Description

CHAPTER ONE:

INTRODUCTION

1.1 Background to the Study

Environmental Influence can be explained as identifiable elements within the cultural, economic, demographic, physical, technological or politically which affects the growth of business operations and survival of an organization. Environmental factors can be both internal as well external for the business. External factors can include economic and technological factors whereas; internal factors may include value system, objectives or internal relationships of a business.

Every business, whether large or small, is affected not only from internal environmental business factors but, from several external environmental factors. Some of this factor are

Climate Change, Green Agenda, Pollution, Availability of natural resources, Recycling, Waste Disposal.

Environmental influence has a lot to do in regards to how small scale businesses are ran in Nigeria, since small scale businesses (SSBs) constitute large population of businesses worldwide and they play a significant role in the economy. Consequently, the environmental influence of small scale enterprises sub-sector is closely associated with the influence 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 influence 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 influence. Thus, this study assess the influence 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 influence of SSBs in the two states using profit, sales (revenue) and employment (number of employees) as influence indicators.

Business influence refers to the firm‟s success in the market, which may have different outcomes (Lebas & Euske, 2002). Therefore, strategically business influence is often referred to as firm success or failure.  Business influence 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, influence evaluation and measurement systems serve as a key contributor to the perceptual and coordination/control capabilities of the firm. Firms evaluate their influence 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 influence 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 influence is the function of the degree to which the firm has achieved its goals. Accurate business influence evaluation is a key to success for enterprises. As such the research in the area of SSBs influence assessment is necessary for the success of SSBs in developing countries like Nigeria.

A business organization could measure its influence using the financial and nonfinancial 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 influence 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 influence measures left the door open to business organizations to decide and choose their own influence measure. As such this study used both financial and non-financial indicators to assess the influence of sampled SSBs.

The factors affecting business influence are many and varied, and may stem both from the external environment as well as from factors internal to the business. Internal factors affecting business influence may in many cases be capable of being foreseen in advance, while on the other hand some external factors are not so predictable. In most cases, a complex mixture of factors influence the influence of the business; it is very rare for one single factor to be involved. A high proportion of new ventures are closed down during their first years of life, and many small scale businesses are closed down every year, indicating that these firms were not able to maintain the alignment with their environment.

Akabueze, (2002) succinctly stated that it would seem reasonable to expect that small businesses would grow and flourish, but the rate of small business failure continues to increase because of the obstacles affecting their influence which include: lack of financial resources, lack of management 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. Others include: shortage of raw materials, handicap in obtaining finance, inadequate competent personnel, inability to control costs and problems of dumping of cheap foreign products and others. It is therefore essential to understand the problems associated with small and medium business influence in developing countries.

In almost all economies, high influences of SSBs are vital for sustained growth. Low influence and high failure rate of SSBs have huge negative effects on the economy, especially a developing economy with limited capital. Therefore the reason for poor business influence is worth investigating. Thus, this study intends to assess the influence of SSBs in Kano and Sokoto states within the period under review (2005-2012). The study also examines the major internal and external environmental factors influencing the influence of SSBs in Kano and Sokoto states using both financial and non-financial influence indicators which include profit, sales (revenue) and employment (number of employees). The study selected the following environmental factors for analysis as the most crucial factors affecting SSBs influence: Management Inefficiency (Poor managerial skills, poor planning, & poor record keeping), Marketing and Sales Problems (lack of creating awareness, lack of marketing research, & poor sales effort), Inadequate Infrastructure (poor access road, inadequate water supply & inadequate power supply), Market Competition (non-patronage due to competitors, lack of modern technology, & lack of access to advertisement facilities), and Financial Inadequacy (lack of access to external funds, high interest rate & lack of collateral).

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 influence 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 influence 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 influence in Kano and Sokoto states has not been thoroughly investigated.

1.3 Research Questions

The study was designed to seek answers to the following research questions:

1. What is the level of SSBs influence in Kano and Sokoto states?
2. To what extent does environmental factors affects the profit of SSBs in Kano and Sokoto states? iii. What are the impacts of environmental factors on sales/revenue of SSBs in Kano and Sokoto states?
3. To what extent does the environmental factors impacted on employment of

SSBs in Kano and Sokoto states?

1.4 Objectives of the Study

The main aim of this study is to evaluate the level of influence of SSBs and examine the factors affecting their influence in Kano and Sokoto states. Thus, the specific objectives of this study are to:

1. Assess the level of SSBs influence in Kano and Sokoto states. ii. Examine the impact of environmental factors on the profit of SSBs. iii.     Examine the impact of environmental factors on sales/revenue of SSBs.
2. Examine the impact of environmental factors on employment of SSBs.

1.5 Research Hypotheses

In order to achieve the stated objectives of the study, the following formulated hypotheses are proposed for testing:

Hypothesis 1: SSBs influence is not significantly high in Kano and Sokoto states.

Hypothesis 2: Business environmental factors do not have significant impact on the profit of SSBs in Kano and Sokoto states.

Hypothesis 3: Business environmental factors do not have significant impact on the sales (revenue) of SSBs in Kano and Sokoto states.

Hypothesis 4: Business environmental factors do not have significant impact on employment of SSBs in Kano and Sokoto states.

1.6 Significance of the Study

Given the importance of SSBs to the nation‟s economic growth, and also the role they plays in reducing poverty and unemployment, the result of this study would be of great importance to government, researchers and major stakeholders such as investors, staffs, managers, business consultants, financial analyst and consumers. It‟s expected to contribute to SSBs sub-sector development process in developing countries and even developed countries that share similar environmental factors influencing business influence.

In a globalized economy, there is increase recognition that identifying the factors hindering SSBs influence in a developing country may be meaningful in terms of assistance developed countries provide to developing countries in the area of SSBs development. Thus, the result of this study is expected to help both Nongovernmental organizations (NGOs) and international agencies that assist in the area of SSBs and entrepreneurship development.

The study would draw the management and policy maker‟s attention to the urgent need for specific management practice to enhance the effectiveness and sustainability of SSBs in Kano and Sokoto states. The study can also assist local entrepreneurs in formulating strategies that will guide against poor business influence.

From the academic perspective the study insights should contribute to the future development in this area of research, particularly in a developing country like Nigeria. Therefore, the findings of this study are expected to contribute to the existing literature on SSBs influence and factors affecting their influence. Thus, the study addresses an issue currently agitating the minds of academics, corporate decision makers, foreign and local investors, and government as well. It comes at the time when the country is considering very seriously, and is implementing several policies that are aimed at development of SSBs sub-sector. Given the importance of SSBs understanding the environmental factors negatively affecting their influence in Nigeria is a vital first step in managing and avoiding poor SSBs influence.

1.7 Scope of the Study

This study assesses the level of influence of SSBs from 2005 to 2012, and investigates the major environmental factors determining SSBs influence in Kano and Sokoto states. The reason behind selection of 8 years period (2005-2012), is for easy identification of SSBs owners and manager that operate within that period, second to ease analysis in terms of model formulation and control, and third during this period considerable efforts were made by governments and other stakeholders in order to improve SSBs development.

However, it is impossible for any study limited by time and resources to examine the influence of the entire SSBs sub-sector in Kano and Sokoto states. As a result, this study is restricted to small scale businesses that are operational from 2005 to 2012 in the two states. Those States were selected because first, they are among the commercial centers in north western states of Nigeria in term of concentration of SSBs. Second they are among the most populous states in the region, third considering the similar geographical features and location of the two states. For the purpose of this study SSBs are those enterprises that have 10-49 employees as classified by NBS/SMEDAN, (2012).

The study would use both financial and non-financial influence indicators which include profit, sales (revenue) and employment generation. Environmental factors that may determine business influence are many and varied, as such this study focus on two (2) internal and three (3) external key environmental factors. Therefore this study will examine the extent to which the selected environmental factors affect the influence of SSBs in Kano and Sokoto states from 2005 to 2012.

1.8        Limitations of the Study

The focus of this study is on assessment of SSBs influence; therefore its major limitation is mainly about availability and reliability of data from the sampled SSBs due to poor record keeping. Also accessibility to the data that is necessary for assessing business influence is difficult, because it involved financial data of those SSBs.

Watson and Everett, (1999a) suggested that “lack of reliable data is a major difficulty in studying small business, stating that once a small business was not performing well or has ceased operation, the information concerning the business becomes difficult to obtain”. In the test of hypothesis one the study could have use Edmister model of discriminant analysis consisting of seven variables but due to the problem of poor and inadequate record keeping by SSBs, we used alternative Springate model of multi varied discriminant analysis consisting of four variables, also the study could have use published annual reports and account of the sampled SSBs which secondary data for testing hypothesis one, but still due to improper record keeping by the SSBs, the research have to use the primary source to collect the data.

We try to mitigate the problem of availability of data by adopting the survey questionnaire method of data collection and purposive sampling technique, which is non-probability method. Jankowicz (2005) noted that where there is difficulty of accessing data, the non-probability method is more suitable, but still obtaining high response rate was not an easy task, because of the apathetic attitude towards questionnaires. Also, the prevailing economic condition which has affected SSBs made some of them to conclude that the exercise had nothing to offer.

The problem of unreliability of data also portends danger of error and misjudgment. However these limitations were overcome by the researcher, we are able to convince the respondents that the information provided is strictly an academic exercise that can lead to improved and enhanced business influence, by drawing the attention of policy maker‟s on the importance of SSBs to the nation development, in order to creating an enabling environment for SSBs to operate towards better influence. We also convince the respondent that the data collected from them would be use as confidential as possible and will not be us for any purpose except this research work.