The relationship between human capital variables and the growth of small, medium and micro enterprises operating in the Johannesburg inner city

Ramahlako, Sello
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The study examined one of the critical issues in South Africa - the role of human capital in Small Medium and Micro Enterprises (SMMEs). It adds to the existing theoretical and empirical studies in human capital theory. Human capital has long been acknowledged by scholars as playing a significant role in the productivity of individuals. Based on various studies, it has now gained increasing traction as the most influential factor that largely influences the growth of firms. Human capital is broad with varied definitions, which might leave even the most accomplished scholar confused. Depending on the context, some scholars attribute human capital specifically with education, whereas in other instances, other scholars associate it with the establishment of firms for the economic development of a nation (Mincer, 1996; Texeira, 2002). The main thrust of this study was to establish whether there is a positive relationship between human capital components, namely, knowledge, and education and work experience (independent variables) with firm growth (dependent variable). More important, the study sought to offer insight into the perceived significance of the relationship between these specific human capital elements and firm growth as delineated in the literature review. This study was motivated by the high failure rate of SMMEs, their staying power and slow growth as major concerns for a country faced with high unemployment, job losses, poverty and crime with an economy almost in recession. The study used quantitative methods to gather data, as shown in the research methodology chapter. Hypotheses were tested using descriptive statistics. Firstly, the study hypothesised that an entrepreneur’s knowledge has a positive relationship with firm growth (H1). Secondly, the study hypothesised that an entrepreneur’s level of education has a positive relationship with firm growth (H2). Extant literature has long confirmed the important links between education, venture creation and firm performance (Raposo & Paco, 2011). Thirdly, the study hypothesised that an entrepreneur’s work experience has a positive relationship with firm growth (H3). Unger, Rauch, Frese and Rosenbausch (2011), who argued that most entrepreneurs have significant years of previous experience before becoming entrepreneurs themselves, provide a similar assertion. The perceived importance of human capital in stimulating firm growth was examined and the results showed no significant relationship between knowledge, education, work experience and firm growth. However, a significant positive relationship exists between the three independent variables. The study was basic as it only focused on the perceived positive correlation of three elements of human capital, rather than dealing with each variable, as outlined in various strands of entrepreneurship theory.
A research report submitted in partial fulfilment of the requirements for the degree of Master of Management in Entrepreneurship and New Venture Creation to the faculty of Commerce, Law and Management, Wits Business School, University of the Witwatersrand, Johannesburg, 2020