WERABE UNIVERSITY

COLLEGE OF BUSSINESS AND ECONOMICS

DEPARTMENT OF BUSINESS ADMINISTRATION (MBA)

FACTORS CONSTRAINING TRANSFORMATION(GRADUATION)

OF SMALL ENTERPRISES TO MEDIUM SCALE ENTERPRISES IN
WERABE TOWN OF THE SILTE ZONE, CENTRAL ETHIOPIA
REGIONAL STATES.

By: - Rahama Hasen

Main advisor: Matewos Kebede(PhD)

Co -advisor: - Muhaba Nuredin(MA)

September, 2024
Werabe, Ethiopia
 STATEMENT OF DECLARATION
I, Rahama Hasen, hereby declare that the thesis entitled "factors constraining transformation
(graduation) of small enterprises to medium scale enterprises in werabe town" is my original work.
I have conducted the research, analysis, and writing for this thesis independently, and all sources of
information, ideas, and data have been appropriately cited and referenced.

I acknowledge that this Thesis has not been submitted for any other degree or qualification and that all
contributions from other researchers and sources have been duly acknowledged. Any similarities with
existing works are purely coincidental, and every effort has been made to ensure the originality and
academic integrity of this research.

This Thesis has been prepared in accordance with the academic and ethical standards of Werabe
University, and I take full responsibility for its content and findings.

Signed:_______________________________________

Rahama Hasen

Date:_________________________________________

Werabe University
 SCHOOL OF GRADUATE STUDIES

WERABE UNIVERSITY

ADVISOR`S APPROVAL SHEET

This is to certify that the thesis, entitled “Factors constraining transformation (graduation) of small
enterprises to medium scale enterprises in Werabe town.” Submitted to the Department of Business
Administration College of Business and Economics, Werabe University, in partial fulfillment of the
requirements for the award of the Degree of Master of Business Administration work done by Rahama
Hasen. Therefore we recommend that the student fulfill the requirements and hence can submit the
Thesis to the Department of Business Administration Studies.

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 SCHOOL OF GRADUATE STUDIES

WERABE UNIVERSITY

EXAMINER`S APPROVAL SHEET

We, the understanding, members of the board of Examiners of the final open defiance by Rahama husen
have read and evaluated the thesis entitled “factors constraining transformation (graduation) of
small enterprises to medium scale enterprises in werabe town.” and examined The candidate.
Therefore, to certify that the thesis has been accepted in partial fulfillment of the requirement for the
degree.

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 ACKNOWLEDGMENTS

The greatest thanks goes to the almighty Allah for is endless help in giving me healthy, strength, help in

all situations for the success of my life and accomplishment of this thesis.

The author would like to acknowledge and express appreciation to Matewos Kebede(PhD) and Muhaba
Nuredin (MA) for their willingness to offer critically constructive comments and support starting from
the approving of the topic up to the finalization of Thesis

TABLE OF CONTENTS
Contents
Statement of Declaration..............................................................................................................................I

Advisor`s approval sheet.............................................................................................................................II

Examiner`s approval sheet.........................................................................................................................III

Acknowledgments.....................................................................................................................................IV

Table of Contents........................................................................................................................................V

List of figures..........................................................................................................................................VIII

List of Tables.............................................................................................................................................IX

Acronyms....................................................................................................................................................X

CHAPTER ONE..........................................................................................................................................1

Introduction..................................................................................................................................................1

1.1. Background of the study............................................................................................................1

1.2. Statement of the problem..........................................................................................................3

1.3. Research Questions...................................................................................................................4

1.4. Objective of the study................................................................................................................5

1.4.1. General Objective...........................................................................................................5

1.4.2. Specific Objectives.........................................................................................................5

1.5. Scope of the Study.....................................................................................................................5

1.6. Significance of the Study..........................................................................................................6

1.7. Organization of the paper..........................................................................................................6

CHAPTER TWO.........................................................................................................................................7

2. LITERATURE REVIEW......................................................................................................................7

2.1. Theoretical review.....................................................................................................................7

 2.1.1. Resource-Based View (RBV).........................................................................................7

2.1.2. Institutional Theory........................................................................................................7

2.1.3. Entrepreneurship Theory................................................................................................8

2.1.4. Financial Gap Theory.....................................................................................................8

2.1.5. Market Failure Theory....................................................................................................9

2.2. Empirical review.......................................................................................................................9

2.3. Factors influencing growth of enterprises...............................................................................12

2.4. Conceptual framework of the study........................................................................................18

CHAPTER THREE...................................................................................................................................20

3. RESEARCH DESIGN AND METHODOLOGY..............................................................................20

3.1. Research Approach and Design...............................................................................................20

3.2. Source of Data.........................................................................................................................20

3.3. Data Collection Methods............................................................................................................20

3.4. Sampling Design and Procedure.............................................................................................20

3.5. Data Analysis...........................................................................................................................21

3.6. Design Measurement Instruments...........................................................................................21

3.7. Model Specification................................................................................................................22

CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION.........................................................24

4. Introduction.........................................................................................................................................24

4.1. Demographics of The respondents..........................................................................................24

4.2. Descriptive Statistics...............................................................................................................26

4.3. Correlation analysis.................................................................................................................27

 4.4. Assumption test.......................................................................................................................29

4.4.1. Multi collinearity test...................................................................................................29

4.4.2. Autocorrelation test......................................................................................................31

4.4.3. Normality......................................................................................................................32

4.4.4. Heteroscedasticity Test.................................................................................................33

4.4.5. Test for linearity...........................................................................................................34

4.5. Multiple Linear Regression Analysis and Model Fitting........................................................35

Interpretation of the Coefficients:..............................................................................................38

4.6. Discussion...............................................................................................................................39

CHAPTER FIVE: CONCLUSION AND RECOMMENDATION...........................................................42

5. INTRODUCTION..............................................................................................................................42

5.1. CONCLUSION.......................................................................................................................42

5.2. RECOMMENDATIONS.........................................................................................................43

5.3. RECOMMENDATIONS FOR FUTURE RESEARCHERS..................................................44

Reference...................................................................................................................................................45

APPENDIX A............................................................................................................................................50
 LIST OF FIGURES

Figure 2:1conceptual framework........................................................................................................19

Figure 4:1normally distributed standardized residual test..................................................................32

Figure 4:2Heteroscedasticity Test.......................................................................................................33

Figure 4:3Tests for linearity................................................................................................................34

VIII
 LIST OF TABLES
Table 4.1. Demographic Characteristics of Respondents...................................................................24

Table 4.2 Descriptive Statistics s........................................................................................................26

Table 4.3 Correlation analyses............................................................................................................27

Table 4.4 multi collinearity test...........................................................................................................30

Table 4.5 Model Summaryb.................................................................................................................36

Table 4.6ANOVA................................................................................................................................37

Table 4.7 Regression analysis.............................................................................................................38

IX
 ACRONYMS
FeMSEDA= Federal Micro and Small Enterprises Development Agency

MSE= Micro and small enterprise

RBV= Resource-Based View

SPSS = Statistical Package for the Social Sciences.

X
 CHAPTER ONE

INTRODUCTION
1.1. Background of the study
Globally, Micro and Small Scale Enterprises play a pivotal role in driving economic development,
serving as primary catalysts for output growth, job creation, and industrial development strategies in
both developed and developing countries. Notably, in developing nations, Small and medium Scale
Enterprises stand out as crucial contributors to national economies, as highlighted by Tambunan
(2018). The multifaceted impact of Small and medium Scale Enterprises encompasses the efficient
utilization of local raw materials, employment generation, rural development, cultivation of
entrepreneurship, mobilization of local savings, the establishment of linkages with larger industries,
regional balance through equitable investment distribution, and avenues for self-employment
(Taiwo, Ayodeji, & Yusuf, 2012; UNCTAD, 2001; Tambunan, 2019; Tekola&Gidey, 2019). As
discussed by Kinfe (2019), MSEs are essential engines for achieving national development goals,
including economic growth, poverty alleviation, employment, and wealth creation, resulting in a
more equitable distribution of income and increased productivity.
The significance of Small and Medium-Scale Enterprises extends beyond their economic impact,
enhancing the quality of life for both businesses and employees, offering employment opportunities,
and acting as supplements to large-scale modern sector firms. They efficiently utilize agricultural
and other raw materials that might otherwise go to waste, serving markets that only allow for small-
scale production (Tambunan, 2019). Furthermore, Small and Medium-Scale Enterprises play a
strategic role beyond their immediate economic impact by fostering entrepreneurship development
and countering the monopolistic influence of larger enterprises, thereby enhancing market
competitiveness. These businesses also act as incubators for entrepreneurial skills and have
demonstrated contributions to innovation ((Taiwo, Ayodeji, & Yusuf, 2012).

Acknowledging the importance of Small and Medium-Scale Enterprises, the Ethiopian government
established the Federal Micro and Small Enterprises Development Agency, unveiling the National
Micro and Small Enterprises Strategy in 1997. Small and Medium-Scale Enterprises are identified
as key tools in the country for reducing poverty and fostering a thriving private sector in the nation's

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industrial policy and poverty reduction strategy (Tsegaye, 2019). Ethiopia's SME landscape is
diverse, spanning manufacturing, agriculture, and services, contributing to regional economic
vibrancy and supporting localized development initiatives. The varied product offerings of these
enterprises add to the country's economic diversity and resilience. Gebreeyesus et al. (2018)
highlight the significance of furniture and woodworking, food and beverage, and metalworking
workshops as key sub-sectors for Small and Medium-Scale Enterprises in Ethiopia. Together, these
sectors make a substantial contribution, comprising approximately 63.2% of Small and Medium-
Scale Enterprises in urban Ethiopia. Conversely, garment, textiles, and leather products collectively
constitute about 9%, 4%, and 3.6% of Small and Medium-Scale Enterprises.

Despite their significant contributions, small and micro businesses face challenges that hinder their
long-term survival and growth (Lee & Fong, 2023). Failure rates are higher in developing nations,
with three out of every five firms failing within the first few months of operation (Myovella et al.,
2020). These challenges are attributed to the lack of structured policies and support frameworks,
including issues related to premises, markets, finance, supply chains, regulatory obstacles, and the
legitimacy of entrepreneurial endeavors (ILO, 2005). In the Ethiopian context, historical data
indicates that within the first few months of operation, three out of every five firms fail (CSA,
2007).
Enterprises in Ethiopia encounter a spectrum of challenges collectively impeding their growth and
operational efficiency. Eshetie (2018) discussed the following factors as some of the challenges that
enterprises in Ethiopia face. Chief among these challenges is the burden of high logistics and
transportation costs, significantly elevating operational expenses for businesses. Low labor
productivity is also identified as an additional hurdle, impacting overall output and operational
efficiency across various sectors. The high cost associated with importing raw materials further
strains enterprises, influencing production expenses and profitability also listed as a significant
constraint. Furthermore, a lack of comprehensive research on various industries, including essential
aspects like end-market studies, hampers informed decision-making for enterprises. Geographical
constraints that arise from underdeveloped rural infrastructure are also found to limit the expansion
of enterprises to areas with untapped potential. Weak supply chain integration, a low level of
technological adoption, and weak market institutions and information systems are also listed as
factors exacerbating operational inefficiencies, and hindering innovation in Ethiopia (Eshetie, 2018)

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 1.2. Statement of the problem
The national Micro and Small Enterprise (MSE) Development Strategy of Ethiopia, introduced in
1997 (E.C.), plays a crucial role in fostering economic growth by promoting the creation and
expansion of MSEs. The strategy has undergone continuous revision to address evolving challenges
and better meet the needs of the sector. Its major objectives include job creation, poverty reduction,
enhancing competitiveness and innovation, encouraging industrialization, and supporting regional
development. The strategy also focuses on improving access to finance and markets to help MSEs
scale up and remain competitive. Despite these efforts, several key constraints continue to hinder
MSE growth. These include unfavorable legal and regulatory frameworks, underdeveloped
infrastructure, and limited access to finance, inadequate business development services, and weak
institutional support.

Recent empirical studies highlight ongoing challenges in the sector. For instance, Solomon (2004)
identified infrastructure, finance, and regulatory barriers as critical impediments to MSE growth.
Girma (2016) emphasized the positive impact of financial inclusion, particularly in urban areas, but
also noted that rural enterprises still face difficulties in accessing credit. Abebe and Worku (2020)
examined the role of entrepreneurial skills and found that enterprises with better access to training
and market information showed higher growth rates. Tadesse et al. (2021) assessed the effectiveness
of government policy and institutional support, concluding that while policies were supportive in
theory, weak institutional coordination limited their impact on MSEs.

While numerous studies have explored factors influencing the growth of small and micro enterprises
(SMEs) in Ethiopia, the majority have centered around enterprises in or around the capital city,
Addis Ababa (Seyoum et al., 2016; Abera, 2012; HURGESSA, 2022; Tsegaye, 2019; Ebrahim,
2020). For example, Ebrahim (2020) examined factors affecting the growth of micro and small
enterprises in Gulele Sub-city, Woreda 03 of Addis Ababa, highlighting the significant contributions
of factors such as the age, gender, and work experience of leaders or owners, alongside factors like
the age of the enterprise, total number of employees, suitability of the working place, marketing
challenges, and government policies. Similarly, Tsegaye (2019) investigated growth factors in
Kolfe-Keraniyo Sub-city, Addis Ababa, emphasizing financial, political, legal, marketing,
management, technological, entrepreneurial, and infrastructural factors.

3
However, Addis Ababa and its environs represent a unique context in Ethiopia, benefitting from
relatively well-established infrastructure and access to markets and financial resources compared to
other regions. Acknowledging this distinction, several studies have explored constraints to SME
growth across different parts of the country, including Dire Dawa (Wolde&Geta, 2015), Ambo
(Lemessa et al., 2019), Lalibela (EbabuEngidaw, 2021), West Shewa (Geleta&Talegeta, 2019),
Nekemte (Fufa, 2015), Asela (Abebe& Gemeda, 2020), Benishangul-Gumuz (Meressa, 2020), Shire
Indasselassie (Abay et al., 2014), Gonder (Alene, 2020), and Mekele (Woldeyohanes, 2014). These
studies underscore the contextual nature of factors influencing enterprise growth, which can vary
significantly from region to region.

For instance, Lemessa et al. (2019) identified predictive variables for SME growth in Ambo, Bako,
Gedo, and Ginchi towns, including demographics of managers/owners, access to credit and training,
sectoral engagement, and infrastructural support. Meressa (2020), on the other hand, emphasized the
significance of initial investment, access to land and finance, location, sectoral engagement, market
linkage, and business experience, while highlighting the insignificance of factors like gender,
education, ownership structure, formal recording, and financial management practices.

In this context, the proposed study aims to contribute to the existing literature by investigating
factors constraining the transformation or graduation of micro and small enterprises in Werabe
Town, an area overlooked by previous studies. By focusing on this specific location, the research
intends to shed light on unique challenges and opportunities faced by SMEs in a relatively
understudied setting, thereby enriching our understanding of the broader dynamics of enterprise
growth in Ethiopia.

1.3. Research Questions

1. What macro-level factors impact the growth of firms from small to medium scale?
2. What firm-specific factors influence the transition from small to medium-sized
enterprises
3. What are the trends in the transition process from small-scale to medium-scale
enterprise status?

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 1.4. Objective of the study

1.4.1. General Objective

To assess the factors constraining the transformation/graduation of small enterprises to medium-
scale enterprises in Werabe town, Silte zone, central regional states of Ethiopia.

1.4.2. Specific Objectives

The following are specific objectives of the study

1. To analyze macro-level factors impacting the growth of firms from small to medium scale.
2. To examine firm-specific factors influencing the transition from small to medium-sized
enterprises.
3. To know the trends in the transition process from small-scale to medium-scale enterprise status.

1.5. Scope of the Study

This research proposal focuses on Werabe town within the Silte Zone to conduct a detailed
examination of the factors influencing the transformation of small-scale enterprises into medium-
scale enterprises. Werabe has been selected due to its distinct economic and social environment,
which provides a specific context for analyzing the unique challenges and opportunities faced by
local businesses. The study explored both macro-level factors—such as access to finance, market
conditions, and infrastructure, and firm-specific factors—such as entrepreneurial skills, and access
to raw materials. This focus allows for a comprehensive understanding of how these variables
impact the growth and transition process within this particular town.

The choice of Werabe simplifies data collection and analysis by narrowing the geographic scope,
leading to more precise and actionable insights. These findings are expected to be particularly
relevant for local policymakers and business support organizations, helping them tailor interventions
and policy measures to better support businesses in Werabe. Furthermore, the insights gained from
this localized study can offer valuable comparisons with other towns and regions within the Silte
Zone, contributing to a broader understanding of factors affecting enterprise growth and
transformation across different areas.

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 1.6. Significance of the Study
This study is highly significant as it focuses on Werabe town, providing valuable insights into the
factors influencing the transformation of small-scale enterprises into medium-scale enterprises. By
examining the specific economic and social environment of Werabe, the research aims to contribute
to local economic development by identifying the unique challenges and opportunities faced by
businesses in this area. The findings will offer targeted recommendations for local policymakers and
business support organizations, enabling them to tailor interventions and policies to better support
local entrepreneurs and improve the business environment. Additionally, the study will enhance
understanding of both macro-level and firm-specific factors affecting business growth, offering
practical guidance for enterprises on overcoming barriers and leveraging growth opportunities. This
research will also lay the groundwork for future studies on enterprise transformation in other
regions, contributing to a broader understanding of the dynamics involved in scaling up businesses.
Ultimately, the study aims to benefit the local community by promoting more successful and
sustainable businesses, leading to job creation, poverty reduction, and improved living standards in
Werabe.

1.7. Organization of the paper

The thesis contains five chapters. Chapter one focused on introductory aspects including the
background of the studied area, statement of the problem, objectives of the study, significance,
scope, and limitation of the study. Chapter two presents the review of related literature. Chapter
three presents the research design and methodology including the data source and method of data
collection, the sampling techniques used, and the measurement and analysis parts. Chapter four
contains data presentation, analysis, and interpretation. Finally, chapter five include the conclusion
and recommendation.

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 CHAPTER TWO

2. LITERATURE REVIEW
2.1. Theoretical review

2.1.1. Resource-Based View (RBV)

The Resource-Based View (RBV) theory, developed by Barney (1991), focuses on the internal
resources and capabilities of a firm as the primary drivers of its competitive advantage. According to
RBV, firms possess unique resources—such as financial capital, human resources, technology, and
organizational processes—that contribute to their success. These resources must be valuable, rare,
inimitable, and non-substitutable to provide a sustainable competitive advantage.
Application to MSEs:
 Financial Capital: Many MSEs struggle with inadequate access to finance, which limits
their ability to invest in growth opportunities and operational improvements. Financial
resources are critical for scaling operations, managing cash flow, and investing in new
technologies.
 Human Capital: The skills and knowledge of the workforce are essential for effective
management and technical proficiency. RBV posits that businesses with a well-trained and
skilled workforce are better positioned to overcome operational challenges and innovate.
 Technological Capabilities: Access to advanced technology can enhance efficiency and
competitiveness. MSEs often face barriers to technology adoption due to high costs and lack
of technical expertise.
RBV highlights why resource constraints can impede the transformation of small enterprises into
medium-sized ones. It underscores the importance of developing and leveraging unique resources to
achieve business growth and sustainability.
2.1.2. Institutional Theory
Institutional Theory, introduced by DiMaggio and Powell (1983), examines how institutional
contexts—comprising laws, regulations, norms, and practices—influence organizational behavior
and performance. Institutions shape the formal and informal rules that organizations must navigate,
impacting their operational efficiency and legitimacy.

7
Application to MSEs:
 Regulatory Environment: Institutional Theory helps explain how bureaucratic
inefficiencies and complex regulatory requirements can hinder MSE operations. Mulugeta
(2011) identified issues such as bureaucratic bottlenecks and weak institutional capacity as
barriers to MSE growth.
 Institutional Support: Effective institutional support, including access to training, funding,
and business development services, is crucial for MSE success. Weak institutional capacity
can limit the availability and effectiveness of such support.
This theory provides insights into how external institutional factors impact MSEs and suggests that
improving institutional frameworks and reducing bureaucratic obstacles could facilitate MSE
growth.

2.1.3. Entrepreneurship Theory

Entrepreneurship Theory focuses on the role of entrepreneurs in driving business success and
innovation. Key components include risk-taking, innovation, decision-making, and resource
management. Entrepreneurs' skills and capabilities are critical for overcoming challenges and
steering businesses toward growth.
Application to MSEs:
 Entrepreneurial Skills: Effective management and strategic decision-making are essential
for navigating challenges and pursuing growth opportunities. Munyori & Ngugi (2014)
emphasize that deficiencies in entrepreneurial skills can limit MSE performance and
sustainability.
 Innovation: Entrepreneurs need to innovate and adapt to changing market conditions. Lack
of innovation can prevent MSEs from differentiating themselves and competing effectively.
Entrepreneurship Theory underscores the importance of entrepreneurial capabilities in influencing
MSE outcomes and highlights the need for targeted training and development programs to enhance
these skills.
2.1.4. Financial Gap Theory

8
Financial Gap Theory, as discussed by Park et al. (2008), addresses the discrepancy between the
financing needs of SMEs and the availability of capital. The theory identifies both supply-side and
demand-side factors contributing to the financing gap.
Application to MSEs:
 Supply-Side Factors: Financial institutions may be reluctant to lend to SMEs due to
perceived risks and high collateral requirements. This limits the availability of affordable
financing options for MSEs.
 Demand-Side Factors: SMEs often lack effective financial management practices and may
struggle to present viable business plans. This makes it difficult for them to secure funding.
The Financial Gap Theory provides a framework for understanding why MSEs face difficulties in
accessing capital and suggests the need for targeted financial interventions and support mechanisms.
2.1.5. Market Failure Theory
Market Failure Theory, as discussed by Stiglitz (1989), explains situations where markets fail to
allocate resources efficiently or provide optimal outcomes. Market failures can result in
inefficiencies and hinder economic development.
Application to MSEs:
 Market Linkages: MSEs often face market failures related to poor market linkages and
limited promotional efforts. This restricts their ability to access larger markets and compete
effectively.
 Support Mechanisms: Addressing market failures requires targeted interventions to
improve market access, enhance promotional efforts, and support MSEs in overcoming
market-related challenges.
Market Failure Theory provides insights into the systemic issues affecting MSEs and underscores
the need for corrective measures to improve market conditions and support MSE growth.
2.2. Empirical review
A consensus and universally accepted classification of enterprises have not been well documented
in the literature. Perhaps, this could be due to the fact that the classification of businesses requires a
subjective and quantitative judgment classification of enterprises as other concept in the field of
economics and management has been relatively dynamic which largely depends on the unique roles
the enterprises are expected to play in the growth and development process of their respective

9
economies (Woldesenbetet al., 2012).These conceptual definitions also change overtime due to
variations in some macroeconomics fundamentals such as price level as well as technological
advancement. Some of the criteria often adopted in defining small scale include: the staff strength,
the size of the business concern, capital requirement, and ownership structure (Sidorenko et al.,
2020).

According to Gebreeyesus (2009), the characteristic of Small and Medium-Scale Enterprises not
only reflects the economic patterns of a country but also the social and cultural dimensions. These
differing patterns are noticeably reflected within different definitions and criteria of Small and
Medium-Scale Enterprises adopted by different countries: whereas some refer to the number of
employees as their distinctive criteria for MSEs, others use invested capital, and some other use a
combination of the number of employees, invested capital, sales and industry type. Rigorously
defining small business has always been difficult, even controversial. The term covers a variety of
firms and most writers use it rather loosely based on their purpose of study. As Gebreeyesus
(2009) adopted the definition of small business from Peterson et al. (1986) a small business is one
which is independently owned and operated, and which is not dominant in its field of operation‟.
Researchers and other interested parties have used specific criteria to operationalize the small
business as a construct: value added, value of assets, annual sales, and number of employees. The
latter two criteria are most often used to delimit the category. In the case of Ethiopia, there is lack
of uniform definition at the national level to have a common understanding of the MSE sector.
While the definition by Ministry of Trade and Industry (MoTI) uses capital investment, the
Central Statistical Authority (CSA) uses employment and favors capital intensive technologies as
a yardstick Accordingly, micro enterprises, thriving in both industry and service sectors, are
characterized by a staff count of ≤ 5 and a paid-up capital (fixed asset) of ≤ 100,000 ETB for
industry and ≤ 50,000 ETB for service. Small enterprises, extending their operations across
industry and service, maintain a staff count ranging from 6 to 30, with paid-up capital varying
between 101,000 ETB to 1,500,000 ETB for industry and 50,001 ETB to 500,000 ETB for
service. Moving beyond, medium enterprises, found in both industry and service sectors, exhibit a
staff count exceeding 30 and a paid-up capital surpassing 500,000 ETB. (Teka, 2022).

Micro enterprises are business activities that are independently owned and operated, have small

10
share of the market, are managed by the owner and employing five or less employees. Small
businesses are those enterprises that employ 6 to 49 employees. They share the same characteristics
with micro enterprises in other aspects Medium scale enterprises are those enterprises which have a
relatively higher share of the market, are independently or jointly owned or managed by the owner
or by appointed executives and employ 50 to 99 persons.

under the umbrella of MSEs are numerous activities – street vendors, shop keepers, construction,
wood and metal work, food processing, textile and garments, urban farm, municipality service ,
bars, shops, groceries, hairdressers, wholesale and retail traders, export-import traders and small
scale industries etc. Most of these enterprises in the country are largely confined to trade and
services and to small scale manufacturing and handicrafts, which constitute an important subset of
small scale enterprises. The definition of small scale industries adopted by the Federal Micro and
Small Enterprises Development Agency (FeMSEDA) in proclamation 124/97 is as follows: A small
scale manufacturing activity and engineering service establishment is a manufacturing
establishment -except handicrafts- which has a fixed location within urban center; uses either
manually operated machinery and equipment move power driven machinery and equipment and
engaged in the mechanical-chemical transformation of substances into new products and in the
fabrication, assembly, reconstruction, alteration and repair activity; employs at least one person
other than the owner/owners, unpaid family workers and/or apprentices; and has fixed assets of
value not exceeding Birr 200,000 excluding investments made on land and buildings. MSEs are
defined in a variety of ways using various factors. These factors include number of employees,
volume of sales, and the capital value of the business (Zemenu& Mohammed, 2014). In Ethiopian,
the MSE development strategy defines MSEs according to the number of employees and capital
(FeMSEDA, 2010).Micro Enterprise under the industry sector (manufacturing, construction and
mining) is an enterprise operates with 5 people including the owner and/or their total asset is not
exceeding Birr 100,000. Under service sector(retailer, transport, hotel and Tourism, Information
Communication Technology (ICT) and maintenance service)Micro enterprise are an enterprise
operating with 5 persons including the owner of the enterprise and/or the values of total asset is not
exceeding Birr 50,000. Small Enterprises in the industrial sectors are an enterprise operating with 6-
30 persons and/or with a paid up capital of total asset Birr 100,000 and not exceeding Birr
1.5million. Similarly, in the service sector, small enterprises are an enterprise operating with 6-30

11
persons and/or with a paid up capital of total asset Birr 50,000 and not exceeding Birr 500,000
(FMSEDA, 2012).

United Nations Industrial Development Organizations (UNIDO) gives alternative definition for
developing countries. Accordingly, it defines micro enterprises as the business firms with less than
5 employees and small enterprises as the business firms with 5-19 employees (UNIDO, 2002:53).
The United States of America, the Small Business Act issued in 1953 stated that, small business is
one which is independently owned and operated and not dominant in its field of operation. The act
also further stated that, number of employees and sales volume as guideline in defining small
business (Majo&Radwan, 2010). In the same country, a committee for economic development
(CED) has explained that small business is characterized by at least two of the key features:
management is independent (usually the managers are owners), capital is supplied and an individual
or small group holds ownership and the area of operation is mainly local (workers and owners are
in one home country). According to Kayanula and Quartey (2000:16) in Malawi, the official
definition of enterprise sizes is based on three criteria namely the level of capital investment,
number of employees and turnover. An enterprise is defined as small scale if it satisfies any two of
the three criteria, that is, it has a capital investment of USD 2,000 - USD 55,000, employing 5-20
people and with a turnover of up to USD 110,000

2.3. Factors influencing growth of enterprises

In spite of the major role, the significance and contributions of the small-scale enterprises to the
national economy, this set of enterprises are still battling with many problems and certain
constraints that exist in promoting their development and growth. For instance, (International Labor
Organization, 1994) study shows that inadequate entrepreneurial talent affects the development of
small-scale manufacturing and processing industries. Other problems that hinder the advancement
of small-scale enterprises are the persistent low level of technology, the shortage inadequate
entrepreneurial skills of operators and the absence of an effective management technique. Small-
scale enterprises tend to concentrate on traditional industries where low entry barriers, low
minimum production scales, and relatively large labor force are the potential advantages. However,
the traditional industries have not been immune to the recent technological revolution taking place
in the field (Adubifa, 1990). Hanshom (1992) and McCormick (1998) stated that African small

12
enterprises are found to be unorganized in production activities. Low capital investment on capital
goods and lack of division of labor in production makes these enterprises remained week. It is a
clear fact that many micro, small and medium-scale enterprises are dying out owing to lack of
financial support from the government and other citizens. Mills (1990) stated that the major pre-
occupation of all developing countries these days is simply how to improve social, economic and
political status of the people.

Many writers have pointed out the detrimental effects on women of technological and socio-
economic changes in the process of development (Nundyet al., 2021). There has not been a total
consideration and enough provisions for some rural entrepreneurs in the development process.
Many of these entrepreneurs are left out in the provisions of the government toward the
advancement of their enterprises.

SMEs globally face difficulty in accessing finance from conventional financial institution.
However, International Finance Corporation and World Bank efforts at improving their financial
problems reveal contextual finance problems requiring homegrown strategies to manage and
overcome this predicament. Most SMEs have difficulty accessing loans from banks; most credit
officers lack an in-depth understanding of SMEs business cycles, and are averse to lending to them
(Du &Banwo, 2015). Limited access to finance faced by SMEs has drawn considerable attention
from both academics and practitioners for many decades. Literature on this subject suggests that
better financial access for SMEs contributes to economic growth, reduced income inequality and
reduced poverty (World Bank, 2008). Small enterprises and most of the poor population in Sub-
Saharan Africa have very limited access to deposit and credit facilities and other financial services
provided by formal financial institutions. For example, in Ghana and Tanzania, only about 5–6
percent of the population has access to the banking sector ((Thinji&Gichira, 2017).

Recent research highlights that funding remains a major obstacle for small and medium-sized
enterprises (SMEs) in developing economies, despite a range of recommendations and interventions
aimed at alleviating this issue. Various strategies have been implemented to address funding
challenges, including the establishment of small business equity markets to facilitate equity capital
raising, state grants to support business growth, and the creation of networks of business angels to
provide financial backing. However, these measures have not fully resolved the issue, as many

13
SMEs continue to face significant constraints in securing adequate financing. Park et al. (2008)
argue that the financing gap experienced by SMEs is a result of issues on both the supply and
demand sides. The supply side involves financial institutions and investors, while the demand side
consists of SMEs seeking financing. The difficulty in accessing capital market financing is
prevalent across both developing and developed countries, indicating a systemic problem in the
financial ecosystem (Park et al., 2008).

For women entrepreneurs, the challenge is even more pronounced. Many women struggle to find
initial capital for starting their businesses, often resorting to borrowing from formal sources. The
major hurdle they face is the stringent collateral requirements imposed by banks, which restrict their
ability to access sufficient credit. Even when they manage to secure financing, the amounts
borrowed are frequently inadequate to cover the financial gaps or to support substantial business
expansion (Wasihun & Paul, 2010).

Entrepreneurship is a crucial driver of economic growth, productivity, innovation, and employment.

It encompasses a range of functions, including coordination, innovation, uncertainty bearing, capital
supply, decision-making, ownership, and resource allocation within organizations (Munyori &
Ngugi, 2014). Despite its significance, MSEs often encounter difficulties in several areas, including
sales and marketing, human resource management, and general marketing research and training
(Nundyet al., 2021). These challenges highlight the need for continued investigation into the factors
affecting SME growth and the effectiveness of various support mechanisms.

Eshetu and Zeleke (2008) conducted a longitudinal study to assess the impact of influential factors
that affect the long-term survival and viability of small enterprises by using a random sample of 500
MSEs from 5 major cities in Ethiopia. According to this research, that lasted from 1996-2001, the
factors that affect the long term survival of MSEs in Ethiopia are found to be adequacy of finance,
level of education, level of managerial skills, level of technical skills, and ability to convert part of
their profit to investment. The findings of the study revealed that businesses that failed, during the
study period were characterized by inadequate finance (61%), low level of education (55%), poor
managerial skills (54%), shortage of technical skills (49%), and inability to convert part of their
profit to investment (46%).(ibid). According to the study of Mulugeta (2011) ,the critical problems
of MSEs has recognized and classified in to market related problems, which are caused by poor

14
market linkage and poor promotional efforts; institution-related problems including bureaucratic
bottlenecks, weak institutional capacity, lack of awareness, failure to abide policies, regulations,
rules, directives, absence of training to executives, and poor monitoring and follow-up; operator-
related shortcomings like developing a dependency tradition, extravagant and wasting behavior, and
lack of vision and commitment from the side of the operators; MSE-related challenges including
lack of selling place, weak accounting and record keeping, lack of experience sharing, and lack of
cooperation within and among the MSEs and finally society-related problems such as its distorted
attitude about the operators themselves and their products. Recent research has continued to
highlight the challenges faced by MSEs, with updated findings reflecting the evolving economic
landscape. For instance, a study by Abate and Asfaw (2022) examined the impact of the COVID-19
pandemic on MSEs in Ethiopia. Their research found that the pandemic exacerbated existing issues,
including severe financial constraints, disruptions in supply chains, and increased market
uncertainties. The study emphasized the need for targeted support measures to help MSEs recover
and adapt to new market conditions.

In another recent study, Teshome and Kedir (2023) focused on the role of digital technology in
overcoming traditional barriers faced by MSEs. They found that while digital tools have the
potential to enhance market access and operational efficiency, many MSEs struggle with technology
adoption due to limited resources and inadequate training. The study highlighted the importance of
creating supportive digital infrastructure and training programs to facilitate technology adoption
among MSEs.

Additionally, a report by the Ethiopian Development Research Institute (2021) explored the impact
of regulatory reforms on MSEs. The report found that while recent regulatory changes aimed at
reducing bureaucratic hurdles and improving access to finance, many MSEs still face challenges
due to inconsistent implementation and persistent regulatory barriers. The study called for more
streamlined and transparent regulatory processes to better support MSE growth.

Abebe (2011) analyzed the relation between personal related success factors and business related
factors on the performance of MSEs in Addis Ababa. This is with a view to identify these personal
and business related factors that have a favorable relation to the performance of the enterprises
business performance. Primary data, through structured questionnaire, were collected from the

15
samples of 73 MSEs randomly selected from among those industries engaged in Food and
Beverage; Textile and Garment, Wood and Metal, and Merchandise and Retail shop. Data were
analyzed using descriptive and inferential statistics with the aid of Statistical Packages for Social
Science (SPSS). Also, analysis of variance was carried out to examine the variation in the
performance of enterprises related to the variation in each of the independent variables of the study.

The ANOVA result indicates there is no significance variation on the performance of MSEs in
relation to the variations to each of the eight independent variables of the study. But the descriptive
statistics result shows better performance for enterprises owned by individuals with better education
level, have prior management and industry experience. In addition it also shows better performance
for those enterprises that uses planning and record keeping. Goshu (2015) examined the
determinants of MSE growth in terms of profitability of MSE business in Nekemte town. The total
population of the study was 504 MSEs operating in five sectors which are used as a stratum.
Proportional stratified sampling technique was used for the selection of 96 MSEs from the strata.
The study shows that the major source of finance for MSE is personal saving. It is only less than
one fourth of the respondents that are borrowed loan from MFI. The study shows that MFI loan
term is too short to run the business. Most of the respondents are characterized by low level
educational status and lack work experience. Most of the MSEs that are operating in government
shade complain for its sufficiency and suitability of the location for running business.

The result of regression analysis shows that sources of finance for MSE operators, loan term that
MSEs borrowed from MFI, previous business experience of the operators, marketing skill of
members of the business, source of raw materials of the MSE, and major customers of the product
or services of MSEs affects positively the growth of profitability of MSEs business significantly at
1% level of significance. Managerial skill of the respondents and suitability of the location of the
business positively determine the growth of MSE in terms of the profitability of MSE business
significantly at 5% level of significance. Also, educational status of MSE operator affects
negatively the growth of MSE significantly at 5% level of significance in the study area. These
findings corroborate the need for integrated approach towards the growth of MSE sector. Based on
the findings the researcher recommends that locality based approach for solving problems of MSEs
through prioritizing the challenges as per their severity; enhancing capacity of the MSE

16
development agency through provision of skill and business training; improving local business
environment through provision of sufficient work premises at appropriate location & facilitating
access to credit from financial institutions are the major once.

Teferaet al. (2013) aimed to investigate the growth determinants of MSEs based on a survey
covering 178 randomly selected MSEs from Mekelle city, Tigray regional state of Ethiopia through
the test of four main hypotheses that are formulated concerning the role of gender of owner, initial
investment on the firm, location and sector in which the firm operates as a main determinants of
growth of an enterprise. Semi-structured questionnaire and interview were used to collect data, and
the binary choice model which is logistic regression was used to identify factors that significantly
affect the growth of MSEs using change in employment size since startup as a measure of firm
growth in which about 76.4% of MSEs are found survival and the remaining 23.6% are growing.
The binary choice logit model result shows that there is a significant gender difference on the
growth of MSEs with male owner growing faster than those owned by female. In addition, the
initial investment on the firm, the location and the sector in which the MSEs operates matter a lot
for the growth of these enterprises. Hence, government and non-government organizations that are
concerned with unemployment reduction and poverty alleviation through the promotion and
development of MSEs need to take these factors in to account to accomplish better result and
increase the potential contribution of MSEs to the economic growth of the country.

Abera (2012)investigated factors affecting the performance of MSEs with a special emphasizes on
textile and garment, food processing and wood and metal work sectors in Arada and Lideta sub-
cities, Addis Ababa. For the sake of achieving the objectives of this study, questionnaires were
analyzed using statistical analysis such as descriptive and inferential analyses. The information
gleaned through questionnaire from a sample of 237 operators and face-to-face interviews were
conducted with 20 operators of MSEs. The empirical study elicited eight major challenges which
seem to affect performance of MSEs in sub-cities which include: inadequate finance, lack of
working premises, marketing problems, inadequate infrastructures, poor management practices, and
technological, entrepreneurial and politico-legal problems including bureaucratic bottlenecks
system. The findings further indicate that, there exists linear and positive significant ranging from
substantial to strong relationship was found between independent variables and dependent variable.

17
Moreover, the selected independent variables may significantly explain the variations in the
dependent variable at 1% level of significance. Based on findings, recommendations to government
bodies, to operators of MSEs and suggestions for other researchers are forwarded.

Alene (2020) delves into the determinants influencing the performance of women entrepreneurs in
micro and small enterprises within Gondar city, Northwest Ethiopia. The study reveals that factors
such as educational level, previous entrepreneurial experience, access to business training, finance,
information, government support, land ownership, and tax play significant roles in explaining
women entrepreneurs' performance. Conversely, age, marital status, access to market, and physical
infrastructure were found to be insignificant in this regard.

Ebrahim (2020) examines the factors affecting the growth of micro and small enterprises in Addis
Ababa, particularly in Gulele Sub-city, Woreda 03. The analysis indicates varied growth rates among
sectors but underscores the significance of factors such as leadership or ownership characteristics,
enterprise age, total employees, working environment suitability, marketing issues, and government
policies in driving growth.

HURGESSA (2022) investigates the key factors influencing the growth of MSEs in Kirkos sub-city,
Addis Ababa. Through multiple regressions, the study identifies entrepreneur characteristics,
management and marketing skills, technology, and access to external financing and human resources
as pivotal for growth. However, it notes the negative impact of legal and regulatory frameworks on
growth, suggesting the need for simplified procedures and greater access to financing, technology,
and training.

Lastly, Abebe, & Gemeda (2020) explore the challenges and opportunities for the growth of MSEs
in Asella town. Their findings highlight issues such as poor government regulation, inadequate
evaluation and follow-up, substandard working premises, high collateral requirements, lack of clear
job descriptions, insufficient training, and limited market linkage as impediments to growth. The
study emphasizes the necessity for support from relevant authorities to address these challenges,
advocating for improved market linkage and a cooperative approach among members to foster SME
growth

18
 2.4. Conceptual framework of the study
A conceptual framework is a graphical representation of the theorized interrelationships of the
variables of a study (Kothari, 2004). The conceptualization of variables in any academic study is
Important because it forms the basis for testing hypotheses and coming up with generalizations in
the findings of the study (Sekaran & Bougie, 2016). The dependent variable of the study is
Enterprise Growth (Graduation to Medium) and the independent variables of the study are macro-
level factors—such as access to finance, market conditions, and infrastructure, and firm-specific
factors—such as entrepreneurial skills, and access to raw materials. The framework of the study has
been developed after the extensive review of related empirical studies, manual handbooks, and
theoretical concepts about access to finance, market conditions infrastructure, entrepreneurial skills,
and access to raw materials.
Figure 2:1conceptual framework
Dependent variable Independent variables

Entrepreneurial
skills

Access to raw
materials
Enterprise Growth Market conditions
(Graduation to
Medium)
Access to finance

Infrastructure

Source: authors own formation

19
 CHAPTER THREE

3. RESEARCH DESIGN AND METHODOLOGY

3.1. Research Approach and Design
This study used combines components of qualitative and quantitative research methodologies to
create a larger and/or deeper understanding of a central phenomenon; a mixed method approach is
employed to address the research questions. This would be achieved by gathering and examining
both quantitative and qualitative data at predetermined stages in a single study. The basic idea of
this methodological design would be that, in comparison to using either methodology alone,
combining qualitative and quantitative approaches will be produced a more comprehensive grasp of
the research themes under study (Creswell & Plano Clark, 2011; Greene et al., 1989). In addition,
an explanatory research methodology was used to address the study questions that will be posed.

3.2. Source of Data

Data from primary and secondary sources would be gathered for the investigations. The
respondents were asked to provide primary data using a questionnaire that has been systematically
constructed. Both closed-ended and open-ended questions were included. Secondary data was
gathered from various written and unwritten linked literatures. Staff members' written records for
each MSE were examined in order to obtain adequate and trustworthy data representing all micro
and small businesses in the town.

3.3. Data Collection Methods

In the data gathering operation, questionnaires were employed for selected enterprises. Most of the
primary data were intended to be collected using structured questionnaires (with close-ended
questions) giving out for the overwhelming majority workers in the enterprises. The structured
interview was used to get information from officials and leaders in the enterprises. Therefore, the
data collection instruments employed to this study was structured questionnaires.

3.4. Sampling Design and Procedure

The study employed stratified random sampling method to select the intended institutions. This is
because the population for the study does not have a homogenous group. Kothari (2004) pointed

20
out; stratified random sampling is commonly used probability sampling method if the population
from which a sample is to be drawn does not have a homogenous group. The populations were
stratified in to a number of non-overlapping sub population (strata) and sample items are selected
from each stratum. With this technique the strata’s are sectors of MSEs such as manufacturing
(metal work, wood work, pottery, and weavers), which is strata 1, construction, service (strata 2),
urban agriculture (strata 3), and trade (strata 4).

According to Yemane (1996) sample size determination formula, it is possible to determine the
sample size, expressed as decimal 0.95 for 95 % confidence level and as decimal 0.05 for 5%
precision levels

N
… … … … … … … … … … … … … … … … .(1)
1+ N ( e ) 2

1179
n= = 299
1+1179 ( 0.05 ) 2

Where: n = Sample size N = Size of population e = Level of

precision

3.5. Data Analysis

The data collected was analyzed using descriptive statistics (measures of central tendency and
measures of variations) and logistic regression tools. To these effects, depending on the nature of
basic research questions and data collected, descriptive statistics such as percentage, frequencies,
mean and standard deviation and logistic regression was used to analyze the data collected through
questionnaires.

3.6. Design Measurement Instruments

To effectively measure the factors influencing the transformation of small-scale enterprises to
medium-scale enterprises, several measurement instruments were employed.
Survey questionnaires was used to collect quantitative data on both macro-level and firm-specific
factors. For macro-level factors, questions were focused on aspects such as access to finance, market
conditions and infrastructure. Respondents rate the competitiveness of their market environment,

21
and the quality of infrastructure, for firm-specific factors, the questionnaire used to assess
entrepreneurial skills, and access to raw materials.
Interview guides was complemented the surveys by providing qualitative insights into these
factors. Through in-depth interviews, researcher explored specific financial challenges, market
changes, and infrastructure impacts. The aim is to gain a deeper understanding of how these factors
affect business operations and growth.
Focus group discussions were conducted to delve into firm-specific challenges and strategies.
Discussions was used assess participants on entrepreneurial skills, and access to raw materials to
share experiences and solutions.
3.7. Model Specification
The multiple linear regression model proposed for this study aims to analyze the factors influencing
the transformation of small-scale enterprises into medium-scale enterprises. In this model, the
dependent variable is the growth of the enterprise, specifically its transition from small to medium
scale. The independent variables included macro-level factors such as access to finance, market
conditions, infrastructure, and the regulatory environment, as well as firm-specific factors like
entrepreneurial skills, access to raw materials, technology adoption, and management practices.

The model is specified as follows:

Growthi=β0+β1Financei+β2Marketi+β3Infrastructurei+β4Skillsi+βwMaterialsi+ϵi

Where as

Growth i = the enterprise's growth

Financei= financial support

Market i = market conditions

Infrastructurei = address and infrastructure quality.

Skillsi = Entrepreneurial skills and training

RawMaterialsi= material access

22
 ϵi= unobserved part in the model

β0 β1 β2 β3 β4 β5 are coefficients of each variable

The model assumes linearity in the relationships between the dependent and independent variables,
independence of observations, homoscedasticity (constant variance of residuals), and normality of
residuals. Data was collected through surveys, interviews, and focus groups, and analyzed using
statistical software to estimate the coefficients and assess their significance. This analysis revealed
which factors most significantly influence the transition from small to medium scale, guiding
targeted interventions and support strategies for small enterprises.

23
 CHAPTER FOUR: DATA ANALYSIS AND
INTERPRETATION

4. INTRODUCTION
This chapter deals with the results and discussion of the findings. The chapter had three sections.
The first section presents a descriptive analysis of the study. The second section presents At last,
the chapter presents the diagnostics test results of multi-collinearity, heteroscedasticity,
autocorrelation, and normality. At last, the chapter presents model fitting information and regression
result. The data was analyzed based on SPSS version 20.

4.1. Demographics of The respondents

Table 4.1. Demographic Characteristics of Respondents
Demographic Variable Category Frequency Percentage
Gender Male 168 61.8%
Female 104 38.2%
Total 272 100%
Age Below 30 years 96 35.3%
31-40 years 122 44.9%
41-50 years 42 15.4%
Above 50 years 12 4.4%
Total 272 100%
Work Experience Below 2 years 40 12.25%
2-5 years 65 23.9%
6-10 years 125 49.4%
More than 10 32 8.7%
years
Total 272 100%
Marital Status Single 50 18.4%
Married 121 44.5%
Divorced 17 6.25%

24
 Widowed 13 4.8%
Total 272 100%
Initiation Myself 83 30.5%
Partner 56 20.6%
Family 120 44.1%
Other 13 4.8%
Total 272 100%
Skill Acquisition Formal Training 94 34.6%
Past Experience 40 14.7%
From Family 136 50.0%
Other 2 0.7%
Total 272 100%
Source: Own Survey, (2024)

The demographic characteristics of the respondents show a notable gender imbalance, with 61.8%
being male and 38.2% female. The age distribution reveals that the majority of respondents (44.9%)
are between 31 and 40 years old, followed by 35.3% who are below 30 years. A smaller proportion
are aged 41-50 years (15.4%), while only 4.4% are above 50 years, indicating a predominantly
young and mid-career workforce. In terms of work experience, nearly half of the respondents
(49.4%) have 6-10 years of experience, while 23.9% have 2-5 years. Those with less than 2 years of
experience constitute 12.25%, and only 8.7% have more than 10 years of experience.

Regarding marital status, most respondents (44.5%) are married, with 18.4% being single and
smaller percentages being divorced (6.25%) or widowed (4.8%). A significant portion of
respondents (44.1%) reported that their initiation into their roles was influenced by family, while
30.5% initiated their careers or activities themselves, 20.6% were influenced by partners, and 4.8%
by other factors. Additionally, 50% of respondents acquired their skills from family, 34.6% through
formal training, and 14.7% from past experience, with only 0.7% learning through other means.
This suggests a strong influence of family in both career decisions and skill development.

25
4.2. Descriptive Statistics
Table 4.2 Descriptive Statistics s
Mean Std. Deviation N
Enterprise Growth 3.9375 .53928 272
Access to raw materials 4.1057 .47112 272
Infrastructure 3.8915 .67213 272
Market conditions 3.8147 .49298 272
Access to finance 3.6706 .69347 272
Entrepreneurial skills 4.1338 .40481 272
Source: Own Survey, (2024)
The descriptive statistics for enterprise growth and its constrained factors provide insights into how
various challenges impact enterprise development:
The mean score for Enterprise Growth (3.94) suggests that the respondents perceive their enterprises
to be growing moderately well, with some variance in their experiences (SD = 0.54). However, the
factors limiting this growth highlight key areas of concern.
Access to Raw Materials (mean = 4.11, SD = 0.47) is perceived as one of the most significant
constraints. The high mean score, coupled with a relatively low standard deviation, suggests that
many enterprises face similar challenges in securing raw materials, which may be due to supply
chain issues, costs, or availability. The minimal variation implies that this issue is broadly
recognized across different enterprises.
Infrastructure (mean = 3.89, SD = 0.67) is another critical factor affecting enterprise growth. This
relatively high mean indicates that issues related to infrastructure, such as transportation, utilities,
and communication systems, are seen as considerable barriers. The higher standard deviation
suggests varying levels of impact, possibly due to differences in location or the type of infrastructure
available to each enterprise.
Market Conditions (mean = 3.81, SD = 0.49) also present a notable challenge. This reflects the
difficulties enterprises face in accessing stable markets, facing competition, or dealing with

26
fluctuating demand. The moderate standard deviation suggests a consistent recognition of market-
related issues, though enterprises might experience these challenges to varying degrees.
Access to Finance (mean = 3.67, SD = 0.69) is a lower-scoring factor but still significant. The
lower mean indicates that financial access is a constraining factor, but its higher standard deviation
shows greater disparity in respondents' experiences. Some enterprises may find it easier to secure
financing, while others face significant hurdles, possibly due to differences in credit availability,
financial literacy, or institutional support.
Entrepreneurial Skills (mean = 4.13, SD = 0.40) is rated as the highest constraint, reflecting its
importance to enterprise growth. The high mean score suggests that respondents see the lack of
entrepreneurial skills as a major limitation. The relatively low standard deviation indicates that most
enterprises face similar challenges in this regard, which could be due to a lack of training, education,
or mentorship in entrepreneurship.
4.3. Correlation analysis
Correlation analysis was used to measure the strength or degree of association between
variables. A Pearson product-moment correlation analysis was used to investigate the
relationship between Enterprise Growth and independent variables such as Access to raw
material, Infrastructure, Market conditions, Access to finance and Entrepreneurial skills.
Table 4.3 Correlation analyses

Correlations
Enterpris Access to Infrastru Market Access Entrepreneur
e raw cture condition to ial skills
Growth materials s finance
Pearson
1
Correlation
Enterprise
Sig. (2-
Growth
tailed)
N 272
Access to Pearson .568** 1
raw Correlation

27
 Sig. (2-
.000
materials tailed)
N 272 272
Pearson
.679** .528** 1
Correlation
Infrastructur
Sig. (2-
e .000 .000
tailed)
N 272 272 272
Pearson
.531** .357** .532** 1
Correlation
Market
Sig. (2-
conditions .000 .000 .000
tailed)
N 272 272 272 272
Pearson
.435** .313** .411** .409** 1
Correlation
Access to
Sig. (2-
finance .000 .000 .000 .000
tailed)
N 272 272 272 272 272
Pearson
.363** .324** .338** .318** .173** 1
Correlation
Entrepreneu
Sig. (2-
rial skills .000 .000 .000 .000 .004
tailed)
N 272 272 272 272 272 272
**. Correlation is significant at the 0.01 level (2-tailed).

Source: Own Survey, (2024)

The table presents the Pearson correlation coefficients between Enterprise Growth and five
constraining factors: Access to Raw Materials, Infrastructure, Market Conditions, Access to
Finance, and Entrepreneurial Skills. All correlations are significant at the 0.01 level, suggesting
strong relationships between these variables and enterprise growth.

28
Access to Raw Materials and Enterprise Growth show a strong positive correlation (r = .568, p <
0.01), indicating that better access to raw materials is significantly associated with higher enterprise
growth. This suggests that as enterprises improve their raw material acquisition, their growth
potential increases.
Infrastructure also exhibits a strong positive correlation with Enterprise Growth (r = .679, p <
0.01), the highest among the factors. This means that improvements in infrastructure, such as
transportation, utilities, and communication systems, are highly related to better growth outcomes
for enterprises.
Market Conditions have a moderate positive correlation with Enterprise Growth (r = .531, p <
0.01). This indicates that favorable market conditions, such as access to stable markets and less
competition, are positively associated with enterprise growth. However, the strength of the
relationship is slightly weaker compared to infrastructure and raw materials.
Access to Finance shows a moderate correlation with Enterprise Growth (r = .435, p < 0.01),
meaning that access to financial resources positively impacts enterprise growth, but to a lesser
extent than infrastructure and raw materials.
Entrepreneurial Skills has the weakest correlation with Enterprise Growth (r = .363, p < 0.01),
suggesting that while the development of entrepreneurial skills is important, its direct influence on
growth is not as strong as other factors like infrastructure and raw materials.
4.4. Assumption test
Before applying regression analysis to assess the effect of independent factors on enterprise growth
multi collinearity, normality and linearity test were conducted in order to ensure the appropriateness
of data

4.4.1. Multi collinearity test

Test Multi collinearity is a phenomenon in which the independent variables are related to each other.
There are two ways to determine whether multi collinearity exists or not. One way is by computing
tolerance values and Variance Inflation Factor (VIF) for each independent variable. Multi
collinearity exists when tolerance is below 0.10 and the average variance inflation factor (VIF) is
greater than 10.

The other method is to assess multi collinearity by examining correlations among the independent

29
variables. If a correlation matrix demonstrates correlations of 0.90 or higher among the independent
variables, there may be a problem with multi collinearity. As Hair et al. (2006) stated if the VIF
coefficient of a certain independent variable is greater than 10, there would be multi collinearity
between the independent variables.

Table 4.4 multi collinearity test

Variables Collinearity Statistics

Tolerance VIF

Access to raw
.686 1.458
materials
Infrastructure .557 1.796
Market conditions .653 1.533
Access to finance .772 1.295
Entrepreneurial skills .835 1.198
Source: Own Survey, (2024)
The Collinearity Statistics provide a thorough assessment of the independent variables in the
regression model, focusing on Tolerance and Variance Inflation Factor (VIF), which are critical in
identifying potential multi-collinearity issues. Tolerance values indicate the proportion of variance
in a particular independent variable that is not explained by the other predictors. For instance,
Access to Raw Materials has a tolerance of 0.686, suggesting that 68.6% of its variance is
independent of other variables, indicating low multi-collinearity. Conversely, Infrastructure has the
lowest tolerance at 0.557, reflecting a relatively higher degree of collinearity, although it remains
within acceptable limits. Other variables, such as Market Conditions (0.653), Access to Finance
(0.772), and Entrepreneurial Skills (0.835), show high tolerance values, reinforcing their
independence from each other.
In terms of VIF, which quantifies how much the variance of a regression coefficient is inflated due
to multi-collinearity; Access to Raw Materials exhibits a VIF of 1.458, indicating negligible multi-
collinearity. Infrastructure has the highest VIF at 1.796, but this is still below the critical threshold
of concern, suggesting only mild multi-collinearity. Similarly, Market Conditions (1.533), Access to
Finance (1.295), and Entrepreneurial Skills (1.198) all maintain VIFs below the threshold,

30
indicating they are adequately independent. Overall, the analysis demonstrates that multi-
collinearity is not a significant issue among the independent variables in this regression model,
ensuring the reliability of the regression coefficients and the validity of the conclusions regarding
their effects on enterprise growth.

4.4.2. Autocorrelation test

Model Summaryb
Model R R Square Adjusted R Square Std. Error of the Estimate Durbin-Watson
1 .754a .568 .560 .35761 2.065
a. Predictors: (Constant), Entrepreneurial skills, Access to finance, Access to raw materials, Market
conditions, Infrastructure
b. Dependent Variable: Enterprise Growth
Source: Own Survey, (2024)
In this research, a Durbin-Watson value of 2.065, being very close to 2, indicates no significant
autocorrelation in the residuals. This means that the errors are independent and not correlated with
one another, which is crucial for meeting one of the core assumptions of regression analysis. When
residuals are uncorrelated, it enhances the reliability of the model's estimates and ensures that
statistical inferences, such as hypothesis tests and confidence intervals, are accurate. The lack of
autocorrelation suggests that the model is well-specified and that the predictors sufficiently explain
the dependent variable. This result strengthens the model's predictive power and overall validity,
giving confidence in the robustness of the findings.

31
4.4.3. Normality
Test multiple regressions require that the independent variables in the analysis be normally
distributed. The study involves a relatively large sample (272) and therefore, the central limit
theorem could be applied and hence there is no question on normality of the data.

Figure 4:2normally distributed standardized residual test

Source: Own Survey, (2024)

The histogram for the regression standardized residuals of Enterprise Growth reveals a distribution
that is approximately normal, forming a bell-shaped curve. The mean of the residuals is very close
to zero (1.06E-15), indicating minimal bias, while the standard deviation is 0.991, and showing that
most residuals are within one standard deviation from the mean. With a sample size of 272, the
analysis benefits from a robust dataset, further supporting the normality of residuals. The slight
positive skew, with a right tail extending slightly beyond 2, suggests that the model might slightly
underestimate enterprise growth in some instances, but overall, the distribution is well within
acceptable limits. This supports the conclusion that the regression model for Enterprise Growth

32
meets the assumption of normally distributed errors, ensuring the model's reliability and accuracy.

4.4.4. Heteroscedasticity Test

Heteroscedasticity refers to the presence of unequal variances of the residuals or errors in a
regression model. In a well-fitted linear regression model, one of the key assumptions is
homoscedasticity, which means that the variance of the errors remains constant across all levels of
the independent variables. If heteroscedasticity is present, it indicates that the variance of the
residuals increases or decreases with the predicted values, which can compromise the reliability of
the model.

Figure 4:3Heteroscedasticity Test

Source: Own Survey, (2024)

The scatterplot provided illustrates the relationship between the regression standardized predicted
values and the regression standardized residuals for the dependent variable Enterprise Growth.
The distribution of points in the plot appears to be random and does not follow any discernible
pattern, which is a positive indicator for the regression model. This random dispersion suggests that

33
the residuals are independent and homoscedastic, meaning that the variance of the residuals remains
constant across different levels of the predicted values. This is a key assumption in linear regression
models, and meeting this assumption strengthens the validity of the model’s results.
Additionally, the absence of a clear trend or pattern in the scatterplot implies that the model is
correctly specified, with no major issues related to heteroscedasticity. If the residuals had exhibited
a funnel shape or any other systematic pattern, it would have indicated potential problems with the
model, such as non-linearity or unequal variances, which could affect the reliability of the model's
predictions.

4.4.5. Test for linearity

Linearity is a key assumption in linear regression, where it is assumed that the relationship between
the dependent variable and each of the independent variables is linear. In simpler terms, it assumes
that changes in the independent variables will result in proportional changes in the dependent
variable. If this assumption does not hold, the model may not capture the true relationship between
the variables, leading to inaccurate predictions and conclusions.

Figure 4:4Tests for linearity

34
 Source: Own Survey, (2024)
In this plot, the data points align closely with the diagonal line, indicating that the residuals are
approximately normally distributed. This is a good sign for the reliability of the regression model, as
normality of residuals is a fundamental assumption for making valid statistical inferences. When the
residuals follow a normal distribution, it suggests that the model's errors are randomly distributed,
which enhances the accuracy and validity of the predicted values.
If the residuals had deviated significantly from the diagonal line, it would have indicated a violation
of the normality assumption. Such deviations could lead to biased estimates, unreliable hypothesis
testing, and poor predictive performance. However, in this case, the residuals seem to follow the
expected pattern, implying that the model is well-specified and that the assumptions of normality
have been met.
This normal distribution of residuals strengthens the validity of the regression results and justifies
the use of the model for predicting Enterprise Growth based on the independent variables such as
access to finance, infrastructure, market conditions, entrepreneurial skills, and access to raw
materials. Meeting this assumption ensures that the model’s conclusions about the relationship
between the predictors and enterprise growth are robust and dependable.

4.5. Multiple Linear Regression Analysis and Model Fitting

As shown above, the study met the regression assumptions of Linear Regression model. Next, the
researcher examined the factors influencing enterprise growth in Small-scale enterprises in Werabe
Town. The R-Squared value reveals how well the independent variables (such as entrepreneurial
skills, access to finance, market conditions, and others) explain the variance in the dependent
variable, enterprise growth. The R-Squared percentage indicates the proportion of the variability in
enterprise growth that is accounted for by these independent factors. A higher R-Squared value
means that the predictors are better at explaining or predicting the changes in the dependent
variable, providing a clearer understanding of the key factors driving growth in medium-scale
enterprises.

35
 Table 4.5 Model Summaryb
Model Summaryb
Model R R Square Adjusted R Std. Error of Durbin-
Square the Estimate Watson
1 .754a .568 .560 .35761 2.065
a. Predictors: (Constant), Entrepreneurial skills, Access to finance, Access
to raw materials, Market conditions, Infrastructure
b. Dependent Variable: Enterprise Growth
Source: Own Survey, (2024)
The model summary provides a comprehensive understanding of the regression analysis performed
on the factors influencing Enterprise Growth. The R value of 0.754 indicates a strong positive
correlation between the independent variables—Entrepreneurial skills, Access to finance, Access to
raw materials, Market conditions, and Infrastructure—and the dependent variable, Enterprise
Growth. This strong relationship suggests that these factors, when combined, are significantly
related to the growth of enterprises in the study.
The R-Squared value of 0.568 reveals that 56.8% of the variance in Enterprise Growth can be
explained by these five predictors. In other words, more than half of the changes in enterprise
growth can be attributed to these key factors. However, the Adjusted R-Squared of 0.560 takes into
account the number of predictors in the model, providing a more accurate measure of the model's
explanatory power, particularly when applied to other data sets. The fact that the adjusted value is
very close to the unadjusted R-Squared indicates that the model is not over fitted, and the predictors
included are relevant and meaningful.
The Standard Error of the Estimate (0.35761) shows how much the predicted values of Enterprise
Growth differ from the actual observed values. A smaller standard error indicates a more precise
prediction, meaning that the regression model does a good job in predicting enterprise growth. In
this case, the low standard error suggests that the model's predictions are quite accurate, with only a
small average deviation from the actual values.

36
 Table 4.6ANOVA
ANOVAa
Model Sum of df Mean Square F Sig.
Squares
Regression 44.794 5 8.959 70.052 .000b
1 Residual 34.018 266 .128
Total 78.813 271
a. Dependent Variable: Enterprise Growth
b. Predictors: (Constant), Entrepreneurial skills, Access to finance, Access to
raw materials, Market conditions, Infrastructure
Source: Own Survey, (2024)

The ANOVA (Analysis of Variance) table reveals important insights into the overall significance of
the regression model predicting Enterprise Growth based on the independent variables:
Entrepreneurial skills, Access to finance, Access to raw materials, Market conditions, and
Infrastructure. The regression sum of squares is 44.794, indicating the amount of variance explained
by these predictors, while the residual sum of squares is 34.018, representing the unexplained
variance. With a total sum of squares of 78.813, the model explains a significant portion of the
variance in Enterprise Growth. The F-statistic of 70.052 suggests that the model is statistically
significant, comparing the variance explained by the regression to the unexplained variance.
Furthermore, the p-value of .000 strongly indicates that at least one of the predictors significantly
influences Enterprise Growth, reinforcing the importance of these factors in fostering enterprise
development in the studied context. Overall, the ANOVA results highlight the model's effectiveness
in capturing the relationships among the variables, confirming that the selected predictors play a
critical role in determining enterprise growth.

37
 Table 4.7 Regression analysis
Coefficientsa
Model Unstandardized Standardized T Sig. 95.0% Confidence Interval
Coefficients Coefficients for B
B Std. Error Beta Lower Upper
Bound Bound
(Constant) .123 .269 .456 .649 -.407 .652
Access to raw
.276 .056 .241 4.958 .000 .166 .386
materials
1 Infrastructure .311 .043 .388 7.186 .000 .226 .396
Market conditions .180 .055 .164 3.294 .001 .072 .287
Access to finance .092 .036 .119 2.587 .010 .022 .162
Entrepreneurial skills .108 .059 .081 1.838 .067 -.008 .224
a. Dependent Variable: EnterpriseGrowth
Source: Own Survey, (2024)
The coefficients table presents the estimated effects of each independent variable on the dependent
variable, Enterprise Growth, along with their significance levels.
Interpretation of the Coefficients:
 Constant (B = 0.123): This value represents the expected value of Enterprise Growth when all
predictors are zero. However, the constant is not statistically significant (p = 0.649), suggesting
that its interpretation may not be meaningful in practical terms.
 Access to Raw Materials (B = 0.276): This coefficient indicates that for each unit increase in
access to raw materials, Enterprise Growth is expected to increase by 0.276 units, holding other
factors constant. The standardized coefficient (Beta = 0.241) suggests a moderate positive
impact, and the significance level (p = 0.000) confirms that this variable is statistically
significant, meaning it has a strong influence on enterprise growth.
 Infrastructure (B = 0.311): This coefficient suggests that a unit increase in infrastructure
results in an increase of 0.311 units in Enterprise Growth. The standardized coefficient (Beta =

38
 0.388) indicates that infrastructure has the most substantial positive effect among the predictors,
and it is highly significant (p = 0.000).
 Market Conditions (B = 0.180): This indicates that improved market conditions are associated
with an increase of 0.180 units in Enterprise Growth. The standardized coefficient (Beta =
0.164) shows a moderate effect, and the variable is statistically significant (p = 0.001),
indicating its importance in predicting enterprise growth.
 Access to Finance (B = 0.092): This coefficient means that for each unit increase in access to
finance, Enterprise Growth is expected to increase by 0.092 units. The standardized coefficient
(Beta = 0.119) indicates a weaker effect compared to other predictors, but it is still significant (p
= 0.010), suggesting that access to finance positively influences enterprise growth.
 Entrepreneurial Skills (B = 0.108): The coefficient suggests that an increase in entrepreneurial
skills is associated with a 0.108 unit increase in Enterprise Growth. The standardized coefficient
(Beta = 0.081) indicates a relatively weaker effect compared to other predictors. Although the
significance level (p = 0.067) is close to the conventional threshold of 0.05, it suggests that this
variable may not be statistically significant at the 95% confidence level, indicating a potential
influence but less certainty compared to other predictors.

4.6. DISCUSSION
The regression analysis conducted in this study provides critical insights into the determinants of
Enterprise Growth among small-scale enterprises in the studied region. Each of the independent
variables has demonstrated varying degrees of influence, highlighting the complex interplay
between resources, conditions, and entrepreneurial capabilities in fostering business development.
Access to Raw Materials was identified as a significant predictor of enterprise growth, with a
coefficient of 0.276 and a p-value of 0.000. This finding underscores the importance of having
reliable and high-quality sources of raw materials for enterprises to operate effectively. Businesses
that can secure adequate supplies are likely to experience smoother production processes, leading to
increased output and improved market competitiveness. The impact of raw materials on growth may
also relate to the ability of firms to innovate and respond to consumer demands. Companies that
have better access to essential inputs are more capable of introducing new products and services,

39
thus meeting changing market needs. Therefore, policies aimed at improving supply chains and
reducing the cost and availability of raw materials are essential for enhancing enterprise growth.
Infrastructure emerged as another vital factor, showing the most substantial positive effect on
enterprise growth, with a coefficient of 0.311 and a highly significant p-value of 0.000. The
relationship between infrastructure and business growth is well-documented, as efficient
transportation systems, reliable electricity supply, and robust communication networks are
foundational to successful business operations. Improved infrastructure reduces operational costs by
minimizing delays in logistics, enhancing connectivity to suppliers and customers, and allowing
businesses to scale operations more effectively. Given the evident impact of infrastructure on
enterprise growth, it is crucial for governments and private sector actors to invest in infrastructural
development initiatives. Public-private partnerships could play a pivotal role in addressing
infrastructure deficits, thereby facilitating a more conducive environment for business operations.
The role of Market Conditions cannot be understated, with a coefficient of 0.180 and a p-value of
0.001, indicating that the external business environment significantly affects enterprise growth.
Favorable market conditions, such as stable economic policies, consumer demand, and low levels of
competition, create opportunities for businesses to flourish. This finding suggests that businesses
must be agile and responsive to market dynamics, adapting their strategies in alignment with
prevailing economic conditions. Policymakers must ensure the stability and predictability of market
environments, providing clear regulations that support entrepreneurship. Additionally, creating
programs that enhance market access for small and medium-sized enterprises (SMEs) can empower
them to capitalize on existing market opportunities.
The analysis also highlighted Access to Finance as an important predictor of enterprise growth, with
a coefficient of 0.092 and a p-value of 0.010. This underscores the necessity for adequate financial
resources for enterprises to invest in growth initiatives such as technology adoption, workforce
expansion, and product development. Access to finance is often a significant barrier for SMEs,
particularly in developing regions, where traditional banking systems may be hesitant to lend to
smaller enterprises due to perceived risks. To address this issue, financial institutions and
government programs should aim to enhance financing options available to entrepreneurs, such as
microfinance initiatives, grants, and low-interest loans specifically designed for SMEs.

40
Additionally, promoting financial literacy among entrepreneurs can help them navigate financing
options more effectively, leading to better investment decisions.
Entrepreneurial Skills also emerged as a factor influencing enterprise growth, with a coefficient of
0.108 and a p-value of 0.067. While this finding suggests a positive relationship, it did not reach
conventional levels of statistical significance. However, the potential impact of entrepreneurial skills
on growth should not be overlooked. Skills such as strategic thinking, innovation, risk management,
and financial acumen are essential for entrepreneurs to navigate challenges and seize opportunities
in the marketplace. Thus, targeted training programs and capacity-building initiatives can help
develop these critical skills among entrepreneurs. Educational institutions and business development
organizations can collaborate to offer workshops, mentoring, and training that empower
entrepreneurs to enhance their capabilities and drive their businesses forward.

41
CHAPTER FIVE: CONCLUSION AND RECOMMENDATION

5. INTRODUCTION
This chapter deals with the conclusion and recommendation part of the study. It provides a short
and precise conclusion about the finding. Additionally, the chapter presents a recommendation for
the concerning body and suggestion for further researcher.

5.1. CONCLUSION
This study explored the factors constraining the transformation of small enterprises into medium-
scale enterprises in Werabe Town, Central Ethiopia, highlighting the significance of each variable
analyzed. The results indicate that Access to Raw Materials is crucial, with a positive relationship
showing that when small enterprises have reliable and quality inputs, their growth potential
increases.
Infrastructure also plays a vital role, as improved facilities and services enhance operational
efficiency and market access, contributing to business expansion.
Furthermore,
Market Conditions were found to significantly influence enterprise growth. Positive market
dynamics enable small businesses to thrive, while unfavorable conditions can stifle their
development.
Access to Finance emerged as another critical factor, with a strong positive impact on growth.
Limited financial resources hinder small enterprises from investing in necessary improvements and
scaling their operations.
Finally, while Entrepreneurial Skills showed a positive association with growth, its influence was
comparatively weaker than the other factors. This indicates that enhancing the skills of
entrepreneurs is essential but must be complemented by addressing the more pressing issues of
finance, infrastructure, and raw material access.
In general, to promote the transformation of small enterprises into medium-scale businesses,
targeted efforts should focus on improving access to finance, enhancing infrastructure, securing raw
material supplies, and creating favorable market conditions. By addressing these specific areas,

42
stakeholders can significantly enhance the growth prospects of small enterprises in Werabe Town,
leading to broader economic development in the region.

5.2. RECOMMENDATIONS
To facilitate the transformation of small enterprises into medium-scale businesses in Werabe Town,
Central Ethiopia, several targeted recommendations emerge from the study's findings. First,
enhancing access to finance is crucial; financial institutions should develop tailored loan products
with lower interest rates, flexible repayment terms, and simplified application processes to meet the
unique needs of small enterprises. Additionally, the following recommendations were forwarded.
 Improving infrastructure is another key recommendation. Local and national governments
should prioritize investments in essential physical infrastructure, such as roads, electricity,
and water supply, to enhance operational efficiency for small businesses. Furthermore,
technological infrastructure improvements, particularly in internet access and
communication networks, will enable better connectivity with markets and suppliers.
 Strengthening access to raw materials is vital for growth. Encouraging small enterprises to
form cooperatives can facilitate collective sourcing of raw materials, reducing costs and
ensuring quality inputs. Supporting local production initiatives through favorable policies
can also help businesses secure necessary supplies.
 Fostering favorable market conditions is essential; policymakers should work towards
creating stable economic environments that reduce bureaucratic hurdles and encourage
market participation. Additionally, market access programs, such as trade fairs and
partnerships with larger companies, can enhance opportunities for small enterprises.
 Promoting entrepreneurial skills development is equally important. Comprehensive training
and mentorship programs should be established to cover essential skills, including business
management and marketing strategies. Collaborating with educational institutions can further
equip entrepreneurs with the skills needed to thrive in competitive marketplaces.
Finally, implementing regular assessments to monitor the progress of small enterprises in their
transformation efforts will help identify ongoing challenges and inform policy adjustments. By
adopting these recommendations, stakeholders can create a supportive environment that encourages

43
the growth and transformation of small enterprises into medium-scale businesses, ultimately
contributing to economic development and job creation in the region.

5.3. RECOMMENDATIONS FOR FUTURE RESEARCHERS

Future researchers should prioritize examining external factors that influence enterprise growth,
including government policies, economic conditions, and social dynamics. Understanding this
broader context is essential for identifying how these factors interact with the internal capabilities of
small enterprises, as such interactions can significantly affect their development and sustainability.
Additionally, investigating the role of technology in the growth of small enterprises is crucial.
Future studies could focus on how technology adoption impacts operational efficiency, market
access, and overall business performance. By integrating these external and technological
dimensions into their research, scholars can provide a more comprehensive understanding of the
challenges and opportunities faced by small enterprises, ultimately contributing to more effective
strategies for their growth and transformation.

44
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49
 APPENDIX A

WERABE UNIVERSITY

COLLEGE OF BUSSINESS AND ECONOMICS

Department of Business administration (MBA)

This questionnaire is designed “to Factors Constraining Transformation/Graduation of small

Enterprises to medium Scale Enterprises In Case Of Werabe Town Silte Zone, Central
Regional States of Ethiopia. “The researcher kindly reminds the respondents that the response
given by you will be used only as an input for the research work. In addition the researcher would
like to be grateful to the respondents the sacrifices they paid in completing this questionnaire

PART 1: PERSONAL INFORMATION

1. Age

A. Below 30 C. 40-50
B. 30-40 D. Above 50
2. Gender
A. Male
B. Female
3. Level of education and training
A. Below grade 8
B. Grades 8
C. Grades 10 complete
D. Grades 12 complete
E. diploma
F. BA/BSC and above

50
 4. Work experience
C. Below 3 years
D. 3-5
E. 6-10
F. Above 10 years s
5. marital status
A. Married
B. Single
C. Divorced
D. Widowed
6. Who initialed and started the business?
1.Myself alone 3. With the family
2. With a friend/partner 4. other (specify)
7. How did you acquire the skill for running your enterprise?
1. Through formal training 3. From past experience
2. From family 4. other (specify)

PART 2: Factors Constraining Transformation/Graduation Of small Enterprises To

medium

Scale Enterprises In Case Of Werabe Town Silte Zone, Central Regional States Of
Ethiopia. The major factors that affect entrepreneurs‟ performance in MSEs are listed
below. After you read each of the factors, evaluate them in relation to your business and
then put a tick mark (√) under the choices below.

5=strongly agree 4=agree 3=undecided 2=disagree 1=strongly disagree

1. Questioner on enterprise growth

No Item Agreement Scale

1 Our enterprise’s revenue has increased consistently 1 Remark

51
 over the past three years.

2 The enterprise has expanded its financial resources to

invest in new opportunities.

3 Our customer base has expanded significantly in recent

years.

4 Our production capacity has expanded to meet

increasing demand

5 The enterprise has successfully retained existing

customers.

Questions on access to finance

1 Our enterprise has had easy access to external

financing (loans, credit, etc.) when needed.

2 The collateral requirements for accessing loans have

been manageable for our business.

3 The interest rates on loans offered to our business are

affordable.

4 We have been able to access enough working capital to

maintain our operations.

5 Financial institutions have provided adequate guidance

and support in accessing finance.

Questions on access to market

1 Our business has consistent access to local markets for

selling our products/services.

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2 We have successfully entered new regional or
international markets.

3 Limited market access has hindered the growth of our

enterprise

4 We receive sufficient market information to make

informed business decisions.

5 Our enterprise has strong links to suppliers and buyers

within the market.

Questions on infrastructure

1 The availability of reliable electricity has supported the

growth of our business.

2 Poor road infrastructure has negatively impacted our

ability to transport goods and services.

3 Our enterprise has reliable access to communication

services (internet, phone, etc.).

4 Lack of proper infrastructure has been a significant

barrier to expanding our business operations.

5 Government efforts to improve infrastructure in our

region have benefited our business.

Questions on access to Raw material(inputs)

1 Our enterprise consistently has access to the necessary

raw materials/inputs for production.

2 Fluctuations in the availability of raw materials have

negatively impacted our production capacity.

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3 The cost of raw materials has affected the profitability
and growth of our business.

4 We have established strong relationships with suppliers

for a consistent supply of raw materials.

5 Difficulty in sourcing raw materials has limited our

ability to expand production.

Questions on Access to Entrepreneurial Skills

1 Our enterprise regularly participates in entrepreneurial

training programs.

2 The lack of entrepreneurial skills has been a barrier to

the growth of our business.

3 Access to training in financial management and

leadership has improved our business

4 We have sufficient access to workshops and mentoring

programs that develop entrepreneurial skills.

5 Improved entrepreneurial skills have enabled us to

identify new business opportunities

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