RESEARCH ARTICLES

 

Innovative leadership in South African manufacturing Small Medium Enterprises within KwaZulu-Natal

 

 

M Ngibe^{I, *}; LM Lekhanya^II

^IDurban University of Technology, Information and Corporate Management. musawenkosin1@dut.ac.za; ORCID NUMBER: https://orcid.org/0000-0002-4954-1460
^IIDurban University of Technology, Public Management and Economics. lawrencel@dut.ac.za; ORCID NUMBER: https://orcid.org/0000-0002-9104-963X

 

 

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ABSTRACT

Rapid economic growth, poverty alleviation, as well as formal and informal employment are dependent on and subjected to small businesses. These small businesses have been credited as the spine of a country with the intentions and projections of developing and becoming a recognised, economically stable nation. In South Africa (SA), research indicates formal Small Medium Enterprises (SMEs) account for 98.5% of the number of formal businesses in the economy, however, the formal SME sector only accounts for 28% of the country's jobs, creating concern as it should be 60-70%, based on international trends. The purpose of the study is to examine innovative leadership in the South African SME manufacturing sector, within the province of KwaZulu-Natal (KZN). A quantitative research approach was adopted, while using a non-probability convenience sampling technique to achieve a sample size of 384. Data were collected using a self-administered, closed-ended questionnaire, with predetermined answers scaled using a 5-point Likert scale, while factor analysis was conducted using SPSS (version 23.0). The study found innovation in leadership at SMEs in the KZN manufacturing sector hampered by business characteristics and leadership abilities, identifying critical factors that interfere with leadership being innovative, insofar as technical skills, lack of government financial assistance, educated employees, and government barriers, as well as ICT advancement costs, are concerned. The study recommends that, to facilitate innovation by leadership, SMEs in the KZN manufacturing sector should invest in ICT and engage educated employees, in addition to continuously capacitating leadership with field-related skills. A further recommendation is that the government needs to develop, implement and maintain a functional system to alleviate prohibitive government regulations that inhibit business innovation, development and sustainable growth of the country's SMEs, specifically in the manufacturing sector.

Key phrases: Innovation; growth; leadership; KwaZulu-Natal; manufacturing SMEs and sustainable

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1. INTRODUCTION

According to the Industrial Policy Action Plan of 2017/18 - 2019/20 (2017) the manufacturing sector has high economic multipliers because of its value addition linkages to upstream production sectors of the economy. The South African share of world manufacturing output has decreased, with manufacturing production falling to 1.3% year on year in 2018 and failing to meet and achieve market expectations of a one percent rise (Trading Economics 2019). In the manufacturing sector, small business accounts for only a tenth of South Africa's revenue but a fifth of employment (Ndlovu & Makgetla 2017). Overall, SMEs contribute more than 40% towards the country's overall GDP and provide more than 50% of employment to labour (Kelley, Singer & Herrington 2016), while findings by the Small Business Institute (SBI), a non-profit organisation, have also shown that 98.5% of formal businesses in the SA economy is comprised of formal SMEs (SBI 2018). Nonetheless, the SBI findings (2018: 3) show that, overall, the contribution of SMEs to employment delivery and economic growth of the country is of great concern, as the formal SME sector has been found to only account for 28% of the jobs in South Africa (SA), while this ought to be 60-70% based on international trends (SBI 2018). This highlights the drastic need for an improved domestic economy and manufacturing output.

This also, disparagingly, highlights the numerous factors SMEs in the manufacturing sector are faced with (management skills, financial access, technology adoption, and competition, as well as business environment, economic factors and regulatory uncertainty) contributing to innovation, growth and sustainability due to slow transformation and lack of a culture of innovation to meet the ever-changing business world (Organisation for Economic Cooperation and Development (OECD) 2017; Mutoko & Kapunda 2017; Sitharam & Hoque 2016). Christina, Neelufer and Al Amri (2014) and Alyafie and Al-Mubarak (2016) argue that most SMEs face challenges related to organisational and cultural issues in dealing with increased external contacts. These challenges are amplified by weak business networking with other small businesses and larger incumbents, making it more difficult to acquire knowledge for sustainability purposes (Bushe 2019).

Lack of sustainability efforts in the manufacturing sector's SMEs is attributed to SME characteristics, since they often lack the awareness, expertise, skills, and finance, as well as innovation and human resources, to build the required changes for sustainability within the organisation (Singh, Olugu & Musa 2016). This critical challenge has also been noted and reported by the Global Entrepreneurship Monitor (GEM 2016-2017); Mamabolo, Kerrin and Kele (2017) and Moos and Sambo (2018), highlighting that South African SMEs suffer from poor management skills, which is a result of lack of adequate training and education (Mxunyelwa & Vallabh 2017; SEDA 2016). Shockingly, the Small Enterprise Development Agency (SEDA) also revealed the failure rate of South African SMEs in manufacturing, as between 63% and 80% in the first two years of trading (SEDA 2016). The reason for such failure is attributed to poor management skills, as well as lack of structure, infrastructure and innovation. Lack of managerial experience, skills, weak entrepreneurial culture and high barriers to market entry (Sitharam & Hoque 2016) are the main reasons why new SMEs fail. Quartey, Turkson, Abor and Iddrisu (2017) concluded that SMEs in the manufacturing industry battle with financial difficulties (Akinwale, Adu & Seriki 2015) skills development, and poor marketing, among other challenges. Okyere (2017) and Mkheimer (2018) identified leadership behaviour, skills and qualities of leaders as essential factors that influence the manufacturing industry's SMEs survival and growth. Growth in modern economies is increasingly aligned to efforts to increase productivity through innovation (Monge-González 2016). Such innovation is an essential precondition for technological and structural change, as well as a contributor to growth and competitiveness (SiMODiSA 2014).

 

2. PROBLEM STATEMENT

The study area is the Province of KwaZulu-Natal, one of nine South African provinces and the third-smallest and, while it is the third largest economy in SA after Gauteng and the Western Cape, its manufacturing sector is the second largest after Gauteng, while KZN is also the second most populous province in SA (Statistics SA 2019). SA's manufacturing industry released a market insights report, in which it confirms that nearly a third of SA's manufactured exports (20,6%) are produced in KZN, reflecting the manufacturing industry as the biggest driver of growth in SA's GDP (SA Manufacturing Industry (SAMI) 2019).

Nonetheless, while South African SME leaders have been found to lack innovation drive, the importance of fostering a culture of innovation within SMEs to ensure sustainability was also highlighted (Maladzhi 2012). The findings by Francke and Alexander (2019) indicate that, wherein South African businesses did not appear to have much of "an appetite for innovation", have resulted in drastic changes being recommended by Ngibe and Lekhanya (2019), urging innovation to sustain KZN SMEs growth in the manufacturing sector, with the strategic tool of education and skills training to facilitate leadership and employee innovation advocated as a possible solution.

It is for these reasons that failure to innovate effectively, and weaknesses in leadership, have been equally indicated as major challenges facing SMEs in the spheres of both managerial and technical expertise (Hossain, 2015; Sitharam and Hoque, 2016; Yahya, Yang, Hao, and Wah, 2016). This negatively influences sustainable growth and leadership performance in South African SMEs (Kongolo, 2010), while Maladzhi (2012) and Lekhanya (2015) show South African SMEs in manufacturing struggling due to several factors including, leadership and innovation, which also affect KZN SMEs in the manufacturing industry.

 

3. AIMS AND OBJECTIVES

3.1 Primary aim

The primary aim of this study is to examine innovative leadership in KZN manufacturing SMEs.

3.2 Objectives

In order to achieve the above primary aim, the following objectives will be addressed.

- Identify and discuss the characteristics of innovative leadership in the KZN manufacturing sector SMEs; and

- To discuss the implications of those characteristics on innovative leadership in the KZN SMEs in the manufacturing industry.

 

4. LITERATURE REVIEW

The following section focuses on a review of relevant literature supporting this research study.

4.1 Leadership characteristics

Leadership in SMEs is very complex and requires a leader with leadership characteristics that will help develop the business and most importantly, adopt and evolve with internal and external challenges (Seth 2017). The qualities attributed to leadership by Vakili, Tahmasebi, Tahmasebi and Tahmasebi (2016) include the ability to innovate, plan strategically, as well as ensure business development and sustainable growth. It is claimed by Lecuna, Cohen and Chavez (2016) that innovative ideas and seeking opportunities are pivotal leadership characteristics that influence sustainable business growth. Leadership can, therefore, be described as a process of how to, on the one hand, influence people and guide them to achieve organisational goals (Franco & Matos 2013), while on the other hand, developing their effectiveness and using it as a strategic direction setting them apart from competitors (Madanchian & Taherdoost 2017).

Literature shows leadership is important in the success of entrepreneurial firms and entrepreneurs who demonstrate effective leadership behaviour will likely enhance their entrepreneurial success (Arham, Boucher & Muenjohn 2013). An examination of the relationship between leadership and innovation is then pertinent, as leaders positively influence outcomes of innovation processes (Den Hartog & Verburg 1997; Howell and Avolio 1993 cited by Ryan & Tipu 2013). The following is highlighted by Fokam (2016) that leadership style has traditionally been emphasised as one of the most important individual influences on innovation by SMEs in the manufacturing sector.

Increasing innovation, global competition and variable customer needs, as well as more effective and efficient resource usage, indicate the need for new kinds of management abilities. Iftakhar and Bahauddin (2018) asserted that leadership should be understood as an inclusive, collaborative and reflective process rooted in values and ethics. Mkheimer (2018) argues that, in order for manufacturing sector SMEs to be sustainable, it is critical they develop a culture of innovation in their businesses through staff development, while also enabling or employing skilled and more professional leaders to lead their subordinates in the process of implementing strategic business goals that will, subsequently, sustain the firm. This is of urgent necessity because leadership plays an integral role in determining the implementation of sustainable development (Szczepanska-Woszczyna & Kurowska-Pysz 2016) by creating jobs and stimulating both competition and business innovation (Omoruyi, Olamide, Gomolemo & Donath 2017).

4.2 SMEs level of education and innovation

Education is concerned with personal development, creativity, self-reliance, and initiative taking, as well as action orientation (Lackeurs 2015). The level of education supports the creation of knowledge, competencies and experiences enabling entrepreneurs to improve their capabilities to sustain their businesses (Moberg 2012). According to Lekhanya (2015), the level of education is pivotal to innovation by leadership, as it promotes greater involvement with the enterprise's functional areas. A GEM report (2013) also asserted that the level of education promotes competitiveness, productivity, and growth, while significantly improving the entrepreneurial climate. A strong correlation was further indicated (GEM report 2013) between opportunity-driven SME leadership in SA and level of education, as the majority of early-stage entrepreneurs have a secondary degree. This is further supported by statistics from the Trade and Industry Policy Strategies (2017), indicating approximately half of formal SME leadership often having a higher level of formal education. There is thus a need for universities and the government to evaluate and address various entrepreneurship education value chains, by assessing the content creation and delivery strategy, as well as enhancing practical orientation of the subject (Ndofirepi & Rambe 2018). Accordingly, the development of good leadership is one of the driving forces for the success of the manufacturing sector's SMEs in the future, and evidence suggests inadequate leadership and management skills are primary factors contributing to the failure of SMEs (Arham et al. 2013; SEDA 2016).

4.3 Influence of education and training on innovation

Education and training establishes a foundation for SMEs leadership in the manufacturing sector to develop, learn new skills, stay relevant to their niche and, most significantly, improve the quality of entrepreneurship (Ho, Uy, Kang & Chan 2018; Vakili et al. 2016). Almost all policy analysts have noted entrepreneurship education as among the most important policy instruments in promoting entrepreneurship (Cassim, Soni & Karodia 2014). As stated by Isaacs, Visser, Friedrich and Brijal (2007), the key to establishing a culture of entrepreneurship in South Africa is education, since it contributes towards entrepreneur's social capital, innovation and networking (Musetsho & Lethoko 2017).

Accordingly, entrepreneurship education and training is important, as it enhances an individual's resolve and persistence to increase the innovation and action dimension of entrepreneurial intention (Chimucheka & Mandipaka 2015; Kalyoncouglu, Aydintan & Göksel 2017). Bbenkele and Ndedi (2010), Byer, Seeling, Sheppard and Weilerstein (2013) and Zukic (2013) added that entrepreneurship education seeks to prepare entrepreneurs to be innovative individuals able to take risks, manage results and learn from outcomes. Therefore, entrepreneurship education can fast-track the improvement of the nation's economy and ultimately assist with solving its socio-economic challenges, especially unemployment and low economic growth (Albright 2017), while increasing the number and quality of entrepreneurs entering an economy and promoting innovation and adequate nurturing (Chimucheka 2014; Gamede & Uleanya 2017). The significant need of entrepreneurship education has further been significantly noticed and lauded by the President of SA, Cyril Ramaphosa, who stated that entrepreneurship will be included in the basic education school curriculum in order to create greater prosperity (Malope 2017).

This shows entrepreneurship education is essential for strengthening capacity to create ideas (Vakili et al. 2016) and innovation, emphasising imagination, creativity, and risk acceptance in SMEs (Neneh 2014), as this would enhance leadership of SMEs, specifically within the manufacturing sector of KZN. In addition, the development levels of entrepreneurial competencies are maintained (OECD 2015) and these contribute to the sustainable growth of the organisation (Tomy & Pardede 2018). Education and training commitment enhances the entrepreneur's vision and open-mindedness towards improvement of firm performance (Sitharam 2014). Moreover, additional academic improvement and professional training development are essential (Slipicevic & Masic 2012) for SMEs in manufacturing, due to the sector's complexity and dynamic environment. This is supported by a study Rajaram (2017) conducted that showed manufacturing SME leadership needs training and skills development in order to achieve sustainable growth of the firm.

According to Varis and Littunen (2010), innovation within manufacturing sector SMEs is typically driven by an entrepreneurial leadership style prevalent in such businesses, which influences the innovative leader's ability to direct the organisation (Pihie, Asimiran & Bagheri 2014). Mthabela (2015) maintains that good business knowledge and training also allow innovative leadership to remain motivated to the business' development and innovation. Innovative leadership is further stipulated as required to have sufficient control over these factors, in order to achieve sustainable growth through innovation and avoid business failure. Farrukh, Athanassopoulou, Phaal and Tietze (2015) maintained that training, education and support given to SMEs in the manufacturing sector should be configured to the needs of each individual firm.

4.4 Leadership skills needed by SME entrepreneurs

Leadership in small organisations, as debated in the literature, is the central element in influencing a firm's sustainable growth and competitive advantage, with the role of the entrepreneurial leader increasingly becoming an important determinant of innovation (Abdul 2018). This clearly puts pressure on leadership to acquire the necessary and adequate skills in order to maintain and sustain the organisation's operations. In a study conducted by Chimucheka and Mandipaka (2015), their findings identified management skills, lack of leadership experience, technical skills and knowledge, among others, as major challenges that promote SME instability. Lekhanya (2016) added that new SMEs may last for approximately five years, due to lack of business skills, mainly attributed to low levels of education (Sustainable Business Report 2017). In other words, for entrepreneurs to have a grasp of the organisation's operations, they need to focus not only on how to manufacture and sell a product but also be able to market it and control the financial side of the business (Schwartzkopff 2017), which means the entrepreneur must be skilled in business. Cant and Wiid (2013) and Mamabolo et al. (2017) claim marketing skills as one of the skills SA leaders need to acquire to develop and sustain their organisations, which is also applicable to KZN SMEs leadership in in the manufacturing sector. Mulupi (2012) found SMEs lacking in fundamental skills; simple business skills and lack of experience, resulting in a lack of exposure and limited business growth that culminates in the failure of SMEs to operate longer than five years. The OECD (2017) report highlighted SA would only be able to improve employment creation and business opportunities by ensuring skills acquisition is aligned with labour market needs, in addition to investing in skills development for both workers and employers through on-the-job learning and field-related workshops.

4.5 Effects of technical skills on innovation

According to Adendorff, Emuze, and Vilakazi (2013), a research gap exists in SA, with regards to entrepreneurial skills suitable for manufacturing SME entrepreneurs. This is echoed by several authors (Deakins, Bensemann & Battisti 2016; Loué & Baronet 2012; Shabbir, Shariff & Shahzad 2016), who have deliberated the issue at length. Mamabolo et al. (2017) believe empirical research is urgently needed in a KZN context, with Okubena (2014) stating this might be attributed to the manufacturing sector's SMEs having weak training provision, with many blaming this on the education and training system.

Investing in entrepreneurial training and skills development improves the ability to take initiative, according to Slipicevic and Masic (2012), while it also encourages entrepreneurs to seek and use opportunities, risk decision making in uncertain conditions and builds the capacity to succeed. Technical skills required by SMEs in manufacturing include an understanding of proficiency in specific activities involving methods, processes and techniques in the business's line of operation (Mamabolo et al. 2017), accompanied by industry-specific, IT professional and quality-monitoring skills, as well as production development and management of operations, which are all fundamental to handling and operating business-related tasks (Mmbengwa, Ramukumba, Groenewald, van Schalkwyk, Gundidza & Maiwashe 2011; OECD 2011; Panigrahi 2016). These are technical skills necessary to manufacturing SME operations, as they act as a fulcrum for growth (Ikupolati Adeyeye, Oni, Olatunle & Obafunmi 2017). Rasool and Botha (2011) and Bentinck (2017) argue that entrepreneurs with technical skills have many advantages, as they can easily manage the challenges and opportunities of globalisation. Vijay and Ajay (2011) concurred, further stating that technical skills act as a support structure during the development and realisation of the vision and mission of the firm.

It is clear that, without technical skills, innovative leadership will find their job increasingly difficult (Professional Development Centre 2016), as technical skills allow leadership to be innovative in the use of various machines and tools and also in implementing various procedures and techniques to improve the organisation's operations. As argued by Jane (2017), having technical skills eliminates the pressure of being dependent on another and, most importantly, saves money and time. A study by Nkosi, Bounds, Thomas and Goldman's (2013) supports this, with results identifying technical skills as the main contributing factor in the development of SMEs in SA, and therefore equally applicable to KZN small and medium manufacturing enterprises. Leg-Tero (2016) revealed that roughly 65% of SMEs lose time and money due to a lack of technical skills, which includes failure to adopt and use technology to its optimal potential.

4.6 Factors influencing SME financing

Financing of SMEs in the manufacturing sector has been debated by policy makers, researchers and stakeholders, propelled by the immense economic development contribution of these SMEs across the globe (Ayyagari, Juarros, Peria & Singh 2016; Naude & Chiweshe 2017). Despite manufacturing sector SMEs regarded as one of the major contributors towards the economy's GDP and formal sector employment (Malepe 2014), continuous obstruction and oppression by financial challenges, which hinder the intention of SMEs to innovate and grow (Abor & Quartey 2010; Cassim et al. 2014; Pillay 2006; Bernad, Stabilito and Yoo 2010; Jafarnejad, Abbaszadeh, Ebrahimi & Abtahi 2013; The Banking Association South Africa 2017). The Small Enterprise Development Agency (SEDA 2016) and Sibanda, Hove-Sibanda and Shava (2018) concurred and further indicated immense hurdles faced by SMEs in manufacturing when accessing finance and credit, mainly due to financial institutions' reluctance to invest in SMEs, as the sector is perceived as plagued with numerous challenges. This places severe stress on the manufacturing sector's SMEs, with the lack of funding and bank credit impacting overall firm performance and more specifically, innovation; since own funding and retained earnings are not sufficient to reach and maintain innovation that could secure a competitive edge within manufacturing sector SMEs (Gombarume and Shingirayi 2014; Ombongi & Long 2018).

Access to finance is influenced, according to Fatoki and Odeyemi (2010), Pandula (2011), Ezeoha and Botha (2012), and Mutoko and Kapunda (2017), as well as Sibanda et al. (2018), by a firm's demographic factors, in particular its size, ownership type, age, and turnover as well as the sector it operates in. The inability to declare assets, accounting records, creditworthiness and financial performance of the firm influences financial institutions in committing to medium and long term investments (Mutoko and Kapunda 2017; Ryan, O'toole & McCann 2014; Zarook, Rahman & Khanam 2013). The lack of access to medium or long-term credit is a major constraint for those manufacturing sector SMEs with the intention of expanding their activities and business (Nyanzu & Quaidoo 2017). The reason for this is that SMEs present a high risk to the lender as many have insufficient assets that can be used as collateral and suffer from low capitalization (Schmukler 2017; Growing Micro and small enterprises in LDCs 2018). In addition to this, Peprah (2016) and Snijders, van der Horst, Isusi and Lindeboom (2016) attributed this to entrepreneurs' incapacity to draft a well-planned and researched loan proposal for a bank loan.

These challenges affect the innovativeness and subsequent sustainable growth of SMEs in the manufacturing sector (Afande 2015; Eniola & Entebang 2016; Albuquerque, Quirós & Justino 2017). As shown in a study conducted by Bellone, Musso, Nesta and Schiavo (2014), manufacturing sector SMEs with better access to finance are better able to innovate, grow and venture into the international market compared to those with financial difficulties. This indicates that difficulties faced by SMEs in manufacturing, in regard to accessing finance, limit innovative leadership to instigate innovation, which will enhance firm operations and most importantly, maintain sustainable growth.

4.7 Effect of SARS on innovation for small business

The South African Revenue Services (SARS 2019) maintains that being tax compliant contributes towards the economy's development, which improves the state of the nation. Tee, Boadi and Opoku (2016) and Ngwanya, Sibanda and Chitate (2014) argued that the complex administration burden and taxation weigh on the ability of manufacturing sector SMEs to be innovative and competitive due to tax compliance costs. Olla (2016) maintained not all SMEs in the manufacturing sector have the necessary resources and awareness of requirements to comply with these tax regulations.

Koranteng, Osei-Bonsu, Ameyaw, Ameyaw, Agyeman and Dankwa (2017) assert that complexities in tax regulatory systems poses serious hindrance on the innovation and growth of manufacturing sector SMEs. This is also reflected in a survey conducted by the European Central Bank (2017), wherein European SMEs indicated tax compliance and regulations as the most pressing challenge. Inasius (2019) maintains that dealing with taxation matters still poses a significant challenge to the manufacturing sector's SMEs because of limited knowhow and lack of administrative abilities. Elly (2015) concurred that poor skills and tax knowledge are the most significant factors slowing down manufacturing sector SMEs' innovativeness. In an OECD (2017) report, tax rates and registering for VAT were flagged as onerous challenges to small businesses that affected the development and growth of the business (Lekhanya 2016; Olla 2016). This means the attainment of SARS compliance certificates will continue to be a thorn in the side of new entrants to the market and existing SMEs in manufacturing, more specifically towards their growth and innovation, due to fluctuating tax rates that severely impact their profit margins (Tee et al. 2016).

4.7.1 Taxation

Muchimbidzi (2015) revealed that presumptive taxes are too high for most growing SMEs and a significant number have collapsed after failing to pay presumptive taxes, with many more expected to follow-suit. According to Kashalaba (2017), most SMEs lack experience with regards to tax matters, which escalates the cost of complying with tax regulations and as a result, most revenue goes to paying taxes and complying with tax regulations. Bozdoganoglu (2016) highlighted that tax compliance imposes demands, in terms of procedures and tax laws that must be followed, such as correct registration or payment rules. Basically, in broad terms, there are four categories of tax compliant behaviour (OECD 2015) namely; timely and correct registration; timely filing or lodgement of requisite taxation information; reporting of complete and accurate information; and payment of the right amount of tax on time.

4.8 Information communications technology and innovation

The adoption of information communications technology (ICT) by manufacturing sector SMEs nationally and worldwide has been regarded as fundamental to any firm's operations. According to Cant, Wiid and Hung (2015); Agwu, Taiwo and Evawere (2016); and Razzali, Saraih, Shaar and Rani (2018) ICT is simply one salient element in remaining competitive. Xero Report (2017) argued that technology adoption is very costly, however, its benefits and significance in innovation and sustainable growth are of paramount importance. For SMEs in the manufacturing sector to compete in today's global economy, the OECD (2018) claimed these SMEs will have to invest in and impose new technologies to ensure their workforces remain competitive. Beliski and Liversag (2019) stated that the adoption of digitalization continues to be a challenge to leaders, due to the lack of abilities to adopt digital technologies to create value and enable faster product commercialization.

 

5. RESEARCH METHODOLOGY

In order to achieve the objectives of the study, research techniques and approaches must be established and be aligned with the needs of the research study. Kumar (2011) and Howell (2013) claim research provides an intensive and purposeful knowledge and understanding of the subject investigated, while the methodology provides and assists in outlining the structure of the research project and highlighting the course of conducting.

McMillan and Schumacher (2012) asserted that research methodology allows attaining rounded, significant and relevant characteristics from the actual occurrence, within a fundamentally restricted system. The significance and functions of research methodology is, therefore, to find answers to research questions (Kumar 2014). In this research study, a quantitative research approach was identified and selected as appropriate to meet the research study's objective needs. A Likert scaled questionnaire was designed through literature reviewed, in line with the study's research objectives. The questionnaire was disseminated to 384 entrepreneurs, managers and owners operating within the KZN SMEs manufacturing sector and self-administered to manufacturing SMEs located in KZN business premises. This method was key and effective in providing the necessary assistance where respondents needed further clarity. A nonprobability convenience sampling technique was used to identify and select the study's sample size out of 74 976 manufacturing sector SMEs operating within the province of KZN. The sample size was informed by Sekaran and Bougie's (2010) sampling table, which indicated that a sample size of 384 is an adequately representative size. Statistical analysis, in the form of inferential and frequency analysis, was performed with the use of SPSS (version 23.0) to determine the study's reliability level and examination of innovative leadership.

5.1 Reliability test

The content and construct validity was checked and assessed through crosschecking of the questionnaire by the researcher, experts and a statistician, in addition to piloting the instrument to 40 participants within the population, who did not form part of the actual, formal research study. Through this process, minor corrections were made prior to disseminating the questionnaire. Reliability was tested using Cronbach's coefficient Alpha at 0.75, with a reliability test score of 0.877 achieved, reflecting the reliability of the study as acceptable.

 

6. RESULTS AND FINDINGS

This section focuses on and discusses the findings of this study pertaining to innovative leadership in the KZN manufacturing sector of SMEs. Table 1 reflects responses to the statement that a lack of technical skills will affect an entrepreneur's ability to co-ordinate and manage critical business books.

According to Sutevski (2019), technical skills are not only related to the ability to use machines, production tools and various business equipment, they are also skills critically needed to design strategic business approaches, manage business books, and design different types of products and services. Katz (2009) highlighted that technical skills involve specialised knowledge, analytical ability within that speciality, as well as using tools and methods or systems of the specific discipline. As shown (Table 1), a significant number of respondents (154 or 40.1%) agreed and 123 (32%) strongly agreed that a lack of technical skills will affect an entrepreneur's ability to co-ordinate and manage critical business books. With 69 (18%) of the respondents that remained neutral, and 32 (8.3%) that disagreed, there were only six (1.6%) respondents that strongly disagreed with the statement. A Chi-square test was conducted to determine whether a lack of technical skills will affect an entrepreneur's ability to co-ordinate and manage critical business books. The results show (X² = 197.59; df = 4; P = 0,000) for this variable, indicating a lack of technical skills will affect an entrepreneur's ability to co-ordinate and manage critical business books. Responses to the statement that a lack of technical skills of entrepreneurs affects their ability to communicate effectively are summarised (Table 2).

As shown (Table 2), a moderate number of the respondents (147 or 38.3%) agreed and 98 (25.5%) further strongly agreed that a lack of technical skills affects the ability of an entrepreneur to communicate effectively. A lesser number of respondents (65 or 16.9%) were neutral, while 57 (14.8%) disagreed and 17 (4.4%) respondents strongly disagreed with the statement. The findings reveal that the respondents viewed and considered having technical skills as essential, due to it enabling innovative leadership to communicate eloquently because of the comprehensive knowledge and expertise they have in that field. A Chi-square test was conducted to determine whether a lack of technical skill will affect the ability of an entrepreneur to communicate effectively. The results show (X² = 123.5; df = 4; P = 0,000) for this variable, indicating a lack of technical skills will affect the ability of an entrepreneur to communicate effectively. Table 3 portrays the response frequencies and percentages to a lack of technical skills affecting the innovation process, as a result of project management.

As illustrated (Table 3), a significant number of the respondents (181 or 47.1%) agreed, with a further 102 (26.6%) respondents that strongly agreed with a lack of technical skills affecting the innovation process due to project management skills. A lesser number of respondents (55 or 14.3%) indicated neutral to the statement, while 40 (10.4%) disagreed and only six (1.6%) respondents strongly disagreed with the statement. A Chi-square test was conducted to determine whether a lack of technical skills affects the innovation process due to project management skills. The results show (X² = 238.734; df = 4; P = 0,000) for this variable, indicating a lack of technical skills affects the innovation process due to project management skills. Table 4 illustrates responses to the statement that Innovation is affected by the lack of financial assistance from the national government.

It was determined (Table 4) that a moderate number of respondents (125 or 32.6%) agreed and 120 (31.3%) further strongly agreed that innovation is affected by a lack of financial assistance from the government. According to Smith, Pretorius, Kotecha, Menzies and Erwin (2019), the difficulties experienced by SMEs in the manufacturing sector, in acquiring funding from the government or other financial institutions, are thus based on the entrepreneur's inability to prepare relevant business documentation required by finance providers. The majority of applications are rejected due to poor financial reporting skills and lack of experience by the firm owners. A lesser number of respondents (62 or 16.1%) disagreed with the statement, while 52 (13.5%) were neutral and only 25 (6.5%) respondents strongly disagreed. This result is supported by a Chi-square test conducted to determine whether innovation is affected by the lack of government financial assistance. The results show (X² = 100.349; df = 4; P = 0,000) for this variable, indicating a lack of government financial assistance affects manufacturing sector SMEs' ability to be innovative and acquire new technological advancements. Table 5 illustrates whether a lack of educated employees affects leadership innovation.

As shown (Table 5), a moderate number of respondents (150 or 39.1%) agreed and 86 (22.4%) further strongly agreed that innovation is affected by lack of educated employees. A lesser number of respondents (77 or 20.1%) indicated neutral to the statement, while 47 (12.2%) respondents disagreed and only 24 (6.3%) strongly disagreed with the statement. This means roughly 60% of respondents viewed and considered an educated workforce as instrumental in innovation development. These findings are supported by Leiponen (2005); Toner (2011) and McGuirk, Lenihan and Hart (2014), who asserted that educated and knowledgeable employees are an enabling factor in innovation, since the level of innovation is incremental and usually gives direction in terms of the firm's future, role, adaption, and diffusion of technical and firm change. Accordingly, as stated by the OECD (2018), successful entrepreneurship, innovation and business growth are dependent on educated employees' expanded skillset. Small Medium Enterprise South Africa (2017) reflected that the manufacturing sector SMEs will battle to reach innovative growth without educated and skilled employees; with an OECD report (2013) having cautioned that acquiring and retaining educated and qualified employees with vast skills might prove to be a challenge to manufacturing sector SMEs, due to financial constraints. A Chi-square test was further conducted to determine whether a lack of educated employees had a significant impact on business innovation. The results show (X²= 118.734; df = 4; P = 0,000) for this variable, indicating that uneducated employees affect the level of innovation the firm is able to implement and achieve. In view of this, it can be agreed that having educated and knowledgeable employees serves as an integral tool for a firm's sustainability. Table 6 illustrates whether respondents perceive innovation is affected when failing to adopt up-to-date ICT.

The findings illustrate (Table 6) that a significant number of the respondents (171 or 44.5%) agreed and 72 (18.8%) strongly agreed innovation is affected by failure to adopt up-to-date ICT support. A lesser number of the respondents (92 or 24%) were neutral, while 39 (10.2%) disagreed and only eight (2.1%) respondents strongly disagreed with the statement. These findings evidently signal that ICT adoption is considered by many innovative leaders as an essential component of innovation. According to studies conducted by Moghavvemi, Hakimian and Feissal (2012), Rahab and Hartono (2012), Al Bakri (2017); Gono, Harindranath and Özcan (2016); Razzali et al. (2018) and Agwu (2018), up-to-date ICT adoption is a critical factor to innovation and a necessity for gaining competitive advantage and most importantly, for improving and promoting business efficiency. To determine the impact of ICT adoption on innovation, a Chi-square test was conducted. The results show (X²= 200.12; df = 4; P = 0,000) for this variable, indicating innovation is affected by the inability of SMEs in manufacturing to acquire and maintain technological advancements. Dias, Franco and Pereira (2012) and OECD (2018) argued one of the primary barriers to the adoption of technological advancements is a lack of ICT skills, experience and resources to use ICT in the firm. Table 7 shows how leadership is affected by the cost of implementing ICT.

As shown (Table 7), a significant number of respondents (163 or 42.4%) agreed and 74 (19.3%) further strongly agreed that innovative leadership is affected by ICT implementation costs. A considerable number of the respondents (102 or 26.6%) were neutral, while 36 (9.4%) disagreed and nine (2.3%) respondents strongly disagreed with the statement. A Chi-square test was further conducted to determine whether innovative leadership is affected by the cost of ICT implementation. The results show (X²= 186.651; df = 4; P = 0,000) for this variable, indicating that ICT implementation costs negatively influence the adoption of ICT and can be considered as a critical hindrance in achieving technological innovation in manufacturing sector SMEs. This is further highlighted in a study conducted in both Ghana and Botswana by Asare, Gopoang and Mogotlhwane (2012) where, even though ICT usage provides varied benefits, the high cost of both ICT facilities and usage of ICT facilities are a serious concern to innovative leadership. Ghobakhloo, Sabouri, Hong, and Zulkifli (2011) argued and further suggested government should assist by considering what exactly is needed to support ICT adoption in SMEs in the manufacturing sector and provide the necessary assistance. Table 8 reflects responses to excessive regulations affecting innovative leadership.

Mupemhi, Duve and Mupemhi (2013) assert that the government of any country is responsible for instituting policies, legal frameworks and procedures that govern how business is conducted and operates within its borders. Boshoff (2018), however, argued that the SA regulatory environment is hostile to SMEs, when the ever-increasing demand of costs needed for compliance with various reporting standards, permits, and accreditation by different institutions, as well as business administration that has to comply with different business operating standards. Small businesses are also subjected to the same minimum wage requirements as big businesses and the same exorbitant charges from inefficient state-owned enterprises (Susman 2017). This, according to the author, is enough to discourage any prospective entrepreneur from opening their own business. According to Barron (2017), SA is well behind its peers in forming an enabling environment that will support and encourage the continued existence of manufacturing sector SMEs, taking into account its significance as a key driver of rapid economic growth and association of employment, both directly and indirectly (Zalk 2014). One of the critical aspects highlighted by Lekhanya (2016), is governments' burdensome regulations that create a very turbulent environment for SMEs and affect business growth. The findings (Table 8) further show a moderate number of the respondents (127 or 33.1%) agreed and 99 (25.8%) strongly agreed that innovative leadership is affected by too many South African SME regulations. A lesser number of respondents (85 or 22.1%) indicated, neutral with only 80 (13%) and 20 (5.2%) respectively disagreeing and strongly disagreeing with the statement. To test whether excessive SME regulations impede leadership innovation, a Chi-square test was conducted. The results show (X²= 92.163; df = 4; P = 0,000) for this variable, indicating that the findings are in accordance with literature, in that too many SME regulations have a direct impact on innovative leadership. The findings show (Table 9) a lack of compliance with government regulations resulting in the closure of many SMEs in the manufacturing sector.

It is illustrated (Table 9) that a moderate number of the respondents (118 or 30.7%) agreed and 89 (23.2%) strongly agreed that many manufacturing sector SMEs close down due to lack of compliance with government regulations. A significant number of the respondents (107 or 27.9%) were neutral, while 89 (23.2%) respondents strongly agreed with the statement and 50 (13%) and 18 (4.7%) of the respondents respectively disagreed and strongly disagreed with the statement. These findings are supported by a Chi-square test, further conducted to determine whether manufacturing sector SMEs close down due to not complying with government regulations. The results show (X²= 90.749; df = 4; P = 0,000) for this variable, indicating that numerous SMEs in the manufacturing sector close down due to a lack of finance to cover and comply with all government regulations.

 

7. RECOMMENDATIONS AND CONCLUSIONS

This section provides the recommendation and conclusions of this research study, in line with its objectives and findings.

The recommendations of this research study are based on the study's objectives and findings, which revealed challenges to leadership innovation in KZN SMEs in manufacturing as; lack of government financial assistance, lack of educated employees, failure to adopt up-to-date ICT support, and the cost of ICT implementation and technical skills. One of the issues documented in literature, is the inability of small businesses to compile credible documentation needed by financial institutions for funding purposes due to limited experience, knowledge, skills, and expertise, as well as lack of finance to hire qualified personnel. It is recommended innovative SME leadership, in the manufacturing industry of KZN, and nationally, establish cooperative business networks with small and bigger organisations, in order to benefit in gaining knowledgeable, strategic business approaches. Sharing of ideas and sourcing of information from successful businesses can, furthermore, improve the level of quality in the completion of SMEs funding applications. Innovative leadership in SMEs in the manufacturing sector additionally need to make use of business incubators established by the Department of Trade and Industry to assist and support business development and innovative growth. The study further recommends that, in order for SMEs in manufacturing to be sustainable, they will have to intensively invest in advanced ICT. This requires the strategic use of profits to enable seeking technological advancement that will improve the business processes and operations. The adoption of advance technology will not only enhance the manufacturing processes but will yield excellent positive results for trade facilitation in both local and international markets. The use of the right modern technology has been confirmed to improve business operations and subsequently, profit margins. Hence, while the need to invest in advanced manufacturing equipment and tools cannot be stressed any further, the study further recommends that, in order for leadership to innovate effectively, the importance of having educated employees within their circle has to be realized and recognized.

An educated workforce adds invaluable experience and contributes to innovative ideas and implementation of innovative processes that sustain business growth. Nonetheless, effective leadership need to surround themselves with such a workforce to establish prominent ways of achieving innovative business growth and sustainability. Furthermore, it is critically important innovative SME leadership acquire technical skills to improve their abilities. It is thus recommended that innovative leadership attend skills workshops, short courses, and business educational programmes and improve their qualifications. The government also has to be proactive and become involved in the development of entrepreneurs in the KZN manufacturing industry, through the provision and development of field-related skills training and programmes necessary for sustainable business growth. Moreover, collaboration between the government and higher education institutions must be firmed up and curriculums developed that will benefit innovative leadership with technical skills significant in running a successful business.

In terms of too many South African SME regulations and compliance with government regulators, it is recommended that the SA government re-evaluate the laws and policies governing small business. The government needs to consider important facts about these businesses, more especially since they come from disadvantaged financial background. An operational system needs to be established where leniency is afforded to small businesses that are starting up and businesses with marginal profits. Undivided and continuous support needs to be given to businesses unable to comply with government regulations, as opposed to merely issuing fines. This will help curb the ever increasing number of small business prematurely exiting or closing down.

The conclusions are based on the study findings, which determined that innovative leadership of SMEs in the KZN manufacturing industry is challenged by numerous factors. The study ascertained that without technical skills, educated employees and the attainment of technological advancement, innovative leadership will remain elusive. Rigid business regulations and compliances imposed on SMEs deter innovative SMEs leadership in the KZN manufacturing sector from instigating and implementing innovative developments to sustain business growth. Many government regulations hamper and prolong business growth and affect profit margins of these enterprises. An improved government system therefore needs to be established to promote small businesses and enable them to operate in a pleasant environment, free from bottlenecks, as this will allow leadership in SMEs to be more innovative within the KZN manufacturing industry.

 

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* corresponding author