The Effect of Working Capital Management on the Export Performance of Small and Medium Export Enterprises: Evidence from Export Manufacturing Sector in Sri Lanka

Abstract

Small and Medium Enterprises (SMEs) are critical for the development of the economy in any country and known as the backbone of industrial development in both developing and developed countries. SMEs play a key role in the economy in terms of their contribution to the national output, employment, and the number of firms operating in the country. Effective management of working capital management is necessary for a firm’s survival as well as the success of a business. It is essential to maintain a healthy working capital of Small and Medium Scale Enterprises to keep the solvency and liquidity of SMEs. The problem identified in the research was that, in Sri Lanka, 82% of SMEs are export enterprises which are expected to provide a substantial contribution to the total exports of the country, however, at present, it only contributes approximately 5% of total exports. Therefore, the main objective of the study, was to identify whether there is an effect of working capital management (WCM) practices towards the export performance of the SMEs. The respondents were chosen through a systematic sampling technique, and the responses were analyzed using SPSS version 21 to discover impact of WCM on export performance of the company. The results of the study showed that Receivable management, Inventory management, and Payable management significantly affect export performance while cash management does not have a significant effect. Findings concluded that there is a positive relationship between WCM practices and export performance of SMEs. Hence, in order to enhance the export performance, SMEs should also consider their working capital practices among other requirements.