Risk factors for failure in newly established small, micro and medium-sized enterprises in the tourism sector of Gauteng Province, South Africa

Abstract

The annual report issued for the financial year 2013/2014 by the South African Chamber of Commerce and Industry (2015) shows that the business confidence index of South Africa was equal to 89.3% in January 2015. According to the South African National Department of Tourism (2015), the tourism sector contributed 93 Billion Rand (3%) to the South African GDP in the year 2012. The contribution of the tourism sector was equal to 189.4 Billion Rand in the year 2009. This figure is projected to grow to 499 Billion Rand by the year 2020. According to the South African Small Enterprise Development Agency (2015), newly established and emerging business enterprises conducting business in the tourism sector of Gauteng Province are less viable and efficient in comparison with well-established tourism enterprises. The objective of this study was to identify and quantify risk factors for underperformance and bankruptcy in the tourism sector of Gauteng Province in South Africa. The study was based on data collected from a stratified random sample of size 311 tourism enterprises that operate in Gauteng Province, South Africa. Data was collected on a large number of socio-economic factors that adversely affect entrepreneurial activities in the tourism sector of Gauteng Province. A combination of quantitative and qualitative methods of data collection and analyses was used in the study. Examples of variables on which data was gathered was level of entrepreneurial skills, level of formal education, location of business, duration of experience, amount of capital, number of employees, ability to network with other tourist operators, degree of competition from rival operators, geographical location, category of business, category of entrepreneurial skills, average number of visitors per month, net profit, size of business, market share, access to finance, and degree of support from Government agencies. Results obtained from the study showed that the long-term survival and viability of African entrepreneurs in the tourism industry of Gauteng Province was significantly and adversely affected by the degree of competition from rival operators, poor networking ability, lack of entrepreneurial skills, low capital, and geographical location. The study found that African entrepreneurs in the tourism industry of Gauteng Province lagged behind their white counterparts significantly in terms of networking ability, capital and entrepreneurial skills. In addition, 82% of the 311 African entrepreneurs who participated in the study lacked suitable skills due to their poor and irrelevant academic and vocational background, and that 59% of entrepreneurs had received little or no assistance in terms of mentoring or training opportunities from South African Government agencies.