ROLE, ADVANTAGES, DISADVANTAGES AND CHALLENGES FACED BY SMALL AND MEDIUM ENTERPRISES

ROLE OF SMALL AND MEDIUM ENTERPRISES IN DEVELOPMENT

 1. Provision of social services, for instance, health units, schools, e.t.c

2. Development of infrastructure, for instance the transport network.

3. Providing government revenue through payment of taxes.

4. Provision of goods and services/products to meet society needs.

5. Providing a centre for training and developing local man power.

6. Provision of market for the society’s products.

7. Provision/creation of employment opportunities to society.

8. Participation in community development programs, for instance providing assistance to charities, welfare facilities, e.t.c.

9. Improvement of food security through processing agricultural products.

10. Providing information for research and study purposes to students and researchers.

11. Recycling waste that would have harmful effects hence

cleaning the environment.

12. Improving the environment through planting trees.

13. Utilizing idle resources such as land, labour, e.t.c.

14. Sponsorship of community activities like education, environmental conservation programs, e.t.c.

ADVANTAGES OF SMALL AND MEDIUM ENTERPRISES

1. Decision making is easier compared to large enterprises.

2. They require relatively less capital to start.

3. They have low operational costs due to fewer number of workers.

4. They are flexible in that they can even be located in rural areas.

5. Sell goods in small quantities which consumers can afford.

DISADVANTAGES OF SMALL AND MEDIUM ENTERPRISES

1. They do not enjoy economies of scale like large enterprises.

2. It is not easy for them to obtain a loan from the bank like large enterprises.

3. They easily collapse as soon as the owner dies.

4. They frequently suffer from customer changing tastes and preferences.

5. They have limited storage facilities especially for perishable goods.

6. They produce low quality products leading to limited market.

7. They lack skilled man power to manage them.

HERE ARE CHALLENGES FACED BY SMALL AND MEDIUM ENTREPRISES 

1. Unsuitable location of the business. Even if a business is properly managed, a bad location leads to its failure. For instance, locating the business far from the market (customers) or source of raw materials.

2. Limited market for the business products. This normally results from competition, changing customer tastes, uncompetitive prices, e.t.c.

3. Poor management of the business. Businesses which are poorly managed, for instance when they are inefficient in the use of resources, do not keep proper records, use wrong costing and pricing methods, inevitably make big loses and in the end fail and close up.

4. Poor handling of customers. No business can afford to survive with dissatisfied customers. A business whose owner or employees are rude to customers and do not bother to attend to their individual needs cannot take long before it collapses.

5. Limited market research. This leads to failure to clearly define and understand one’s market, one’s customers and one’s customer’s buying habits.

6. Over expansion. This often happens when business owners confuse success with how fast they can expand their business. Many bankruptcies have been due to rapidly expanding companies.

7. Inadequate financing. Some businesses may be having insufficient funds to buy the required technologies to improve their operations.

8. Choosing a business that is not profitable. In this case if one generates lots of activity, the profits never materialize to the extent necessary to sustain an on-going business.

9. Low quality of products for sale. This reduces the number of customers as they withdraw and go to other businesses which are producing better quality products. Faced with a declining number of customers and increasing competition, the business will inevitably fail and close up.

10. Inadequate credit services to provide entrepreneurs with facilities to enable them finance their business operations.

11. Inadequate support services like roads, telephones, water and electricity which make it difficult and expensive to operate these businesses.

12. Inadequate skilled man power to operate some production technologies, which forces businesses to hire expensive foreign experts. This increases cost of production, low profits and lead to business failure.

13. Use of inappropriate technology which does not optimize productivity and profitability.

14. Competition from imported manufactured products which are produced by well established businesses often of low prices.

15. Unreliable sources of raw materials which forces businesses to operate seasonally especially agro-processing businesses.

16. Improper product pricing. Small and medium enterprises at times fail to clearly define their pricing strategy. This results into over pricing of their products and eventually makes them fail.

17. Unconducive government policies relating to taxes which most businesses complain that it is high.

18. Unfavourable economic and monetary policies which make credit scarce, keep interest rates high and make it difficult for businesses to operate with borrowed capital.

19. Failure to anticipate or react to competition, technology or other changes in the market place. At times these businesses assume that what they have done in the past will always work. They tend to do things in the same way despite new market demands and changing times.

20. Mistakes made by the entrepreneur/founder’s inability. At times entrepreneurs lose interest in business because it does not suit their personal characteristics and as such they slacken/loosen their commitment to it in terms of supervision, funding, initiatives, creativity, e.t.c. As a result, the business loses direction and collapses.

21. Industrial unrests. These are in form of strikes at the work place which make operation of business difficult.

HERE ARE 14 WAYS OF OVERCOMING THE CHALLENGES FACED BY SMALL AND MEDIUM ENTERPRISES IN UGANDA

 1. Locating the business in areas where they can easily access support services, markets as well as raw materials.

2. Undertaking research and development to come up with new products that meet the customers’ needs and beats off competition.

3. Ensuring good business management. This is done through creating a work environment that encourages productivity, hiring competitive people and training them, being able to think strategically, e.t.c.

4. Establishing good relationship with customers and ensuring that they are always satisfied with the products and cannot be taken away by competitors.

5. Conducting thorough market surveys before starting businesses to ensure that businesses went into are the ones whose output (goods and services) will be competitive, have a fair sized market and profitable prices.

6. Avoid over expansion. Expansion should only be done after careful review, research and analysis as well as identifying what one needs to add in order for one’s business to grow.

7. By saving and reinvesting business profits back to the business to ensure that adequate working capital is maintained to run business operations.

8. Keeping and using up-to-date information and data on suppliers, consumer tastes and their buying habits to ensure that businesses are not left behind by the changes taking place.

9. Formation and being active members of relevant business associations like Uganda Manufacturers Association, Uganda Small Scale Industries Association, through which businesses can access a range of services and assistance.

10. Monitoring and keeping abreast with what the competitors are doing and learning from their experiences.

11. Advertising and promoting products so that new customers are attracted as well as keeping old ones.

12. Regularly training stall to ensure that they are skilled enough to manage business operations.