New businesses have to deal with the fierce competition from the international firms. SMEs cannot produce large
quantities of goods of consistent quality to precise delivery schedules, and are uncompetitive in international export
markets. These characteristic problems make domestic SMEs vulnerable to imports from international firms that
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produce better quality products and services at lower prices. While many entrepreneurs in developing countries
have full knowledge of their product or service, they do not know how to promote them or market them
successfully. They lack effective marketing strategies for competitiveness due to inadequate financial resources for
marketing and advertising products, which leads to their inability to be competitive and capture a greater part of
the local and international market-segment. They also have low capacity for product innovation due to the belief
that market demand may not pay for quality, coupled with over-pricing of goods are some of the major obstacles
that make locally made goods less competitive even on local markets in developing countries. A major challenge
relating to gaining customer loyalty and market share is the result of the colonial antecedent which has led to
Ghanaians and generally, Africans’ preference for foreign goods and services as compared to domestic ones. As a
new business, building brand equity poses one of the most challenging tasks in order to break into the existing
market competition, since the business lack an existing track record or reputation for potential customers to trust
your product or service. Although an entrepreneur may have the zeal to succeed, but without any confirmation of
a successful track record, existing large firms and government organizations will not trust an entrepreneur to award
large contracts to his/her new business.
Despite the substantial dividends that can yield from advertising and marketing, SMEs in developing countries
rarely engage in aggressive marketing of their products because they lack the required resources, and are deterred
by the cost of marketing. Since many SMEs increase production only when they receive an order, they are unwilling
to deal with the risks of producing in larger quantities. As a result, SMEs generally sell directly to customers based
on advanced orders rather than producing for stock. Poor market responses and the tying-up of capital when
producing for stock are among the reasons SMEs manufacture and sell their products mainly on advanced orders
(Director, AGI, Accra, 2016). While information, communication and technology is increasingly becoming a critical
factor in developing businesses, due to lack of technological knowhow, the technological gap in most developing
countries has always posed a serious setback to entrepreneurship development. These challenges experienced by
SMEs such as poor transportation and infrastructure, low-level of information communication technology (ICT)
knowledge and other factors that impact their operations have national implications and require government
intervention to address them appropriately.
Entrepreneurs also face enormous challenge in terms of competition from external transnational firms. The trade
liberalisation policy being promoted by the government influenced by advocates of the free market system/neo-
liberalism such as the International Monetary Fund (IMF), the World Bank and the World Trade Organisation (WTO),
as well as the impact of globalisation makes it easier to import foreign products into the local economy, without
adequate protection for local industries. Entrepreneurs with the potential to succeed exhibit an incremental
approach to risk taking and have the motivation, drive and ability to mobilise resources to take advantage of
market opportunities. Nonetheless, the small local market, limited access to external suppliers and demand, limited
export volumes and high costs often lead to difficult entry into larger international distribution channels. More
significantly, many entrepreneurs are unable to meet the resulting demand due to the fear of not recouping their
investment, which explains their inability to compete in the international export markets. Some officers from the
Private Enterprises Federation noted that protectionism, trade tariffs and barriers in the international markets as
well as the emerging competition due to the deregulation and liberalisation of the local market are some of the
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major obstacles to the innovation and expansion of SMEs in Ghana (Economist, the Private Enterprises Federation,
Accra, 2015). In addition, due to the unstable economies in developing economies, the overarching mindset of
many new entrepreneurs in these countries is the fear of failure, which can be a barrier to many potential
entrepreneurs and need to be changed. The Global Entrepreneurship Monitor Report for 2013 reveals that Ghana’s
‘Fear of Failure’ for new entrepreneurs stands at 24.6% as compared to 10.4% in 2010. This is probably due to the
weakening economy, which has made many potential entrepreneurs skeptical towards embarking on new
investments. How to break through into the existing competition is an important challenge for new SMEs. New
entrepreneurs must recognise competition as a benchmark for creativity and the main motivator for innovation for
your business. While competition can make a new business make in-roads into the existing market, it can also
make it lose its relevance in the eyes of its customers. Therefore, new entrepreneurs need to adopt different
business strategies by constantly improving the quality of their products and services or reducing cost to create
value for their customers.
iv)
Legal and regulatory framework and Social factors – corruption, cultural attitudes and politicisation of
government-sponsored loan schemes
Government policies towards new entrepreneurs are often not favourable for business start-ups. Public sector
bureaucracy with licensing of new businesses, and delays in payments for public sector contracts discourage people
from setting up new businesses. The high duties and the complexity of the tax systems by the agencies under the
Ghana Revenue Authority is a major disincentive to new entrepreneurs. Other factors such as sustainable power
supply, lack of infrastructural facilities, non-availability of good road networks and ineffective internet and
communication systems discourage many potential entrepreneurs from embarking on business start-ups.
Partisanship is part and parcel of many developing countries’ politics and permeated every aspect of many societies
including the disbursement of loan schemes, which hinder the hinder the development and sustainability of SMEs.
Partisanship and government victimisation of opposition party members’ businesses often shorten the lifespan of
many SMEs since a change of government may result in cutting-off a group of businesses that may have benefitted
from access to loans under a previous government. Some entrepreneurs interviewed admitted that lack of support
for SMEs due to politicisation of government-sponsored business loans and corruption of officials in charge of
government-sponsored organizations and bank officials have led to the demise of many businesses that used to
operate successfully. Focus group interviews with entrepreneurs who have participated in the NBSSI and MASLOC
loan schemes over the years cited excessive government officials’ control and politicisation of funding, victimisation
of entrepreneurs and corruption as main reasons why many SMEs have gone bankrupt, especially those that are
not supporters of a ruling government. In many developing countries like Ghana, the political culture also fosters
attitudes that militate against personal efforts, induce apathy and carelessness in the service to the public, and a
careless attitude towards public funds and property.
The politicisation of government loans to businesses has also led to the high default rate by borrowers who have
the impression that by getting a loan from their party’s government, they are being rewarded for their support,
and loan defaulters are not punished due to their party affiliation. It is apparent from the above discussion that
entrepreneurs and SMEs in developing countries face numerous challenges, which are diverse and complex, and
require prudent measures by the government and its development partners to address them appropriately. These