Influence of Firm Characteristics on Small And Medium Enterprises Performance in Tanzania

Abstract

The relationship between firm characteristics and business performance has been explored from a range of perspectives such as industry dynamics and organisational ecology, and there are a number of studies which recognize the importance of the ‘age’ dimension as an important aspect of the firm characteristics which bear significantly on performance. It has been argued that firms of different ages have a disproportionate impact on performance. This paper aims to ascertain the potential contribution of different aged firms to performance in attempting to answer the key research question on the extent to which the characteristics between firms of different ages contribute to high performances and recommend a re-positioning of government policy. The paper relies on results from reviewing theoretical and empirical literature on business age, performance and survival. For primary data it used structured and unstructured questionnaires to survey a sample of 480 small and medium enterprises (SMEs) in Dar es Salaam, Mwanza, Arusha, Mbeya and Zanzibar regions to determine the characteristics of owner-managers; the firm, their strategies and performance. Secondary data was collected from various sources including the Tanzania Revenue Authority (TRA), especially for the Value Added Tax (VAT) returns, the Central Statistical Bureau, the Central Bank, commercial banks, the National Investment Centre, the Ministry of Industries and Trade, and the Tanzania Chamber of Commerce Industry and Agriculture (TCCIA). The results from the study show some clear differences between start-up, growing and mature SMEs and the level of impact on performance, which policy makers need to be aware of when designing and planning for effective business development support services. The performance of SMEs is an important indicator for an individual firms’ success, whilst its aggregate performance to economic growth is important for policy makers. By improving the understanding of the effects and characteristics of firm age, policy makers could segment businesses and, create a dynamic enterprise culture in Tanzania.

Key words: business characteristics, business age, lifecycle, organisational ecology, performance, policy, SMEs.