ABSTRACT
Purpose
The purpose of this paper is to investigate the factors that hinder the growth
and survival of small businesses in Nigeria. Design/methodology/approach A
survey method was used to gather data from 211 small business owners and
managers located in selected cities in Nigeria. Several statistical analyses
were conducted to identify the factors constraining the growth and survival of
SMEs in Nigeria. Findings The results of the study reveal that the most common
constraints hindering small business growth and survival in Nigeria are lack of
financial support, poor management, corruption, lack of training and experience,
poor infrastructure, insufficient profits, and low demand for product and
services. Research limitations/implications The instruments used for this study
need to be subjected to more statistical tests in order to establish a more
robust validity and reliability. Based on what we have learned, the instruments
could be further refined to more closely capture each of the problem areas
identified in the literature. Replication of this study using larger samples
and a broader geographic base is suggested for cross‐validation purposes.
Practical implications Understanding the factors hindering the growth and
survival of SMEs in Nigeria will help policy makers – governments (federal,
state, and local), NGOs, and other stakeholders – to design targeted policies
and programs that will actively stimulate innovation, as well as helping those
policy makers to support, encourage, and promote SMEs for poverty alleviation
in Nigeria. For SMEs, this study offers alternative models to counteract the
problem of collateral and lending issues. Strategic alternatives on how to
address issues such as poor management, poor infrastructure, and corruption are
discussed. Originality/value The significance of this study stems from the fact
that very few studies have explored the issue of factors constraining the
growth and survival of SMEs for poverty alleviation in Nigeria. The results
provide additional insights into operations of SMEs in Nigeria, a sub‐Saharan
African country. Sub‐Saharan Africa has been negated and, therefore, has been
less researched. Also, the insights gained from this study to contribute the
future development of this line of research, particularly in a non‐Western
context.
TABLE
OF CONTENTS
TITLE PAGE - - - - - - - ii
DECLARATION - - - - - - - - iii
CERTIFICATION - - - - - - - - iv
DEDICATION - - - - - - - - v
ACKNOWLEDGEMENTS - - - - - - vi
CHAPTER
ONE
INTRODUCTION
1.1 Background to the Study
1.2 Statement of the Problem
1.3 Objectives of the Study
1.4 Research Question
1.5 Research Hypotheses
1.6 Significance of the Study
1.7 Scope of Study
CHAPTER TWO
LITERATURE REVIEW AND THEORETICAL FRAMEWORK
2.0 Introduction
2.1 Concepts of Small Business Enterprise
2.2 Characteristics of Small Business Enterprise
2.3 Role and Support of Small Business Enterprise
in Nigeria (Ukwuani Local Government Area of Delta State).
2.4 Problems
Facing Small Scale Enterprises
2.4.1 Summary of
the Study
CHAPTER THREE
METHOD OF STUDY
3.0 Introduction
3.1 Research Design
3.2 Population of the Study
3.3 Sources of Data Required
3.4 Method of Data Collection
3.5 Method of Data Analysis
CHAPTER
FOUR
DATA
ANALYSIS AND PRESENTATION OF RESULTS
4.0 Introduction
4.1 Data Analysis
4.2.1 Areas of Distribution
4.2.2 Types of Small Business Surveyed
4.3 Lack of Financial Resource
4.4 Lack of Managerial Experience
4.5 Corrupt Practices Faced by Small Business in
Ukwuani Local Government Area.
4.6 Infrastructure
4.2 Test of Hypotheses
4.3 Discussion of Result
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.0 Introduction
5.1 Summary of Findings
5.2 Conclusion
5.3 Recommendations
Appendix: Questionnaire
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The Small business enterprise is a sector of the economy that needs Nigeria
government attention due to the role it plays in job creation and. economic
growth in a nation’s economy.
As described by Mambula and Sawyer (2004), strategies for meeting
developmental goals in this new millennium cannot overlook the important role
of small business and entrepreneurship as the engine for growth. In almost all
economies, small businesses are vital for sustained growth. A high filure rate
is a huge negative for an economy, especially a developing economy with limited
capital. This is the situation in Ukwuani despite programmes established on
paper to help entrepreneurs, they still face principal constrains to success.
These constraints include poor management, lack of capital, corruption, weak
infrastructure, poor record keeping etc. Contributions of small business to
development are generally acknowledged, entrepreneurs face many obstacles that
limit their iongterm survival and development. Research on small business
development has shown that the rates of failure in local environment are high
(Arinaitwe, 2002). Scholars have indjcated that starting a business is’risky
venture and warns that the chances of small business owners making it past the
five-year mark are very slim. They should develop long-term and shorts-term
strategies to guard against failure (Sauser, 2005).
Arinaitwe (2002) observed that it is essential to understand the problems
facing small business development because they are significantly different from
one place to another. According to Ekpenyong (2002), the government of Nigeria
has at various time tried to help the growths of small business enterprise of
the economy by establishing agencies such as National Directorate of Employment
(NDE), Peoples Bank, Community Bank, Family Economic Advancement Programme
(FEAP), others are National Economic Reconstruction Fund (NERFUND), Nigeria
Bank for Credit (NBC) and Commerce. These agencies as mentioned by Ekpenyong
were created to support small business r.nanagers in the areas of finance such
as borrowing funds in starting or expanding their businesses and also to train
those individuals who have interest in going into various types of businesses
in Nigeria. Despite the efforts of the government to sustain small business
enterprise, none of these agencies mentioned by Ekpenyong (2002) has come up
with a well-articulated plan or method or strategy to make sure that small
business enterprise are given adequate attention. According to Aiyedun (2004),
government is expected to provide adequate enabling environment for the private
sector to invest and operate in a free market system. Once policy decisions
have been made by government, they should be implemented. No matter how well
intentioned and well-articulated such policies on small business enterprise may
be, they cannot be successfully implemented without effective administrative
public sector driven machinery whose technical competence, loyalty and
commitment should translate into action. Furthermore, Aiyedun (2004) stress
that in Nigeria, micro and small business enterprises (such as those business
of restaurant, bakeries, cafes, petrol station etc.) by the nature of their
activities and locations, often transgress - health and hygiene laws, traffic
rules etc. Some of the obstacles also include lack of financial resources, Lack
of managements experience, poor location, laws and regulations, general
economic conditions as well as critical factors such as poor infrastructure,
corruption, low demand for products and services and poverty.
There is increasing recognition that identifying the problems of facing
small business managements may be meaningful in terms of the type of assistance
(finance, training, management and technology). Following the research of Birch
(1979), he discovered that over 80% of new jobs where being generated in small
firms rather than large firms. In fact, new and young firms were the engine of
growths in other countries economy. Evidence exists that new firms and a small
number of rapidly growing young firms are responsible for a significant
proportion of gross and net new jobs.
Nigeria’s past and present rulers failed to diversify the economy which is
growing rapidly in population. Small businesses are generally regarded as the
driving force of the economic growth, job creation, and poverty reduction in
developing countries. They have been the means through which accelerated
economic growth and rapid industrialization process of converting a
socio-economic order in which industry is dominant. Examples of government
support of SMEs are taken from countries such as Taiwan, China and Japan,
Sweden and Germany whose performance of their economics are attributed to the
role of individuals or group of individual who are captains of small business
enterprise in these countries. These countries were able to achieve such high
interest in business through the encouragement by their various governments
which provided well-articulated programmes of providing soft loans and skill
acquisition for the people who have shown interest in establishing businesses
of their own. Therefore, government, scholars and practitioners should
understand the level of small business developments which plays a significant
role in providing services to the environments having in mind that development
and sustenance of small business in Nigeria will go a long way in helping
economic recovery. Although economy may be the engine room of any meaningful
national development, small scale enterprises play an important role in a
nation’s economy. Their role in the economy of the country is such that the
large business can hardly survive without small business enterprise, as they
give the important links between the large business enterprise and the
consumer. It is through the small scale business that large scale business can
survive.
Ukwuani Local Government with headquarters in Obiaruku Was carved out from
the former Ndokwa Local Government on the 4th of December 1996 by the late
General Sani Abacha of blessed memory. Geographically, the local government
area is bounded in the North by Orhiomwon Local Government Area of Edo State to
the South by Ughelli North Local Government Area, to the East by Ndokwa West
Local Government, while it is bonded on the West by Ethiope East Local
Government. It has a surface land area of about 20 l6sq kilometers. The area is
made of nine clans broken into sixteen (16) wards. The clans are Akoku, Amai,
Ebedei, Eziokpor, Obiaruku, Umukwata, Umuebu, Umutu and Ezhionum, The local
government area is rural in nature. The people are predominantly peasant
farmers. The main agricultural, products are cassava, yam, plantain and vegetables.
Apart from arable agriculture, the people also engage in small business and
petty private business to boost its general economic developments. At various
levels since the inception of the local government area, government has
designed and introduced measures to promote small business development. These
measures have included livestock, fishery, and financial incentive to the
people and through this, small business has in turn added value to the
socio-economic life of the area.
1.2 Statement of the Problem
Okpara and Wynn (2007) research on small business development has shown
that the rate of failure in developing countries (Nigeria) is very high.
According to Arinatwe (2006) small businesses are faced with the problems of
lack of technological know-how, lack of managerial skills, lack of financial
resources, lack of adequate legislature to protect small business against the
competitions from multinational and imported goods or difficulty in obtaining
soft loan Credit policies in Nigeria have also tended to discriminate against
small businesses.
Consequently, most of these enterprises have been forced to obtain funds
from family members or from micro credit markets which interest rates are very
high and often injurious. Again, while small business is been acknowledged for
its developments contributions, it still faces many obstacles that limit their
long term survival and development. Okpara and Wynn (2007) further stated that
some constrains faced by SMEs includes lack of resources, lack of management experience,
poor location laws and regulations etc. The firms dominate every opportunity
for obtaining loans and raw materials. They attract employees by offering
better wages and benefit. Small business enterprise mostly lack managerial
skills and hardly offers training and development to their employees. They are
also characterized by informality and poor information system which result to
poor decision making. SMEs mostly lack the capabilities of assessing new
technologies which enhances innovation. However, there are still rooms for
improvement in Nigeria.
The problem therefore is to find out how small business in Nigeria could be
encouraged to ameliorate and sustain small business not withstanding their
various constrains Over the past six years, government has pursued policy that
should provide fertile ground for small business (support and incentive
programme) In the light of these support and incentive programme, it would seem
reasonable to expect that small business would grow and flourish. However, the
effectiveness of these programmes remains unclear and the rate of business
failure continues to increase.
Accordingly, the present study explores the constraints to small business
growth despite all the programmes established to help them succeed. Small
business problems have been identified as administrative, operating or
strategic. Administrative problems includes personnel, finance and management
issues. Operating problems deals with allocating resources in an efficient
manner and are more common in the functional areas of a business. Examples
include marketing, operations and inventory management. Strategic problems
involve the ability of small business owners to match their product or service
with the demands of the externals environment (Harris and Gibson’s 2006). This
requires business owners to understand the nature of their business and the
needs of their customers. Business owners with strategic issues will need
assistance with management and marketing. Another area identified in the
literature that is particularly important to small business in Ukwuani is
external problems, which includes infrastructure issues, corruption, technology
and low demand.
1.3 Objectives of the Study
The specific objective of this study is to clearly:
1. Identify the factors constraining growth of small business in Nigeria (A
case study of Ukwuani Local Government Area).
2. The need to create an enabling environment that will promote and sustain
the growth and development of small businesses.
3. To find out small businesses in Nigeria could be encouraged to
ameliorate and sustain small businesses notwithstanding their various
constraints.
4. To determine how small businesses are fairing in Ukwuani with policies
developed in Nigeria.
1.4 Research Question
1. To what extent does small business have
positive relationship between corrupt practices and business success in Ukwuani
Local Government Area?
2. Do small business have management
experience and small business success in Ukwuani Local Government Area?
3. Is there any relationship between
financial resources and business success in Ukwuani Local Government Area?
4. Do small businesses encounter the
problems of bank loan in Ukwuani Local Government Area?
1.5 Research Hypotheses
This is an exploratory study to determine small business growth constrain
in Nigeria (Ukwuani as a case study). Based on what our findings would be, it
will be important to closely capture each of the problems or constraints in the
business environment.
Hypothesis I: There is no significant positive relationship between
financial resources and business success in Ukwuani Local Government Area.
Hypothesis II: There is no significant positive relationship between
management experience and small business success in Ukwuani Local Government
Area.
Hypothesis III: There is no significant positive relationship between
corrupt practices and business success in Ukwuani oal Government Area.
Hypothesis IV: There is no significant positive relationship between
infrastructure and small business success in Ukwuani Local Government Area.
1.6 Significance of the Study
Our literature research revealed that to date very little research has been
conducted on the growth constraints of small businesses in Nigeria, hence this
study. The significance of this study is as follows:
In a globalized economy, there is increasing recognition that identifying
the problems facing small business management may be meaningful in terms of the
types of assistance (finance, training, management and technology) that may be
provided.
It is essential to determine how small businesses are faring in Ukwuani
with policies developed in Nigeria.
The study draws management and policy maker’s attention to the urgent need
for specific management practices to enhance the effectiveness and sustainability
of small business in Nigeria.
Given the importance of small business to a nation’s economic growth, and
also the role that small business plays in poverty reduction, we postulate that
an understanding of the problems negatively affecting small business in Nigeria
is a vital first step in managing and avoiding the massive failure of these
small businesses. Finally, from an academic perspective, this study should
contribute to the future development of this line of research, particularly in
a developing country like Nigeria. Therefore, the present study is of
significant value to practitioners and scholars alike.
1.7 Scope of Study
This study was carried out in the year 2015. It was aimed at examining
constrains to small business growth m Ukwuani Local Government Area of Delta
State.
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