The Effect Of Environmental Factors On The Performance Of Small And Medium Scale Businesses In Nigeria

Project and Seminar Material for Business Administration and Management BAM

The Effect Of Environmental Factors On The Performance Of Small And Medium Scale Businesses In Nigeria


The study analyzes the effect of environmental factors on the performance of small and medium scale business in Nigeria, using Oshimili North Local Government Area as the area of study, a sample size of 200 will be selected and used for the purpose of this study. This was arrived at using Slovene’s formula used to determine the minimum sample size. The finding will show the length at which internal environment factors has significant effect on the performance of small and medium scale enterprises in Oshimili North Local Government Area.

Chapter One


1.1 Background of Study

There is controversy that small and medium scale business in any country where they operate play important role in the economic growth and development of that country or nation and it improves the quality of life of individuals (Ohanemu, 2006).

Business organizations anywhere in the world operates within environments which according to Adidu & Olanye (2006) is an aggregate of all conditions, events, circumstances and influences that surround and effect the business organization.

In management, the term “Environment” does not necessarily mean physical surroundings but, it is used as a total forces, factors and influences that surround and affect business organizations as a separate entity as well as other business organizations. This means that business organizations must interact with those forces that influence its decisions, directions, actions, size, health, profitability and performance of the organization as a whole.

Ukaegbu (2004) stated that the contemporary environment is becoming dynamic and competitive and since business organizations do not operate in vacuum, they affect and are affected by environment conditions.

Therefore, business organizations irrespective of their objectives must take into consideration, these environmental opportunities and constraints. Businesses affect the environment by providing the required goods and services thereby contributing to the development of the business by presenting opportunities and threats. One thing to be emphasized at this point is that, the extent to which managers could identify, evaluate and react to the environmental forces will have considerable impact on organizational performances.

Kuye, (2004), emphasized that the need to study business environments is very important considering the fact that business organizations do not operate in vacuum and an effective management in complex and dynamic society requires the assessment of strengths and weaknesses of the organization and the opportunities and threats provided by the challenges of the external environment, hence for survival and growth, organizations must cope and adopt to these challenges posed by the ever changing environment (internal & external) in which managers operate means that mangers must not only be aware of what constitutes the elements of their business environment but also should be able to respond to the forces of the environment which inevitably impinges on the operations of the business organization.

Ukaegbu (2006) further stated that the relationship between a business organization and its host environment can be examined from three strategic ways;

Firstly, the organization can be viewed as importing various kinds of inputs (resources), such as human resources, capital, managerial and technical inputs. These inputs are then transformed to provoke output which takes the form of goods and services. A second approach is the study of the relationship between the organization and the society.

It focuses on the demands and legitimate rights of different claimants such as employees, consumers, suppliers, stakeholders, government and the community. A third approach is to view the organization as operating in an external environment of opportunities and constraints. Thus no single approach is sufficient for all times and in all circumstances. They are complementary. The elements external to the organization affects its performance as well as those elements within the organizations.

1.2 Statement of the Problem

The effects of environment on organizational performance vary from one situation to another. The environment suitable for the growth of a particular business may be hostile to the survival of another business. The problems that necessitated this research are as follows:

Assess impact of environmental factors that has the performance of small scale enterprises in Oshimili North Local Government Area

The ability to identify, evaluate and react to the challenges are critical to organizational performance.

Therefore, this study seeks to investigate the impact of business environment on organizational performance of small scale business in Oshimili North Local Government Area.

1.3 Objectives of the Study

The purpose of the study is to assess the extent to which environmental factor affects the performance of small business enterprises, evaluate it, determine its success and failure and discuss its likely effects on organizational survival and growth.

The other objectives this research seeks to achieve are:

  1. To determine the extent to which environmental factors affect organizational growth and survival of small scale business.
  2. To determine the relationship existing between small scale business and its operating environments.
  3. To determine the challenges facing small scale businesses within Oshilimi North Local Government Area.
  4. To examine how small scale business manage these environmental factors.

1.4 Research Hypothesis

The following formulated hypothesis would be tested in order to help provide answers to the research questions;

  1. H0: There is no significant relationship between external environment factors and performance of small scale business.
    H1: There is significant relationship between external environment factors and performance of small scale business.
  2. H0: There is no significant relationship between increased productivity of small business and socio-cultural factors within the business environment where it operates.
    H1: There is significant relationship between increased productivity of small business and socio-cultural factors within the business environment where it operates.
  3. H0: There is no significant relationship between the fiscal incentives provided by the government, and enhanced performance of small business.
    H1: There is significant relationship between the fiscal incentives provided by the government, and enhanced performance of small business.

1.5 Significance of the Study

This study will be highly useful after its completion for both current and future entrepreneurs, business organizations and the government. This research study on the effects of environment factors on performance of small scale business in Oshimili North Local Government Area would have considerable benefits on the small scale business operating within this business environment in that it would;

Help these businesses become sensitive to the uncontrollable external environmental factors impinging on the performance of their businesses and how they can effectively manage these factors and top the opportunities for enhanced productivity and profitability.

To an entrepreneur:

The knowledge obtained from this study will enable them to know how critical environmental factors are and how to effectively manage these factors for the survival and growth of small scale businesses.

To organizations and the society:

The study will equally be useful to organization and the society at large in the sense that knowledge about technological advancement generation through small scale business source of credit facilities to establish small business will be acquired.

To the Government:

This research will also be useful to the government in the formulation of policies towards small scale enterprises development in Nigeria. It will also help the government to identify the importance of small scale enterprises in the achievement of economic growth and development in Nigeria.

1.6 Scope and Limitation of the Study

This study covers environmental factors and its effects on the performance of small scale businesses in Oshimili North Local Government Area. The study basically focused on the challenges of these businesses managing the dynamic nature of their business environment in achieving organizational performance.

The researcher encounters some constraints which limited the scope of the study;


Due to the nature of office and business within the scope, the researcher spends a lot of money on visiting, traveling from one location to another, from one business organization to the other and even had to repeat a visit more than three times to seek for information, all these involves money considering the financial constraint of the researcher and limited resources available to him/her.

Sources of Information:

Many registered and non-registered business owners were reluctant to give out or provide information about the research, since the researcher was not related or close enough to them.

Inadequate Record Keeping:

Some of the respondents visited were unable to present complete and comprehensive records of their business, while some were not keeping proper records of their business activities and as such could not give adequate and correct information on the effect of entrepreneurship on their businesses.


Time constraint has been another vital limitation and obstacle towards effective realization of the main objectives of this study. Time was really not on my side since I have to combine the little time left with my academic work and preparation.

1.7 Definition of Terms


Is defined as a change which is a result or consequence of an action or other cause, or cause (something) to happen; bring about


A constituent or element that brings about certain effects or results, or indicates a specific multiple, number, or quantity.


Environment is everything that is around us. It can be living or nonliving things. It includes physical, chemical and other natural forces. Living things live in their environment. They constantly interact with it and change in response to conditions in their environment.


A business (also known as an enterprise, a company, or a firm) is an organizational entity and legal entity made up of an association of people, be they natural, legal, or a mixture of both who share a common purpose and unite in order to focus their various talents and organize their collectively available skills or …

Business Performance:

Business performance management is a set of performance management and analytic processes that enables the management of an organization’s performance to achieve one or more pre-selected goals.


The European definition of SME follows: “The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euro.”

Business Organization:

A business organization is an individual or group of people that collaborate to achieve certain commercial goals. Some business organizations are formed to earn income for owners. Other business organizations, called nonprofits, are formed for public purposes.

1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  1. Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study.
  2. Chapter two highlight the theoretical framework on which the study is based, thus the review of related literature.
  3. Chapter three deals on the research design and methodology adopted in the study.
  4. Chapter four concentrate on the data collection and analysis and presentation of finding.
  5. Chapter five gives summary, conclusion, and recommendations made of the study.

Chapter Five

Summary Conclusion and Recommendation

5.1 Introduction

It is pertinent to note that this research was aimed at assessing the impact of environmental factors militating against the performance of small and medium scale business in Nigeria, thus the topic “the effect of environmental factors on the performance of small and medium scale business in Nigeria”.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges associated with performance of small and medium scale business in Nigeria.

5.2 Summary

From the findings of this study it is observed that majority of the small and medium scale business still suffer from all the external business environment challenges such as Competition, Inflationary trend, Technological changes, Government policy, Infrastructural facilities accessibility, Changing consumer behaviour and Income. Only few claim to have control on government policy and consumer behaviour as a source of opportunity for the business while others still find it difficult to cope with them due to their dynamic nature. The majority of the respondents consider inflationary trend, competition and Infrastructural facilities accessibility as the most important external problems to the growth of their businesses.

Equally, marketing related problems, financial related problem, business strategies and product quality are still being considered as important weak points in business to the respondents while a sizeable number see business size, qualified employees, locations of business and personal relation with customer as a great source of strength to their business operation.

Infrastructural facilities accessibility and government policy are barriers to business growth and survival, the other variables that can be controllable by managers are making a positive effects on their business continuity.

5.3 Conclusion

Small scale businesses are indispensable catalyst and important contributor to the economic growth in every nation due to their vast irreplaceable prospect in the economy.

Small businesses serve as laboratory for the development and innovation of new ideas and offerings before market commercialization in order to prevent the production of goods and services that does not meet consumer expectation.

On the basis of the research findings, the existing environmental factors in the manufacturing sector were identified together with their respective significance impact or effect in the wake of survival and growth of the business organisations in the manufacturing sector of Lagos metropolis. Factors such as electricity, competition, technology, infrastructural facilities, capital, government policies, organisational policies, financial credits, fraudulent practices were found to show a direct significance in their relationship effect while inflation, raw materials and government politics were found to indicate indirect significance in their relationship effect. It is however crystal clear that all these factors identified were found to be challenges to the survival and growth of business organisations in the manufacturing organisations and where adequate attentions are not paid to these factors, it would definitely impede the survival of the business organisations thus making the growth impossible and where it is possible to be at snail pace.

5.4 Recommendations

The following recommendations were suggested by the researcher based on the findings of this study;

  1. That the government of the day should endeavour to create an enabling environment that would be truly conducive for business organisations to thrive without engaging in any act of fraudulent practices.
  2. That the present arrangement (policy) of centralizing electricity which has made the federal government to enjoy monopoly should be jettisoned in order to make way for devolution and alternative to power generation aside the use of generator which has made operation cost to keep increasing since there is total collapse in the present arrangement.
  3. That management of these manufacturing organisations should constantly scan the environment in order to understand the major trends of events and make proactive decisions that would neither jeopardize nor mortgaged the future of the organisations.
  4. That the government of the day should make the business organisations in the manufacturing sector to enjoy certain tax rebate as a result of prevailing economic condition under which they conduct their businesses.
  5. That funds in form of grants should be made available at the university levels to support science based researches for new discoveries in technology or improving on the existing one in order to adapt the technology to meet the domestic needs so as to further reduce cost associated with procurements.
  6. That provision and maintenance of all infrastructural facilities should be of paramount importance in order to avoid complete decadence as it is found in the Lagos metropolis today, at the same, new one should be introduced to move with pace of technological advancement where necessary. Utmost premium should be placed on this for meaningful survival and growth of business in this sector.
  7. That financial institutions should be strengthened in order to make loan available to these business organisations in the manufacturing sector so as to position these business organisations in such a way that availability of funds would not endanger the smooth operations of these organisations.

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