From your point of view, do you think the government of Cameroon has done enough in
establishing institutions for the promotion of small and medium-sized enterprises? Justify
your argument with facts.
1.13 Graded Quiz
➢ MCQs will be provided at the end of the class
1.14 References
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development. Russia: A Policy Dialogue Workshop. In creating a conducive legal and
regulatory framework for small and medium enterprise development in Russia a policy
dialogue workshop. St. Petersburg, Russia. September 14-16.
Tambunan, T. 2008. Development of SME in ASEAN with reference to Indonesia and
Thailand. Chulalongkorn Journal of Economics. 20(1):53-83.
Wattanapruttipaisan, T. 2003. Four proposals for improved financing of SME development in
ASEAN. Asian Development Review. 20(2):66-104.
Mahembe, E. 2011. Literature review on small and medium enterprises. National Credit
Regulator (NCR).
Gibson, T. and Van Der Vaart, H. J. 2008. Defining SMEs: A less imperfect way of defining
Small and Medium Enterprises in Developing Countries. Brookings Global Economy and
Development.
Stamatović, M. and Zakić, N. 2010. Effects of the global economic crisis on small and
medium enterprises in Serbia. Serbian Journal of Management. 5(1):151-162.
Organization for Economic Co-operation and Development. 2004. Promoting
Entrepreneurship and Innovative SMEs In A Global Economy: Towards A More
Responsible And Inclusive Globalisation. 2nd OECD Conference of Ministers Responsible
For Small and Medium-Sized Enterprises (SMEs). Istanbul, Turkey. June 3-5.
Ogechukwu, D.N. 2011. The role of small scale industry in national development in
Nigeria. Universal Journal of Management and Social Sciences. 1(1):23-41.
Haselip, J., Desgain, D. and Mackenzie, G. 2014. Financing energy SMEs in Ghana and
Senegal: Outcomes, barriers, and prospects. Energy Policy. 65(1):369-376.

22
Gbandi, E. C. and Amissah, G. 2014. Financing options for small and medium enterprises
(SMEs) in Nigeria. European Scientific Journal. 10(1):1857 – 7881.
Elaian, K. 1996. Employment Implications of Small Scale Industries in Developing
Countries: Evidence from Jordan, Science, Technology, and Development, 14(1):80-101.
Dababneh, R. and Tukan, F. 2007. Booklet of Standardized Small and Medium Enterprises
Definition-2007. United States Agency for International Development.
Franz, L. 2000. Making small businesses a big issue again. Martin Creamer’s Engineering
News. 20(30):12-18.
Onwuegbuchunam, D. E. and Akujuobi, A. B. 2013. SMEs financing and development in
Nigeria’s shipping sector: A Case Study. Advances in Management and Applied
Economics. 3(6):143-157.
Kesper, A. 2001. Failing or not aiming to grow? Manufacturing SMMEs and their
contribution to employment growth in South Africa. Urban Forum. 12(2):171-203.
Atkinson, D. 2012. Review of the efficiency and effectiveness of past and ongoing SME
development initiatives in the Free State Province. International Labour Organization.
Kayanula, D. and P. Quartey, 2000. The Policy Environment for Promoting Small and
Medium-Sized Enterprises in Ghana and Malawi. Finance and Development Research
Program. Working Paper, No. 15.
Fan, Q. 2003. Importance of SMEs and the role of public support in promoting SME
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dialogue workshop. St. Petersburg, Russia. September 14-16.
Leibbrandt, M., Woolard, I., Finn, A. and Argent, J. 2010. Trends in South African Income
Distribution and Poverty since the Fall of Apartheid. OECD Social, Employment and
Migration Working Papers, No. 101.
Ngek N. (2014).An Assessment of entrepreneurial intention among university students in
Cameroon. Mediterranean Journal of Social Sciences. Vol 5(20)
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Nieman, G. 2006. Small business management: A South African approach. Pretoria: Van
Schaik.
Dutta, D. K., and Thornhill, S. 2008. The evolution of growth intentions: Toward a cognition-
based model. Journal of Business Venturing. 23(3):307-332.

23
Wiklund, J. and Shepherd, D. 2003. Aspiring for, and achieving growth. The moderating role
of resources and opportunities. Journal of Management Studies. 40(8):1919- 1941
Ajzen, I. 1991. The theory of planned behavior. Organizational Behavior and Human
Decision Processes. 50(2):179-211.
Wiklund, J., Patzelt, H., and Shepherd, D. A. 2009. Building an integrative model of small
business growth. Small Business Economics. 32(4):351-374.
Isaga, N. 2012. Entrepreneurship and the Growth of SMEs in the Furniture Industry in
Tanzania. Doctoral Thesis. The University of Amsterdam. Australia.
https://www.businessincameroon.com/public-management/0508-5555-cameroon-if-smes-were-
contributing-50-of-gdp-we-would-already-be-an-emerging-country-says-etoundi-ngoa
(Date accessed: December 7, 2019)
https://www.expat.com/en/guide/africa/cameroon/11743-taxes-in-cameroon.html (Date accessed:
December 7, 2019)
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