ALPHA UNIVERSITY COLLEGE

DEPARTMENT OF BUSINESS ADMINSTRATION

The Factors Affecting the Performance of Micro Small Enterprises:

The Case of Gullelle Sub city, Addis Abeba

A Thesis Proposal submitted to the Alpha University College in

Partial Fulfillment for The Master of Art in Business
Administration

BY; Million Feyissa

Advisor: Yirgalem (PhD)

August, 2022 G.C

Addis Ababa, Ethiopia

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Contents
Chapter One: - Introduction........................................................................................................................3
1.1. Back ground of the study..................................................................................................................3
1.2. Statement of the Problem................................................................................................................4
1.3 Research question...............................................................................................................................5
1.4. Objectives of the Study.....................................................................................................................5
1.4.1. General Objective of the Study..................................................................................................5
1.4.2. Specific Objective of the Study..................................................................................................6
1.5. Hypothesis of the Study....................................................................................................................6
1.6. Significance of the study...................................................................................................................6
1.7 Scope of the Study.............................................................................................................................7
1.9 organization of the study...................................................................................................................7
CHAPTER TWO: -REVIEW OF RELATED LITERATURE....................................................................................8
2.1 Theoretical related literature reviewed.............................................................................................8
2.1.1 Definition of micro and small enterprise Global and Ethiopian Context.....................................8
2.1.2 An overview of the development of Micro and Small Enterprises in Ethiopia.......................11
2.1.3 The role of Micro and Small enterprises...................................................................................12
2.1.4 Factors affecting the performance of micro and small enterprises..........................................13
2.2. Empirical related literature review.................................................................................................13
2.2.2The effect of internal factors on firm performance...................................................................13
2.2.2 The effect of external factors on firm performance.....................................................................14
2.3 THE CONCEPTUAL FRAME WORK....................................................................................................17
CHAPTER THREE:.......................................................................................................................................19
3. Methodology of the Study.................................................................................................................19
3.1. Description of the study area.........................................................................................................19
3.2. The Study designs...........................................................................................................................19
3.3 Research approach..........................................................................................................................19
3.4 population and sampling design......................................................................................................19
3.5 sample size determination...............................................................................................................19
3.6 Source and Methods of Data Collection..........................................................................................21

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 3.6.1 Source of data...........................................................................................................................21
3.6.2Methods of Data Collection.......................................................................................................21
3.7 Methods of Data Analysis................................................................................................................21
3.8 Reliability.........................................................................................................................................22
3.9. Validity............................................................................................................................................22
3.10. ETHICAL CONSIDERATIONS...........................................................................................................22
Table 3.3: logical framework...........................................................................................................26
4. Work Plan/Schedule...............................................................................................................................1
Table 4.1 Activities plan...........................................................................................................................1
Table 4.2 Financial Budget Plan time.......................................................................................................1
Reference....................................................................................................................................................2
APPENDIX: Questionnaires for MSEs’ Owners.............................................................................................7

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Chapter One: - Introduction
1.1. Back ground of the study
It is generally recognized that Micro and Small Enterprises (MSE’s) have vital contribution to
the economic development and creation of wider employment opportunity in developing
countries with large number of unemployed people. According to Olabisi, Olagbemi and
Atere(2013), micro and small enterprises are driving force for economic growth, job creation and
poverty reduction in developing countries. In addition, Habtamu, Aregawi and Nigusu (2013)
revealed that MSE’s is a means in bringing economic transition by using the skill and the talent
of people without requiring high-level training, much capital and sophisticated technology.
These make the sector more preferable to business entry, unemployment reduction, income
generation and poverty alleviation.

Similarly, in Ethiopia Micro and small enterprises (MSEs) play crucial role for socio-economic
development and serves as vehicles for employment opportunities and ways of enhancing wealth
creation by support the economic growth (GFDRE, 2011). They have become significant
employment contributors and can function successfully in many areas of Ethiopia. However,
their effectiveness depends on the nature, performance, and productivity level of employment
and available resource. Limited access to financial services, lack of partnership and networking,
absence of technical and business skills among other are major obstacles in the sector.

Having understood the significant roles of SMEs, the Ethiopian government has given due
attention to strengthen MSEs and took a decisive measure for the development of the sector. As a
result of which, the Council of Ministers approved Regulation No.201/2011 and re-structured the
Federal Micro and Small Enterprises Development Agency again to enable the agency achieves
its objectives (FeMSEDA, 2015).

Countries understanding of microenterprises on the other hand vary from one to another and
while the United States may have implemented the Supplemental Security Income (SSI) for
funding microenterprises as noted by authors of the development countries seems to think
otherwise. Shelton (2016) while studying how the perception of small traders concluded that
many people will not afford to be employed by large corporations hence they start MSEs to get
employment and at the same time stimulate economic growth.

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According to small enterprises form majority of business in many countries and they are highly
innovative, contribute to economic growth and job creation Shiralashetti (2012) on his study
noted that MSEs constitute 90% of the total enterprises in most of the developing countries. The
ILO (2011) report established that Small enterprises with less than 10 workers contribute about
58% of employment in Paraguay 54% in Mexico and 53% in Bolivia. Further Shelton (2016)
assert that MSEs constitutes of small traders who start their business within the segment of the
economy coupled with poverty noting that small traders do not go for micro-enterprises by
choice and would be glad to take a factory job when the opportunity arises. Majority of the
entrepreneur are first employed by large enterprises and after gaining experience and saving they
start their own business. MSE therefore add value to the society and economy through creating
jobs, enhance economic development, strengthening the purchasing power of the country as well
as lowering costs.

1.2. Statement of the Problem

Most developing countries like Ethiopia have been formulated and implemented different Micro
and Small Enterprise development strategy to support the development of the sector, thereby
transforming economies and generate substantial employment opportunities. Micro and small
enterprises sector are major income generating and basic means of survival. MSE in Ethiopia are
one of the sectors given recognition in the country’s industry development plans, and believed
that it serves as vehicles reducing poverty and unemployment at urban center and as it reinforce
the economic development. As specified in Ethiopian government national plan, the industrial
strategy has given outstanding focus to strengthen micro and small enterprise. This is because
it’s believed that they are the foundation for the establishment and expansion of medium and
large-scale industries; and open up opportunity for urban employment generation, expansion of
urban development, and provide close support for further agricultural development, (GTP, 2010).

However, micro and small-scale enterprise development in Ethiopia especially in Addis Ababa at
this time highly attached with different problems like: entrepreneurship skill, managerial and
technical skills, access to infrastructure, access to working premises, access to adequate finance
and access to adequate market etc. According to John O. Okpara (2011), the most common
factors hindering small business growth and survival are poor management, corruption,
lack of training and experience, insufficient profits and low demand for product and services.

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According to Woldegebriel (2012), one of the major problems found to have been facing MSEs
in Addis Ababa is Lack of implementation appropriate machinery and technology and raw
material. The research results of Bizusew (2015) the most critical factor affect micro small
enterprise is lack of adequate financial resource. And Study by Kubrat, et al. (2015: 19-20)
identified major problems experienced by MSEs in Gedo Zone, where high tax, prices,
bureaucratic burden, raw materials, adequate skills, and high interest rate.

The empirical evidences that the researcher has used gaudily indicated only addressing single
factor affecting the performance of MSEs either internal or external factors. But none of these
empirical literatures described or addressed the problem identifying the factors affecting the
performance of micro and small enterprises both the internal factor (entrepreneurship skill,
Managerial and Technical Skills) and external factors (access to infrastructure, access to
Working Premises, and access to Adequate Finance and access to market). And also, most of the
researcher depends on single sector rather addressing five sectors of enterprises in addition to
this all researchers have geographical gap in attention to Gulele sub city.

Therefore, by identifying this gaps and problem I am confident that this study closes the gap
created due to the absence of empirical literature in the areas of joining both internal and external
variables factor affecting the performance of micro and small enterprises in all sectors of Gulele
sub city. Namely; the internal variable is entrepreneurship skill, Managerial Skills, and the
external variable access to infrastructure, access to Working Premises, access to Adequate
Finance and access to adequate Market. Depending on this prepare the following research
question.

1.3 Research question.

(1) What will be the internal factors affecting the performance of micro and small enterprises?

(2) What will be the external factors affecting the performance of micro and small enterprises?

1.4. Objectives of the Study

1.4.1. General Objective of the Study
The overall general objective of this study will be to identify the Factors affecting the
performance of micro and small enterprise.

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1.4.2. Specific Objective of the Study
Based on the above general Objective the following Specific objectives formulated.

 To investigate the internal factors affecting the performance of micro and small
enterprise.
 To examine the external factors affecting the performance of micro and small
enterprise.

1.5. Hypothesis of the Study

H01 The external factors such as financial, marketing, infrastructure and working premise
factors have no positive effect on performance of Micro and Small Enterprises in Gulele sub-
City.

H1: The external factors such as financial, marketing, infrastructure and working premise factors
have positive effect on performance of Micro and Small Enterprises in Gulele sub-City.

H02The internal factors such as managerial and entrepreneurial factors have no positive effect
on performance of Micro and Small Enterprises in Gulele sub-City

H2: The internal factors such as managerial and entrepreneurial factors have positive effect on
performance of Micro and Small Enterprises in Gulele sub-City.

1.6. Significance of the study

The significance of this research on the factors that affect performance of micro and small
enterprise in Gulele sub city will be to give an insight and pertinent information on the current
factors that affect the performance of these enterprises. Apart from this, knowing the up dated
information on the constraints on MSE development will enable the policy makers to make
choice on an appropriate measure to overcome the challenges that micro and small enterprises
are facing. The information from this study will also have benefit and it will be viable for other
stakeholders like NGOs, which are working towards poverty reduction and employment
generation scheme through the development of micro and small enterprises. Furthermore, this
study will serve as a bench mark for future research.

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1.7 Scope of the Study
The study will covers sectors of manufacturing, construction; trade; urban agriculture; and
service in Gulele sub city of small and micro enterprise office. Furthermore, the study mainly
focuses on the internal factor entrepreneurship skill, Managerial and Technical Skills, and
external factor access to infrastructure, access to Working Premises, access to Adequate Finance
and access to Adequate Market affecting the performance of micro and small enterprise in
Gulele sub city.

1.9 organization of the study

This study has five chapters, on the first chapter of the paper I will present the introductory
part and statement of the problem, objective of the study, significance of the study, and scope
of the study. On the second chapter I will be review related literature to discuss the
theoretical, empirical and conceptual frame work of the raised issue. Chapter three focuses on
the type of research design methodology I will be use, how I select the sample and what kind
of data I use will presented on chapter four the result of my finding will discussed the final
chapter is summery, conclusion and recommendation

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CHAPTER TWO: -REVIEW OF RELATED LITERATURE
2.1 Theoretical related literature reviewed
In this sub section, different issues like definition and characteristics of micro and small
enterprises (MSEs), factor affecting the performance of micro and small enterprise, the
development strategy of micro and small enterprise will be discussed

2.1.1 Definition of micro and small enterprise Global and Ethiopian Context
There is no universally accepted definition of MSE’s due to its base of the subjective judgment.
As it is indicated on the MSE’s development strategy of the Government of Federal Democratic
Republic of Ethiopia (GFDRE, 2011), the policies and strategies designed to speed up MSE
development should be based on national definition of enterprises as it helps to provide
sustainable support and effectiveness of the sector. The definitions and objectives of MSE are
mainly formulated based on:

As it is described by Stephen and Wasiu (2013), found out that in defining Micro and small scale
enterprises references are made to qualitative and quantitative measures based on the number of
people employed in the enterprises, investment out lay, annual sales turnover or a combination of
these measures. In light of this, the definition of Micro and small scale enterprises in the global
and Ethiopian context are discussed as follows.

According to the FeMSEDA (2015), the MSE definition is generally consisted of three basic
criteria as to other countries experience.

Some countries and international organization use legal entity in addition to the above-mentioned
criteria. The legal definition of Small and Micro Enterprises often varies from country to country
and from industry to industry. In the United States, SMEs are generally defined as institutions
that consist of fewer than 100 employees while fewer than 50 employees in the European Union
(Endalkachew, 2008)

In Kenya, MSEs are defined as those non-primary enterprises (excluding agricultural production
In Kenya, MSEs are defined as those non-primary enterprises (excluding agricultural production,
animal husbandry, fishing, hunting, gathering and forestry), whether in the formal or informal
sector which employ 1-50 people ( Mulugeta, 2011)

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In Ethiopia, there is lack of uniform definition at the national level to have a common
understanding of small enterprises. Therefore, the definition of small enterprises in our country is
determined by the view of different institutions. For example, the perspectives from Ministry of
Trade and Industry, Central Statistical Agency and Addis Ababa City Administration Micro and
Small Enterprise Development Agency are briefly described as follows:

The definition of MSEs in Ethiopian context generally is consisted of three basic criteria as to
other countries experience including: Full timer employed manpower /head count staff/, Total
asset, net asset and paid capital, and Annual turnover (FeMSEDA, 2015).

A micro enterprise in the industrial sector (manufacturing, construction and mining) is one which
operates with up to five people including the owner and/or has total assets not exceeding Birr
100,000 (approx US$5,000). Similarly, for activities in the service sector (retailer, transport,
hotel, tourism, ICT and maintenance), a micro enterprise is one which operates with up to five
people including the owner and/or has total assets not exceeding Birr 50,000 (approx US$2,500)
(Ibid).

A small enterprise in the industrial sector is one which operates with between 6 to 30 persons
and/or has paid up capital or total assets not exceeding Birr 1.5 million. Similarly, a small service
sector enterprise is one that has between 6 and 30 persons and/or has total assets or paid up
capital of Birr 500,000 (Ibid

Table 2.1 Types of enterprise

Types of enterprise Sector Man power Total asset

Micro enterprise Industry <5 ≤ 100000
Service ≤5 ≤50000
Small enterprise Industry 6-30 ≤ birr 1.5 million
Service 6-50 ≤ birr 500000

Source (FeMSEDA, 2015).

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 The definition of MSE According to the Federal Democratic Republic of Ethiopia revised
strategy in (2016), stated that MSEs could be based on employment size, capital asset, and / or
skill of labors and turnover levels of 1.5 million ETB or less than in production sectors and
500,000 ETB or less than of it in service and trade sectors.
It is the clear contribution of MSEs to employment expands because of new enterprises
starting up in business and expansion of existing enterprises. However, these positive
contributions are counterbalanced by the contraction or closure of other enterprises. Micro and
Small Enterprises are important to almost all economies in the world, but especially to those
in developing countries. There is considerable interest in micro and small enterprises in
developing countries. There are probably two main reasons for this. One is the belief that
micro and small enterprises development may prove to be an effective anti-poverty program.
The second is the belief that micro and small enterprises development is one of the building
blocks of innovation and sustainable growth. These two reasons are of course interlinked.
Because most of the international evidence says that growth and real poverty reduction go
hand in hand.
A lot of empirical studies document that most MSEs in developing countries do not upgrade
their businesses to the next level of productivity, assets, and employment rather; the majority
of firms stagnate, close down, and exit the market place (Liedholm / Mead, 1987). However,
there is only a very small likelihood that MSEs upgrade into a higher size or productivity
segment, there are, however, exceptions to the rule. In fact, there exists a group of MSEs that
have successful management on growth them into the medium- or large-sized segment. The
literature refers to this group as ―transforming, ‖ ―SHEGEGER‖ or ―growth conversion‖ of
enterprises. FeDRE(2016).
In a similar manner, the definitions of MSE are given by majority of African countries utilized
similar criteria as discussed above. The Nigerian Government has used various definitions
and criteria in identifying micro and small sized enterprises. At certain point in time, it used
investment in machinery and equipment and working capital. At another time, the capital cost
and turnover were used. Concerning this, Olabisi, et al. (2013) defined Small scale enterprises
as an industry whose total project cost excluding cost of land and including working capital
does not exceed N5m (i.e. US$500,000).

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 Furthermore, the National Council on Industry of Nigeria (1996) at its 9th meeting adopted
the report of its Sub-Committee on Classification of Industrial Enterprises in Nigeria and
approved a new set of classifications and definitions of the cottage/micro and small-scale
enterprises. According to the Council, small scale enterprises is an industry whose total cost,
including working capital but excluding cost of land, is over N1 million but mot more than
N40 million and a labor size of between 11 and 35 workers (Ibid).
On the other hand, Micro and small enterprise is defined in Ghana by applying both the “fixed
asset and number of employees” criteria. It defines small-scale enterprise as a firm with not
more than 9 workers, and has plant and machinery (excluding land, buildings and vehicles)
and micro with employee less than five. However, due to the continuous depreciation of the
local currency as against major trading currencies often makes such Definitions outdated and
new definitions were adopted based on an employment cut-off point of 30 employees and
MSE’s classified in to micro, very small, and small employing six, six to Nine, and ten to
twenty-nine employees respectively (Ibid). Furthermore, micro and small enterprises defined
in Tanzania in terms of number of employees, license registration and business premises. It
defines micro enterprise as a firm employing four or fewer people, local authority registered
and mostly home-based whereas, small enterprise employing between 5 and 10 that are
licensed and have business premises. From these discussions someone can realize that
countries whether developed or developing have common understanding and criteria on the
definitions of MSE’s though they classified based on their economic levels and intentions
Daniel (2012). Thus, as can be seen from the above definitions, there is no universally
acceptable single definition of MSEs. This means different scholars define MSEs differently
based on the level of development of the country under review.

2.1.2 An overview of the development of Micro and Small Enterprises in Ethiopia

According to FDRE, (2011) MSEs Play a significant role in terms of their employment
generation capacity, quick production response and their adaptation to weak infrastructure and
use of local resources, and as a means of developing indigenous entrepreneurial and managerial
skills for sustained industrialization. The Ethiopian government is now faced with two key
policy problems, namely the creation of jobs or employment opportunities and the creation of an
internationally competitive industrial structure.

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These two problems are closely linked, as job creation is often necessary to replace jobs lost due
to structural change and international competition. The vision of the MSE sector is to see
―created competitive and convenient base for industry development. Major objectives of MSE
development are: Through creating job opportunity, bringing equal development, improving
income of the society and poverty reduction • Enabling the sector competent, facilitate economic
growth and lays foundation for industry development. • Expanding the sectors development in
urban by creating developmental investors. Ethiopia has launched various bold initiatives and
development policies and plans to spur economic growth. Three major development plans have
been executed so far, the last one being the ongoing Growth and Transformation Plan (GTP).
The common and overarching objective of these development plans has been to ensure broad
based economic growth. This is so because broad based economic growth is the main route to
poverty reduction through employment generation. The role of Micro and Small Enterprises
(MSEs) is indispensable in poverty reduction through employment generation. Ethiopia’s MSE
Policy envisages not only reducing poverty in urban areas but also nurturing entrepreneurship
and laying the foundation for industrial development. The strategy was revised in 2010/11 with
renewed interests and more ambitious targets on employment and number of entrepreneurs and
transition to medium size level (Assefa, etal, 2014).

2.1.3 The role of Micro and Small enterprises

There is now a wide-ranging recognition of the influence of micro and small enterprises to
economic growth; recently the role of MSE in economic growth and employment creation has
occupied most of the discussions among government, policy makers, academicians, researchers
and economists in both developed and emerging countries. In most fast-developing countries
MSE by virtue of their size, location, capital investment and their capacity to generate greater
employment have proved their powerful propellant influence for speedy economic growth. The
sector is also known as a tool in bringing about economic transition by effectively using the skill
and talent of the people without requesting high level training, much investment and
sophisticated technology. The micro and small enterprise sector also described as the national
home of entrepreneurship. They are the primary vehicles by which new entrepreneurs provide
the economy with a continuous supply of ideas, skills, and innovations, Katua, 2014.

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In spite of the enormous roles of MSEs sector to the national economy with regards to job
creation and the alleviation of poverty, the sector in most developing countries are encountering
challenges and constraints including lack of access to start up and operating financial resources,
lack of work premises both for production and sales, shortage of skill and managerial expertise,
marketing problems, inadequate training ,administrative barriers to entry, lack of entrepreneurial
knowledge and skills and Poor infrastructure facilities (Alemtsehay,2016).

2.1.4 Factors affecting the performance of micro and small enterprises

This section gives emphasis to two dimensions that influence the performance of micro and
small enterprise the internal factors and external factors.
The factors confronting MSE’s appears to be similar in least developed or developing countries.
However, the extent of the problems varies from country to country and industry to industry; and
it depends on firms’ characteristics (Aremu and Adeyemi, 2011). Currently in Ethiopia, there are
many internal and external factors. the external factor suchas lack of finance, lack of working
premise, lack of access to land, lack of machinery and technology and lack of credit utilization
and also the internal factors lack of enterprneral skill and lack of managerial skills face MSE’s in
their operations and hinder their growth (MUDC, 2013). These factors are reviewed as follows.

2.2. Empirical related literature review

2.2.2The effect of internal factors on firm performance
1. The effect of Managerial Skills of firm performance
Kinyua (2014) study on business performance concluded that experience and management skill
is a big affect of the performance of MSEs in Kenya. He further provided evidence that
management skill has positively effect on the performance of MSEs and yet has been adopted by
the MSEs. He concluded that MSEs should attend some training so as to acquire management
skill such as entrepreneur’s skills, marketing strategy, financial recording and risk management.
Education and skills are needed in business management and lack of basic management skills in
a business is a major drawback toward the business performance. The major challenge being that
entrepreneur training has not been integrated into the country education system and lack of
exposure to new technology and modern management skills.

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On the other hand, In Nigeria according to John O.Okpara (2011), the most common factors
hindering small business growth and survival in Nigeria are lack of poor management,
corruption, lack of training and experience, insufficient profits, and low demand for
product and services. It is clear that micro and small-scale enterprises are privately owned and
managed by owners. The owners fail to realize the importance of managerial skills for the
success of the enterprises may lead to failures of the enterprises. The problems of MSE’s
management arises from the limited knowledge and ability of the owner or shortage of
competent staff to advice the owner on management policies (Stephen and Wasiu, 2013).

Decision-making skills, sound management and accounting practices are very low in developing
countries MSE’s operators In addition, to this managerial skills leads to problems in production
due to lack of coordination of production process, and inability to troubleshoot failures on
machinery and/or equipment’s is a critical problem that MSEs are facing since they cannot
afford to employ specialists in the fields of planning, finance and administration. Most MSE’s
owners/managers have limited education, and faced critical problems related to the practice of
modern management techniques in their enterprises (Aremu, and Adeyemi, 2011).
2. The effect of entrepreneurships skill of firm performance
Entrepreneurship is recognized as an important driver of economic growth, productivity,
innovation, and employment. Entrepreneurship is related to the functional role of entrepreneurs
and includes coordination, innovation, uncertainty bearing, capital supply, decision-making,
ownership, and resource allocation in their organization (Munyori&Ngugi, 2014). Most of the
prevalent areas in which MSE faces a problem are sales or marketing, human resource
management, and general marketing research and training (Kefale&Chinnan, 2012).

2.2.2 The effect of external factors on firm performance

1, the effect of access to finance on firm performance
The research results of Bizusew (2015) which was conducted on the effect of micro and small
enterprises and business development service: the case of Bahir Dar city administration
indicated that accessing financial institution like MFIs, banks and other sources remained the
major effect to the MSEs in the city. It was also found that access on credit supplies in the city
are also live affect to the MSEs.

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Habtamu et al. (2013), financial institutions such as microfinance and the banking systems in
Africa are not in a position in providing enough financial support to the expansion of micro and
small businesses. MUDC (2013) also identified that financing has become a principal challenge
to small scale enterprises in Ethiopia; except City administrations and regional microfinance
institutions, their savings and family supports, banks in Ethiopia do not finance in the form of
loan to MSE‟s due to collateral obligations and other requirement.
2, the effect of access Working Premises on firm performance
In other research, Cherkos et.al (2017) studied significant factors in Micro and Small Enterprises
performance in Amhara region. In his study, access to working areas are built, they are access to
functional due to facilities. Moreover, due to access to infrastructures affects 25% of their work
time. The development of MSE’s requires intensive efforts on the parts of government
institutions. In this regard, working premises are needed to be addressed to facilitate the
development of MSE’s. While national policies play an important role in the development of
MSEs, targeted Interventions are much more effective to bring about a rapid change in the
growth of MSE’s Support services at the firm level. According to the MSE’s development
strategies of Ethiopia MSE is one of the growth oriented sectors which requires maximum
support from the Government, and among these Working premises with least leasing price
adjustment is the first Requirement and taken as mandatory to the government (GFDRE, 2011).

3, The effect of adequate infrastructure on firm performance

According to Woldegebriel (2012), one of the major factors influencing found to have been
facing MSEs in Addis Ababa is implementation or use of appropriate transportation service.

This study also reveals that major factors influencing to the of MSEs in Addis Ababa. efficient
and on time delivery of raw materials from the government, cost and quality of raw materials
from private suppliers has resulted in affects in the profitability of the enterprises. The
government also adjusts the prices of products of the enterprises for a long period of time, and
there is go to the open market especially in the construction and coble stone enterprises. In most
developing countries infrastructural facilities are grossly inadequate of the physical infrastructure
is among the causes of low levels of investment and unsatisfactory performance of Micro and
Small Enterprises.

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Study conducted by Abdissa and Fitwi (2016) in south west of Ethiopia, most MSE operators
opined that access to adequate infrastructural facilities especially sufficient and electric power
and water supply, access to road facilities and telecommunication service are constraining factors
of MSEs Development.

4, The effect of Adequate Market on firm performance

The research results of Bizusew (2015) which was conducted on the effect of micro and small
enterprises and business development service: the case of Bahir Dar city administration indicated
that accessing due to market research, market information, trade fairs, product exhibition,
product packaging and advertising are also affecting the MSEs Operators. Marketing knowledge
is important for the promotion, growth and development of small-Scale enterprises. In this
regard, the Ethiopian government has formulated MSE‟s strategies to ease marketing
challenges by creating inter-linkage mechanisms with other institutions, providing training
However, inability to sell the products and services; access of adequate marketing channels, and
access to of marketing skills are the effect to the starting of business and further growth of the
sector (MUDC, 2013; MoFED, 2011).

Several studies have shown various factors affect performance of Micro and Small enterprises
where access to finance has been identified as a major factor on MSEs performance argue that
small business is undercapitalized and many business owners depend on their own saving, family
and friends and access to finance remain a big effects (Mutira 2017). Most of the MSEs meet the
requirement of the commercial loan which include collateral and some do find the loan interest
charged a study by Mwania (2015) on performance of MSEs.

The empirical evidences that the researcher has used while compiling this research report have
gaudily in dictated only addressing single factor affecting the performance of MSEs. But none of
these empirical literatures described or addressed that the factors affecting the performance of
micro and small enterprises both the internal factor (entrepreneurship skill, Managerial Skills)
and external factors (access to adequate infrastructure, access to Working Premises, access to
Adequate Finance and access to market ).

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Many research and scholars are no addressing the above internal and external factors and
geographically in Gulele sub city. therefore, I confident that this study closes the gap
created due to the absence of empirical literature in the areas of joining both internal and
external factor affecting the performance of micro and small enterprises namely;
entrepreneurship skill, Managerial skill , access to adequate infrastructure, access to Working
Premises, access to Adequate Finance and access to Adequate Market.

2.3 THE CONCEPTUAL FRAME WORK

Conceptual framework means that concepts that relate to one another were used to explain the
research problem. Since business performance is influenced by both internal and external factors,
operators need to understand what influences businesses to reach peak performance. The internal
factors include entrepreneurship skill, Managerial and Technical Skills. And external factor
include so working premises, infrastructural, marketing and financial factors. The influence of
these factors to the firm performance is very important but it is noteworthy that the management
has no (little) control over them. Nevertheless, the factors must be closely monitored to ensure
that stringent measures are taken within the best time to either take advantage of the
opportunities or combat the threats found in the external environment. The internal factors that
influence the firm’s performance can be classified as management and entrepreneurial factors.
To align the conceptual framework with the research objectives, business performance is the
dependent variable whereas; working premises, infrastructural, marketing, financial,
management and entrepreneurial factors are all independent variables. Show in finger 1

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 Independent variables

The effect of entrepreneurship skill

Dependent variable
Internal factors

The effect of managerial skill

Performance
of micro and
small
enterprise
The effect of access to Adequate Finance

The effect of access to Adequate Market

External factors
The effect of access to adequate
infrastructure

The effect of access to Working Premises

Figure 2.1 Conceptual frameworks source (the literature evidence)

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CHAPTER THREE:
3. Methodology of the Study
This part will discusses the source of data, method of data collection and method of data analysis
used in order to generate the appropriate result for the objectives of the study.

3.1. Description of the study area

This study will be carried out Gulele sub city micro and small enterprise. The total population of
Gulele sub city will be 284, 865 out of this 137, 690 males and 147,175 females.

3.2. The Study designs

The study will be applied both descriptive and explanatory type of research. Descriptive survey
will describe the characteristics of existing phenomenon and will help in providing use full and
accurate information to answer the question based on who, what, why and how. in order to
enable to describe the state of affairs as it existed at the time of study period. Explanatory survey
will explain the relationship between variables that correlated to estimate the integrated influence
of the factors on performance.

3.3 Research approach

The mixed/combined research approach will be employed in this study because the researcher
has used both quantitative and qualitative sources of data collection. This clearly means that
mixing qualitative and quantitative approaches gives the potential to cover each method‘s
weaknesses with strengths from the other method.

3.4 population and sampling design

The Population of the study will be 7048 registered micro and small-scale enterprises located in
Gulele sub city in all five sectors of MSEs such as manufacturing, construction, trade, service
and urban agriculture.

3.5 sample size determination

This study will use Stratified random sampling method to draw the sample from the population.
Stratified random sampling is chosen because of the heterogeneous nature of MSE Sector. The
advantage of using stratified random sampling is that it improves the accuracy and efficiency of
estimation.

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This technique is also preferred because it is used to assist in minimizing bias when dealing with
heterogonous population. With this technique, the sampling frame will be organized into
relatively homogeneous groups (strata), before selecting elements for the sample. The strata will
be the sectors of MSEs including, manufacturing, construction, Trade, Service and Urban
agriculture.
In order to select samples of respondents, from total population of 7048, the sample size will be
calculated using Yamane (1967) sampling formula which is based on the assumption of 95%
confidence level and P = 0.05.
n= N__
1+N(e)²n = sample size
N = the size of the population (7048)
e = level of precision (0.05)
n = 7048_ = 378
1+7048 (0.05) ²
Accordingly, 378 respondents will be selected from the total of 7048 MSEs. These 378
respondents will be selected from constriction, manufacturing, Urban agriculture, trade and
service enterprises on proportional basis.

Table 3.1: shows the population and sample size taken from respective MSEs.

MSEs in the study Population size Sample size calculation

Constriction 914 [(914/7048) x 378] = 49
Manufacturing 3002 [(3002/7048) x 378] =161
Urban agriculture 1510 [1510/7048) x 378] = 81
Trade 1119 [1119/7048) x 378] =60
Service 503 [(503/7048) x 378] =27
Total 7048 378

Source: micro small enterprise office in Gulele sub city

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3.6 Source and Methods of Data Collection
3.6.1 Source of data
In this research proposal, both primary and secondary sources of data will be used. The primary
sources data will be collected through questionnaires and interviews. Secondary data also will be
used recorded document, books and other related references.

3.6.2Methods of Data Collection

This study will use survey questionnaire in order to collect primary data required for the study.
Based on this, the researcher will develop a questionnaire containing closed ended questions as
an instrument of data collection. The reason why closed ended questionnaire used is to know
how much explanatory variables influence the dependent variable. This questionnaire will be
distributed to 378 respondents subject to factors affecting the performance of micro and small
Enterprises. This questionnaire will have contained both demographic characteristics of the
enterprise and Likert scale question related with variables of both internal and external factors of
micro and small Enterprises in Gulele sub-city.

3.7 Methods of Data Analysis

This study will be using both descriptive and inferential (statistical) analysis. The Statistical
Package for Social Science (SPSS) will be used to analyze the data obtained from primary
sources. Descriptive analysis is used to reduce the data in to a summary format by tabulation,
mean, standard deviation and measure of central tendency. The reason for using descriptive
statistics is to compare the different factors. Based on the interview a question inferential
statistics will be used to know, the relationship between two or more variables and how several
independent variables might explain the variance in a dependent variable. Correlation analysis
will be a widely used statistical method for obtaining an index of the relationships between two
variables when the relationships between the variables are linear or continuous and also to know
whether statistically significant relationship between each variable or not. Multiple regression
analysis method will be applied to know the cause and effect of dependent and independent
variable.

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3.8 Reliability
Ensuring the reliability of the instrument is possible through testing; and the reliability of a
standardized test is expressed as coefficients which vary between -1 and +1 with the former
reveal perfect negative reliability and the latter reveals perfect positive reliability. The Cranach’s
alpha value of 0.7 and above is acceptable and taken as a good indication of reliability. In this
research the Likert scale questionnaires responded by MSE’s owners/managers will be tested
with a sample of 344 MSE’s operators and the Cranach’s alpha coefficient.

3.9. Validity
According to Sunders, et al., (2009), validity is the soundness or rationality; whether the findings
are really about what they appear to be or the degree to which results obtained from the analysis
of the data actually represents the phenomena under study. The validity of data gathering
instrument will be confirmed by the ability and willingness of the respondents to provide the
information requested.

3.10. ETHICAL CONSIDERATIONS

All the research participants that participated in this study will be appropriately informed about
the purpose of the research and their willingness and consent will secured before the
commencement of distributing questionnaire and asking interview questions. Regarding the right
to privacy of the respondents, the study surely maintained the confidentiality of the identity of
each participant. In all cases, names were kept confidential thus collective names like
respondents ‘will be used.

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 Table 3.3: logical framework
Objective Measurable variables Data type Research tool Data analysis
Primary Seconda Quest Interv Correlati percen regre qualit
source ry data ioner iew on tage ssion ative

The internal factors Managerial factors √ √ √ √ √ √ √

affecting the performance
of micro and small entrepreneurial factors √ √ √ √ √ √ √
enterprise

The external factors Market factors √ √ √ √ √ √ √

affecting the performance of
micro and small enterprise
Finance factors √ √ √ √ √ √ √

Infrastructure factors √ √ √ √ √ √ √

Working premise factors √ √ √ √ √ √ √

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4. Work Plan/Schedule
The research work will consume about 8 months from August 2022 to December 2022

Table 4.1 Activities plan

Details of Tasks to be Performed Time Operation Period Remark
needed
1 Topic Identification and modification 30 days August 2022
getting authorization from Department
2 Working on chapter one and two 20 days August 2022
3 Working on chapter three 30 days September 2022
4 Compiling and submitting the proposal 20 days October , 2022
and development of Questionnaires
5 Pre- testing of the Questionnaire and 30 days November, 2022
orientation of the data collectors
6 Data Collection 30 Days December, 2022
7 Data Analysis 30 days October , 2022
8 Report Writing 20 days November, 2022
Finalizing: editing, printing & 20 days December, 2022
Submitting final paper

Table 4.2 Financial Budget Plan time

Details of Tasks to be Performed Cost in Birr

1 Commission for data collectors 3500

2 Cost of Stationery Services 2000

3 Cost of copy, printing and binding 2000

4 Transportation Cost 1500

5 Contingency 1,000.00
Total 10000.00

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APPENDIX: Questionnaires for MSEs’ Owners

ALPHA UNIVERSITY COLLEGE

SCHOOL OF GRADUATE STUDIES

MASTER OF BUSINESS ADMINISTRATION (MBA)
Dear my Respondents
This questionnaire is prepared to collect information about the factors affecting the performance
of micro small enterprise engaged in construction, manufacturing, urban agriculture, trade and
service sectors in Gullele sub-city. It has four parts: demographic characteristics of the
respondents, information about enterprise, internal and external Factors affecting the
performance of micro small enterprise. The information you are going to provide will be used
for only academic purpose. So, you are kindly requested to give genuine answer.
Instruction:
For closed- ended questions, you are kindly requested to encircle the letter (choice) in each
question that holds your opinion. For multiple answers in a given question, it is possible to rank
more than one choice. For open-ended questions, you write your opinion in the space provided.
Should you have any enquiry, please be free to contact the researcher at the following addresses:

Mobile:0913486997

Email: millionfeyissa88@gmail.com

Thank you in advance

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Part I: Demographic characteristics of the respondents
1. Sex of respondent A. Male B. Female

2. Age of respondent: A.18-29 Years B. 29– 34Years C. 34-60 Years D. More than 60 Years

3. Marital Status of respondent: A. Single B. Married C. Separated D. Divorced

4. Educational Level of respondent: A. Read and write only B. 1-12 C. College
Diploma D. Higher Education
5. What is your type of sector or business? A. Construction B. Manufacturing C. Service
D. Urban Agriculture E. Trade

6. What is the form of ownership of this enterprise?

A. Partnership B. Cooperative C. private D. Others (specify) --------------
7. What is your enterprise level of growth? A. Micro start-up B. Micro growth C. Micro
maturity D. Small start-up E. Small growth F. Small maturity
SECTION II: Internal factors affecting Micro and Small Enterprises performance
After you read each of the challenges, evaluate them in relation to your business and then put a
tick mark (√) under the choices below.
Where, 5 = strongly agree, 4 = agree, 3 = Neutral, 2 = disagree and 1= strongly disagree
1. Please indicate the degree to which you agree or disagree with the following
statements concerning Managerial and Technical factors

No - Managerial and technical skill factors 5 4 3 2 1

1.1 Enterprise have strong organizational structure

1.2 The enterprise have division of labor, and team spirit
3.3 The enterprise have organization and strategic business plane
4.4 Your firm have well trained & skilled labor

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2. Please indicate the degree to which you agree or disagree with the following statements
concerning entrepreneurial factors
No - Entrepreneurial factors 5 4 3 2 1

2.1 Entrepreneurs have motivation, and drive to work hard.

2.2 Entrepreneurs have persistence
2.3 Entrepreneurs have ready to learn , and to change my business
2.4 Entrepreneurs have initiative to assess strengths and
weakness
2.5 Entrepreneurs have business exposure prior to the
establishment of the enterprise
2.6 There is entrepreneurship training for your business

SECTION IV: External factors affecting Micro and Small Enterprises performance
After you read each of the challenges, evaluate them in relation to your business and then put a
tick mark (√) under the choices below.
1. Please indicate the degree to which you agree or disagree with the following statements
concerning Financial Factors:
No Financial Factors: 5 4 3 2 1
-
1.1 There is minimal collateral requirement from banks and other
lending institutions
1.2 The enterprise have enough working capital
1.3 The enterprise exercise accounting& bookkeeping practices
1.4 There is adequate credit institutions in my area
1.5 There is no complicated Loan application procedures of banks
and other lending institutions

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2. Please indicate the degree to which you agree or disagree with the following statements
concerning Marketing factors
No - Marketing factors 5 4 3 2 1
2.1 The enterprise have adequate market for the product
2.2 The enterprise have promotion for the products
2.3 The enterprise forecast market demand
2.4 The enterprise exercise customer handling practice
2.5 The enterprise compete with Cheap imported products

2.6 The enterprise get adequate and reliable market information

3. Please indicate the degree to which you agree or disagree with the following statements
concerning Basic Infrastructures factor
No - Basic Infrastructures factors 5 4 3 2 1
3.1 The working area of enterprise have water supply
3.2 The working area of enterprise have transportation service
3.3 The working area of enterprise appropriate dry waste and
sewerage system
3.4 The working area of enterprise have business development
services

4. Please indicate the degree to which you agree or disagree with the following statements
concerning Working place factors
No - Working place factors 5 4 3 2 1
4.1 The enterprise can own working premises
4.2 My current working place is convenient for my business
4.3 the working premises environment are suitable for business
4.4 I have a reasonable cost of house rent for my business

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How do you rate the performance of your business profitability? (Dependent variable)
Where, 5 = strongly agree, 4 = agree, 3 = Neutral, 2 = disagree and 1= strongly disagree
1.
Item 5 4 3 2 1
The business is Profitable
There is a good Sales turnover
The business has good Market share
There is good customer loyalty
The enterprise are Computable

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