Location decision strategies for improving SMME business performance

Abstract

Purpose: The primary objective of this study is to investigate the macro-environmental factors that may influence location decisions and how these choices may affect the business performance of SMMEs.

Problem investigated: SMMEs in South Africa play an increasingly important role in stimulating economic activity, growth and employment creation. However, many SMMEs cease to exist within the first five years of operation due to various challenges faced by SMMEs on a daily basis. Many SMMEs owners disregard the importance of location, yet the geographical location can negatively influence the survival of the business. Several factors influence the choice of the location, which will ultimately have either a positive or negative effect on business performance.

Methodology: A positivistic research methodology was adopted for this study. Seven hypotheses were constructed to achieve the primary objective of this study. The population for this study consisted of SMMEs in the Nelson Mandela Metropole from which a convenience sample of 175 SMMEs was selected. The measuring instrument, a self-developed questionnaire, consisted of three sections. The data collected included the demographical data of the respondents and their businesses, statements on location and various factors influencing location decisions as well as measurements of business performance. Cronbach Alpha coefficients were calculated to determine the reliability of the questionnaire items. Data analysis was done by calculating descriptive statistics, Pearson correlation coefficients and conducting a simple linear regression analysis. Cohen's d was used to determine the significance of between-factor differences.

Findings and implications: The results of the study showed that positive relationships existed between all the independent variables (location, rental rates, employment, inflation, interest rates and green buildings) and the dependent variable (business performance) except for the relationship between electricity tariffs and business performance. Employment and business performance attained the strongest positive relationship; indicating that business owners regarded employment as an important factor to consider when searching for suitable business premises. The relationship between location and business performance obtained the lowest positive correlation.

Originality and value of the research: Research on South African SMMEs regarding location decisions and the specific factors identified in this study has not been done previously in South Africa. Therefore, because evidence exists that the macro-environmental factors influence location decisions to varying degrees, this study can provide SMME owners with insight into the factors influencing location choice. It is vital that business owners consider these factors as they could influence business performance, and ultimately, business survival. An increased awareness of the importance of the aspects discussed in this study could consequently lead to improved performance in the SMME sector.