ANALYSIS OF THE SOCIO ECONOMIC FACTORS AFFECTING THE PERFORMANCE OF SMALL AND MEDIUMSCALE BUSINESSES IN AKURE SOUTH LGA

CHAPTER ONE

1.0   INTRODUCTION

The establishment of small businesses in Nigeria both small scale and large scale has ultimately helped in the socio economic development of the country. For this development that has been as a result of the building and establishment of these small businesses to be lasting, the challenges confronting the Small scale businesses in Nigeria has to be limited as negligence of these challenges may lead to the shutting down of the already existing ones thereby discouraging entrepreneurs from investing this profitable niche of business known as the hospitality sector of Nigeria.

The Small and medium scale enterprises have long been recognized as an instrument of economic growth and development in Nigeria. This growing recognition has led to the commitment of World Bank group on Small scale businesses sector, as core element in its strategy, to foster economic growth, employment and poverty alleviation. The World Bank group in 2004 approved roughly $2.4 billion in support of Micro, Small and Medium Enterprises (World Bank, 2001).The Small scale businesses have been given due recognitions especially in the developed nations for playing very important roles towards fostering accelerated economic growth, development and stability within several economies. Several researches have been conducted on the prospect and challenges of Small scale businesses in Nigeria and abroad as Small- and medium-sized enterprises (Small scale businesses) have long been believed to be important in supporting economics development within a country (see Akhtar& CDASED, 1999; Mazzarol, Volery, Doss, and Thein, 1999; Al-Shaikh, 1998) while others such as Chukwuemeka (2006), Agwu and Emeti, (2004), Arinaitwe (2006), Lundström (2005), Oboh (2002), Okpara (2000), Wale-Awe (2000), Ihyembe (2000), Bruch and Hiemenz (1984), Binks and Ennew (1996), Baumback (1983); and a host of othershave observed various factors or challenges that impedes the performance of Small scale businesses ranging from inadequate finance, poor infrastructural facilities, inadequate managerial skill, weak and instability of government policies and other presumed factors and challenges causing premature death of Small scale businesses as Beckman (1983) classified the problems as internal and external. Many studies have looked at the respective factors that are germane to the success of Small scale businesses. Teoh and Chong (2008), Ding and Li (2010) argued about that lack of access to credit and managerial skills are the major obstacles to entrepreneurship development and that in a knowledge-based economy, the intellectual capital is gradually replacing the physical assets in modern enterprises. In the seminal work of Aschauer (1989), he finds that the provision of public infrastructure is a significant determinant of aggregate productivity of Small scale businesses. Pointing to these different findings, it appears that empirical studies on the prospects and challenges of Small scale businesses are still largely inconclusive as the direction to which of these factors serve as prospects for Small scale businesses and those which are really challenges have not been properly identified. In tandem with the objective thrust of this study, none of these studies has observed the ranking of these challenges in order of their importance or the priorities on the Small scale businesses. The authors only argued on the presumed factors that affect Small scale businesses, that is why this study intends to look at factors that have the highest priorities or ranking order of importance using principal component of factor analysis; being the gap existing in empirical works. Apart from this introductory section, the remaining aspect of this study is divided into four other sections.

Small and medium scale business constitutes the highest percentage of business establishments in the country both at the national, state and local levels. Since they are of great importance to the nation’s economy and industrial development, one therefore, wonders why such businesses are prone to poor management. However, the poor management of the rise and fall of these businesses daily are not of major concern to most of us. This according to Omlekwusi, (1995) is that people tend to sing success and hide failure.

Basically, the aim of any businessman is to maximize profit and achieve success.  However, the achievement of his objectives depends on this managerial skill and the quality of those employed. Madu, Nwaogwugu and Ohiri (1988) noted that incompetence on the part of entrepreneurs accounts for over 35% of failure in business.

This, therefore, is traceable to their inability to employ the right caliber of people, with relevant experience and personal qualification.

To underscore this point, Frame (1975), Iwuoha, (1993) and Onvekwusis, (1995) believed that most business collapse within a short period as a result of poor management t by entrepreneurs and lack of qualified officer workers.

Since these people lack certain qualifications, they sometimes believe that business are only run by capital.

According to Nolan, (1967) and Pophan, (1971) the knowledge of business education makes one not only a good business manager but also better sales manager. Similarly, Jackson (1975) stressed the need for developing competency in payroll procedures, he believed that any community that have many small businesses need to have knowledge of accounting (pay rolling) in order to survive. Since majority of those who run small and medium scale businesses are people who are unable to complete their education or those who could not go beyond the JSS 3 and are prepared for self reliance, it is important that they understand that business education is for business and about business. To what extent the operators of small-scale businesses have the knowledge of business education or education for business is still unknown. This project, therefore determines the extent to which the operators of small and medium scale business are knowledgeable in their areas o operation, examines the factors responsible for this and suggestions where necessary.

Therefore, Yewande (1991) quoting the Federal Ministry of Industries an others defined small-scale business as one that has a total capital investment of up to 50 persons.

The World Bank defines it as an enterprise whose total fixed assets (excluding land) push cost of investment does not exceed N10 million in constant 1998 price index. While the Third National Development plan puts the capital investment of small and medium scale industry at N150,00. Some years ago the Central Bank of Akure South LGA further defines small and medium scale industry/business as one with Annual turnover not exceeding N500,000. It is therefore, clear that there is no universally acceptable definition of small and medium scale business for the purpose of this project, a working definition of small and medium scale business enterprise will be one with a working capital of N100, 000 to N150,000.

Small and medium scale business enterprises have greater flexibilities which allows this survival of economicship as compared to the large scale enterprises.

Moreover; the decision making and renovation process in large scale enterprises are in habited by rigid bureaucracy. Therefore, small and medium scale business enterprises development is important and needed by the nation.

The rote of the government and support institution in the development and growth of small and medium scale business enterprises cannot be over emphasized. The government’s rote in encouraging entrepreneurship is not just limited to providing and economic environment conductive for business and a stable political scene. To stimulate economic growth entrepreneurship, it must be able to provide the right combination of political and incentives to attract individuals to become entrepreneurs. Since government resources are limited, it is then the role of the support institutions to fill the gab between the resources needed by entrepreneurs and what the government can provide. This can be in the form of financial assistance or non-financial services to both enterprises and would be entrepreneurs. To ensure. The continued effectiveness of the small and medium scale business enterprises, it is imperative that an analysis of this be made from the perspective of the entrepreneurs themselves.      

1.1   STATEMENT OF PROBLEM

Despite the wide spread economic reforms by the state government, small and medium scale business enterprises, seem to face a variety of constraints owing to the difficulty of absorbing large fixed costs, the absence of economies of scale and scope is key factors of production, improper monitoring mechanisms  by the government, and lack of management knowledge.

From the preliminary discussion with some enterprise, the government supporting institutions do not have formal feedback mechanisms to check whether the assistance given to small and medium scale business enterprises are adequate and effective.

 The small and medium scale business enterprises are unable to introduce modern equipment machinery to improve their product due to financial constraints. It seems that access to finance remained a dominant constraint to small and medium scale business enterprises in Akure South LGA, credit pertaining to working capital is of permanent concern to small and medium scales business enterprise.

Lack of managerial know-how places significant constraint on small and medium scale business enterprise seem to attract most people, they can hardly compete with larger forms.

Association providing a voice fro the interest of small and medium scale business enterprises in the policy role compared to those of larger forms.

One major problem in Akure South LGA’s business environment is in adequate power supply. This and other factors are responsible for the problems and low performance of small and medium scale business enterprises and these problems seen to defied all efforts by government to address them.

The problems over the years have equally kept foreign investors on the run despite Akure South LGA’s efforts to lure them to invest in the country.

It’s difficult to make it in business under this environment “the rate at which power supply is being rationed these days cannot help any businessman. And by so doing, you will discover that the rate of turnover becomes so low that one keeps losing customers at the end of the day. Power supply is nothing to write home about.

Business operation here is being starved to the extreme. At a time like this, government should put more effort to salvage business operations in this country. Power. Supply has not improved even after the so called privatization this is killing business      

1.2   AIMS AND OBJECTIVES OF STUDY      

In the context of the above mentioned problems, the main purpose of this study is to analyze the factors affecting small and medium scale business enterprises in Akure South LGA. The following are the specific objectives. 

1. To identify what the government and support institutions are doing to facilitate and encourage entrepreneurship
2. To find out whether small- scale business enterprises in Akure South LGA has any association that project their interest.
3. To investigate whether lack of managerial knowhow has affected small – scale business enterprises Akure South LGA
4. To find out whether small – scale business enterprises in Akure South LGA actually have access to finance in the area of working capital.
5. To study the links between the government and non-governmental agencies that support small and medium scale business enterprises.

1.3   RESEARCH QUESTIONS

The following research question were formulated to guide the study 

1. What is the government and support institution doing to facilitate and encourage small – scale business enterprises?
2. Does the inability of small and medium scale business enterprises to form association in Akure South LGA to protect their interest has any effect on their basic operation?
3. Does lack the managerial know – how any effect on the managing of small and medium scale business enterprises in Akure South LGA?
4.  Do small and medium scale business enterprises in Akure South LGA have access to finance in the area of working capital?
5. Are there linkages between the government and governmental non- agencies that support small and medium scale business enterprises?

1.4   SIGNIFICANCE OF THE STUDY

Small and medium scale business enterprises are believed to be a sure room for the development of an economy like that of Akure South LGA. This study therefore shall be of immense benefits value to the following:

Small and medium scale Business Enterprise

The research project will be a source of assistance to the managers of small and medium scale business enterprises, it will  provide a clue to how they could solve their financial and administrative structure.

The Government and Supporting Institution

This research will provide valuable assistance to government and their supporting institution in the area of suggestion on how to have feedback on the capital they have advanced to the small and medium scale business enterprises.

Future Researchers

The findings of the research will serve as a source of reference to future re researchers who may wish to replicate this study.

1.5   SCOPE OF THE STUDY

This project work is restricted to small and medium scale business enterprises in Akure South LGA. It will bother on socio economic factors affecting the performance small and medium scale business enterprise, provision of finance and managerial problems of small and medium scale business enterprise.

1.6   LIMITATION OF THE STUDY

        The result of this project will be limited on the willingness of the respondent in filling the questionnaire. Also as some of the small and medium scale business enterprises are illiterate, this project might be hindered because most of the respondents may not be willing to disclose the facts especially when it concern. The area of their financial and control. Also the research work is limited to time and cost to complete the work.

1.7   DEFINITION OF TERMS

The researcher wishes to define some important terms used in this study so as to bring about better understanding o the context in which they are used. These terms and t heir definitions are as follows:

Small-scale Business: According to the Act of 1953, (in America) provide that a small business concern is “one which is independently and operated and not dominant in its filed of operation”.  That Act also authorize the small business administration, in making a more detailed detonation to use such criteria as number of employees and sales volume.

Retailing and services - $1 million or less annual sales.

Manufacturing - $ 5 million or less annual sales.

Business Ownership: This refers to the various forms in which a business can be owned such as sole proprietorship, partnership, cooperatives, small business etc.

Economic Development: Introduction to Business by I.R Onoja and A.B. Epkah (May 2002) in the basis for continuing industrial progress in any organization.

Poverty: This implies not having enough to eat, unfit shelter, high infant mortality rate, low life expectancy, poor environmental conditions etc.

Entrepreneurship: This is a force that mobilizes other resources to meet current market demand. It is also the ability to create and build something from practically nothing.

Illiterate: A person who has no formal education up to secondary school level although can speak, read and write.

Finance: It is an activity concerning revenue, expenditure and departmental operation and other effect on the economy.

Industry: it is agglomeration of different firms producing similar commodities under separate management.

Assets: This is a valuable property that a person or a firm can sell especially to pay debts.

Resources: This can best be defined as the sources for economic wealth or means of achieving something.

Profit: It is money gained or benefit obtained from investment.

Gross Domestic Product: Total Product produce within a country in a given period of time.

National Development: This is the transformation of the society from one state of being to another, changing from traditional way to modern method.

Development: This is the structural changes in the society and the economy.