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The role of SMEs in rwanda from 1995 to 2010

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par Clotilde MUKAMUGANGA
National University of Rwanda - A0 2011
  

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2.3. Growth of small businesses

It is commonly assumed that all businesses wish to grow. But is it true? Do small businesses want to become big businesses? It may well be that the owners of a small firm have no aspirations to expand the operations of their enterprise. Small businesses are frequently perceived to grow in stages. The number of stages may vary depending on the nature of the business and on how each stage is defined, but typically we can identify five.

Table 2.2: Management role and style in the five stages of small business growth

Stage

Top management role

Management style

Organization structure

1. inception

Direct supervision

Entrepreneurial individualistic

Unstructured

2. survival

Supervised supervision

Entrepreneurial administrative

Simple

3. growth

Delegation

co-ordination

Entrepreneurial

co- ordinate

Functional centralized

4. expansion

Decentralization

Professional administrative

Functional decentralized

5. maturity

Decentralization

Watchdog

Decentralized functional/products

Source: John Sloman (1998:295)

In the initial stage, inception, the entrepreneur plays the key role in managing the enterprise with title if any formalized management structure. In the next, two stages we see the firm establish itself (survival stage) and then begin to grow. The entrepreneur devolves management responsibility to non-owner managers. Such non-owner managers are able to add certain skills to the business which might enhance its chances of growth and success. The fourth and the fifth phases, expansion and maturity, see the firm become more bureaucratic and rationalized; power within the organization becomes more dispersed.

This growth pictures of small business descriptive rather than explanatory. To explain why a small firm grows we need to examine a number of factors. It is useful to group those under three headings: the entrepreneur, the firm and strategy.

1. Entrepreneur: factors in the section relate predominantly attributes and experience of the individual entrepreneur. They include:

- Entrepreneurial motivation and desire to succeed: motivation, drive and determination are clearly important attributes for a successful entrepreneur.

- Prior management experience and business knowledge: previous experience by the owner in the same or a related industry is likely to offer a small firm a far greater chance of survival and growth.

2. Firm: the following are the key characteristics of a small business that determine its rate of growth. They include:

- The age of the business: new businesses grow faster than mature businesses.

- The sector of the economy in which the business is operating: a firm is more likely to experience growth if it is operating in a growing market.

3. Strategy: various strategies adopted by the small firm will affect its rate of growth.

- Work force and management training: training is a form of investment. It adds to the firm's stock of human capital and thereby increases the quantity and possibly also the quantity of the output per head.

- The use of external finance: taking on additional partners, or, more significantly, taking on shareholders, will increase the finance available to firms and therefore allow a more rapid expansion.

- Export markets: even though small firms tend to export relatively little, export markets can frequently offer additional opportunities for growth.

What the above factors suggest is that, if a small business is to be successful and subsequently grow, then it must consider its business strategy, the organization of the business and the utilization of the individual s' abilities and experience.

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