Analysing the Risk Management Perception of Small, Micro and Medium Enterprises

  • Zandri Dickason North West University
  • Rethabile Thamaha North West University
  • Sune Ferreira-Schenk North-West University

Abstract

South African small, micro and medium enterprises (SMMEs) display a rather poor performance despite their importance in developing economies. The global Coronavirus (Covid-19) pandemic and recession in South Africa have proved the need for comprehensive risk management perception and sound risk management practices in SMMEs. This paper aims to analyse the risk management perception of SMMEs in the Sedibeng District area to identify the possible reasons for their failure. Additionally, the study aims to provide SMMEs in the Sedibeng District with a more pronounced perception of risk management through a thorough explanation of risk management theories and the importance of risk management as a whole. The results indicated that in the Sedibeng District, SMMEs do not employ adequate risk management practices and do not follow the risk management process correctly. It was also found that SMME owners and risk managers do not proactively identify risks early enough, which might pose significant pressure on risk management processes later on. The theoretical relationship that should exist between risk identification and risk management was very weak and can lead to SMMEs that are vulnerable and more susceptible to failure. The lack of this relationship proves that SMME managers d/o not have a sound risk management perception that will lead to poor risk identification and management thereof. This is detrimental not only to the survival and growth of SMMEs, but also to the South African economy as a whole.

References

Abodunrin, O., Oloye, G. & Adesola, B. 2020. Coronavirus Pandemic and Its Implication on Global Economy. International Journal of Arts, Languages and Business Studies, 4(1):13-23.

Acar, E. & Göç, Y. 2011. Prediction of risk perception by owners’ psychological traits in small building contractors. Construction Management and Economics, 29(8):841-852.

AFREC. 2005. Impact of Municipal Regulations on SMMEs. Draft Research Paper. Organisation Entrepreneur Support. September. http://www.thepresidency.gov.za/docs/pcsa/economic/afrec1.pdf Date of access: 5 Mar. 2020.

Aliaga, M. & Gunderson, B. 2002. Interactive statistics. 3rd ed. Virginia. America: Pearson Education.

Aven, T. & Renn, O. 2009. On risk defined as an event where the outcome is uncertain. Journal of Risk Research, 12(1):1-11.

Andrade, C. 2020. Understanding the difference between standard deviation and standard error of the mean, and knowing when to use which. Indian Journal of Psychological Medicine, 42(4):409-410.

Arasti, Z. 2011. An empirical study on the causes of business failure in Iranian context. African Journal of Business Management, 5(17):7488.

Aziz, N.A.A. & Manab, N.A. 2020. Meeting the stakeholder needs and sustaining business through sustainability risk management practices: A case study of Malaysian environmentally sensitive companies. In: Omran A., Schwarz-Herion O. (eds) Sustaining our Environment for Better Future. Singapore: Springer. pp. 195-208. Available from Springer Ebook Collection: https://link.springer.com/chapter/10.1007/978-981-13-7158-5_12 Date of access: 5 May. 2020.

Bonett, D.G. & Wright, T.A. 2000. Sample size requirements for estimating Pearson, Kendall and Spearman correlations. Psychometrika, 65(1):23-28.

Brusch, C.G. 1992. Research on women business owners: Past trends, a new perspective and future directions. Entrepreneurship Theory and Practice, 16(4):5-30.

Brustbauer, J. 2016. Enterprise risk management in SMEs: Towards a structural model. International Small Business Journal, 34(1):70-85.

Bruwer, J.P., Hattingh, C. & Perold, I. 2020. Probable Measures to Aid South African Small Medium and Micro Enterprises’ Sustainability, Post-COVID-19: A literature review. https://ssrn.com/abstract=3625552. Date of access: 5 May. 2020.

Bushe, B. 2019. The causes and impact of business failure among small to micro and medium enterprises in South Africa. Africa’s Public Service Delivery and Performance Review, 7(1):1-26.

Carvalho, M.M.D. & Rabechini Junior, R. 2015. Impact of risk management on project performance: the importance of soft skills. International Journal of Production Research, 53(2):321-340.

Cassar, G. 2004. The financing of business start-ups. Journal of Business Venturing, 19(2):261-283.

Carson, D., Gilmore, A. & Rocks, S. 2004. SME marketing networking: a strategic approach. Strategic Change, 13(7):369-382.

Chhabra, A.B. 2005. Beyond Markowitz: a comprehensive wealth allocation framework for individual investors. The Journal of Wealth Management, 7(4):8-34.

Dickason, Z. & Ferreira, S.J. 2018. The effect of age and gender on financial risk tolerance of South African investors. Investment Management and Financial Innovations, 15(2):96-103.


Eberly, L.E. 2007. Correlation and Simple Linear Regression. Topics in Biostatistics, 404:143-164.

EWN (Eyewitness News). 2020. SA Unemployment Rate Increases to 30.8% in Q3 of 2020. Eyewitness news, 12 Nov. https://ewn.co.za/2020/11/12/sa-unemployment-rate-increases-to-30-8-in-q3-of-2020-qlfs Date of access: 20 Nov. 2020.

Fatoki, O. 2014. The causes of the failure of new small and medium enterprises in South Africa. Mediterranean Journal of Social Sciences, 5(20):922-922.

GEM, G.E.M. 2017. Global Entrepreneurship Monitor. Global report 2017/18.Government Gazette of the Republic of South Africa. 2003, National Small Organisation Amendment Act. http://www.info.gov.za/gazette/acts/2003/a26-03.pdf Date of access: 5 Mar. 2020.

Hagedoorn, J. 1996. Innovation and entrepreneurship: Hagedoom revisited. Industrial and Corporate Change, 5(3):883-896.

Harari, Y.N. 2020. The world after coronavirus. Financial Times. pp. 20.

Haren, Q. 2020. The Covid-19 outbreak and Business Continuity: an empirical assessment amongst SME’s. Twente: University of Twente (Thesis-MSc). http://purl.utwente.nl/essays/83196.

Havenga, A. & Venter, P. 2007. The perceived value of Organisation Risk Management in the South African organisation environment. Southern African Organisation Review, 11(3):74-94.

Hemphill, J.F. 2003. Interpreting the magnitudes of correlation coefficients. Journal of Counselling Psychology, 29(1):58-65.

Hollman, K.W. & Mohammad-Zadeh, S. 1984. Risk management in small business. Journal of Small Business Management, 22(1):7-55.

Hopkin, P. 2018. Fundamentals of risk management: understanding, evaluating and implementing effective risk management. 5th ed. New York, NY: Kogan Page Publishers.

Hurd, M.D. & Rohwedder, S. 2010. Effects of the financial crisis and great recession on American households. https://www.nber.org/papers/w16407 Date of access: 26 Jun. 2020.

Hussain, J. & Matlay, H. 2007. Financing preferences of ethnic minority owner/managers in the UK. Journal of Small Business and Enterprise Development, 14(3):487-500.

Isa, M. 2020. Mboweni puts SA's economy first, Moody's second: in depth-2020 budget. Finweek. pp. 32-33.

Kaliyadan, F. & Kulkarni, V. 2019. Types of variables, descriptive statistics, and sample size. Indian dermatology online journal, 10(1):82.

Kim, Y. & Vonortas, N.S. 2014. Managing risk in the formative years: Evidence from young enterprises in Europe. Technovation, 34(8):454-465.

Leboea, S.T. 2017. The factors influencing SME failure in South Africa. University of Cape Town. (Dissertation-MA) https://open.uct.ac.za/handle/11427/25334.

Leduc, S. & Liu, Z. 2020. The Uncertainty Channel of the Coronavirus. FRBSF Economic Letters. Issue 3. https://www.frbsf.org/economic-research/files/el2020-07.pdf Date of access: 5 May. 2020

Leedy, P.D. & Ormrod, J.E. 2001. Practical Research: Planning and Design, Merrill Prentice Hall. Available from AP Capstone Research Planning and Designing E-Book. https://josemartimast.net/wp-content/uploads/2020/06/AP-Capstone-Research-Planning-and-Designing-E-Book.pdf Date of access: 5 May. 2020.

Lloyd, H. 2002. Small and Medium Enterprises (SMEs): Instruments of economic growth and development in a South African regional dispensation. http://wuw-ruw.wu-wien.ac.at/ersa/ersaconfs/ersa02/cd-rom/papers/464.pdf Date of access: 26 May. 2020.

Lucchese, M. & Pianta, M. 2020. The Coming Coronavirus Crisis: What Can We Learn? Intereconomics, 55(1):98-104.

Mahadea, D., O'Neill, C. & Burger, L. 2004. Perceptions of entrepreneurship as a career option in South Africa: An exploratory study among grade 12 learners. South African Journal of Economic and Management Sciences, 7(2):187-205.

Marcelino-Sádaba, S., Pérez-Ezcurdia, A., Lazcano, A.M.E. & Villanueva, P. 2014. Project risk management methodology for small firms. International journal of project management, 32(2):327-340.

Martins, F.S., da Cunha, J.A.C. & Serra, F.A.R. 2018. Secondary Data in Research–Uses and Opportunities. Revista Ibero-Americana de Estratégia, 17(4):1.
MDBSA, M.D.B.o.S.A. 2017. Outer Boundaries published June 2011. http://www.demarcation.org.za/index.php/downloads/boundary-data/gauteng-4/dc42/outer-boundaries-published-june-2011-10/10925-map73-dc42/file Date of access: 12 Mar. 2020.

Meyer, D.F. 2014. Job creation, a mission impossible? The South African case. Mediterranean Journal of Social Sciences, 5(16):65-65.

Morrish, S. & Gilmore, A. 2011. Entrepreneurial and SME marketing. Journal of Research in Marketing and Entrepreneurship, 13(2):137.

Mudavanhu V., Bindu, S., Muchabaiwa, L. & Lloyd, C. 2011. Determinants of Small and Medium Enterprises Failure in Zimbabwe: A case study of Bindura. International Journal of Economic Research, 2(5):82-89.

Mujinga, M. 2013. Privacy and Legal Issues in Cloud Computing-The SMME Position in South Africa. The Proceedings of 11th Austrian Information Security Management Conference, 2(4):49.

Mukaka, M.M. 2012. A guide to appropriate use of correlation coefficient in medical research. Malawi medical journal, 24(3):69-71.

Nemaenzhe, P.P. 2011. Retrospective analysis of failure causes in South African small businesses. Pretoria: University of Pretoria. (Dissertation – PhD)

Nogueira S., Sechidis K. & Brown G. 2017. On the Use of Spearman’s Rho to Measure the Stability of Feature Rankings. In: Alexandre L., Salvador Sánchez J., Rodrigues J. (eds) Pattern Recognition and Image Analysis. Cham, Switzerland: Springer. pp. 381-391. Available from Spinger eBook Collection: https://link.springer.com/chapter/10.1007/978-3-319-58838-4_42 Date of access: 26 Jun. 2020.

Oja, H. 1983. Descriptive statistics for multivariate distributions. Statistics & Probability Letters, 1(6):327-332.

Olawale, F. & Garwe, D. 2010. Obstacles to the growth of new SMEs in South Africa: A principal component analysis approach. African journal of Organisation management, 4(5):729.

Pahwa, S., Bester, J., van Nieuwenhuyzen, H., Dawood, G., Pieterse, D., Kane, K., Schlemmer, L., Bot, M., Hamilton, G., Madel, C. & Van Eden, R. 2006. Impact of municipal regulations on SMMEs. Developmental Policy.

Peberdy, S. & Rogerson, C. 2000. Transnationalism and non-South African entrepreneurs in South Africa’s small, medium and micro-enterprise (SMME) economy. Canadian Journal of African Studies/La Revue canadienne des études africaines, 34(1):20-40.

Puhakka, V. 2007. Effects of opportunity discovering strategies of entrepreneurs on performance of new venture. Journal of Entrepreneurship, 16(1):2-34.

Ranke, D., Aichele, A., Görzig, D., Luckert, M., Siegert, J. & Bauernhansl, T. 2020. Analysis of SMEs as a target group for research institute services. Procedia Manufacturing, 42(1):356-361.

Renn, O. & Walker, K. 2008. Lessons learned: A re-assessment of the IRGC framework on risk governance. In: Renn O., Walker K.D. (eds) Global Risk Governance. International Risk
Governance Council Bookseries, vol 1. pp. 331-367. Dordrecht: Springer. available from Spinger eBook Collection. https://doi.org/10.1007/978-1-4020-6799-0_14 Date of access 3 Mar. 2020.

Rogerson, C.M. 2004. The impact of the South African government’s SMME programmes: a ten-year review (1994–2003). Development Southern Africa, 21(5):765-784.

Ropega, J. 2011. The reasons and symptoms of failure in SME. International Advances in Economic Research, 17(4):476-483.

Roux, A. 2002. SMME Profile Small, medium and micro. Sized enterprises in the South African economy: growth, size, contributions and trends in State of Small Business Development in South Africa: Annual Review. Ntsika Enterprise Promotion Agency, Pretoria.

Schickore, J. 2014. Scientific Discovery. https://plato.stanford.edu/entries/scientific-discovery/#pagetopright. Date of access: 25 Jun. 2020.

Schoonhoven, C.B. 2015. Liability of newness. Wiley Encyclopaedia of Management. pp. 1-5.

Schumpeter, J. A. 2001. Capitalism, Socialism and democracy. pp. 1463.

Singh, D.B. 2019. Small firms and strategic tools for competitive advantage. Research Review Journalsl, 4(1):1.

Statistics South Africa. 2019. Quarterly Labour Force Survey. Pretoria: Statistics South Africa.

Stinchcombe, A.L. 1965. Social structure and organizations. Handbook of organizations, 7(1):142-193.

Stosic, B., Mihic, M., Milutinovic, R. & Isljamovic, S. 2017. Risk identification in product innovation projects: new perspectives and lessons learned. Technology Analysis & Strategic Management, 29(2):133-148.

Strauss, A. & Corbin, J. 1998. Basics of qualitative research techniques. Thousand Oaks, CA: Sage publications.

Stulz, R.M. 1996. Rethinking risk management. Journal of applied corporate finance, 9(3):8-25.

Sullivan, G.M. & Feinn, R. 2012. Using effect size-or why the P value is not enough. Journal of Graduate Medical Education, 4(3):279-282.
Sung, J. & Hanna, S.D. 1996. Factors related to risk tolerance. Financial Counseling and Planning, 1(7):11.

Van der Walt, R. & Van der Walt, S.J. 2008. Entrepreneurial training for Human Resource practitioners and potential services rendered to Small Organisations. The Southern African Journal of Entrepreneurship and Small Organisation Management, 1(1):21-34.

Watson, J. & Newby, R. 2005. Biological sex, stereotypical sex‐roles, and SME owner characteristics. International Journal of Entrepreneurial Behavior & Research, 11(2):129-143.

Winks, S. 2008. Aiding SMMEs in SA, IRMSA leads the way. Organisation Risk, 2(4):20-21.

Yrle, A.C., Hartman, S.J. & Yrle, A.R. 2000. Economic factors: Examining why small organisations fail. Journal of Organisation and Entrepreneurship, 4(
Published
2021-05-10
Section
Economic Development, Technological Change, and Growth