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There is increasing recognition of the potential contribution of local small and medium enterprises (SMEs) towards employment and economic growth in Singapore. Unfortunately, SMEs tend to have a high mortality rate. A survey was conducted among owners or managers of local SMEs to identify factors perceived as important in affecting business failures. The research results indicate that endogenous factors were viewed by respondents as more critical in causing SME failures than exogenous factors. Important exogenous and endogenous factors in specific areas were identified.
1. INTRODUCTION
Much of Singapore's economic growth, particularly in the last three decades, has been supported mainly by foreign multinational corporations. It has been suggested that Singapore's next phase of growth needs to be supplemented by its own 70,000 SMEs (ENDEC 1989). The Strategic Economic Plan presented by the Economic Planning Committee in 1991 also recognised the important role of SMEs in achieving Singapore's objective of catching up with the per capita GNP of the United States by 2030 or the Netherlands by 2020. The plan also saw the need to help SMEs upgrade themselves. In order to help SMEs upgrade themselves and play a bigger role in the Singapore economy, there is a need to understand their operation. In particular, it is important to understand factors contributing to the failure of local SMEs since it is suggested that a large percentage of SMEs fail within the first five years of operation. Nadu (1978) suggests that two-thirds of small businesses fail during their first five years of operation. Hollander (1967) found that 67% of new small businesses which were studied discontinued in their first five years of operation. A Dun and Bradsheet (1967) report suggests that only one of three new firms survives the first four years after founding.
In this paper, we report the results of a survey among owners or managers of local SMEs to identify factors perceived as important in affecting business failure. First, we review past research on SME failures. Second, we explain the methodology used to conduct the survey. Third, we present the research findings. Last, we propose specific actions to help SMEs succeed, based on the results of this research.
An Exploratory Study of Factors Affecting the Failure of Local Small and Medium Enterprises
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