SURVIVAL STRATEGIES OF SMALL AND MEDIUM ENTERPRISES IN NIGERIA

1.0 Introduction

This chapter 1 introduces the background of the study, statement of the problem, purpose of the study, research questions, significance of the study, scope of the study, limitations of the study and definition of terms.

1.1 Background of the Study

Small and Medium Enterprises (SMEs) have been fully recognized by governments and development experts as the main engine of economic growth and a major factor in promoting private sector development and partnership. The development of SME is therefore an essential element in growth strategy of most economies and holds particular significance for Nigeria. SMEs not only contribute significantly to improved living standards, they also bring about substantial local capital formation and achieve high levels of productivity and capability. From a planning stand point, SMEs are increasingly recognized as the principal means for achieving equitable and sustainable industrial diversification and dispersal, and in most countries, SMEs account for over half of the total share of employment, sales and value added.

A major gap in Nigeria’s industrial development process in the past years has been the absence of a strong and virile small and medium enterprises sub sector. The little progress recorded from the courageous efforts of the first generation of indigenous industrialists were almost completely wiped out by the massive dislocation and traumatic devaluation which took place under the Structural Adjustment Programme (SAP) 1986. The SAP policies were rooted in the new-classical theory of perfect competitive markets whose assumptions do not adequately reflect constraints on SME in developing countries. The human and natural resources base is a significant feature that gives the country a special status in Africa. However, like most less developed countries, the country is witnessing a rapid population growth and this contrast with the less than average rate of development in communication, technological and social infrastructure. Instability and high turnover of staff have impacted negatively on the performance of primary institutions responsible for policy monitoring and implementation, resulting in distortions in macro economic structure and low productivity.

These problems constitute hindrance to development of Small and Medium Enterprises which provide the critical building blocks for industrialization and sustainable economic growth. With the dismantling of trade and other barriers, the world has been transformed into a global village. Consequently, SMEs in developing countries such as Nigeria are struggling to survive under intensive competitive environment both domestic and international. For this reason, there is an urgent need to provide the required enabling environment for the development of Small and Medium Enterprises (SMEs), so that that they could adequately play the role expected of them in transformation. Such role include mobilization of domestic savings for investment, appreciable contribution to gross domestic product, increased harnessing of local raw material, employment generation, significant contribution of poverty reduction effort through a sustainable livelihood and enhancement in personnel income, technological development and export diversification Udechukwu (2003:7).

In line with this, it is pertinent that the challenges of SMEs are well noted as well as the strategies to overcome them and grow so as to ensure effective coordination and utilization of economic resources.

1.2 Statement of the Problem

According to Kpakol (2007:2) the development and survival of micro, small and medium enterprises in Nigeria is of course critical to the sustainability and rapid transformation of Nigeria to one of the twenty largest economies in the world by 2020 because it holds the key to job creation, employment generation, enhanced productivity and wealth creation towards launching Nigeria into the class of developed economy.

In spite of efforts by many successive governments right from independence to promote SMEs in the industrialization process, the development of the sub-sector has been constrained by a number of factors both internally and externally. They includes:

1. Unstable macro-economic environment
2. Poor implementation and coordination of efforts on SMEs
3. Absence of sustainable institutional mechanism
4. Poor infrastructural facilities i.e. road, railway system, water supply, electricity, telecommunication etc. and
5. Lack of effective financial support system.

The role of government in fashioning policies and ameliorating the constraints of SMEs has been fully recognized to be very crucial in facilitating and initiating remedial action. This is more so with rapid changing of global environment moving towards deregulations knowledge-based economy, borderless trade and investment which present new challenges and opportunities for SMEs in developing countries such as Nigeria Kpakol (2007:16).

Chibundu (2006:42) the fact that has emerged from the appraisal of various past and present policy initiatives on the promotion of SMEs in Nigeria is that although finance is a major constraint.. The effective utilization of substantial financial resources provided under various past programmes was constrained by such factor as lack of skill as well as absence of the enabling environment for investing in small and medium scale sector.

However, it has been observed that more attention is paid now than ever with reference to the aforementioned constraints, especially the controllable factors such as managerial skills, effective cost control, working capital management, marketing management, monetary policy.

This research work intends to investigate the survival strategies for small and medium enterprises in Nigeria.

1.3 Purpose of the Study

The specific objectives of this study include the following:

1. To identify the general problems or challenges militating against the effective operations of SMEs in Nigeria.
2. To identify the survival strategies of SMEs in Nigeria.
3. To provide an overview of the role of government in financing and developing SMEs in Nigeria.
4. To determine to what extent the government policies support or hinder growth of SMEs in Nigeria.
5. To suggest strategies through which SMEs can compete favourably with the products of emerging economies and that of developed world.

1.4 Research Questions

It is in consideration of the objectives of this study enumerated before that the researchers propose the following research questions so as to direct the researchers towards finding solution to the problem of study.

1. What are the challenges or problems facing SMEs in Nigeria?
2. Are there strategies through which SMEs challenges can be overcomed to survive?
3. Do government policies/initiatives support growth and survival of SMEs in Nigeria?

1.5 Significance of the Study

Many economies, developed and developing have come to realize the value of small businesses. They are seen to be characterized by dynamism, innovations, efficiency and their small size allows for faster decision making process.

Government all over the world have realized the importance of this category of companies and have formulated comprehensive public policies to encourage, support and fund the establishment in SMEs. Significantly development in SMEs are a sine quonon for employment generation, solid entrepreneurial base and encouragement for the use of local raw materials thus, their survival make these come true.

1.6 Scope of the Study

The scope of this study is restricted to Small and Medium Enterprises in Nigeria with particular reference to SMEs in Enugu metropolis.

1.7 Limitations of the Study

In course of carrying out this research, some basic problems were encountered by the researchers which influenced to some extent the depths of the research. Amongst them are finance, time and attitude of the respondents and attitude of group members.

(a) Financial Constraint

Due to financial restriction, the researcher could not get much necessary information pertinent to the study.

(b) Time Constraint

As a result of limited time given for the study, the researchers could not get all the required information needed.

(c) Attitude of the Respondents

The attitude of the respondents affected the research. Some of the respondents were unwilling to co-operate with the researchers because they felt they have nothing to benefit, while some felt that the researcher is invading on their privacy.

(d) Attitude of Group Members

The attitude of some group members affected the research. Some of group members never cared about how the research work is being done because of reasons best known to them after they paid the money shared amongst members while some has never showed themselves for the first time.

1.8 Definition of Terms

(a) Strategy

This is an integrated plan through which objective is accomplished.

(b) Business Environment

This is described as individuals, organization, institutions, environmental agencies, intermediaries, consumers, credit institutions, independent press etc. who in one way or the others help an organization to accomplish its objectives but cannot be controlled by the organization.

(c) Technology

According to Perrow (1967) technology is a complex of technique for manipulating material (human and non-human, physical or mental).

(d) Sustainable Development

This is defined as development that meets the need of the present generation without compromising the ability of the future generation to meet their own need.

(e) Developed Countries

This is used to categorize countries with developed economies in which the tertiary and quaternary sectors of industry dominate which leads to high degree industrialization and living standards.

(f) Developing Countries

This is used to describe those countries or nations that lack the human and material resources used in improving the quality of human lives which often lead to low level of living.

(g) Devaluation

This is refers to the reduction or depreciation in the value of a country’s currency in relation to another.