Smes In Mauritius And Across The World

Published Date: 02 Nov 2017

It is also true to note that globalisation has thrown up confrontations and opportunities which all nations have to struggle with. It is also not uncommon to witness that modern technologies are making it not only easy for isolated places and impoverished people to be exposed to modern goods and services. However, developing countries do not have enough capabilities to handle challenges which globalisation brings with it.

The ongoing process of globalisation has generated an interesting debate on its effects on the performance of SMEs. SMEs are an important part of a nation’s economic activities. Mostly for emerging countries like Mauritius, SMEs tend to contribute more to the total employment (45%) and hence, economic growth. It has also been noted that a dynamic SME sector helps in the success of developing economies by bringing innovative products and good techniques to capture the market. The concept of SME in Mauritius began in the 1960s with the start of a timid industrialisation process and an import-substitution strategy to supply the local market and gave certain autonomy to the country. It can be observed that over the past years the number of registered SMEs in Mauritius has been increasing.

It has been highlighted that SMEs are adapting to globalisation and that firms are in a better position from competing in the competitive market as comparative advantage has shifted towards knowledge-based economy. They are in a better position to compete both locally and abroad by innovating and forming strategic alliances.

However, it has also been reported that compared to larger firms, SMEs are not that fully equipped to compete in this globalised world. Their low productivity hinders SMEs to face increases in international trade.

Therefore this study intends to assess the competiveness of the Mauritian SMEs in the present socioeconomic environment based on a survey to investigate impact of globalisation on these SMEs and also to find out the strategies adopted for local SMEs to survive and integrate themselves in this epoch of globalisation.

2.1: Definition of SMEs

Maujean (1996) stated, "The definition of SMEs is difficult to make and are different according to countries political structures, geographical constraints, natural and economic resources and historical backgrounds". The definition of what constitutes a SME varies; it is generally based on the number of employees, financial turnover, production capacity and technology (Taylor and Adair 1994).

2.1.1: Mauritius

As stipulated before, there is no universal definition of SMEs. For Mauritius, as per the SMEDA Act, SME includes enterprises in all economic sectors and the turnover criterion is used to define a firm. A Small Enterprise is defined as an enterprise which has an annual turnover of not more than Rs10 million and less than 50 employees whereas a medium enterprise is one with annual turnover of more than Rs10 million but not more than Rs50 million and less than 200 employees.

2.1.2: Across the world

In Europe, three parameters are used to define SMEs. The micro entities are companies with up to 10 employees and turnover less than €2m whereas small companies have less than 50 employees and turnover less than €10m while medium-sized companies have less than 250 employees and turnover of less than €50m. Each EU member states have individual definitions of SMEs, for instance Germany had a limit of 255 employees while for Belgium it was 100.

Generally, SMEs in Malaysia are defined as companies with the annual sales turnover which does not exceed RM 25 million or not exceeding 150 full time employees.

In India, a micro enterprise is where the investment in plant and machinery does not exceed Rs2.5 million. A small enterprise is whereby investment is more than Rs.2.5 million but does not exceed Rs.50 million and a medium enterprise having investment more than Rs.50 million but less than Rs.100 million.

In Canada, small businesses employ fewer than 100 workers and medium-sized businesses have fewer than 500 employees. New Zealand defines SMEs with 19 or fewer employees.

2.2: SMEs in Mauritius and across the world

There is growing recognition worldwide that SMEs have an important role to play in the present circumstance (Bhargava, 2004) and small businesses are often seen as the backbone of developing economies, like Mauritius. According to Reuber and Fischer (2003), the term SME covers a heterogeneous group of businesses in a developing economy, ranging from a single artisan working in a small shop making handicrafts for a village to sophisticated engineering firms selling in overseas markets. They contribute to wider economic and social goals such as growth, productivity, competition and foreign exchange generation, price stability, regional development, and social and economic equality. Hall (1995) identifies SMEs as a source of creating employment, innovation, generating exports among others. It is true to note that with the workings of MNCs, the contribution of small to medium sized businesses to make the global economy should not be ignored.

The constraints confronting SMEs are practically similar in all countries regardless of their economic development and the most cited constraints that hamper the development of a vibrant SME sector can be summarized on issues like access to finance, technology and markets (OECD, 2002). The two diagrams below show the internal and external constraints faced by local SMEs.

The economic success of the Mauritian economy cannot be solely attributed to large enterprises since the entrepreneurial role of SMEs has also contributed to the impressive performance of the island in the late 1980s. Doubtless, a major strength for many SMEs is their close customer contact and their ability to maintain that relationship. A recent research conducted by the Mauritius Research Council (MRC), indicated that the current strong political and economic trends towards globalisation show firms have to cope with the effects of increased international competition. Research has pointed that the main beneficiaries of the globalisation process would be larger enterprises, at the expense of SMEs. Hence, building up the competitive edge of SMEs and improving their operational efficiency is crucial.

2.3: Globalisation

Globalisation is an interesting phenomenon since it is obvious that the world has been changing towards increasing economic, financial, social, cultural, political, market and environmental interdependence among nations. Given these changes, globalisation brings about a borderless world (Eden & Lenway, 2001). Globalisation drives people to change their ways of living, prompts firms to change their ways of conducting business and spurs nations to establish new national policies.

2.3.1: Signs of Globalisation

The changes in the environment evoked by the globalisation process include:

growing competition in the world markets;

greater supply for high quality goods in relation to demand;

increased innovations in the production process;

changes in industrial production- material and energy-saving products are being used;

increasing significance of marketing and strategic management;

growing expectations of customers as far as new products and services are concerned.

2.3.2: Factors of Globalisation

Globalisation of the economy is caused, among other things, by the following factors:

Technological ones (computers, internet, mobile phones, satellite telecommunication, transport, among others)

Economic ones (development of trans-national corporations, national economies have opened their markets to the inflow of goods and foreign capital, development of stock exchanges, among others)

Political ones (expansion of international corporations, democratization and creating free markets in the economies in many underdeveloped countries, among others).

2.3.3: Triggers for Globalisation

Hill (2005) identifies five factors that underlie the trend towards greater globalisation.

2.3.3.1: Declining trade and investment barriers

After the Great Depression and the Second World War, developed countries have opted to remove barriers to international trade and foreign direct investment. This resulted in the General Agreement on Tariffs and Trade (GATT). After a number of rounds of negotiations between countries, the GATT was extended to cover services, intellectual property rights and eventually the World Trade Organisation (WTO) was established following the Uruguay Round in 1994. The WTO is a permanent body that is responsible for establishing and further entrenching rule based trade and for managing the rule based world-trading system (Hill 2003). The WTO membership is currently 159 from an initial 23.

These developments have contributed to lower barriers and restrictions on capital flows which have boosted world trade growth. These have in turn facilitated the globalisation of markets and production.

2.3.3.2: Technology

Throughout history, trade has been helped by all manner of technical advances including different modes of transport and their falling costs. For instance, development of containerization in the shipping industry has made transportation of goods easier and cheaper. Jet travel has enabled the rapid and widespread movement of people and goods across national borders (Hill 2003).

Moreover, microprocessors are the underlying components that have fuelled the advancement in global communications. These include satellite, optic fibre and wireless communications as well as the computing revolution that has borne the Internet, the worldwide web and provided the possibilities of e-commerce (Hill 2003). With the costs of communication and computing steadily falling, it is now much easier to contact people in any area of the world.

Technological advances have not only aided the movement of goods but also that of capital. Savers and investors in developing countries will no longer be confined to their low returning domestic market and thus invest in foreign markets hence, bringing down risks of their share portfolio.

2.3.3.3: Changing world order

There has been a shift in political ideology in the late 1980s from a fall in communism to a more democratic world. More free market policies are made which are in turn conducive to globalisation.

2.3.3.4: Convergence of Industrialisation Strategy towards an export oriented platform

The classical economists perceived trade as an engine of growth. But, by the 1950s, it was obvious trade was not having the expected propulsive effects because of imperfections in international trade. Consequently, many nations adopted an import-substitution strategy in a bid to reduce their import dependency (Hirschman, 1968).

Import substitution strategy involved a high level of protection, via tariffs, import restriction measures and quotas. Also, the government used investment license, differential taxes, tax holidays, exemptions and remissions to influence resource allocation. Hence, domestic demand rose, employment was provided and the long term productive capacity of the economy strengthened.

However, the overwhelming consensus is that import substitution was a failure (Schmitz, 1984). The strategy turned out to be self-defeating resulting in huge increases in import of equipment, severe drain on foreign exchange, high technology unsuited to less developed countries.

As a result, in the late 60s the role of exports became predominant. The export oriented strategy not only encourages free trade but also free movement of capital, labor, enterprises and an open system of communication. It also entailed more efficient allocation of resources with firms competing internationally.

2.3.3.5: Emergence of Regional Trade Blocks

Due to globalisation, multilateral and bilateral agreements among countries in the African region are accelerating. The process of integration and the changing nature of regional trade and capital flows pose new challenges to up and coming SMEs. The process of economic integration is when a group of nations in the same region join together to form an economic union or regional trading bloc by raising a common tariff wall against non-member countries while freeing internal trade among members. This is seen as a partial liberalisation initiative and is the first step towards complete liberalisation which is propounded by the WTO.

2.4: Globalisation and Regional integration:

It is true to note that regional integration has gained momentum in recent years driven in part by global trends and acts as an economic survival strategy to combat marginalization from the global economy. Furthermore, globalisation is a process by which the economies of the world become increasingly integrated leading to a global economy with global economic policy making, through international agencies as the WTO.

Regional integration is a means to achieving superior economic growth and poverty reduction by expanding trade and investment, improving regional infrastructure and connectivity, promoting macroeconomic stability, and extending financial integration (MCB Focus, 2012). The following illustration reflect different levels of engagement taken by member countries to reduce/eliminate barriers to international trade as well as facilitating payments and factor mobility within the relevant economic bloc.

The regional integration process in Africa has its roots in the Charter of the Organisation of African Unity which came into force in 1963, that later translated into the Abuja Treaty which was signed in 1991 and entered into force in 1994. Specifically for Mauritius, greater involvement in regional blocs provides a solid opportunity to diversify and entrench markets for the exports of goods and services (MCB Focus, 2012). Trade blocs are intergovernmental associations that manage and promote trade activities for specific regions of the world. Below, an overview of the regional groupings is given.

2.4.1: SADC

The Southern African development Coordination Conference (SADCC) was transformed into the Southern African Development Community (SADC) in 1992. The vision of the SADC is a common future paving the way for economic well-being, improvement of the standards of living and quality of life, freedom, social justice, peace and security for Southern Africa.

2.4.2: COMESA

In 1994, the COMESA was formed to replace the former Preferential Trade Area (PTA) which had existed since 1981. The main aim is to reduce and eventually eliminate tariff and non-tariff barriers to intra-COMESA trade. Also, to accelerate structural adjustment in the member state economies and enable enterprises to become more internationally competitive. A Clearing House was set up in whereby the Bank of Mauritius acts as the Settlement Bank.

2.4.3: IOC

The Indian Ocean Commission was created in 1984 by virtue of the Victoria agreement to spearhead large project management initiatives for the provision of regional public goods.

2.4.4: EAC

The East African Community (EAC) is to promote a prosperous, competitive, secure and stable East Africa and to widen economic, political, social and cultural integration to improve quality of life of people.

2.4.5: Tripartite Free Trade Area

In order to minimize and eventually eliminate the contradictions created by overlapping memberships (spaghetti-bowl effect), three regional trading blocs (SADC, COMESA, EAC) planned to rationalize and harmonise the trade arrangements through the creation of a grand Free Trade Area referred to as the Tripartite Free Trade Area (T-FTA). It will normally comprise an integrated market with a combined population of some 600 million people and a total GDP of around USD1 trillion. It intends to cover 26 tripartite countries. The T-FTA aims to assist in expanding intra-Africa trade, promoting cooperation among regional economic communities and also facilitating joint resource mobilisation and project implementation. The T-FTA will be in effect as from June 2014.

As a result, globalisation leads to breaking down of trade and regulatory barriers between regional countries thus allowing for the free movement of people, goods, and services across the region, creating an effective single market. This is expected to foster competition and investment, thus contributing to the alleviation of poverty through wealth creation (MCB Focus, 2012).

However, there seems to be a compromise that the success of all the RECs in achieving their objectives has been less than satisfactory (Johnson, 1995; Lyakurwa, 1997). Lyakurwa (1997) argues that lack of a strong and sustained political commitment and macroeconomic instability among others have impeded the progress of economic integration in Africa. Traditional theories of trade, which assume constant returns to scale, provide a limited practical insight to regional integration policy issues, more particularly in developing countries such as in Africa. Krugman’s (1991)’economic geography’ model attempts to explain the determinants of regional concentration of economic activity. However, this model is yet to be tested and explored. In other words, it is implied that reducing trade costs will add to production efficiency (Lyakurwa, 1997).

Some countries, particularly the poor ones are afraid that the few industries they have may migrate to relatively more advanced neighbors is another reason for the failure of African regional blocs. While infrastructure is seen as an obstacle to intra-Africa trade, it also represents clear gains for all the countries involved in regional cooperation.

The popular model used to evaluate regional integration issues is the gravity model, as postulated by Frankel et al (1994). Success or failure of regional integration initiative must be evaluated in the context of the objectives it sets to achieve. Furthermore, this suggests that governments failed to implement the treaties they signed. Other problems hindering performance of regional blocs are overlapping memberships and poor private sector participation.

Levitt (1983) highlighted that for operating in the international market, companies must be well prepared to ignore the superficial regional and national differences that exists. Many companies need to strengthen their resource through competency outsourcing. This is because the internal staff of the companies lack the special expertise needed for performing well in the global market.

2.5: Costs and benefits of Globalisation

Globalisation leads to the unification of the way the world is perceived. It starts to be perceived as a homogenous unity where the elements of the economy and the common culture of consumption are strictly bound together (Hutten, 2008).

On the positive side, globalisation enables firms to outsource and find customers around the world. The globalisation of production and operations benefits firms through the realization of economies of scale and scope (Singh, 2002). Access to global market can offer a host of business opportunities such as niche markets, ways of spreading risks, lowering R&D costs, improving access to finance and among others. It furthermore establishes a network of international suppliers to serve domestic clients. Global market opportunities refer to the increase in market potential, trade and investment potential and resource accessibility (Jones, 2002; Levitt, 1983).

Global market threats refer to the increases in the number and level of competition and the level of uncertainty (Jones, 2002). Globalisation is also understood as a complex multidimensional process of deepening the international work division, increasing turnover in the international trade, intensifying flows of capital, people, technologies and goods, permeating cultures and increasing dependencies among countries. Moreover, globalisation has also thrown out challenges growing inequality across and within nations, volatility in financial markets and environmental degradations. There is also growth of unemployment and loss of sovereignty.

Taking into account the threats resulting from globalisation, the concept of ‘global governance’ seems to become more and more important. Similarly, Szabo (2002) proposed a logo for all SMEs in this 3rd Millennium: ‘THINK GLOBAL-ACT GLOBAL’.

2.6: MNCs and Globalisation

Richard Douthwaith (1995) stated that globalisation has led to the growth of huge multinationals that have replaced many small businesses that created most economic employment. Since MNCs have the capacity and funds to invest abroad, enter new markets and able to hedge against risks, it was assumed that SMEs would be put out of business. However, this aspect was challenged whereby SMEs now compete with various international competitors, be they MNCs or other SMEs by innovating and forming strategic partnerships/ alliances in international marketplace.

2.7: Developed & developing countries under Globalisation

It is clear that globalisation is an important phenomenon that cannot be simply ignored, because it affects every nation-regardless of size or level of development. Some developed countries provide subsidies and restrict trade so that their firms can be competitive in the global markets whereas SMEs in developing countries are less competitive when competing with powerful MNCs. The developed world further involves into the globalisation process by taking steps to maximise its benefits and to ease the adjustments of its demands.

Globalisation has aided the SMEs internationalisation through the intensification of FDI inflows and MNCs activities. Firms were supported by government policies to overcome market imperfections. Presently, although many of the developing countries of Africa have leaped steps forward in taking initiatives and implementing strategies to attract FDI but, for most of their human, institutional and industrial capacities are still inadequate to meet the demands of the global market place.

2.8: Impact of globalisation on SMEs

Evolving economies like Mauritius are trying to gain competitive advantages to be able to sustain globalisation. Globalisation increased the interdependence of various national economies. It has also caused the disappearance of boundaries between domestic and international markets. Borders are becoming less relevant as businesses increase their profits abroad (Knight, 2000). Hence, globalisation gives a positive contribution among to SMEs. It promotes innovation, free movement of market as there are less trade barriers within the regions, constant arrival of a new range of products, sharing of new knowledge and greater liberalisation of new economies. It also creates unprecedented information and communication technology output.

Therefore, the opportunities and threats evoked by globalisation have caused firms to adapt their organisational structures and strategies accordingly (Jones 2002; Knight 2000). Firms that respond to these trends have been found to improve their performance (Knight 2000).

However, globalisation poses intensified threat for SMEs that are unable or unwilling to compete. Mauritian SMEs do face many problems whether at the local or international levels thus, hindering their resilience and competitiveness. The problems that SMEs are facing are perennial ones such as lack of access to information, difficulty obtaining loans and financial assistance, lack of managerial capabilities, heavy regulatory burdens, non-exposure to good management practices, low IT utilization in improving productivity and also high level of bureaucracy in government agencies. (NASMEC, 2009)

Other challenges faced by SMEs in international trade are the deterioration of demand, difficulty in payment collection, limited financial resources and the costs of raw materials. Local SMEs very often lack knowledge on legal matters and another problem pertains to the registration.

According to Hall (2005), it is difficult for SMEs to find suitable local partners when they need to be engaged in joint ventures, networks or alliances for internalization.

2.9: Strategies to enhance SMEs’ competiveness

SMEs should perpetuate their core capabilities in order to become more competitive, such as maintaining low production cost, innovative design and high quality while maintaining the originality of the product. Based on empirical evidence done by Porter (1999), the firms that are inconsistent innovators in creating knowledge or merely follows routines may face difficulty in developing competitive advantage.

In Japan and Taiwan, unlike evolving economies like Malaysia and Mauritius, SMEs started as small enterprises than escaladed their businesses into large companies. SMEs are dependent on these companies and further programs are organized by the state, enhancing SMEs participation so that they will be more reliable and competitive in dealing with their suppliers/ MNCs (Jin, 2006). Hence, becoming specialized supplier to MNCs can help reduce constraints facing local SMEs. The MNCs support the frail SMEs for enduring financial viabilities (Jin, 2006).

SMEs need to compete and remain relevant in the emerging economies by strengthening domestic industry and penetrating new market opportunities. Brand management is of utmost importance for the local SMEs to go international. Local SMEs lack branding strategies and their products often lack attractiveness due to poor packaging. However, concentrating product brand might inflate cost of local products and decrease turnover and profit margin. The recommended approach is thus to have a common brand for all Mauritian products. The "Made in Mauritius" label has to be reinforced in both local and foreign markets.

Also, SMEs which initially started from small businesses operated by family members need to engage more professionals like fast growing internationalized companies to be able to compete globally and produce quality products.

Furthermore, the local SMEs need to improve networking and linkages with MNC through industrial cluster arrangement, export and processing zones. Clustering can generate benefits that progressively increase the competitive advantage to be able to compete globally. Government should also extend their supports to SMEs through subsidies, loans and different programs such as training. However, this is also true that SMEs need to become financially sustainable to reduce too much demand on the government incentives.

In addition, it is recommended the SMEs be educated on legal matters. The Mauritian government should continue provide support services like training and mentoring, allowing companies to be self-sufficient in their own research activities so that they can remain within their budgets. Moreover, efforts are being done to transform Mauritius as a regional knowledge hub, a center of higher learning and also a technology hub.

SMEs should attempt to continuously accumulate knowledge and disseminate them effectively. Successful SMEs should be urged to share their strategies with other SMEs so that they can evolve into bigger firms which are not dependent on the government. Plawgo (2009) further analysed in the context of globalisation, it is necessary to meet requirements of internationalisation processes and proper accumulation of knowledge about international competition, foreign markets and technologies to achieve competitive advantage.

CHAPTER 3 –OVERVIEW

3.1: SMEs in Mauritius

The SMEDA Act 2009 stipulates:

"To provide for the establishment of the Small and Medium Enterprises Development Authority and to make better provisions for the promotion and development of small and medium enterprises in Mauritius"

3.2: Historical background

SMEs in Mauritius can be traced back to the 1960’s. Local entrepreneurs were promoting companies to meet the demand for import-substituting goods which was the first step towards creating a formal SME sector in the Mauritian economy. Thus in 1976, the Small Scale Industry Unit (SSIU) was set up at the Ministry of Industry and Commerce.

The SSIU became the Small Industry Development Organization (SIDO) in 1983 in a view to have a more integrated policy.

In 1988, there came a provision of the legal framework in the form of Small Scale Industry (SSI). Through the Industrial Expansion Act of 1993, the Small & Medium Industries Development Organization (SMIDO) was created with an expanded role to consolidate and further develop a modern SME sector in the country.

Furthermore, the SMIDO Act was replaced in 2005 by Small Enterprises and Handicraft Development Act (SEHDA). The SEHDA was created following a merger of SMIDO and National Handicraft Promotion Agency (NHPA). The main aim was to be the centre of excellence for servicing SMEs and also to rationalize and optimise the use of resources to the small business sector in Mauritius.

Eventually in 2009, the Small and Medium Enterprises Development Authority (SMEDA) took over the activities of the SEHDA with the view of providing a responsive legal and institutional framework to meet the challenges of the global competitiveness. The SMEDA helps small enterprises to develop their business and provides business facilitation services.

3.3: Initiatives to promote SMEs

The Business Facilitation and Counseling Unit of SMEDA offer the following services:

Business counseling

Assistance to prepare business plans

Information on business registration, that is, permits and clearances.

Marketing assistance

Training

Information on loan facilities

Help to locate specialized services provided by other institutions

Expansion/ modernization of existing business

The SMEDA further provide management-based programs and skill-based programs such as handicraft. The SMEDA also conducts Training Need Assistance (TNA) annually to identify other training needs among existing SMEs. In addition, the SMEDA organizes training programs, seminars, workshops and conferences to raise awareness and capacity building of SMEs. The IVTB, Institut de la Francophonie pour l’Entrepreneuriat (IFE) and the Mauritius Employers’ Federation offers several training and education programs and courses.

3.4: Support to SMEs

The following institutions play a crucial role in enhancing the competitiveness of SME sector by acting as facilitators, provider of financial support, training, consultancy services, marketing and export assistance:

Small and Medium Enterprise Development Authority (SMEDA)

Agricultural Research and Extension Unit (AREU)

Enterprise Mauritius (EU)

National Computer Board (NCB)

Ministry of Business Enterprises and Cooperatives (Business Enterprise Division)

Human Resource Development Council (HRDC)

Development Bank of Mauritius (DBM)

Mauritius Post Cooperative Bank (MPCB)

The Mauritius Standards Bureau

State investment Corporation (SIC)

Furthermore, fiscal incentives such as exemptions of land conversion tax are offered. There are also other non-fiscal incentives, like building and land use permits. Also, various loan schemes for SMEs are available at the DBM Ltd, especially in the phase of crisis like the euro zone. There are other leasing schemes for acquisition and modernization of equipment by SMEs. New Micro Enterprises Scheme for women has also been introduced.

In addition, there are also financial supports such as services offered by the Restructuring Working Group (RWG)-National Resilience Fund and the schemes of Mauritius Business Growth Scheme (MBGS).

3.5: SMEs Legislations

The SMEs are governed by several key legislations:

SMEDA Act

Labour Act

Remuneration Orders

Business Registration Act

Business Facilitation Act

Employment relations Act

Companies Act

SME Legislations

Local Government act

3.6: SMEs and Employment

As in most countries, SMEs have been viewed to be an employment generator engine and Mauritius is no exception. SMEs are contributing nearly 37% to the GDP and employing more than 50% of the workforce. It is said that SMEs create more employment than large enterprises because mainly they tend to be more labor-intensive that requires lesser capital spending on technology.

3.7: SMEs and Exports

An increase in export not only boosts the level of sales and employment but also extend the life cycle of goods and services. It has also been analysed that Mauritian SMEs which have potential to export only do so when opportunities arise as they view themselves unable to compete in the international market. Trading in the regional blocs like COMESA, SADC, among others also increases export level.

3.8: SMEs and Innovation

Since SMEs often face survival risks in market competition, they need to innovate to perform better. This also brings economic growth. A technology centre will be set up to help SMEs continuously adapt, innovate and improve their technology. In this endeavor, SMEDA will renew contacts with foreign institutions such as CSIR, DTI (South Africa), NSIC (India), SMEDA (Pakistan) and MATRADE (Malaysia).

3.9: Globalisation and Mauritian SMEs

SMEs are already experiencing unprecedented challenges as a result of trade liberalization in line with the globalisation process, the WTO regulations and the dismantling of our safety nets (Multi Fibre Agreement, Sugar Protocol). This situation is being further aggravated by economic turmoil in our major markets, cut throat and unfair competition from imported products coming from low costs countries.

Enterprises will have to innovate in order to be pro-active in handling the negative impact of globalisation. To support and assist entrepreneurs, the SMEDA is providing several services to consolidate their competitiveness and growth, such as trade fairs, craft shops and exhibition centre, market research and counseling, preparation of strategic plans and liaising / networking with public and private sector organizations.

CHAPTER 4 –RESEARCH METHODOLOGY

The main aim of this chapter is mainly to analyse the research method that has been used for this project. Emphasis is also laid on the methods that were used to increase reliability and validity.

4.2: Research objectives & problem definition

This research aims to study about the SMEs in Mauritius. This study pertains to analyse the impact of globalisation on SMEs and to assess the competitiveness of local SMEs in the global place by identifying their strengths and weaknesses. It is expected that out of this study, solutions will emerge out and local SMEs will benefit from the findings and recommendations and that these solutions will be implemented to help for the successful survival of SMEs in Mauritius. Moreover, the importance of SMEs in general will be assessed and also their current situation in Mauritius will be investigated.

Empirical evidence shows the various problems faced by SMEs in general in the literature review. SMEs in developing countries are less-equipped to face the globalisation era. Mauritius as small developing island (SIDS) should seek international support to develop its sectors and prepare itself to gain from the globalisation process.

4.3: Research strategy

A research strategy is normally planned and designed with regard to solve the queries to the research questions. In order to carry out the research, the strategy must contain various methods and tools. Moreover, it is important to do a critical analysis of all the materials and data collected.

Normally for this study, the research strategy started by gathering background data on the SMEs in Mauritius. Their current situations and problems encountered were studied. The main aim of this study is to find out the existing strategy adopted by local SMEs and also to come up with new tools and options in order to improve the situation of SMEs in the globalisation process. Consequently, the research questions were designed.

4.4: Research methods

Usually the two types of methods of research that are mostly used are the quantitative and qualitative methods (Ghauri et al., 1995). According to Judith Preissle (2006), qualitative research is the research designs in the form of descriptive narratives like notes, recordings and pictures, among others. It also emphasizes on interpretation, observations and understanding to data (Ghauri et al., 1995).

On the other hand, quantitative methods are objectives and deal with hypotheses and numbers whereas qualitative methods are subjective and are usually research questions, words and ideas (Burns & Grove, 1993 and Streubert & Carpenter, 1995). For the purpose of this research, the qualitative approach is more suitable since beliefs, opinions and ideas cannot be measured in quantitative way.

4.5: Data collection

Ghauri et al., (1995) stated that the special technique for collecting data can be either primary or secondary data. In this thesis both are used.

Secondary data generally involves previously accumulated data, for example publications and reports. For this study previous research projects, dissertations and other relevant information from the University of Mauritius library were scanned. Due to lack of adequate materials on the field of this research, there was a need to look at books, magazines and other publications whereby relevant stuffs were collected. Moreover, the SMEDA head office which is found at Coromandel was also visited where further necessary information was accumulated. Also, the internet has been a very useful source for this research.

Now that secondary data was gathered, the next step was to collect primary data. A survey is done only then primary data is collected. Some common means of primary data collection are observations, interviews, focus groups, surveys and questionnaires. For this thesis, through qualitative interviews and questions to the SME managers, the primary data was collected.

Data was also collected based on observation. For this study, it was mainly while visiting the SMEs and also through the workshops organized by the Ministry of business and industry. According to Kotler (1995), observational data consist of gathering primary data by observing relevant people, actions and situations.

In addition for this study, survey research has been done which is the most common for primary data collection. Survey research is the best approach used to gather descriptive information (Kotler, 1995). A list of all the registered SMEs as at 2012 was obtained from the SME directory from which around 500 firms was selected randomly. However, the response rate limited to around 40%. Eventually a sample size of 230 was finalized whereby the survey was done.

4.6: Research instrument

The main instrument used for this research was the questionnaire. It consists mainly of a series of questions in order to gather information from the respondents. While preparing the questionnaire, the fact that some entrepreneurs are still not well-acquainted with the concept of globalisation was kept in mind. Also, the four areas involved in writing a question proposed by Trochim (2002) were also considered. For the survey, the questionnaire was chosen mainly because of its objectivity, accuracy, precision of answers and quickness of administration.

A copy of the questionnaire is included; refer to Appendix 3. .Furthermore, the type of questions that the questionnaire comprises of is listed below:

Dichotomous questions- these are questions offering two choices, mainly ‘yes or no’.

Multiple choice questions- these include questions offering three or more choices.

Rating/ Likert scale- these are statements whereby respondents show the amount of agreement and disagreement, rating from strongly agrees to strongly disagree.

Unstructured questions- these included questions that respondents can answer in an unlimited number of ways.

4.7: Sampling plan

A sampling plan consists of a limited number taken from a large group for testing and analysis, on the assumption that the sample can be taken to be representative of the whole group (Crouch & Houdson, 1996). The sampling plan normally comprises of the sample design, unit and size.

4.7.1: Sample design

A sample is a representative part of a population chosen with the objective of investigating the properties of the parent population (Marriot, 1990). The sampling design used for this survey was the stratified random sampling approach. This is normally when the population is divided into mutually exclusive groups. The population was divided into the respective sector of activity and sample groups were chosen from all of them.

4.7.2: Sampling unit

The sample unit is the target population that needs to be sampled. For this survey, a list of around 500 SMEs was chosen. The table below shows the number of SMEs from the respective sector of activity.

4.7.3: Sample size

Roscoe (1975) proposes among the rules of thumb for determining the sample size that sample sizes larger than 30 and less than 500 are appropriate for most research. Therefore, the sample size used for this survey was 230 taken from a target population of 500 SMEs.

4.8: Contact method

The way the SME managers were contacted was mainly personal interview. Normally phone calls and emails were used to take appointments with the managers before visiting them. However, the questionnaires were not mailed to them due to low response rate which past university students experienced. Even though the questionnaire was administered in English, while taking the interviews it had to be translated in French or Creole (native language) since some entrepreneurs had low educational background.

4.9: Pilot survey

A survey was done with few lecturers before finalizing the final questionnaire in order to avoid misleading questions and some questions were reframed.

4.10: Data analysis

All the completed questionnaires were examined individually before the data were analysed using the statistical Package for Social Scientist (SPSS) 16.0 software and Microsoft Excel 2007. Moreover, cross-tabulations were also carried out to measure the level of association between the various variables.

4.11: Limitations

Many drawbacks were associated when conducting the survey. Mainly it was very time consuming to gather data, as more than 200 face-to-face interviews were done. In addition, many entrepreneurs were reluctant to cooperate, while some refused categorically despite all efforts done assuring them of confidentiality. Also, time was wasted looking for the entrepreneurs since all of them are of scattered nature and most of them operate at their home. Moreover, despite the up to date SME directory, many among them have already ceased operations. In addition, some answered very quickly leaving many questions unanswered.

5.1: UNIVARIATE ANALYSIS

The univariate analysis is used to summarise the responses for each questions. To carry out the analysis measures of Central tendency, dispersion, frequency distributions as well as pie charts and bar charts are used.

As targeted all the 230 questionnaires were filled, despite there were few that were not completely filled. The missing parts have been adjusted through further research.

The above figure 5 shows the nature of business that the SMEs are operating. There are normally 12 sectors. Firms operating under trade and commerce are the highest with a proportion of 30%. Following, there are some 40 firms under leather and garments and 30 firms under profession vocation. Furthermore, 10% operate under the food and beverages and 23% as handicraft. Both wood and furniture and metal products consist of 4% firms under them. The sectors that have the least number of firms are paper & products (1%), business support service (1%), chemical, rubber and plastic (1%) and jewelry (1%).

As shown in the above illustrations, there are normally three types of business that exist under SMEs namely sole trader, partnership and company. Out of the 230 SMEs, 66.5% are sole trader that constitutes more than 50% of the sample. Secondly, there are partnerships which amount to 23.5%. This type of business is growing nowadays and respondents operating under partnership are of the view that it helps to reduce different type of business risks and helps in sharing of work and ideas and thus manage their business more effectively. Following just after, is company, which amount 10% of the sample. This type of business is also growing among the SMEs.

Below, a cross tabulation is done between the nature of business and the type of business.

Most of the sole traders operate under food, leather and handicraft. Almost all sectors have one or more business unit that do business under sole trader and partnership. Companies are formed mainly those under the trade and garments sector.

Figure 7, shows out of the 230 SMEs, 15% did only primary level. They have been able to grow with help provided by SMEDA and through other vocational courses. Furthermore, out of the sample, 65% of them attended their educational level up to the secondary showing that entrepreneurs are having a sound knowledge of business. Finally, 20% pursued their tertiary education indicating an increasing number of educated entrepreneurs whereby they can devise better ways in coping under the global environment.

From the figure above, it can be seen that most of the entrepreneurs are aged between 30 to less than 40 representing 45% of the sample. Only 2% of the entrepreneurs are in their twenties and 8% are above 50. However, it is worth noting that many enterprises are already existed businesses which entrepreneurs have inherited from their parents or family tradition.

Figure 9, analyses the employment level within the enterprise. SMEs, by definition, employ less than 50 employees and the survey tallies with the theory. It can be noted that a large majority of the sample, 78%, employ less than 10 employees. This includes many sole traders. Moreover, 18% of the sample employs more than 10 employees. Only 4% employs more than 25 employees and this is mainly the case of companies.

From figure 10 above, the results for the number of years in operation show that more than half of enterprises existed since the last 10 years. 5% existed since very long and 25% existed since the last 20 years. Only 8% of them joined the business recently.

The results from the random sample show that the SMEDA and DBM remain the most active enterprises in helping the entrepreneurs. They do so by ways of grants, loans, and other business facilitation measures. Some 15% of the firms have benefited support from the Enterprise Mauritius and Ministry of Business Enterprises. Most of the entrepreneurs are not well-informed about the other supporting institutions such as the Mauritius Standards Bureau, SIC, MPCB, HRDC, NCB and AREU. Some of them also seek help from family rather than choosing these supporting institutions.

The figure 12 above illustrates the different kinds of support that the entrepreneurs benefited from. Every respondent in the sample affirm that grants and loans are the prime sources of support. Out of the sample, 57% of the entrepreneurs have benefited from business counseling. Furthermore, other benefits constitute marketing which helped 30 of the firms (13%) whereas 46 firms get training assistance. Besides, some 28% claims other kinds of support such as leasing schemes, other fiscal and fiscal incentives among others.

From the sample, 28% of the respondents acknowledge that help from these supporting institutions, especially in the forms of grants and loans, have helped them to raise finance for further expansion of their business. Moreover, 22% of the respondents agree that they were better able to manage their business. Also, 15% of them admit that the support given were beneficial when it comes to enhancing product quality. About 13% relate in improvement in their sales level followed by 12% agreeing to have been able to increase awareness and new ideas. These supports also help 10% of the firms in upgrading their business skills and professionalism.

The above tables show that more than 83% of the entrepreneurs are of the view that banks and international banks offer a wide range of global banking activities for SMEs. An example in Mauritius is GBOT that promotes trade and commerce.

From the tables above, the mean value of 1.67 shows that most of the entrepreneurs rated the level of competition as either fierce or strong (90%). Only 9% rated competition level as normal within the sector. On the other hand, none of them rated competition as being weak.

Most of the respondents were of the view that competition within the sector arose mainly due to the emergence of both local and foreign firms. Local source of competition accounted to more than 40% and 16.5% from the foreign firms. This can be shown the table above.

The above figure 15 reveals that 76% of the firms obtain their raw materials locally. Furthermore, 21% of the sample uses both imported and local raw materials. However, only 3% of them import their raw materials, especially those operating in the leather and garments, jewelry and chemical sector.

Almost all the entrepreneurs asserted that there involve problems in obtain their raw materials in terms of costs, quality of the product, delivery and suppliers. However, the main concern for the entrepreneurs remains the cost factor and 90% of the sample admits it. This is illustrated below.

When dealing with globalisation, the sale of the products becomes an important criterion. From the figure above, it can be seen most of the firms sell their products locally whereas only a meager figure of 8% deals both locally and internationally. Out of the sample, there is no single firm that sells their products solely to the foreign market. Therefore, this opposes the opportunities that globalisation offers. Few firms export mainly to Africa, Europe and other countries like Seychelles, Reunion.

In addition, most of the firms affirm that they had problems in terms of competition, risky payment, knowledge about clients and about sophisticated products when dealing internationally. Again, this opposes the notion of globalisation which relates to more global world thus enabling people to buy and sell from any part of the world.

It is true to note that whenever the topic of globalisation is raised, the word competition is always envisaged. The illustration below illustrates how people perceive competiveness of their products on both the local and international market.

This shows that best quality of the products remain the main concern for the entrepreneurs in order to remain competitive in the market. Following that, they reveal that the creativity and uniqueness are also important, especially for jewelry, wood and metal products sector. This is where special attention needs to be given to customers’ personal choices. Moreover, brand and customer loyalty is equally important for sectors like leather, food and trade.

Despite the above analysis, the crux of the project will entail further questions on globalisation. Globalisation is a worldwide phenomenon affecting everybody both directly and indirectly. The driving factor towards increasing integration of economies and efficiency both locally and internationally is tagged by world competition. This project, therefore, aims at analysing the Mauritian SMEs under globalisation.

As observed from figure 19 above, it can be said that the majority of the entrepreneurs came across the word globalisation. During the survey, it was noticed that many of them do not have in-depth knowledge about the topic. However, 83% of them are aware of the concept of globalisation. Only 17% of them disclose to have never heard about it.

The table and figures below illustrate the profile of SMEs that proclaim being affected by the incident of globalisation. More than half of the sample, 64%, reveal that globalisation does impact their organization. However, 36% of the firms affirm that they are not affected by globalisation.

A cross tabulation is carried forward to assess which sectors are most affected by globalisation.

The food, garments and trade are the sectors most affected by globalisation. Small sectors with individual clientele are not heavily impacted as they believe that globalisation reflects international competition mostly. Over and above, all the sectors are affected directly and indirectly with globalisation.

Globalisation is a contested term that evokes different responses depending on the aspects it is used. Not everyone agree that globalisation is always bad. Some say it presents huge benefits, especially for emerging countries like Mauritius, by bringing jobs and business opportunities, thus strengthening the economy.

The above tables represent more than half of the sample affirming that globalisation has helped in increasing their firms’ opportunities for trade, investment and also developing customer markets. Hence, globalisation increases their resource accessibility.

Furthermore, firms also admit that global market opportunities have helped them to access raw materials, labor and customer worldwide that is shown in table below. Thus, the spread of globalisation, free markets and free trade are helping the firms to grow their business and strengthening the SME sector. This also present as the best ways in beating poverty and building a better economy.

On the other hand, globalisation also presents market threats. The tables below show that most of the respondents also agree that globalisation has increased the level of competition, complexity and uncertainty to their business operations. Principally, the global market threats involve a large number of competitors emerging both locally and world widely.

The term globalisation describes the increased mobility of goods, services, labor, technology and capital. Among the opportunities that globalisation presents, one is transfer of resources. As shown below from the tables most of the respondents believe that globalisation leads to a transfer of technology and labor especially in the manufacturing sector.

The analysis that follows will mainly deal with the factors that matters for the expansion of the SME sector.

From the above tables, all the entrepreneurs interviewed unanimously agree that availability of finance matters for business expansion. They also reported that lack of adequate funds impede their investment decisions.

95% of the firms agree that it is imperative to find new markets both locally and abroad. They will have to cease operations if they find no markets for their products. Only a small proportion believes that this factor does not matter for their expansion.

The mean for this statement is found to be 1.75 which indicates that most of the entrepreneurs believe they have to devise proper ways to be able to learn and innovate since customer tastes changes rapidly. Bringing innovation in their products remains a crucial factor for the enterprise to expand and compete.

Using new techniques of production is directly correlated with expansion. 90% of the entrepreneurs are of the view that in order to innovate, there is a need for new techniques of production such as new machineries. However, 10% of them feel the contrary.

With a mean of 1.54, almost all the respondents admit that it is important to use ICTs in their business operations. Only a minority of 4% assert that implementing ICTs do not matter for their business expansion as they find high costs are involved.

More than 70% of the firms agree that engaging in R&D activities help for the expansion of their business. Most firms lack know-how which becomes a hindrance against innovation in SMEs. Therefore, R&D can help them in taking investment decisions.

The mean of 1.66 shows that most of the firms believe that there is a need for proper support and incentives from the government and related bodies. The latter have to see to it that they provide adequate assistance to the SME sector. Around 10% of the sample considers these schemes and supports to be futile.

In addition, government policies need to be amended in favor of the SMEs. 85% of the sample believes that reforms in tax policies, loans and others schemes can help them in expanding their business.

42.2% and 40% of the respondents find it very important and important respectively while 17.8% do not find the location factor to matter for the expansion of their business.

More than half of the sample responded that they provide training to their employees while 45% do not. These are mainly sole traders. Those providing training do so in different field. This is illustrated below.

58% of the sample provides training for personal skills which is very important for customer satisfaction. Moreover, 26% do so in the marketing field which helps in boosting the market share. 12% account for training in using the technology while 4% in other related field.

The above analysis relates to the strategies that entrepreneurs perceive as best that they have adopted or intend to adopt in order to cope with globalisation. 24% of the sample believe that clustering and inter firm networking can help smaller firms to compete with larger companies accompanied with an array of opportunities such as economies of scale, increased productivity, innovativeness and competitive performance. This also leads to division of labor, creating joint design opportunities and other marketing initiatives.

22% of the entrepreneurs believe that raising brand awareness is important and 21% affirm on a sound knowledge of the legal. Other strategies involve exploiting opportunities offered by inward FDI (10%), engaging with professional companies (9%), cross-border mergers and acquisitions (7%) and becoming a supplier to MNCs (7%).

22% of the SMEs perceive their future as a bright one. Other 34% believe that they have the potential to improve their firm’s competitiveness and become successful ones. Furthermore, 18% assume that there is a possibility for them to become a large firm while 26% are uncertain about the future. They need to devise prompt actions otherwise they will be driven out of the market.

The Parametric and Non Parametric Tests will be used to deduce conclusions and identify whether the mean and hypothesis differ considerably. The Parametric Tests are usually used when data follows a normal distribution whereas Non Parametric Tests are used if the distribution is not normal. Pearson’s correlation coefficient and ANOVA will be used if the distribution is normal, otherwise the K sample independent test (Mann-Whitney Test, Kruskal-Wallis Test and Chi-Square Test) will be used.

The objective of this research is to assess the Mauritian SMEs under globalisation. A more systematic approach has been devised in order to tackle this problem since it is true that individual analysis of the questions, cross-tabulations and other statistical tests did not give a true measurement of the topic.

A new variable IMPACT = (q12.1+q20+q22+q23.1+q23.2+q23.3+q23.4+q27) is created relating to the factors that explain the impact of globalisation which is grouped together entailing further statistical analysis. To confirm the validity and feasibility of such an approach a factor analysis is conducted. Considering the new variable IMPACT, that explains the impact of globalisation, the KMO (Kaiser-Meyer-Olkin Measure) test is done to see whether the variables in the samples are adequate to correlate.

Ho: R-Matrix is an identity matrix

H1: R-Matrix is not an identity matrix

Since the KMO is 0.876 (>0.5) and p value=0.000 (p<0.001), leads us to reject H0 and conclude that there is sufficient correlation between the variables. This indicates that the sample is indeed good and it is possible to move to factor analysis.

The Principal Component analysis assumes that before extracting, all the variances have the same initial communality 1 or 100%. It is only after extraction that the true contribution is obtained.

After extraction we find that communality of variable 1 is 0.599 implying that 59.9% of variances associated with variable 1 are common. Likewise communality of variable 2, 3, 4, 5, 6, 7 and 8 are 0.396, 0.406, 0.637, 0.889, 0.810, 0.853 and 0.904 respectively.

Since there are 2 rows, the above table 5-53 shows that 2 factors are extracted. This shows that the 2 extracted factors account for 68.7% of variation in the responses. 53.2% of variances are accounted by the first factor and 15.4% by the second factor. After rotation factors 1&2 account for 51% and 18% of variances respectively. The factors explain that globalisation affects SMEs both positively and negatively.

5.2.2: Test of Normality

A normality test is conducted to see whether the data collected for assessing the impact of globalisation follows a Normal distribution. This is the first step in determining whether to use parametric tests.

H0: Mean of Impact of Globalisation follow a Normal distribution

H1: Mean of Impact of Globalisation does not follow a Normal distribution

Kolmogorov-Smirnov Test

Since p value = .000 (<0.05), it means we reject H0, that is, impact of Globalisation does not follow a Normal distribution.

Shapiro-Wilk Test

It is used for confirmation and if conflicts arise between the two tests, the Shapiro-Wilk statistics will be used.

We find p value = .000 (<0.05), that is reject H0 and concluded that Impact of globalisation does not follow Normal distribution.

Having found that the distribution is not Normal, we cannot use the sample t-test. Therefore Non-Parametric tests such as Mann-Whitney test.

5.2.3: Mann-Whitney Test

With the 2 Independent Sample Tests, Mann-Whitney, we want to test whether the difference in mean of the Impact of Globalisation between any two sectors are significant.

CHAPTER 6- CONCLUSION

It is true to note that SMEs need to be given special by the policy makers especially in the present global economy since SMEs contribute heavily in creating employment. This happens not only in Mauritius but across the world. The SMEs help in sustaining economic development and achieving economic growth (40% of Mauritian workforce).

Since the last few decades, the concept of globalisation is becoming increasingly popular. It creates numerous interconnections and linkages between nations that lead to the present world system. It includes greater international mobility of people, money, information, commodities, among others. Therefore, globalisation has impacted heavily on people lifestyles and way of doing business around the world.

It is believed that globalisation is hampering the growth of SMEs, since it has enhanced competition. In fact, competition is not just a business phenomenon but rather an economic one as it is present in almost every state. From the findings, it has also been concluded that most of the SMEs are ill-equipped to cope with the challenges of globalisation.

Hence, it can be noticed that SMEs lag behind the global players in this sphere since they evade from adopting the measures in order to cope with globalisation. Most of them are reluctant to invest and bring innovativeness in their work due to financial constraints, being family-owned business, size and risks associated. Moreover, they abstain from amending their organizational structure, employing skilled employees and entering into strategic alliances. Furthermore, most of them do not feel the need of adopting ICTs which is among the most prominent drivers of globalisation. Even though in today’s cyber-island, e-commerce and e-business are very common, but most of the SMEs are averse of adapting.

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