Small and medium enterprises (SMEs) are the lifeblood of many countries and are instrumental in promoting employment and economic growth. SMEs contribute a sizeable income to a country’s GDP. For SMEs to continue growing and flourishing within an economy that is marred by the financial crisis and fluctuating economic and political crises, these enterprises need to be innovative. Innovation is, therefore, crucial to SMEs’ long-term sustainability and expansion into foreign markets. This chapter explores the various themes connected to SME internationalisation, with specific reference to institutional factors which mitigate or facilitate indigenous Ghanaian SMEs. This paper further highlights and discusses certain crucial factors like social culture and legal and political factors which influence innovation and internationalisation of SMEs in Ghana.
Defining SMEs
There are various definitions of SMEs. In the discussion below, SME will be explored and discussed. National Small Business Act of 1996 defined SMMEs as a separate and distinct entity, including co-operative enterprises and non-governmental organisation, managed by owners or more which include its branches or subsidiaries if any is predominantly carried on in any sector or subsector of the economy. Most countries adopted a quantitative definition based on the categories of enterprises, number of employees and an annual turnover (Berisha, 2015). In Ghana, the most commonly used definition of SMEs is the number of employees of the enterprise. In applying this definition, however, there is some controversy concerning the arbitrariness and cut off points used by the various official records (Dalitso & Peter, 2000). The European Commission (2003) defines SMEs as enterprises which employ fewer than 250 persons and/or have an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million. Thus, the definition of SME varies and is dependent upon whose point of view (Berisha & Pula, 2015). It is interesting to note that the National Board for Small Scale Industries (NBSSI) in Ghana used both fixed assets and number of employees to define what constitutes SME in Ghana. It defined SME as a firm with not more than nine workers and has plant and machinery (excluding land, buildings and vehicles) not exceeding 10 million Ghanaian cedis, (Kayanula & Quartey, 2000)
Small and medium enterprises are engaged in an economic activity wherein they provide goods or services in the marketplace. Pride, Hughes and Kapoor (2013:10) explain that an enterprise or as others may call it “business”, is an organization established by efforts of individuals with the aim of satisfying personal or economic needs and to make a profit. Enterprises are essential because they create jobs, contribute to national income and contribute to sustainable economic development.
Globally, formal businesses are registered by relevant authorities of a concerned government (Dutta, 2009). Small-medium enterprises may take the form of a legal structure that is legislated by the government. Some forms of small and medium enterprises are namely sole proprietorship, partnership, close corporation or companies.
It is interesting to note that the National Board for Small Scale Industries (NBSSI) of Ghana define the constituents of SMEs to include the fixed assets and number of employees. The institution defines SMEs as a firm with not more than nine employees that have plant and machinery (excluding land, buildings, and vehicles) not exceeding 10 million Ghanaian cedis (Kayanula & Quartey, 2000).