The Impact Of Environmental Factors On The Performance Of Small Scale Businesses In Lagos State

Project and Seminar Material for Business Administration and Management BAM

Abstract

The study examines the impact of environmental factors on the performance of small scale business in Lagos State.

The study adopted survey and descriptive research design. Questionnaires were administered to business owners and the managers of the sample of small business in Lagos state. The study adopted two stages of analysis: the descriptive and inferential analysis. The descriptive analysis which was the first stage was carried out using percentage denotations and frequencies as well as other descriptive items to show variations in responses and opinions. The second stage which is the inferential analysis carried out using the regression analysis in SPSS to assess the effect of the independent variable (external business environment) on the dependent variable (SMEs performance) in order to generate estimates such as mean and standard deviations.

The study reveals that: Management efficiency has positive and significance impact on the business performance in Lagos State. Availability of financial resource has positive and significance impact on the small scale business in Lagos State. Inadequate infrastructure such as electricity, good road has negative impact on the business performance in Lagos State. Lastly, it was found out that government support has positive and significance impact on business performance of small business in Lagos State.

The study concluded that poor management together with the personality traits of the manager/owner determines the success or failure of the business, and the amount of initial investment and constant access to financial resources is considered to be the key to success in small-scale business industry. The study further recommends that: Businesses should minimize their weaknesses by paradigm shift from internal factors that weaken management inefficiencies. Government should look into the economic factors that pose unnecessary constraints on businesses in Nigeria. Small businesses should avail themselves of the advances in technology and integrate them into their systems. Infrastructure facilities, especially electricity, should be strengthened will assist in smooth running of business in Nigeria at minimal cost.

Chapter One

Introduction

I.1 Background of Study

The genesis of small businesses in Nigeria dates back to the pre colonial era were majority of Nigerians engaged themselves in some form of small business which involved the sale of some form of food crop such as palm oil, cocoa ,groundnut etc. Subsequently the nature of small businesses metamorphosised into more than just the consideration for exchange and the layman’s basic manhandling of his business. Eventually the need for strategies to attain competitive advantage and business growth then eventual business expansion spurred up in the small business industry.

The nature of the small business market is so varied and diverse that it requires a classification tool that does not use solely a one-dimensional view. Small businesses can be wholesomely described by classifying them based on several characteristics such as their size, capital outlay, sector of operation, sales turnover, level of technology, market share and its level of development and its location. The listed variables seemingly interact in such a way that it comprehends the description of an operational small scale business. Baumback (1983) states the main characteristics of small businesses as an enterprise includes one which is entirely managed by its owners and a business which is greatly custom-made and largely dependent on internal sources of capital to finance maximum competence and its growth.

There have been a series of research carried out in this field with an attempted to paint a wholesome picture concerning the small business in itself as well as efforts to describe how vital the small business contribution is to the overall outlook of a national economy. This picture entails the beneficial effects in terms of employment, revenue generation, industry growth and development, competitive pricing and many more details. The importance of small businesses in Nigeria is expressed by SMEDAN (2013) stating that about 80% of the country’s labor force is employed by small businesses operating in various industries in the economy. It is also important to note that 97% of the Nigerian economy are small businesses and are contributing job to 70% of the country’s job opportunities according to Shehu et al. (2013).

Notably the entry and exit in the small business industry does not require a difficult process as it does not need a draw up of a complex plan or require much capital from the onset. In Nigeria the next best solution to being unemployment or being in-between jobs is to start up a small business. The vast reach of unemployment can be traced to be a cause of the birth of small businesses. It occurs when business owners have no other alternative to earn a living making the business owner start up. The Unemployment rate in Nigeria as at the third quarter of 2017 increased to 18.80 percent (Trading Economics, 2018) forcing a substantial part of the working population to go for self employment.

The importance of the existence of the small scale industry is to ensure that the short comings (whether the refusal or inability) of the large scale businesses in terms of basic products and services are provided for and fill the gaps left over by the large businesses. Therefore it is safe to say that small business organizations exist to do what big businesses refuse to do or cannot do.

In the business environment exists growth opportunities for small businesses that could be exploited (Davidsson, 2000).Therefore there is the need to analyze the business environment on an aggregate level, meaning that an assumption is made that the environment has the same impact on all firms in varied industries. However there are similar environmental factors that cut across all industries in Nigeria which would be examined both internal and external to the organization.

Robbins (1987) states that the business environment of an organization is key in order to determine the organizational structure and also important because the organization ought to adapt to their environments to maintain and enhance their business effectiveness. This environment consists of internal and external factor relative to the sector of the small business. Internal factors include the factors in the internal environment of the organization which determines the weakness and strength of the business and are controllable by the owner. They also include the trends and events within the organization that affect management, employees. External factors include those factors that exist in the external environment of the business which may determine the opportunities and threats to the business and are uncontrollable by the owner. They include factors such as political, legal, demographic, technological, economical and socio-cultural factors.

These factors would be analyzed by the study to ascertain the impact the environment plays in the performance of small businesses in Nigeria putting into consideration key indicators. The impact of the environment may occur in different forms depending of the nature of the organization, its activities of even the sort of environmental factor being considered. This means that certain variables would be considered and discussed in this study. This research would focus on the environmental variables and its impact on the operating small businesses in Lagos state.

I.2 Statement Of The Problem

Over the past years small businesses have been underperforming and have failed to play their significant function in the country’s economic growth. These shortcomings can be seen in their lack of influence in training to speed up employment and poverty mitigation in a bid to foster the development of the Nigerian economy (Osotimehin, Jegede, & Akinlabi, 2012).In recent times small businesses engaged in export now have negligible contributions to export earnings in comparison with other countries which implies that there supposedly exists some country-specific factors working against effective performance, growth and survival of small businesses in Nigeria.

(Fatai, 2011), (Nyong, 1992) and (Okpara, 2011) identified some factors such as poor management, lack of financial services and support, insufficient profits, poor demand of product and service offered. These factors can be classified under internal and external variables. There has been documented research supporting the positive relationship between the operating environment (both internal and external) and the business growth or improvement in developed countries. Unfortunately a minimal amount of research is done concerning developing countries such as Nigeria. It is important to identify the applicable variables in Nigeria as it differs from that of developed economies. However till date no significant amount of research has been able to identify the key constraining factors linked to the small scale industry i.e. carrying out small business activities in a country like Nigeria, specifically in the commercial hub, Lagos state.

I.3 Objective of the Study

The main aim of the stated thesis is to review previous literature on the various environmental challenges facing small businesses in Nigeria in order to provide owners of small businesses with information that would prevent them from being cornered by road blocks that work against their performance. Awareness and understanding of the challenges of small businesses may aid its sustenance beyond five years talk more of growth and efficiency in current performance.

The stated thesis is to determine the key environmental factors playing a significant impact in small businesses performance in Lagos state and eventually make suggestions on how to deal with substandard performance.

Therefore the specific objectives of the study include:

To ascertain the impact of Management efficiency on the performance of small scale businesses in Lagos state.
To examine how the performance of small businesses are affected by the Availability of financial recourses.
To determine the impact of inadequate Infrastructure on the performance of businesses operating in Lagos state.
To investigate how Government support impacts the performance of small businesses I Lagos state.

I.4 Research Questions

The central question(s) this research seeks to answer are;

What is the impact of Management efficiency on the performance of small scale businesses in Lagos, Nigeria?
How are the performances of small business affected by the availability of financial recourses?
What is the impact of inadequate Infrastructure on the performance of businesses operating in Lagos state?
How does Government support impact the performance of small businesses in Lagos state?

I.5 Research Hypothesis

H01: Management efficiency has no impact on the performance of small scale businesses in Lagos.
H11: Management efficiency has an impact on the performance of small scale businesses in Lagos.
H02: The performance of small businesses are not affected by the availability of financial resources
H12: The performance of small businesses are affected by the availability of financial resources
H03: Inadequate infrastructure has no impact on the performance of businesses operating in Lagos state
H13: Inadequate infrastructure has an impact on the performance of businesses operating in Lagos state
H04: Government support has no impact on the performance of small businesses in Lagos state.
H14: Government support has an impact on the performance of small businesses in Lagos state.

I.6 Significance of Study

The information which would be gathered while carrying out the study can be used by small business owners for planning strategies for business growth and sustained performance efficiency. This research study could also be of an advantage to various parties involved in.

They may include;

1) To business owners:

This study would deduce the top/key factors present in the environment that may hinder the effective performance of their business and how these factors can be effectively managed.

2) To students:

It would provide them with important information concerning business performance and its fundamentals.

3) To the government:

This research would be of use to the government in the formulation policies toward the development of the small scale industry in Nigeria. It would also be useful in highlighting the significant role small scale businesses play in achieving economic growth and development.

This research can also provide other researchers a basis for which other research and be conducted on. Finally this research would be of great use to the general public as it would expand their knowledge on small scale business industry.

I.7 Structure of the Study

This study is divided into five chapters which would contain the following;

Chapter 1- consists of the introduction to the study. Section 1.1-would provide the history and background of the study highlighting the need for the study and what led to this research work. Section 1.2-consists of the statement of the problems which this study seeks to address. Section 1.3- the main objectives of the study. Section 1.4-States the research questions addressed in this work. Section1.5- states the significance of the study to various parties.
Chapter 2- consists of the literature Review. Section 2.1-would provide the conceptual framework of the study, Section 2.2-consists of the theoretical review. Section 2.3-provides an empirical review.
Chapter 3- explains the research Methodology; Research design, population and sample design, nature and sources of data, technique of data analysis.
Chapter 4- Data Presentation, Analysis and Interpretation
Chapter 5-provides the summary, recommendations and conclusions.

Chapter Five

Summary, Recommendations and Conclusion

5.1 Summary

The study examines the impact of environmental factors on the performance of small scale business in Lagos State. The study was divided into five chapters. The chapter one covers the background, statement of the problem, objectives of the study, significance of the study, scope of the study and operational definition of terms. The chapter two covers the literature review which includes the conceptual, theoretical and empirical review. The chapter three covers the methodology employed in the study, this include the research design, population of the study, sample size and sampling techniques, research instrument, data collection procedure, method data analysis and ethical consideration.

The chapter four covers the presentation, analysis and interpretation of data retrieved from the questionnaire. The chapter five covers the summary, conclusion and recommendations.

The study reveals the following the following findings:

Management efficiency has positive and significance impact on the business performance in Lagos State.
Availability of financial resource has positive and significance impact on the small scale business in Lagos State.
Inadequate infrastructure such as electricity, good road has negative impact on the business performance in Lagos State.
Lastly, it was found out that government support has positive and significance impact on business performance of small business in Lagos State.

5.2 Recommendations

Based on the findings of this study that environmental factors have impact on small business performance in Lagos States, the study made some recommendations that could help to increase the performance of small business in Lagos State:

Businesses should minimize their weaknesses by paradigm shift from internal factors that weaken management inefficiencies.
Government should look into the economic factors that pose unnecessary constraints on businesses in Nigeria. Nigerian economic trends such as interest rate, inflation rate and multiple tax systems should be attended to.
Small businesses should avail themselves of the advances in technology and integrate them into their systems. These technologies will be of great use in their functional units.
The study also recommends that infrastructure facilities, especially electricity, should be strengthened will assist in smooth running of business in Nigeria at minimal cost.

5.3 Conclusion

It has already been observed from the aforementioned discussions that Micro and Small Scale Enterprises play a crucial role in the development of entrepreneurial capabilities and indigenous technology which generate employment. Particularly small scales enterprises contribution towards both employment creations and income generations for the large sections of unskilled and semi-skilled labour force in developing countries like Nigeria has stimulated significant interest among policy makers and practitioners alike. Therefore, promotion of such enterprises in developing economies like Nigeria is of paramount importance as it brings about a great distribution of benefits. The study focused on examining the impact of environmental factors on the small scale business performance in Lagos State. The following conclusions were generally drawn based on the survey results discussed in the previous section.

The result of the analysis showed that inadequate infrastructure for instant power supply, was reported to be serious problems resulting in low performance of small sized enterprises. The regression analysis results also showed that there is a clear significant relationship between this factor and performances of small business. Furthermore, based on the sign of the slope coefficients we found inadequate infrastructure had negative impacts on business performance.

The management efficiency of small business is of paramount importance to the success of business organisation. Hence it can be concluded that poor management together with the personality traits of the manager/owner determines the success or failure of the business. As noted in the literature that suitable financing strategy enables the attainment of business success, this study also concludes that the amount of initial investment and constant access to financial resources is considered to be the key to success in small-scale business industry.

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