Is formalisation Enough to Achieve Growth in SMEs?

Abstract

The objective of this research is to determine whether the formalisation (FORM) of small and medium-sized enterprises (SMEs) has an impact on the growth, and determine which aspects of SMEs management, when formalised, are associated with and contribute to the growth of these organisations. A survey was applied to 403 proxies of SMEs in Lima, Peru. A structural equation model was used to validate the hypotheses. The results indicate that there is a positive and significant association between the FORM of SMEs management and the growth of these organisations. The main finding of this research is to determine that the formalisation of SME management in Lima, Peru explains their growth by only 27%, leaving 63% explained by other factors that could be not only management aspects, but also aspects of the SME environment. State institutions, companies and academia should analyse the low economic contribution of SMEs from a broader approach and not only from the position that formalisation is the only reason for growth. Other aspects should be studied, such as education in management issues by entrepreneurs, development of collaborators' competencies, improvement in the efficiency in the management of State institutions, among other factors; and thus, find the appropriate mechanisms that contribute to the growth of SMEs. This research is the first to analyse, in a single study, whether the formalisation aspects of SMEs management contribute to their growth. Finally, this research has contributed to the construction and conceptualisation of the SME growth variable.