Demarcations of the Growth Affecting Factors between the Low Growth and High Growth SMEs: A Sri Lankan Perspective

Abstract

Small and medium scale entrepreneurs are vital for the economic development of any country. High failure rate and low survival rate of SMEs obstruct to this expectation, especially among developing countries. Past studies have identified the growth affecting factors for SMEs as internal and external factors without demarcation between high-growth and low-growth SMEs. Studying the distinctiveness of the growth affecting factors between low-growth and high-growth SMEs would be useful to develop a customized mechanism for treating separately for the needful SMEs. This paper aims to reveal the demarcations of the growth affecting factors between the low-growth and high-growth SMEs by selecting a sample of SMEs in the Southern Province of Sri Lanka. Two hypotheses were formulated based on the existing research gaps. Independent Sample T-Test and Mean Importance Index method was applied to test the hypotheses. Comparison between the high-growth and low-growth SMEs revealed that significant difference is there in the impact of internal factors on the business growth between the low-growth and high-growth SMEs and no such a significant difference exists in the impact of external factors on the business growth. This implies that growth affecting factors internal to the firm differently effect on the business growth of high-growth and low-growth SMEs while factors external to the firm affect equally to both types of SMEs. As per the mean important indexes, owner-manager capabilities including growth orientation, risk-taking ability, innovation and networking ability affect highly on their business growth of highgrowth SMEs meanwhile factors beyond the firm’s control including labour rules and regulations, poor market support systems and ineffectiveness of the BDS services affect highly on the low growth of their firms. The high cost of financing affects highly for the growth in both categories.