Dynamics of Scaling Firms and their Contributions for Social and Economic Transformation

Abstract

The role of scaling firms for poverty reduction and pro-poor growth is indisputable. Most scholars declared that those firms are the veritable socio-economic engines for sustainable income, employment-generation and social-transformation. The main objective of this study is therefore, to investigate the dynamics of scaling firms and their contributions for socio- economic -transformation. To be specific, the study intends to verify whether firms are consistently taking its critical part for improving the living conditions of the poor, and driving employment growth and social wellbeing, and if not, why, and also to identify the possible remedial measures. By making use of the Binary logistic regression analysis, OLS and fixed effect models, the study has made thorough investigation of the determinant factors for firms’ entry, survival and growth. Besides, descriptive statistics was used for analyzing the individual owners and firm level characteristics and their relationship with the form and or nature of the business firms and its sources of funding. Virtually, the study found that scaling firms have played and continue to play significant roles in improving the socio-economic lives of the poor. The firms, on average, generated higher rate of annual employment growth (8.5 percent), capital accumulation (41.6 percent), ROI (7.8 birr) and income and assets growth rate (26.8 percent).On the other hand, firm operators were able to reduce the marginal cost of production by 7.8 birr, by virtue of efficient utilization of resources and effective production system. Overall, scaling firms - enabled the poor to realize better social wellbeing by means of reducing socio-economic inequality and vulnerability. In spite of the fact that scaling firms have had an immense potential for wealth accumulation, poverty reduction and employment generation, the sector did not yet realize its vibrant role due to a range of problems and constraints affecting its survival and growth. The most out of which, includes, uneasy access to funding, lack of access to market, poor infrastructural facilities, which tend to escalate costs of operation, bureaucratic support and inefficiency in the administration of incentives and support facilities. The poor intra and inter-sectorial linkages within which access to raw materials and final products are at the verge of dare obstacles could also pledge restricted access to market and other business information.