The influence of certain factors on South African Small and medium-sized enterprises towards export propensity

ABSTRACT

The South African government is putting policies, strategies and programmes in place with the intention of establishing an empowering environment for Small and Medium-sized Enterprises. To make this a success, a thorough understanding of the factors that might influence their export propensity is necessary. The aim of this article was to examine the drivers influencing the export propensity of South African Small and Medium-sized enterprises. A quantitative, descriptive research design was implemented. Management experience was identified as the most significant factor influencing export propensity. The willingness of the business leader to participate in export-related activities largely correlate with management commitment as well as marketing capabilities, this correlation was also evident between management experience and government support as well as between management commitment and marketing capabilities and lastly between marketing capabilities and access to information. Marketing capabilities, government support, as well as management commitment had an impact on business performance (turnover).

KEYWORDS:

• Export propensity
• small and medium enterprises (SMEs)
• government
• foreign markets
• South Africa

1. Introduction

The worldwide contribution of the small and medium enterprise (SME) sector cannot be disregarded regardless of the current stage of economic development the country is experiencing (Oyelana & Smith, 2015). Zafar & Mustafa (2017) note that SMEs play a significant role in the economic, modern and social advancement of a nation. It embraces an essential part in the worldwide economy through its contribution to the Gross Domestic Product (GDP) and improvement of the general population’s living standards. The Small Enterprise Development Agency of South Africa (SEDA) indicated that as economies developed over the years and adapt to the new changes, it was also necessary for SMEs in the South African environment. This might be predominantly true given the major economic actions of the past few years (SEDA, 2018).

According to Bruwer (2020:148) South African SMEs are essential to the economy, because they contribute significantly towards the socio-economic objectives, and they can be key drivers of economic growth, innovation and job creation. The South African government give credit to the importance of SMMEs, so much so that a new Ministry of Small Business Development was established in early 2014. The aim of the Ministry was to facilitate the promotion and development of small businesses in South Africa (Department of Small Business Development, 2019a). South Africa struggles with an alarmingly high unemployment rate of 27.1%, which is partly exacerbated by a chronic shortage of skilled labour (Stats SA, 2019). Against this background, government is aiming at putting policies, strategies and programmes in place with the intention of establishing an empowering environment for SMEs (SEDA, 2018). However, irrespective of the positive impact of SMEs in the socio-economy, SMEs are inevitably faced with many challenges, which may invariably hinder their sustainability (Oyelana & Smith, 2015; Atkin & Jinhage, 2017). Therefore, in this research, the aim is to identify and examine the main factors driving South African SMEs’ export propensity.

The remainder of the paper commences with background on the research problem investigated, followed by a literature review on the factors that may have an impact on the export propensity of SMEs. Thereafter the methods implemented for data collection and analysis are discussed, followed by a discussion of the empirical results. The paper concludes with some reflections on the managerial implications from the findings, as well as on the limitations of the research and future research suggestions.

2. Problem investigated

SMEs play a vital role in all economies around the world, as they are responsible for creating jobs, alleviating poverty, contributing to innovation, as well as to the GDP of a country (Cant & Wiid, 2016; OECD, 2018). In South Africa, SMEs are decisive because they can assist in reducing the socio-economic challenges; and especially contribute to current employment figures (Atkin & Jinhage, 2017; Department of Small Business Development, 2019b). It is, however, disappointing that the majority of these SMEs continue to fail within a very short period. Their high failure rates are ascribed to the various challenges they face (Chimucheka & Mandipaka, 2015). Chimucheka & Mandipaka (2015) add that it remains regrettable that despite the role played by the SME sector and the support they receive in South Africa, more than 70% of these businesses still fail within three years after having been established. The high failure rates of SMEs in South Africa can be attributed to the challenges faced by these businesses and to a lack of support from key stakeholders.

The National Planning Commission (2013) of South Africa sets an ambitious aim to treble the size of the South African economy by 2030. According to SBP (2014), a robust rate of economic growth will be required to achieve this aim. Exports are thus essential to ensure the growth of SMEs and the growth of the overall economy of the country (Atkin & Jinhage, 2017).

SMEs normally have more difficulties to export their products, to get resources for export their products and have less capabilities than the bigger businesses which makes it difficult for SMEs to enter and to successfully compete in the foreign markets (Ramon-Jeronimo et al., 2019:2; Garone et al., 2017). According to Mthimkhulu & Aziakpono (2015), some of the barriers that impede the growth of SMEs include the high crime rate of the communities they operate in, the increasing costs of electricity and fuel, corruption, high transportation costs, lack of access to finance, and high labour costs. Other obstacles SMEs have to face include regulations and government policies, a lack of research and development, as well as a lack of physical infrastructure, all of which may affect their export propensity (SEDA, 2012; Garone et al., 2017). In order to better support SMEs and ensure their sustainability, a thorough understanding of the factors that might influence SMEs’ export propensity is necessary. This paper, therefore, aims at identifying the main drivers influencing South African SMEs’ propensity to export.

3. Literature review

The following sections provide a brief discussion of the various factors – as identified from existing literature – that could potentially influence SMEs’ export propensities.

3.1. SMEs’ willingness to export to foreign markets

Safari & Saleh (2020:635) states that the export performance of a firm primarily depends on the management of that specific firm. Bose (2016:88) further mentioned that the managers’ international experience and market knowledge are critical success factors for a firm to compete in a foreign market. Adeniran & Johnston (2016) point out that SMEs should focus on utilising their inter-organisational relationships to improve business performance (turnover), acquiring a competitive advantage in the changing business environment, and subsequently attaining access to foreign markets. In a study performed by Rosnan et al. (2016) it was established that only 50% of the respondents in SMEs were confident that they have the capacity to export their products and that, although all SMEs have the intention to enter export markets, only 50% convert their intention into actions.

3.2. Management’s experience

The lack of knowledge about foreign markets is often mentioned as the key obstacles to export the products successfully to these markets. Managers with more years of foreign market experience and a better knowledge about foreign markets will be more perceptive in selecting suitable export markets (Krammer et al., 2018:16).

Evangelista & Mac (2016) see management experience as an important knowledge basis for international development and this knowledge will have a positive outcome in terms of success in the foreign markets. Babatunde’s (2017) research reflects that the managerial experience level in a firm is positively related to the export propensity and intensity of the firm (Love & Roper, 2015). Atkin & Jinhage (2017) and García-Cabrera et al. (2017) maintain that SMEs’ international operations will gradually increase as they gain knowledge and experience within the international arena.

3.3. Management’s commitment to export-related duties

Management’s commitment to exporting distinguishes high-export performers from low-export performers. This implies that the level of commitment could serve as a diagnostic tool to improve the export propensity of SMEs (Babatunde, 2017). Management’s commitment to learn about the foreign and be knowledgeable about the foreign market environment boost SMEs export propensity (Evangelista & Mac, 2016). April & Reddy (2015) note that management’s ability to encourage exporting and to allocate financial resources to these processes are used to measure their export commitment. Management’s commitment therefore is regarded critical for expanding SMEs into the international market environment (Todd et al., 2014; OECD, 2018). When SMEs have a high commitment to and control of their international activities, they tend to prefer alternative governance mechanisms such as cooperation. The narrow-minded attitudes of SME owners not the operate in foreign markets, but rather focus on local markets can be a major obstacle for export propensity (Paula et al., 2017).

3.4. SMEs’ marketing capabilities

Marketing capabilities are identified by Sheth (2020:6) as one aspect which can have an influence on organisations international marketing performance. In a study by Reimann et al. (2021:579) it was also found that dynamic marketing capabilities and adaptive marketing capabilities had a positive influence on the international marketing performance of the businesses in the study. Organisations developing marketing capabilities have the possibility to be more successful in building loyalty with their customers, which is an important factor in the positive performance of a business. Internationalisation acts as a learning process for SMEs and this requires that SMEs must develop flexible, dynamic, and effective marketing capabilities so that they can act quickly to any change in the market (Lekmat et al., 2018:216). The findings of a study performed by Ren et al. (2015) shows that a critical implication is that SMEs should never stop focusing on the improvement of their marketing capabilities, especially during their internationalisation. Heiss (2017) accentuates that export performance is the end result of the firm’s marketing efforts in foreign markets, as it provides an indication of its overall success or failure, and determines further continuation of or withdrawal from exporting activities.

3.5. SMEs’ access to information

García-Cabrera et al. (2017) argue that SMEs’ international operations should gradually increase as they gain knowledge and experience in the international environment. A study performed by Gumede (2004) on South African manufacturing SMEs established that greater access to information on export markets tends to encourage exports, and is associated with increased export propensity. Learning by gaining information is indeed vital to building the competencies of smaller exporting firms to successfully compete in international markets (Evangelista & Mac, 2016; OECD, 2018). Paula et al. (2017) emphasise that networking generally is considered a crucial source of market information and knowledge, which is often acquired over extended periods when there are no relationships with the host country.

3.6. Government’s support

The South African government has put the improving of export as a priority in their National Development Plan 2030 (NDP, 2013). Krammer et al. (2018:31) suggest that governments must first improve the local market so that businesses will be able to prosper both nationally and in foreign markets. Gopaul & Manley (2015:307) mention that the support from national and local governments to assist SMEs cannot be denied, as it is an important part, not only to decrease the failure rate of SMEs but also to ensure future success and growth of SMEs in South Africa.

The South African government acknowledge the importance of providing support to SMEs in South Africa. This is evident in the funding and non-funding support they give to SMEs in South Africa examples thereof is BEE codes, tax incentives for entrepreneurs and networking programmes. Peters and Naicker (2013) found that government initiatives have assisted SMEs in growing, which ultimately led to increased turnover for the SMEs.

Based on the above literature overview, various factors were identified as possible drivers for SMEs to enter the export environment, namely management’s experience with and commitment to exporting, SMEs’ marketing and information capabilities, as well as the government’s support. Hence the following objectives were formulated for this study.

4. Research objectives

The primary goal of this paper is to identify and examine the main factors driving South African SMEs’ export propensity.

To reach the primary goal, the objectives are to:

• identify the main factors that drive SMEs’ export propensity;

• determine whether correlations exist among the identified factors; and

• determine which of the identified main factors affect the business performance (turnover) of SMEs.

5. Research methodology

The aim of this quantitative, descriptive, exploratory research was to identify and investigate the factors that affect the export propensity of South African SMEs. The target population for this research included SMEs in the Gauteng Province of South Africa and included a variety of economic sectors. Since a detailed database – with all Gauteng Province SMEs – was not freely available to the researcher the non-probability convenience sampling method was implemented. Therefore, the contact details of SMEs were attained from publically available sources, including the Companies and Intellectual Property Commission (CIPC) from which the sample was selected based on availability, ease of access, and willingness of respondents to participate. To ensure a representative sample, 300 SMEs were selected to complete the questionnaire, of which 240 usable responses were obtained, realising a response rate of 80%. The data were collected by means of a structured self-administered questionnaire, distributed online via Google Forms. A link to the online questionnaire was emailed to the identified sample, which included a cover letter indicating the purpose of the research, and ensuring respondents of the confidentiality and anonymity of their responses. The quantitative research method was implemented by using a self-administered, structured and validated questionnaire as an instrument for gathering data for the phenomenon under investigation. The questionnaire used a 5-point Likert scale (in which 1 = ‘strongly disagree’ and 5 = ‘strongly agree’) to measure the constructs under investigation. A non-probability convenience sampling method was chosen based on availability, ease of access and willingness of the respondents to participate (Joubert et al., 2016).

An exploratory factor analysis (EFA) was conducted and six factors were discovered. The Kaiser-Meyer-Olkin (KMO) measure of sampling adequacy and the Bartlett test of sphericity were used to ensure the appropriateness of the factor analysis. The KMO was used to assess the communalities on the identified factors, which varied between 0.59 and 0.72. The communality on each statement covered more than half of the total variance for most of the statements, which is more than the set adequate perimeter (Field, 2013). The Bartlett’s test was also done on all the factors and it showed values less than 0.05 which indicates that the correlation was large and thus indicating that the factor analysis van be done successfully (Field, 2013). Six constructs were extracted namely: SMEs’ willingness to participate in export and this factor explained 55.38% of the variance; management’s experience which explained 53.10% of the variance; Management commitment which largely explained 71.94% of the variance; marketing capability explained 48.40% of the variance; access to information also explained 47.40% of the variance; and government support explained the biggest proportion 75.71% of the variance. Only one factor was extracted for each construct, and these factors explained near or more than half of the variance which is more that satisfactory and the communalities for each item were also above 0.5 (Pallant, 2013). The measuring instrument could therefore be considered construct valid due to sufficient explanations of the variances and high communalities on the items.

Regarding the reliability – which refers to the internal consistency of a measuring instrument – measures with a Cronbach’s alpha coefficient between 0.7 and 0.8 are considered reliable (Babin & Zikmund 2016). Management’s experience (α = 0.70) and the willingness of the SME business leader (α = 0.73) had a Cronbach’s alpha coefficient above 0.7, this shows that the measure was reliable. The other constructs generated coefficient values between 0.6 and 0.7, this was included in the article as the values were within the range of acceptble for reliability (Moolla & Bisschoff, 2012).

6. Results and discussion

In this section, the empirical results of the research are presented to address the formulated research objectives.

6.1. Factors that may have an impact on SMEs’ export propensity

The first objective was to identify and examine the factors that may have an impact on the SMEs export propensity and the findings are presented in Table 1.

Table 1. Factors that may affect SMEs’ export propensity.

Factor	N	x̄	SD
SMEs’ willingness to participate in export	240	3.72	0.67
Management experience	240	3.63	0.64
Management commitment	240	2.95	0.78
Marketing capability	240	3.15	0.67
Access to information	239	3.27	0.64
Government support	240	3.28	0.64

Source: Mathunyane (2016).

A 5-point Likert scale was used to measure the constructs under investigation where 1 = ‘strongly disagree’ and 5 = ‘strongly agree’. Table 1 portrays that willingness to participate in export was scored highest (x̄ = 3.72; SD = 0.67). This means that they are positive to engage in export activities. It is further evident that the mean score for management experience (x̄ = 3.63; SD = 0.64) is the second highest score, as a factor that can influence export propensity, which indicates that the respondents feel that management experience will have a positive influence on export activities. This correlates with the study performed by Babatunde (2017) which indicated that the managerial experience level in a firm would be positively related to the export propensity and intensity of the firm. Government support (x̄ = 3.28; SD = 0.64), information capabilities (x̄ = 3.27; SD = 0.64) and marketing capability (x̄ = 3.15; SD = 0.67) are slightly above average, which shows that most respondents tended to slightly agree that these factors can affect SMEs’ export propensity. Factors such as management commitment, management experience (Love et al., 2016), as well as information capabilities play an important role toward the internationalisation of SMMEs (April & Reddy, 2015).

Table 1 further reveals that the aspect which was least agreed upon is management commitment (x̄ = 2.95, SD = 0.78). The score is close to neutral, meaning that the respondents felt relatively impartial concerning the idea that the commitment of management will affect the export propensity of SMEs. This is in contrast with the findings of Todd et al. (2014), which indicated that management commitment is significant for expanding SMEs into the international market.

6.2. Correlation between the factors

The second objective was to investigate whether any correlations exist among the different factors that might influence SMEs’ export propensity. The findings are presented in Table 2.

Table 2. Correlation matrix.

	Willingness to export	Management experience	Management commitment	Marketing capability	Access to information	Government support
Willingness to export	1.000	0.272	0.510**	0.481**	0.389*	0.160
Management’s experience	0.272	1.000	0.099	0.075	0.266	0.451**
Management’s commitment	0.510**	0.099	1.000	0.508**	0.478**	0.185
Marketing capability	0.481**	0.075	0.508**	1.000	0.604**	0.204
Access to information	0.389*	0.266	0.478**	0.604**	1.000	0.375*
Government support	0.160	0.451**	0.185	0.204	0.375*	1.000

Source: Mathunyane (2016).

The different values, indicated by stars in Table 2, represent statistically and practically significant correlations between some factors, while the values without stars represent small or no statistical or practical significant correlations. Therefore, according to Table 2, one star means a medium correlation and two stars means a large correlation. According to LAERD Statistics (2016), a value of 0.1 represents a small correlation, 0.3 indicates a medium correlation and 0.5 represents a large correlation.

As depicted in Table 2 a strong correlation was found between willingness of the business leader to participate in export-related activities and management commitment. This can be an indication that if the SMEs are willing to participate in export-related actives, a strong management commitment needs to exist. Safari & Saleh (2020:635) support this in their statement that the export performance of a firm primarily depends on the management of that specific. April & Reddy (2015) add to the support of the correlation by indicating that a high degree of export commitment by management, is required for SMEs to fulfil export capacity and to maintain the flexibility to respond to changes in the international markets. Furthermore, a large correlation was found between willingness of the business leader to participate in export-related activities on the one hand and marketing capabilities on the other. Maurel (2009) supports this by mentioning that managers of companies also need to take into account the marketing and trading dimension of their activities, which play a substantial role in their success. This can be an indication that business leaders take note of the influence of marketing on their intentions to export their products. April & Reddy (2015) in their study also found a strong correlation between export commitment and export capabilities supports the learning-by-exporting process. According to a study done by Ripollés (2012), it was found that there is a medium correlation between willingness to participate in export activities and information capabilities, this can be a sign that SME managers must first search for as much information on the export markets and the opportunities in these markets to be successful in these markets. Table 2 also discloses a large correlation between management experience and government support, indicating that SME managers who are more experienced tend to have more knowledge of government support initiatives to support SMEs in their export propensities.

Additionally, Table 2 indicates a large correlation between management commitment and marketing capabilities and this can be an indication that committed managers are more inclined to allocate resources to marketing their products in international markets. A large correlation was evident between management commitment and information capabilities. This can be an indication that committed managers will most likely gather sufficient information about the export possibilities of the company. According to Parish & Freeman (2011), the firm’s ability to obtain information relevant to the export market was found to have a positive influence on the firm’s export propensity and indicates the importance of the commitment of managers to gather sufficient information. Furthermore, a large correlation was found between marketing capabilities and access to information, which can be an indication that SME managers must first get sufficient information of the foreign market they intend to market their product before money is spent in marketing the product in that specific market. Table 2 also depicts a medium correlation between information capabilities and government support. This may be an indication that business leaders are aware of government initiatives to support SMEs.

6.3. Stepwise regression analysis

The third objective was to determine which of the studied factors affect the business performance (turnover) of SMEs. The results are portrayed in Table 3.

Table 3. Presenting the fitness of the regression model.

Model	Sum of squares	df	Mean square	F	Sig.
Regression	136.35	8	17.04	13.65	0.00
Residual	283.53	227	1.25
Total	419.88	235

Source: Mathunyane (2016).

A stepwise regression analysis was done to determine which of the indicated factors in this study may affect the business performance (turnover) of SMEs. Before conducting normal distribution, the dependent variable business performance (turnover) was tested for normality and the results signposted that there was a normal distribution for business performance (turnover). Table 3 revealed a sig. value (also known as the p-value) of 0.00, which is smaller than 0.05, indicating the model fit.

From Table 4 below, the relationship between business performance (turnover) and the identified factors is presented.

Table 4. Presenting regression coefficients.

Model	Unstandardised coefficients		Standardised coefficients	T	Sig.
	B	Std. Error	Beta
(Constant)	−0.768	0.534		−1.439	0.151
Marketing capability	0.466	0.137	0.231	3.407	0.001
Management experience	0.434	0.130	0.218	3.332	0.001
Government support	0.363	0.114	0.180	3.189	0.002

Note: Regression table kept at three decimals for accuracy of the model.

Source: Mathunyane (2016).

Table 5 demonstrated a goodness of model fit (R square), and this reveals that 32.5% of the variance in business performance (turnover) is described by the following namely: marketing capability, management commitment and government support. Although this representation is not that big, it still indicates the significant contribution of these factors to business performance (turnover). Therefore, the marketing capabilities of an SME that considers exporting will have an influence on the business performance (turnover). According to Takata (2016), firms could reflect a decrease in turnover in environments where competition is high. In such environments, marketing capabilities of better sales volume would become ever more important. Marketing capabilities enable the firm to use a better marketing mix to endure in highly competitive business environments. Management commitment will also have an effect on the business performance (turnover); the more committed a manager is, the stronger the effect can be on the business performance (turnover). Lastly, government’s support can also have a positive stimulus on the business performance (turnover) of the business. According to the analyses, neither the willingness of the entrepreneur to participate in export activities nor information capabilities had any effect on the business performance (turnover).

Table 5. Regression model summary.

Model	R	R square	Adjusted R square	Std. error of the estimate	Change statistics
					R square change	F change	df1	df2	Sig. F change
1	0.57	0.325	0.301	1.118	0.325	13.646	8	227	0.000

7. Conclusions

The purpose of this article was to examine the contribution of some factors that may influence export propensity of small and medium-sized enterprises (SMEs). This was achieved by: determining possible factors that may have an effect on the SMEs’ export propensity; by investigating whether any correlations existed between these identified factors; and lastly, by determining which of the studied factors affect the business performance (turnover) of SMEs. The mean scores reflect that it is evident that the willingness of SMEs to participate in export activities as well as management experience were seen to be the most positive factors to influence an SME’s export propensity. A large correlation was found between willingness of the business leader to participate in export-related activities and management commitment as well as marketing capabilities. Similarly, a strong correlation was found between management experience and government support. Furthermore, a strong correlation exists between management commitment and marketing capabilities as well as between management commitment and information capabilities. Furthermore, a large correlation was found between marketing capabilities and access to information. According to the stepwise regression analyses, marketing capabilities as well as management commitment of an SME that contemplates exporting will have an influence on business performance (turnover). Lastly, government support also has a positive effect on an SME’s business performance (turnover).

8. Managerial implications

Awareness of the factors influencing the export propensity of SMEs can be valuable for managers and owners of SMEs that intend to export their products. Taking note of these factors and the importance as well as the influence of these factors can help SME managers plan and organise their intentions well before exporting their product. Since it seems that the respondents were mostly positive and willing to export their products, it is important for SME managers to incorporate and elaborate on the other factors that can affect export propensity. Management experience also was considered to be one of the factors mostly influencing export propensity. Inexperienced SME managers should attend courses and appoint mentors to assist them in making a success of exporting their products. They can further consider hiring and/or working with people who have been exposed to international business processes, because a variety of different skills are required for entering into and succeeding in the international environment. A strong positive correlation was also established between some of these factors. SME managers can use this to their advantage by taking note of which factors relate to one another and use these correlations to benefit the business. For example, managers can gather as much information as possible because it has a positive effect on their marketing capabilities. This can assist a business in better marketing their product in other countries. It will also be of great value to SME managers to consider the factors that may influence business performance (turnover), which in the end will reflect in the business’ overall profit.

Disclosure statement

No potential conflict of interest was reported by the author(s).