Research Report: Fuel Price Impact on SMEs in Oman (University)

This report investigates the impact of fluctuating fuel prices on Small and Medium Enterprises (SMEs) in Oman. The study examines the challenges faced by Omani SMEs due to decreased fuel prices, including increased government service charges, higher interest rates from financial institutions, and reduced financial support. The research methodology involved quantitative data collection through surveys of SME employees. The findings reveal significant financial strain on SMEs, particularly micro-organizations, due to reduced subsidies and limited resources to adapt to changes. The report analyzes the impact on various sectors and offers recommendations for mitigating the negative effects, focusing on the sustainability of these businesses. The report also includes a literature review on fuel price volatility and organizational performance, providing a comprehensive overview of the topic.

Running head: MANAGEMENT
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Abstract
This research examined the impact of the fall of fuel prices on the SMEs in Oman. Oman had
been dependent on the oil and gas industry to boost their economy. However, the massive
increase in supply in the global market and fluctuation of oil prices had heavily affected the
SMEs. The SMEs are faced with significant challenges due to the removal of subsidy from
the government and increase in interest rates charged by financial institutions. Similarly, the
increase in inflation rates to 0.90 in 2012 increased the cost of resources and good which has
also affected the productivity of the companies. The analysis of the past literature had shown
that there is very little analysis specifically on Oman and majority of the researches have
taled challenges faced by SMEs in MENA region. The research methodology had used a
mono method where quantitative data has been collected through surveys to 100 employees’
working in SMEs. The result showed that financial institutions charged high interest rates for
their services. The frequency of loan approvals had decreased and there is stringency in
providing Moreover, the removal of subsidy from the government has affected the micro
organizations tremendously as they are not getting enough support to flourish. The small
scale organizations having very less employees does not have the capability of adapting to
their changes due to their limited capability of resources. The research had provided solutions
for addressing these challenges in the final chapter of the research paper.

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Table of Contents
1.0 Introduction..........................................................................................................................6
1.1 Background of the research..................................................................................................6
1.2 Research problem.................................................................................................................6
1.3 Research Purpose.................................................................................................................7
1.4 Research objectives..............................................................................................................7
1.5 Research Question................................................................................................................7
1.6 Research hypothesis.............................................................................................................7
1.7 Summary..............................................................................................................................7
2.0 Literature Review.................................................................................................................8
2.1 Introduction..........................................................................................................................8
2.2 Fuel prices volatility.............................................................................................................8
2.3 Organizational Performance.................................................................................................9
2.4 Literature Gap....................................................................................................................10
2.5 Summary............................................................................................................................10
3.0 Research Methodology.......................................................................................................12
3.1 introduction........................................................................................................................12
3.2 Research Philosophy..........................................................................................................12
3.3 Research Approach............................................................................................................12
3.4 Research Design.................................................................................................................13
3.5 Data collection and analysis...............................................................................................13
3.6 Sampling method...............................................................................................................13
3.7 Reliability and Validity......................................................................................................14
3.8 Ethical consideration..........................................................................................................14
3.9 Summary............................................................................................................................14
4.0 Findings and Analysis........................................................................................................15
4.1 Introduction........................................................................................................................15
4.2 Reliability analysis.............................................................................................................15
4.3 Quantitative analysis..........................................................................................................17
4.4 Correlation analysis............................................................................................................30
4.5 Regression analysis............................................................................................................30
4.6 Summary............................................................................................................................35
5.0 Conclusion and recommendation.......................................................................................36

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5.1 Conclusion..........................................................................................................................36
5.2 Recommendations..............................................................................................................36
References................................................................................................................................38
Appendices...............................................................................................................................40
Appendix 1...............................................................................................................................40
Appendix 2...............................................................................................................................45

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List of Tables
Table 1: Reliability Statistics...................................................................................................15
Table 2: Item Statistics.............................................................................................................16
Table 3: Item Total Statistics...................................................................................................16
Table 4: Age.............................................................................................................................17
Table 5: Gender........................................................................................................................18
Table 6: High interest rate........................................................................................................19
Table 6: Government service charges......................................................................................19
Table 7: Flexibility in providing loans.....................................................................................20
Table 8: Government is supporting SMEs...............................................................................21
Table 9: Timely payments........................................................................................................22
Table 10: Removing subsidy....................................................................................................23
Table 11: Increase in visa fees.................................................................................................24
Table 12: Factors affecting SMEs performances.....................................................................25
Table 13: Service quality.........................................................................................................27
Table 14: Flexibility of operations...........................................................................................27
Table 15: Cost of operations....................................................................................................28
Table 16: Most affected sector.................................................................................................29

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List of Graphs
Graph 1: Age............................................................................................................................17
Graph 2: Gender.......................................................................................................................18
Graph 3: High interest rate.......................................................................................................19
Graph 4: Government service charges.....................................................................................20
Graph 5: Flexibility in providing loans....................................................................................21
Graph 6: Government is supporting SMEs..............................................................................22
Graph 7: Timely payments.......................................................................................................23
Graph 8: Removing subsidy.....................................................................................................24
Graph 9: Increase in visa fees..................................................................................................25
Graph 10: Factors affecting SMEs performances....................................................................26
Graph 11: Service quality.........................................................................................................27
Graph 12: Flexibility of operations..........................................................................................28
Graph 13: Cost of operations...................................................................................................29
Graph 14: Most affected sector................................................................................................30

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Topic: The Impact of fuel price on SMEs in Oman
1.0 INTRODUCTION
This research aims to examine the impact fuel prices on the small and medium scale
enterprises in Oman. The fluctuation of oil prices have deep impact on the economy of any
country. The small and medium enterprises are responsible for the growth and development
an economy (Bouazza, Ardjouman and Abada 2015). This means that these factors affect the
economy and is expected to have significant influence on each other. Therefore, this research
has aimed to address this perspective to shed light on the challenges facing the small and
medium scale organizations (SMEs) in dealing with the change in fuel prices.
1.1 BACKGROUND OF THE RESEARCH
Small scale and medium scale organization contribute to the 90% corporate sector in
Oman and has a reasonable contribution to the GDP of Oman (DW 2019). However, this
contribution is quite less when compared to SMEs in developed countries such as in United
States (Zafar and Mustafa 2017). SMEs are essential for the development of the economy as
it facilitates in generating employment opportunities, increase in wealth and competition of
the country. It also enables new entrepreneurs to shape their ideas into realities. Small and
medium scale organizations have been facing various challenges but the falling oil prices
have been one of the major concerns for the firms (Bouazza, Ardjouman and Abada 2015). In
the year of 2015, the oil prices decreased significantly where the GCC countries were
impacted by the sharp fall in the oil prices (Boughanmi and Khan 2018). The boom in US
shale oil production, Libya’s increased in production and the increase in production of OPEC
raised the global output of oil significantly. The GCC countries were heavily affected by the
fall in the oil prices where countries like Oman were forced to remove subsidy from oil which
resulted in the change in the small and medium scale enterprises (World Bank 2018).
1.2 RESEARCH PROBLEM
The decrease in fuel prices in Oman resulted in the increases in charges imposed by
the government in various services. The companies have to renew their commercial register
which is one type of a company register every 5 years and increased the charges on inclusion
of new activities in the commercial register (DW 2019). The financial institutions and banks
increased the interest rates on services such as funds provided to the small scale organizations
and there has been reduction in the financial facility. SMEs are affected as financial

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institutions are important fund sources to companies (Zafar and Mustafa 2017). Moreover,
higher priority has been given on government project as they are more secured and various
companies handling government project are receiving delayed payments. This has increased
the challenges facing the SME’s in Oman and the research has aimed to examine these
factors to identify the impact on the performance of the small and medium scale
organizations.
1.3 RESEARCH PURPOSE
The purpose of the research is highlighting the significant challenges and issues faced
by the SMEs in Oman. This research depicts these challenges and provides solutions to these
issues. This facilitates in providing significant knowledge to the budding entrepreneurs and
prepares them for the challenges to expect while starting a small scale business. The research
has provided solutions necessary for the sustainability of the organizations.
1.4 RESEARCH OBJECTIVES
The objective of the given research are as follows:
 To measure the impact of fall in oil prices on the performance of SME in Oman
 To identify the sectors that are highly impacted due to fluctuation and decrease in oil
prices
 To recommend preventive measures for managing the sustainability of small and
medium scale organizations
1.5 RESEARCH QUESTION
 How does the fall in oil prices impact the performances of SME in Oman?
 Which are the sectors impacted highly due to the fall in oil prices?
1.6 RESEARCH HYPOTHESIS
H0: There is no significant impact of oil prices on the performances of SME in Oman
H1: There is significant impact of oil prices on the performances of SME in Oman
1.7 SUMMARY
This chapter has highlighted the key issues and problems faced by the SMEs in Oman
along with the reasons for the decrease in oil prices in the country. The research problem has
been explained in detail to provide the context to which the research is being performed. The

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objectives, hypothesis and the primary research have been formulated to provide a direction
to the research and define the aspects included with the research scope. The next chapter has
critically evaluated past literature to understand the concept of fuel price fluctuation and the
way it affects the economy and the companies within it.

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2.0 LITERATURE REVIEW
2.1 INTRODUCTION
This chapter evaluates past literature on instability in fuel prices to understand its
impact on oil prices in Oman. Fuel is one of the commercial commodities and affect both the
macro and micro economy of a country. Fuel price adjustment refers to the consistent change
in fuel prices in global market which results decrease or increase in global oil price
fluctuations. The change in fuel prices affects the global market in whole but its impacts on
the other business within the national boundary also very noticeable (Boughanmi and Khan
2018). Various businesses suffer from the frequent changes in fuel prices where the SMEs are
highly affected by this fluctuation which affects their productivity, turnover and profitability.
2.2 FUEL PRICES VOLATILITY
According to Serletis and Xu (2016), small and medium scale businesses are defined
as the organizations that independently operated, owned and are not determinate in the
process field. As stated by Asane-Otoo and Schneider (2015), the small and medium scale
organizations can be measured quantitatively by the sectional differences and employee
numbers. On the contrary, Apergis and Vouzavalis (2018) stated that SME can also be
measured qualitatively by indicating the group operating locally or the independent
managers. Dikova et al. (2016) states that small organizations play a significant role as a
safety in net in alleviating poverty. Asane-Otoo and Schneider (2015), stated that policies are
aimed to arouse efficiency in allocation of resources but the major consequences results in
effect which is unequal distributive. The major impact of the fuel price fluctuation is that the
consumers and the business entities have to take up some of its costs. Serletis and Xu (2016),
states that even though the large organizations are able to weather the impact of fuel price
adjustments, the small scale organizations face challenges while dealing this fluctuations.
Small and medium scale organizations have faced immense difficulties in dealing with these
challenges and have struggled to maintain their sustainability (Krane 2015). SME’s are
essential for creation and generation of new employment opportunities. However, literature
on the contribution of small scale organizations to the economy is blurred. There have been
few firms that have been able to cater to niche markets and gain profitability but the majority
of the business entities face challenges due to the increase in the cost of raw materials and
equipment resulting due to the higher fuel prices (Matar et al. 2015).

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The fluctuation in oil prices is normal and keeps happening all the time and the
activities of the small scale organizations are constantly being affected which affects their
growth. Krane and Hung (2016) studied the different factors that have limited the growth of
small scale organization at the global level and the results showed a considerable amount of
limiting factors for the organizations. The results have been categorized into external and
internal factors where the internal factors consisted of the inability of the entrepreneurs to
understand the business principle dynamics (Apergis and Vouzavalis 2018). The external
factors are driven by policies and these factors are definitely acting as constraints for the
growth of the small scale organizations. Crude oil can be considered ass the single most
driving factor for the global economy and changes in the oil prices have significant impact on
the economic growth and welfare of a nation (Krane and Hung 2016). There are various
channels through which oil prices shocks are transmitted into the economy which results in
increase in production costs due to a positive oil price shock which restricts the output. This
implies that the small scale organizations from different areas of their operation which makes
it difficult for them to cope up with the market dynamics. Moreover, as the fall of fuel prices
directly impacts the economy and income of the government, it changes the spending pattern
of the government and development of new policies that affect the changes (Asane-Otoo and
Schneider 2015).
The sharp drop in the oil prices in the previous years have experienced a significant
change in the organizational policies in Oman. Oman, being the country having one of the
least oil and gas reserves among the GCC countries have turned to other sectors for the
growth of the economy (Boughanmi and Khan 2018). The turned to the debt market and
have taken bold steps such as subsidy cuts, increase in fees and reduction of benefits for the
workers in the public sector. The subsidy cuts amounted to more than 50% of the original
subsidy which means that the small and medium scale organization will not receive similar
amount of financial support and there will increase in cost of other commodities in the market
(Krane and Hung 2016). This has resulted in an increase in the inflation rate and the small
and medium scale organizations are not in positions to negotiate the prices concessions.
Moreover, they cannot pass on inflationary to the consumers as fall in oil prices and reduction
in income of the population affects their consumer spending.

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2.3 ORGANIZATIONAL PERFORMANCE
Fuel price reduction or fall not only affects the oil and gas companies but also other
commodities in the market. Boughanmi and Khan (2018) stated highlights that small scale
organization are faced with challenges in obtaining credit loans for normal business
operations and project expansion. This effects the performance of companies due to the
increase in interest rates. The increase in tax rates and lack of financial assistance results in
managing productivity of small scale organizations. Aryee et al. (2016) states that
organizational performance is the central area focusing on management of private and public
organizations. The majority of the empirical studies on organizational performance has been
defined differently due to the diverse perspective of authors in different studies. Kucukaltan,
Irani and Aktas (2016) conducted an in depth analysis of organizational performance to
identify five integrative models classified as per the level of complexity, performance
measurement matrix, performance pyramid, stakeholder approach, balance scorecard and
organizational effectiveness model.
These models take performance indicators into account to measure the performance of
organizations of various types. The Fitzgerald model considers six performance indicators,
out of which four are factors leads to effective results (Masa'deh, Obeidat and Tarhini 2016).
Flexibility, quality of service, economy of resources and innovation are four factors that leads
to results such as financial and competitive performance. The Fitzgerald model is a
conceptual model but it has not been tested empirically. Similarly, another model proposed
by Cross and Lynch, (1989) includes factors and results; the performance pyramid model
consists of strategic indicators at the top and the operational indicators at the bottom factors
(Hemmeter et al. 2015). The strategic indicators consist of financial and market indicators.
The operational indicators consists of factors such as service/product quality, transformation
delay, cost and delivery delay. The mid-level indicators consist of factors such as flexibility,
productivity and customer satisfaction. The models used in examining the organizational
performance consists of financial and non-financial indicators along with factors that depicts
the results.
2.4 LITERATURE GAP
The majority of the literature has failed to conduct a quantitative analysis to establish
the relationship between fuel price fluctuation and organizational performance. There is lack
of empirical analysis and in depth data. Moreover, very few of the literature have assessed the