Analysis of the key factors for small and medium-sized enterprises growth using principal component analysis

Abstract

Small and Medium-sized Enterprises (SMEs) significantly contribute to national economic development worldwide. However, numerous factors affect the growth of SMEs, particularly in developing economies. Due to the complexity of these variables, it is challenging to determine where to begin improving SMEs. This study aims to identify and analyse the factors that hinder the overall performance of (SMEs) to gain insights into the principal variables constituting problems. A literature survey identified and abstracted 36 variables that influence SME growth. A structured questionnaire was created using the variables and administered to the respondents in the SME sector. We collated and converted the respondents' scores into primary data. The data was analysed using Kendall's Coefficient of Concordance (W) and Principal Component Analytics (PCA) tools, and the results were presented. The result of Kendall's Coefficient of Concordance analysis was (W) = 0.52, indicating that the judges strongly agree that the 36 variables affect SME growth. The PCA analysis identified the critical variables affecting SME growth. These variables, along with their corresponding factor loading, include Marketing information = 0.80, Cost of transportation = 0.81, Information technology = 0.83, Economic initiatives = −0.83, Financial constraints = −0.80, Cultural change = 0.80, Technical know-how = 0.822, Economic factors = −0.80, and Business information system = 0.813. The implication of the study's findings for management is that SMEs should begin process improvement for effective overall performance by addressing the problems associated with the critical variables. The perceived limitation of the study is that the respondents' opinions may not reflect 100 % of the opinions of the unsampled population in the SME sector. This study's originality includes (i) holistic documentation of the myriad of variables influencing SMEs, which are fragmented in the literature, and (ii) pinpointing the critical variables affecting SME development with measurable evidence not found in the literature.