The micro, small and medium enterprise (MSME)sector has been identified as the backbone of the Sri Lankan economy.
It isidentified as a driver of change for inclusive economic growth, regionaldevelopment, employment generation and poverty alleviation. They also play aprominent role in developing appropriate technology, entrepreneurship and businessinnovations. It covers broad areas of economic activities such as agriculture,mining, manufacturing, construction, and service sectors.The Micro, Small and Medium Enterprises aredefined differently by different countries and multilateral agencies based ondifferent parameters such as number of employees, business turnover, capitalinvestment. Different definitions are also being used by differentorganizations within the same country to define MSME for different purposeswhich is a fact that practiced in Sri Lanka.In the Sri Lankancontext, the definition of a MSME is based on the annual turnover of theenterprise and under the latest credit line for MSMEs from the World Bank MSMEswere defined as an enterprise with an annual turnover of less than RS.350million.
For the purpose of taxation, the 2012 budget proposal defines smallindustries as an enterprise with an investment of less than Rs.25 million.(Somaratne, 2012). The SME policyframework in Sri Lanka defines MSMEs based on the number of employees andannual turnover (Anon, 2015). According to the survey of non-agriculturaleconomic activities in Sri Lanka conducted by department of Census andStatistics (2013/2014), 91.
8% of the establishments in the country are microenterprises where as 7% are small, 1% are medium and the balance 0.2% are largeenterprises (Anon, 2014).The MSME sector hasenormous potential in generating high level of socio-economic benefits to adeveloping country with a low level of investment. However, according to the Departmentof Census & Statistics of Sri Lanka, “investment to generateemployment” or “investment per employee” is said to be the low.The MSME sector is an ideal platform for the Government to invest and supportto reduce the gap between the haves and the have-nots (Weerakkody, 2015). According to thenational policy framework for small medium enterprises, MSME accounts for morethan 75% of the total number of enterprises, provides 45% of the employment andcontributes to 52% of the Gross Domestic Production (GDP).
However, indeveloped countries the contribution by the SME sector to the GDP andemployment is as high as 65% and 70% respectively (Weerakkody, 2015). Hence,these statistics reveal that there is immense potential to enhance the presentlevel of contribution made by the MSMEs to the economy when compared with theGDP contribution in other countries in small-scale industries compared to largeentities.From the inception of industrialization of theSri Lankan economy micro and small business sector was recognized as animportant to be developed. But the progress of this sector is not up toexpectation. The empirical evidence shows that 45% of the start-ups entering tothe market in Sri Lanka disappear at their first year after establishment (Bandara,2016).
Running a micro, smalland medium business is a difficult and risky matter. The path from starting abusiness to launching continually is operating with challenges and issues. TheBanking Survey of the SME Market in Sri Lanka (2006-2007) of the InternationalFinance Corporation (IFC) listed five principal constraints faced by the MSMESector. They were difficulties in obtaining bank finance, absence of technicaland management skills, marketing constraints, inadequate infrastructurefacilities for production, and outdated technologies (Nanayakkara, 2011). Causes for businessfailure differ from country to country, region to region, and business tobusiness, but there are common factors such as lack of managerial skills, lackof improper accounting, lack of financial control, lack of internal controlsystems, lack of business experience etc. Apart from these mentioned causes,integrity and business policies as disciplines are critical. The lack of thesecritical factors can bring misfortune to business.
Therefore, business successcannot be expected without practicing integrity and business disciplines(Bandara, 2015).In Sri Lanka, despitethe fact that some MSMEs have been declined or stagnant, some others have beengrowing and successful. Even though there were lots of studies regardingconstraints, barriers for the MSME failure in Sri Lanka, there are a few ofstudies on business success factors among MSMEs.
Therefore, it is an essentialneed to conduct a research regarding the factors affecting the business successamong MSMEs in Sri Lanka.The aim of this studywas to identify the factors affecting the business success among MSMEs in SriLanka. It further examined the relationship between the identified factors andthe Business Success.