Growth effects of human capital and innovation in small and medium sized South African firms before and after the Covid-19 pandemic

Abstract

This thesis examines the growth of small and medium-sized enterprises (SMEs) in South Africa before and after the COVID-19 pandemic. The COVID-19 pandemic introduced new challenges, which makes this research relevant for contemporary issues in firm growth. The problem addressed in this study was the need to understand how various factors, such as human capital, innovation, entrepreneurial orientation and motivation, affect SME growth. Previous research has focused mainly on organisational-level determinants without considering how these factors interact in a post-COVID-19 context. This gap is particularly relevant in South Africa, where SMEs face high failure rates despite efforts to support entrepreneurship. The study filled this gap by exploring the specific growth dynamics of SMEs in this contemporary and challenging context. Several key research questions guided the study and aimed to achieve two main objectives. The study used a two-phase methodology. First (Phase 1), it systematically reviewed the literature to synthesise knowledge on human capital, innovation, and firm growth before the COVID-19 pandemic. The systematic literature review analysed 206 articles published between 2000 and 2020 using descriptive statistics, bibliometric analysis, and content analysis to synthesise pre-pandemic research. Secondly (Phase 2), it developed and tested a theoretical model to understand the relationship between human capital, innovation, entrepreneurial orientation, motivation and SME growth in South Africa post- pandemic. In this phase, primary data was collected using a structured questionnaire with 497 responses from small firm owner-managers and analysed using Smart PLS (version 3.2.9). This research adopted a positivist philosophy, focussing on empirical patterns and causal relationships. Key findings indicated that innovation mediates the relationships between entrepreneurial orientation, human capital, and the growth of SMEs. Human capital has a direct impact on firm growth in the post-pandemic context. At the same time, motivation significantly mediated the link between entrepreneurial orientation and growth, though its effect on the human capital-growth relationship was less pronounced. This study advances knowledge by providing a detailed analysis of SME growth determinants in a post-pandemic context, offering a customised theoretical model for South African SMEs. This study also has practical implications, providing insight for SMEs and policymakers to enhance innovation capabilities and adapt strategies to post-pandemic challenges. Future research could explore the long-term ii impacts of COVID-19 on firm growth, the role of additional contextual variables, and comparative studies in different regions or sectors.