Challenges Of Managing Small Scale Business Enterprises In A Depressed Economy

Project and Seminar Material for Economics

Challenges Of Managing Small Scale Business Enterprises In A Depressed Economy


Abstract


This study was carried out to investigate the challenges of managing small scale business enterprises in a depressed economy by surveying selected small-scale businesses in Ijebu-Ode, Ogun State. The research tries to find solution to the problem in which small and medium enterprise experiences difficulties in raising equity capital from the finance houses or individuals. To do this, data were collected from both primary and secondary sources. The main instrument of data collection was the questionnaire. The data were presented in tables as frequency, distribution in the data analysis; the techniques of percentages frequencies were used. Having analyzed the data the following were the major findings; Most of the operators of small and medium enterprise in Nigeria make an average daily turnover of N15,000 and profit of about N15,000 daily. There has been a phenomenal growth in the dimensions and nature of small and medium enterprise in Nigeria, The growth is mainly on account of people’s desire to be self employed. The problems of establishing and managing small and medium business in Nigeria include lack of capital, lack of managerial skills, lack of business ideas, high cost of operational facilities, scarcity of accommodation, lack of efficient preservation, system and poor environmental and sanitation. The research therefore recommend that the government should seek the assistance of World Bank in providing long term loans to business investors in Nigeria because success in business will lead to economic development the country.


Table of Content


  • Title Page
  • Certification
  • Dedication
  • Acknowledgement
  • Table of Content
  • List of Tables
  • Abstract

Chapter One:

Introduction

  • 1.1 Background of the Study
  • 1.2 Statement of the Problem
  • 1.3 Objective of the Study
  • 1.4 Research Questions
  • 1.5 Research Hypothesis
  • 1.6 Significance of the Study
  • 1.7 Scope of the Study
  • 1.8 Limitation of the Study
  • 1.9 Definition of Terms
  • 1.10 Organisations of the Study

Chapter Two:

Review of Literature

  • 2.1 Conceptual Framework
  • 2.2 Theoretical Framework
  • 2.3 Empirical Review

Chapter Three:

Research Methodology

  • 3.1 Research Design
  • 3.2 Population of the Study
  • 3.3 Sample Size Determination
  • 3.4 Sample Size Selection Technique and Procedure
  • 3.5 Research Instrument and Administration
  • 3.6 Method of Data Collection
  • 3.7 Method of Data Analysis
  • 3.8 Validity of the Study
  • 3.9 Reliability of the Study
  • 3.10 Ethical Consideration

Chapter Four:

Data Presentation and Analysis

  • 4.1 Data Presentation
  • 4.2 Analysis of Data
  • 4.3 Answering Research Questions
  • 4.4 Test of Hypotheses

Chapter Five:

Summary, Conclusion and Recommendation

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • REFERENCES
  • APPENDIX
  • QUESTIONNAIRE

Chapter One


Introduction

1.1 Background to the Study

In recent years, particularly since the adoption of the economic reform programme in Nigeria in 1986, there has been a decisive switch of emphasis from the grandiose, capital intensive, large scale industrial project based on the philosophy of import substitution to small scale industries with immense potentials for developing domestic linkages for rapid, sustainable industrial development. Apart from their potential for ensuring a self reliant industrialization, in terms of ability to rely largely on local raw materials, small scale are also in a better position to boost employment, guarantee a more even distribution of industrial development in the country, including the rural areas, and facilitate the growth of non-oil exports.

In Nigeria, the definition of small and medium enterprises also varies from time to time and according to institutions, for instance, the Central Bank of Nigeria’s (CBN) monetary policy circular No: 27 of 1988 define small scale enterprises (excluding general commerce) as enterprises in which total investment (including land and working capital) did not exceed #500,000 and or the annual turn-over did not exceed #5.0 million.

Medium enterprise (excluding general commerce) as enterprises in which total investment and not exceed #1,000,0000 (1 million) and the annual turnover did not exceed #1.2 million. Small scale enterprises are one of the modern strategies underdeveloped countries are employing to break into the “league” of developed countries. Fasua (2006) categorized business that fall under small scale as follows firewood supply, plantain production, restaurant services, small scale poultry raising, operating a nursery for children, home laundry services and host of others. Business grouped under medium scale according to Fasusa are; soap production, hair/body cream production, chemical production, commercial poultry, profession approaches (law, accountancy, education) food and beverage production among others.
Small businesses provide investment opportunities as well as the potential to build wealth. It is a place where talented and motivated persons can fully use their skills and expertise, as it offers rewarding jobs and job prospects, as well as serving as the backbone of the global market economy (Ojiako 2002). Every large corporation began as a small corporation, with an entrepreneur who made little to no profit at first (Ayowa cited in Ojiako 2002). Ekene Dili Chukwu Transport, FAN Milk, Nnewi “Tokumbo” parts, and even many commercial banks in Nigeria all owe their existence to the new ideas of small businesses. Untested ideas evolved into annulations that became concepts that transformed the business world, according to Binks (1996), and small businesses are unquestionably the foundation for the economic well-being of many developed nations, including the United States and Japan.

Entrepreneurship is the driving force behind the growth of a small business. Entrepreneurship occurs when a person creates a new venture, a new solution to an old business or concept, or a creative way of delivering a product or service to the consumer by repurposing capital in a completely new way under risky circumstances. Entrepreneurship and small business success are inextricably linked. It’s difficult to tell them apart (Fatai 2011)..

The country’s unemployment situation, combined with the new government’s instinctive desire to ease social tensions among unemployed youths, were intended to entice a large number of unemployed Nigerians, including graduates, into self-employment through the National Directorate of Employment (NDE) scheme. Graduates and school leavers are now realizing, according to Ihyembe (2000), that the government and existing private companies are not willing to come to their help directly, through paying jobs, due to the state of the economy.

In the absence of other options, Nigerians, including graduates, are venturing into a variety of small-scale businesses, including cottage soap and cosmetics production, fairing, restaurants, fast food, publishing, writing, block making, Garri processing, food processing, refuse disposal, taxi driving, cleaning services, weaving, baking tailoring, advertising cryptocurrency trading, and so on. The determination to excel is also quickly becoming the norm.

Despite the versatile and adaptable existence, as well as their regenerative power in fostering economic growth and development of small scale businesses, the government has been playing an appreciative role in promoting the survival and growth of small-scale enterprises which is the years have been considered ineffective thereby making the establishment and sustainability of small scale business uneasy (Giddeon cited in Ihyembe 2000). The government has also encouraged citizens (without adequate support) to engage in their own small businesses in order to address the country’s unemployment problem as well as the problem of goods importation.

Consequently, both the federal and state governments and recently, local governments, have stepped up efforts to promote the development of small scale enterprises through increased incentive scheme, including enhanced budgetary allocations for technical, assistance programmes. New lending schemes and credits institutions for technical assistance programme New lending schemes and credit institutions such as the National Economic Reconstruction Fund (NERFUND), World Bank-assisted small-scale enterprises loan scheme (SMES), Nigeria Export and Import Bank (NEXIM), the people’s Bank of Nigeria (PBN) and the Community Bank have also emerged at both the national and local levels to boost the flow of development finance of small scale enterprises which have so far depended largely on personal funds and credit. From informal sources for both their investments and working capital.


1.2 Statement of the Problem

Small and medium enterprises are mostly managed by owners and relations. The financing in most cases in normally provided by the owners. The owners fail to realize the importance of external source of capital in order affect expansion in the business.

In another development, small and medium enterprise experiences difficulties in raising equity capital from the finance houses or individuals. Even when the finance house agrees to provide equity capital, the conditions are always dreadful. All the result to inadequate capital available to the sector and thus lead to poor financing. This is the bane of most cottage industries in Nigeria. About 80% of small and medium enterprises are stifled because of this problem of poor financing and other problems associated with it (Chukwuemeka, 2006). The problems that emanated from poor financing include:

  1. Lack of competent management which is the consequence of inability of owners to employ the services of experts.
  2. Use of obsolete equipment and methods of production because of owner’s inability to access new technology.
  3. Excessive competition which resulted from sales which is a consequence of poor finance to cope with increased competition in the industry.

In spite of the different measures since 1960 to increase industrialization, small medium enterprises are still facing hard conditions. It is against the background that I examine managing small and medium business I Nigeria: prospects and challenges.


1.3 Objectives of the Study

The main objective of the study is to evaluate the challenges of managing small scale business enterprises in a depressed economy. The specific objectives of the study are:-

  1. To determine if high cost of raw materials affects the prices of goods and services
  2. To determine the extent finance house strict conditions have affected the development of small and medium enterprise in Nigeria
  3. To assess the extent poor financing has affected small and medium business operation in Nigeria.

1.4 Research Questions

  1. Does high cost of available raw materials affects the prices of goods and services in business?
  2. To what extent has the finance house strict conditions affected the development of small scale?
  3. Does poor financing actually affect small and medium business operation?

1.5 Research Hypotheses

Hypotheses 1
  • Ho2: there are no challenges faced when setting small scale businesses in Nigeria
  • Hi2: there are challenges faced when setting small scale businesses in Nigeria.
Hypotheses 2
  • Ho1: there is no significant relationship between the method of small scale business setup and its eventual success.
  • Hi1: there is a significant relationship between the method of small scale business setup and its eventual success.

1.6 Significance of the Study

This research work, when successfully completed, will be uniquely relevant in a number of ways. This is highlighted hereunder.
Given the constant shrinking of small businesses, it is imperative that steps be taken to restore them to their full ability as the engine of economic growth. However, it is argued that the discovery of the problem is the first step in problem solving. As a result, the stated problems would aid in the revamping, overhauling, and energizing of small enterprises in order to reclaim their pride of position in eliminating crippling poverty, embarrassingly high unemployment rates, and economic stagnation. The solutions provided will serve as a valuable reference in this regard. This research would also help small-scale business founders, operators, and managers, both present and potential, by raising awareness of those challenges. The advice given would be extremely beneficial to them in dealing with the problems.

This study will also be of tremendous benefit to researchers and students, who would want to advance knowledge in the pursuance of further research work relating to this work.

Above all, the study, upon completion, will contribute knowledge aimed at complementing stakeholders’, Non-governmental Organizations’, and governments’ efforts to improve the economic development of the country. As a result, the project is a “must read” for everyone.

Finally, this study will be useful to students, researchers, and other astute academics who may conduct a research epistle related to the one under consideration.


1.7 Scope of the Study

This research work is centered on the challenges and prospects of small scale businesses in Nigeria. However, this is considerably vast. Therefore, for easier and smooth conduct of the study, efforts will be made to dwell mostly on some selected small-scale businesses in Ogun state.

Moreover, this study covers three significant aspects of small scale businesses, which include; the challenges, prospects and importance of small scale businesses in Nigeria.


1.8 Limitation of the Study

During the conduct of this research work, some factors posed constraints to the determined efforts of the researcher to carryout the research study with ease. Such factors include:

a. Management Restriction:

Management refuse to allow access to information that is considered very confidential like detail information of the organizational corporate profile. As a result of the restrictions, I was able to work with only the information that was accessible.

b. Time Constraint:

Time is also another limiting factor that acts as hindrances in carrying out this research study. This is as a result of the fact that other academic activities were still being attended to in the course of carrying out this research work.

c. Financial Constraint:

Money also acts as a problem in the conduct of the research work. Traveling expenses were incurred in getting the materials for the research work other expenses incurred generally during this research project work.


Chapter Five


Summary of Findings, Conclusion and Recommendation

5.1 Summary of Findings

The following facts were established through the research findings.

  1. That delay in registration of businesses by Corporate Affairs Commission (CAC) has caused obstacles to Nigerian Entrepreneurs in the area of carrying out their business plan.
  2. That multiple tax, and increase in the rate of value added tax as well as company income tax of Government has created a negative impact and obstacles to the activities of Nigerian entrepreneurs.
  3. That good leadership style affects the performance of Nigerian entrepreneurs in their businesses.
  4. Nigerian Government has performed little in fostering entrepreneurship culture through encouragement of Small and Medium Scale enterprises in the country.
  5. This shows that entrepreneurs have impacted positively to the development of Nigerian economy.

The manufacturing sector at all levels is performing below-expectation in Nigeria. Many sectors, such as ceramic industry, glass industry and textile industry among others, are facing difficult times. The non-performance has been traced mainly to the unfavourable economic environment.

A thriving, successful business is a well managed business. Your business, like most things in life, will not look after itself so it’s important to spend some time working on the business, not just in it. However, there are some factors that militate against doing business in Nigeria at it is common to every developing countries in the world.


5.2 Conclusion

The term management can be defined as the effective and efficient utilization of organization resources so as to achieve its predetermined goals.

Management is the co-ordination of the resources of an organization through the process of planning, organizing, directing and controlling in order to attain organizational objectives.

The main purpose of this study is to identify the problems and prospects of managing a business in Nigeria using God is Good Motors as case study. To do this, data were collected from both primary and secondary sources. The main instrument of data collection was the questionnaire.

The data were presented in tables as frequency, distribution in the data analysis; the techniques of percentages frequencies were used.


5.3 Recommendation

The following recommendations are made in the belief that they will promote and stabilize and small and medium enterprise of implemented.

  1. The most serious problem to running business in Nigeria is the lack of finance. Majority of business owners have limited access to foreign exchange as well as institutional credit. Many of Nigerian credit institutions believe that it is risky to finance them due to the nature of the industry. I therefore recommend that the government should seek the assistance of World Bank in providing long term loans to business investors in Nigeria because success in business will lead to economic development the country.
  2. I also recommend that the central bank of Nigeria should empower institutions that are responsible for business development in Nigeria.
  3. To overcome the problem of financial constraints the government should re-introduce the small business credit scheme so that beneficiaries can use them to run the small and medium enterprise. Beside seeks for other sources of funds such as trends, relatives and co-operatives societies.
  4. To solve the problem of lack of managerial skills and lack of business ideas the government, chamber of commerce and other non-governmental organization should regularly organization should regularly organize seminars for potential and actual small and medium enterprise operators where they should be educated on how to plan, organize direct and control their businesses.
  5. They operators should device effective marketing strategies. This includes such promotional strategies as advertising, good management customers relations at all times.
  6. The business internal and external environment should be kept decent. Decency is one secret of survival for such ventures. The accommodation should be furnished very well and standard ventilation provided.

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