Academic journal article International Journal of Business and Management Science

Moderating Effect of Government Policy on Entrepreneurship and Growth Performance of Small-Medium Enterprises in Cambodia

Academic journal article International Journal of Business and Management Science

Moderating Effect of Government Policy on Entrepreneurship and Growth Performance of Small-Medium Enterprises in Cambodia

Article excerpt

INTRODUCTION

Small and Medium Enterprise (SME) sector development is one of the recent key issues in developing countries (Davidsson, 2004; Gibb and Ritchie, 1982). As a developing country, the development of SME sector in Cambodia is important. The assistance of SME as a support industry helps to strengthen the large industries (LIs). SME development is the future candidate of LI because every large enterprise (LE) has had the experience of starting their business as SME. The future of the LE is dependent on the development of SME. SME development is also an important issue for the labor market because it employs the labor force and offers wages to workers (Kirchhoff, 1994). In Cambodia, the development of the SME sector is not only a key issue for industry development, but also for the socio-economic development of the country.

The vital role of SMEs towards overall economic development has been recognized widely by every nation around the world. SME is considered an engine for growth and poverty reduction for developing countries the country through the creation of jobs and incomes for the people (Morris, May, Godden and Nicholson, 2001; World Bank Group, 2004; Ngasongwa, 2002; Hashim, 2004), domestic production and export (Hisrich and Szirmai, 1993; McMillan and Woodruff, 2002), entrepreneurial skills and industrial linkages (Chee, 1992; Wyer, 1999; Goh and Chew, 1996; Mohd Shariff, 2003) and individual collective initiative and social values (Clapham, 1985).

SME development is also considered as a tool for economic survival during the developed and developing countries the country's crises (Tambunan, 1992; Goh and Chew, 1996; Frank and Landstrom, 1997). According to the President of the World Bank Group, James D. Wolfensohn: "SMEs are the private sectors for employment generation and sustainable growth" (World Bank Group, 2004). The concern of transitional economies from the former Soviet Union to Central and Eastern Europe to China and Vietnam are similar in one important aspect. SMEs help to improve and sustain the health of the market economy in term of job creation, domestic production, and exports (Hisrich and Szirmai, 1993; McMillan and Woodruff, 2002).

This is true for SMEs especially when the surplus of labor, scarcity of capital within the rapidly growing population in the poor and developing countries are high (Chico, 1983; Khan, 2002). SMEs help to promote individual collective initiative, basic social values, and are highly viewed as a crucial tool towards achieving a social and regional integration (Clapham, 1985). An evidence from the World Bank Group (2004) shows that SMEs in China helped nearly 200 million people escape from extreme poverty as the result of the economic reform in 1979. As in the case of Taiwan, SMEs dominated 97.81 percent of total industrial establishments and contributed 69.27 percent of total employment; 32.11 percent of total sale values; and 48 percent of total export for the country's economy (Ministry of Economic Affair, 1997).

SMEs not only help during the period of economic growth but also in economic recession. It also becomes the engine for growth of Multinational Companies (MNCs) in Singapore (Goh and Chew, 1996). The strong turbulence in the world economy in 1970s had made many large firms in developed countries lay off their employees. SMEs then were regarded as the problem solver to these structural changes (Frank and Landstrom, 1997).

However, SMEs faced many problems in their growth performance (Kirby, 2003). These problems can be due to the lack of entrepreneurial values, financing, management and markets (Barber, Metcalfe and Porteous, 1989; Allal, 1999; Kirby, 2003). Other external factors such as the macroeconomic environment, government policies and regulations, and the availability of physical infrastructures also affect the growth performance of SMEs. Szegedi (1989) found that the potential factors that influence SMEs growth performance in Hungary in Europe are economics, political, and the social infrastructure. …

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