The small enterprise is the typical unit of production in virtually every country in the world. In addition, the sector constitutes at least 90 per cent of the total population of enterprises in most countries (Storey, 1982, p. 5; Ganguly, 1985, p.8). Unfortunately, since the end of the Second World War, the sector has generally been neglected in government socio-economic development programmes. However, small enterprises have being receiving prominent attention in both developed and developing countries since the
1970s.
The pervading post war government policies in most developed countries emphasised and favoured establishment of large manufacturing enterprises. The small firm was equated with technological backwardness and with barely competent management (Storey, 1982). For example, in Britain in the 1960s,
" small businesses were generally regarded as a relic of the past. Economists and politicians were agreed that the development of modern complex technological processes required large-scale units of production if only because of the economies of scale. Small businesses, on the other hand, were seen as obstacles to economic growth because they could not effectively utilise advanced technological systems." (Scase and Coffee,
1980, p. 13).
In the same vein, economic development policies of most developing countries in the 1960s, particularly, the newly independent African countries, focused on the establishment of large-scale, 'modern' industry considered necessary to substitute for products imported from the former colonial countries (Page and Steel, 1984). Furthermore, growth was identified with the modem sector and the traditional sector constituted by the small-scale enterprises was considered to be relatively unproductive. Large, visible industrial enterprises were also emphasised because they could generate investment and attract it from abroad. This perhaps was in line with the then prevailing theories of economic development.
The growing importance of large enterprises consequently hastened the decline of small enterprises. This was more apparent in the employment trend of the manufacturing sector. Differences in definitions of small firms however, do not allow easy comparison of the data available on the share of small firms in total manufacturing employment. Nevertheless, decline in relative importance of small firms in the twenty years after 1945 seems to have occurred in most developed countries (Storey, 1982). Furthermore, there is little systematic evidence to conclude that increasing industrialisation in developing countries resulted in the decline of small-scale enterprises' share of industrial output and employment. While some data appear to support this, others do not (Page & Steel, 1984).
A growing recognition of the relative importance of small enterprises has however been occurring since the 1970s. Economic growth policies of many countries have emphasised small enterprise development since then. Various explanations have been posited for this development. But Storey (1988) in his review of six common explanations for the reversal of the thirty-year trend of emphasis on large firms observed that there is no wholly satisfactorily explanation for this change in most developed economies. The six common explanations are:
a. Technical change: Growth in, and applications of, new technology are of benefit to the growth of small firms rather than large firms.
b. Growth of the service sector: The increased interest in small firms is primarily a function of the relative growth of the service sector at the expense of manufacturing.
c. Growth of Third World competition and declining international competitiveness of large firms: European and North American large firms when faced with competition from Japan and other South East Asia countries responded by imposing additional requirements upon their (mainly small firm) suppliers. That is, they subcontract to smaller firms many activities previously being undertaken within their plants thereby encouraging creation of more new small firms.
d. Rising energy prices and slow-down of world growth: Since large firms were more energy dependent than small firms, the effect of increase in energy prices was to raise the relative prices more for large than for small. Inflationary conditions subsequently increased unemployment and many individuals
considered starting their own businesses rather than seeking previously supposedly secure paid salaried employment.
e. Political factors, promotion of enterprise culture and anti-government bias: A number of governments of the political 'right' elected in both Europe and North America were committed to a programme of reducing the role of the state in the economy, enabling market forces to operate in a less restricted fashion and thus facilitating growth in output and ultimately employment. Assistance provided to enable businesses to compete 'fairly' with other, but larger, firms led to a stronger and more numerous small-business sector than would otherwise have been the case.
f. Fashion and changing tastes: The small firm being sufficiently flexible to change the product to satisfy market requirements, prospered at a time when there was a sharp fall in demand for those standardised products generally produced in the large-firm sector.
Scase and Goffee (1980) further added that the failure of the economic and social policies of the 1960s resulted in the small business being regarded in the 1970s by politicians as the means whereby the tensions and failures of past policies can be corrected. In addition, small business was seen as the solution to a wide range of economic and social problems created by these policies. Goss (1991) has further noted the influence of the Green movement in promoting relative growth in importance of the small business. He observed that
" interest from this direction has been stimulated by disenchantment with the quality of life provided by advanced industrial societies and discontent at the environmental damage inflicted by large scale industry. Small organisation, therefore, represents a natural alternative to such methods, a view stimulated by the influential work of Fritz Schumacher, inventor of the slogan 'small is beautiful'." p. 3
However, Storey (1988) had questioned the various explanations presented for the relative increase in importance of the small firm. He stated that while some of the explanations referred to the falling importance of large firms, some referred to the increased importance of small firms and the remaining explanations referred both to declining large firms and to increasing small firms.
On the other hand, increasing concern for small-scale enterprises in developing countries in the 1970s arose according to Page and Steel, (1984, p.4) from :
- greater interest in aspects of development other than investment and output growth, - dissatisfaction with the dualistic model,
- rising emphasis on a self-reliant approach to development, and
- the failure of past industrial promotion policies to generate efficient, self-sustaining growth.
They also noted that the most compelling argument for small enterprise development in the present economic environment if not inherently, is that small enterprises are more efficient in their use of all productive inputs - labour, capital and materials.
Bannock (1981) has also emphasised that the principal economic importance of the small firms lies in their responsiveness to change. They are more flexible than large firms to adjust to changed conditions of demand, technology and relative costs. ”.... And since change is what is required if economic growth is to be resumed, it is desirable that more rather than fewer resources should be channelled into small businesses (Bannock, 1981, p. 8). In addition, Storey (1988) and Page and Steel (1984) have argued that the growth of small businesses is to some degree a response to unemployment. That is, formation of small businesses tends to flourish relatively during economic stagnation, because resulting unemployment, or threat of it, drive people to seek supplementary income resources and self-employment. Thus it can be summarised that the primary motivating force behind increasing attention on small enterprise development is the world-wide economic recession. This has resulted in conditions that brought into greater focus the latent potentials of small businesses to facilitate social and economic development in both developed and developing economies. Hence increasing government emphasis on small enterprise development and the subsequent growth of the sector.