THE CONTRIBUTION OF ENTERPRISE ESTABLISHMENT FACTORS TO THE GROWTH OF PINEAPPLE INDUSTRY IN THE NSAWAM-ADOAGYIRI DISTRICT IN THE EASTERN REGION OF GHANA BY KAFUI KWESI AGBE THIS THESIS IS SUBMITTED TO THE UNIVERSITY OF GHANA, LEGON IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF MASTER OF PHILOSOPHY DEGREE IN AGRICULTURAL EXTENSION DEPARTMENT OF AGRICULTURAL EXTENSION COLLEGE OF BASIC AND APPLIED SCIENCES UNIVERSITY OF GHANA, LEGON JULY, 2015 University of Ghana http://ugspace.ug.edu.gh i DECLARATION I hereby do declare that this thesis, with the exception of references and ideas attributed to specific sources is entirely my own work as a result of research carried out under supervision. That no such work has been presented to this university or elsewhere, either in part or whole for the award of any degree. …………………………… Kafui Kwesi Agbe (Student) Date…………………… ………………………….. Dr. Seth D. Boateng (Supervisor) Date………………… University of Ghana http://ugspace.ug.edu.gh ii ABSTRACT The establishment of agro enterprises is influenced by various factors identified in the theories of enterprise establishment which most entrepreneurs do not pay particular attention to when establishing and managing their enterprises. The aim of this study is to examine how enterprise establishment factors contribute to the growth of the pineapple industry. The enterprise establishment or founding factors identified and examined in this study are the basic tasks identified by the entrepreneur, funds availability for enterprise establishment, business information and entrepreneur‟s expertise. A mixed model research design was used in this study with the collection of both quantitative and qualitative data. Data was collected from 172 entrepreneurs in the pineapple industry from eight (8) farmer based organizations in the Nsawam-Adoagyiri District of Ghana using a simple random sampling technique and analyzed with SPSS software. Results show that funds availability for enterprise establishment and access to business information by the entrepreneur contributes significantly to employment growth of the pineapple industry, and technological growth. Sources of business information contribute to sales growth, and technological growth of the pineapple industry. Entrepreneur‟s educational background and previous work experience were found to contribute significantly to entrepreneur‟s expertise in the establishment and management of the pineapple industry. It was however identified that the entrepreneur‟s expertise from educational background does not affect the growth of pineapple enterprises. Meanwhile, entrepreneur‟s expertise gained from previous work experience was found to contribute to employment and technological growth of the pineapple industry due to the human resource management, and technical skills acquired by entrepreneurs in their previous works. It can therefore be concluded that enterprise establishment factors do not only influence entrepreneurial or enterprise establishment process but also contribute variedly to the growth of pineapple industry. The study recommends that education on agro enterprises in educational institutions, and the provision of adequate knowledge on funds availability to would be entrepreneurs should be carried out to enhance their capability in enterprise establishment and growth. University of Ghana http://ugspace.ug.edu.gh iii DEDICATION This work is dedicated to my lovely wife Fortune Agbe and Children Elikem Yayra Agbe, Mawuena Agbe who inspired me to achieve more. University of Ghana http://ugspace.ug.edu.gh iv ACKNOWLEDGEMENT I owe much indebtedness to my supervisor Dr. Seth D. Boateng, Head of Department of Agricultural Extension, University of Ghana for his guidance, devotion, support and excellent editorial work on the thesis. His professional advice, support and useful suggestions are deeply acknowledged. I wish to thank Dr. Jonathan Nicholas Anaglo for his immense support and guidance, corrections which enabled me to successfully complete this thesis. I am also grateful to all the other Lecturers of the Department of Agricultural Extension who contributed in diverse ways to make my study in the university a successful one. My next gratitude goes to my family, my wife and Children, Yayra and Mawuena for their inspiration throughout the course period. My heart-felt appreciation also goes to the staff of the Ministry of Food and Agriculture (MoFA) in the Nsawam–Adoagyiri District in the Eastern Region of Ghana for their assistance in my data collection. Special thanks to Mr. Bethel, Mr Richard Oduro, and Mr. Elorm Welbeck for their support and advice. To all I say may God richly bless and reward you bountifully. University of Ghana http://ugspace.ug.edu.gh v TABLE OF CONTENTS Content Page Declaration i Abstract ii Dedication iii Acknowledgement iv Table of Contents v List of Tables ix List of Figures xi List of Abbreviations xii CHAPTER ONE: INTRODUCTION 1 1.1 Background of study 1 1.2 Study context 5 1.3 Problem statement 6 1.4 Main research question 10 1.5 Specific research questions 10 1.6 Main objective 10 1.7 Specific objectives 10 1.8 Justification of study 11 1.9 Outline of study report 12 CHAPTER TWO: LITERATURE REVIEW 13 2.0 Introduction 13 2.1 Conceptual framework of study 13 2.2 Agriculture as a business 17 2.3 The nature of agro business 19 2.4 Concept of enterprise establishment 20 2.5 Theories of enterprise establishment 23 2.5.1 Discontinuity theory of enterprise establishment 23 2.5.2 Theory of previous organizational origin 24 University of Ghana http://ugspace.ug.edu.gh vi 2.6 Factors influencing enterprise establishment process 25 2.6.1 Type of enterprise 25 2.6.2 Supportive business environment 26 2.6.3 Entrepreneur‟s characteristics 30 2.7 Indicators of enterprise growth 34 2.8 Enterprise establishment factors and enterprise growth 36 2.8.1 Type of enterprise and enterprise growth 36 2.8.2 Customer needs and enterprise growth 38 2.8.3 Financial environment and enterprise growth 38 2.8.4 Business information and enterprise growth 39 2.8.5 Expertise from educational background and enterprise growth 40 2.8.6 Expertise from previous work experience and enterprise growth 41 2.9 Definition of concepts 41 2.9.1 Enterprise establishment factors 42 2.9.2 Enterprise growth 43 2.10 Importance of SMEs to national development 44 2.11 Government policies on SMEs in Ghana 45 2.12 Pineapple industry in Ghana 48 2.13 Summary 50 CHAPTER THREE: RESEARCH METHODOLOGY 51 3.0 Introduction 51 3.1 Research design 51 3.2 Population 52 3.3 Sample and sample technique 52 3.4 Questionnaire design 53 3.5 Questionnaire pre-testing and administration 53 3.6 Field data collection 54 3.7 Methods and instrumentation 54 3.7.1 Objective one 54 3.7.2 Objective two 54 University of Ghana http://ugspace.ug.edu.gh vii 3.7.3 Objective three 55 3.7.4 Objective four 55 3.8 Measurement of variables 56 3.8.1 Measurement of enterprise growth 57 3.8.2 Measurement of expertise from educational background 58 3.8.3 Measurement of expertise from previous work background 59 3.9 Summary 59 CHAPTER FOUR: RESULTS AND DISCUSSION 61 4.0 Introduction 61 4.1 The contribution of enterprise characteristics to the growth of the pineapple industry 61 4.1.1 The contribution of enterprise characteristics to employment growth 62 4.1.2 The contribution of enterprise characteristics to sales growth 65 4.1.3 The contribution of enterprise characteristics to technological growth 67 4.2 The contribution of funds availability for enterprise establishment to growth of the pineapple industry 69 4.2.1 The contribution of funds availability for enterprise establishment to employment growth 70 4.2.2 The contribution of funds availability for enterprise establishment to sales growth 71 4.2.3 The contribution of funds availability for enterprise establishment to technological growth 72 4.3 The contribution of business information to growth of the pineapple industry 73 4.3.1 The contribution of business information to employment growth of the pineapple industry 73 4.3.2 The contribution of business information to sales growth of pineapple industry 75 University of Ghana http://ugspace.ug.edu.gh viii 4.3.3 The contribution of business information to technological growth of the pineapple industry 77 4.4 The contribution of entrepreneur‟s expertise to the growth of the pineapple industry 80 4.4.1 The contribution of entrepreneur‟s educational background to entrepreneur‟s expertise 80 4.4.2 The contribution of entrepreneur‟s expertise acquired from educational background to enterprise growth 82 4.4.3 The contribution of entrepreneur‟s previous work background to entrepreneur‟s expertise 85 4.4.4 The contribution of entrepreneur‟s expertise from previous work background to the growth of the pineapple industry 87 CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS 91 5.0 Introduction 91 5.1 Summary 92 5.2 Conclusions 96 5.3 Recommendations 97 References 99 Appendices 106 University of Ghana http://ugspace.ug.edu.gh ix LIST OF TABLES Page Table 1: The contribution of type of enterprise to employment growth 59 Table 2: The contribution of customer needs to employment growth 61 Table 3: The contribution of the type enterprise to sales growth 63 Table 4: The contribution of customer needs to sales growth 64 Table 5: The contribution of the type of enterprise to technological growth 65 Table 6: The contribution of customer needs to technological growth 65 Table 7: The contribution of funds availability for enterprise establishment to employment growth 67 Table 8: The contribution of funds availability for enterprise establishment to sales growth 68 Table 9: The contribution of funds availability for enterprise establishment to technological growth 69 Table 10: The contribution of access to business information to employment growth 71 Table 11: The contribution of business information sources to employment growth 72 Table 12: The contribution of access to business information to sales growth 74 Table 13: The contribution of business information sources to sales growth 74 Table 14: The contribution of access to business information to technological growth 75 Table 15: The contribution of business information sources to technological growth 76 Table 16: The contribution of entrepreneur‟s educational background to expertise 77 Table17: The contribution of expertise from entrepreneur‟s educational background to employment growth 80 Table 18: The contribution of expertise from entrepreneur‟s educational background to sales growth 81 University of Ghana http://ugspace.ug.edu.gh x Table 19: The contribution of entrepreneur‟s expertise from educational background to technological growth 82 Table 20: The contribution of entrepreneur‟s previous work background to entrepreneur‟s expertise 83 Table 21: The contribution of entrepreneur‟s expertise from previous work experience to employment growth 85 Table 22: The contribution of entrepreneur‟s expertise from previous work experience to sales growth 86 Table 23: The contribution of expertise from entrepreneur‟s previous work background to technological growth 87 University of Ghana http://ugspace.ug.edu.gh xi LIST OF FIGURES Page Figure 1.1 Conceptual framework of study 16 Figure 2.1 Activity-based entrepreneurial processes 20 University of Ghana http://ugspace.ug.edu.gh xii LIST OF ABBREVIATIONS AfDB - African Development Bank BACs - Business Advisory Centres EDAIF - Export Development and Agricultural Improvement Fund EU - European Union GDP - Gross Domestic Product GSGDA - Ghana Shared Growth Development Agenda GPRS II - Ghana Poverty Reduction Strategy II GPSDF - Ghana Private Sector Development Fund FASDEP - Food and Agriculture Sector Development Programme FAO - Food and Agriculture Organization FinGAP - Financing Ghanaian Agriculture Project IDB - Inter-American Development Bank MoFEP - Ministry of Finance and Economic Planning METASIP - Medium Term Agricultural Sector Investment Plan MSEs - Micro and Small Enterprises MTDPF - Medium Term Development Policy Framework NBSSI - National Board for Small Scale Industry NDPC - National Development Planning Commission OECD - The Organization for Economic Co-operation and Development UNCTAD - United Nation Conference on Trade and Development University of Ghana http://ugspace.ug.edu.gh 1 CHAPTER ONE INTRODUCTION 1.1 Background of study The importance of Small and Medium Scale Enterprises (SMEs) as a key driver of economic growth and employment is now widely accepted in both developed and developing countries (UNCTAD, 2005; EU, 2011). In Ghana, almost 80% of the economy is made up of SMEs (NDPC, 2010). According to Korean Development Institute (2008) SMEs in Ghana constitute more than 90% of business units and provide employment for more than 60% of employed labour force. SMEs account for about 22% of Gross Domestic Product, principally in the agricultural and transport sectors (AfDB/OECD, 2005). SME establishment involves the organization of resources in an economic environment. Resources identified in any economy include intellectual, human, social and financial resources. Entrepreneurs organize these resources in an economic environment to pursue market opportunities. The activities of these entrepreneurs lead to the creation of firms or enterprises. These firms create output and jobs as a by-product (Acs and Armington, 2003). The entrepreneur‟s activity therefore benefits the buyer, the seller, and more generally, the entire economy (Holcombe, 2003) in the area of job creation and employment. Recognizing the vital role SMEs play in the national economy, the sector has been given a serious attention in the various national development policies and programs (GPRS II 2006-2009, GSGDA 2010-2013) where SMEs are identified as the engine of University of Ghana http://ugspace.ug.edu.gh 2 growth, wealth creation, and avenues for employment generation for majority of the citizenry. For instance the GSGDA 2010-2013, had strategic programs to provide training and business development services, enhance access to affordable credit, remove value chain constraints to promote productivity and efficiency, and provide incentives to develop Micro, Small and Medium Scale Enterprises (MSMEs) in the country. Also one major policy of GPRS II is to encourage the establishment of new businesses in the private sector by improving investment conditions for agriculture and fishing sector. SMEs have also received attention in agricultural policies and programs (FASDEP II and METASIP, 2011-2015) where they have been recognized as components to increase growth in income of farmers through value addition. Some of the policies and programs include the promotion of primary grading, processing and storage to increase value addition and stabilize farm prices, collaboration with other stakeholders to develop institutional capacity to support commercial scale agro-processing and stock management, promote linkage of small holder production, and improve accessibility from farm to market centres. The Medium Term Development Policy Framework (MTDPF) developed for the implementation of the Ghana Shared Growth Development Agenda (GSDA) among others had a strategy for developing viable and efficient SMEs as a driving force for economic growth and transformation through entrepreneurial and managerial training of entrepreneurs. The training is targeted at developing the skills of the entrepreneur to enhance the establishment, management, and growth of enterprises in the economy. University of Ghana http://ugspace.ug.edu.gh 3 The entrepreneurs are frequently thought of as national assets to be cultivated, motivated and remunerated to the greatest possible extent. Entrepreneurs are involved in the creation of new businesses into the economy; contribute to the national economy through employment generation and payment of taxes to government, and also creating social change through the introduction of new products, services, and technologies. Also, the entrepreneur engages in community development projects in education, public health, and other areas to the benefit of the society. The establishment and growth of SMEs is therefore not only important to the individual entrepreneur for monetary or social gains but also to the nation as a whole. De Kok et al. (2011) assert that, the establishment and growth of enterprises play a very important role in the creation of jobs. However they have identified that of the newly established enterprises, only 50 percent survive after 5 years. Factors affecting the growth and survival of enterprises include inadequate or unavailability of funds, inadequate business information, poor business management skills, poor marketing skills, land, and poor corporate governance (Mbugua, Mbugua, Wangoi, Ogada and Kariuki, 2013; Wong and Merrilees, 2005; Fjose, Grünfeld and Green, 2010; NDPC, 2010). For instance Mbugua et al. (2013) identified that inadequate finance affects the employment growth of enterprises. Nichter and Goldmark (2005) also identified that many individual enterprises grow slowly or not at all – in some cases, due to a conscious decision on the part of the business owner. Entrepreneurs take decisions on whether or not to exploit an opportunity, how to react to competitors, whether or not to terminate the business University of Ghana http://ugspace.ug.edu.gh 4 (Schade, 2010). These decisions taken by the entrepreneur during establishment and management of the enterprise affect its growth in terms of the number of employees to engage, the sales volume of produce, and the technology adopted for use in the enterprise. In the agricultural sector, production, and value addition to agricultural produce is vital for agricultural and rural development. Aryeetey and Mensah (2008) identified that growth in agribusiness and agro-industries in Ghana is fundamental to the process of agricultural transformation and the pursuit of national agenda in attaining the status of an agro-based industrialized economy. The agricultural industry offers a broader spectrum of activities that comprises production, retailing, processing, exporting and marketing. Growth in agricultural enterprises will be characterized by increase in the number of people employed in the sector, increase in the supply of products resulting in the increase in sales volume of the enterprises, and the advancement in technology usage. Aryeetey et al. (2008) also noted that for wage employment and economic development the agricultural industry is the way to go. AfDB/OECD (2005) reported that in Ghana 40 percent of all agricultural output is wasted annually due to inadequate storage facilities, marketing chains, and poor infrastructure. This waste can be reduced when more agro enterprises are established along the value chain of all agricultural products. Meanwhile, the rate at which people are establishing enterprises and the rate at which the established enterprises are growing are not encouraging enough to solve the problems of produce wastage in the country. There is therefore the need to investigate the enterprise establishment factors that University of Ghana http://ugspace.ug.edu.gh 5 contribute to the growth of these agro enterprises with a focus on the pineapple industry. 1.2 Study Context There is no universally accepted definition of SMEs and different regions or countries have defined SMEs based on local operations and conditions (Agyapong, 2010). SMEs are mostly defined using the number of employee and turnover of the firm or enterprise. United Nation Industrial Development Organization (UNIDO) segregated the definition SMEs for both developed and developing countries. According to UNIDO‟s definition for develop or industrialized countries, SMEs are categorized as; Large - firms with over 500 workers; Medium - firms with 100 to 499 workers; and small – firms with less than 99 workers. In developing countries the categorizations are; Large - firms with over 100 workers; Medium - firms with 20 to 99 workers; Small - firms with 5 to 19 workers; and Micro – firms with less than 5 workers. In Ghana, NBSSI (1998) has provided an operational definition of SME to include the following: Small business is any business that employs up to 29 people; and small business is divided into: the micro, small and medium enterprises. The micro enterprises employ up to 5 employees with fixed assets (excluding land and building) not exceeding the value of $10,000; small enterprises are those enterprises employing between 6 and 29 employees or having fixed assets excluding land and building not exceeding $100,000 and medium enterprises employ between 30 and 99 employees with fixed assets of up to $1m. University of Ghana http://ugspace.ug.edu.gh 6 This study adapts the definition of SMEs by NBSSI. These SMEs according to Mensah (2004) are dominated by one person, who is also owner/manager who takes all major decisions from start up to management decisions. The SMEs in Ghana are characterized by weak management skills, weak market links, lack of finance, and obsolete technology thus inhibiting the development of a strategic plan for sustainable growth (Agyapong, 2010; NDPC, 2010). These SMEs are engaged in all sectors of the economy thus agriculture, transports, manufacturing, agro processing, services among others. The focus of this study is on agro enterprises. An agro enterprise in the context of this study is defined as any enterprise formed within the agricultural value chain. This includes enterprises in the production of crops and livestock, marketing of agricultural produce, processing of agricultural produce and the provision of services (sale of inputs and advisory service). The pineapple industry is an active agro enterprise in the Eastern Region of Ghana. There is wide range of entrepreneurial activities in the pineapple industry therefore the growth of the sector would affect the agriculture in the country. 1.3 Problem Statement The pursuant of enterprise establishment (entrepreneurship) is perceived as a way of tackling the problem of unemployment and poverty (Robson, Wijbenga and Parker, 2009). The entrepreneurial process engaged by entrepreneurs through the recognition of opportunities and acquiring the necessary resources to create an enterprise results in the formation of MSMEs. These enterprises employ more than 90 percent of the total workforce (The New Legon Observer, 2008). In Ghana, SMEs are principally in the University of Ghana http://ugspace.ug.edu.gh 7 agricultural and transport sectors (AFDB/OECD, 2005). The agricultural sector in Ghana employs more than half (55.8%) of the workforce (Otoo, Osei-Boateng and Asafu-Adjaye, 2009). This makes the sector important in the area of employment generation since the sector offers a broader spectrum of economic activities. The establishment of enterprises in the agricultural sector will not only create jobs for people in the economy but also help control post harvest losses in the country. Post harvest losses lead to the wastage of agricultural output in the country. The waste generated in agricultural output is due to the glut of produce during peak seasons, and inadequate storage and processing infrastructure along the value chain. This glut of produce observed along the value chain can be solved by the establishment of effective and efficient agro enterprises. However, the agro enterprises in the country are limited in number, the existing enterprises are struggling to grow and others have collapsed. De Kok et al., (2011) assert that, of newly established enterprises, only fifty (50) percent survive after 5 years. In Chile, less than forty-two (42) percent of small businesses survive five years and less than fifty (50) percent survive ten (10) years (Cabrera et al., 2002). Also Barringer, Jones and Neubaum (2005) identified that out of the estimated seven hundred thousand (700,000) new ventures started each year in the United States, only 3.5 percent grow sufficiently to actually evolve into large firms. The growth of enterprise is seen as the development process of an enterprise from small through to medium to large (Mao, 2005). Numerous problems have been identified by various researchers in the field of enterprise growth as contributing factors for slow growth or collapse of enterprises (Krake, 2005; Wong and Merrilees, 2005; MoFEP, University of Ghana http://ugspace.ug.edu.gh 8 2012; Tawaih, Ennin, Fosu, Ghansah and Oppong 2013; Fjose, Grünfeld and Green, 2010). Access to credit, market, land, and poor corporate governance are identified factors affecting enterprise growth (MoFEP, 2012). Tawiah et al., (2013) argued that growth is not only affected by credit accessibility of SMEs but also the unfavourable business environment. Fjose et al. (2010) posit that micro firms among other things struggle with lack of knowledge and relevant competencies which constrains their growth. However, these researchers measure growth of the firm typically at the business level (Kruger, 2004) with little or no focus on factors that lead to the establishment of the enterprises. A review of theories of enterprise establishment (Bull, Thomas and Willard, 1995; Schoonhoven and Romanelli, 2001) shows that enterprises are created or formed through the occurrence of certain phenomena. It is expected that when the entrepreneur identify basic task to meet societal needs, have the requisite skills, operates in a favourable business environment and secures the relevant resources to establish the enterprise, then enterprise growth may be achieved. Also, entrepreneurs around the world attribute much of their success to past work experience and knowledge of the industry, in addition to business contacts obtained through personal social networks and educational background (Nitcher and Goldmark, 2005). Apart from entrepreneurs acquiring experience and knowledge from their previous works and educational background, many public agencies are established to assist entrepreneurs in the acquisition of skills. Some of these agencies in Ghana include the NBSSI, the AGI, GRATIS foundation, among others. In addition to these agencies that University of Ghana http://ugspace.ug.edu.gh 9 provide skill training for entrepreneurs, other agencies which provide funding have been set up to provide the needed financial assistance to entrepreneurs for the establishment and development of their enterprises. Examples of such funds include the Enterprise Development Fund, Export Development and Agricultural Improvement Fund, Skill Development Fund, among others. However, with the large number of agencies and funds instituted in the country, the enterprises are not experiencing the necessary growth for development (UNCTAD, 2005, Ahiawodzi and Adade, 2012). It has been identified that entrepreneurs do not have the requisite knowledge about sources of funds and relevant business information for enterprise establishment thereby hindering enterprise growth. Enterprise growth is mostly viewed in the context of internal and limited external factors (Pitelis, 2009; Mao, 2005), without due consideration to the contributory factors leading to the establishment of the enterprise. However, Delanoë (2013), Gilbert, McDougall and Audretsch (2006), Masakure, Henson and Cranfield (2006), and Akoten, Sawada and Otsuka (2006), have identified that factors associated with enterprise establishment (type of enterprise, funds availability, business information and expertise) have a relationship with establishment and growth of the enterprise. Meanwhile most entrepreneurs do not pay particular attention to these factors when establishing enterprises (Tushabomwe-Kazooba, 2006). This study is therefore designed to investigate the contribution of enterprise establishment factors to the growth of agro enterprise in the Nsawam-Adoagyiri District in the Eastern Region of Ghana with focus on the entrepreneurs in the pineapple industry. University of Ghana http://ugspace.ug.edu.gh 10 1.4 Main Research Question The study proceeds on the research question;  How do enterprise establishment factors contribute to the growth of the pineapple industry? 1.5 Specific Research Questions The specific research questions of the research are as follows; i. How do enterprise characteristics contribute to the growth of the pineapple industry? ii. What is the contribution of funds availability for enterprise establishment to the growth of the pineapple industry? iii. What is the contribution of business information to the growth of the pineapple industry? iv. How does entrepreneur‟s expertise contribute to the growth of the pineapple industry? 1.6 Main Objective To determine how enterprise establishment factors contribute to the growth of the pineapple industry in the Nsawam-Adoagyiri District in the Eastern Region of Ghana. 1.7 Specific Objectives i. To determine the contribution of enterprise characteristics to the growth of the pineapple industry in the Nsawam-Adoagyiri District. University of Ghana http://ugspace.ug.edu.gh 11 ii. To examine the contribution of funds availability for enterprise establishment to the growth of the pineapple industry in the Nsawam-Adoagyiri District. iii. To determine the contribution of business information to the growth of the pineapple industry in the Nsawam-Adoagyiri District. iv. To investigate the contribution of entrepreneur‟s expertise to the growth of the pineapple industry in the Nsawam-Adoagyiri District. 1.8 Justification of Study Bruyat and Julien (2000) stated that, the project of researchers in the field of entrepreneurship is to permeate the “black box” in order; a. To understand or, if possible, predict the phenomenon of new value creation initiated by individuals b. To understand or “predict” their success, failure or performance. The study into the factors associated with enterprise establishment and its contribution to the growth of agro enterprises is in line with the objectives in the field of entrepreneurship research since it will create an understanding of enterprise performance in terms of growth. Also, agro enterprises play a very important role in development of the country in the area of job creation and food security. Research into its growth would help in the formulation of a more defined targeting strategy by government and development practitioners to combat the problem in the agricultural sector and curb unemployment. The study would also contribute towards knowledge in the area of enterprise establishment and growth. University of Ghana http://ugspace.ug.edu.gh 12 1.9 Outline of the study report Chapter One looked at the background of the study, the context in which the study is carried out and the problem statement. It also stated the research questions, the objectives of the study and the relevance of the study. Literature and theories underpinning the study are reviewed in the Chapter Two. The conceptual framework of study, importance of SMEs to national development, policies and programmes of government for enterprise development was also discussed in Chapter Two. This is followed by Chapter Three which describes the methodology, the type of method employed and how data was collected and analysed. Chapter Four presents the findings and discussions of results whiles Chapter Five presents a summary of the results, conclusion and recommendations for policy makers and further research. University of Ghana http://ugspace.ug.edu.gh 13 CHAPTER TWO LITERATURE REVIEW 2.0 Introduction This chapter focuses on the theoretical reflections and examines propounded theories underpinning the problem under investigation. This includes the conceptual framework of the study, the concept of agro enterprises, concepts of enterprise establishment process, theories of enterprise establishment, factors of enterprise establishment, enterprise growth and the definition of various concepts used in the study. Other relevant topics discussed include, the importance of SMEs to national development, government policies on SMEs in Ghana and a discussion on the pineapple industry in Ghana. 2.1 Conceptual framework of study The enterprise establishment goes through the process of opportunity recognition, information seeking and learning, resource acquisition and the selection of enterprise strategy (Westhead et al., 1999). These processes are influenced by factors such as the expertise of the entrepreneur, the supportive business environment in a particular country and the characteristics of the enterprise. These factors are derived from two theories of enterprise establishment thus the discontinuity theory of enterprise establishment and the theory of previous organizational background. According to Bull et al (1995), a new combination, causing discontinuity will be created, i.e., entrepreneurship will occur, under conditions of; task – related motivation, University of Ghana http://ugspace.ug.edu.gh 14 expertise, expectation of gain for self and a supportive environment. The factors or variables identified in the discontinuity theory include the basic task identified thus the characteristics of the enterprise, the expertise of entrepreneur available for the establishment of the enterprise, and the supportive business environment. The basic task motivation identified in the discontinuity theory of enterprise establishment is redefined as the characteristics of the enterprise. These include the type of enterprise operated by the entrepreneur and customer needs that products meet. There are various factors in the supportive business environment identified by researchers as affecting the establishment and growth of enterprises. These include the financial environment, legal environment, government policy and programmes, business information environment, and many other factors. This study identified three factors that are of immediate relevance to the agro industry. These are funds availability for enterprise establishment, access to business information and business information sources. The second theory underpinning the study is the theory of previous organizational origin which states that occupation, previous educational background and information source have significant influence on the decision of an individual to start a new enterprise and the characteristics of the new enterprise (Schoonhoven et al., 2001). Many researchers have pointed out various relationships that exist between an individual‟s knowledge or expertise in enterprise establishment, their educational background, and previous work backgrounds (Uhlaner et al., 2004; Blanchflower, 2004; Ardichvili et al., 2003; Lu et al., 2010). The expertise identified in both theories would University of Ghana http://ugspace.ug.edu.gh 15 be investigated using the educational background of the entrepreneur and the previous work experience of the entrepreneur. Enterprise characteristics (type of enterprise and customer needs), funds availability for enterprise establishment, business information (access to business information and business information sources), and expertise (expertise from educational background and expertise from previous work background) are the variables identified for investigation in this study. These variables are referred to as enterprise establishment factors. These factors enhance the enterprise establishment process thus opportunity recognition, information seeking and learning, resource acquisition, and enterprise strategy selection which is likely to influence the growth of the enterprise. Enterprise growth is viewed as the scale extension in the number of employees, sales volume, and improvement in technology. These are referred to as employment growth, sales growth, and technological growth in the study. Employment growth is considered as the change in the number of employees, and sales growth is regarded as change in sales volume of product. Technological growth is defined as the advancement or improvement in technological usage from “manual” technology to “mechanical” technology. The growth of an enterprise is influenced by various factors such as the opportunity and capabilities available for the enterprise and the human resource and management skills. Other factors which can affect enterprise growth include the policies and programs of government, the socio cultural environment in which the enterprise is operating in, the University of Ghana http://ugspace.ug.edu.gh 16 availability of appropriate technology (technological environment) and sustainability objectives of the enterprise. The diagram below shows the link between the various concepts in the study. Figure 1: Conceptual Framework of study Source: Author Source: This Study Opportunity and capabilities Management skills Human resources management Factors of enterprise establishment Enterprise characteristics  Type of enterprise  Customer needs that products meet Funds availability for enterprise establishment Business information (access and source) Entrepreneur’s Expertise  Educational background expertise  Previous work background expertise Enterprise establishment process Opportunity recognition Information seeking and learning Resource acquisition Selection of enterprise strategy Enterprise Growth Employment growth Sales growth Technological growth Business environment (policies, programmes) Socio-cultural environment Technological environment Business Sustainability objectives University of Ghana http://ugspace.ug.edu.gh 17 2.2 Agriculture as a business Agriculture is viewed as the science or practice of farming, including cultivation of the soil for the growing of crops and the rearing of animals to provide food, wool, and other products. According to Kahan (2015) agriculture is mostly considered by farmers for one of the four reasons below; i. Farmers who farm exclusively for home consumption with rarely any surpluses produced. For these farmers if there is a surplus, they will sell it on the market, but this is very rare. Often these farmers are struggling with the basic survival of themselves and their families. They usually lack security in terms of health, water, food and shelter. They are rarely in the position to commit their minds and bodies to entrepreneurial tasks. While they may be entrepreneurial in spirit, they usually lack the opportunity to farm as entrepreneurs. ii. Farmers who mostly farm for home consumption, but with the intention of selling surpluses on the market. These farmers produce beyond just surviving. They have a greater appreciation of the market and have expended their survival farming to include some economic activities. They are just starting out on the path towards developing profit-driven farming businesses. These farmers do yet see their farms as businesses. Long-term investment is not yet a priority. They are hesitant about diversifying to higher value products. They are comfortable selling surpluses of their food drops. Shifting to cash crops is too extreme and involves risks that they are not willing to take. University of Ghana http://ugspace.ug.edu.gh 18 iii. Farmers who farm partly for the market and partly for home consumption. These farmers understand the value of farming for the market, but are often limited by access to finance, labour or market information. The elements are all there, but they cannot risk family food requirements without greater certainty of income from cash crops. The choice between producing primarily for the market with some produce utilised for home consumption or primarily for home consumption with some produce sold in the market depends on their circumstances and their willingness to take risks. iv. Farmers who produce exclusively for the market. Farmers on the fourth rung are fully market oriented. Their primary reason for farming is to make profits by producing for the market. They are interested in profits, not food production. To be successful at market-oriented farming, the farmer needs greater farm management and entrepreneurial skills. The first, second and third reasons stated by farmers for engaging in agriculture can be classified under farmers who view agriculture as a way of life. As a way of life these farmers produce towards meeting of basic need of food with less emphasis on market opportunities. They usually engage household labour which is mostly unpaid for. The fourth reason for farmers engaging in agriculture is viewed as farmers who see agriculture as a business. These type of farming uses business principles so as to produce for profit. Business principles employed by these farmers include forecasting University of Ghana http://ugspace.ug.edu.gh 19 and planning, organizing, commanding, coordinating and controlling (Stokes and Wilson, 2010; Longenecker, Petty, Palich, and Hoy, 2013). Forecasting and planning involves the development of a business plan for the farming business to foresee the future market demand and also develop strategies to satisfy the demand. Organizing involves the acquisition of materials and human capital for the attainment of farming business objectives. The farmers must set the business going to get the desired optimum results from subordinates, secure an orderly pattern of group effort among his personnel through unity of action to pursue the common goals, and ensure that everything is done in accordance with the established rules and instruction given to the workmen. All these business principles can be employed in all type of agriculture along the value chain. The next section provides an understanding into the nature of agro business 2.3 The nature of agro businesses Agro businesses provide value-adding goods and services and take title to inputs and/or outputs within the agro food system (Jaffee, Kopicki, Labaste and Christie, 2003). These agro businesses make and sell inputs to farmers, process crops and livestock products, wholesale and retail of fresh and processed products to consumers, and/or process and sell raw materials. These enterprises can be located in rural or urban areas. They can be micro, small, medium or large, domestic or foreign, public or private, or a mix. Agro businesses can be corporations, cooperatives, family-based entities or single proprietorship hence they are governed by varied sets of rules. Their technologies and University of Ghana http://ugspace.ug.edu.gh 20 specialties will vary. Although frequently equated with „big business‟ most agro business firms are small individual intermediaries (i.e., traders, transporters) and micro enterprises, often from the informal sector. They are established by individuals or group of persons through entrepreneurial processes or enterprise establishment processes. It is therefore important to understand the concept of enterprise establishment in order to enhance the discussion on agro businesses. The next section explores the concept of enterprise establishment. 2.4 Concept of enterprise establishment Hisrich, Robert, Peters and Shepherd (2005) defined entrepreneurship as „the process of creating something new with value by devoting the necessary time and effort, assuming the accompanying financial, psychic, and social risks, and receiving the resulting rewards of monetary and personal satisfaction and independence‟. The definition stresses four basic aspects of being an entrepreneur regardless of the field. These are;  entrepreneurship involves the creation process - creating something new of value  entrepreneurship requires the devotion of the necessary time and effort  assuming the necessary risks and  the expectation of reward. An enterprise is established by an individual undertaking the creation activities or process. The processes employed by an individual to establish new enterprises are University of Ghana http://ugspace.ug.edu.gh 21 referred to as the enterprise establishment process or the entrepreneurial process. The entrepreneurial process involves all functions, activities, and actions associated with the perceiving opportunities and the creation of organizations to pursue them (Bygrave and Hofer, 1991). This shows how various activities undertaken by individuals emerge into the creation organizations or enterprises. The entrepreneurial process is considered as possessing certain characteristics. Bygrave et al. (1991) and Wickham (2001) identified the key characteristics of the entrepreneurial process as follows;  It is initiated by an act of human volition  It occurs at the level of individual firm  It involves a change of state  It involves discontinuity  It is a holistic process  It is unique  It involves numerous antecedent variables  Its outcomes are extremely sensitive to initial conditions of these variables. The process of enterprise establishment is also viewed as occurring at different stages and events that follow one another (Westhead and Wright, 1999; Bygrave, 2004). Westhead et al. (1999) identified that the entrepreneurial process involves the recognition or the identification of opportunities, the search for information and learning, resource acquisition, the selection of enterprise strategy and then the establishment of the new enterprise. Nassif, Ghobril and Da Silva (2010) presented the University of Ghana http://ugspace.ug.edu.gh 22 stages of entrepreneurial process as; the idea or conception of the business, the event that triggers the operations, implementation and growth. According to Kruger (2004), the entrepreneurial process is built on a cycle of four activities. These are innovation, a triggering event, implementation and growth. He further stated that during the cycle, different variables interact with the environment to influence the entrepreneurial process. Kruger argued that from an activity based perspective, the “triggering event” could perhaps be replaced by “launch or start up” and growth be regarded more as an outcome/result of activity “opportunity exploitation”. She then came out with a framework of activity entrepreneurial process as shown below; Figure 2: Activity-based entrepreneurial process Source: Kruger (2004) Business Idea Development (Opportunity recognition/finding/development) Survival and growth maximization (Strategic management) Resource Configuration (Venture creation) Business Implementation (Opportunity exploitation) University of Ghana http://ugspace.ug.edu.gh 23 Literature reveals that the enterprise establishment process depends on the entrepreneurs‟ ability and the interactions within the socio economic and cultural environment (Delanoë, 2013; Cliff and Howard, 2003). Delanoë (2013) identified that pre-start up preparation by entrepreneurs is a valuable tool for enhancing the skills of entrepreneurs for the starting of a project or an enterprise. Also Cliff et al. (2003) found out that family system characteristics (transitions, resources, norms, attitudes and values) may either facilitate or impede individuals who are taking action to start their own business. The influencing factors of enterprise establishment activities are identified in the theories of enterprise establishment. The next section discusses the theories underpinning the study. 2.5 Theories of enterprise establishment There are various theories underlining the establishment of enterprises. These include the discontinuity theory of enterprise establishment (Bull et al., 1995), the theory of previous organizational origin and ethnic minority theory of enterprise establishment (Schoonhoven et al., 2001). For the purpose of this study two of the theories thus the discontinuity theory and the theory of previous organizational origin are discussed. 2.5.1 Discontinuity theory of enterprise establishment Bull et al. (1995) proposed that a new combination, causing discontinuity will be created, i.e., entrepreneurship will occur, under conditions of; task – related motivation, expertise, expectation of gain for self and a supportive environment. From the theory, the entrepreneur must identify the product or service that would meet the needs of the University of Ghana http://ugspace.ug.edu.gh 24 society or the basic need that the products or services meet for the society. The entrepreneur must have the ability to acquire the expertise needed, deliver the identified product or service through his own abilities and capabilities or be able to acquire the needed expertise through the engagement of employees. Thus the entrepreneur believes in his or her capabilities to commence and complete things and events through his or her own actions (Virtamen, 2004). The individual entrepreneur must also expect gains or benefit from the delivery of the product or service. Virtamen (2004) identified that for a self-employed worker the main expectation and objective may be to employ him or herself and enjoy the decent level of income and standard of living. The enterprise according to the discontinuity theory must operate within a supportive or enabling business environment. Enabling business environments are defined here as sets of policies, institutions, support services and other conditions that collectively improve or create a general business setting where enterprises and business activities can start, develop and thrive (Christy, Mabaya, Wilson, Mutambatsere, and Mhlanga, 2009).The environment shapes the costs and risks of doing business, hence the competitiveness of an enterprise and its value creation abilities (FAO, 2013). 2.5.2 Theory of previous organizational origin The theory of previous organizational origin states that occupation, previous educational background and information source have significant influence on the decision of an individual to start a new enterprise and the characteristics of the new enterprise (Schoonhoven et al., 2001). People tend to notice information that is related University of Ghana http://ugspace.ug.edu.gh 25 to information they already know (Von Hippel, 1994). Therefore, Shane (1999) postulated that entrepreneurs will discover opportunities because prior knowledge triggers recognition of the value of the new information. From the two theories of enterprise establishment it can be identified that there are certain necessary conditions that must be considered for the creation of a new enterprise. These are the task motivation which represents the basic task identified by entrepreneur to meet basic needs of the society, the expertise of the entrepreneur and business support services (funds availability and business information). These conditions are described as factors that influence the enterprise establishment process which is discussed in the next section. 2.6 Factors influencing enterprise establishment process These are factors that influence the various stages or activities of the enterprise establishment process or the entrepreneurial process. Among them are the type of enterprise (basic task identified by the entrepreneur), the expertise of the entrepreneur and the supportive business environment. These factors are discussed below. 2.6.1 Type of enterprise Society‟s needs are many and growing; while customers, employees, and new generations of young people are demanding that businesses play their role in contributing to meeting these needs. Enterprises for that matter must design the type products and services that meet the needs of the society. Type of enterprise refers to the basic societal need identified by the entrepreneur or the business unit. The enterprise University of Ghana http://ugspace.ug.edu.gh 26 must attain a certain level of acceptance from the society and its stakeholders in order to make economic gain. Aldrich and Fiol (1994), identified two forms of legitimacy; cognitive and socio political. Cognitive legitimacy refers to the acceptance of a new kind of venture as a taken for granted feature of the environment. The highest form of cognitive legitimacy exists when a new product, process, or service is accepted as part of the socio cultural and organizational landscape. When an activity becomes so familiar and well-known that people take it for granted, founders can conserve time by organizing resources, and their likelihood of success increases. From a producer‟s point of view, cognitive legitimacy means that new entrants to an industry are likely to copy an existing organizational form, rather than experiment with a new one. From a consumer‟s point of view, cognitive legitimacy means that people are committed users of the product or service. Cognitive legitimacy thus depends upon knowledge – in the form of routines, structures, products, and strategies – being acquired and then diffused. Sociopolitical legitimacy refers to the acceptance by key stakeholders, the general public, key opinion leaders, and government officials of a new venture as appropriate and right. 2.6.2 Supportive business environment Business environment is defined as the world of opportunities and incentives available to all enterprises or firms as well as specific incentives or obstacles to growth (Nichter et al., 2005). According to Bull et al. (1995), the entrepreneur tends to utilize an infrastructure that is substantially developed by others. National and regional University of Ghana http://ugspace.ug.edu.gh 27 governments have raced to introduce policies that facilitate business venturing and encourage entrepreneurial spirits of their people (Lu and Jao, 2010). Nichter et al. (2005) stated that the overall state of the economy directly influences the availability of profitable business opportunities. According to them, this includes stable macroeconomic environment, the existence of mechanisms for contract enforcement and dispute resolution, an uninhibited flow of capital for foreign and domestic investment, supportive labour laws, access to information and investment in education and technology. Recently a number of developing countries have recently drafted SME legislation and launched programs to assist small businesses and domestic entrepreneurs (Acs et al., 2010). In Ghana, the establishment of the Export Development and Agricultural Investment Fund (EDAIF) by Act 823, the development of the Private Sector Development Strategy II and FINGAP policies and programs designed to create a supportive environment for the establishment and development of SMEs. These policies and programs are established to encourage individuals to establish enterprises. According to Holcombe (2003) everyone has knowledge specific to their own activities, and the economy will be most productive when the economic system gives everyone an incentive to act on the specific knowledge they possess. He argued that entrepreneurs‟ response to the availability of entrepreneurial opportunities and the more the opportunities available, the more alert entrepreneurs will be toward finding them. Entrepreneurs in any country or economic environment are affected by financial environment thus the availability and access to funds, business information, legal environment and other economic fundamentals including its macroeconomic stability, University of Ghana http://ugspace.ug.edu.gh 28 infrastructure, and the level of development of its financial markets (Abor and Biekpe, 2006; Acs et al., 2010; Mullinex and Murinde, 2014).The next section discusses two main factors thus the financial environment and the business information environment which are within the scope of this study. Financial environment Mullinex et al., (2014) identified that the financial sector is the allocator of debt and equity finance and it is a key stakeholder in enterprise development. In most African economies, banks remain the major source of external capital for both large businesses as well as small enterprises, and indeed for the private sector and the economy as a whole. However, Nitcher and Goldmark (2010) noted that various reasons ranging from a lack of collateral to bias against small firms, MSEs tend to face greater financial constraints than do larger firms. In Sub-Saharan Africa, most small businesses fail in their first year due to lack of support from government and traditional banks (Biekpe, 2004). In Nigeria for instance there has not been any significant contribution of government support towards developing SMEs (Ekwem, 2011). He further identified lack of finance by entrepreneurs as a factor leading to multiple problems and that the major sources of credit available for the financing of SMEs in Nigeria are personal savings, family/friend support and commercial banks. Poor access to finance and other start-up capital necessary to support entrepreneurial activity is a challenge facing new entrepreneurs (Global Business School Network, University of Ghana http://ugspace.ug.edu.gh 29 2013). A study in Ghana revealed that there is a low level of awareness and usage of various financial initiatives among SMEs in the country (Abor and Biekpe, 2006). They explained that most of the financial schemes are perceived as difficult to access. Robinson and Kolavalli (2010) identified that in an attempt by the government of Ghana to develop a linkage between agriculture and industry, and to improve on export earnings, the government has put in place certain incentive schemes to attract investors to go into agro-processing. These include a tax holiday for certain industries in the agriculture and agro-processing business, and lower taxes based on the location of the industry; with less tax for factories in the other regions and rural areas compared to Accra-Tema area. Business information Knowledge and information spill over will be particularly helpful where there are high transaction costs to discovery or large information asymmetries (Acs et al., 2003). According to Hausman and Rodrik (2003) knowledge is important in the product and production discovery process and there are also high costs to discovering what to produce and that these costs cannot be fully appropriated by an entrepreneur. These therefore require the engagement of governmental and non-governmental agencies in the provision of such knowledge and information. A potential entrepreneur also observes the strategies and business operations of existing entrepreneurs and gathers information about potential markets, input suppliers, and production techniques (Acs et al., 2010). They added that, knowledge and information University of Ghana http://ugspace.ug.edu.gh 30 externalities affect entrepreneurship in developing countries in two important ways: these externalities affect the ability of entrepreneurs to discover what to produce and they impact the technology and processes used in production. 2.6.3 Entrepreneur’s characteristics The individual entrepreneur is the most important element in enterprise establishment. He/she recognized the opportunity, conceives the idea, seeks for the relevant information on the identified opportunity, learns skills and methods associated with the enterprise mobilize resources, select relevant strategies for the enterprise and comes out with a new combination (enterprise). Thus, the process of creating a new enterprise is inherently, an individual level phenomenon. Without the organization creation of individuals, there are no organizations (Acs et al, 2010). The definition of the entrepreneur is a problem to research (Bruyat and Julien, 2000). However, they proposed that the works of Cantillon, Turgot, Say and Schumpeter have laid a foundation for today‟s dominant positions concerning the entrepreneur. According to them, Cantillon defined the entrepreneur as someone who assumes the risk and may legitimately appropriate any profits; Turgot and Say said the entrepreneur is different from the capitalist, who assumes the risk or uncertainty- the entrepreneur obtains and organizes production factors to create value; and Schumpeter defines the entrepreneur as a person who performs the function of innovation that enables the liberal system to persist by going beyond its contradictions. University of Ghana http://ugspace.ug.edu.gh 31 Looking at the economic perspective and from others‟ perspective of the definition, they concluded that the entrepreneur is the individual responsible for the process of creating new value (an innovation and/or a new organization) - in other words, the individual without whom the new value would not be created. Based on the premise that the individual entrepreneur is responsible for the process he/she must have certain characteristics and skills to effectively undertake the process. These include the age, gender, educational level and previous occupation or organizational background of the entrepreneur and other characteristics. The next section discusses the expertise of the entrepreneur in relation to their educational background and previous work background. Expertise Bull et al. (1995) said new combination that causes discontinuity does not occur by chance but rather it is as the result of deliberate actions, the implementation of a plan, or the carrying out of a vision. This implies that an expertise is required for new combination to occur. Expertise of the entrepreneur can be due to educational background and the previous work background of the entrepreneur. Educational level and expertise The advancement of knowledge through education creates an environment in which entrepreneurial process can occur. According to Holcombe (2003), knowledge is necessary for the entrepreneur to recognize an entrepreneurial opportunity when one appears. He further stated that there is a direct connection between entrepreneurship and University of Ghana http://ugspace.ug.edu.gh 32 knowledge since knowledge is a key ingredient in the production of entrepreneurial insights. Innovative entrepreneurship requires a strong educational foundation (Acs et al., 2010). The level of education is an important element in entrepreneurship or enterprise establishment. However, studies which focus on education background of entrepreneurs have different findings. While some studies find a positive correlation between education level and self-employment decision (Uhlaner and Thurik 2004; Blanchflower, 2004), some studies find a negative correlation (Hessels et al., 2005). Uhlaner et al. (2004) showed that a higher level of education in a country is accompanied by a lower self-employment rate. Hessels et al. (2005) identified that highly educated people form a majority of those involved in early stage entrepreneurial activity in the Netherlands. Developing-country MSE owners and workers are relatively less educated than the majority of the population and they tend to have less-educated owners and workers than larger firms (World Bank, 2001). According to Global Business School Network (2013) poor education can lessen the employability of individuals, weaken their entrepreneurial skills and affect the performance of the enterprise. Previous work experience and expertise Entrepreneurs can gain both expertise and relationships necessary for success from previous work experience. According to Lu et al. (2010) most would-be entrepreneurs generally have had working experience in enterprises of varying degrees of state ownership or public organizations or government agencies. University of Ghana http://ugspace.ug.edu.gh 33 Ardichvili et al. (2003) identified that three major dimensions of prior knowledge are important to the process of entrepreneurial discovery thus prior knowledge of markets, prior knowledge of ways to serve markets, and prior knowledge of customer problems. An empirically rigorous IDB study of high-growth entrepreneurs provides telling insights about the importance of skills gained during past employment (Kantis, Angellini and Koenig, 2004). Exploring small firms‟ dynamism in four East Asian countries revealed that successful entrepreneurs benefited in particular from marketing, administration and negotiation skills developed in previous jobs. According to Skutas et al. (2005) a comprehensive human capital is accumulated through knowledge acquired by work experience or by running another business. This according to them is referred to cognitive processes and the entrepreneur is an active and learning part of the process. Acs et al. (2010) identified that the human cognitive processes drive people to see things related to their existing knowledge. As a result, “creativity” is actually more about assembling prior knowledge in new ways than about dreaming up something totally new. Prior paradigms and problem-solving approaches thus constrain most innovative thinking, restricting potential variation in ideas. They further argued that with all the complexity, risks, and uncertainty related to the founding of a firm, the safest choice lies in imitating practices, products, and processes that have already proven successful. Also Hernández-Maestro, Muñoz-Gallego and Santos- Requejo (2009) identified that entrepreneur‟s knowledge is a source of competitive advantage within the firm. University of Ghana http://ugspace.ug.edu.gh 34 2.7 Indicators of enterprise growth Enterprise growth is the development process of an enterprise from small to big and from weak to strong (Mao, 2009). According to Sun (2004) cited in Mao (2009) the meanings of enterprise growth is the development process that the enterprise keeps the tendencies of balanced and stable growth of total performance level (including output, sales volume, profit and gross asset) or keeps realizing the large enhancement of total performance and the stage spanning of development quality and level. Mao (2009) explained that the meaning of enterprise growth contains three connotations as follows; i. The time property of enterprise growth: The premise to analyze the growth of enterprise is long period in which the long-term development tendency and process of enterprise are observed, and it is not the status of enterprise in certain time point. ii. The dynamic property of enterprise growth: The growth of enterprise is not a stable process without troubles. In the growth process, enterprise always transits from balance to unbalance, and the result is to transit from unbalance to balance and from lower balance to higher balancer through unbalance. iii. The enterprise growth is the unification of quantity and quality: The increase of quantity is embodied in the extension of enterprise scale such as the increases of sales volume, market share, production value, profit and employee. The growth of quality is embodied in the enhancement of enterprise quality, which includes the technological innovation ability from immature to mature production technology, the optimal efficiency of investment and output, the organizational innovation and reform. University of Ghana http://ugspace.ug.edu.gh 35 Davidson, Delma and Wikland (2006) indicated that there are five types of indicators used in measuring enterprise growth. These are turnover or sales, employment, market share, multiple indicators performance and assets. Kruger (2004) classified the indicators of growth as quantitative and qualitative. Quantitative growth can be characterized (turnover, added value, volume) by the profitability of the company and the value of the company. Qualitative growth objectives are linked with quantitative growth objectives not as an aim in itself but a strategic means for the realization of the growth of the enterprise. These include the competitive position, quality and customer service. Although there are many ways to measure growth Kim (2005) indicated that the three most important indicators for policy makers are employment growth, sales growth, and increase in profitability. Furthermore measuring business growth in terms of employment is directly linked to rural development objectives and relevant to policy decisions (Skutas et al., 2005). A growing company will almost always have to hire new personnel to meet the demands associated with new production, new marketing campaigns, new record keeping and administrative requirements among others. Enterprise growth for the purpose of the study would be viewed as the unification of quantity and quality. Therefore three growth indicators would be measured thus employment growth, sales growth, and technological growth. Employment growth would be measured by the average increase of the number of staff in the last three years and sales growth would be measured by asking the respondent to assess the average University of Ghana http://ugspace.ug.edu.gh 36 increase of sales volume in recent three years. Technological growth would be measured by the use of manual or mechanical method of carrying out activity to meet basic needs of customers. It is therefore important to establish a relationship between the enterprise establishment factors and the various enterprise growth indicators. The next section reviewed relevant literature on this subject matter. 2.8 Enterprise establishment factors and enterprise growth This section discusses relevant literature on the contribution of enterprise establishment factors to the growth of enterprises. The section is sub divided into the following sub headings;  Type of enterprise and enterprise growth  Customer needs that products meet and enterprise growth  Financial environment and enterprise growth  Business information and enterprise growth  Expertise and enterprise growth 2.8.1 Type of enterprise and enterprise growth Tushabowe-Kazooba (2006) identified that business start-up factors posed a greater threat than those that are encountered once the business has been established. As such, business people who successfully negotiate the initial start-up hurdles have greater chances of future success in their business. This implies that if entrepreneurs are able to identify the type of product or services that the society needs it would influence its growth and existence. The identification of basic need is one crucial hurdle that entrepreneurs must cross to enable them to stay in business. The products or services University of Ghana http://ugspace.ug.edu.gh 37 must be relevant to the customer (members of the society) and have the ability to solve a particular problem which the customer is willing to exchange with value. Strotmann (2007), investigating entrepreneurial survival of German manufacturing enterprises indicated that besides start up size the type of establishment might also influence its survival probability. Empirical studies by Philip (2010), into the factors affecting business success of SMEs in Bangladesh identified that the characteristics of SMEs, have no significant effect on business success. Employment is generated when new products and services are identified to serve customers. In the agricultural sector the various activities in the value chain provides an opportunity for establishment of various enterprises. Analyzing the agricultural value chain in sub-Saharan Africa, Schaffnit-Chatterjee (2014) identified that increased activity in the value chain especially in the processing of raw produce would lead to increase in employment. Technological usage of enterprises varies due to the differences in products produced and their means of production. Technology enhances production and leads to the efficient use of resources in the agricultural sector. However, Dennis, Aguilera and Satin (2010) identified that technologies are not applied in isolation, but require commitment and investment from the private sector in a political environment where public policies stimulate entrepreneurship. This involves the availability of an appropriately educated and trained workforce, fiscal incentives for R&D and innovation and international regulations that are not unnecessary barriers to trade. University of Ghana http://ugspace.ug.edu.gh 38 2.8.2 Customer needs and enterprise growth Hayes (2014) stated that to have a growing business (example; improve profit, maximize lifetime value of customers), you need to have customers who engage in three different types of loyalty behaviours. Investigating the top drivers of customer loyalty of “typical” B2B technology companies, the findings of the study revealed that gaining new customers, expanding existing relationships and keeping customers around for the long-haul each require different efforts. He explained that to gain new customers, you need to make a solid product and make it easy to do business with you. To improve your up-selling and cross-selling capabilities, you need to know where you are headed and communicate that path effectively to your customers. 2.8.3 Financial environment and enterprise growth Nichter and Goldmark (2005) found out that the business environment had different levels of relationship between micro and small enterprise growth and the overall business. In addition they also found out that regulatory obstacles represent a disproportionate burden for smaller firms. In Iran, studies show that financial support of the government can be helpful in the growth of SMEs, only in the case that there is programming in specific frameworks (Afshari, Ardabili and Ali, 2012). They found out that incentives and discounts propriety with growth were the major determinants of the SMEs growth and had significant relation with all the SMEs growth indexes (sales, personal growth, variety of products and activity background). Iacovone, Ramachandran and Schmidt (2013) measuring business environment variables on firm size of African firms identified that access to finance and access to University of Ghana http://ugspace.ug.edu.gh 39 land are significant and positively correlated with firm size. The results according to Iacovone et al. (2013), pointed out that there are constraints imposed by the business environment and by firm and market characteristics that limit the growth of African firms. Nganda, Wanyonyi and Kitili (2014), investigating the determinants of SMEs growth in Kakamega, Central Sub-county in Kenya found out that financial factors thus financial base of business, borrowing from financial institutions, investments in the business, financial knowledge of the owner and the employee, and access to micro credit facilities have a marginal weak association with the growth of SMEs. Also in a study of manufacturing SMEs in the Ho municipality of Ghana, Ahiawodzi et al. (2012) showed that access to credit exerts significant positive effect on growth of manufacturing SMEs. Literature reviewed on the influence of access and availability of funds for enterprises on enterprise growth shows that there is a strong link that exists between them. However, the link is affected by policies and programs of a particular country, the firm and market characteristics. 2.8.4 Business information and enterprise growth A study by Bunyasi et al. (2014) found out that access to business information had a significant effect on the growth of SMEs. Investigating the factors that influence the growth of dairy business, Muriithi, Huka and Njati (2014) established that interaction with extension service providers positively impacted on the earnings of the dairy University of Ghana http://ugspace.ug.edu.gh 40 farmers. Literature reviewed shows that business information has a relationship with the growth of enterprises. 2.8.5 Expertise from educational background and enterprise growth There is no clarity in the relationship that exists between educational level and growth of the enterprise by researchers. Whiles some report of positive impact of education on enterprise growth others found negative or no significant effect of education on enterprise growth. “For example, an IDB study found that secondary school attainment had no discernible impact on firm growth in Latin America (Kantis, Angellini, and Koenig, 2004). On the other hand, GEMINI studies in Sub-Saharan Africa revealed that entrepreneurs completing secondary school were more likely to grow in Kenya and Zimbabwe, but found no significant effect of primary education on MSE expansion (cf Mead and Liedholm, 1998; Parker, 1995; McPherson, 1992). An empirical study found no positive association between growth in education and growth in output per worker (Pritchett, 2001). Skuras et al. (2005) identified that human capital accumulation processes related to education and training or to work and managerial experience still plays the prime role in predicting successful business. They added that education and training are significant entrepreneurial variables related to knowledge, skills, motivation, self-confidence and the ability to provide solutions to short- and long-term business planning issues Nitcher and Goldmark. (2005) however found out that more education correlates with MSE growth above a country-specific threshold. They explained that higher education University of Ghana http://ugspace.ug.edu.gh 41 can expand an entrepreneur‟s opportunity set but ironically might hinder the growth of his or her MSE. 2.8.6 Expertise from previous work experience and enterprise growth Experience gained on the job or through prior employment is a critical growth factor (Nitcher and Goldmark, 2005). Work experience proves to be highly important for developing capabilities within MSEs, as entrepreneurs with more years of work experience typically have faster growing MSEs. For example, one empirical study found that Kenyan entrepreneurs with at least seven years work experience expanded their firms more rapidly than those without such experience (Mead and Liedholm, 1998; Parker, 1995). Nitcher and Goldmark (2010) exploring small firms‟ dynamism in four East Asian countries revealed that successful entrepreneurs benefited in particular from marketing, administration and negotiation skills developed in previous jobs. The review indicated that entrepreneurs acquire skills from their previous jobs or organizations that affect the growth of their firms. 2.10 Definition of concepts This section defines the various concepts used in the study. These include enterprise establishment factors and enterprise growth. University of Ghana http://ugspace.ug.edu.gh 42 2.10.1 Enterprise establishment factors Enterprise establishment factors are elements in the social and business environment that contribute or influence the establishment of an enterprise. Factors considered in this study are derived from the discontinuity theory of enterprise establishment and the theory of previous organization origin. They are the characteristics of the enterprise (enterprise characteristics), funds availability, business information and the entrepreneur‟s expertise.  Enterprise characteristics: This represents the nature of the enterprise. It includes the type of enterprise (production/processing agro enterprise), and customer needs that products meet. The customer needs that products meet identified by the entrepreneur are classified as consumption need and raw material needs. The nature of the enterprise is also referred to as the basic tasks identified by the entrepreneur.  Funds availability for enterprise establishment: This refers to the knowledge of funding available from government institutions and other organizations for entrepreneurs to access to establish enterprises.  Business information: This refers to the information received by the entrepreneur in relation to his/her business activity. Business information is categorised into access to business information and business information sources.  Entrepreneur’s expertise: Entrepreneur‟s expertise refers to the skills and capabilities that entrepreneurs acquire due to their educational and previous University of Ghana http://ugspace.ug.edu.gh 43 work backgrounds before the establishment of the enterprise. In this study entrepreneur‟s expertise is categorized into entrepreneur‟s expertise from educational background, and entrepreneur‟s expertise from previous work background.  Entrepreneur‟s expertise from educational background is skills and capabilities acquired by entrepreneurs from their educational background.  Entrepreneur‟s expertise from previous work background is skills and capabilities acquired by entrepreneurs from their previous work background. 2.10.2 Enterprise growth Enterprise growth is defined as the scale extension in the number of employees, sales volume, and improvement in technology. These are employment growth, sales growth, and technological growth.  Employment growth: Employment growth is defined as the change in the number of employees within a period of time.  Sales growth: Sales growth is defined as change in sales volume of product for a period of time.  Technological growth: Technological growth is defined as the advancement or improvement in technological usage from “manual” technology to “mechanical” technology within a period of time. University of Ghana http://ugspace.ug.edu.gh 44 2.11 Importance of SMEs to national development Entrepreneurship is indispensable for economic progress, but entrepreneurial activity is possible only when profit opportunities are available to the entrepreneur (Holcombe, 2003). It has been recognized as one of the driving forces for market competiveness and economic growth in the emerging economies (Lu et al., 2010). The formation of SMEs by the entrepreneur is important in various aspect of the economy including employment generation and poverty reduction. 2.11.1 Employment Available data from some African countries show that in 2003 SMEs in Kenya employed 3.2 million people and accounted for 18% of the national GDP. In Nigeria, SMEs account for 95 percent of formal manufacturing activity and 70 percent of industrial jobs. In South Africa micro and small firms provided more than 55percent of total employment and 22 percent of GDP in 2003 (OECD, 2005). SMEs provide about 85% of manufacturing employment and contribute about 70% of Ghana‟s GDP (Villars, 2004). On the average SMEs represent over 90% of the enterprises and account for 50 to 60% of employment in most African countries (Ahiawodzi et al., 2012). SMEs are therefore regarded as the catalyst for economic growth, income, and employment generation. 2.11.2 Poverty reduction The SMEs sector that is very important and relevant to the development of Africa‟s economy is agro enterprises. Jaffee et al. (2003) identified that the promotion of agro- enterprise development can provide a catalytic force in poverty reduction in Africa, University of Ghana http://ugspace.ug.edu.gh 45 both directly and indirectly by: (i) reducing food costs and supply uncertainties and improving the diets of the rural and urban poor; (ii) generating growth, increasing and diversifying incomes, and providing widespread employment and entrepreneurial opportunities in both rural and urban areas; and (iii)inducing productivity gains by smallholder farmers and better integrating them into local, national, and international markets. Examining the impact of SMEs in economic growth and poverty alleviation, Gebremariam, Gebremedhin, and Jackson (2004) found that there is a strong relationship between SMEs, economic growth and poverty reduction. They further showed that an increase in the percentage share of SMEs‟ employment had a positive impact on economic growth, thereby reducing poverty. Furthermore, in agriculture- based economies, SMEs provide livelihood opportunities and nurture entrepreneurship. 2.12 Government policies on SMEs in Ghana Governments in both developed and developing countries in order to enhance the establishment and development of small and medium enterprises develop policies and programme to meet the needs of these SMEs. The establishment of the National Board for Small Scale Industry (NBSSI) by Act 434 of 1981 by the government of Ghana as an apex governmental body for the promotion and development of micro and small enterprises in the country is one of such agencies. This governmental agency has been established with the vision of promoting, growing and developing the micro and small enterprise (MSEs) sector towards employment generation and wealth creation. University of Ghana http://ugspace.ug.edu.gh 46 To achieve this objective the agency has established ten (10) regional secretariats to supervise the projects unit and Business Advisory Centres (BACs) established in the various districts. The Business Advisory Centres (BACs) are established in the districts to provide the following services; - Provide an enabling environment for Micro and small scale enterprise development and growth - Provide high quality business development services - Deepen the development of an enterprise culture - Provide advisory and counselling services - Facilitate access to credit - Promote group formation and develop sector associations The Board of NBSSI has established the credit and project unit which is responsible for the financial services offered by the Board. Its functions include management of loan schemes for the growth of Micro and Small Enterprise (MSEs), supporting MSEs to prepare business plans and facilitation of MSEs to access formal loans from financial institutions. The Board has four (4) operational departments namely; the policy planning, monitoring and evaluation, the entrepreneurship development department, the investment and credit department and the women entrepreneurship development department. The Government of Ghana through the Ministry of Trade and Industry has established the Export Development and Agricultural Investment Fund. The fund established by Act 823 dated 25 th October, 2011 was an amendment of Act 582 dated 4 th October, University of Ghana http://ugspace.ug.edu.gh 47 2000 which established the Export Development Investment Fund (EDIF). The amended fund EDAIF was established to include the provision of agriculture and agro processing development facility (the Agriculture Grant Facility) to support activities, persons, groups and institutions in the development and promotion of agriculture and agro processing products, and provision of services to the agriculture and agro processing sector. The activities financed under the Agriculture Development facility include; - Product development and promotion - Capacity building and research - Development of infrastructure and common user facilities for agriculture relating to agro processing and agro processing industry, - Development and promotion of other agricultural and agro processing entrepreneurial activities and - Agriculture and agri-business trade oriented activities of both public and private institutions. Included in this fund is the agriculture and agro processing credit facility (the Agriculture Credit Facility) which is open to persons in the agriculture sector to access for loans for financing agricultural activities relating to agro processing. The fund is open to enterprises that are wholly owned by Ghanaians or partly owned but with Ghanaian majority shareholding. The review indicated that there are several agencies, policies and programme available for individuals and companies to access business support services and financial support. Although these agencies, policies and programmes are available University of Ghana http://ugspace.ug.edu.gh 48 research has indicated that entrepreneurs are not able to access them for enterprise establishment and growth. Most of these policies and programmes have been established to meet the needs of already existing enterprises with little concentration on would be enterprises. Thus, funds are not made available by programmes for entrepreneurs to enable the establishment of enterprises. The agro enterprise sector is made up different sub sectors or industries. There is therefore the need to understand the sub sector or industry that is under study. The next section discussed the pineapple industry in Ghana to enhance this understanding. 2.13 Pineapple industry in Ghana In recent years, pineapple has become one of Ghana‟s specialty products and the sector‟s growth has been driven principally by innovative entrepreneurs in the private sector (Danielou and Ravry, 2005). The two principal production areas for pineapple are Nsawam in the Eastern Region and Bawjiase in the Central Region (Suzuki, Jarvis and Sexton, 2008) and other areas are located in the Greater Accra and the Volta Region (Kleemann, 2011). Suzuki et al (2008) explained that the production of pineapples for export started in Nsawam around 1945 in the village of Samsam-Odumase when a farmer named Mr.Oko brought suckers from the Aburi Botanical Garden and planted in the village. Its production then spread among villagers in the area, particularly after the Nsawam Cannery was established by Dr. Kwame Nkrumah, to boost the economy after Ghana‟s independence in 1957. Export of pineapple from Ghana to Europe in very University of Ghana http://ugspace.ug.edu.gh 49 small quantities began at the end of the 1980s and the first companies to export were Combined farms and Koranco farms (Danielou et al., 2005; Kleemann, 2011). In most pineapple production areas, within the households, the women usually produce staple crops while the men are engaged in pineapple production on different plots (Goldstein and Udry, 1999). Production of pineapple is associated with more intensive use of hired labour with the purchase of new inputs and with entirely new output marketing system tightly linked to consumer markets in Europe. Individuals and companies in the pineapple industry in Ghana operate at different stages of the value chain; some are producers, processors and exporters. The production of small scale and family producers in the industry is absorbed by the local market and by processors and exporters who turn to them whenever they need to increase their production volumes (Danielou et al., 2005). The shift to the MD2 variety from Smooth Cayene (SC) variety has driven a lot of farmers, in particular small holder‐based cooperatives, out of the export market due to initially high costs of investment into the new variety and prevalent contract breaching from both sides during the breakdown of pineapple exports (Kleemann, 2011). In Ghana, majority of the pineapple exporters and processors are medium-sized to large companies either established by local entrepreneurs or through joint ventures with British, Lebanese, and Dutch partners. Among these companies, we find Blue Sky Products (GH) Ltd., Jei River, John Lawrence Farms, Korenco Farms, Milani Ltd., Prudent Exports, Tack Farms, and Tongu Fruits (Danielou et al., 2005). University of Ghana http://ugspace.ug.edu.gh 50 The growth of the industry has led to the aggregation of small scale producers into various producers‟ cooperatives which enable a producer to take advantage of opportunities of market and information. There are formal mechanisms through which information is shared by pineapple farmers thus extension workers, farmer cooperatives, and crop exporters (Goldstein et al., 1999). The information they receive enable these small scale producers to meet standards and quality demanded by the export market. However during the shift to the new MD2 variety many smallholders have lost, and up to today not regained, their access to the export market (Kleemann, 2011). 2.14 Summary The chapter reviewed literature on the concept of enterprise establishment process, the theories of enterprise establishment underpinning the study, the factors associated with enterprise establishment and enterprise growth. The relationship between the enterprise establishment factors and enterprise was also reviewed. The conceptual framework of the study was illustrated with the definition of concepts used in the study. The chapter ended with a discussion on the importance of SMEs to national development, government policies on SMEs in Ghana and the pineapple industry in Ghana. University of Ghana http://ugspace.ug.edu.gh 51 CHAPTER THREE RESEARCH METHODOLOGY 3.0 Introduction This section outlines the research design explored for the study, the sampling size and techniques used questionnaire design, questionnaire pre-testing and administration, and field data collection. Measurement of some of the key variables thus enterprise growth (employment growth, sales growth, and technological growth); educational background and expertise; previous work background and expertise are discussed in this section. 3.1 Research Design Research design refers to the plan of action that links the philosophical assumptions to specific methods (Creswell, 2003; Johnson and Christensen, 2007). Research design includes experimental design, cross-sectional design, longitudinal design, case study design and comparative design (Bryman, 2012). According to Johnson and Christensen (2007) there are three research methods to investigate research problems. These are quantitative research, qualitative research and