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Effect of Environmental factors
on Small Scale Businesses performance
Chapter
One
Introduction
1.1
Background to the Study
Small
scale businesses (SSBs) constitute large population of businesses worldwide and
they play a significant role in the economy. Consequently, the performance of small-scale
enterprises sub-sector is closely associated with the performance of the
nation. SSBs play very important role towards fostering accelerated economic
growth, development and stability within several economies. They play
tremendous roles in employment generation, provision of goods and services,
creating better standard of living, as well as contributing to the growth of
Gross Domestic Product (GDP) of the nation, (OECD, 2000). Small firms create
new jobs, open up opportunities for upward social mobility, foster economic
flexibility, and contribute to competition and economic efficiency (Liao,
Welsch, & Moutray, 2009). SSBs are the driving force for economic growth,
job creation, and poverty reduction in developing countries. They have been the
means through which accelerated economic growth and rapid industrialization
have been achieved. Furthermore SSBs has been recognized as a feeder service to
large- scale industries (Fabayo, 2009).
Studies
have indicated that SSBs provide an effective means of stimulating indigenous
enterprises, enhancing greater employment opportunities per unit of capital
invested and aiding the development of local technology (Sule, 1986; and World
Bank, 1995). SSBs help in mobilizing surplus income and resources through
savings for investment. In similar vein they also encourage, as well as,
promote the use of local raw materials. Their nationwide spread contributes to
a more equitable income distribution among individuals and regions, as well as
mitigating rural-urban migration. They also enhance the strengthening of
industrial linkages and the integration of industry with other sectors of the
economy via production of intermediate products such as raw materials and spare
parts.
In
Nigeria, for instance the recent survey of formal sector of small and medium
enterprises by National Bureau of Statistics (NBS) and Small and Medium Scale
Enterprises Development Agency (SMEDAN) reveals that 92.8 per cent of the
enterprises are small scale while 7.22% are medium scale enterprises,
(NBS/SMEDAN, 2012). Small scale businesses represent about 90% of the
industrial sector in terms of the number of enterprises; they also account for
70% of national industrial employment if the threshold is set at 10 – 50
employees, and contribute 10% of manufacturing output in Nigeria (Ajayi, 2002).
Anwatu (2006) opined that 75% of the private sector in Nigeria is dominated by
small scale enterprises reiterating that Organized Private Sector (OPS) is the
engine of growth and creator of wealth and employment. The Nigeria Chamber of
Commerce, Industry, Mines and Agriculture (NACCIMA), (2006) argued that Small
businesses are the vehicle for rapid industrialization and development of any
nation. Eke (2007) argued that small businesses account for over 93 % of the
total entrepreneurs in Nigeria.
However,
despite the number of SSBs and assistance given to them by government and other
agencies toward sustainable economic development, the performance of the sector
still fall below expectation in Nigeria, (Basil, 2005 & Abiodun, 2011).
This may be because the sub-sector has been bedeviled by several environmental
factors militating against its performance. Thus, this study assess the
performance of SSBs in Kano and Sokoto from 2005 to 2012, and also examine the
extent to which the major environmental factors (internal and external)
impacted on the performance of SSBs in the two states using profit, sales
(revenue) and employment (number of employees) as performance indicators. Business
performance refers to the firm‟s success in the market, which may have
different outcomes (Lebas & Euske, 2002). Therefore, strategically business
performance is often referred to as firm success or failure. Business
performance is a focal phenomenon in business studies. Therefore looking at the
firm as a complex organization seeking to survive or thrive in its competitive
environment, performance evaluation and measurement systems serve as a key
contributor to the perceptual and coordination/control capabilities of the
firm. Firms evaluate their performance to help monitor and control specific
activities; to predict future internal and external states; to monitor state
and behavior relative to its goals; to make decisions within needed time
frames; and to alter the firm‟s overall orientation and/or behavior. Firm
performance measurement has been described in terms of the extent to which a
firm‟s economic and strategic objectives are achieved in the market place.
Since essentially all firms regularly set and refine strategic and economic
goals for their pursuits, high performance is the function of the degree to
which the firm has achieved its goals. Accurate business performance evaluation
is a key to success for enterprises. As such the research in the area of SSBs
performance assessment is necessary for the success of SSBs in developing
countries like Nigeria.
A
business organization could measure its performance using the financial and
non-financial measures. Recognizing the limitations of relying solely on either
the financial or non-financial measures, owner-managers of the modern SSBs have
adopted a hybrid approach of using both the financial and non-financial
measures. The selection of performance measures that reflect the true situation
of small and medium businesses with some degree of certainty and reliability is
indeed a crucial process. The lack of universally accepted standard performance
measures left the door open to business organizations to decide and choose
their own performance measure.
1.2
Statement of the Problem
SSBs
are the engine of growth and development of most developed and developing
nations in the world, but unfortunately the state of economic growth of Nigeria
appears to be very low despite the large concentration of businesses in the
country. The poor contribution of SSBs to the development of the country may be
due to some internal and external business environmental factors such as
management inefficiency, marketing and sales problems, inadequate
infrastructure, market competition, and financial inadequacy that are
militating against the performance of SSBs in term of their profit, sales and
employment generation.
Small
and medium enterprises (SMEs) in Nigeria have not performed creditably well and
hence have not played the expected vital and vibrant role in the economic
growth and development of Nigeria, (Basil, 2005). Year in year out, government
at federal, state and local level make an effort in support of entrepreneurship
development, but still the contributions of SSBs to economic development is
low. It is worrisome that despite the incentives, favorable policies,
regulations and preferential support by government aimed at improving SSBs, the
sub-sector have performed below expectation in Nigeria (Abiodun, 2011).
Inspite
of the large volume of studies on SSBs in developing countries, there is a
death of literature on studies relating to business performance evaluation
particularly in the North West of Nigeria. Most of empirical studies conducted
in developing countries particularly in Nigeria are mainly related to the
problems of SSBs, but the question of the extent to which environmental
factor(s) affect the profit, sales and employment of SSBs and assessment of
their performance in Kano and Sokoto states has not been thoroughly
investigated.
Effect of Environmental factors on Small Scale Businesses performance
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