Obstacles to the growth of new SMEs in South Africa: A principal component analysis approach

Abstract

The paper investigated the obstacles to the growth of new SMEs in South Africa using the principal component approach. New SMEs are seen as a significant component of the solution to South Africa’s development issues. However, most new SMEs do not grow; their failure rate in South Africa (75%) is one of the highest in the world. The objective of the study was to investigate the internal and external environmental obstacles to the growth of new SMEs. As a new business develops, it exists and survives in an environment characterized by both internal and external factors which impact negatively on the new business’ survival. Thirty variables were identified as obstacles. The principal component analysis with varimax rotation was used to reduce the variables to five clusters. The most important obstacle was termed Financial which is largely an internal factor. The other obstacles respectively as determined by the PCA were Economic (external), Markets (external) Management (internal) and Infrastructure (external).