SURVIVAL STRATEGIES OF SMALL SCALE ENTERPRISES IN A DEPRESSED ECONOMY

1.1 Introduction

The role of Small and Medium-Scale Enterprise (SMEs) in the national economy cannot be underestimated. These enterprises are being given increasing policy attention in recent years, particularly in third world countries partly because of growing disappointment with results of development strategies focusing on large scale capital intensive and high import dependent industrial plants. Small firms marketing practices have been assessed in the context of existing models based on large firm practices. Nigeria economy is faced with national and global economic changes and as such, the financial institutions especially the banking sector has an option of sanitizing and restructuring its operational process in order to survive the depressed economy, as well as embarking on a consolidation exercise which would have some wider structural effect on the industry and on the economy as a whole.

As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.

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1.2 Background to the Study

Since Nigeria attained independence in 1960, considerable efforts have been directed towards the nation’s industrial development. The initial efforts were government-led through the vehicle of large industry, but lately emphasis has shifted to Small Scale Industries (SSIs) following the success of SSIs in the economic growth of Asian countries (Ojo, 2003). Thus, the recent industrial development drive in Nigeria has focused on sustainable development through small business development. Prior to this time, particularly judging from the objective of the past National 4-Year Development Plans, 1962-68 and 1981-85, emphasis had been on government-led industrialization, hinged on import-substitution.

Small and Medium Scale Enterprises (SMEs) have been acknowledged the world over as the driver of economic development and growth. This is because these enterprises have great potential for employment generation, economic empowerment, poverty alleviation, improvement of standard of living, substantial local capital formation, achievement of high levels of productivity and capacity, means of achieving equitable and sustainable industrial diversification and dispersal, appreciable contribution to gross domestic product, increase harnessing of local raw materials and technological and export diversification (Ekpo, 2000; Essien, 2006; Butt, Hunjra and Rehman, 2010; Akpakpan, 2012). Not only do they provide employment and income for the bulk of the population, they have been recognized as critical breeding and nurturing ground for domestic entrepreneurial capacities, technical skills, technological innovativeness and managerial competencies for private sector development (Derinola, 2008; Ojo, 2010; Olorunshola; 2014).

Interest in the role of Small Scale enterprises in the development process continues to be in the forefront of policy debates in developing countries. The advantages claimed for Small Scale enterprises (SSEs) are various, including: the encouragement of entrepreneurship, the greater likelihood that SSEs will utilise labour intensive technologies and thus have an immediate impact on employment generation (Ayozie&Latinwo, 2010); they can usually be established rapidly and put into operation to produce quick returns; SSIs development can encourage the process of both inter- and intra-regional decentralization (Ogujiuba et al., 2004); and, may become a countervailing force against the economic power of larger enterprises (Salami, 2003). More generally the development of SSIs is seen as accelerating the achievement of wider economic and socio-economic objectives, including poverty alleviation (Safiriyu and Njogo, 2012; Ayozie and Latinwo, 2010; Udechukwu, 2003). According to Valverde et al (2005) bank credit play a crucial role in providing external financing to Small Scale Industry (SSIs). But in Nigerian context, this crucial source of finance for Small Scale Industry is apparently non-functional (Kadiri, 2012).

Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Survival Strategies of Small Scale Enterprises in a Depressed Economy.

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1.3 Statement of the Problem

Investigation revealed that the key problem facing most small scale enterprises is lack of finance whether for the establishment of new industries or to carry out expansion plans. The inability to attract financial credit or resources has hindered or stifled the growth of small scale enterprise.

The reasons for the lack of fund include the followings:

1. High rate of inflation that led to the vast depreciation of Naira exchange rate, thus making it difficult for most Small Scale enterprise to obtain required inputs for expansion.
2. Low level of savings in the economy, which leads to low capital formation.
3. High rate of interest charged on loans, which scares off potential Small Scale enterprise.

The unwillingness of retail banks to grant credit to Small Scale enterprise because of the low creditworthiness of these enterprises has also hampered their growth over the years. Bothered by the persistent decline in the performance of the industrial sector and with the realization of the fact that the small and medium scale enterprises hold the key to the revival of the manufacturing sector and the economy, the Central Bank of Nigeria successfully persuaded the Bankers’ Committee in 2000 to agree that each bank should set aside 10 percent of its annual pre-tax profit for equity investment in small and medium scale enterprises. To ensure the effectiveness of the programme, banks were expected to identify, guide and nurture enterprises to be financed by the scheme. The activities targeted under the scheme included agro-allied, information technology, telecommunications, manufacturing, educational establishments, services, tourism and leisure, solid minerals and construction.

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1.4 Aim and Objectives of Study

The aim of the study is to examine the Survival Strategies of Small Scale Enterprises in a Depressed Economy using LG Company, Ado Ekiti, Ekiti State as a case study. In achieving this aim, the following specific objectives were laid out as follows:

1. To examine the extent to which Small Scale enterprise contributes to economic development;
2. To identify survival strategies needed by Small scale industries in depressed economy;
3. To identify the problems they encounter in sourcing out funds; and
4. To ascertain if the financing options available to the SSE are practically obtainable to support the capital required for their operation.

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1.5 Research Questions

The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:

• What are the various sources of funds available to the small enterprise?
• What are the problems encountered by the small scale enterprise in sourcing for funds?
• What are the survival strategies to be adopted by the small scale enterprise in depressed economy?
• To what extent do small scale enterprises contribute to towards economic development of a nation?

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1.6 Research Hypothesis

In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.

Hypothesis One

• H0: There is no significant relationship between the source of fund available to small scale enterprises and the funds available to them.
• H1: There is significant relationship between the source of fund available to small scale enterprises and the funds available to them.

Hypothesis Two

• H0: There is no significant relationship between the development of small and medium scale industries and the economic development of that nation.
• H1: There is significant relationship between the development of small and medium scale industries and the economic development of that nation.

Hypothesis Three

• H0: There is no significant relationship between the problems encountered by the small scale enterprises in their source of funds.
• H1: There is significant relationship between the problems encountered by the small scale enterprises in their source of funds

Hypothesis Four

• Ho: There is no significant relationship between the survival strategies adopted by the small and medium scale industries and the survival of small and medium scale enterprise.
• Hi: There is no significant relationship between the survival strategies adopted by the small and medium scale industries and the survival of small and medium scale enterprise.

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1.7 Significance of the Study

Small-Scale Enterprises in Africa rely largely on own savings, not only to grow but also to innovate, firms often need real services support and formal finance assistance. This study will be of benefit to the operators of the Small and Medium Enterprise, the government, and the general public on the possible financing options and survival strategies available to the Small and Medium Scale enterprise and give the possible means of accessing them.

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1.8 Scope of the Study

This research covers the area of financing and survival strategies of small-scale enterprises in Nigeria, paying special attention to Aguata Local government Area of Anambra State.

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1.9 Limitation of the Study

During the course of this study, many things militated against its completion, some of which are:

1. Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
2. Establishment Policies: Establishment policies posed a serious limitation as most staffs are not ready to release information needed for this project work. There were lots of information needed from the staffs of this establishment to enhance the study which took them time to release or they did not release at all for security purposes, hence the scope was reduced.
3. Research material: availability of research material is a major setback to the scope of the study.
4. Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
5. Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

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1.10 Definition of Terms

Small Scale Enterprise: The definition of small scale enterprise varies with people and countries such that it is better defined based on the characteristics.