This paper sets out to contribute to a better understanding of small firm formation and the role these firms play in the economy in terms of job creation. Moreover, it aims at formulating policy guidelines to assist the formation of Small Manufacturing Firms (SMFs). The research establishes that the formation of new SMFs in Egypt is the product of a number of structural, economic and socio-cultural factors that also characterize the regional environment and that certain factors have different effects at the national and regional levels. Also, while most new SMF entrepreneurs are positively motivated, motivation differs significantly between various settlement types (urban, rural and new settlements) in both personal and managerial attributes. In order to deal with this heterogeneity, it was necessary to group entrepreneurs into clusters sharing similar attributes. The distinction between the four clusters that emerged was further emphasized by dissimilar search patterns for location of enterprise, with education being the most influential factor in the search. In terms of employment generation, the study showed that SMFs make a limited contribution and more jobs are created by the larger firms in the sector. The study advises government agencies to adopt a location specific approach combined with an entrepreneurial specific approach to the development of new small firms. The study also identifies process of decentralization of development decision making and the formulation of a clear policy as vital to the achievement of effective assistance.
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