AFACTOR ANALYSIS

Factor analysis is a technique which helps to reduce the number of variables and also to detect
structure in the relationships between variables, that is to classify variables. Thus factor analysis
is applied as a data reduction or structure detection method (the term factor analysis was first
introduced by Thurstone, (1931).
In order to test the validity of the data for factor analysis KMO (Kaiser Meyer Olkin ) and
Bartletts test of Sphericity was conducted. This test is an indicator to know how well the sample
data is suited for factor analysis. It is the ratio of the sum of the squared correlations for all
variables in the analysis to the squared correlations of all variables plus the sum of the squared
partial correlations for all variables. The denominator of this ratio increases with the variation
that is unique to pairs of variables (partial correlations), making the value of KMO less than one.
These measures suggest that values of 0.9 or higher are great and values below 0.5 are
unacceptable. The use of KMO and Bartletts test of sphericity is essential to measure sample
adequacy for using factor analysis.
KMO AND BARTLETTS TEST
Kaiser Meyer Olkin
Bartletts test of Sphericity

Measure

of

Adequacy
Approx. Chi-Square
DF
Sig

Sampling 0.759
135.806
10
.000

The factor analysis is used to study the problems faced by MSMEs in Visakhapatnam district.
These problems are studied in five areas.
1.
2.
3.
4.
5.

Finance Problems
Production Problems
Marketing problems
Managerial problems
Pre Commencement of business Problems

Finance problems contains 15 variables, Production problems contain four sub problems namely
Raw Material, Power, labour and Technology. On the whole 17 variables are covered in all the

four sub problems. 11 variables are covered in marketing problems, 5 variables are covered in
managerial problems and 7 variables are covered in Pre-Commencement of business problems.
Hence on the whole 55 variables are covered in five areas.
55 variables were run into SPSS software and the results showed only 33 variables. Which are as
follows:
I Finance Problems:
1. Grant of loan (GL)
2. Documentation (D)
3. Security (S)
4. Maintain books of accounts (MBA)
5. Budgeting (B)
6. Payment of VAT (V)
7. Payment of CST (C )
8. Payment of Excise duty (ED)
9. Payment of Custom duty (CD)
10. Problem for claiming Input Tax Credit (ITC)
11. Factoring (F)
12. Allowing credit to customers (ACC)
13. Slow collection of debts (SCD)
14. Grant of subsidy (GS)
15. High discount allowed (HDA)
II Production Problems:
(i)
Raw Material:
1. Shortage of availability of Raw Material (SRM)
2. High cost of Raw Material (HRM)
3. Increase in ordering cost due to less quantity ordered (OC)
4. Import of Raw Material (IRM)
5. Problems in storage of Raw Material (STRM)
(ii)
Power Problems:
1. Power cut (PC)
2. High cost of alternate power (diesel for generator) (AP)
3. Power holiday (PH)
4. High expenditure on power consumption (EPC)
(iii)
Labour Problems;
1. High cost of skilled labour (HSL)
2. Non availability of skilled labour (NASL)
3. Frequent absenteeism of labour (FAL)
4. More idle time spent by labour (ITL)
(iv)
Technology Problem:

1. Non Availability of Machinery (NAM)

2. Under utilization (UU)
III Pre- Commencement of Business Problem:
1. Seeking permit from environment department (SPED)
2. Registration (R)
3. Tax related problems (TP)
Communalities
Initial

Extraction

grant

1.000

.770

documen

1.000

.836

security

1.000

.747

books

1.000

.793

budget

1.000

.784

vat

1.000

.898

cst

1.000

.962

excise

1.000

.943

cusdut

1.000

.950

inputax

1.000

.860

facting

1.000

.823

cretoc

1.000

.811

slowdet

1.000

.927

subsidy

1.000

.807

highdis

1.000

.635

shorage

1.000

.995

highct

1.000

.801

ording

1.000

.860

imporrm

1.000

.756

storarm

1.000

.740

powcut

1.000

.843

altertiv

1.000

.956

holiday

1.000

.882

highexp

1.000

.901

skilled

1.000

.916

nonaval

1.000

.900

absent

1.000

.993

idltime

1.000

.801

navimac

1.000

.872

under

1.000

.821

over

1.000

.784

Extraction Method: Principal Component Analysis

TOTAL VARIANCE EXPLAINED

Initial Eigen values
Componen
t

% of
Varianc
e

Cumulativ
e%

10.230

28.416

28.416

2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24

4.322

12.006

40.422

3.750

10.416

2.460

Rotation Sums of Squared

Loadings

Loadings

% of
Variance

Cumulativ
e%

Total

28.416

28.416

6.047

16.797

16.797

4.322

12.006

40.422

4.616

12.822

29.619

50.839

3.750

10.416

50.839

3.783

10.509

40.128

6.832

57.671

2.460

6.832

57.671

3.414

9.483

49.611

2.059

5.718

63.389

2.059

5.718

63.389

2.996

8.321

57.932

1.676

4.655

68.044

1.676

4.655

68.044

2.421

6.726

64.658

1.572

4.366

72.410

1.572

4.366

72.410

1.752

4.867

69.526

1.497

4.158

76.569

1.497

4.158

76.569

1.715

4.763

74.288

1.273

3.537

80.106

1.273

3.537

80.106

1.416

3.932

78.220

1.058

2.938

83.044

1.058

2.938

83.044

1.398

3.883

82.104

1.014

2.815

85.859

1.014

2.815

85.859

1.352

3.755

85.859

.856

2.378

88.237

.688

1.911

90.148

.617

1.714

91.862

.466

1.294

93.156

.403

1.120

94.276

.341

.947

95.223

.291

.807

96.030

.251

.697

96.727

.232

.645

97.372

.195

.542

97.914

.153

.426

98.341

.128

.355

98.696

.121

.337

99.033

Total
1

Extraction Sums of Squared

Total
10.23
0

% of
Cumulative
Variance
%

25
26
27
28
29
30
31
32

.098

.272

99.304

.083

.231

99.535

.054

.149

99.684

.041

.113

99.797

.024

.067

99.864

.022

.061

99.925

.015

.043

99.968

.007

.020

99.987

33

.004

.012

99.999

34

.000

.001

100.000

35

-2.661E-

-7.392E-

16

16

-7.634E-

-2.121E-

16

15

36

100.000
100.000

Extraction Method: Principal Component Analysis

In order to reduce the number of factors and enhance the interpretability, the factors were rotated.
Since the rotation increases the quality of interpretation of the factors. Though there are various
methods for rotation in order to obtain simple structure of the data. The varimax rotation is one
such method which is used in order to obtain better result for interpretation which is show in the
below table.
TABLE 1:

ROTATED FACTOR LOADINGS

FACTOR
S. VARIAB
No LES

CO
M
MU
NA
LIT
Y
1

finance

.111 .034

-.01 -.07
1

.038

-.22 -.12 -.13

3

10

.092 -.884

11
.

172 923

prodion

-.00 -.18 -.00

6

marketin
g
manage
m

.004 .029
-.05
0

precomm -.06
5
grant

documen

security

books

budget

vat

cst

excise

cusdut

inputax

facting

cretoc

slowdet

subsidy

highdis

shorage

.128

-.09
2

-.06 -.03
5

-.03 -.10 -.01

4

.131 .061

.009

.112

-.01
1

4
-.01
7

.161 .055

.009 .092

.084 .038

.014

-.00
1

-.02
6

-.62
4
-.04
8

.370 .439

.308 .169

.005 -.887 .076

.086 .898 .045 .186

.810 .020 .111 .144 .086 .055 -.011 -.210

.151 .016 .870 .145 .090 .133 .067 .017 .005 -.041

.122 .179 .154

-.29 -.46
0

.112 .028 .792 .047 .176

.461

-.13
4

-.23 -.06 -.07

1

.468 .033 .549 .061 .389 .079

.939 .038 .045 .153 .152

.942 .043 .051 .159 .152

.848 .102 .096 .283

-.01
7

.013

-.09
9
-.02
3

-.04 -.06 -.00

3

.383 .197 .465 .331 .076 .313 .373

.320 .028 .097 .804 .095

-.06 -.04 -.00

-.09 -.04 -.10

3

-.05 -.18

.897 .063 .115 .185 .093 .013 .015

.920 .105 .130 .187 .212

.286 .214 -.127

.310 .044 .090 .884 .165 .025

-.03
5

-.01 -.05
2

-.165 .161

-.033 -.104

-.055 -.057

.055 -.022

.053 -.027

.083 .075 .032

-.03 -.03 -.10

9

-.053 .229

-.145 .144

.043 .165

.034 .041

.282 .000 .058 .693 .212 .142 .006 .316 .086 .042

.392 .069 .059 .614

-.02 -.10
5

.029 .118 -.188 -.139

.725 .069 .507 .412 .184 .027 .021 .003 -.029 .011

389 925
-.87

3 931
.

255 890
.

103 874
.

034 770
-.04

9 836
.

019 747
.

021 793
.

104 784
-.10

4 898
-.03

3 962
.

036 943
.

016 950
.

073 860
.

161 823
-.00
3
.

.811
.

071 927
.

264 807
-.12

2 635
.

043 995
highct

ording

imporrm

storarm

powcut

.213 .145 .236 .525 .602 .038 .067

holiday

.002

skilled

nonaval

absent

idltime

-.07

-.09

-.04
7

.292 .547 .092 .465

.910

.152 .886

-.00
3

-.17
9

.216 .892 .103

.162 .077
-.12
3
.129
-.04
0

.197
-.01
0
.054

.090 .986 .017 .034 .086

-.09 -.04
7

-.04 -.11
3

.040 .154

.102

-.09
3

-.04 -.02 -.15 -.14

3

over

.029 .887 .137

4
under

.095

.252

-.67 -.16
4

.146 -.053

-.03
1

.166 .381 .230 .006

.269 .282 .383 .261 .734 .114 .078 .153 .087 -.017

3
navimac

-.04 -.37

.400 .198 .310 .021 .614 .121 .076 .045 .073 .172

1
highexp

.103 -.154

.307 .161 .192 .146 .759 .215 .006 .047 -.180 -.151

7
altertiv

-.02

-.14

-.05
3

-.07
7

.012

-.03 -.04
8

-.02
6

-.008 .031

.106 -.039 -.022

.109 .028 .005 .038 .047

-.07
5
-.02
3

.049 .019 -.119 -.106

.015 .028 -.037 -.016

.832 .121 .029 -.098

.361 .830 .054

.278 .531 .599

-.02
8
-.09
4

.111

.017 .112

-.173 .083

.021 .004 .093 .009 .240 .805 .040 .199 .051

-.01

8 801
-.04

3 860
.

188 756
.

096 740
.

031 843
.

000 956
-.07

7 882
.

154 901
-.20

5 916
.

090 900
-.00

9 993
-.18

2 801
.

054 872
-.10

1 821
.

0
080 784
Engen
10.2 4.32 3.75 2.46 2.05 1.67 1.57 1.49 1.27 1.05 1.0
Value
30
2
0
0
9
6
2
7
3
8
14
% of
28.4 12.0 10.4 6.83 5.71 4.65 4.36 4.15 3.53 2.93 2.8
variance 16 06 16
2
8
5
6
8
7
8
15
Cum %
83.0 85.
28.4 40.4 50.8 57.6 63.3 68.0 72.4 76.5 80.1
of
44 859
16 22 39 71 89 44 10 69
06
variance
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.

Rotation converged in 10 iterations.

TABLE 2:

CLUSTERING OF VARIABLES INTO FACTORS

FACTOR
1

4
5
6
7
8
9

VARIABLES
VAT
CST
Excise duty
Custom duty
Grant of subsidy
Maintain books of accounts
Power cut
Power holiday
High expenditure on power consumption
Pre-commencement tax related problems
Grant of loan
Documentation
Allowing credit to customers
more idle time spent by labour
High cost of skilled labour
Non availability of skilled labour
Frequent absenteeism of labour
Shortage of Raw Material
Increase in ordering cost
Problem in storage of Raw Material
High cost of alternative power
High cost of Raw Material
Non availability of Machinery
Problem for claiming Input tax credit
Registration

ROTATED FACTOR LOADING

0.938
0.908
0.923
0.891
0.761
0.754
0.817
0.810
0.669
0.683
0.879
0.811
0.777
0.595
0.811
0.905
0.866
0.781
0.732
0.510
0.867
0.636
0.669
0.727
0.529

TABLE 3:
SUMMARY OF FACTORS
Factor
Factor 1
Factor 2
Factor 3
Factor 4
Factor 5
Factor 6

Factor loading mean

0.8842
0.7466
0.7655
0.8606
0.6743
0.867

Ranking
1
5
4
3
7
2

Factor 7
Factor 8
Factor 9

0.6525
0.727
0.529

8
6
9

A 0.50 factor loading was used as a cut-off point, therefore the surviving variables with factor
loadings of 0.50 or higher are considered further for interpretation and naming. The
interpretation and naming of factors implied that the remaining or surviving variables with high
factor loadings and common conceptual meanings were grouped together to form a genuine
independent factor.

Table 1 provides summary of rotated factor patterns. After the grouping, naming and
interpretation, 9 newly established factors were identified and are considered to be significant
factors that influence the selection of problems faced by MSME sector.
Factor 1: factor 1 accounts for 22.15 percent of the total variance and is derived from six
variables, namely: budget (0.529), VAT (0.938), CST (0.908), excise duty (0.923), Custom Duty
(0.891) and problem relating to Grant of Subsidy (0.761). All these variables refer to financial
problems, hence of all the five problems studied by the researcher it is found from the analysis
that MSME are facing financial problems. This factor ranked 1 as shown in table 3.
Factor 2: factor 2 accounts to 16.348 percent of the total variance and is derived from five
variables, namely; maintenance of books of accounts (0.754), power cut (0.817), power holiday
(0.810), high expenditure on power consumption (0.669), tax related problems before
commencement of business (0.683). Of all the variables in factor 2, problems relating to Power
are playing a major role. Hence problem relating to power is a factor which MSMEs are facing.
It is ranked 5.
Factor 3: factor 3 accounts to 11.564 percent of the total variance and is derived from four
variables, namely: grant of loan (0.879), problems relating to documentation (0.811), allowing
credit to customers (0.777) and more idle time spent by labour (0.595). Of all the four variables,
three of the variables are relating to Finance problems and one variable is relating to Labour
problems. It ranked 4.

Factor 4: Factor 4 accounts to 9.415 percent of the total variance and is derived from three
variables, namely: high cost of skilled labour (0.811), Non-availability of skilled labour (0.905)
and frequent absenteeism of labour (0.866). All the three variables are representing the Problems
relating to labour. It shows that MSMEs are seriously facing Problems relating to labour. It
ranked 3.
Factor 5: factor 5 accounts to 6.717 percent of the total variance and is derived from three
variables, namely: shortage of Raw Material (0.781), Increase in ordering cost due to less
quantity ordered (0.732) and Problem in storage of Raw Material (0.510). All the three problems
are relating to Raw Material problem. It shows that the MSMEs are not only facing problems
relating to finance and Labour but also problem relating to Raw Material. It is ranked 7.
Factor 6: factor 6 accounts to 5.444 percent of the total variance and is derived from only one
variable, namely High cost of alternative power (0.867). This variable is represents the problem
relating to power. Problem relating to power has four variables out of which three variables were
derived in factor 2 and the remaining one variable is derived in factor 6. It is ranked 2. This
shows that after Finance as shown in table 3, Power plays a major role in the problems faced by
MSMEs.
Factor 7: factor 7 accounts to 4.098 percent of the total variance and is derived from two
variables, namely High cost of Raw Material (0.636) and Non-availability of Machinery (0.669).
Of these two variables one variable is relating to Raw Material Problem and the other variable is
relating to Technology problem. This factor ranks 8.
Factor 8: factor 8 accounts to 4.077 percent of the total variance and is derived from only one
variable, namely: problem for claiming input tax credit (0.727). This variable is relating to
finance problem. Factor 8 ranks 6 position in problems of MSMEs.
Factor 9: this factor accounts to 3.168 percent of the total variance and is derived from only one
variable, namely: Registration before commencement of business (0.529). This variable is only
one variable which is relating to Pre-commencement problems. It ranks 9th position.
Conclusion:

The main findings of the study have generated some important factors relating to problems faced
by MSMEs in Visakhapatnam district of Andhra Pradesh. It concludes that Finance is a major
problem faced by these enterprises which is derived in factor 1. All the finance related variables
are extracted under factor 1, namely: problems relating to budget, VAT, CST, Excise duty,
Custom duty and grant of subsidy. Due to lack of funds they are unable to meet their required
budget, unable to pay various taxes and also unable to obtain subsidy from the government.
Hence the study revealed that Finance is the major factor which these sectors are facing with.
The second highest problem faced by these enterprises is relating to power. It is derived in factor
6 which is ranked has the second position. The variable derived in this factor is high cost of
alternative power. The use of alternative power arises since there is acute power cut, power
holiday and high consumption of power. All these three variables are derived in factor 2. This
shows that all the variables relating to power are clustered in factor 2 and factor 6. It means that
MSMEs are facing serious problem relating to power, which is in turn affecting their production.
The third highest problem faced by these enterprises is relating to labor. It is derived in factor 4
which is ranked 3. The variables derived in this factor are high cost of skilled labor, nonavailability of skilled labor and frequent absenteeism of labor. All these three variables are
representing the problem relating to labor. Hence it is proved that MSMEs are facing problems
relating to labor, which in turn affects their production.
Factor 3 is ranked as 4th. The variables derived in this factor are problems relating to grant of
loan, documentation, allowing credit to customers and more idle time spent by the labor. The
first three variables are representing the finance problems and the fourth is representing the labor
problem. It shows that factor 3 also is relating to finance and labor problems.
Factor 5 is ranked as 7th position. The variables derived in this factor are shortage of Raw
Material, Increase in ordering cost and problem in storage of Raw Material. This shows that the
fourth problems faced by these enterprises are relating to Raw Material, which in turn affects the
production.
Factor 7 is ranked as 8th position. The variables derived in this factor are high cost of Raw
Material and Non-availability of Machinery. The first variable is representing the problem

relating to Raw Material and the second variable is representing the problem relating to
technology. The technology problem also affects the production.
Factor 8 is ranked as 6th position. The variable derived in this factor is problem for claiming
Input tax credit. This variable is also representing the problem relating to fianc.
Factor 9 is ranked as 9th position. The variable derived in this factor is Registration. This variable
is the only variable which is representing the problem relating to pre-commencement of business.
From the above findings it can be concluded that though the researcher has conducted a study on
five areas of problems namely, finance, production, marketing, management and precommencement of business. The results proved that the MSMEs in Visakhapatnam district are
facing to major problems. 1. Relating to Finance and 2. Relating to Production. In Production
the major problem faced by them are relating to power and next is relating to labor and then
comes the problems relating to Raw Material and a minor problem relating to technology. The
other three problems of the study are not disclosed in the analysis. It means that MSMEs are not
facing any problem relating to marketing, management and pre-commencement of business. So
Finance is the major problems and next is the Production problems. In production the major
problem faced by these enterprises is relating to power and then comes the problem of labor and
the then the problem of raw material.