The impact of business incubation on post-incubation performance of small and medium enterprises in South Africa

Mokgoko, Moroka Luntu
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ABSTRACT Unemployment is a serious and widespread problem in South Africa. Small and medium enterprises (SMEs) have been identified as having a vital role to play in the fight against unemployment in the country. The high failure rate of small and medium enterprises (SMEs) in South Africa, particularly during the first year of their incubation, is therefore of great concern. Business failure is caused by various market failures. Business incubators exist to help SMEs overcome market failures and reach their economic potential. Policymakers inform their business incubator resource allocation decision-making based on SME performance data produced during incubation. Evidence in literature suggests that post-incubation data may better inform their perspectives. This study seeks to identify the post-incubation impact that business incubators have on job creation, survival and sales performance of graduate SMEs. This is done with a view to informing decision making of policymakers. The data for the study was collected through an online survey administered to 119 graduates from the SAB Kickstart programme’s classes of 2012 and 2013. From the findings of the study, the author was able to determine that over 68 percent of the business incubator graduate SMEs survived longer than 42 months. The respondents in the study meet the job creation expectations of the majority of youth entrepreneurs in South Africa. Sales turnover distributions of graduates improve postincubation. It is important to note that the results are a clear reflection of the theory of economic development through entrepreneurship. 68.75 percent of the graduate SMEs survived longer than 42 months. Based on the theory, this would have a positive knock-on effect of increased job creation and an improved tax base. The data presented shows an improved level of average job creation rates and a positive change in the distribution of turnover/sales over time. We can conclude that not only are business incubators effective in helping SMEs fulfil their economic potential, but also using post-incubation performance data of small and medium enterprises (SMEs) is a reliable source of information which can inform policymakers in their decision making.
MBA 2015
business incubators, economic development, new business enterprise, small business