Scholarly article on topic 'Entrepreneurship in Oman: Paving the Way for a Sustainable Future'

Entrepreneurship in Oman: Paving the Way for a Sustainable Future Academic research paper on "Economics and business"

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Procedia Economics and Finance
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{Entrepreneurship / Oman / SMEs / "and sustainable future"}

Abstract of research paper on Economics and business, author of scientific article — Hesham A.E. Magd, Mark P. McCoy

Abstract It has long been recognized that the increasing economic and social prosperity of the Sultanate of Oman can only be secured through the reduction of the Country's reliance on oil revenues by growing and diversifying the private sector. This is by no means a straight forward task as many nations have struggled to encourage an entrepreneurial spirit among their populations. This article shall highlight the benefit of encouraging and facilitating new business start-ups while also looking at the different factors that motivate entrepreneurs. The authors conclude by examining the barriers faced by entrepreneurs and the steps that can be taken by governments to facilitate an environment conducive to business start up and growth.

Academic research paper on topic "Entrepreneurship in Oman: Paving the Way for a Sustainable Future"


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Procedía Economics and Finance 15 (2014) 1632 - 1640

Emerging Markets Queries in Finance and Business

Entrepreneurship in Oman: Paving the Way for a

Sustainable Future

Hesham A. E. Magda*, Mark P. McCoya

aUniversity of Buraimi, Al Buraimi, Sultanate of Oman


It has long been recognized that the increasing economic and social prosperity of the Sultanate of Oman can only be secured through the reduction of the Country's reliance on oil revenues by growing and diversifying the private sector. This is by no means a straight forward task as many nations have struggled to encourage an entrepreneurial spirit among their populations. This article shall highlight the benefit of encouraging and facilitating new business start-ups while also looking at the different factors that motivate entrepreneurs. The authors conclude by examining the barriers faced by entrepreneurs and the steps that can be taken by governments to facilitate an environment conducive to business start up and growth.

© 2014 TheAuthors. Published byElsevierB.V. ThisisanopenaccessarticleundertheCC BY-NC-NDlicense (http://creativecommons.Org/licenses/by-nc-nd/3.0/).

Selection and peer-reviewunder responsibilityof theEmerging MarketsQueriesin Finance and Business local organization Keywords: Entrepreneurship; Oman; SMEs; and sustainable future

1. Introduction

As the impressive development of the Sultanate of Oman continues, policy makers are beginning to turn their attention to the overreliance of the country on oil revenues and the lack of employment opportunities for an increasingly youthful population. While the increased access to higher education that the Sultanate has promoted over the past number of years is admirable, one of the consequences of this is that an increased amount of graduates are now looking for meaningful employment that is currently not available. Simply absorbing these graduates into the public sector is an expensive and ultimately unsustainable course of action and while there are opportunities in the private sector, many of these positions are currently occupied by expats due to their specialised nature or because recent graduates see the role as beneath them. With this in mind, one of the potential solutions to the above problems is to promote entrepreneurship as a means of growing the private sector to provide employment, diversify the economy and ultimately reduce reliance on oil revenues.

Corresponding Author: Tel: 00968-25-655-509; Fax: 00968-25-651-265 E-mail address:

2212-5671 © 2014 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (

Selection and peer-review under responsibility of the Emerging Markets Queries in Finance and Business local organization doi:10.1016/S2212-5671(14)00634-0

This article shall look at the benefits that SMEs provide and how their success or failure should be defined. The authors shall go on to look at motivational factors for starting up a business and the barriers that potential entrepreneurs can face. Finally, current initiatives in the Sultanate are examined in addition to recommendations relating to how Oman can facilitate an environment conducive to entrepreneurial activity.

2. Benefits of Promoting Entrepreneurship

Small & Medium Enterprises Generating Employment and Poverty Alleviation

Small and Medium sized businesses have traditionally played a significant role in the economic growth of developed and developing nations alike. Researchers have continuously emphasized the importance of the promotion of SMEs in order to provide primary and secondary sources of income and alleviate high levels of poverty particularly in developing regions (Tambunan, 2008; Cunningham, 2010). The importance of SMEs has been echoed outside the realms of academia where analysts and funding bodies continue to advocate the development of the private sector using SMEs to policy makers in an effort to address both social and economic deprivation (Agyapong, 2010). There are a number of reasons as to why the development of SMEs is seen as being crucial to the generation of employment opportunities. Jyothi and Kamalanabhan (2010) highlighted how traditionally SMEs provide employment for, "more people per unit of investment as compared to large firms," due to the fact that they utilize more labour intensive technologies. As highlighted by Islam et al (2011) for many developing nations in particular, SMEs account for the majority of employment in unskilled labour intensive sectors. Aside from the provision of employment, SMEs also facilitate an environment where the unskilled workforce can develop their skills to the advancement of society and the economy at large (Hassan and Olaniran, 2011).

Small & Medium Enterprises and Innovation in the Economy

In addition to the alleviation of poverty and provision of employment, small and medium enterprises are also globally credited as being the driving force of innovation in an economy (Potter and Proto, 2007). Studies have shown that smaller more entrepreneurial orientated enterprises have a positive impact on both innovation and growth (Harms et al, 2010). Innovation in turn has been identified as being a key driver both in social and economic growth (Clark, 2010) and therefore a vital consideration for all policy makers (Romero-Martinez et al, 2010). Indeed entrepreneurship in general has been at the forefront of developing new products and services and as a result have, "acted as a vital tool for economic development and prosperity," (Ahmad, 2010).

Small & Medium Enterprises and Contribution to GDP

It is widely agreed that SMEs have a potentially crucial role to play in contributing to the GDP of nations in part due to their huge growth potential (Upadhyay and Dan, 2009). A number of studies exist that conclude that the formation and growth of SMEs in an economy will have a positive impact on the GDP (Beck et al, 2005; Mocnik, 2010) and there are a number of reasons as to why this is. First of all in many developing countries, SMEs play a key role in terms of making a significant contribution to the GDP through export development (Tambunan, 2009; Ogunsiji and Kayode, 2010). In addition to the development and growth of import and export, SMEs also have the potential to contribute to a nation's GDP by providing governments with additional revenue streams by expanding a country's tax base (Agyapong, 2010).

Small & Medium Enterprises Limitations to Economic Development

Although there is a general consensus that SMEs have an overall positive impact on the economic development of a region, there are a number of studies that have concluded differently. Bhatti et al 2010 analysed business development in the Jacobabad district of Sindh and found that despite the overwhelming

numbers of SMEs, in relation to larger enterprises, they employed approximately only half of the total employed in the city. This should perhaps not be a surprising statistic as the very nature of SMEs can at times be at conflict with the objectives they are intended to meet (Castel Branco, 2003). To illustrate this point consider the fact that one of the criteria for being classified as an SME is to employ a work force of approximately no more than 10 employees (Reijonen and Komppula, 2007). With this in mind the volume of SMEs required in order to make a meaningful impact on the employment prospects of a region is quite obviously significant which has further consequences for government in terms of the support and infrastructure available to both existing SMEs and potential entrepreneurs. The challenges facing SMEs and entrepreneurs are discussed in more detail later in this paper however issues such as access to venture and human capital (Fairlie and Robb, 2009) are common areas of concern across the globe. It is important to remember that while these papers have raised some valid points worthy of further study, the above mentioned articles were not intended to identify common themes across nations and as a result the potential exists for these findings to be unique to the geographical areas and districts sampled.

3. Defining SME Success and Failure

Measuring the performance, and thereby the success or failure of SMEs is not as clear cut as it may first appear. As highlighted by Ma and Lin (2010) the availability of SME financial information may be restricted due to the fact that many do not borrow from financial institutions. In addition to this interpreting SME closure to be the result of failure may also not be accurate as winding up the enterprise may be due to succession issues or the accomplishment of the objectives for which the venture was originally established.

Economic and Financial Profitability

The financial performance of a firm is perhaps the most obvious and universally used measure of success or failure. Smolarski and Kut (2011) used annual sales growth rate and annual turnover as proxies for SME performance in their study of the impact of venture capital financing method on SME performance and internationalization. With this said however, identifying the threshold of revenue or net profit that allows an enterprise to be labelled as a success or failure presents another challenge. Even if a comparison is carried out with organizations with similar characteristics operating in the same industry, it can be difficult to gage an appropriate benchmark for comparison.

Organizational Growth

Measuring the success of an SME purely by financial means can often be both inaccurate and misleading. During both the initial growth and expansion phases of the start-up SME, there are often either large outlays of cash or significant increases of debt recorded on the financial statements. In order to compensate for this, it is also necessary to consider the growth of an organization as a significant indication of success. Measuring the growth of an organization can be achieved using a combination of indicators including increases in staffing levels, market share and products/services offered.


In their study of SME performance and excellence in India Antony and Bhattacharya (2010) identified seven variables that could be used to measure organization performance of which competitiveness was one. Competitiveness in this sense was considered to be the extent to which an organization is successful in both maintaining and increasing market share on a year by year basis. Considering the high failure rate of start-up enterprises, the fact that a SME is not only surviving year on year but also continually increasing market share is a clear indication of success.

Further Considerations

In addition to the more obvious above mentioned benchmarks of SME success and failure, Reijonen and Komppula (2007) explored the perception of failure and success from the entrepreneur's perspective. This can only be accomplished on a case by case basis as the goals and objectives that a start-up enterprise is tasked with achieving have to be taken into consideration. Entrepreneurs may also define success to be based upon their own individuation process rather than purely on the commonly cited above mentioned benchmarks. This does not necessarily translate to a difference in either profitability or economic stability with more financial goal orientated businesses (Kauanui et al, 2010).

4. Motivational Factors

There are a number of variables that will influence to what degree an individual will be motivated to go through the process of starting up their own business. Entrepreneurs in developing countries will be faced with significantly different social and economic influences compared to their counterparts in more developed nations. It has been argued that the barriers to employment in some developing nations, such as lack of education, could be significant to the extent that an entrepreneurial orientation has become a necessity rather than an option (Benzing and Chu, 2009). Self-realization and esteem, it could be argued, are factors that are more often associated with developed economies. This paper has identified the following motivating factors for entrepreneurship:

Economic Factors as Motivations

Perhaps the most obvious factor that could be suggested for motivating individuals to start up their own enterprise would be the desire to reap the financial rewards that result from managing and owning a business. This was the conclusion of Benzing et al (2009) who found that the primary motivations for starting a business in Turkey where both to increase income and obtain a level of job security. Job security was among one of the generic motivating factors in developing nations as identified by Stefanovic et al (2010) along with independence, greater business achievement and intrinsic factors.

Independence as a Motivation

In their 2008 paper Sanchez et al found that rather than having economic factors as the driving force behind Spanish entrepreneurs, "creating my own business," was the overwhelming motivational factor. The desire to be self-employed in itself has a variety of factors that influence its appeal to entrepreneurially orientated individuals. One such factor, whether correct or not, is the perception that self-employment offers greater potential for more of a work life balance where being your own boss means setting your own deadlines and working hours. This theme of independence was also discussed by Edelman et al (2010) in their work examining the motivational influences of ethnic minority entrepreneurs where the desire for freedom, control and flexibility was emphasized. In a survey of black and minority ethnic graduates, Hussain et al (2008) found that 35% of those questioned stated that being their own boss was the major motivating factor followed closely by financial considerations at 31%. Interestingly these responses varied between ethnic backgrounds with Indian, Pakistani and Bangladeshi graduates clearly appearing to be more motivated by independence.

Approval and Recognition as Motivations

In addition to economic achievement and independence, Khanka (2009) found that a significant number of first generation entrepreneurs from the North East Indian were driven by the desire to be recognized. The

theme of recognition and personal development is also explored by Benzing et al (2005) where the motivational characteristics of entrepreneurs from Ho Chi Minh City and Hanoi are contrasted. Here the argument is that as Ho Chi Minh City is further advanced in its transition towards a market economy, "Maslow's higher order achievement needs may begin to dominate more basic security needs," resulting in more intrinsic factors such as recognition to be present.

5. Barriers Facing Potential Entrepreneurs

Access to Finance

The challenge of securing funding for start-up ventures in an increasingly competitive environment can prove to be a prohibiting one for some of the entrepreneurs of today. The previous experience of a serial entrepreneur can give an advantage over a novice in securing funding for a start-up enterprise due to his previously developed skills and social connections (Zhang, 2011). Both private investors and financial institutions alike have become more cautious when it comes to making direct investment and lending decisions and as a result may be more influenced by an entrepreneur's track record rather than the investment opportunity itself. As many graduates and individuals exploring the prospect of self-employment for the first time will lack a track record in business start-up, their credibility may be questioned by banks and venture capitalists alike.

New Firm and Reputation

One of the greatest problems facing newly established businesses after securing start-up capital is to develop their reputation among customers and other stakeholders (Fischer and Reuber, 2007). The new enterprise is not only at a disadvantage in terms of taking market share from more established competitors, but also faces the task of negotiating credit terms with suppliers who have been counting the cost of writing off uncollectable accounts over recent years. Such terms may in fact be so restricting that the new enterprise could potentially face crippling liquidity problems ultimately limiting the firms ability to respond to any opportunities that may be presented in the market.

Availability of Skilled Labour Force

In addition to the financial and competitive challenges that start-up enterprises face, there is also the importance of securing the right people for the right positions. The developed economies in the West are at present what could be considered employers markets as the labour market is comprised of fresh university graduates accompanied by individuals recently made unemployed with years of industry experience. This is not the case for many of the worlds developing economies where while there is a sizable pool of available workers, the necessary skill sets and qualifications are not always present and a reliance on expensive expatriate workers is necessary.

Managing Growth and Development

Entrepreneurs are typically heavily involved in the day to day operating activities of the business and as a result have little or no time to dedicate to the strategic growth and development of their firm. In addition to this, many entrepreneurs are uncomfortable with decentralizing control, particularly in terms of decision making, and as a result are unwilling to delegate responsibilities to employees in order to free up their time for strategic planning.

Encouraging Female Entrepreneurship

Studies have shown that female entrepreneurship is of growing importance in terms of their significant contributions to world economies (Brush & Cooper, 2012). The main reason behind this is the fact that women tend to face additional obstacles their male counterparts. One of these barriers may be the fact that affordable childcare for women either wanting to enter the labour market or start up their own enterprise may be unavailable (Bhatti et al, 2011). In addition to this, Nel et al (2010) identify a number of challenges specific to the female entrepreneur including resource constraints, balancing work-life commitments and being presented with a limited amount of networking opportunities. Cooney (2009) in his study of female entrepreneurship in the context of the Irish Travelling community identifies the time constraints placed on female entrepreneurs in daily duties such as homemaker, mothers and carers.

6. Entrepreneurship in Oman

Oman has for some time now appreciated the positive relationship that business start-ups have with the provision of employment opportunities, alleviation of poverty and diversification of the economy. As a result of this a number of initiatives have been introduced to facilitate an environment that is conducive to entrepreneurship. In order to make recommendations regarding what can be done to support these existing efforts, the authors believe it is important to examine each of the potential barriers identified in the previous section in the context of Oman.

Providing entrepreneurial education

In terms of providing the necessary access to finance, the Sultanate has made a number of efforts to make self-employment an attractive and feasible option for jobseekers in the country. The SANAD Program was developed to target Omani youth in particular by granting loans to those interested in pursuing self-employment. While clearly a positive step in enabling the youth to pursue entrepreneurial endeavours, the authors would question how effective the initiative can actually be due to the fact that while funding is clearly an important ingredient to a successful start-up, it may well be negated by a lack of experience and expertise. It is the opinion of the authors that to be truly effective and efficient, any provision of finance must be accompanied by a comprehensive training program, mentoring scheme or ideally both. In the United Kingdom there are entities such as the National Enterprise Network which is tasked with providing training and support to entrepreneurs from exploring business start-up to expanding their existing organisations. Examining the provision of business support in Oman, it is clear that there is room for improvement. The Public Authority for Investment Promotion & Export Development (PAIPED) is tasked with facilitating investment in the Sultanate and to strengthen the private sector although this does not extend to equipping local entrepreneurs with the knowledge and skills necessary to starting and growing their own businesses. This essential function appears to have been overlooked by policy makers and as a result of this there is clearly an opportunity for educational institutions to contribute to the growth of the private sector. Recognising the differing needs of entrepreneurs, entrepreneurial education programs should be developed to target organisations at the various stages of the business life cycle. It should be remembered that the support required by entrepreneurs does not end at the start-up phase but rather develops as the enterprise seeks methods of sustainable growth.

Strengthening ties between education and industry

Providing a steady supply of a suitably qualified and skilled workforce is another area where educational institutions will have to play a key role. In order to do this in an effective manner it is essential that strong ties are formed with industry in order to not only identify potential and existing gaps in the labour market, but also to ensure curriculum relevance and that students are equipped with the practical skills necessary to contribute in

a meaningful way to the organisations within which they gain employment. To this end, a greater emphasis on internships and placements can allow to students the opportunity to appreciate first hand exactly what is expected of them in the workplace. At the same time employers have the chance to assess the knowledge and skill gaps in future graduates and work with universities and other educational institutions in a constructive manner to identify areas for improvement to meet their future needs.

Facilitating female entrepreneurship

As previously discussed, female entrepreneurs can often face additional obstacles to their male counterparts due in part to family commitments. In terms of examining practical actions that can be taken to maximise the contribution of female entrepreneurs, the authors would suggest that an important place to start, in the context of Oman, would be to ensure that extensive networking opportunities are available. This should not be interpreted as merely arranging more networking events but should also identify and address the factors that may prohibit women in the Sultanate from participating in such opportunities. These factors are likely to differ from location to location due to the various economic and social environments of the regions in Oman. For this reason it would prove beneficial to carry out an extensive consultation in each of the districts in order to maximise the effectiveness of support offered. Another obstacle that can be linked with networking participation is the provision of affordable childcare. It is true that family ties in Oman tend to be strong acting as a significant source of support in terms of childrearing. It would however be naive to suggest that this support system is available to all women throughout the Sultanate for a number of reasons including moving away from family after marriage and having to care for elderly in-laws. This factor will not only effect networking participation but also the day to day running of their prospective enterprises which is why it is essential that women have access to an affordable childcare service.


The contributions made by SMEs and entrepreneurial individuals in terms of innovation, provision of employment opportunities and diversifying the economy are significant and well documented. Having recognised the important role that they play, it is clear that the Sultanate of Oman can ill afford to neglect to foster an environment where such enterprises will flourish and where self-employment is seen as a feasible option for Omani youth. It is clear that at present there is much to be done in order to accomplish this. While access to finance in the form of low interest loans is a positive step in the right direction, the fact that there is a lack of training relating to basic business skills for potential entrepreneurs could well contribute to a high rate of new business failures. To this end educational institutions have a role to play in developing programs relevant to differing needs of entrepreneurs from product development to exploring export opportunities. Educational institutions will also need to play a key role in the provision of a sustainable supply of graduates with the relevant knowledge and skills to be employed in and ultimately assist with the growth of SMEs in Oman. Strong partnerships with industry can be mutual beneficial and provide a feedback mechanism in relation to the suitability of graduates produced in terms of the target industry of employment. Finally an extensive review of barriers to female entrepreneurship in the Sultanate should be undertaken in order to determine if any key areas are specific to Oman. Practical support in terms of childcare and networking events should also be promoted in order to maximise the entrepreneurial contribution of females in Omani society.


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