Regarding the predictors, the effect of internationalization was measured by asking respondents to estimate the level of exporting activities of their business growth. The constraint variables were measured by asking the respondents to estimate the effect of these variables on business growth.
4.12.1
SMME growth
The literature on SMMEs has used a range of variables to measure growth, but the most widely used measures were sales turnover and employment growth. Kozan et al. (2006) found a strong correlation between sales and employment growth. Also noticeable was the relationship between financial performance and employment growth. Employment growth is a reliable and a less volatile measure of growth than sales, as owner-managers generally wait for demand to stabilize before recruiting personnel (Wiklund 1999). Additionally, reliable information on employment is easier to gather and less sensitive than financial
data. Thus, employment is widely used as a measure of growth (Barringer, Jones and Neubaum 2005; Chaganti, Cook and Smeltz 2002; Davidsson et al. 2002; Freel 2004). Therefore, this study measured the growth of SMMEs in terms of an increase in employment.
4.12.2
Control variables
The study includes several control variables that may affect SMME growth prior to the empirical investigations on the possible moderating effect of microfinance on the relationship between financial constraints and SMME growth. First, the study controlled for firm characteristics. Characteristics that are important pre- dictors of SMME growth, and were thus controlled for include: age, ownership, size, and industry (Delmar et al. 2003; Dobbs and Hamilton 2007; Heinonen et al. 2004; Naldi and Davidsson 2013; Westhead and Birley 1995). Age was measured by the number of years the firm had been in existence until 2013, the study further grouped SMME age into three age groups; new, young and old. SMME with less than two years was considered in new firm group, SMME with more than two years and less than ten years was regarded in young firm group. Old group consisted SMMEs with more than ten years.
For ownership structure and control, the study identified four types of ownership namely: sole trader, partnership, close corporation and private company. SMME size was measured by the number of employees, and according to the South African National Small Business Act (NSBA) (Act 102 of 1996 as amended in 2003 and 2004), to micro, very small, small and medium enterprises. For the control variable of industry three dummy variables reflecting the firms’ industry - manufacturing, trading and service - was used.
Secondly, the respondents of the survey were the owners/managers of SMMEs. Several researchers have suggested that owner/manager demographic character- istics might affect SMME growth (Dobbs and Hamilton 2007;Naldi and Davids- son 2013; Onuorah 2009; Welter 2006). The study included three control vari- ables that reflect the owner/manager’s demographic characteristics; gender, age and education level. Five age groups to measure owner/manager age, and five levels of education, starting from primary school up to post graduate level to measure owner/manager’s level of education was used to further classify the variables.
4. Research Methodology 133
4.12.3
Predictor’s variables
For the predictors, the study used variables which are assumed to have an in- fluence on a SMMEs growth. Government initiative is one such variable, and it was measured with ten items reflecting the several types of initiatives found in the Western Cape. The structure of the initiatives were examined by means of an exploratory principal components analysis, the factor score was then used to represent government initiatives in the correlation and multiple regression analysis.
The other predictors (planning function, market and customers, and black eco- nomic empowerment programs) were measured by asking the respondents to estimate the effect of these predictors on business growth. For the sources of finance and capital structure four dummy variables were used to measure the influence of sources of finance and capital structure on SMME growth.
4.12.4
Constraints to SMME growth
The constraint variables were measured by asking the respondents to estimate the effect of some factors as constraints to their business growth. The factors enquired about include: lack of clear business plans, lack of government support, government regulations, competition, corruption and lack of access to finance. For the lack of skilled employees the respondents were asked to estimate the level of skill of their work force - using three categories: skilled, semi-skilled and unskilled - at the inception of the business and by the time of the questionnaire was conducted. The lack of professional financial advisors was measured by asking the respondents if they managed to make use of a professional financial advisor.
The lack of awareness of financial services and assistance was measured by asking the respondents whether they had heard of the most known financial intuitions, government agency, funding schemas and supporting programs for SMMEs in the Western Cape. This was followed-up with a question on if they had made use of these services. The factor score was then used to measure the levels of their awareness of financial services and assistance.
4.12.5
Moderating Variables
The study used one moderating variable to examine how SMMEs should over- come constraints to growth; microfinance. Microfinance was measured by a dummy variable reflecting the use of microfinance within SMME financial struc- tures.