Mitigating Business Risk in Manufacturing SMEs: A nexus between informal and formal business risk management: A case of Bulawayo, Zimbabwe

Dr Jason Mwanza & Nothando Tshuma
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Dr Jason Mwanza & Nothando Tshuma: University of Zambia

International Journal of Research and Innovation in Social Science, 2023, vol. 7, issue 1, 1107-1138

Abstract: Risk management in SMEs is now a growing area of interest. This study sought to empirically bring a nexus between informal risk management and formal risk management by profiling the mitigation strategies used by manufacturing SMEs in Bulawayo. A descriptive survey design based on a hermeneutic phenomenological approach was used. Data was collected using interviews. Strategies used include diversification ,memorandums of understanding, networks ,collaborations,cashflow management ,working with same suppliers or local suppliers, returning to the source of raw material, continuously innovating ,trading in the informal foreign exchange markets ,offering incentives to employees, reinvesting profits, bulk buying, conforming to general business regulations, enhancing workmanship, delivering quality products, niche marketing, bulk buying, keeping extra stock, maintenance of machines amongst other strategies. The study concluded that the risk management done by SMEs is entrenched in the way they make decisions. It is ingrained in experience, insights and gut feeling. The study also concludes that the decision making process though done informally mimics the formal risk management process thereby showing a nexus between SME informal risk management and formal risk management. Mitigation strategies used were concluded to broadly fall under risk reduction, risk transfer, risk avoidance and risk acceptance which are strategies in formal risk management. Risk reduction was the dominant strategy used by Manufacturing SMEs.Convergence of formal and informal risk management was also validated using the eight actions suggested by Lazarus Falkner in his theory of coping as well as the New Perspectives Theory. To bridge the gap between the informal and formal this study recommends a framework. The framework suggests formation of a Risk Management Incubator organization that will work with grass root SMEs. This institution will start off at the decision making point and understand it from the SME level then work to bring them into a more structured way of decision making in running their businesses. It will systematically work with a team of experts to demystify formal risk management and articulate it at elementary grass root SME level through awareness programs, closely working with SMEs until they are ready to formalize risk management. This hand in glove method will ensure that SMEs are moved to a systematic way of doing risk management.

Date: 2023
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