Small Medium Enterprise (SME)’s Competitiveness within a volatile regulatory environment in South Africa Gift Shai WITS Business School Thesis presented in partial fulfilment for the degree of Master of Business Administration to the Faculty of Commerce, Law, and Management, University of the Witwatersrand March 2021 ii DECLARATION I, Gift Shai, declare that this research report entitled ‘Small Medium Enterprise (SME)’s Competitiveness within a volatile regulatory environment in South Africa’ is my own unaided work. I have acknowledged, attributed, and referenced all ideas sourced elsewhere. I am hereby submitting it in partial fulfilment of the requirements of the degree of Master of Business Administration at the University of the Witwatersrand, Johannesburg. I have not submitted this report before for any other degree or examination to any other institution. Gift Shai Signed at Johannesburg on 31st March 2021 Name of candidate Gift Tshifhiwa Shai Student number 9606409w Telephone numbers 082 308 7929 Email address Gifts.7929@yahoo.com First year of registration 2017 Date of proposal submission 30 November 2020 Date of report submission 31 March 2021 Name of supervisor Leeford Ameyibor and Kambidima Wotela iii ABSTRACT Author: Gift Shai Supervisor Leeford Ameyibor Thesis title: Small Medium Enterprise (SME)’s Competitiveness within a volatile regulatory environment in South Africa SMEs have been established as the driving force for developing the South African economy and the main source of competitive advantage. They are recognized as agents of industrial change and innovation; they are also seen as an important vehicle for employment creation and economic development. On the other hand, we have a regulatory environment that is volatile and, as a result, poses challenges to the competitiveness of the SMEs in South Africa. This study is an attempt to determine the level of competitiveness of the SME within the emerging markets as well as how SMEs can monitor their external environment. In addition to that, this study establishes the coping mechanisms of the SMEs and suggests ways to enhance their competitiveness. A case study qualitative strategy was adopted for this study which allowed research to get in-depth understanding about the case. Semi-structured interviews were conducted in which 8 formal SMEs with more than 3 years in existence were targeted. The findings reveal that SMEs need to have research and development measures in place which will enable their organisation to know what is happening around them, which coupled with information technology, can enable them to plan for all anticipated changes. This, in consequence, will help them build their capabilities in a way that it will give them a competitive advantage. It is also of paramount importance for SME to have a Quality Management System consisting of policies and procedures in place that will guide the crafted strategies. Strategies coupled with information gathered from research and development and relevant training initiatives can be put in place. Adaptation to change mechanisms can also be forged that will make the SME sustainable and perform better even under volatile environmental conditions. Lastly, governance within the SME plays a vital role in enhancing competitiveness. Good governance creates an organizational culture that keeps employees motivated, reduces workforce fluctuations and increases value for all the stakeholders, both internal and external. Johannesburg, March 2021 iv TABLE OF CONTENTS DECLARATION ........................................................................................................................................ ii Abstract iii Table of contents ........................................................................................................................................ iv List of tables vi List of figures vii ACKNOWLEDGEMENTS ..................................................................................................................viii Definition of key terms and concepts ..................................................................................................... ix 1 Introduction to the research ...........................................................................................................10 1.1 Background and context ......................................................................................................10 1.1.1 SME’s competitiveness amd the South African Regulatory Environment ............................................................................. 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Bookmark not defined. 1.2 Research conceptualisation ..................................................................................................12 1.2.1 The research problem statement .........................................................................12 1.2.2 The research purpose (aim and objectives) statement .....................................14 1.2.3 The research questions ..........................................................................................14 1.3 Delimitations and assumptions of the research study .....................................................15 1.4 Significance of the research study ......................................................................................16 1.5 Preface to the research report .............................................................................................16 2 Literature review ...............................................................................................................................17 2.1 Research problem analysis [Symptoms, root causes, and consequences of SMEs in South Africa not being competitive] ..................................................................................17 2.2 Research knowledge gap analysis [Methods, data, findings, and conclusions of studies on SMEs in South Africa not being competitive] ..............................................23 2.3 Qualitative attributes key to the research ..........................................................................29 2.4 Framework for interpreting research findings: Stakeholder’s Theory .........................32 2.5 Summary and conclusion .....................................................................................................35 2.5.1 Summary of literature reviewed ...........................................................................35 2.5.2 Proposed research strategy, design, procedure and methods arising from the literature reviewed ..................................................................................................36 3 Research strategy, design, procedure and methods .....................................................................37 3.1 Research strategy ...................................................................................................................37 3.2 Research design .....................................................................................................................39 3.3 Research procedure and methods ......................................................................................41 3.3.1 Research data and information collection instrument......................................41 3.3.2 Research target population and selection of respondents ...............................45 3.3.3 Ethical considerations when collecting research data ......................................49 3.3.4 Research data and information collection process ...........................................51 3.3.5 Research data and information processing and analysis ..................................53 3.3.6 Description of the research respondents............................................................58 3.4 Research strengthens—reliability and validity measures applied ..................................58 3.5 Research weaknesses—technical and administrative limitations...................................61 4 Presentation of research results ......................................................................................................62 4.1 Determining the level of competitiveness of the SME within emerging markets ......63 v 4.2 Small Medium Enterprises monitoring their external environment .............................68 4.3 Coping mechanisms of the SME in a volatile regulatory environment........................72 5 Discussion of research findings ......................................................................................................77 5.1 Introduction ...........................................................................................................................77 5.2 Brief Contextual Background ..............................................................................................77 5.3 The significance of Research and Development on Competitiveness .........................78 5.4 The IT Preparedness of a SME ..........................................................................................80 5.5 The Significance of a Good Strategy .................................................................................82 5.6 The role that the Governance play in a SME ...................................................................86 5.7 Conclusion .............................................................................................................................89 6 Summary, conclusions, limitations, and recommendations .......................................................91 6.1 Summary .................................................................................................................................91 6.2 Conclusions ............................................................................................................................91 6.3 Limitations .............................................................................................................................94 6.4 Suggestions for Further Research.......................................................................................95 7 References Error! 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Appendices 101 Appendix 1.1: Data collection instrument(s) ................................................................................... 102 Appendix 2.1: One-page bio of the researcher including declaration of interest in the research and funders, if any ..................................................................................................... 103 Appendix 2.2: Ethic documentation .................................................................................................. 104 Appendix 3.1: Dully filled in data collection instrument(s) ............................................................ 105 Appendix 3.2: Thematic Analysis of the Interview Information ................................................... 181 vi LIST OF TABLES Table 1: Definition of small business by number of employees, turnover and assets Table 2: Similarities and Differences of Quantitative and Qualitative Research Approaches vii LIST OF FIGURES FIGURE 1: Growth rate trends of SMEs in South Africa, 2007 – 2019 FIGURE 2: Problem Tree: Symptoms, Root Causes and Consequences of why SMEs are not competitive in South Africa viii ACKNOWLEDGEMENTS I would start by giving thanks to the God almighty for the opportunity and strength to complete this research. There were times my memory and concentration were dropping so much and I was feeling anxious, but through prayer I gained power and managed to complete it. My earnest gratitude goes also to my supervisor Leeford Ameyibor for his time, guidance and motivation who responded on time, give me undivided attention, constructive and expert guidance that contributed so much to the completion of this report. Not forgetting my lovely family that supported me throughout the time I was completing the research. Their prayers, patience and the fact that they believed so much in me, made me to want to do the best all the time. As the Managing Director of a small medium enterprise, my absence at work was felt, especially at the time we were facing COVID 19 that had a life changing impact on our lives. I appreciate the support they gave me; the initiatives they took to ensure we were onboard while I was doing the research. ix DEFINITION OF KEY TERMS AND CONCEPTS Key words: SME, South Africa, Competitiveness, regulatory environment Definitions: SME SME means different things in different countries and in different sectors. So, for the purpose of this report, SME is defined according to the number of employees, turnover and assets as used in the National Small Business Act (1996). Regulatory Environment This study adopts OECD’S definition of regulatory environment. According to OECD (1994), regulation is defined as: “…A set of incentives established either by the legislature, Government or public administration that mandates or prohibits actions of citizens and enterprises. Regulations are supported by the explicit threat of punishment for non-compliance.” While OECD (1997) report declare that “regulation can be said to generally refer to policies where the government acts as a referee to oversee market activity and the behaviour of private actors in the economy”. The regulatory environment is therefore the set of standards, taxes and laws or regulations that businesses must conform to. Competitiveness This study adopts Porter’s (1990) conceptualisation of competitiveness. According to Porter (1990) organisational competitiveness is defined as the capability of the firm to entice and maintain activeness that grow the competing outlook for future which concur with scholars like Singh, Gard and Desmukh (2007), they claim competitiveness can be defined as “its ability to sustain its long-term performance better than its competitors in the market”. On the other hand, Zelga (2017) argues that competitiveness of a company must be characterized by internal capability and flexibility, its ability to adapt to changing operating conditions and obtain specific benefits from this process. 10 1 INTRODUCTION TO THE RESEARCH 1.1 Background and context Broadly, this research investigates the SMEs’ competitiveness within a volatile regulatory environment in South Africa However, before delving into research conceptualisation (Section 1.2), it is pertinent to provide a general introduction to the terms and concepts that we have used in this research (Section 1.1). While the research conceptualisation section provides the research problem statement (Section 1.2.1), it is followed closely with the purpose of the research (Section 1.2.2) and the research questions (Section 1.2.3). The delimitations and assumptions of the research study are highlighted in Section 1.3 while the significance of the research is delineated in Section 1.4, followed with a preface to the research report in Section 1.5. Chapter 2 contains a more specific and detailed discussion on the research context. 1.1.1 Profile of a Small Medium Enterprise in South Africa In comparison to peer economies, South African’s SMEs accounts for a small proportion of the country’s economy. A Small Business Institute (SBI) (2019) study shows that formal SMEs in South Africa contribute almost 98.5% of the total number of formal enterprises in the economy while their employment is around 28% of total formal jobs. The study by Nieuwenhuizen (2019) shows that in 2008 South Africa had around 2.18 milliom SMEs which grew to 2.25 million in 2015 while Small Enterprise Development Agency indicates that in quarter one of 2019 there were 2.55 million SMEs. The bulk of SMEs operate within the wholesale and retail industry (30%), community and social services industry (23%), finacial industry (14%) and construction (11%) (Bhorat, et al., 2018). Informal SME are categorised as own account enterprises while formal as employment-creating enterprises of which 87% of employers operate in the informal scetor, and 69% in the formal sector (Bhorat et al., 2018). Despite the fact that the SME’s are increasing in numbers, the rate of their growth is not commensurate with the national economic growth (Small Enterprise Development Agency, 2016). 1.1.2 SME’s Competitiveness and the South African Regulatory Enviornment If South African SMEs want to grow at the rate at which the nation’s economy is growing, if they want to meet the vision of the Government which, accroding to the National Development Plan, projects that 90% new jobs will be created by SMEs by 11 2030, then they will need to become more competitive. Competitiveness of firms has become of paramount concern to a great extend due to the open and unified global economy. SMEs are considered incubators of innovation, employment and growth which in turn are imperative for advancing economic growth, poverty alleviation and job creation (Wolmarans, 2015). Yet we have 70% of the SMEs in South Africa that fail within the first 5 – 7 years of inception while their success and failure are extremely important among national strategic priorities in the wake of many economic hardships (vital to economic success) (Bushe, 2019). It is for this reasons that this study looks into the competitiveness of the SMEs in South Africa. The regulatory environment as according to the definition above, pertain to environmental policy, employment legislation, fiscal and tax issues (Poutziouris & Chittended, 2003). Regulations are established to guide and regulate the behaviour of certain groups or individuals, which in turn establish a controlled environment. It is therefore of paramount importance that there are regulations in place as they influence sector and organisational performance (Aryeetey & Ahene, 2005). On the other hand, excessive regulations and changing regulatory environment occasionally are one of the barriers to the survival and growth of SMEs (Khan, Raziq, & Ghouri, 2019). Tambe, (2019) is also of the view that the regulatory environment has negative impact on the growth and competitiveness of the SME, while it is much needed to attain social and economic goals valuable to the country at large. That being said, the regulatory environment and restrictive legislation have been idenfied as the most important constraint to SME growth (Nieuwenhuizen, 2019). In fact, Bhorat et al., (2018) argues that those regulations impose explicit costs and are time-consuming. Zwane (2009) also concedes that the costs of regulatory compliance constitute a bigger volume of the SME’s revenue. All these challenges, in turn, sabotage the ability to create jobs and maximise profit and further expose SMEs to the vulnerability of litigation. Trade and Industrial Policy Strategies (TIPS) was contracted by the government in 2017 to find ways of alleviating regulatory burden on SMEs. Their study mentions that the regulatory framework continues to impose unnecessary and often inappropriate strain on SMEs. 12 1.2 Research conceptualisation 1.2.1 The research problem statement SMEs are recognized as agents of industrial change, an important vehicle for employment creation and economic growth (Poutziouris & Chittended, 2003). Research conducted by Olawale and Garwe (2010) indicates that South African government considers SMEs as a significant component of the solution to South African’s development issue and, as a result, contributions made by the SMEs cannot be ignored. Also, according to Olawale and Garwe (2010), South African SMEs contribute 56% of private sector employment, 36% of the gross domestic product. The report by Nair (2020) also shows that as of 2019, SMEs in South Africa represent more than 90% of all enterprises in South Africa and they contribute around 20% to GDP and account for 30% of jobs. From the foregoing, we can see that SMEs have the capacity to compete in the business environment and become sustainable and profitable which, in consequence, can create jobs and intensify competition. The challenge for SMEs to survive in the 21st century is global competitiveness (Ocloo, Akaba, & Worwui-Brown, 2014). Not only must the SMEs compete for the market in South Africa, they do not have an option but to compete in global markets. Kadocsa (2006) indicates that even though the market environment is typified by global competition, consumers need to be afforded with services of a perceived quality and trustworthy and constant products. It is therefore essential that all SMEs prepare, react and conform to the global competitive environment. The factors that hinder the competitiveness of the SMEs and thus contributing to the failure of the SMEs can be categorised into internal and external factors (Wolmarans, 2015). Regulatory environment is one of the external factors which present a critical and vital role in firm performance and cannot be controlled by the owner. The regulatory environment in South Africa is very volatile, it takes place in the form of labour laws, high taxes, corruption and red tape, which inflict costs on SMEs which in turn impact negatively on the SMEs performance and growth (Tambe, 2019). The study by (Adomako & Danso, 2014) also confirms that the volatile regulatory environment is negatively related to the SME’s competitiveness and thus resulting in the SMEs performing poorly. 13 Despite the concerted efforts by the South African government to stimulate SME growth over the years through different initiatives, the study by Nieuwenhuizen (2019) indicates that government regulations and policies, ironically, constituted a major inhibiting factor for, and key obstacle to, entrepreneurial activity due to excessive red tape, especially in the area of compliance. In the same vein, a report by Thulo (2019) also indicates that more than 53% of the SMEs in South Africa are complaining about the impact of red tape and government regulations which are restrictive on their businesses. A study by Herrington and Kew (2016) also shows how regulations inhibit the SME growth by 60%, while the study by Cant and Wiid (2013) indicates that it is inhibited by 80%. The study by Muriithi (2017) agrees that the red tape is one of the common causes of failure of the SMEs. Small, Medium Enterprises (SMEs) in South Africa has many definitions. The study by SBI (2019) identifies the lack of coherence in SME definition which, evidently, is inconsistent across 70 different laws, regulations and key government strategies. It further reveals that while formal SMEs contribute nearly 98% of the number of formal firms in the economy, they only account for 28% of the jobs. Another study done by Nair (2020) shows that SMEs account for 30% of jobs; it reveals that while SMEs represent more than 90% of all enterprises in South Africa, their failure rate is about 70% (Nair, 2020). SMEs also do not have the capacity of monitoring and adapting to the changing environment. The government is coming up with a lot of regulations, initiatives and support mechanisms yet they are not making necessary changes to improve the competitiveness of the SMEs in South Africa. In view of this, the research conducted by Phillips, Moos and Nieman (2014) indicates that although South Africa has shown an interest of developing entrepreneurship and small businesses, their efforts have failed. In the same breath, government regulations are required to accomplish a variety of economic and social goals which are constructive and profitable to the nation at large (Tambe, 2019). It is of this reason that the study seeks to study the competitiveness of the SMEs within a volatile regulatory environment as the SMEs are of fundamental importance to the growth and success of the South African economy. 14 1.2.2 The research purpose (aim and objectives) statement The most serious restraints to economic development peculiar to South Africa are unemployment, inequality and poverty (Phillips, Moos, & Nieman, 2014). South African government therefore has a task of focusing on how these problems can be addressed as this will stimulate economic growth and subsequently create wealth and jobs. Nair (2020) argued that SMEs are recognised as the propulsive force of the South African economy. In fact, president Cyril Ramaphosa once said, “the growth of our economy will be sustained by small business, as in the case of many countries” (SBI, 2019). Competitiveness of the SME is one of the main objectives that can be used to attain economic growth. The environment in which the SMEs operate is volatile and the regulatory framework is changing so fast that the growth and competitiveness of the SMEs are being significantly affected. Research conducted by Nieuwenhuizen (2019) also demonstrates that the regulatory environment, related legislation and compliance are recognised as primary inhibitors of SMEs' start-up and growth due to excessive red tape with regards to compliance in South Africa. The objectives of this research are: • To determine the levels of competitiveness of the SME within an emerging market • To explore how SMEs monitor the changes in their external environment especially the regulatory environment and related legislations. • To establish the coping mechanisms of the SMEs in a volatile regulatory environment To achieve the objectives mentioned above, the research will conduct a case study which will be done in two stages. The first stage shall focus on secondary research of the existing sources of information that is reliable and reputable, while the second stage will be an empirical study. The empirical study consists of interviews with the practitioners. The designed tool/questionnaire will have questions that will be asked in interviews. 1.2.3 The research questions 1.2.3.1 Question 1: How do practitioners determine the level of competitiveness of the SME within emerging markets? 15 1.2.3.2 Question 2: How do SMEs monitor their external environment? 1.2.3.3 Question 3: What are the coping mechanisms of the SME in a volatile regulatory environment? 1.3 Delimitations and assumptions of the research study It has been very clear from several studies that have been conducted that governments around the world are focusing their attention on promoting economic growth through developing the SMEs including South Africa (Adeniran & Johnston, 2012; Bhorat, et al., 2018; Olawale & Garwe, 2010; SEDA, 2016). Rogerson (2004), for instance, argues that it is through competitiveness of the SMEs that countries can achieve economic growth. In the same vein, the study by Olawale and Garwe, (2010) indicated 30 perceived obstacles to the growth of SMEs in South Africa. Olawale and Garwe, (2010) classified these obstacles into five components which include the financial, economic, market, management and infrastructural obstacles. Also, Hendricks (2003) diagnosed five relevant challenges that South African SMEs face and they include regulatory framework, management training, educations opportunities and systems, cultural factors as well as societal views and perception. We also have a report commissioned by (SEDA, 2016) which outlines the challenges faced by SMEs in South Africa as access to finance and credit, poor infrastructure, onerous labour laws, low levels of research and development, high levels of crime, lack of access to markets, an inadequately educated workforce and inefficient government bureaucracy. Furthermore, Bhorat, Asmal, Lilenstein and Zee (2018) classified factors constraining SMEs in South Africa as either endogenous or exogenous obstacles. Endogenous obstacles consisted of lack of financial assets, human capital which covered education and training and exposure to entrepreneurial activity. Exogenous obstacles covered the constraints imposed by incumbents and market concentration as a compounding factor. Based on all the factors that have been highlighted, I chose to concentrate on the impact that regulations and legislations have on SMEs in South Africa for two reasons. The first reason being that I am an entrepreneur trying to grow and the biggest challenge my company is facing is the regulatory framework. This research will therefore enable my company to understand the ways to become competitive in the volatile regulatory environment. The second reason is that the regulatory environment and related legislation have been diagnosed as 16 the primary obstacle of SME starting up and those growing to be competitive (Nieuwenhuizen, 2019). The Global Entrepreneurship Monitor (GEM) (2014), South African report, and World Economic Forum (WEF) 2014/2015 Global Competitiveness Report, indexed inefficient government bureaucracy in South Africa as one of the main barriers to entrepreneurial and business activity. 1.4 Significance of the research study Several authors have alluded to the issues pertaining to the constraints on growth, sustainability and performance of the SMEs in South Africa (see: Bhorat et al., 2018; Nieuwenhuizen, 2019; Olawale & Garwe, 2010; Phillips, Moos, & Nieman, 2014; Zwane, 2009). As much as all the constraints were identified with suggestions to solutions, there is also extensive research that looked at how the success and sustainability of the South African SME’s can be catalysed (Adeniran & Johnston, 2012; Nair, 2020; SBI, 2019). The latest research conducted by Nair (2020) indicates that about 70% of the SMEs fail within their first two years of operations, while the research by Nieuwenhuizen (2019) reveals that less SMEs are set up, current ones cannot expand, many do become formal but are unable to survive, resulting in a tragic decrease in employment in SMEs. With the regulatory environment being identified as the main inhibitor for business start-up and growth, if it is not addressed the South Africa economy will cripple and that will affect government performance negatively (Bhorat et al., 2018). Direct issues like unemployment, economic growth and inequality will persist while indirect issues like poverty, crime and poor education which increase shortage of scarce and critical skills, will impact the South African economic development initiatives, and thus affecting inflation and GDP of the country negatively. 1.5 Preface to the research report To this end, the report has six chapters. Following this introductory chapter, Chapter 2 provides a literature review covering the problem, the past studies, the explanatory framework and the conceptual framework. Chapter 3 discusses the research strategy, design, procedures, reliability and validity measures as well as limitations. Chapter 4 and Chapter 5 present and discuss the findings, respectively while Chapter 6 summarises and concludes the research. 17 2 LITERATURE REVIEW This chapter has three broad objectives; namely to understand the research problem, to identify the knowledge gap, and to develop a framework for interpreting the research findings. Specifically, in Section 2.1, we detail the research problem. In Section 2.2, we review literature on studies that have attempted a similar study or research. With information arising from Section 2.2, we identify and detail qualitative attributes or quantitative variables that are key to this research in Section 2.3 as well as a framework that we will use to interpret our research findings in Section 2.4. 2.1 Research problem analysis [Symptoms, root causes, and consequences of SMEs in South Africa not being competitive] From the problem statement it is clear that the Government has put a lot of initiatives in place to stimulate the growth of the SMEs in South Africa. The Annual Review of Small Business in South Africa from 2007 till 2014 revealed that South Africa currently has an estimated total of 214 supporting services which provide support to private and public small business sector. Despite the efforts that have been put in place by the Government, the SMEs competitiveness in South Africa is still low compared to its peers around the world because they are not growing at the rate at which the economy is growing (SEDA, 2016). The report by SEDA (2016) revealed that from 2008 till 2015, the growth in the number of SMEs was lower than the economic growth rate. As highlighted in various reports, regulations and policies are the major inhibiting factors to entrepreneurial activity (Nieuwenhuizen, 2019). A report by Thulo (2019) also highlights that more than 53% of the SMEs in South Africa are complaining about the impact of red tape and government regulations which are restrictive on their businesses. The study by Herrington and Kew (2016) shows that regulations inhibit the SME growth by 60%, while the study by Cant and Wiid (2013) indicates that SME growth is inhibited by 80%. Also, the study by Muriithi (2017) agrees that the red tape is one of the common causes of failure of the SMEs. To show that the government is also aware of the burdensome regulations and policies affecting the growth of the SMEs, the Department of Performance, Monitoring and Evaluation in collaboration with Department of Small Business Development (DSBD) requested Trade and Industrial Policy Strategies to conduct a study on the national regulatory burdens on small 18 business with the main aim of “identify practical and viable ways to reduce the effective costs of legislation and regulations for small businesses” (TIPS, 2017). It is therefore safe to say SMEs are not competitive and therefore not growing in South Africa due to the volatile regulatory environment. Figure 1 below displays growth rate trend of small businesses over a period of twelve years, i.e. 2007 to 2019. The Small Enterprise Development Agency (SEDA) and the Company and Intellectual Property Commission (CIPC) conducted a study in 2013 which revealed that from 2007 to 2010 the average growth rate of SMEs was 17.8% and from 2010 to 2013 it declined to 11.4%. SEDA report indicated that there are 2,55 million SMEs in operation in Quarter 1 of 2019. Measuring the average growth for the next six years, from 2013 to 2019 it declined by 9,4%. The annual review of small businesses in South Africa 2007 – 2014 reported that there are low margins of improvement in entrepreneurs taking part in the South African economy since 2005. Looking also into the lifespan of the SMEs, the annual review of small busineses in South Africa report by Department of Small Business Development (2014) indicates that most SMEs survive up to three years of operation of which SEDA (2016) concurs that the majority of the the SMEs last for an average of less than 3,5 years. Nair (2020) also argues that most SMEs fail in a period of their first two years of operation. The study by Olawale & Garwe (2010) also points out that most new SMEs in South Africa do not progress from the first phase of existence to other phases like survival, success, take off and resource maturity while Nieuwenhuizen (2019) concurs that while less SMEs are established, current ones are not growing and a lot do become formal but fail to survive. Based on the reseracrh done overtime, the lifespan of the SME is getting lesser and lesser in South Africa. Figure 2 below is showing a problem tree which indicates the symptom, root causes and consequences of the SMEs not being competitive in South Africa. The main problem this study is seeking to address is that South African SMEs are not competetive due to various factors that have been mentioned in the delimination and assumption of this study, under section 1.3. This study will only focus on the symptom of the constraints to the SME’s performance caused by the regulatory enviroment and thus making them uncompetitive. 19 FIGURE 1: Growth rate trends of SMEs in South Africa, 2007 – 2019 512 518 837 132 1 155 854 2 343 058 2 653 424 0 500 000 1 000 000 1 500 000 2 000 000 2 500 000 3 000 000 Year 2007 Year 2010 Year 2013 Year 2016 Year 2019 Average Growth Rate Average Growth Rate Source: (Annual Review of small businesses in South Africa 2007 - 2014) 20 CONSEQUENCES SMME’s in South Africa are not competitive due to the constraints caused by the Compliance to different regulations is time consuming Cost of Compliance Red tape in getting permits end certificates Increased cost of labour Lack Of Skills Outsourcing the functions of compliance to regulations and law No Internal Capacity Government Bureaucracy SMME fail and close down Poor Profitability in the SMME Inequality Increases Government is perceived to be failing Innovation levels drop down Unemployment Increases Negative Impact on economic growth or development Low Investor Confidence Poverty Crime Negative impact on social development therefore poverty FIGURE 2: Problem Tree: Symptoms, Root Causes and Consequences of why SMEs are not competitive in South Africa CONSEQUENCES ROOT CAUSES Source: (Authors construction, 2020) 21 Root Causes A study by Nieuwenhuizen (2019) indicates that most times when SMEs do not have employees or capacity to attend to compliance with regulatory requirements, they outsource and that can be very expensive and onerous. For example, Pioneers Skills Development Institute is accredited with different Sector Education and Training Authority (SETA) and according to the regulations for accreditation by SETAs, the accreditation status has to be renewed every three years. There is a lot of requirements for accreditation. Just to mention a few, for an SME to be accredited, SETA will require a letter of good standing with COIDA and UIF, an SME must have an public liability insurance, an office that is operational and must be able to design a quality management system which has all policies and procedures that will show how an organisation will run all its departments. All employees within the organisation must have clear contract that meet labour laws, outlining clear job decriptions and staff development plan. As mentioned earlier, most SMEs do not have the skills and/or internal capacity to fulfill all these requirements, so they resort to outsourcing the functions which is expensive. On the otherhand, a small business that is trying to survive, will try to work on the processes on their own. It becomes a tedious and tiring process because firstly it takes time to work on something that you are not fimiliar with, secondly addressing the shortcoming that will be identified on your application by SETA takes effort, time and money. The small business growth index found that red tape for firms employing less than 50 employees can account for between 4% and 8% of turnover. The study reported that enterprises spend on average 75 hours a month delaing with red tape, or an equivalent of eight working days (DSBD, 2014). Small Business Project (SBP) estimated that total tax compliance cost for formal firms amounted to R20 billions in 2004 (TIPS, 2017). We have government bureaucracy which is claimed as another root cause for SMEs’ lack of competitiveness. While SEDA (2016) claims that Government bueacracy is one of the major obstacles to enterpreneurial and business activity in South Africa, Bhorat, et al, (2018) agrees that firms in SA face constraints in their dealings with government officials and departments. The survey conducted by GEM in 2016 reveals that as much as South Africa has good infrastructure and excellent banking system, government bureaucracy is still a contraint to new businesses. South Africa was ranked 47th of 138 countries in the Global Competitiveness Report due to inefficent government 22 bureaucarcy, which was indicated as the most problemetic factor for doing business in the country, followed by restrictive regulations (Schwab, 2017). Consequences When the SMEs are not competitive because of the root causes discussed above, we see the following consequences: There is poor profitability in the SMEs and eventually SMEs fail and close down. The studies conducted around 2011 by Fatoki and Smit, and another in 2003 by Van Feden et al, showed that “South African SMEs fail at a rate of between 70 and 80%”. The study by Olawale and Garwe (2010) mentions that the failure rate of SMEs in South Africa is at 75%, which is higher than most countries in the world and Nair (2020) also concedes that the failure rate of the SMEs in South Africa is seriously high at 70%. • When SMEs fail and close down, people loose their jobs and unemployment increases. When unemployment increases, we have crime and poverty. SMEs in South Africa are affected by the high level of crime. In the 2015 economic survey of South Africa, the OECD found out that high crime was forcing SMEs to increase security spending. Increased spending on security has a ripple effect on the overall cost of doing business. GEM (2014) highlights the business cost of crime and violence as one of the key drags on investment confidence in South Africa. South Africa struggles with an alarming high national unemployment rate of 25% which is partly exacerbated by a chronic shortage of skilled labour (SEDA, 2016). Innovations levels drops and that ultimately affcets the company’s growth impacted negatively. In essence, when SMEs are continually innovative, they grow and accomplish and keep up their competitive advantage (Adeniran & Johnston, 2012). When the Government is perceived as failing, the confidence of investors drops significantly. Low investor confidence has a negative impact on the economic growth and development of South Africa, and it eventually affects the social development and then leads to poverty. 23 2.2 Research knowledge gap analysis [Methods, data, findings, and conclusions of studies on SMEs in South Africa not being competitive] In order to achieve the objectives of the research, the literature review will look into a lot of studies that seek to understand what competitiveness is, how SME is defined, competitiveness and the regulatory burden to SMEs in South Africa, what has been done so far in terms of the regulatory burden and, lastly, how the SMEs themselves monitor the regulations and the changes thereof and what mechanisms they have in place to cope with the regulatory burdens or changes. What is Competitiveness According to the oxford dictionary, competitiveness means “the quality of being as good as or better than others of a comparable nature”. The competitiveness of an organisation can be defined as “its ability to sustain its long-term performance better than its competitors in the market” (Singh, Gard, & Deshmukh, 2007). Zelga (2017) argues that competitiveness of a company must be characterized by internal capability and flexibility, its ability to adapt to changing operating conditions and obtain specific benefits from this process. This study adopts Porter’s (1990) conceptualisation of competitiveness. According to Porter (1990) organisational competitiveness is defined as the capability of the firm to entice and maintain activeness that grow the competing outlook for future which concur with scholars highlighted above. Definition of SME Looking at different countries around the world –both developed countries and the ones that are still developing– how SMEs are defined, classified and supported seem quite irregular. In view of this, Storey (1994) notes there is no single uniformly acceptable definition of SME, while Hooi (2006) also mentions that there is no accepted worldwide definition of SMEs. In Malaysia, the definitions are solely based on a fixed quantitative measure which is the total number of workers, the total number of capitals, total assets and lately by determining sales turnover (Sarah, Arokiasamy, & Ismail, 2009). The Central Statistics Agency in Indonesia defines SME based on the quantity of labour which has a number of workers 5 to 19 people (Anggadwita & Mustafid, 2014). 24 According to Lee et al., (2005), in China, SMEs are organisations that have less than 250 employees. Venture Capital Trust Fund Act, 2004 (Act 680) in Ghana defines SME as an industry, project undertaking or economic activity whose total asset base (excluding land and building) does not exceed the cedi equivalent of 1 million US dollars in value (Hayford, 2012). Government Gazette of the Republic of South Africa (2003) defines a SME according to number of employees, the turnover and the balance sheet that a small enterprise has. SME is defined as having 1 – 49 employees, with a maximum turnover of R 13 million and balance sheet of R 5 million. In South Africa alone, the definition of SME is inconsistent across 70 different laws, regulations and key government strategies (SBI, 2019). The government’s failure to apply a common definition of what constitutes micro, small or medium business, has led to serious challenges which impact the performance of the SMEs. Similarly, according to the report by SBI (2019), the inconsistency of not having a common definition for SME has led to ambiguity, ever-multiplying red-tape challenges and less desirable support for entrepreneurs starting, running and growing their enterprises. There is also a challenge of accurate data on SMEs because if the definition is applied inconsistently, different results will be reported, which will show gaps in SME reporting, data tracking and scarcity of accurate SME information. This, in turn, makes analysing and measuring the success of intervention aimed at promoting and sustaining SME challenging in South Africa (Nair, 2020). The Annual Review of the SME in South Africa (2007 – 2014) made a recommendation to the government to improve the quality of SME data because it has an important bearing on policies and also because it is intensely difficult to determine accurate performance of the country’s SMEs. Quoting the words of the Chairman of SBI, Mr. Bernard Swanepoel, “right now, we are flying in the dark, it’s no surprise then that we can’t seem to make headway tackling unemployment and inclusive economic recovery and growth if we’re relying on guesswork. No matter how good government’s intentions are, without the facts and policy to help, SMEs will be based on ideology or ignorance”. For the purpose of this research, the definition of small business will be defined according to number of employees, turnover and assets as used in the National Small Business Act (1996) which is indicated in the table below. 25 Table 1: Definition of small business by number of employees, turnover and assets Size Number of Employees (a) Turnover Assets(b) Medium 100 to 200 R 5 mn. - R 64 mn. R 3 mn. – R 23 mn. Small 50 R 3 mn. – R 32 mn. R 1mn. – R 6 mn. Very Small 10 R 0.5 mn. – R 6 mn. R 0.5 mn. – R 2 mn. Micro 5 R 0.2 mn. R 0.1 mn. Source: (Trade and Industrial Policy Strategies 2017) Competitiveness and Regulatory Burden on SMEs within South Africa The business regulatory environment is a fundamental key to develop entrepreneurship and national competitiveness, because economic activity does well when regulations are alive, accessible, coherently spoken, implementable and proficient (Khan, Raziq, & Ghouri, 2019). The Government has a very important role of ensuring that regulations empower SMEs to innovate and eventually transform into large internationally competitive firms. Furthermore, the Government must deal with inefficient, duplicative regulations that changes more than often because they lay an onerous administrative burden on the SMEs and the chance spent on administration is oftentimes lost to innovation (OECD, 1997). When a SME operate in a volatile regulatory environment, it is compelled to run with its limited resources for continuance in the short time frame and on the other hand sustain competitiveness in the long run (Ozsahin, 2019). Restraint due to competency and resources initiate the force that challenges SMEs to pursue exploration and exploitation concurrently, referred to as ambidexterity, and is recognised as a source of competitiveness by several researchers because of its ability to establish both current and future viability of those organizations (Ozsahin, 2019). We are in an era where technological breakthrough is growing and changing faster, speed is therefore a compelling impetus for the activities within the SME to be successful (OECD, 1997). The Government is then forced to become more regulatory and collaborative simultaneously (Davis, 2020). Performance and regulation are intimately linked and as a result how the sector is regulated can have ramifications to the way in which a SME give description to its performance. 26 What has been done so far in terms of dealing with the challenges created by regulatory environment Government policy on the development of the SMEs in South Africa was originally documented in the 1995 White Paper. A lot of research has been done to check the impact and progress that the government has made since 1995 to date. Most reports show that there has been growth in terms of the numbers of SMEs but the growth rate is rather declining over the years. We see the government has come with a lot of initiatives to support and empower the SMEs; currently in South Africa we have about 124 variety of support services (Department of Small Business Development, 2014). A large number of government departments are also involved in these initiatives with different mandates to assist the SMEs in South Africa (Zwane, 2009). Despite the number of initiatives, support structures and all government departments playing a role in supporting the SMEs, we see the regulatory burden still being one of the challenges amongst the SMEs, impacting the growth and sustainability and thus making them uncompetitive. In the GEM report 2015-2016 South Africa was scored 3.1 out of 9 in terms of supportive government policies, bureaucracy and taxes. We have the government appointing TIPS (2017) with the aim of identifying main focal points that were causing regulatory burdens and to come up with options of improvement. The study revealed that most informal SMEs are less impacted by regulatory environment like tax, company registration, BBBEE and most national laws, they are only constrained by labour laws. GEM SA report 2019/2020 indicates that South African government over the past two decades have come up with different programmes to promote entrepreneurship development, but the findings indicate that there has been a very low return on effort and investment done by the government. How SMEs monitor and cope with the regulatory environment As much as we have discussed that a lot of support programmes have been put in place in South Africa, SMEs are not aware of the support programmes that have been put in place. A report by Zwane (2009) looking at the support programmes and regulations that have been put in place by the government since 1997-2009, indicates that many SMEs still find it difficult to get the support they need because they are not aware of the programmes available to them. Also, the institutions providing these support programmes are not visible and accessible. Similarly, Phillips, Moos & Nieman (2014) stated that the government from 1995 to 2004 failed to get to SMEs because of 27 accessibility, lack of raising awareness of the existence of support initiatives, not meeting financial and non-financial needs of small business and mistrust of SMEs to external agencies. A research conducted by Bhorat et al, (2018) also concede with the fact that government programmes were not visible and accessible. It is highlighted in the SME Growth index (2013), that 81% of the SME owners did not partake in any government programme because they were not aware that the programme existed while other said they did not know who to contact. However, the GEM SA 2019/2020 report shows a different view of the accessibility and visibility of the government programmes. When it measures ways that have been put in place for the businesses to access the relevant information on government programmes to support SMEs, South Africa scored better than the past years. What this has brought to light is that entrepreneurs often fail to properly investigate the market to a certain extent; therefore, SMEs need to also take an initiative to search for information as entrepreneurship is about having the requisite personal attributes such as resilience and passion. Very few studies relate the failure of the country on developing the SMEs to the business itself. Very few studies point out the fact that some SMEs businesses do not take sustainable initiatives; rather, they put all the blame on the government for not doing what is appropriate. Knowledge Gap In most literature reviewed, empirical results show that the government has failed to reach out to SMEs because the support programmes are not accessible and visible enough. The slow growth of the SMEs coupled with the high failure rate, low performance and lack of sustainability (all factors which influence competitiveness), are all due to the government failing despite the support and continual investment in SME development and sustainability. Most of these researches focus on constraints facing SMEs in South Africa, leading to their failings. No research has indicated the initiatives or coping mechanisms that the SMEs do take to improve their performance, be sustainable and competitive, but they rather blame the whole issue of failure of the SMEs on the government. On the list of obstacles mentioned, SMEs mention issues related to government not giving enough support or imposing regulations and laws while on the other hand, government has not stopped giving support to SME, instead the support has grown and currently we have 124 support institutions in SA (Department of Small Business Development, 2014). I am of the view that the studies 28 should start looking at how SMEs themselves take initiatives and find coping mechanisms within this volatile regulatory environment and when this is coupled with the support that the government is providing, they will be competitive and sustainable. Section 2.1, figure 2, which shows the problem tree, highlights lack of skills as one of the root causes hindering competitiveness of the SMEs in South Africa. This is probably the main factor responsible for lack of competitiveness despite the support, initiatives and continual investment in SME development and sustainability. This study seeks to find out the coping mechanisms that SMEs put in place to cope with the volatile regulatory environment as well as how they manage to remain competitive. Actually, several authors have alluded to lack of skill as one of the obstacles that hinders SMEs to be competitive. The study by Moloi (2013) point out the cause of SMEs’ failure as internal environment which refers to the capacity of the business being able to function successfully, and have total control off the factors of its environment. The factors include: “quality management, skilled labour, management skills, effective human resource, effective human resources, effective leadership and risk management” (Moloi, 2013, pg. 21), which all can be classified under lack of skill in the root causes on the problem tree in figure 2. In a similar study by Olawale and Garwe (2010) which investigated the internal and external environmental obstacles to the growth of the new SMEs in South Africa, the discussions indicated that as much as the government has to seriously market the support programmes for awareness and also deal with issues pertaining to the regulatory environment, SMEs should have the capacity to choose the right location, have strategic planning to position the business and conclude on the kind of competition, consider the choice of the product or service that will please the customers, and the training initiatives within the organisation so that entrepreneurs become the expertise in the areas they work in. Looking at the findings of the report by Olawale and Garwe, (2010) and comparing internal and external obstacles to growth from that study, 40% were internal, which implies that SMEs have a responsibility to ensure that they remain sustainable and grow. If the obstacles to growth of the SMEs were 100% external, then SMEs will rely 100% on the government, but the literature that have been reviewed showed that SMEs also have to take initiatives for them to grow and become competitive. The study by Zwane, (2009) also highlights low research levels as one of the problems that causes the SMEs not to be competitive because they 29 do not have enough knowledge about the regulations on SMEs in South Africa and all these boils down to lack of skills as highlighted on the problem tree. Competence of human resources is required to confront new challenges in the face of accelerated fierce market competition caused by the volatile regulatory framework (Anggadwita & Mustafid, 2014). Singh, Gard and Deshmukh (2007) are of the view that Human Resource Development is a strategic tool that SMEs can use to develop and cope for lifelong survival and be able to respond to the changes in the regulations, which will increase workforce competence, quality, motivation, commitment, development of skills and development of the organisation. While Hylton (2002) indicates that SMEs must strive to have knowledge management because knowledge itself is a commodity that presents the only ‘sustainable competitive edge’. Lee et al (2005) also agree that knowledge management may assist SMEs develop for future and have more sustainable business practices, build them to be less vulnerable to the economic phases of the industry, prepare them to be able to understand the regulatory changes, and be in a position to adopt, cope and gain competitive advantage. 2.3 Qualitative attributes key to the research The variables and attributes help with deciding what questions to populate on the information or collection instrument. The attributes to be decided upon in this study will be based on the research questions in section 1.2.3. The first question the research seeks to find out is how practitioners determine the level of competitiveness of the SME within emerging markets. Several literatures were reviewed to try and find out what are the variables and/or attributes for determining the level of competitiveness in an organisation. According to Schmuck, (2008, pg 207), the variables to measure the competitiveness of a SME are: “research and development, changing of target markets, adaption to changes, rate of marketing budget and participation in strategic alliances”. Taking an example of our company which is classified as a SME, since the owner completed some of the courses in Master and Business Administration, there has been major changes which has led to the company being competitive. The staff turnover is very low, the marketing budget has been put aside for the past two years and the rate of marketing budget has increased (we have a website in place, our staff diaries have been branded, we have advertising banners and branded shirts and T-shirts in place). The company has changed the target market and diversified into the transport business in the mining sector when COVID-19 had an impact on our sales in the current market, 30 which also shows the ability to adopt to changes. This study will use all the six variables as attributes to collect information during interviews with the targeted stakeholders. The second research question is to determine how SMEs monitor their external environment. According to Alvero, Bucklin, and Austin (2001), supervisor coaching is another way that the leader can use to provide feedback on performance and also educate the employees on their tasks. This improves employee behaviour by empowering them and creating an environment in which employees are creative, and innovative and as a result can easily monitor the external environment. The SME must have strategies in place so that when changes occur, they can adapt. In other words, SMEs need long and short-term strategies which enable them to adjust not only to the current changes, but also the anticipated future (Mocholi-Arcel, Sala-Garrido, & Molinos-Senante, 2020; Dolinayova & Loch, 2015). The third question this research seeks to address is the coping mechanisms of the SMEs in a volatile regulatory environment. According to Kurma et al (2020), for an organisation to adapt to the changes, it must be resilient and be prepared in body and mind to predict and respond to forthcoming crisis. The study identifies variables that are required to assist in building resilient organisations. The first one is the role of governance, which is the role that the management takes in an SME. It is rated as the most important and critical one because it is the one that provides strong and prompt decision-making and efficient implementation of suggestions, proposals and concepts. The second one is the organizational culture –where the organization blends as a team– which enables the team to be motivated, creative and resilient when dealing with the changes the organization will be facing (Khurana, et. al, 2020). The role of leadership in the two variables discussed above plays an important part. An empowering leader will be required because empowering leadership moderates the relationship of trust between the leaders and employees, enabling the employees to voice their ideas and opinions within the organization (Chen et al., 2011). This lead to the third variable which is change management. Here, the leaders must ensure that the morale of the employees is boosted, employees are assured that they are valued and are important to the organisation, which removes fear and instill the spirit of motivation (Khurana et. al, 2020). The fourth one is capacity building, which enables the 31 organisation to cope with the changes through policies that have been put in place to allow for “realignment, retraining and re-skilling of their employees” (Khurana et. al, 2020). The last variable, IT preparedness, compliments other variables within the SME. The SME must have the IT infrastructure in place, they must have capacity to utilise and update to the latest technologies as it will enable the organisation to cope with change (Khurana et. al, 2020). The variables mentioned above are interrelated and, in conclusion, will be summarized into the following attributes that will be used for this study: • Research and Development • Adaptation to Change • Rate of Marketing Budget • Participation in Strategic Alliances • Workforce Fluctuation • Organisational Culture • IT Preparedness • Role of Governance • Good Strategy Brugha and Varvasovszky, (2000) define a stakeholder analysis as a tool with distinctly detailed phases and applications for scanning the current and anticipated future of the environment of the SME. On the other hand, Schmeer, (2000) define it as “a process of systematically gathering and analysing qualitative information to determine whose interests should be taken into account when developing and/or implementing a program”. The stakeholders in this process should be the ones with vested interest in the development of the SMEs. The aim of utilising the stakeholder analysis is that it will enable the study to evaluate and understand the selected stakeholders from the perspective of an SME relevant to the above summarised attributes (Brugha & Varvasovszky, 2000). It also generates accurate and useful information that the organisations / practitioners use to make reliable and valid research findings (Schmeer, 2000). 32 2.4 Framework for interpreting research findings: Stakeholder’s Theory Several authors have discussed the concept of stakeholder theory. Stakeholder theory was entrenched in the study of management in 1970 and gradually refined by Freeman (1984) incorporating “corporate accountability” to a wider range of stakeholders. According to Freeman, Wicks, and Parmar (2004), stakeholder’s theory relies on the fact that values and ethics in the business are the ones that can bring stakeholders together where they work in truth and freedom. It is directed more to managers in that it reflects and points out how managers function instead of primarily addressing “management theorists and economists” and that the managers have interest of employees and stakeholders at heart, keep the interest aligned and moving consistently in the same direction. Whilst Donaldson and Preston (1995) argue that the stakeholder theory concentrates more on the managerial decision making and that the interests of all stakeholders have inherent value with no confirmed sets of interest assumed to overtop the others. However, Albasu and Nyameh (2017) claim that stakeholder’s theory suggests that “the purpose of a business is to create as much value as possible for stakeholders in order to succeed, and be sustainable over time”. It is much apparent that all the authors are about the fact that stakeholder theory is about building healthy relationships and valuing all stakeholders. We have examples of big successful organisations that features in Built to last and Good to Great (Collins 2001, Collins & Porras 1994) which illustrated that as much as both the stakeholders and profitability are important and valued, none of the organisations make profitability the elemental driver of what they do. The stakeholder’s theory gives a clear picture to the stakeholders about purpose of the organisation because it causes managers and core stakeholders to create a common sense of value and coherently share what brings them together (Freeman, Wicks, & Parmar, 2004). This drives the organisation to move forward and bring about excellent performance and in turn the organisation becomes competitive. Secondly it clearly expresses the responsibility that the management has on stakeholders. Managers are forced to be transparent on how they intend to carry out the business, most importantly the type of relationships they desire to create with the core stakeholders in order to deliver on their purpose (Freeman, Wicks, & Parmar, 2004). Not only does it point on the role of the manager and it also empower the manager because “it creates appropriate 33 incentives for managers to assume entrepreneurial risks” (Freeman, Wicks, & Parmar, 2004, Pg 366). The best deal for all is that leaders must try their outmost best to create as much value for stakeholders as possible, but of course facing the reality of life, there will be conflicts based on stakeholders’ interest. Freeman, Wicks, and Parmar (2004) argue that the stakeholder’s theory empowers the leaders with the resources and capabilities of resolving conflicts in a way that they can offer rewards and further display in language and actions that they value the stakeholders, which will progress their interest in time. The study by Ackerman and Eden, (2011) uncovered that managers at all times have solid, ample, embedded knowledge about stakeholders which, if emerged and utilised in a coordinated way, can serve to manage and resolve conflicts. In a stakeholder’s theory, managers must form relationships, influence their stakeholders positively and shape communities in which everyone is motivated to do to their best and discharge the value the organisation’s promises (Freeman, Wicks, & Parmar, 2004). This relates to the attributes of this study in section 2.3 on the role that governance, staff turnover and the organisational culture within the organisation play. It also has an impact on research and development because when there is low staff turnover and they are motivated enough to conduct research on important issue at hand within the organisation, they can easily adapt to changes, attend to capacity building, and come up with better ways of developing the organisation to deliver on its objectives. Managers must identify who their stakeholders are and oversee their stakeholders effectively so as to comprehend and accomplish their strategic goals and thus helping reassure its long-term viability (Ackerman & Eden, 2011). If the organisation can manage its stakeholders effectively and ensure that the workforce does not fluctuate, the organisation will easily cope with the volatile regulatory environment. The capabilities formed over time enables the organisation to be competitive and sustainable. Also, because the stakeholder theory focuses more on the relationships that have been formed and take their interest into heart, it becomes easy for the organisation to attend to stakeholder dynamics and cope with changes faster and easier, ensuring competitiveness and meeting the goals of an organisation. 34 According to Adbullah and Valentine (2009), ethics is the “study of morality”. Also, Crane & Matten (2007) write about a morality that is attentive to beliefs, values and norms locked in the social development which assist in recognising right and wrong for an individual or social community. This make the employees feel valued and important because it will ensure that the fundamental motive of the manager is not profit-making but ensuring that the healthy relationships with all stakeholders are formed. This in turn will have a positive impact on the culture within an organisation and how employees handle change which are attributes necessary for competitiveness as articulated in section 2.3 above. 35 2.5 Summary and conclusion 2.5.1 Summary of literature reviewed The problem tree was used to analyse the root causes of the lack of competitiveness among South African. The study focused on the lack of skills and came to the conclusion that although there are challenges due to the volatile regulatory environment, SMEs also need to take initiatives to ensure that they have skills to be able to cope with changes. Despite the fact that there are challenges ranging from red tape, bureaucracy, inaccurate access to information about SME (which are responsibilities of the government), the government has put in place different support programmes and has introduced a new ministry, Department of Small Business which looks directly into matters affecting the growth of the SMEs. A lot of research that has been conducted focused more on the obstacles impacting the growth of the SMEs with the recommendation of what the government can do to empower and support the SMEs, but little research has been done to find out what the SMEs are doing to ensure that they also play their role, have coping mechanisms when the environment is changing and also have the capacity to ensure sustainability and competitiveness. The study ended up with nine attributes based on the literature reviewed and it was informed by the research objectives and questions. The attributes addressed the factors that informs the competitiveness of an SME being research and development, adaptation to change, participations in strategic alliances, workforce fluctuation, IT preparedness, rate of marketing budget, organisational culture, role of governance and an SME having a good strategy in place. The stakeholder analysis was proposed as the tool that will be used to evaluate and get accurate information about the SMEs in relation the attributes that have been identified in order to make reliable and valid research findings. The selected framework that will be used to interpret the findings is the stakeholder theory because it gives a clear picture about purpose of the organisation and drives the organisation to move forward and bring about excellent performance and in turn the organisation becomes competitive. 36 2.5.2 Proposed research strategy, design, procedure and methods arising from the literature reviewed Most of the literatures that have been reviewed from section 2.1 to section 2.4 are mainly use qualitative strategy and involve conducting interviews and research on secondary data. There are few studies that combined qualitative and quantitative strategies. Having looked at the research strategies and designs that have been applied on the reviewed literature that talk to issues similar to this study, case study design has been frequently used. The next section will look more into the type of strategy that will be used, the design, procedure and methods. When making decisions on these issues, the lessons learnt from the literature reviewed will also be taken into consideration. 37 3 RESEARCH STRATEGY, DESIGN, PROCEDURE AND METHODS In Section 1.2.3, we have posed three questions that this research report intends to answer—that is, ‘how do practitioners determine the level of competitiveness of the SME within the emerging markets?’, ‘How do SMEs monitor their external environment?’, and ‘What are the coping mechanisms of the SME in a volatile regulatory environment?’. We have since reviewed literature and developed an interpretative as well as conceptual framework that will guide the choices of techniques we will use. This chapter identifies and describes research approach, design as well as procedure and methods that we employ in this research to collect, process, and analyse empirical evidence. Broadly, it has three objectives; namely, to identify and describe the research strategy (Section 3.1), the research design (Section 3.2), as well as the procedure and methods (Section 3.3). The chapter also describes the reliability and validity measures (Section 3.4) that this research applies to make it credible as well as the technical and administrative limitations of the choices we make (Section 3.5). 3.1 Research strategy / Research paradigm Research strategy gives the framework and complete direction of the research from which proceed the detailed structure of the research method, and its compelling technique of addressing the research questions or problem (Farquhar, 2012). According to Basias & Pollalis (2018), there are two primary research strategies –qualitative and quantitative strategies– with the additional third strategy being mixed strategy which is a combination of both qualitative and quantitative. According to Creswell & Poth (2018), qualitative research “begins with assumptions and the use of interpretive or theoretical frameworks that inform the study of research problems addressing the meaning individuals or groups ascribe to social or human problem”. Qualitative research takes into account research methodologies that deal with concepts by analysing behaviours, experiences and relationships, not taking into account the application of statistics, mathematics and numerical data. (Basias & Pollalis, 2018; Hennink et al., 2010; Merriam, 2009). It is the strategy that provide responses to research questions like: (a) how, (b) when, (c) what and (d) where (Miles & Huberman, 1994). On the other hand, quantitative strategy is when a “research involves systematic and empirical investigation of phenomena through statistics and mathematics and the 38 processing of numerical data” (Basias & Pollalis, 2018, p92). Seale (2018) notes that quantitative research comprises of deductive reasoning, in which we identify all the related variables before data collection commence. Mixed strategy is an approach used in a research that combine both qualitative and quantitative strategies. For some of the studies to be effectively carried out, we require both strategies because they need to address issues that combine both numbers (quantitative) and words (qualitative) (Miles & Huberman, 1994). The study by Basias and Pollalis (2018) outlined the similarities and differences of the qualitative and quantitative strategies. Both strategies have a main aim or investigating or probing into something that is known but has not been proved, whilst the major difference between the two strategies is precisely described in the table below. Table 2: Similarities and Differences of Quantitative and Qualitative Research Approaches Key Features Qualitative Research Quantitative Research Examines Phenomena Phenomena Interpretation “Qualitative research includes a sequence of interpretive techniques that seek to describe, decode and translate concepts and / or phenomena instead of capturing the frequency of certain phenomena in society”. “The quantitative research approach usually refers to the systematic empirical investigation of phenomena through statistical and mathematical analysis and the processing and analysis of numerical data”. Source: (Basias & Pollalis, 2018, p96) Selected Research Paradigm This study firstly seeks to determine the levels of competitiveness of the SME within an emerging market, then explore how SMEs monitor the changes in their external environment especially the regulatory environment and related legislations and lastly establish the coping mechanisms of the SMEs in a volatile regulatory environment. According to the differences in qualitative and quantitative strategy, and the fact that Basias and Pollalis (2018) indicate that qualitative strategy is frequently used to evaluate and analyse, the appropriate one that will ensure that the objectives and aims of the study are reached is qualitative strategy. Also taking into consideration the literature reviewed on the interpretive framework that will be used to interpret the results, (i.e., 39 the stakeholder theory) and the attributes in section 2.3, this study is looking more into finding out the information about ways the SME can remain competitive despite the volatile environment they operate in. The stakeholder theory focuses more on the relationship that the managers form with the stakeholders, which is linked to the attributes in section 2.2 that informs the competitiveness of an SME. The literature reviewed further showed different strategies that were used, with qualitative strategy being the one used mostly. To mention one, the research by Nieuwenhuizen, (2019) which is similar to this study, with its aims and objectives that “identified and investigated employment and wealth creation factors inhibiting the establishment and growth of SMMEs”. The study used qualitative empirical research in which structured interviews were used and the main reason for using qualitative strategy was to extract detailed information on background and knowledge of SMEs with regards to issues impacting their growth, sustainability and establishment. The qualitative strategy benefited the researcher because from the findings, the report clearly outlined what challenges SMEs are facing and with the major one being the volatile regulatory environment, which is impacting also the economy of the country and further suggested what the government can implement to improve on the situation. Similarly, in this study the qualitative strategy will give an advantage to the reader in that the nature and complicatedness of the SME’s failing at such a high rate in South Africa, despite all the support programmes from the government in place, will be understood and informed decisions can be implemented that will make a positive impact on both the SMEs and the government at large. 3.2 Research design A research design is a way that a researcher collects data; it guides the execution of research procedure and methods during data collection. Seale (2018) notes that a research design is the one that offers a configuration for a research project and may at times vary due to the type of question posed. According to Bryman, (2012), there are five generic research designs: comparative, comparative, cross-sectional, longitudinal, experimental and case study. Taking into consideration the reviewed literature, this study will utilise a case study approach. Several authors have deliberated on the concept of a case study and almost all of them are of the view that case study allows a research to get in-depth understanding about the case. Yin, (2009, p18) is of the view that a case study “is an empirical inquiry 40 that investigates a contemporary phenomenon in depth and within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident”. Tysiachniuok, (2012) also notes that the case study is the best research design to be considered when specific phenomena are investigated within the real-life context. Creswell & Poth, (2018). In the same vein, Farquhar, (2012) avows that a case study enables the researcher to study the problem, issue or concern in real-life situation and its intent is to dig deeper, search for clarifications and acquire understanding that will be used to enhance or test theory. Although Basias & Pollalis (2018) also agrees with all writers above that a case study provides a ‘holistic’ view and understanding of the topic that is researched, he adds that it is also utilised to test the proposed framework of the research. This study, considering the five research designs as proposed by Bryman (2012), and what the aforementioned authors have brought into light, will settle for case study research. The hallmark of an excellent qualitative case study is that it produces a comprehensive understanding of the case, it is the appropriate approach that allows one to critically analyse in-depth processes and it is the type of the research design that will be able to respond to the research questions on ‘how’ and ‘what’. As a researcher that is new into doing formal research studies, I am very keen to learn about the topic, and further gain knowledge about the processes of conducting quality research, and therefore as I do literature review, I peeped into what others have done specifically, those who have long been in the field. For example, I looked into a study by Albasu and Nyameh, (2017) on relevance of stakeholder’s theory with an objective “to investigate if internal corporate social responsibility practices have influence on employees’ performance in the Nigerian banks”. The study selected qualitative case study design because it was central to understanding the ‘internal corporate social responsibility practices’ within the banks and it was fundamental that the data gathering is flexible. In addition, with the case study design, the study came up with a number of recommendations that not only can benefit the banks but other sectors such as the government, labour unions and community-based organisations. This study also makes further suggestions about informed development of policies, regulatory and institutional framework which can promote and reinforce corporate social responsibility. This study’s interest in the competitiveness of the SME is informed by my personal investment as an entrepreneur who wants her organisation to become competitive and sustainable and eventually have a positive impact on the economic growth of the 41 country. Therefore, case study research is of personal benefit because I will gain insights on the factors inhibiting the growth and performance of the SME and will deliberate on what can be done to improve the growth, sustainability and competitiveness among SMEs in South Africa despite the volatile environment which we operate in. 3.3 Research procedure and methods This section documents the actual procedure and the methods employed in this research to collect, collate, process, and analyse empirical evidence. Broadly, we detail the data and information collection instruments (Section 3.3.1), the target population and sampling of respondents (Section 3.3.2), the ethical considerations during the research process (Section 3.3.3), data and information collection process and storage (Section 3.3.4), data and information processing and analysis (Section 3.3.5) as well as the background description of the respondents who provided empirical evidence for this research study (Section 3.3.6). 3.3.1 Research data and information collection instrument The effectiveness in a case study is when it shows its capability in investigating the research problem in-depth within its real-life context and is able to answer the research problems. It is therefore imperative that the data collection procedures complement the attributes of the case study. Based on the literature reviewed and according to Farquhar (2012), a lot of case studies give prominence to qualitative strategy as they are suitable for in-depth investigations. Farquhar (2012) indicates three viable techniques for gathering primary data for any research that employs the case study research design and they include “survey, observation and interview”. It is up to the researcher– based on the objectives, research design and strategy chosen to decide on the technique they want to use to collect research data. For every chosen technique, a collection instrument will have to be developed. Farquhar (2012) described the data collection instrument as “the means by which you will collect your data”, while Adorean, et.al. (2017) argue that collection instruments “enables researchers to explore respondents’ lived situations through either observation (what the researcher sees) and through interviewing (what respondents tell researchers)”. The developed collections instruments can either be observation schedule or interview schedule where scheduling simply refers to positioning the questions in a similar sequence for every person you interview (Seale, 2018). 42 Several authors have described the context of observation, Farquhar (2012) is of the view that observation is an approach used commonly when researchers want to engross themselves in their research and gather notes on the observed behaviour, recording, chats or discussions. Angrosino (2007) refers to observation as one of the fundamental tools for gathering information in qualitative research, he describes it as an “act of noting a phenomenon in the field setting through the five senses of the observer, often with a note-taking instrument, and recording it for scientific purposes”. The researcher may watch physical setting, participants, activities, interactions, conversations, and behaviours during the observation and use her senses, including sight, sound, touch, smell, and taste (Creswell & Poth, 2018). The second research collection instrument is the interview scheduling in which knowledge is formed when the interviewee and the interviewer are interacting (Brinkmann & Kvale, 2015). The qualitative research interview is further described as “attempts to understand the world from the subjects’ point of view, to unfold the meaning of their experience, to uncover their lived world” (Creswell & Poth, 2018, p3). Comparing the intentions of the two research collection instruments, the interview schedule will be best suited for this study. This is backed up by two reasons, firstly interviews constitute a valuable research instrument in a qualitative setting because they give the researcher the means of connecting with the interviewees’ values and attitudes, which you cannot be easily observed or integrated within a formal questionnaire (Seale, 2018). Secondly, the objectives and research questions of the study should be the ones assisting in selection interview instrument that will be chosen, the person whom will be interviewed and the questions which will be asked (Creswell & Poth, 2018). From the discussions with the Supervisor, it was mentioned that the objectives of the case study must link to the research questions and the fact that objectives of this study is to dig deep and find out how can an SME remains competitive, the interview schedule appears to be the perfect type of instrument to use to collect information for this study. Having decided on the type of research data collection instrument to utilise, it is important to consider its structure. The structure of the research data collection instrument should be both scheduled and standardised, implying that the positioning of the questions must be in a similar sequence for every person interviewed (Farquhar, 2012; Seale, 2018). The intention is that each respondent is provided with the same 43 impetus; therefore, differences in responses can be attributed to real distinctness among respondents, rather than to dissimilar ways in which questions were posed (Seale, 2018). If structure, standardisation and scheduling of the data collection instrument are all completed accordingly, error will be prevented. The designed research data collection instruments vary in the degree of structure. There are three structures that normally the data instruments follow up being unstructured, which is used when less is known on research topic; then semi-structure which is a structured but is still flexible to allow for extra questions and responses and fully structured one which is used when more is already known on the research topic. This implies that either observation schedule or interview schedule, can be unstructured, semi-structured or fully structured. This study commits to the utilisation of semi-structured interview information collection instrument. Different authors have elaborated on the semi-structured interview data collection instrument. The semi-structured interview consumes time and therefore cannot cover a large sample, but rather ensure that the appropriate representatives have been sampled in order to attain an explicit understanding of the subject of your research (Seale, 2018). Tom Wengraf (2001, pg 5) describes semi-structured interviews as “high- preparation, high-risk, high-gain, and high-analysis operations”. Ayres (2008) and Longhurst (2012) related the semi-structured interview to the qualitative strategy where there is communication between the interviewer and the interviewee, the interviewer communicates in a self-conscious, asking scheduled but open-ended questions. Based on the advice that comes from different authors who have done qualitative case studies extensively before, this study will use semi-structure interviews. Farquhar (2012), for instance indicates that most researches that have been designed to use the qualitative strategy often use a semi-structured interview because it allows the researcher to follow the scheduled and standardised interview while still being flexible and contextual. Seale (2018) suggests that the open-ended questions that provide flexibility are inclined to produce a grater considered response than closed questions because they enable the researcher to get access to the views of the interviewees, better explanations of experiences, events, opinions and understandings. Adorean et al., (2017) also support semi-structured interview because they believe it is advantageous in that it let interviewees give answers that are open rather than assertive or negative. 44 Lastly based on the literature reviewed, most case studies using qualitative methods, adopt interviews as their research collection instrument. For instance, the book, Qualitative Research in Regional Geography: A methodical Approach (Adorean et al., 2017), which was written with the aim of encouraging Romanian students and geographers to take an interest in qualitative research reviewed different case studies. One of such case studies explore the “determining factors for local economic development” (Wong 1998). The aim of the study was “to rank the determinant factors for the local economy, in the regions of North-West and the east of UK, from the perspective of those who contribute to the development process” and the objective of the study was “to assess the importance of key factors for the development of the local economy and to listen to local actors’ point of view about the significance that each actor has in the development process” (Adorean et at., 2017). This particular case study applied the semi-structured interviews because it proved to be a very useful research method for collecting information in a relatively short time and further it allowed the interviewee to express a more comprehensive point of view, without being limited by a number of questions or answers. The study also used the interview as the collection instrument because it brought into light the conditions which numerous regions may possibly experience; namely, ‘industrial decline and high unemployment rate’ (Adorean et at., 2017). The semi-structured interviews will be of benefit to this qualitative case study in a way that the study be able to get deep and clear information about how the SMEs are coping within the volatile environment and what they are doing to remain competitive and sustainable. There are four points that were considered when drafting questions of the data collection instrument for the semi-structured interviews: relevance which indicates if the questions are related to the research problem; comprehensiveness which verifies if all facets of the research problem are represented; feasibility which checks if the interview is too lengthy and if the interviewees can respond to the questions; and comprehensibility which refers to whether the interviewees understand the questions in the way they are meant to be understood (Seale, 2018). A pilot study will be done to ensure that the questions on the data collection instrument are clear, simple, short and cover the four points discussed above (Farquhar, 2012; Seale, 2018). The questions on the research data collection instrument are informed by the objectives, research 45 questions and the attributes discussed in section 2.3. The research data collection instrument has been placed in Appendix 1.1 3.3.2 Research target population and selection of respondents 3.3.2.1 Research target population Having decided on the strategy, design, interview schedule and structure, one needs to decide who are the people that are going to be targeted for interviews, i.e. target population. Population refers to the whole set of entities that will be targeted in the research insight, and the population should have the same characteristics throughout all cases (Farquhar, 2012). Several studies have alluded on the issue of selecting the target populations. Creswell (2007), Farquhar (2012) and Polkinghorne (2005) are of the view that selection is driven mainly by the kind of information that the researcher seeks and the individual selected must have experiences that will elucidate– and provide important perspectives to different– aspects of the study. Selection of the targeted population to be interviewed for this particular study, will be done strategically in a way that will ensure that the individuals selected are likely to influence the development of an emerging premise and have characteristics that are required as according to the objectives and selected attributed of this study (Seale, 2018). For this particular study our targeted population will be the individuals who own/manage the SMEs and further involved in managing the organisation. The dimensions on the data collection instrument that have been informed by attributes advised on the kind of questions that should be asked during interview. That prompted that formal SME’s be eyed. The targeted SMEs were registered entities, that have survived for minimum three years as one of the questions required rate of marketing for the past three years. The targeted SMEs had experience and shew zeal of being sustainable and competitive. When planning was done, the intention was to do mainly face to face interviews, but due to changes in COVID-19 regulations, only three interviews were face to face while the rest were done online using Zoom. The targeted SMEs were the ones that were accessible, willing to participate and provide information about how they approach some of the problems being investigated. (Creswell & Poth, 2018). For accessibility the aim was to interview SMEs within Gauteng province, but having used Zoom we ended up having an access to one respondent based in KwaZulu Natal province. 46 3.3.2.2 Sampling or selecting respondents from the target population Sampling is a segment of a population, where the population can be the entire measure of the objects or cases which are the topic of the research (Etikan, Musa, & Alkassim, 2016). Seale (2018) refers to sampling as people that have been nominated for interviewing or object that have been nominated for analysis. He further alludes to the fact that one needs to take into account the characteristics or attributes the sample possess. In a qualitative strategy, sampling is considered in order for researchers to acquire ideas and knowledge about issues being investigated from the interactions they will be having with the people or objects they are studying (Seale, 2018). There are two approaches that a researcher can opt for, probability sampling, which looks into random sampling and non-probability sampling in which sampling is non-random. This study will settle for a non-probability sampling which is the method that is used mainly for case studies researches (Farquhar, 2012). Literatures mention different examples of non-probability sampling, but the common ones