Attributes for successors’ performance in family-owned small and medium enterprises in Arusha city, Tanzania

Abstract

High failure rate has been documented to affect family-owned small and medium enterprises all over the world. In response to this situation, initiatives such as formulation of SME Policy, developing financial and non-financial services, establishing SMEs supportive organizations and infrastructures have been implemented in Tanzania. Despite several government and private sector interventions, high failure rate is still a challenge to family-owned businesses. Although various scholars have carried out studies on different facets of family-owned businesses, attributes for successors performance in family-owned SMEs has not been exhaustively discussed. This led to a knowledge gap in the area of the attributes for successors performance in family-owned SMEs. Therefore, the study on which this thesis is based is meant to address the existing knowledge gap. Specifically, the study assessed the following aspects: (i) succession planning and performance of family-owned SMEs, (ii) influence of successors’ socio-demographic characteristics on the performance in family-owned SMEs, and (iii) the influence of successors’ entrepreneurial competencies on the performance in family-owned SMEs. The data was collected through a survey whereby a structured questionnaire was administered to a randomly selected sample of 219 successors of family-owned SMEs. The questionnaire data were analysed through SPSS Version 21. This software was used in order to compute descriptive and inferential statistics which included frequency distribution, percentages, independent samples t-tests, and hierarchical multiple regression. The results showed that most of family-owned SMEs in the study area had mechanisms of succession plan in their businesses. Moreover, there was a difference in performance in terms of the business net profit between the successors selected and prepared by business founders and those selected and prepared by other family members. Those selected and prepared by family business founders generated higher net profit. Furthermore, it was found that education and business experience influenced performance in terms of profit in family-owned SMEs. Additionally, the results have shown that there was no significant difference in performance in terms of profit between male and female successors of family- owned SMEs. These results suggest that when male and female successors are equally prepared to manage family businesses, there will be no difference in their performance in terms of profit. Successors’ risk-taking propensity and ability to exploit business opportunity showed significant results in predicting performance of family-owned SMEs. It is considered that risk taking behaviour gives successors the courage to invest more in the family business, and competence in exploiting business opportunities gives successors the ability to expand the boundaries of the family business. Therefore, this study concludes that, business founders are highly aware of the importance of succession planning in family-owned SMEs in the study area. There is high performance of family-owned SMEs if business founder selects and prepare the business successor, and sex should not be a factor for consideration in selecting successors of family-owned SMEs. For good performance of family-owned SMEs, successors’ education and business experience should be given the highest priority in succession plan. Family-owned SMEs managed by successors who are able to take calculated risks and able to exploit business opportunities are in a good position to realize better performance in terms of net profit. This study recommends that, founders of family-owned SMEs should select and prepare their successors before they depart from their businesses, both male and female family members should be equally considered in the selection of family-owned SMEs successors. Moreover, founders should invest in the education of their successors and build their successors’ business experiences, risk taking behaviour and competence in exploiting business opportunities to improve the performance of their family-owned SMEs.