Description
Detailed explanation regarding entrepreneurship and small business sustainability a.a. ligthelm.
131 Southern African Business Review Volume 14 Number 3 2010
Entrepreneurship and small business
sustainability
A.A. Ligthelm
6 A B S T R A C T
15South Africa is experiencing immense structural changes in its
household income patterns and retail environment. Inhabitants of
township areas have experienced substantial economic upliftment.
Many township consumers have progressed to middle-income status,
resulting in a signi?cant increase in consumer spending. As a result,
large national chains and franchisors are increasingly exploring
these untapped markets. Township areas were, until the end of
the last century, dominated by small (often informal) businesses
which became subject to heightened levels of competition due to
these mentioned developments. Findings from longitudinal surveys
among a panel of 300 small businesses in Soweto between 2007 and
2009 were modelled through a categorical regression model with
business survival as dependent variable. The level of signi?cance of
18 independent variables suggest that entrepreneurial acumen and
business management skills be classi?ed as the strongest predictors
of small business survival. The ability to adjust one’s business
model to adapt to changed economic circumstances is an important
characteristic of entrepreneurial conduct that ultimately dictates
survival in increasingly competitive economic environments.
16Key words: entrepreneurship, small business development, business sustainability,
competition
Introduction
1Small (often informal) businesses dominate the economic life of most developing
countries (Gollin 2008: 2). Until the mid-1990s, a similar phenomenon was also
evident in the developing urban areas (townships) of South Africa. Small businesses
Prof. A.A. Ligthelm is Research Director at the Bureau of Market Research, University of South Africa. E-mail:
[email protected]
A.A. Ligthelm
132
served as convenience shops primarily for the lower income groups, attracting a
sizeable portion of household expenditure in less developed urban areas (Ligthelm
2007: 12). Surveys in Soweto confirmed that almost half the retail expenditure of the
least affluent income groups was expended at small businesses within Soweto itself
in 2004 (City of Johannesburg 2005: 15).
South Africa has made significant strides in improving the living standards of
previously disadvantaged communities, especially those living in township areas.
Studies on economic class dynamics confirmed that the African middle class
(township dwellers) experienced the most significant gains in respect of improvements
in social class and household income during the period 1998 to 2008 (Ligthelm
2008a: 3). The rapid income growth of township inhabitants resulted in substantial
changes, not only in the share of the African population in total household income
and expenditure but also with regard to the structure of expenditure. The latter
implies a much more diversified demand structure away from basic daily needs such
as food and shelter to a full spectrum of household consumption items including
semi-durable and durable goods.
This retail restructuring in terms of geographic location (towards townships) and
social class (towards the African population group) has impacted, and will continue
to impact, on expansion strategies of national retailers and franchisors, especially
supermarket chains, to increasingly focus on market expansion strategies in township
areas. The sustainability of these markets is also confirmed by the fact that more
than 80% of residents of Soweto indicated that they plan to stay in Soweto for life
(Tustin 2008: 50). As a result, large shopping malls have been developed in almost
all township areas with sizeable population numbers during the past five years.
This development has resulted in a substantial change in the shopping behaviour of
township dwellers. Both outshopping (in other words, the extent of shopping outside
one’s own township) and purchases from small township businesses have been
displaced in favour of shops located in newly established shopping malls. In Soweto,
for example, the percentage of retail expenditure by Soweto residents increased from
25.0% in 2004 (City of Johannesburg 2005) to 81.2% in 2008 (Tustin 2008: 29).
Notwithstanding this heightened level of competition experienced by small
businesses, a large percentage of small businesses outside shopping centres were still
in operation more than a year after the opening of shopping malls. The majority
of these small businesses were trading in the same sectors as those located in the
newly established malls. This increased level of competition holds several advantages
for township consumers. Porter (2008) argues that competition is one of society’s
most powerful forces for improving conditions in many fields of human endeavour.
He states that competition is pervasive, whether it involves companies contesting
Entrepreneurship and small business sustainability
133
markets, countries coping with globalisation or even governments responding to
service delivery needs. Every organisation needs a strategy to ensure the delivery of
superior value to customers, especially in highly competitive environments.
The foregoing presents the following two research questions, namely the ability
of small informal businesses to survive amidst a heightened level of competition from
large formal businesses and secondly, in the case of survival, what variables may be
instrumental in ensuring sustainability.
Objective of the study
1The primary aim of the study was to calculate the survival rate of small businesses
within the rapidly changing trade environment. This is based on longitudinal
empirical surveys. The data set also allowed for contrasting the business profiles
of successful businesses with those closing their doors and for identifying principal
reasons for small business sustainability in a more intensive competitive environment.
Particular emphasis is placed on the role of entrepreneurship in small business
survival.
Entrepreneurship in developing societies
1The study of the concept of entrepreneurship is a developing science, investigated from
a wide range of perspectives in most disciplines from economics and management
sciences to psychology (Landström 2005: 31–37; Naude 2010: 1). In terms of theory,
significant progress has been made in advancing the field of entrepreneurship and
small business as an important field of scientific inquiry (Mullen, Budeva & Doney
2009: 287). Instead of discussing the gist of scientific insight into, and knowledge
of, the entrepreneurial domain in the various disciplines, this section touches on
the role of entrepreneurship in economic development with a specific focus on
developing societies. The importance of such a perspective emanates from the fact
that the study of entrepreneurship should take into account both the individual and
the society within which it is embedded (Swanepoel & Strydom 2009: 2). This aligns
with the argument of Aldrick (1992, in Stevenson 2004: 3) that in entrepreneurial
research, the individual, the organisation and the development context need to
be studied. Venkataraman (1997, in Li & Mitchell 2009: 370) also maintains that
entrepreneurship and its context are inseparable. This contextual perspective is
highly relevant in evaluating the empirical results of the study due to the prominent
structural changes occurring in townships during the past decade.
A.A. Ligthelm
134
There is little doubt amongst proponents of private sector development that
entrepreneurship is the key to economic growth and development (Minniti 2008).
This increasing interest in the role of entrepreneurship to generate growth has been
stimulated by, inter alia, the successful growth performances in the economies of the
so-called ‘southern engines of growth’ (Brazil, China, India and South Africa) and
by the realisation of the need for private sector development in many fragile and failed
states (Naude 2008: 1). However, the dynamics of entrepreneurship are not realised
only in developing economies. Advanced economies are also characterised by a variety
of support measures to stimulate entrepreneurial development. Understanding
entrepreneurship in these diverse economic contexts is important in informing the
design of appropriate policy measures.
In South Africa, the less developed areas (townships and communal areas)
operated largely as distinct economic entities until the mid-1990s. From a business
and entrepreneurial perspective, they show strong characteristics of developing
economies, contrasting prominently with the more developed and advanced
economic areas of South Africa. As mentioned in the introduction, the business
profile of townships used to be characterised predominantly by small unsophisticated
informal businesses. Since the mid-1990s, this dualism has gradually faded towards
integration with the modern economic system.
International literature suggests a differentiated role of entrepreneurship by level
of development (Wennekers & Thurik 1999: 38; Herrington, Kew & Kew 2008:
15; Naude 2010: 26). Empirical studies suggest a U-shaped relationship between
entrepreneurial activity (self-employment) and the level of development. This
relationship is depicted in Figure 1 using GEM (Global Entrepreneurship Monitor)
entrepreneurship and World Bank per capita income data. The GEM (Herrington et
al. 2008: 15) data depict total entrepreneurial activity (TEA) in 42 countries. TEA is
defined as early stage entrepreneurship measured as all new businesses in operation
for less than 3.5 years. World Bank per capita income for 42 countries is transformed
to PPP (Purchasing Power Parity) values (World Bank 2009).
The U-shaped fitted line in Figure 1 was obtained by regressing entrepreneurial
activity on per capita GDP. The result was as follows: per capita GDP succeeded in
explaining 45.4% of the variance, and the model variance obtained was 17.5 times
more than the error variance, indicating a statistically significant relationship of the
variables at a 0.000 level of significance. This result confirms a statistically significant
non-linear (quadratic) relationship between level of entrepreneurship and level of
economic development.
The U-shaped relationship between entrepreneurship (as proxied by TEA) and
development (as proxied by GDP per capita) can be interpreted as follows. At relatively
Entrepreneurship and small business sustainability
135
1
Sources: SAARF (2009); World Bank (2009)
Figure 1: Relationship between TEA and per capita GDP (2008)
1low levels of per capita income, dependency is relatively high on self-employment due
to a lack of sufficient wage employment. At low levels of economic activity, households
are largely responsible for fending for themselves in the absence of larger businesses
offering employment and/or governments supplying social security benefits. Naude
(2008: 27) confirms that at low levels of economic activity, many individuals revert
to self-employment, often with limited profitable opportunities. Higher levels of per
capita GDP through economic growth and development often equate to growing
urban agglomeration, growing markets and economies of scale. The latter result
in the availability of increasing paid-employment opportunities. This increases the
opportunity costs of self-employment, with a resulting decline in the ratio of self-
employment to wage-employment and thus declining entrepreneurial activity.
According to Wennekers, Van Stel, Thurik & Reynolds (2005: 295), a turning
point in the U-shaped graph is activated by structural changes in the economy. The
manufacturing sector starts declining, with a concomitant growth in the service
sectors with increasing levels of income per capita. The transition from a capital-
A.A. Ligthelm
136
driven stage in economic growth to a knowledge-driven stage creates many more
opportunities for business ownership. Growth in the service sector, together with the
adoption of new technologies, which lessens the need for economies of scale, opens
up many new opportunities that can be utilised by small businesses, and leads to a
rise in self-employment and thus entrepreneurial activity.
Although the preceding empirical evidence is derived from cross-country analysis,
the entrepreneurial dynamics relevant in national economies progressing from
developing to advanced may also be relevant for township economies transforming
from a relatively low level of development towards integrating into an advanced
economy. In both cases, an economic transformation from less developed to more
advanced is presumed that may impact (similarly) on the levels of self-employment
(proxied for entrepreneurship). However, the time span in the case of township
transformation is much more rapid than in normal national economic transformation.
Analysis specific to South Africa, relating personal income levels to self-
employment, shows similar patterns with regard to entrepreneurial dynamics.
Table 1 shows the percentage of the self-employed in relation to total employment
(population 18 years and older). The self-employed (proxied for entrepreneurship)
stood at 17.8% for those earning a monthly income of between R1 001 and R2 500 in
2008. This percentage dropped to 11.1% for the R2 501 to R5 000 income group and
gradually increased to 60.5% for the most affluent group (R40 000 plus per month).
With the exception of the least affluent income group (less than R1 000 per month),
a U-shaped curve is also evident. People with relatively low incomes (primarily
located in townships and communal areas) tend to be fairly active in informal,
less productive businesses (see next section). This level of self-employment initially
declines as income levels increase to the next category (R2 501 to R5 000), but shows
a strong upward trend with further income increases.
Table 1 also shows the percentage of self-employed people with their educational
qualifications by income group. The data clearly confirm a positive relationship
between educational level and self-employment. The relatively low 5.9% of self-
employed in the poorest income category (less than R1 000 per month) confirms
their inability to pursue entrepreneurial activities requiring numeracy and literacy
skills.
Variations in entrepreneurship
1Entrepreneurship is inherently heterogeneous. Wennekers & Thurik (1999: 30)
assigned at least 13 distinct roles to entrepreneurship, varying from being an innovator
and assuming risks to being a decision-maker and industrial leader. Entrepreneurship
Entrepreneurship and small business sustainability
137
Table 1: Self-employment and educational level by personal income category (2008)
Income category
per month
% of self-employed
to total employment
% of self-employed with
a maximum of primary
school qualification
(%)
Some high
school and
matric
(%)
Post
matric
(%)
Total
(%)
R1–R1 000 5.9 42.2 56.5 1.2 100.0
R1 001–R2 500 17.8 25.2 71.2 3.7 100.0
R2 501–R5 000 11.1 12.1 77.5 10.4 100.0
R5 001–R10 000 16.2 9.3 53.9 36.8 100.0
R10 001–R20 000 24.3 0.4 52.4 47.2 100.0
R20 001–R40 000 39.2 0.7 33.7 65.6 100.0
R40 000+ 60.5 0.0 35.2 64.8 100.0
Source: SAARF (2009)
1need not result in the creation of new businesses. Naude (2009: 3) confirms that the
behavioural notion of entrepreneurship has been broadened to include the concepts
of corporate entrepreneurship, intrapreneurship and various forms of non-market
entrepreneurship (for example, public and social entrepreneurship). This section will
not attempt the daunting task of delineating these concepts, especially as studied
across many disciplines. The construction of the U-shaped curve in the previous
section is only concerned with the role of entrepreneurs in creating new businesses.
This section will briefly explore the different types of entrepreneurship in establishing
new businesses included in constructing the curve.
According to Baumol (1990: 895), not all entrepreneurship is beneficial for
economic growth and development. A distinction can be drawn between productive,
unproductive and even destructive (for example, illegal) entrepreneurship. Productive
entrepreneurship encompasses the exploitation of profitable business opportunities
with inherent business growth prospects. Unproductive or informal entrepreneurship
is essentially business formation aimed at survival or escaping from a situation of
unemployment and poverty. Berner, Gomez & Knorringa (2008: 1) confirm that the
motivation of informal entrepreneurs is not growth, but survival. The GEM report
(Herrington et al. 2008) also distinguishes between two types of entrepreneurs
corresponding with productive and unproductive entrepreneurship. Entrepreneurs
who pursue a business opportunity are referred to as opportunity entrepreneurs,
while those who are involved in an entrepreneurial endeavour because they have no
other choice of work are referred to as necessity entrepreneurs.
A.A. Ligthelm
138
In developing countries and societies, it is apparent that larger numbers of people
are being compelled to enter into informal/survivalist/necessity self-employment,
which constitutes unproductive entrepreneurship (for example, rent-seeking)
(Naude 2008: 4). Gollin (2008: 219) confirms that, due to fewer formal employment
opportunities, the economic life of most developing countries is dominated by small
necessity entrepreneurs.
Although this phenomenon raises the level of self-employment (entrepreneurship)
in the U-shaped curve, this type of entrepreneurship is very often nonproductive
and frequently rent-seeking. Wennekers & Thurik (1999: 29) confirm that small and
microbusinesses are not necessarily synonymous with entrepreneurship, because
many of these businesses do not contribute to economic growth and development.
As development progresses, the proportion of people in self-employment declines, as
many informal/necessity entrepreneurs find more suitable wage employment. This
perspective of entrepreneurial dynamics in a developing context will be considered
in interpreting the decline in small informal businesses in the empirical section of
the study.
Measuring entrepreneurship
1The examination of the role of entrepreneurship in small business survival requires
some measurement of the entrepreneurial magnitude embedded in a business.
Measurement is often conducted statistically at an aggregate level using the
occupational definition that describes entrepreneurs as the self-employed – based on
the notion that a person can be unemployed, self-employed or in wage employment.
This approach allows an aggregate count of the number of self-employed (static
measurement) or the rate of business start-ups (dynamic measurement) (Wennekers
& Thurik 1999; Herrington et al. 2008; Naude 2008).
The implication of measurement on the aggregate level is that the level of
entrepreneurial acumen within an individual business, or the differences between
types of entrepreneurship, are not captured. Since the middle of the last century,
a considerable body of research by personality theorists has emerged to explain
entrepreneurial behaviour and intentions in terms of personality traits (Cromie
2000; Müller & Gappisch 2005). However, they failed to present conclusive evidence
on profiling an entrepreneur (Llewellyn & Wilson 2003: 343). This implies that
measuring the level of entrepreneurship ex ante to business formation and growth
through personality trait measurement is not a reliable instrument.
During the 1980s, entrepreneurship researchers started to focus more on what
entrepreneurs do rather than what their character traits are. This activity-based
Entrepreneurship and small business sustainability
139
focus was strongly propagated by researchers in the economic and management
sciences (Kruger 2004: 6). Timmons (1999: 21) also confirms that the science of
entrepreneurship is moving beyond characteristics towards the behavioural phase,
concentrating not on what personalities entrepreneurs have but on what it is that they
do. In this regard, entrepreneurship is still a developing science, exploring tools for
measuring entrepreneurship in business formation, sustainability and growth at an
individual business level (not aggregate measurement).
Examining the level of entrepreneurial conduct exercised in the small business
sample of this study required the identification of operational elements of
entrepreneurship for inclusion in the questionnaire as statements. Respondents were
requested to indicate the extent to which these entrepreneurial actions were applied
in their business establishments and their operations. These entrepreneurial-related
actions are discussed in a subsequent section (see Table 3). They relate closely to
innovative and creative actions to ensure business sustainability in heightened
competitive circumstances. This approach has been applied in longitudinal studies
and clearly shows a predictive value of the relationship between individual business
survival and entrepreneurial acumen (Ligthelm 2008b).
The study of entrepreneurial-related actions activates the question of the difference
between entrepreneurship and management. No clear-cut categorisation is possible
in this regard. Wennekers and Thurik (1999: 47) state that entrepreneurship is not
an occupation and that entrepreneurs cannot be regarded as a separately defined
occupation class. Even obvious entrepreneurs may exhibit their entrepreneurship
only during a certain phase of their career and/or exercise it only during a part of
their business-related activities. Hitt, Ireland, Camp and Sexton (2001) maintain
that entrepreneurship can often be seen as part of the management function within
businesses. This argument is especially relevant if entrepreneurial action does not
result in the creation of new businesses (for example, intrapreneurship and corporate
entrepreneurship). However, Naude (2009: 3–4) argues that there is now substantial
agreement that there is a difference between the entrepreneur and the manager
of a firm. Innovation is highlighted as the essential distinguishing characteristic
or function of the entrepreneur as opposed to the manager. However, in-depth
interviews with small business respondents later in the study confirm that the
distinction between business management and entrepreneurial activities remains
blurred and difficult to clearly demarcate and measure in scientific enquiry.
A.A. Ligthelm
140
Longitudinal data set used in the analysis
1In order to fully understand the survival prospects of small township businesses in a
newly competitive environment, small township businesses located around a newly
established shopping mall (Jabulani Mall) in Soweto were sampled and interviewed.
Within Soweto, the study area was defined as a radius of 5 km around the Jabulani
Mall, which was established in 2006. The absence of a sample universe precluded
a random selection procedure in establishing the business panel for longitudinal
survey purposes. The panel of small businesses included all types of businesses in
all the economic sectors. As mentioned in the introduction, the entire small business
population in Soweto consists predominantly of small businesses, including home-
based businesses or businesses established in demarcated business areas. Only
hawkers/street vendors were excluded from the sample population, since their mobility
makes it almost impossible to trace and accommodate them in a longitudinal small
business study. A differentiated sample selection approach was followed. A census
was conducted among all the businesses operating from ‘old’ demarcated business
areas. With regard to home-based businesses, 20 locations (street crossings) were
randomly selected (four in each one kilometre concentric circle around the mall).
All the home-based businesses in the four residential blocks cornering at the street
crossings were included in the sample. All the businesses selected for inclusion in the
survey expressed their willingness to participate. The survey was first conducted in
July 2007 (one year after the opening of the Jabulani Mall) and repeated in July 2008
and July 2009. The results of the surveys were validated with previous surveys in the
study area and proved to generate reliable and valid results.
The survival and attrition of the panel of businesses over the three-year period
(2007 to 2009) is shown in Table 2. Of the total of 300 businesses selected in 2007,
almost two in every five (38.3%) closed their doors during the July 2007 to July 2008
period. This percentage increased to almost half (47.6%) by July 2009. The table also
shows that the attrition rate is substantially higher among home-based businesses
compared to small businesses operated from old shopping centres. Although a
relatively low average employment figure of 2.6 per business was recorded in 2007,
the average employment size of home-based businesses (2.1) was smaller than that
of businesses in ‘old’ shopping centres (3.3 employees). Employment usually involved
the owner with family members and sometimes paid employees as well.
In addition to questions related to the effect of shopping mall development on
respondent businesses, the research instrument also enquired on entrepreneurial and
management actions performed in and prior to establishing the businesses. These
questions were presented in the format of statements with a request to respondents
to rate their level of agreement with the statements on a 5-point scale, ranging from
Entrepreneurship and small business sustainability
141
Table 2: Composition of small business panel (2007 to 2009)
Business type 2007
business
panel
Number)
Closed down Still in operation
2008 2009 2008 2009
No. % No. % No. % No. %
Home-based businesses 160 75 46.9 92 57.5 85 53.1 68 42.5
Businesses in shopping areas 140 40 28.6 51 36.4 100 71.4 89 63.6
Total 300 115 38.3 143 47.6 185 61.7 157 52.4
1‘strongly disagree’ to ‘strongly agree’. The research instrument also contained several
questions aimed at establishing the characteristics and dynamics of the small business
sector in Soweto.
Methodology
1The statistical analysis makes use of a categorical regression model to facilitate the
investigation of causal relationships in the data. This model was preferred over
other categorical association measures such as chi-square, Cromer’s V and Lamda,
which would not allow the same level of analysis, especially with regard to causal
relationships. An additional reason for using a categorical regression model derives
from the usage of both ordinal and nominal data in the model as well as the fact that
the dependent variable is dichotomous. The dependent variable is defined as small
business survival with two categories, namely businesses that survived and those that
closed their doors. In the statistical analysis, the following two data sets were used:
(a) Businesses that survived for at least one year following the 2007 survey and
those that had closed their doors within one year of the 2007 survey (namely,
between July 2007 and June 2008), and
(b) Businesses that survived for at least two years following the 2007 survey and
those that had closed their doors within two years of the 2007 survey (namely,
between July 2007 and June 2009).
The independent variables used as explanatory variables for small business
survival in the first data set mentioned in (a) above are derived from entrepreneurial
acumen embedded in the sample businesses. The independent variables selected for
this purpose are shown in Table 3.
The independent variables used as explanatory variables for survival in the second
data set mentioned in (b) above are classified according to the following categories,
A.A. Ligthelm
142
Table 3: List and description of independent variables used to quantify business
survival: ?rst data set (2007/2008)
Entrepreneurial acumen (i) Compiling a business plan
(ii) Regular updating of the business plan
(iii) Marketing strategy for the business
(iv) Risk analysis prior to starting the business
(v) Regular analysis of competitors
(vi) Consideration of alternative business investments prior to
starting the business
(vii) Ease of venturing into a new business
(viii) Not a problem to take calculated risks
1namely competition from the newly established mall and competitive advantages
explored by small businesses in their struggle for survival. These independent
variables are shown in Table 4.
Table 4: List and description of independent variables used to quantify business
survival: second data set (2007/2009)
(a) Competition from the
mall
(i) Mall businesses sell similar products
(ii) Mall businesses o?er better customer services
(iii) Mall businesses o?er better product quality
(iv) Mall businesses sell products cheaper
(v) Mall businesses are more accessible
(vi) Mall o?ers leisure shopping environment
(b) Competitive advantages
of small businesses
(i) Providing credit would attract customers
(ii) Longer and ?exible hours would attract customers
(iii) Product o?erings in smaller quantities would attract
customers
(iv) More secure and safe environment
The reason for using two data sets in the analysis is dictated by the fact that
the 2009 survey, although amongst the same business panel (sample units) as the
previous surveys (2007 and 2008) (sample elements), shows some variation with
regard to the respondents. This implies that the same businesses were interviewed
in all three surveys, but the respondents between the 2007 and 2009 surveys show
Entrepreneurship and small business sustainability
143
substantial variation. This has a limited effect on business-specific questions such as
the length (number of years) of business operation, but may have an effect on person-
related statements such as the following: ‘I am not scared to risk funds in a new
business venture.’ The entrepreneurial-related statements were phrased in the first
person, while all the other statements were directly linked to the business rather than
to the respondent. As a result, the independent variables related to entrepreneurial
activities (Table 3) were analysed by using the 2007 and 2008 survey results, while
the independent variables related to competition and competitive advantages (Table
4) were analysed according to the 2007 and 2009 survey results.
To assist in evaluating the explanatory potential of the independent variables
as predictors of business survival, the following reasoning is presented with regard
to entrepreneurial skills, competition from the mall and competitive advantages of
small businesses.
The role of entrepreneurial activities as independent variables (Table 3) can be
motivated as follows. The survival and success of small businesses has been the
subject of a great deal of international analysis (Everett & Watson 1998; Lussier &
Pfeifer 2001; Cressy 2006). In South Africa, detailed studies have been undertaken to
analyse growth and development of the small business sector, often with particular
focus on informal businesses (Rogerson 2004: 766). Promoting entrepreneurial
spirit increasingly emerges as the key to business success. It forms the energy
behind the establishment and growth of business ventures. Measuring the level of
entrepreneurship in businesses is of great research interest. As discussed earlier in this
study, the focus of entrepreneurial research has shifted in the past two decades from
personality theories aimed at profiling entrepreneurial personality traits to a more
activity-based approach. The level of entrepreneurial skills applied in the business
sample is therefore based on a number of operational elements of entrepreneurship
such as compiling a business plan, analysis of competitors, venturing into a new
business and willingness to take calculated risks. The Global Entrepreneurship
Monitor (2007) states, for example, that an entrepreneur is an individual willing
to take a calculated risk to explore a market need with an idea that is sound and
economically viable. A business plan is key to demonstrating this. These practical
actions were assumed as proxies, explaining the entrepreneurial skills of business
owners. Respondents were asked to indicate the extent to which these entrepreneurial
actions were applied in their businesses. The activities were formatted as statements
in the questionnaire, and responses were recorded on a 5-point scale ranging from
‘strongly disagree’ to ‘strongly agree’. In interpreting the results, it is important to note
that just more than half the business panel reported unemployment as the reason
A.A. Ligthelm
144
for starting their businesses. This confirms the evidence that informal/survivalist/
unproductive businesses predominate in developing societies.
With regard to the first category in Table 4, namely competition exercised by
businesses in the newly established shopping mall and hence their competitive
threat to small businesses, the following elaborates on the change in the competitive
environment in township areas and clearly represents contextual issues as discussed
earlier in this study. Prior to the establishment of shopping malls, the business
fraternity in the study area consisted exclusively of small (often informal) businesses
supplying basic necessities to households. Rapid household income growth among
township dwellers during the past decade, together with the expressed opinion of
the majority of township dwellers not to relocate to more affluent suburbs, created
lucrative retail opportunities for national chain and franchise businesses in these
emerging markets. A 45 000 m
2
shopping mall with more than 100 stores anchored
by a 4 000 m
2
supermarket and a fashion component of 18 000 m
2
, was established in
the study area (Jabulani Mall 2009). This elevated competition with existing small
businesses to considerable heights.
The second category in Table 4 (competitive advantages of small businesses)
identifies actions that small businesses may apply to counter the competition
experienced from businesses in the mall. Competitive advantages occur when
businesses develop an attribute that allows them to outperform or counter the
offerings of their competitors. Porter (2008: 40–42) identifies, inter alia, the following
as methods for creating sustainable competitive advantages: delivering the same
service as competitors but at a lower cost, differentiation of services not available
from competitors and/or exploring the offering of services for creating a local market
niche. The latter two aspects in particular are explored in the data set for this study
by eliciting small business respondents’ reaction to aspects including offering services
such as credit, breaking of bulk, and longer and flexible hours. These aspects also
suggest a close relationship with entrepreneurial actions. Analysing market conditions
and competitors, for example, is regarded in this study as typical entrepreneurial
procedures that are often a prerequisite for designing sustainable counter strategies
such as those mentioned (for example, credit, flexible hours and product offerings in
smaller quantities). The extent of applying these actions would assist in differentiating
between productive and nonproductive entrepreneurs.
The independent variables listed in Tables 3 and 4 do not exhaust all the potential
factors that influence business sustainability. Notable factors excluded are those
related to the external business environment such as the macroeconomic environment
(for example, interest and exchange rates) and sectoral-specific issues such as demand
and supply conditions prevailing in the various economic sectors of the economy.
Entrepreneurship and small business sustainability
145
Aspects such as government support programmes and their efficacy as well as the
regulatory environment are also not discounted as independent variables.
Results and interpretation
1The results from the analysis of variance are depicted in Table 5. These show that the
model variances (1.592 and 3.073 for the two data sets respectively) are considerably
higher than the error variances (0.816 and 0.436), indicating that the different
predictors separately and conjointly succeeded in predicting business survival
significantly at a 95% level of certainty.
Table 5: Analysis of variance of the two data sets
Sum of squares df Mean square F Sig
2007–2008 data set
Regression 106.684 67 1.592 1.952 .000
Residual 171.316 210 0.816
Total 278.000 277
2007–2009 data set
Regression 190.532 62 3.073 7.053 000
Residual 98.468 226 .436
Total 289.000 288
The regression coefficients obtained by estimating the full model are presented
in Tables 6 and 7. Given that a total of 300 observations were used, the fairly large
number of variables listed can be included in the regression to determine which ones
are significant in determining small business survival.
The standardised coefficients with regard to entrepreneurial acumen in Table
6 were found to present strong predictors of small business survival. With regard
to entrepreneurial acumen, the majority of variables fall below the 0.050 level of
significance and can therefore be regarded as strong predictors of business survival.
These include the following:
• Compilation of a business plan
• Regular updating of business plan
• Regular analysis of competitors
• Ease of venturing into a new business
• Not a problem to take calculated risks.
A.A. Ligthelm
146
These factors relate strongly to entrepreneurial actions and orientation, and where
present in a business, are regarded as prominent predictors of survival. Of particular
importance is the strong predictive value of the last two variables, namely the ‘ease of
venturing into a new business’ (0.016) and it is ‘not a problem to take calculated risks’
(0.000). These two variables strongly relate to entrepreneurial acumen, while the
first three mentioned variables may also reflect an element of business management
orientation together with its entrepreneurial flavour. Table 6 also shows some
entrepreneurial actions between the 5% and 20% levels of significance. Statistically,
these three aspects (namely, marketing strategy for the business, risk analysis prior to
starting the business and considering alternative business investments) can therefore
be considered as of marginal significance. However, the list of entrepreneurial
actions contained in the research instrument as proxies for entrepreneurial skills is
fairly extensive and not all need to be executed/applied to ‘qualify’ a business owner
as engaging in entrepreneurial conduct. Furthermore, some of the actions can be
inclusive of other actions, for example, the compilation and updating of a business
plan might include a marketing strategy and/or risk analysis. (This will be tested
further in subsequent entrepreneurial research projects. Particular emphasis will be
placed on the entrepreneurship : management relationship in this regard.)
Table 6: Regression coe? cients indicating the signi?cance of entrepreneurial
variables to small business survival
Variable Standardised coefficients
Beta Std error df F Sig
Completion of a business plan .269 .118 2 5.221 .006
Regular updating of business plan -.202 .111 2 3.301 .039
Marketing strategy for the business -.129 .089 3 2.104 .101
Risk analysis prior to starting the business -.101 .077 2 1.715 .183
Regular analysis of competitors .159 .079 3 4.037 .008
Consider alternative business investments
prior to starting the business .101 .069 1 2.100 .149
Ease of venturing into a new business -.157 .076 2 4.236 .016
Not a problem to take calculated risks .243 .092 4 7.017 .000
Table 7 shows the regression coefficients indicating the significance of variables
relating to competition from the mall and competitive advantages in relation to small
business survival.
Entrepreneurship and small business sustainability
147
With regard to competition from the mall, only two variables – namely ‘mall
businesses are more accessible (0.734), and ‘mall offers leisure shopping environment’
(0.756) – did not affect business survival significantly. The significance levels of the
other variables in the category fall well below the 0.050 level of significance. The
following emerge as strong predictors of small business survival/attrition: selling
of similar products, offering of better customer services, offering of better product
quality and businesses in the mall, selling cheaper products than what is offered by/
available from small businesses.
Considering the entrepreneurial acumen embedded in small businesses as well
as the competitive threat of mall development, some strategic action is required to
sustain existing small businesses. Section (b) of Table 7 shows the application of the
following competitive advantages of small businesses as strong predictors of business
survival at a 0.050 level of significance:
• Provision of credit
• Product offerings in small quantities
• More secure and safe environment.
A strategy of longer and flexible hours to attract customers to small businesses
does not seem to be of any significance (sig = 0.802), the probable reason being that
shopping mall owners expect tenants to adhere to fairly long operating hours on a
daily basis, effectively limiting any potential competitive advantage of longer and
flexible hours for small businesses.
These findings, depicting the magnitude of the competitive environment in the
study area, clearly confirm the negative impact of mall development on the existing
small business fraternity and the effect of the economic environment on business
survival. This conclusion enlightens the first research question, namely the possible
negative impact of the more intensive competitive environment on small businesses
in townships. The variables relating to this phenomenon are strong predictors of
small business survival. Despite this finding, the longitudinal survey over a three-
year period (2007 to 2009), shows that more than half (see Table 2) the businesses
survived amidst the heightened level of competition. The majority of these businesses
that survived were similar to those that closed down with regard to economic sector,
business type, ownership structure, employment size and distance from the mall
(Ligthelm 2009: 9). The strong predictive value of entrepreneurial acumen and
business management skills, as independent variables of small business sustainability,
confirms the decisive role of the human element in small business survival.
In addition to testing the predictive value of the independent variables for business
survival in this model, in-depth interviews were also conducted with a selection of
A.A. Ligthelm
148
Table 7: Regression coe? cients indicating the signi?cance of factors relating to the
e?ects of competition and competitive advantages on small business survival
Variable Standardised coefficients
Beta
Std
error
df F Sig
(a) Competition from the mall
Mall businesses sell similar products -.213 .086 3 6.130 .001
Mall businesses o?er better customer services -.204 .088 4 5.430 .000
Mall businesses o?er better product quality .175 .071 4 6.125 .000
Mall businesses sell products cheaper .166 .085 2 3.832 .023
Mall businesses are more accessible -.093 .131 4 .502 .734
Mall o?ers leisure shopping environment -.062 .098 3 0.396 .756
(b) Competitive advantages of small businesses
Providing credit would attract customers -.245 .062 3 15.363 .000
Longer and ?exible hours would attract
customers
.054 .094 3 .332 .802
Product o?erings in smaller quantities would
attract customers
-.155 .065 3 5.655 .001
More secure and safe environment .138 .066 3 4.371 .005
1survivalist businesses to generate a more in-depth understanding of the reasons
behind business sustainability. The results of these interviews clearly confirm the
results of the regression model, namely the pivotal role of the human element in
business survival. The latter embraces both the role of entrepreneurial initiative and
the application of sound business management principles. At an operational level,
the following strategic adjustments were, inter alia, recorded during the interviews:
realignment of product lines by focusing on new and fast-moving products and
eliminating unprofitable ones; reducing product lines and stock levels; adjustment
of pricing strategy to ensure competitiveness; introducing convenience premiums;
human development strategies aimed at higher productivity and lower labour
costs; and a strong focus on customer service. A strong emphasis was also reported
on the realignment of the small business with its changing customer profile and
demand structures. This differentiation confirms the essential role of innovation in
entrepreneurial action, as discussed earlier in the study.
In summary, the study shows that major structural changes are prevalent in
township areas. Considerable income growth of inhabitants during the past decade
Entrepreneurship and small business sustainability
149
has created large untapped emerging markets effectively explored by property
developers and ultimately the opening of national chains and franchise businesses in
new malls. These new shopping mall developments have created heightened levels of
competition for the small business fraternity that dominated the business scene before
the erection of the new malls. Longitudinal trends show a gradual decline in the
number of small businesses as a result of the increased competition. It was noted that
small businesses of similar business type and within similar sectors reported severe
negative impacts, while others recorded minimal or even positive effects from mall
development. By modelling the business population into two subpopulations (namely,
those still operating and those that closed down), it was possible to identify predictors
for survival through a categorical regression model. Entrepreneurial action, linked to
sound business management skills, was identified as a positive discriminatory factor
for business survival. The ability to adjust one’s business model to adapt to changed
economic circumstances is an important characteristic of entrepreneurial conduct that
ultimately dictates survival in increasingly competitive economic environments. The
latter finding confirms the differentiation in entrepreneurial quality in developing
societies, ranging from productive entrepreneurs, who are ingenious and creative in
finding ways to add to their own and society’s wealth, and necessity/unproductive
entrepreneurs, forced into informal/survivalist self-employment (in other words,
nonproductive) entrepreneurs, who lack survival abilities in increasingly competitive
market conditions.
Conclusion
1As already indicated, there is a growing realisation that small business sustainability
has been associated with many factors, including the effect of policy measures directed
at the small business sector, and macroeconomic, industry and firm-specific factors
(Dockel & Ligthelm 2005). However, it must be acknowledged that economic theory
has been of little help in explaining the reality of business formation, growth and
decline (Wennekers & Thurik 1999). One must largely agree with the assessment that
the internal dynamics of the growth of small businesses have remained something of
a ‘black box’ (Freel 2000: 321).
A number of analyses of small business sustainability and growth are descriptive,
while others are more quantitative. Most of the quantitative studies focus on
identifying the characteristics of growth in businesses. Freel (2000) argues that
research that only enumerates frequencies and is capable of asking only ‘what’ and
‘how many’ questions, while neglecting the ‘why’ and ‘how’ questions of small
business sustainability and growth, offers less rich explanations of the process
A.A. Ligthelm
150
driving small business survival and growth. After analysing the literature on business
sustainability, Morrison, Breen and Shameen (2003: 418) synthesise the literature
by proposing a framework for identifying small business sustainability and growth
factors and their characteristics. They confirm the finding in the discussion earlier in
the study that the human factor constitutes the overwhelming force that determines
whether or not a business will survive and prosper. They propose that small business
success is based on clear, positively motivated business intentions and actions on the
part of the owner/manager to achieve the desired outcome. The picture emerging
from the analysis in this study supports this finding and highlights entrepreneurial
behaviour as the key predictor of small business sustainability. At the other end of the
scale, a large number of business entrants in developing societies are not entrepreneurs
by choice and are only rent-seekers awaiting employment opportunities in a growing
economy with increasing numbers of wage employment. These businesses will
remain survivalists or eventually close down.
This finding also informs strategies aimed at supporting small business
development, especially in developing societies. Limited financial and other
resources available at traditional small-business support institutions preclude the
possibility of spreading policy initiatives broadly to include the entire small business
sector. The focus should be on the small percentage of businesses with embedded
entrepreneurial acumen and hence the inherent dynamics to perceive and create
new economic opportunities such as new products, new production methods, new
organisational methods and new product : market combinations (Wennekers &
Thurik 1999: 46). Governments and international development agencies often wish
to promote informal small entrepreneurs to grow and eventually ‘graduate’ to become
formal, larger businesses (Naude 2009: 4). Schramm (2004) finds that most often
these policies do not work due to the fact that the motivation of informal/necessity
entrepreneurs is not growth, but survival (Berner et al. 2008: 1). The analysis in this
study confirms that the human factor, and particularly, the business’s entrepreneurial
endowment and motivation, largely dictate its survival and growth potential. Small
businesses exhibiting entrepreneurship should be the focus of small business support
strategies. Entrepreneurship in its strongest and purest form is at the level of small
and medium-sized enterprises, where individualism, self-reliance and risk-taking are
particularly prominent (CDE 2004: 11).
Entrepreneurship and small business sustainability
151
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Detailed explanation regarding entrepreneurship and small business sustainability a.a. ligthelm.
131 Southern African Business Review Volume 14 Number 3 2010
Entrepreneurship and small business
sustainability
A.A. Ligthelm
6 A B S T R A C T
15South Africa is experiencing immense structural changes in its
household income patterns and retail environment. Inhabitants of
township areas have experienced substantial economic upliftment.
Many township consumers have progressed to middle-income status,
resulting in a signi?cant increase in consumer spending. As a result,
large national chains and franchisors are increasingly exploring
these untapped markets. Township areas were, until the end of
the last century, dominated by small (often informal) businesses
which became subject to heightened levels of competition due to
these mentioned developments. Findings from longitudinal surveys
among a panel of 300 small businesses in Soweto between 2007 and
2009 were modelled through a categorical regression model with
business survival as dependent variable. The level of signi?cance of
18 independent variables suggest that entrepreneurial acumen and
business management skills be classi?ed as the strongest predictors
of small business survival. The ability to adjust one’s business
model to adapt to changed economic circumstances is an important
characteristic of entrepreneurial conduct that ultimately dictates
survival in increasingly competitive economic environments.
16Key words: entrepreneurship, small business development, business sustainability,
competition
Introduction
1Small (often informal) businesses dominate the economic life of most developing
countries (Gollin 2008: 2). Until the mid-1990s, a similar phenomenon was also
evident in the developing urban areas (townships) of South Africa. Small businesses
Prof. A.A. Ligthelm is Research Director at the Bureau of Market Research, University of South Africa. E-mail:
[email protected]
A.A. Ligthelm
132
served as convenience shops primarily for the lower income groups, attracting a
sizeable portion of household expenditure in less developed urban areas (Ligthelm
2007: 12). Surveys in Soweto confirmed that almost half the retail expenditure of the
least affluent income groups was expended at small businesses within Soweto itself
in 2004 (City of Johannesburg 2005: 15).
South Africa has made significant strides in improving the living standards of
previously disadvantaged communities, especially those living in township areas.
Studies on economic class dynamics confirmed that the African middle class
(township dwellers) experienced the most significant gains in respect of improvements
in social class and household income during the period 1998 to 2008 (Ligthelm
2008a: 3). The rapid income growth of township inhabitants resulted in substantial
changes, not only in the share of the African population in total household income
and expenditure but also with regard to the structure of expenditure. The latter
implies a much more diversified demand structure away from basic daily needs such
as food and shelter to a full spectrum of household consumption items including
semi-durable and durable goods.
This retail restructuring in terms of geographic location (towards townships) and
social class (towards the African population group) has impacted, and will continue
to impact, on expansion strategies of national retailers and franchisors, especially
supermarket chains, to increasingly focus on market expansion strategies in township
areas. The sustainability of these markets is also confirmed by the fact that more
than 80% of residents of Soweto indicated that they plan to stay in Soweto for life
(Tustin 2008: 50). As a result, large shopping malls have been developed in almost
all township areas with sizeable population numbers during the past five years.
This development has resulted in a substantial change in the shopping behaviour of
township dwellers. Both outshopping (in other words, the extent of shopping outside
one’s own township) and purchases from small township businesses have been
displaced in favour of shops located in newly established shopping malls. In Soweto,
for example, the percentage of retail expenditure by Soweto residents increased from
25.0% in 2004 (City of Johannesburg 2005) to 81.2% in 2008 (Tustin 2008: 29).
Notwithstanding this heightened level of competition experienced by small
businesses, a large percentage of small businesses outside shopping centres were still
in operation more than a year after the opening of shopping malls. The majority
of these small businesses were trading in the same sectors as those located in the
newly established malls. This increased level of competition holds several advantages
for township consumers. Porter (2008) argues that competition is one of society’s
most powerful forces for improving conditions in many fields of human endeavour.
He states that competition is pervasive, whether it involves companies contesting
Entrepreneurship and small business sustainability
133
markets, countries coping with globalisation or even governments responding to
service delivery needs. Every organisation needs a strategy to ensure the delivery of
superior value to customers, especially in highly competitive environments.
The foregoing presents the following two research questions, namely the ability
of small informal businesses to survive amidst a heightened level of competition from
large formal businesses and secondly, in the case of survival, what variables may be
instrumental in ensuring sustainability.
Objective of the study
1The primary aim of the study was to calculate the survival rate of small businesses
within the rapidly changing trade environment. This is based on longitudinal
empirical surveys. The data set also allowed for contrasting the business profiles
of successful businesses with those closing their doors and for identifying principal
reasons for small business sustainability in a more intensive competitive environment.
Particular emphasis is placed on the role of entrepreneurship in small business
survival.
Entrepreneurship in developing societies
1The study of the concept of entrepreneurship is a developing science, investigated from
a wide range of perspectives in most disciplines from economics and management
sciences to psychology (Landström 2005: 31–37; Naude 2010: 1). In terms of theory,
significant progress has been made in advancing the field of entrepreneurship and
small business as an important field of scientific inquiry (Mullen, Budeva & Doney
2009: 287). Instead of discussing the gist of scientific insight into, and knowledge
of, the entrepreneurial domain in the various disciplines, this section touches on
the role of entrepreneurship in economic development with a specific focus on
developing societies. The importance of such a perspective emanates from the fact
that the study of entrepreneurship should take into account both the individual and
the society within which it is embedded (Swanepoel & Strydom 2009: 2). This aligns
with the argument of Aldrick (1992, in Stevenson 2004: 3) that in entrepreneurial
research, the individual, the organisation and the development context need to
be studied. Venkataraman (1997, in Li & Mitchell 2009: 370) also maintains that
entrepreneurship and its context are inseparable. This contextual perspective is
highly relevant in evaluating the empirical results of the study due to the prominent
structural changes occurring in townships during the past decade.
A.A. Ligthelm
134
There is little doubt amongst proponents of private sector development that
entrepreneurship is the key to economic growth and development (Minniti 2008).
This increasing interest in the role of entrepreneurship to generate growth has been
stimulated by, inter alia, the successful growth performances in the economies of the
so-called ‘southern engines of growth’ (Brazil, China, India and South Africa) and
by the realisation of the need for private sector development in many fragile and failed
states (Naude 2008: 1). However, the dynamics of entrepreneurship are not realised
only in developing economies. Advanced economies are also characterised by a variety
of support measures to stimulate entrepreneurial development. Understanding
entrepreneurship in these diverse economic contexts is important in informing the
design of appropriate policy measures.
In South Africa, the less developed areas (townships and communal areas)
operated largely as distinct economic entities until the mid-1990s. From a business
and entrepreneurial perspective, they show strong characteristics of developing
economies, contrasting prominently with the more developed and advanced
economic areas of South Africa. As mentioned in the introduction, the business
profile of townships used to be characterised predominantly by small unsophisticated
informal businesses. Since the mid-1990s, this dualism has gradually faded towards
integration with the modern economic system.
International literature suggests a differentiated role of entrepreneurship by level
of development (Wennekers & Thurik 1999: 38; Herrington, Kew & Kew 2008:
15; Naude 2010: 26). Empirical studies suggest a U-shaped relationship between
entrepreneurial activity (self-employment) and the level of development. This
relationship is depicted in Figure 1 using GEM (Global Entrepreneurship Monitor)
entrepreneurship and World Bank per capita income data. The GEM (Herrington et
al. 2008: 15) data depict total entrepreneurial activity (TEA) in 42 countries. TEA is
defined as early stage entrepreneurship measured as all new businesses in operation
for less than 3.5 years. World Bank per capita income for 42 countries is transformed
to PPP (Purchasing Power Parity) values (World Bank 2009).
The U-shaped fitted line in Figure 1 was obtained by regressing entrepreneurial
activity on per capita GDP. The result was as follows: per capita GDP succeeded in
explaining 45.4% of the variance, and the model variance obtained was 17.5 times
more than the error variance, indicating a statistically significant relationship of the
variables at a 0.000 level of significance. This result confirms a statistically significant
non-linear (quadratic) relationship between level of entrepreneurship and level of
economic development.
The U-shaped relationship between entrepreneurship (as proxied by TEA) and
development (as proxied by GDP per capita) can be interpreted as follows. At relatively
Entrepreneurship and small business sustainability
135
1
Sources: SAARF (2009); World Bank (2009)
Figure 1: Relationship between TEA and per capita GDP (2008)
1low levels of per capita income, dependency is relatively high on self-employment due
to a lack of sufficient wage employment. At low levels of economic activity, households
are largely responsible for fending for themselves in the absence of larger businesses
offering employment and/or governments supplying social security benefits. Naude
(2008: 27) confirms that at low levels of economic activity, many individuals revert
to self-employment, often with limited profitable opportunities. Higher levels of per
capita GDP through economic growth and development often equate to growing
urban agglomeration, growing markets and economies of scale. The latter result
in the availability of increasing paid-employment opportunities. This increases the
opportunity costs of self-employment, with a resulting decline in the ratio of self-
employment to wage-employment and thus declining entrepreneurial activity.
According to Wennekers, Van Stel, Thurik & Reynolds (2005: 295), a turning
point in the U-shaped graph is activated by structural changes in the economy. The
manufacturing sector starts declining, with a concomitant growth in the service
sectors with increasing levels of income per capita. The transition from a capital-
A.A. Ligthelm
136
driven stage in economic growth to a knowledge-driven stage creates many more
opportunities for business ownership. Growth in the service sector, together with the
adoption of new technologies, which lessens the need for economies of scale, opens
up many new opportunities that can be utilised by small businesses, and leads to a
rise in self-employment and thus entrepreneurial activity.
Although the preceding empirical evidence is derived from cross-country analysis,
the entrepreneurial dynamics relevant in national economies progressing from
developing to advanced may also be relevant for township economies transforming
from a relatively low level of development towards integrating into an advanced
economy. In both cases, an economic transformation from less developed to more
advanced is presumed that may impact (similarly) on the levels of self-employment
(proxied for entrepreneurship). However, the time span in the case of township
transformation is much more rapid than in normal national economic transformation.
Analysis specific to South Africa, relating personal income levels to self-
employment, shows similar patterns with regard to entrepreneurial dynamics.
Table 1 shows the percentage of the self-employed in relation to total employment
(population 18 years and older). The self-employed (proxied for entrepreneurship)
stood at 17.8% for those earning a monthly income of between R1 001 and R2 500 in
2008. This percentage dropped to 11.1% for the R2 501 to R5 000 income group and
gradually increased to 60.5% for the most affluent group (R40 000 plus per month).
With the exception of the least affluent income group (less than R1 000 per month),
a U-shaped curve is also evident. People with relatively low incomes (primarily
located in townships and communal areas) tend to be fairly active in informal,
less productive businesses (see next section). This level of self-employment initially
declines as income levels increase to the next category (R2 501 to R5 000), but shows
a strong upward trend with further income increases.
Table 1 also shows the percentage of self-employed people with their educational
qualifications by income group. The data clearly confirm a positive relationship
between educational level and self-employment. The relatively low 5.9% of self-
employed in the poorest income category (less than R1 000 per month) confirms
their inability to pursue entrepreneurial activities requiring numeracy and literacy
skills.
Variations in entrepreneurship
1Entrepreneurship is inherently heterogeneous. Wennekers & Thurik (1999: 30)
assigned at least 13 distinct roles to entrepreneurship, varying from being an innovator
and assuming risks to being a decision-maker and industrial leader. Entrepreneurship
Entrepreneurship and small business sustainability
137
Table 1: Self-employment and educational level by personal income category (2008)
Income category
per month
% of self-employed
to total employment
% of self-employed with
a maximum of primary
school qualification
(%)
Some high
school and
matric
(%)
Post
matric
(%)
Total
(%)
R1–R1 000 5.9 42.2 56.5 1.2 100.0
R1 001–R2 500 17.8 25.2 71.2 3.7 100.0
R2 501–R5 000 11.1 12.1 77.5 10.4 100.0
R5 001–R10 000 16.2 9.3 53.9 36.8 100.0
R10 001–R20 000 24.3 0.4 52.4 47.2 100.0
R20 001–R40 000 39.2 0.7 33.7 65.6 100.0
R40 000+ 60.5 0.0 35.2 64.8 100.0
Source: SAARF (2009)
1need not result in the creation of new businesses. Naude (2009: 3) confirms that the
behavioural notion of entrepreneurship has been broadened to include the concepts
of corporate entrepreneurship, intrapreneurship and various forms of non-market
entrepreneurship (for example, public and social entrepreneurship). This section will
not attempt the daunting task of delineating these concepts, especially as studied
across many disciplines. The construction of the U-shaped curve in the previous
section is only concerned with the role of entrepreneurs in creating new businesses.
This section will briefly explore the different types of entrepreneurship in establishing
new businesses included in constructing the curve.
According to Baumol (1990: 895), not all entrepreneurship is beneficial for
economic growth and development. A distinction can be drawn between productive,
unproductive and even destructive (for example, illegal) entrepreneurship. Productive
entrepreneurship encompasses the exploitation of profitable business opportunities
with inherent business growth prospects. Unproductive or informal entrepreneurship
is essentially business formation aimed at survival or escaping from a situation of
unemployment and poverty. Berner, Gomez & Knorringa (2008: 1) confirm that the
motivation of informal entrepreneurs is not growth, but survival. The GEM report
(Herrington et al. 2008) also distinguishes between two types of entrepreneurs
corresponding with productive and unproductive entrepreneurship. Entrepreneurs
who pursue a business opportunity are referred to as opportunity entrepreneurs,
while those who are involved in an entrepreneurial endeavour because they have no
other choice of work are referred to as necessity entrepreneurs.
A.A. Ligthelm
138
In developing countries and societies, it is apparent that larger numbers of people
are being compelled to enter into informal/survivalist/necessity self-employment,
which constitutes unproductive entrepreneurship (for example, rent-seeking)
(Naude 2008: 4). Gollin (2008: 219) confirms that, due to fewer formal employment
opportunities, the economic life of most developing countries is dominated by small
necessity entrepreneurs.
Although this phenomenon raises the level of self-employment (entrepreneurship)
in the U-shaped curve, this type of entrepreneurship is very often nonproductive
and frequently rent-seeking. Wennekers & Thurik (1999: 29) confirm that small and
microbusinesses are not necessarily synonymous with entrepreneurship, because
many of these businesses do not contribute to economic growth and development.
As development progresses, the proportion of people in self-employment declines, as
many informal/necessity entrepreneurs find more suitable wage employment. This
perspective of entrepreneurial dynamics in a developing context will be considered
in interpreting the decline in small informal businesses in the empirical section of
the study.
Measuring entrepreneurship
1The examination of the role of entrepreneurship in small business survival requires
some measurement of the entrepreneurial magnitude embedded in a business.
Measurement is often conducted statistically at an aggregate level using the
occupational definition that describes entrepreneurs as the self-employed – based on
the notion that a person can be unemployed, self-employed or in wage employment.
This approach allows an aggregate count of the number of self-employed (static
measurement) or the rate of business start-ups (dynamic measurement) (Wennekers
& Thurik 1999; Herrington et al. 2008; Naude 2008).
The implication of measurement on the aggregate level is that the level of
entrepreneurial acumen within an individual business, or the differences between
types of entrepreneurship, are not captured. Since the middle of the last century,
a considerable body of research by personality theorists has emerged to explain
entrepreneurial behaviour and intentions in terms of personality traits (Cromie
2000; Müller & Gappisch 2005). However, they failed to present conclusive evidence
on profiling an entrepreneur (Llewellyn & Wilson 2003: 343). This implies that
measuring the level of entrepreneurship ex ante to business formation and growth
through personality trait measurement is not a reliable instrument.
During the 1980s, entrepreneurship researchers started to focus more on what
entrepreneurs do rather than what their character traits are. This activity-based
Entrepreneurship and small business sustainability
139
focus was strongly propagated by researchers in the economic and management
sciences (Kruger 2004: 6). Timmons (1999: 21) also confirms that the science of
entrepreneurship is moving beyond characteristics towards the behavioural phase,
concentrating not on what personalities entrepreneurs have but on what it is that they
do. In this regard, entrepreneurship is still a developing science, exploring tools for
measuring entrepreneurship in business formation, sustainability and growth at an
individual business level (not aggregate measurement).
Examining the level of entrepreneurial conduct exercised in the small business
sample of this study required the identification of operational elements of
entrepreneurship for inclusion in the questionnaire as statements. Respondents were
requested to indicate the extent to which these entrepreneurial actions were applied
in their business establishments and their operations. These entrepreneurial-related
actions are discussed in a subsequent section (see Table 3). They relate closely to
innovative and creative actions to ensure business sustainability in heightened
competitive circumstances. This approach has been applied in longitudinal studies
and clearly shows a predictive value of the relationship between individual business
survival and entrepreneurial acumen (Ligthelm 2008b).
The study of entrepreneurial-related actions activates the question of the difference
between entrepreneurship and management. No clear-cut categorisation is possible
in this regard. Wennekers and Thurik (1999: 47) state that entrepreneurship is not
an occupation and that entrepreneurs cannot be regarded as a separately defined
occupation class. Even obvious entrepreneurs may exhibit their entrepreneurship
only during a certain phase of their career and/or exercise it only during a part of
their business-related activities. Hitt, Ireland, Camp and Sexton (2001) maintain
that entrepreneurship can often be seen as part of the management function within
businesses. This argument is especially relevant if entrepreneurial action does not
result in the creation of new businesses (for example, intrapreneurship and corporate
entrepreneurship). However, Naude (2009: 3–4) argues that there is now substantial
agreement that there is a difference between the entrepreneur and the manager
of a firm. Innovation is highlighted as the essential distinguishing characteristic
or function of the entrepreneur as opposed to the manager. However, in-depth
interviews with small business respondents later in the study confirm that the
distinction between business management and entrepreneurial activities remains
blurred and difficult to clearly demarcate and measure in scientific enquiry.
A.A. Ligthelm
140
Longitudinal data set used in the analysis
1In order to fully understand the survival prospects of small township businesses in a
newly competitive environment, small township businesses located around a newly
established shopping mall (Jabulani Mall) in Soweto were sampled and interviewed.
Within Soweto, the study area was defined as a radius of 5 km around the Jabulani
Mall, which was established in 2006. The absence of a sample universe precluded
a random selection procedure in establishing the business panel for longitudinal
survey purposes. The panel of small businesses included all types of businesses in
all the economic sectors. As mentioned in the introduction, the entire small business
population in Soweto consists predominantly of small businesses, including home-
based businesses or businesses established in demarcated business areas. Only
hawkers/street vendors were excluded from the sample population, since their mobility
makes it almost impossible to trace and accommodate them in a longitudinal small
business study. A differentiated sample selection approach was followed. A census
was conducted among all the businesses operating from ‘old’ demarcated business
areas. With regard to home-based businesses, 20 locations (street crossings) were
randomly selected (four in each one kilometre concentric circle around the mall).
All the home-based businesses in the four residential blocks cornering at the street
crossings were included in the sample. All the businesses selected for inclusion in the
survey expressed their willingness to participate. The survey was first conducted in
July 2007 (one year after the opening of the Jabulani Mall) and repeated in July 2008
and July 2009. The results of the surveys were validated with previous surveys in the
study area and proved to generate reliable and valid results.
The survival and attrition of the panel of businesses over the three-year period
(2007 to 2009) is shown in Table 2. Of the total of 300 businesses selected in 2007,
almost two in every five (38.3%) closed their doors during the July 2007 to July 2008
period. This percentage increased to almost half (47.6%) by July 2009. The table also
shows that the attrition rate is substantially higher among home-based businesses
compared to small businesses operated from old shopping centres. Although a
relatively low average employment figure of 2.6 per business was recorded in 2007,
the average employment size of home-based businesses (2.1) was smaller than that
of businesses in ‘old’ shopping centres (3.3 employees). Employment usually involved
the owner with family members and sometimes paid employees as well.
In addition to questions related to the effect of shopping mall development on
respondent businesses, the research instrument also enquired on entrepreneurial and
management actions performed in and prior to establishing the businesses. These
questions were presented in the format of statements with a request to respondents
to rate their level of agreement with the statements on a 5-point scale, ranging from
Entrepreneurship and small business sustainability
141
Table 2: Composition of small business panel (2007 to 2009)
Business type 2007
business
panel
Number)
Closed down Still in operation
2008 2009 2008 2009
No. % No. % No. % No. %
Home-based businesses 160 75 46.9 92 57.5 85 53.1 68 42.5
Businesses in shopping areas 140 40 28.6 51 36.4 100 71.4 89 63.6
Total 300 115 38.3 143 47.6 185 61.7 157 52.4
1‘strongly disagree’ to ‘strongly agree’. The research instrument also contained several
questions aimed at establishing the characteristics and dynamics of the small business
sector in Soweto.
Methodology
1The statistical analysis makes use of a categorical regression model to facilitate the
investigation of causal relationships in the data. This model was preferred over
other categorical association measures such as chi-square, Cromer’s V and Lamda,
which would not allow the same level of analysis, especially with regard to causal
relationships. An additional reason for using a categorical regression model derives
from the usage of both ordinal and nominal data in the model as well as the fact that
the dependent variable is dichotomous. The dependent variable is defined as small
business survival with two categories, namely businesses that survived and those that
closed their doors. In the statistical analysis, the following two data sets were used:
(a) Businesses that survived for at least one year following the 2007 survey and
those that had closed their doors within one year of the 2007 survey (namely,
between July 2007 and June 2008), and
(b) Businesses that survived for at least two years following the 2007 survey and
those that had closed their doors within two years of the 2007 survey (namely,
between July 2007 and June 2009).
The independent variables used as explanatory variables for small business
survival in the first data set mentioned in (a) above are derived from entrepreneurial
acumen embedded in the sample businesses. The independent variables selected for
this purpose are shown in Table 3.
The independent variables used as explanatory variables for survival in the second
data set mentioned in (b) above are classified according to the following categories,
A.A. Ligthelm
142
Table 3: List and description of independent variables used to quantify business
survival: ?rst data set (2007/2008)
Entrepreneurial acumen (i) Compiling a business plan
(ii) Regular updating of the business plan
(iii) Marketing strategy for the business
(iv) Risk analysis prior to starting the business
(v) Regular analysis of competitors
(vi) Consideration of alternative business investments prior to
starting the business
(vii) Ease of venturing into a new business
(viii) Not a problem to take calculated risks
1namely competition from the newly established mall and competitive advantages
explored by small businesses in their struggle for survival. These independent
variables are shown in Table 4.
Table 4: List and description of independent variables used to quantify business
survival: second data set (2007/2009)
(a) Competition from the
mall
(i) Mall businesses sell similar products
(ii) Mall businesses o?er better customer services
(iii) Mall businesses o?er better product quality
(iv) Mall businesses sell products cheaper
(v) Mall businesses are more accessible
(vi) Mall o?ers leisure shopping environment
(b) Competitive advantages
of small businesses
(i) Providing credit would attract customers
(ii) Longer and ?exible hours would attract customers
(iii) Product o?erings in smaller quantities would attract
customers
(iv) More secure and safe environment
The reason for using two data sets in the analysis is dictated by the fact that
the 2009 survey, although amongst the same business panel (sample units) as the
previous surveys (2007 and 2008) (sample elements), shows some variation with
regard to the respondents. This implies that the same businesses were interviewed
in all three surveys, but the respondents between the 2007 and 2009 surveys show
Entrepreneurship and small business sustainability
143
substantial variation. This has a limited effect on business-specific questions such as
the length (number of years) of business operation, but may have an effect on person-
related statements such as the following: ‘I am not scared to risk funds in a new
business venture.’ The entrepreneurial-related statements were phrased in the first
person, while all the other statements were directly linked to the business rather than
to the respondent. As a result, the independent variables related to entrepreneurial
activities (Table 3) were analysed by using the 2007 and 2008 survey results, while
the independent variables related to competition and competitive advantages (Table
4) were analysed according to the 2007 and 2009 survey results.
To assist in evaluating the explanatory potential of the independent variables
as predictors of business survival, the following reasoning is presented with regard
to entrepreneurial skills, competition from the mall and competitive advantages of
small businesses.
The role of entrepreneurial activities as independent variables (Table 3) can be
motivated as follows. The survival and success of small businesses has been the
subject of a great deal of international analysis (Everett & Watson 1998; Lussier &
Pfeifer 2001; Cressy 2006). In South Africa, detailed studies have been undertaken to
analyse growth and development of the small business sector, often with particular
focus on informal businesses (Rogerson 2004: 766). Promoting entrepreneurial
spirit increasingly emerges as the key to business success. It forms the energy
behind the establishment and growth of business ventures. Measuring the level of
entrepreneurship in businesses is of great research interest. As discussed earlier in this
study, the focus of entrepreneurial research has shifted in the past two decades from
personality theories aimed at profiling entrepreneurial personality traits to a more
activity-based approach. The level of entrepreneurial skills applied in the business
sample is therefore based on a number of operational elements of entrepreneurship
such as compiling a business plan, analysis of competitors, venturing into a new
business and willingness to take calculated risks. The Global Entrepreneurship
Monitor (2007) states, for example, that an entrepreneur is an individual willing
to take a calculated risk to explore a market need with an idea that is sound and
economically viable. A business plan is key to demonstrating this. These practical
actions were assumed as proxies, explaining the entrepreneurial skills of business
owners. Respondents were asked to indicate the extent to which these entrepreneurial
actions were applied in their businesses. The activities were formatted as statements
in the questionnaire, and responses were recorded on a 5-point scale ranging from
‘strongly disagree’ to ‘strongly agree’. In interpreting the results, it is important to note
that just more than half the business panel reported unemployment as the reason
A.A. Ligthelm
144
for starting their businesses. This confirms the evidence that informal/survivalist/
unproductive businesses predominate in developing societies.
With regard to the first category in Table 4, namely competition exercised by
businesses in the newly established shopping mall and hence their competitive
threat to small businesses, the following elaborates on the change in the competitive
environment in township areas and clearly represents contextual issues as discussed
earlier in this study. Prior to the establishment of shopping malls, the business
fraternity in the study area consisted exclusively of small (often informal) businesses
supplying basic necessities to households. Rapid household income growth among
township dwellers during the past decade, together with the expressed opinion of
the majority of township dwellers not to relocate to more affluent suburbs, created
lucrative retail opportunities for national chain and franchise businesses in these
emerging markets. A 45 000 m
2
shopping mall with more than 100 stores anchored
by a 4 000 m
2
supermarket and a fashion component of 18 000 m
2
, was established in
the study area (Jabulani Mall 2009). This elevated competition with existing small
businesses to considerable heights.
The second category in Table 4 (competitive advantages of small businesses)
identifies actions that small businesses may apply to counter the competition
experienced from businesses in the mall. Competitive advantages occur when
businesses develop an attribute that allows them to outperform or counter the
offerings of their competitors. Porter (2008: 40–42) identifies, inter alia, the following
as methods for creating sustainable competitive advantages: delivering the same
service as competitors but at a lower cost, differentiation of services not available
from competitors and/or exploring the offering of services for creating a local market
niche. The latter two aspects in particular are explored in the data set for this study
by eliciting small business respondents’ reaction to aspects including offering services
such as credit, breaking of bulk, and longer and flexible hours. These aspects also
suggest a close relationship with entrepreneurial actions. Analysing market conditions
and competitors, for example, is regarded in this study as typical entrepreneurial
procedures that are often a prerequisite for designing sustainable counter strategies
such as those mentioned (for example, credit, flexible hours and product offerings in
smaller quantities). The extent of applying these actions would assist in differentiating
between productive and nonproductive entrepreneurs.
The independent variables listed in Tables 3 and 4 do not exhaust all the potential
factors that influence business sustainability. Notable factors excluded are those
related to the external business environment such as the macroeconomic environment
(for example, interest and exchange rates) and sectoral-specific issues such as demand
and supply conditions prevailing in the various economic sectors of the economy.
Entrepreneurship and small business sustainability
145
Aspects such as government support programmes and their efficacy as well as the
regulatory environment are also not discounted as independent variables.
Results and interpretation
1The results from the analysis of variance are depicted in Table 5. These show that the
model variances (1.592 and 3.073 for the two data sets respectively) are considerably
higher than the error variances (0.816 and 0.436), indicating that the different
predictors separately and conjointly succeeded in predicting business survival
significantly at a 95% level of certainty.
Table 5: Analysis of variance of the two data sets
Sum of squares df Mean square F Sig
2007–2008 data set
Regression 106.684 67 1.592 1.952 .000
Residual 171.316 210 0.816
Total 278.000 277
2007–2009 data set
Regression 190.532 62 3.073 7.053 000
Residual 98.468 226 .436
Total 289.000 288
The regression coefficients obtained by estimating the full model are presented
in Tables 6 and 7. Given that a total of 300 observations were used, the fairly large
number of variables listed can be included in the regression to determine which ones
are significant in determining small business survival.
The standardised coefficients with regard to entrepreneurial acumen in Table
6 were found to present strong predictors of small business survival. With regard
to entrepreneurial acumen, the majority of variables fall below the 0.050 level of
significance and can therefore be regarded as strong predictors of business survival.
These include the following:
• Compilation of a business plan
• Regular updating of business plan
• Regular analysis of competitors
• Ease of venturing into a new business
• Not a problem to take calculated risks.
A.A. Ligthelm
146
These factors relate strongly to entrepreneurial actions and orientation, and where
present in a business, are regarded as prominent predictors of survival. Of particular
importance is the strong predictive value of the last two variables, namely the ‘ease of
venturing into a new business’ (0.016) and it is ‘not a problem to take calculated risks’
(0.000). These two variables strongly relate to entrepreneurial acumen, while the
first three mentioned variables may also reflect an element of business management
orientation together with its entrepreneurial flavour. Table 6 also shows some
entrepreneurial actions between the 5% and 20% levels of significance. Statistically,
these three aspects (namely, marketing strategy for the business, risk analysis prior to
starting the business and considering alternative business investments) can therefore
be considered as of marginal significance. However, the list of entrepreneurial
actions contained in the research instrument as proxies for entrepreneurial skills is
fairly extensive and not all need to be executed/applied to ‘qualify’ a business owner
as engaging in entrepreneurial conduct. Furthermore, some of the actions can be
inclusive of other actions, for example, the compilation and updating of a business
plan might include a marketing strategy and/or risk analysis. (This will be tested
further in subsequent entrepreneurial research projects. Particular emphasis will be
placed on the entrepreneurship : management relationship in this regard.)
Table 6: Regression coe? cients indicating the signi?cance of entrepreneurial
variables to small business survival
Variable Standardised coefficients
Beta Std error df F Sig
Completion of a business plan .269 .118 2 5.221 .006
Regular updating of business plan -.202 .111 2 3.301 .039
Marketing strategy for the business -.129 .089 3 2.104 .101
Risk analysis prior to starting the business -.101 .077 2 1.715 .183
Regular analysis of competitors .159 .079 3 4.037 .008
Consider alternative business investments
prior to starting the business .101 .069 1 2.100 .149
Ease of venturing into a new business -.157 .076 2 4.236 .016
Not a problem to take calculated risks .243 .092 4 7.017 .000
Table 7 shows the regression coefficients indicating the significance of variables
relating to competition from the mall and competitive advantages in relation to small
business survival.
Entrepreneurship and small business sustainability
147
With regard to competition from the mall, only two variables – namely ‘mall
businesses are more accessible (0.734), and ‘mall offers leisure shopping environment’
(0.756) – did not affect business survival significantly. The significance levels of the
other variables in the category fall well below the 0.050 level of significance. The
following emerge as strong predictors of small business survival/attrition: selling
of similar products, offering of better customer services, offering of better product
quality and businesses in the mall, selling cheaper products than what is offered by/
available from small businesses.
Considering the entrepreneurial acumen embedded in small businesses as well
as the competitive threat of mall development, some strategic action is required to
sustain existing small businesses. Section (b) of Table 7 shows the application of the
following competitive advantages of small businesses as strong predictors of business
survival at a 0.050 level of significance:
• Provision of credit
• Product offerings in small quantities
• More secure and safe environment.
A strategy of longer and flexible hours to attract customers to small businesses
does not seem to be of any significance (sig = 0.802), the probable reason being that
shopping mall owners expect tenants to adhere to fairly long operating hours on a
daily basis, effectively limiting any potential competitive advantage of longer and
flexible hours for small businesses.
These findings, depicting the magnitude of the competitive environment in the
study area, clearly confirm the negative impact of mall development on the existing
small business fraternity and the effect of the economic environment on business
survival. This conclusion enlightens the first research question, namely the possible
negative impact of the more intensive competitive environment on small businesses
in townships. The variables relating to this phenomenon are strong predictors of
small business survival. Despite this finding, the longitudinal survey over a three-
year period (2007 to 2009), shows that more than half (see Table 2) the businesses
survived amidst the heightened level of competition. The majority of these businesses
that survived were similar to those that closed down with regard to economic sector,
business type, ownership structure, employment size and distance from the mall
(Ligthelm 2009: 9). The strong predictive value of entrepreneurial acumen and
business management skills, as independent variables of small business sustainability,
confirms the decisive role of the human element in small business survival.
In addition to testing the predictive value of the independent variables for business
survival in this model, in-depth interviews were also conducted with a selection of
A.A. Ligthelm
148
Table 7: Regression coe? cients indicating the signi?cance of factors relating to the
e?ects of competition and competitive advantages on small business survival
Variable Standardised coefficients
Beta
Std
error
df F Sig
(a) Competition from the mall
Mall businesses sell similar products -.213 .086 3 6.130 .001
Mall businesses o?er better customer services -.204 .088 4 5.430 .000
Mall businesses o?er better product quality .175 .071 4 6.125 .000
Mall businesses sell products cheaper .166 .085 2 3.832 .023
Mall businesses are more accessible -.093 .131 4 .502 .734
Mall o?ers leisure shopping environment -.062 .098 3 0.396 .756
(b) Competitive advantages of small businesses
Providing credit would attract customers -.245 .062 3 15.363 .000
Longer and ?exible hours would attract
customers
.054 .094 3 .332 .802
Product o?erings in smaller quantities would
attract customers
-.155 .065 3 5.655 .001
More secure and safe environment .138 .066 3 4.371 .005
1survivalist businesses to generate a more in-depth understanding of the reasons
behind business sustainability. The results of these interviews clearly confirm the
results of the regression model, namely the pivotal role of the human element in
business survival. The latter embraces both the role of entrepreneurial initiative and
the application of sound business management principles. At an operational level,
the following strategic adjustments were, inter alia, recorded during the interviews:
realignment of product lines by focusing on new and fast-moving products and
eliminating unprofitable ones; reducing product lines and stock levels; adjustment
of pricing strategy to ensure competitiveness; introducing convenience premiums;
human development strategies aimed at higher productivity and lower labour
costs; and a strong focus on customer service. A strong emphasis was also reported
on the realignment of the small business with its changing customer profile and
demand structures. This differentiation confirms the essential role of innovation in
entrepreneurial action, as discussed earlier in the study.
In summary, the study shows that major structural changes are prevalent in
township areas. Considerable income growth of inhabitants during the past decade
Entrepreneurship and small business sustainability
149
has created large untapped emerging markets effectively explored by property
developers and ultimately the opening of national chains and franchise businesses in
new malls. These new shopping mall developments have created heightened levels of
competition for the small business fraternity that dominated the business scene before
the erection of the new malls. Longitudinal trends show a gradual decline in the
number of small businesses as a result of the increased competition. It was noted that
small businesses of similar business type and within similar sectors reported severe
negative impacts, while others recorded minimal or even positive effects from mall
development. By modelling the business population into two subpopulations (namely,
those still operating and those that closed down), it was possible to identify predictors
for survival through a categorical regression model. Entrepreneurial action, linked to
sound business management skills, was identified as a positive discriminatory factor
for business survival. The ability to adjust one’s business model to adapt to changed
economic circumstances is an important characteristic of entrepreneurial conduct that
ultimately dictates survival in increasingly competitive economic environments. The
latter finding confirms the differentiation in entrepreneurial quality in developing
societies, ranging from productive entrepreneurs, who are ingenious and creative in
finding ways to add to their own and society’s wealth, and necessity/unproductive
entrepreneurs, forced into informal/survivalist self-employment (in other words,
nonproductive) entrepreneurs, who lack survival abilities in increasingly competitive
market conditions.
Conclusion
1As already indicated, there is a growing realisation that small business sustainability
has been associated with many factors, including the effect of policy measures directed
at the small business sector, and macroeconomic, industry and firm-specific factors
(Dockel & Ligthelm 2005). However, it must be acknowledged that economic theory
has been of little help in explaining the reality of business formation, growth and
decline (Wennekers & Thurik 1999). One must largely agree with the assessment that
the internal dynamics of the growth of small businesses have remained something of
a ‘black box’ (Freel 2000: 321).
A number of analyses of small business sustainability and growth are descriptive,
while others are more quantitative. Most of the quantitative studies focus on
identifying the characteristics of growth in businesses. Freel (2000) argues that
research that only enumerates frequencies and is capable of asking only ‘what’ and
‘how many’ questions, while neglecting the ‘why’ and ‘how’ questions of small
business sustainability and growth, offers less rich explanations of the process
A.A. Ligthelm
150
driving small business survival and growth. After analysing the literature on business
sustainability, Morrison, Breen and Shameen (2003: 418) synthesise the literature
by proposing a framework for identifying small business sustainability and growth
factors and their characteristics. They confirm the finding in the discussion earlier in
the study that the human factor constitutes the overwhelming force that determines
whether or not a business will survive and prosper. They propose that small business
success is based on clear, positively motivated business intentions and actions on the
part of the owner/manager to achieve the desired outcome. The picture emerging
from the analysis in this study supports this finding and highlights entrepreneurial
behaviour as the key predictor of small business sustainability. At the other end of the
scale, a large number of business entrants in developing societies are not entrepreneurs
by choice and are only rent-seekers awaiting employment opportunities in a growing
economy with increasing numbers of wage employment. These businesses will
remain survivalists or eventually close down.
This finding also informs strategies aimed at supporting small business
development, especially in developing societies. Limited financial and other
resources available at traditional small-business support institutions preclude the
possibility of spreading policy initiatives broadly to include the entire small business
sector. The focus should be on the small percentage of businesses with embedded
entrepreneurial acumen and hence the inherent dynamics to perceive and create
new economic opportunities such as new products, new production methods, new
organisational methods and new product : market combinations (Wennekers &
Thurik 1999: 46). Governments and international development agencies often wish
to promote informal small entrepreneurs to grow and eventually ‘graduate’ to become
formal, larger businesses (Naude 2009: 4). Schramm (2004) finds that most often
these policies do not work due to the fact that the motivation of informal/necessity
entrepreneurs is not growth, but survival (Berner et al. 2008: 1). The analysis in this
study confirms that the human factor, and particularly, the business’s entrepreneurial
endowment and motivation, largely dictate its survival and growth potential. Small
businesses exhibiting entrepreneurship should be the focus of small business support
strategies. Entrepreneurship in its strongest and purest form is at the level of small
and medium-sized enterprises, where individualism, self-reliance and risk-taking are
particularly prominent (CDE 2004: 11).
Entrepreneurship and small business sustainability
151
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