The role of institutional support in influencing SME growth: the case of Saudi Arabia

Almawishir, Naeimah Fahad (2018) The role of institutional support in influencing SME growth: the case of Saudi Arabia. Doctoral thesis (PhD), Manchester Metropolitan University.

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Abstract

In most advanced countries, SMEs contribute as much as 70% to GDP. However, Saudi SMEs are not yet major contributors; accounting for less than 20% of GDP in 2015 compared with developed countries. Saudi Arabia has taken considerable steps towards developing an entrepreneurship ecosystem and supporting SMEs to tackle fundamental issues in the Saudi economy; namely, a non-diversified economy and unemployment. From the entrepreneurship ecosystem perspective, the environment in Saudi Arabia is at the institutional level, that is, institutions in the private and government sectors are responsible for supporting SME growth through enabling resource access. This study argues that analysing SME’s growth should consider the level of the entrepreneurship ecosystem. Therefore, this study aims to analyse the role of institutional support in influencing SME growth in Saudi Arabia by providing a unique application from an entrepreneurship ecosystem perspective. To this end, analysis of the role of entrepreneurs’ social networks arguably enables resource access at the collective level (institutions in the private and government sectors). The study then examines the relationship between various factors in the entrepreneurship ecosystem and SME’s growth. These include: 1) institutional support, whose is measurement is based on resource access via government and private institutions; 2) environmental factors, such as economic, political, legal, local cultural, and technological factors; and 3) other factors that might influence SME’s growth such as entrepreneurs' characteristics and SME's characteristics. Secondary data was used to present an overview of the entrepreneurship ecosystem in Saudi Arabia (2015-2017). In addition, I conducted a survey to analyse the role of institutional support in influencing SME’s growth through approximately 400 electronic questionnaires sent to entrepreneurs in Saudi Arabia, with 140 responding accordingly. Since all variables are not normally distributed, data were analysed by applying non-parametric statistical tests. In general, the study found the entrepreneurship ecosystem in Saudi Arabia to be healthy on the institutional, environmental and individual levels, but that further enhancements were required to develop the ecosystem, from the institutional to the enterprise level. This can be done by focusing on and develop the weakest pillars at the environmental level; namely, technology, innovation, competitiveness and internationalisation. In other words, the focus must be on supporting SME by enabling access to technology and innovation through institutional support to enhance the competitiveness of the SME in the local and international market. In addition, the study found that institutional support plays a crucial role in influencing SMEs growth positively through enabling resource access via private and government institutions. However, further enhancement is required, especially when it comes to what deters entrepreneurs from accessing resources. We found that institutional support was primarily available to the manufacturing sector, which might indicate that institutional support concentrates more on those sectors that might generate more job opportunities and help diversify the Saudi economy. Accordingly, other sectors such as technical and innovation industries need to be supported more through enabling entrepreneurs to access innovation and technology. In addition, we found that not all entrepreneurs have accessed institutional support due to a lack of awareness, or their not considering it for several reasons, such as avoidance of debt, trust issues, already being supported or insufficient support regarding time and cost. Therefore, policy-makers need to consider these issues when forming policy to support and develop the SME sector in Saudi Arabia. Analysing other factors that might influence SME growth from an entrepreneurship ecosystem perspective, the study also found that the majority of entrepreneurs stated that local culture and technology have certainly influenced business growth positively. However, 43% of SMEs were influenced negatively by the political atmosphere, most likely due to political conflicts with a number of neighbouring countries. In addition, the economic situation affected SME growth negatively to 61% of SMEs, because of a decrease in oil prices and the reformation of the economy in Saudi Arabia. Legal factors also have a negative impact on SME growth to around half of SMEs. As mentioned in the literature, many entrepreneurs and investors believe that business regulations and incorporation policies in Saudi Arabia, such as business establishments are inefficient and deter investment, while the legal framework does not provide enough support or transparency for resolving contract disputes and bankruptcies. Furthermore, different factors have influenced SMEs growth positively; for instance, entrepreneurs’ characteristics can influence how the entrepreneur will identify an opportunity, seize it and then react to it. Another factor influencing growth positively is SME characteristics such as age and strategies, as these can present the abilities of the business to go through this entrepreneurship process.