Small Business within the Context of Tanzania - Case Study Example

Tanzania Small Business Report Name Date Table of Contents 1.0 Introduction...........................................................................................................................3 2.0 Analysis of Small Businesses...............................................................................................3 3.0 Overview of Small Businesses.............................................................................................4 3.1 General Environment...............................................................................................4 3.1.1 Political Environment................................................................................4 3.1.2 Legal Environment....................................................................................5 3.1.3 Socio-cultural Environment.......................................................................5 3.1.4 Technological.............................................................................................5 3.1.5 International...............................................................................................6 3.2 Task Environment.....................................................................................................6 3.2.1 Customers...................................................................................................6 3.2.2 Competitors................................................................................................6 3.2.3 Labour Markets..........................................................................................7 3.2.4 Suppliers....................................................................................................7 4.0 Conclusions..........................................................................................................................7 5.0 Recommendations................................................................................................................8 6.0 References............................................................................................................................9 1.0 Introduction Small businesses have for a long time seen as a driving force for economic development through employment opportunities created and entrepreneurial innovation. Within this context, efficiency of small business is important concern to governments, especially those that are responsible of delivering economic growth and improving conditions of citizens. Klapper & Delgado (2007) shares the same sentiments with van Praag & Versloot (2007) by stating that small businesses is an important component in the society and economic sector since it promote productivity, employment, and innovation, and thus, results in economic development of a country. Thus, the aim of this report is to analyse small business within the context of Tanzania. Moreover, the paper analyses small business, small business opportunities & constraints, which will result in presentation of some recommendations that will make small business viable and sustainable. 2.0 Analysis of Small Businesses BNET Business Dictionary (2009) defines small businesses as “an organisation that is small in relation to the potential market size, managed by its owners, and not part of a larger organisation...and having fewer than 100 employees”. The number of employees is an important factor that defines small business in that in United States, small business are supposed to employ less than 100 employees, in European Union, the number of employees should be less than 50 while in Australia, small business employs less than 20 employees. In the case of Tanzania and according to Small and Medium Enterprise Development Policy (2003), they define a small business as that employ between 4 and 50 people. However, in other instances, capital or revenues defines what small business entails. Different authors have continuously discussed small business involvement in the development of economies; however, the link of small business to economic development can perhaps be credited to Schumpeter (1934), when he suggested that development is rooted in innovation. This means that he perceives that entrepreneur is a linchpin of economic growth while the role of governments is to support entrepreneurial innovative activities. On the other hand, Porter (1990) stated that domestic rivalry and domestic demand within the small business level results to stimulation, consolidation, competitive clustering resulting in creation of international competitive advantage. 3.0 Overview of Small Businesses According to Small Business Administration (SBA) (2009), small business accounts to many businesses that are operated in United States. In the case of European Union, European Commission Enterprise and Industry (2009) state that 20 million small business exist, which accounts to 99% of all businesses, 90% of these businesses employ less than 10 people. According to IFC (2006) report, eighty percent of firms that are located in Sub-Saharan Africa are small businesses. In the same view, Small and Medium Enterprise development Policy (2003) states that small business contributes a third of GDP while employing twenty percent of working population in Tanzania economy. Most of the businesses are owned by individuals and family units but also are a growing number of small businesses that incorporates women groups and teenager/youths groups. 3.1 General Environment 3.1.1 Political Environment Tanzania was formed in 1964 after two sovereign states came together: Union Government and Zanzibar Revolutionary Government. Since independence, Tanzania has continuously held elections but multiparty was instituted in 1992 resulting in the first democratic elections in 1994 (Tanzania Official Website 2009). Tanzania has an inclusive and consultative process that cements social cohesiveness and national unity, encouraging and promoting security and stability, peace and other attributes that are crucial for a conducive investment climate. Terrorist attack occurred once in 1997 in which Dar Salam was bombed but since then no terrorism attack has ever occurred. Tanzania government encourages participation in small business, this can be illustrated by the policy paper of 2003 (Small & Medium Enterprise Development Policy, 2003). This illustrates that Tanzanian government is determined in improving working conditions of small business. Political position of this country shows that it encourages and promotes small business through numerous policies that are in place. 3.1.2 Legal Environment The session paper Small & Medium Enterprise development Policy (2003) states that the legislative environment of Tanzania does not support small businesses. This is because of bureaucratic, complex, and costly legal, and these numerous regulations prevent entrepreneur from opening businesses. The laws and regulations that support small business are to some extent the same as those of large companies. Moreover, there are no specific laws that manage labour and the minimal laws that are available do not fully account to labour regulations. Legal framework constrains development of small business in Tanzania. 3.1.3 Socio-cultural Environment Tanzanian culture is diverse and the major cultural figures are language, religion, painting, popular dance, art and music. Tanzania culture incorporates European and India backgrounds, however, Tanzanians are friendly to foreigners and between themselves. Some of the virtues that are highly valued are respect, politeness, and modesty (Thanasankit 2003). More than a hundred languages are spoken but the major language is Kiswahili with some people speaking English. Religion is equally divided in terms of Christianity, Muslims and other traditional believes. In case of social etiquette, greetings are important especially handshake and continue converse while holding hands. Modest attire is encouraged because of Muslim cultural beliefs while open anger and public affection are frowned. Closeness among the people and affection has resulted in decrease of vices such as criminal activities and thus it offers business environment that is viable. 3.1.4 Technological Infrastructure in Tanzania is poor and it is a substantial inhibitor for effective firm growth and operation. Costly electricity and frequent outages has made doing business cumbersome (Enterprise Surveys, 2008). According to Small & Medium Enterprise Development Policy (2003), poor infrastructure include roads, working premises, warehouses, power, cold rooms, communication and water adversely the development of small businesses. Services are another major concern in that business premises are in short supply in most parts of the country. Moreover, technological institutions are weak and can support the requirements of SMEs sector. However, communication network (mobile phones and Internet) are developed while means of transport include roads, air, water and rail. The poor infrastructure inhibits accomplishment of businesses. 3.1.5 International Globalisation is an important factor in current economic or business environment (Utz 2008). Globalisation has resulted in introduction of cheap but quality goods and services that compete with local produce that are expensive because of production costs. Foreign competitors have an advantage because their products are cheaper; however, trade restrictions and quotas have assisted small business enterprises to survive shortcomings of globalisation. Thus, international competitor contributes in the improvement of business through provision of appropriate technology and raw materials for ensuring small businesses survive. 3.2 Task Environment 3.2.1 Customers The economy of Tanzania is growing and consumers require goods and services. The growing population and embracement of western culture has resulted in change of consumer behaviour. Consumer purchasing power within the urban areas is improving while in the rural areas, purchasing power remains the same. This is attributed to availability of white colour jobs and other employment opportunities that are paying better. Product and services that come from international markets are cheaper and it has been associated with different lifestyle and culture, many consumers in Tanzania tend to like international products more than local products (Ndulu & Mutalemwa 2002). Customers, to some extent, negate development of local businesses because they appreciate international products. 3.2.2 Competitors Large companies especially those that produce goods and services in large quantities have advantage of economies of scale. Moreover, large corporations purchase raw materials cheaply because of discounts and other benefits that are associated with having large capital base (Fitzpatrick 2008). Large companies and other business are operated mostly by professions compared to small businesses that are owned and operated by family members, professionalism ensures that the goods produced are of better value and quality and the entire process of production is mostly efficient. Economies of scales usually affects the way small business operates since small business will have to meet high cost of production compared to other companies. This negatively affects the way small businesses are operated. 3.2.3 Labour Markets Many people in Tanzania usually are employed in manual jobs rather than the white colour jobs. Most of these people have no education or knowledge of tasks allocated to them (Ndulu & Mutalemwa 2002). Even though the government champions provision of at least minimal education, but due to poverty many employees are not educated. The large, untrained and unskilled labour usually is inefficient and ineffective in accomplishing its tasks and thus does not help much in ensuring that small business are viable or sustainable. Most of the skilled and trained labour is focused on developed and large companies that pay better compared to small businesses. 3.2.4 Suppliers Raw materials are easily accessed but of varied quality. Those small businesses that utilise agricultural raw materials access these products easily but those who use industrial materials and equipments have to source them from other countries and thus the tariffs, taxes and other governmental taxes have to increase the price the raw materials. This affects the competitive advantage and thus affects negatively the small business especially those that wants services of international raw materials or international equipments (Campbell 2008). 4.0 Conclusions Small businesses are the pillar of many economies. Small business accounts to 99% of business in European Union, substantial United States business, 80% of Sub-Sahara Africa business and a third of Tanzania business. Small businesses are businesses that employ less than 100 people while have a small capital base and turnovers. Numerous constraints and benefits affect the development of small business in Tanzania. Government legislation provides poor support to these businesses while infrastructure is also poor. Socio-cultural activities provides a smooth way of operating businesses but international competition, inadequate supply of raw materials, and unskilled labour results in these business not succeeding. 5.0 Recommendations Some of the recommendations that the government and small business should factor into consideration are: Improve on infrastructure especially transport network, building, services and communications sector The small business owners should employ semi skilled and trained people to fill some positions in the organisation to improve on quality and efficiency The government should put in place legislations, rules and laws that favour the development of small businesses. Small business should be provided with financial assistance that they can access easily Conducive environment for small business such as provision of extension officers will ensure that the small business owners cultivate culture of managing appropriately their small businesses. 6.0 References BNET Business Dictionary. 2009. Small Businesses. http://dictionary.bnet.com/definition/Small+Business.html (accessed November 11, 2009) Campbell, C. 2008. Legal Aspects of Doing Business in Africa [2008]: International Business Series. New York: Lulu.com Publishers. European Commission Enterprise and Industry. 2009. Small and Medium-Sized Enterprises (SMEs). http://ec.europa.eu/enterprise/policies/sme/index_en.htm (accessed November 11, 2009) Fitzpatrick, M. 2008. Lonely Planet Tanzania: Country Guides. London: Lonely Planet. Porter, M. 1990. The Competitive Advantage of Nations. New York: Free Press. IFC. 2006. Sub-Saharan Africa: Increasing Impact, 2006 Regional Report, International Finance Corporation (IFC), Washington, Retrieved November 11, 2009 from http://www.worldbank.org Klapper, L. & J. Delgado. 2007. Entrepreneurship, View Point Series, Note 316, World Bank, Financial and private Sector development. Ndulu, B. & C. Mutalemwa. 2002. Tanzania at the Turn of the Century: Background Papers and Statistics, World Bank Country Study. New York: World Bank Publications. Small Business Administration. 2009. About Us. http://www.sba.gov/aboutsba/index.html (accessed November 11, 2009) Schumpeter, J. 1934. The Theory of Economic Development. Cambridge: Harvard University Small and Medium Enterprise Development Policy (2003). Ministry of Industries and Trade, Republic of Tanzania. http://www.tanzania.go.tz (accessed November 11, 2009) Tanzania Official Website. 2009. Official Online Gateway of the United Republic of Tanzania. http://www.tanzania.go.tz/ (accessed November 11, 2009) Thanasankit, T. 2003. E-commerce and Cultural Values. New York: Idea Group Publishers. Utz, R. 2008. Sustaining and Sharing Economic Growth in Tanzania. New York: World Bank Publications. Van Praag, C. & P. Versloot. 2007. What is the Value of Entrepreneurship? A Review of Recent Research. Small Business Economies, 29(4): 351-382 Read More