The Impact of Government Support on the Growth of Small Businesses

The Impact of Government Support on the Growth of Small Businesses
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The Impact of Government Support on the Growth of Small Businesses
Literature Review
Small and medium-sized enterprises (SMEs) are indispensable to the growth of any economy considering that they make up over 95% of all businesses in nearly all countries around the globe. The size of an organization can be measured based on its profit/revenue or the number of workers it has. While small business is one with a workforce of not more than 50 people, medium enterprises generally have a workforce of between 50 and 100 (Morrison, Breen & Shameen, 2015). The main measures of a company’s growth and development are as follows: market share, which indicates the fraction of the market served by the firm; turnover, which signifies the quantity of sales during the fiscal year; growth in the labour force, which implies more staffs such as administrative, technical, professional or management personnel; and growth in profitability, which denotes an organization’s capacity to make profits (Tan and Lopez-Acevedo, 2014).
In any economy in the world, some of the crucial factors which drive economic growth include the formation of new businesses as well as the take-off of young small and medium-sized enterprises which are yet to attain substantial competitiveness. In these instances, a major impediment for executing and boosting new business ideas is the lack of financing, which serves to limit the take-off of a small business and conditions such companies to remain small firms over time (Norrman & Bager-Sjцgren, 2013). For these challenges to be overcome, various countries in different parts of the globe have created government programs aimed at supporting young small and medium-sized businesses. According to Dobbs and Hamilton (2015), such programs generally range from subsidies given to small businesses commonly referred to as seed capital programs (SCPs), capital markets and bankruptcy laws, tax transparency and provisions programs, supporting innovation in high-impact small businesses, and promoting export capacity. Chudnovsky et al. (2013) pointed out that government assistance to small and medium-sized businesses is of great importance since these businesses often face a large number of problems which threaten their viability and growth.
In their study, Cancino, Bonilla, and Vergara (2015) analyzed the impact of the Seed Capital Program on Chilean businesses. Chile’s Technical Cooperation Services executed the program. The researchers surveyed 682 businesses: 304 businesses were in the control group while 378 were in the treatment group. The SCP program provided a non-reimbursable cash subsidy which was aimed at supporting the take-off of young small and medium-sized enterprises that demonstrated the potential for growth (Cancino, Bonilla, and Vergara, 2015). The government of Chile had declared this program as a program that supported the development of opportunity-driven entrepreneurship. This means it only supported entrepreneurship that arose out of the desire for independence, from the existence of a business opportunity that was not envisaged previously, or from the desire to increase income (Cancino, Bonilla, and Vergara, 2015). The impact of the program was evaluated through the use of three measurements: impact on the chances of getting financing after the SCP government program, changes in the number of employees hired by the firm that took part in the program, and sales performance. According to their findings, the government subsidy had a positive impact on the sales/revenues of the small businesses that received the seed capital subsidy. There was also a statistically significant and positive impact on the number of workers. Even so, getting the subsidy was not found to be a determinant for getting subsequent financing (Cancino, Bonilla, and Vergara, 2015).
Norrman and Bager-Sjцgren (2013) looked into the support program for SMEs implemented by the Swedish Innovation Centre. The program supported innovators in their initial stages of development with networks, advice, and financial capital between the year 1994 and the year 2003. A total of 93 firms that were not subsidized by the program and 510 firms that were subsidized were studied. The findings showed that the support provided by the public program had little or no impact to firms that were in their early phases (Norrman & Bager-Sjцgren, 2013).
In another study, Collewaert, Manigart, and Aernoudt (2013) sought to find out if government intervention in Belgium through a program called Business Angel Networks (BAN) that subsidized small and medium-sized enterprises boosted economic growth within the Flanders region. Their findings indicated that the Business Angel Networks program decreases the funding and information problems for the firms that participated in the program. Also, the findings showed that there were also positive indicators of future potential in the capacity of the firms to raise additional funding (Collewaert, Manigart & Aernoudt, 2013).
In a study conducted in South Africa, Phillips, Moos, and Nieman (2014) investigated how government support initiatives impact the growth of small enterprises operated by women. A total of 111 female businesspersons took part in the study. The findings indicated that the percentage of female businesspeople that got assistance from the government and who stated that their businesses were growing did not differ significantly from the percentage of women entrepreneurs who stated that their businesses were not growing. This suggests that business growth was not influenced by the receiving of government assistance directly. The results demonstrate that small businesses operated by women can be successful whether or not they are supported by the government (Phillips, Moos & Nieman, 2014).
In a research conducted in Argentina, Chudnovsky et al. (2013) examined 414 firms to determine the impact of the Technological Fund Program implemented by the government of Argentina. This program makes use of various instruments in financing innovation projects. It is executed through public tenders. There was a positive impact on the innovation’s intensity. However, no impact was observed on the productivity of workers or the sale of innovative products (Chudnovsky et al., 2013).
Tan and Lopez-Acevedo (2014) looked into the impact of an SME support program in Mexico run by the country’s Labour Ministry. The program is called the Centre for International Mobility program, and it provides employee training in the country’s small and medium-sized businesses. As per the findings of their study, there was a positive impact regarding the investments allotted to the training of workers. There was also a positive impact regarding the adoption of quality control processes in the SMEs that took part in the program (Tan and Lopez-Acevedo, 2014).
Morrison, Breen, and Shameen (2015) pointed out that finance is an integral aspect of the growth of SMEs. A research study by Cant and Lighthelm (2013) emphasized the limited access to funding available to smaller businesses in comparison to bigger companies and how this affects their development and growth. Smaller firms are often faced with higher start-up costs than bigger companies in getting credit, inadequate financing to fund working capital, as well as poor accounting practices and poor management which have all impeded the capacity of smaller firms to raise financing (Cant & Lighthelm, 2013).
In a study conducted in Zimbabwe, Maseko et al. (2013) explored the impact of government support on the growth and development of small and medium-sized businesses. The study particularly focused on small and medium-sized firms that operated in Mashonaland Central province as well as institutions of the government in this province that advanced government support to the businesses. The researchers found out that government supported offered to small and medium-sized businesses effectively results in growth and development of the country’s SME sector. The authors also discovered that the sorts of government support given to small and medium-sized enterprises in the country are not complete enough to transform such firms into viable corporations which could compete globally (Maseko et al., 2013).
Research Objectives and Question
The review of extant literature on the selected topic indicates that there is limited literature on the exact impact of government support on the growth of small businesses. In other words, not many researchers have explored this topic sufficiently. The proposed study seeks to fill this gap in existing literature. Therefore, the objectives of the proposed research proposal are:
To find out how government support impacts the growth of small businesses
To determine the types of supports that small businesses often receive from the government in this country.
To find out whether or not small businesses that receive assistance from the government grow regarding revenues/sales, profit, number of employees, and market share.
Research Question
What is the impact of government support on the growth of small businesses in the United States?
Hypotheses
In quantitative studies, testing of hypothesis is of utmost importance. A hypothesis refers to a testable statement linked to the research question. An alternate hypothesis refers to what the researcher hopes to prove true or what he/she may believe as being true. It states that significant support exists between two different variables (Barnham, 2015). A null hypothesis, on the other hand, is one that the researcher tries to discredit or disprove. It states that a statistical significance between ...