Developing a Model to Predict the Performance of Small and Medium-Sized Enterprises: the Case of the Kingdom of Saudi Arabia
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Developing a Model to Predict the Performance of Small and Medium-Sized Enterprises: The Case of the Kingdom of Saudi Arabia A thesis submitted in partial fulfilment of the requirements of the Manchester Metropolitan University for the degree of Doctor of Philosophy By Ahmed Youssef Al Saleh 2016 Dedication This thesis is dedicated with deepest love and everlasting respect to my parents, Youssef and Sharifah, for inspiring me throughout my life. I appreciate all their support, and motivations. Their prayers and love lead me to complete this thesis. I appreciate all their efforts, which made me who I am. Special thank from the bottom of my heart to my wife Nagla. She is the inspiration for my writing and my life, without having her as a wife, friend and support in my life, I could not have been able to work and study long hours to complete my PhD, this work dedicated to her. My little princesses: Sharifah and Nahimah, they are the source of my joy and happiness without their smile, I would not have overcome the challenges and stress of my PhD journey. i Acknowledgements First and foremost, I must thank Allah, the Almighty, for enabling me to complete my PhD journey. I would also like to express my deep and sincere gratitude to my extraordinary supervision team. First, Prof. Hamed El-Said showed me the way and guided me to become an accomplished researcher. I would also to thank him for giving me the opportunity to work under his supervision in my PhD study, and for his constructive guidance, suggestions, invaluable comments and support. Second, I offer special thanks to Dr. Agnieszka Chidlow for her knowledge, help, invaluable comments, support, guidance, suggestions and encouragement during my PhD journey. My profound respect and thanks also go to the Saudi Government for providing me with the opportunity to carry out the current research, I appreciate their support and encouragement. I would like to express special respect to my grandmother Munirah, for her prayers which have supported me all the time in my study. Deep thanks also go to my sisters and brothers, Ahlam, Saleh, Abduallah, Aisha, and Munirah, for their encouragement and endless support. Also, great thanks go to my parents-in-law, Saleh and Nahimah, for their prayers, encouragements with great kindness, and to my brothers in-law, sisters in-law, my uncles and my aunts, all of whom always believed in me. Warm wishes also go to my nephews and nieces for their love. I would like to express my sincere thanks to my colleagues and friends at Manchester Metropolitan Business School, in the city of Manchester, and in Saudi Arabia, for their support throughout my PhD journey. Last but not least, I would offer thanks to all the government organisations which cooperated with me through the data collection phase of my research, and special thanks go to all the participants from the SMEs sector in Saudi Arabia for their cooperation in the research. ii Declaration The work in this thesis has not been submitted as an application for any other qualification or degree to any other university or institute of learning. Conferences publications Alsaleh, A. (2015) ‘Success and Failure factors for small and medium sized enterprises in Saudi Arabia.’ The Saudi Ministry of Higher Education. The 8th SSC - UK. Queen Elizabeth Conference Centre , London, UK. 31st January – 1st February 2015. Alsaleh, A. (2015)’ Exploring A Business Success versus Failure Factors for Small and Medium Sized Enterprises in Saudi Arabia.’ Paper presented at: World Business Institute. Eurasia Business Research Conference. Istanbul, Turkey, 4th – 6th June 2015. Alsaleh, A. (2015) ‘A Model for Predicting Small and Medium Sized Enterprises Performance in Saudi Arabia.’ Plymouth University. 10th Annual Plymouth University Doctoral Colloquium 2015. Plymouth University, Plymouth, UK, 4th – 5th June 2015. Carter, D. ; Oniewu, A ; Kitsos, A ; Dexter, G. ; Haddoud M.; El Hakimi I. ; Dhakal, M. and Kong S. (eds). Alsaleh, A. (2012) ‘Exploring Strategies for Small Business in Saudi Arabia to Survive.’ King Fahd University of Petroleum & Minerals. Saudi Scientific International Conference. Brunel University, London, UK, 11th – 14th October 2012. Alsaleh, A. (2012) ‘Exploring Strategies for Small Business in Saudi Arabia.’ Manchester Metropolitan University Business School. RIBM Doctoral Symposium 2012. MMU, Manchester, UK, 14th – 15th March 2012. Award Best Academic results in the 10th Annual Plymouth University Doctoral Colloquium 2015 (4th – 5th June 2015), A Model for Predicting Small and Medium Sized Enterprises Performance in Saudi Arabia.’ Plymouth University, Plymouth. iii Abstract The small and medium-sized enterprise (SME) sector is becoming increasingly important in the economic and social development of nations. In view of the essential nature of SME activity, the overall aim of the present research is to develop a model that is able to predict SME performance in the Saudi context. One of the reasons for embarking upon this study is that the number of SMEs that have ceased to operate in the Saudi context has recently increased, and their contribution to the economy has been reported to be low. Therefore, it is an essential to increase these SMEs’ contributions, thus enabling them to play a more central role in the Saudi Arabian economy. This can be done by identifying the factors most closely associated with their performance in order to increase their probability of success and decrease their failure rate. The research’s aim has been reached through focusing on the various different factors, produced both from inside businesses and in the external environment, which are associated with SMEs’ performance in the Saudi context. Success and failure definitions were then used to measure SMEs’ performance based on their profits. Data were collected using a quantitative method. Questionnaires were distributed to SMEs in the Eastern Province of Saudi Arabia, and the responses were analysed. First, a descriptive analysis was conducted to identify the owners/managers and their businesses’ characteristics. Second, an exploratory factor analysis was performed to find relationships in which variables were maximally correlated with one another and minimally correlated with other variables, and the variables were then grouped accordingly. Third, the results of a logit regression analysis were examined in order to predict SMEs’ performance and classify it as successful or not in the Saudi context. The main findings of the present research indicate that the full model containing all the predictors is statistically significant. Looking at the individual factors, it found that five factors add a unique, statistically significant contribution to the model; these are: owner/managers’ experience, planning, intensity of competition, the regulatory environment, and terrorism risk. The present research is among only a few researches focusing on the Eastern Province of the Kingdom of Saudi Arabia that have provided a study relating to SME performance from the perspectives of the owner/managers themselves. The findings of the present research could also be applied in other, similar contexts, such as other Gulf Cooperation Countries (GCC). iv Table of Contents Dedication.. …………………………………………………………………………………..i Acknowledgments …………………………………………………………………………..ii Declaration …………………………………………………………………………………..iii Conferences publications…………………………………………………………………..iii Award ………………………………………………………………………………………..iii Abstract ……………………………………………………………………………………...iv Chapter One: Introduction 1.1 Introduction……………………………………………………………………………....1 1.2 Background of the research and statement of the problem ………………………. 1 1.3 Important contributions of the research……………………………………………….5 1.4 Justifications of the research………………………………………………………….. 5 1.5 Research questions and objectives…………………………………………………...6 1.5.1 Research questions………………………………………………………….8 1.5.2 Research objectives………………………………………………………….9 1.6 Structure of the thesis…………………………………………………………………..9 1.7 Summary……………………………………………………………………………….11 Chapter Two: Literature Review 2.1 Introduction……………………………………………………………………………12 2.2 Literature review strategy……………………………………………………………12 2.3 The definition of SMEs……………………………………………………………….13 2.4 The economic importance of SMEs ………………………………………………..19 2.5 The social benefits of SMEs ………………………………………………………...22 2.6 SMEs’ performance measurements…..……………………………………………..24 2.6.1The meaning of success ………………………………………………………25 2.6.2 The meaning of failure ………………………………………………………..27 2.7 Factors contributing to SMEs performance in different contexts……………….. 32 2.8 Lussier model ………………………………………………………………………....37 2.9 Summary……………………………………………………………………………….41 Chapter Three: The Saudi context 3.1 Introduction……………………………………………………………………………..42 3.2 A review of Saudi Arabia and its status in the world ………………………………42 3.2.1 Eastern region of the KSA…………………………………………………..43 3.3 The religion and cultural context in Saudi Arabia…………………………………..44 3.3.1 The Hofstede model………………………………………………………...45 3.4 Government……………………………………………………………………………46 3.5 Population………………………………………………………………………………49 3.6 Economic background ………………………………………………………………..52 3.6.1 Saudi Arabia in the global economy………………………………………53 3.7 Recent reforms enacted by the Saudi government………………………………..57 3.8 Small and medium sized enterprises in the Saudi context………………………..66 3.8.1 Challenges facing SMEs in the Saudi market…………………………66 v 3.8.2 Opportunities for SMEs in Saudi Arabia……………………………….77 3.9 Summary …………………………………………………………………………...81