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Sunday, 26 January 2020

EFFECTS OF EXTERNAL BUSINESS ENVIRONMENT ON PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES

EFFECTS OF EXTERNAL BUSINESS ENVIRONMENT ON PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The role of Small and Medium Enterprises (SMEs) in the national economy cannot be underestimated as they play important role in the global economy (Taiwo, Ayodeji & Yusuf, 2015). SMEs are key players in the economy and the wider eco-system of firms. Enabling them to adopt and thrive in a more open environment and participate more actively in the digital transformation for essential boosting of economic growth and delivering a more inclusive globalisation (Organisation for Economic Co-operation and Development, 2017). However, in the developed economy particularly the OECD countries, SMEs are the predominant form of enterprise, accounting for approximately 99% of all firms. They provide the main source of employment, accounting for about 70% of jobs on average, and are major contributors to value creation, generating between 50% and 60% of value added on average (OECD, 2016). In emerging economies, SMEs contribute up to 45% of total employment and 33% of GDP. SMEs contribute more than half of employment and GDP in most countries irrespective of income levels when taking the contribution of businesses into account (International Finance Corporation 2010).
Furthermore, according to Ruchkina, Melnichuk, Frumina and Mentel, (2017), SMEs constitute an important part in economic development of any given country and contribute considerably to regional economic development by creating new jobs, providing investment opportunities and forming the economic capital and potential required for sustainable economic growth. 2 In developing economy such as Nigeria, SMEs are widely acknowledged as the key engine of economic development (Small and Medium Development Agency of Nigeria, 2013). Because of this realization, a central issue dominating policy debates around the world and Africa has been to induce economic growth through the growth of SMEs. Most people in developing countries must support themselves and their families (Ball, Geringer, Minor& McNett 2010). Thus, understanding economic growth is essential to understand the economic challenges facing a country and how resources should be managed to maintain sustainable development at regional, national and international levels (Wiik, 2017). The contribution of the SMEs sector to the Nigerian economy is essential for the accomplishment of the broader development objectives such as poverty relief, spreading of employment opportunities and increasing indigenous ownership of resources in the economy (Chidoko, Makuyana, Matungamire& Bemani 2011). Furthermore, SMEs facilitates the growth and development of human and capital resources towards general economic development and the rural sector in particular (Chinweuba & Sunday, 2015). Small and Medium Scale Enterprises (SMEs) contribute about half of Nigerian GDP and accounts for over 25 per cent of employment in the country (Small and Medium Development Agency of Nigeria, 2013). There are 17 million SMEs in Nigeria, employing 60 million persons and contributes about 48 per cent to the nation’s Gross Domestic Product in nominal terms (Small and Medium Development Agency of Nigeria, 2013). This sector is responsible for most of the advances in new products and process and provides most of the employment opportunities, as a central indicator of the overall operation of an economic system (Enterprise Baseline Survey 2012).
There are various definitions as to what constitutes SMEs. Small and Medium Development Agency of Nigeria (SMEDAN) definition adopts a classification based on dual standards, employment and assets (excluding land and buildings). Small Enterprises are those enterprises whose total assets (excluding land and building) are above Five Million Naira but not exceeding Fifty Million Naira with a total workforce of above ten, but not exceeding forty-nine employees. Medium Enterprises are those enterprises with total assets (excluding land and building) are above Fifty Million Naira, but not exceeding Five Hundred Million Naira with a total work force of between 50 and 199 employees. For this study, SMEDAN definition of SMEs was adopted. SMEs is regarded as enterprises whose total assets (excluding land and building) are above Five Million Naira, but not exceeding Five Hundred Million Naira, with a total work force of between 10 and 199 employees. However, SMEs play a significant role to the growth and development of a country. Baloyi (2010) opined that despite the existence of SMEs, their performance has become a thing of concern as SMEs in the country still continue to weaken (not all SMEs are experiencing growth).Douglas, Micah and Tom (2014) opined that 90% of the business startups do not operate beyond the third anniversary due to lack of environmental factors. More so, there are other SMEs that have stagnated at the survivalist stage which may be due to poor performance (Bidzakin, 2009). Performance is the ability of an organization to achieve objectives such as high profit, quality product; large market share, good financial outcomes and survival at pre-determined time using relevant strategy for action. Thus, performance can also be employed to consider how an organization is performing in terms of market share, volume of products, customer’s demand, loyalty and investment.(Obiwuru, Okwu, Akpa and Nwankwere, 2011). Business enterprise performance according to Oghojafor, Olamitunji, and Sulaimon (2011) is how a manager effectively and efficiently utilizes the organisation’s resources so as to achieve the organisational goals and satisfy the stakeholders. However, Neringa and Justina 4 (2014) performance of enterprise as service quality that denotes the discrepancy among customer’s anticipations and opinions about quality of services provided. Furthermore, enterprise performance means how the growth potential exhibited by the SMEs contributed substantially to job creation, thereby improving the economic status of the business enterprise as opine by (Adesanya, 2014). Performance does not take place in a vacuum but, within certain environment which has challenges and opportunities (Walter, Clynes, Tang, Marmostein, Mellor, & Berger, 2008). Environmental forces create challenges and opportunities for the organization (Pearce & Robinson, 2007). Nevertheless, managers/owners must respond and adjust to alterations in their surroundings so as to be able to recognize the challenges and opportunity that lies ahead of them in their business environment in order to perform efficiently. Business environment is marked by different dynamic features such as global competition, information technology, quality service revolution and corporate social responsibility which compel managers to rethink and reshape their approach to various operational responsibilities. Due to this paradigm switch, new firms are emerging that are more responsive to their external environment (Luthans, 2007). Furthermore, Ibidunni and Ogundele (2013) classified the nature of the business environment as stable, dynamic and unstable and this habitually assists a business enterprise in selecting suitable strategies. Pearce and Robinson (2011), an enterprise external environment was first recognized by open systems theorists who observed that organizations operate not as self-contained isolated units but in continuous and inevitable interaction with the large system surrounding them and within which they exist.

1.2 Statement of the Problem
Several of the existing literatures such as Samad (2007), Saleh and Ndubisi (2006), Teoh and Chong (2008) identified various problems facing SMEs in a globalized environment such as, difficulty in facing recession, low productivity, lack of managerial capabilities, lack of financing, environmental factors, difficulty in accessing management among others. These problems cause the small and medium enterprises not to perform effectively. Environmental downturn has been a constant challenge facing SMEs since the year 2007 (Harvie, 2004). The world economy experienced several unfavourable environments, which lead to low performance of SMEs. Most nations are currently showing a diminishing environmental growth and increasing cost of production, which results to collapse of these business firms (Harvie, 2004). However, SMEs suffers from a number of challenges leading to poor business operation. According to World Economic Forum (2017) survey, SMEs rank 127 out of 138 countries in Global Competitiveness Index and 169 out of 190 countries in doing Business Index (World Bank, 2017). The avoidance of a future crisis could, therefore, depend upon developing a favourable environment that will make these SMEs compete in both domestic and external markets (Harvie, 2004).
However, due to the differences in economic condition, socio-cultural and technological advancement of the global economies, it may lead to differences in the findings. Therefore, there is need to look at the environmental factors that impact SMEs performance in developing countries such as Nigeria (Li & Liu, 2014). Stagnated growth of SMEs in Nigeria as a developing country is an issue of great concern (Omolomo, Odunayo and Tobora, 2014). This is because its persistence may serve as a stumbling block to any effort by the government to eradicate poverty and unemployment because of its impact on income distribution and employment generation. However, agreeing with the report by Small and Medium Enterprise Development Agency of Nigeria SMEDAN (2013), 95% of SMEs in Nigeria still operate as micro businesses and only around five per cent of start-up companies survive and develop to maturity SMEDAN (2008). Thus, Omolomo, Odunayo and Tobora (2014) indicated that irrespective of country, more than 50% of SMEs collapse within their first five years and about 25% go bankrupt or fold up in Nigeria due to poor management and unfavourable environment which result in poor performance and eventually total collapse.

Format: MS Word
Chapters: 1 - 5, Preliminary Pages, Abstract, References
Delivery: Email
No. of Pages: 115

NB: The Complete Thesis is well written and ready to use. 

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Masters Project Topics in Accounting and Finance



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