EFFECT OF PARTNERSHIP AND JOINT VENTURE BUSINESS IN SMALL SCALE BUSINESS IN NIGERIA, PROBLEM AND PROSPECT

CHAPTER ONE

INTRODUCTION

1.1.    BACKGROUND TO THE STUDY

 

Small and Medium Enterprises (SMEs), new or existing, often face certain challenges when they approach products providers for both enterprise fixed capital investment and market standards. The insufficient supply of microloans is a major issue, particularly where business creators are unemployed persons, women or form part of ethnic minorities with different cultural dependencies. Supporting the supply of microloans is therefore not only an issue of entrepreneurship and economic growth, but also of social inclusion.

Nigeria has been in the constant wheel of fighting for liberalization of market in the African’s sister countries. This gave to the country the political power but remaining behind economic development (NSGRP, 2008). Further, it was reported that there are more than 1.7 million SME projects in Nigeria that employed more than 3 million people, which represent 20% of labor force in Nigeria, where SMEs are vital engines for the economy growth and play a great role for gross domestic product of Nigeria (NSGRP, 2008).

Deakins (2009) agreed that there are quiet numbers of potential reasons why firms and organizations merge together to form a partnership or joint venture businesses.

A joint venture is a procedure used to respond to specific business phenomena such as access to new markets, specificgovernment policy, business capacity, technology transfer or economies of scale. An international joint venture is aseparate legal organisational entity representing the partial holdings of two or more parent firms, in which theheadquarters of at least one is located outside the country of operation of the joint venture. The feasibility and thedesirability of a joint venture must be assembled by careful analysis of the economic, political, social and culturalenvironment within which the venture will be implemented and managed.

A joint venture (JV) is a business agreement in which the parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. There are other types of companies such as JV limited by guarantee, joint ventures limited by guarantee with partners holding shares.

Companies typically pursue joint ventures for one of four reasons: to gain faster entry into a new market; to acquire expertise; to increase production scale, efficiencies, or coverage; or to expand business development by gaining access to distributor networks.

On the other side, Apartnershipbusinessis an arrangement where parties, known as partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations. It is also an association of two or more persons to carry on as co-owners of a business for profit. Partnerships are sometimes used in small retail, service, or manufacturing companies. It is fairly easy to form, and they are form simply by a verbal agreement, or more formally, by written agreement.

Setting up a joint venture/partnership business among small scale business owners normally represent a major and mind blowing changes to the business. However beneficial it may be to growth  of the business, it needs to fit with the overall business strategy before committing to such  joint venture business due to the challenges involved in it setting up, as both partners may need to critically decide better ways to achieve the partnership aims and objectives, comparing and learning from the success of other business combination from small scale business owners, and also trying to identify exceptional skills and expertise applied to the partners.

Whereas, most downfall of partnership business emerging through the merging of two or more small scale business owner can be evaluated when the partners fails to consider performing a SWOT (strengths, weaknesses, opportunities and threats) analysis to discover whether the two businesses are a good fit, not taking  into account of partners employees' attitudes bearing in mind that people can feel threatened by a joint venture, and partners having a different way of doing things in the course of their business and personal relationship, and this invariably affect the business working relationship, and causes decrease in profit generation of the partners or co-venturers.

Finally, In anticipation of the evaluation of the concept of partnership/joint venture phrase, which has almost been talked about and documented over the past (decades), it is extra-ordinary that this subject has been given in research studies, regardless of the fact that partnership business has been given fewer research studies and it has been part of the society for a longtime, though the motivation for partnership business dealings are usually built around some factor which include the desire to increase profit generation, access to international market, access to bank loans and grants, and  opportunities surrounding it establishment.

It is against this backdrop that this study seeks to examine and evasluate the problems and prospect of partnership and joint venture business among small scale business in Nigeria.

 

1.2.    STATEMENT OF PROBLEM

Though, Partnering among small scale business owner can be complex and it also takes time and effort to build the right relationship, and as a result of this partners are more likely to encounter challenges ranging from the objectives of the venture which are not 100 per cent clear and communicated to everyone involve, the partners having different objectives for the joint venture, high level  imbalance in levels of expertise, investment or assets brought into the venture by the different partners, different cultures and management styles which is likely to result in poor integration and cooperation between the partners, and finally the partners may not be able to provide sufficient leadership skills and support in the early stages of coming together as partners being that most of the partners are manager of their various stage and are finding it hard to adapt to the partnership/or joint venture rules and regulation.

The Nigeria small scale business industry is one of the most dynamic, risky, challenging and rewarding business sector in Nigeria  (Mills, 2001). As any other major sectors, it is exposed to a lot of predictable and unpredictable risks when engaging in a joint venture or partnership businesses. Among the risks faced by the the small scale sector are ownership risk, management and capital funding risk, economic risk, technology risk and social risk. Even though Risk is inherent in every partnership business and normally assumed by the owners unless it is transferred to or assumed by another party for fair compensation, it is also a challenges which pose a great danger for small scale business owners who may wish to come together to form a joint venture or partnership business if not deal with in the best possible way.

Non-Access to International Marketing:International marketing is a multinational process of planning and executing international marketing standards for pricing, promotion, distribution of ideas, goods and services to create exchange that satisfy individual and organizational on national and international level (Kottler, 2009). Firms expand into international markets slowly and deliberately over time for the market that are familiar to their home market, in order to participate effectively in global markets, SMEs are required to have and maintain significant capabilities in different areas ranging over the industry value chain, including production, design, distribution, branding, and marketing, as a result of this challenges small scale has tremendously find themselves merging or combining personal business capital together, sharing business ideas through establishment of a partnership/joint venture business in order to have access to international marketing and gain worldwide recognition.

Furthermore, Despite existing policies on financial support for small businesses, very few entrepreneurs receive financial help when they need it. Mambula (2002) find that 72 percent of entrepreneurs he studied in Nigeria considered lack of financial support as number one constraint in developing their business. Although in some African countries banks are by law required to set aside a certain percentage of their profits for small business loans, many banks would rather pay a fine than make what they believe to be a high risk loan to SMEs, this factor also prompt most small scale business owner to pool capital resources together to start up a partnership business.

Lack of Skills for entrepreneurship: The challenges facing entrepreneurs and small medium enterprises in Africa are varied and many; lack of financial support, weak economic infrastructure, and lack of policy coherence, and lack business support. Given the small number of indigenous African small firms compared to firms from other parts of the world, education and training support for entrepreneurs and small-scale enterprises will help establish a good foundation for small business growth (Biggs and Shah, 2006).

1.3 OBJECTIVE OF THE STUDY

The Objectives of this study are as follows;

  1. Assess challenges facing Small Medium Enterprises (SMEs) towards establishment of Partnership/joint venture business in Nigeria.
  2. Eliminate the constraint encountered by small business owners in partnership/joint venture business in Nigeria.
  3. Determine the economy effect of partnership/joint ventures in Nigeria.
  4. Ascertained the benefits and importance of setting up a partnership business by small business owners.
  5. Provide useful insight on the concept of partnership business, it merit and demerit, as well as importance to the growth of the business.
  6. Identify the key actors key actors and facilitators for establishment of new partnership business in Nigeria.

 

1.4.    RESEARCH QUESTION

The research question provides a framework and guidelines through which substantial knowledge of the research study can be understood.

The research question asked includes:

  1. What are the challenges facing Small Medium Enterprises (SMEs) towards establishment of Partnership/joint venture business in Nigeria?
  2. What are the constraints encountered by small business owners in partnership/joint venture business in Nigeria?
  3. Are there any economy effects of partnership/joint ventures in Nigeria?
  4. What are the benefits and importance of setting up a partnership business by small business owners?
  5. Are there any useful insight on the concept of partnership business, it merit and demerit, as well as importance to the growth of the business?
  6. Who are the key actors key actors and facilitators for establishment of new partnership business in Nigeria?

1.5. SIGNIFICANCE OF THE STUDY

Though, the reasons behind forming a joint venture include business expansion, development of new products or moving into new markets, particularly overseas, yet there’s a need to also consider the negative aspect of it when setting it up.

This studies would be relevant to small business owners who may want to  agree to setup a partnership business with another business in a limited and specific way, or small business owners who may also wish to agree to come together in order to generate large profit for their business  as a result of desire for expansion.it will also be useful for partners who wish to set up a separate joint venture business, possibly a new company, to handle a particular contract.

This studies will also be useful to small scale owner by providing them useful insight on the benefit of engaging in a successful joint venturer business such as, access to new markets and distribution networks, increased capacity, sharing of risks and costs with a partner and access to greater resources, including specialised staff, technology and finance.

It will therefore equally be of immense help to the Small and Medium Scale Enterprises Development Agency of Nigeria (SMEDAN), in evaluating the success of its activities with specific reference to the problem encountered by small business owner towards partnership/joint venture businesses.

Finally, it will also be of use to the student, researchers for further research study, the existing and prospective entrepreneur as well as any interested party. It will assist students in their knowledge build-up and appreciation of the business formation of partnership business among the small scale business owners.

1.6. SCOPE OF THE STUDY

The research work has focused on SMEs because these firms in Nigeria account for more than 90% of the country’s business, though many studies have been conducted on small-scale, but none of them has looked at the partnership/joint venture establishment in small scale businesses. It is for this reason that our study seek to Assess and evaluate the effect of partnership business  on small business enterprises in Osun Metropolis.

The activities of the regulating body Small and Medium Scale Enterprises Development Agency of Nigeria (SMEDAN),were also put into consideration. However, the research was limited to small and medium scale enterprises operator in osun metropolis due the schedule of the researcher.

1.7. LIMITATIONS OF THE STUDY

As with all studies, limitations exist and must be acknowledged. Moreover, the outcomes were based on the information solicited from the respondents and such might be subjected to human errors, omissions and possible mis-statements.

The limitations of the study are as given below:

  1. also the difficulty of timely availability of published data from various government and other agencies doing this job in our country. Researcher also faces the problem on account of the fact that the published data vary quite significantly because of differences in coverage by the concerning agencies.
  2. The study could not show the whole scenario of the all small scale business in Nigeria.
  3. The questionnaire was not understood by some respondent.
  4. Some respondent did not give enough concentration to understand the significant of analysis.
  5. The time was not enough to collect the data from the respondent.

1.8. DEFINITION OF TERMS

  1. 1.   SMALL SCALE BUSINESS

It is defined as any business undertaken, owned, managed and controlled by not more than two entrepreneurs, has no more than twenty employees, has no definite organizational structure (i.e all employees report to the owners) and has relatively small shares of its market.

  1. joint venture (JV)

This is a business agreement in which the parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. There are other types of companies such as JV limited by guarantee, joint ventures limited by guarantee with partners holding shares.

  1. 3.   Partnershipbusiness

 This is an arrangement where parties, known as partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations.

  1. 4.   Partnership Agreement:

This is a written and formal document which contains such basic information as the name and principal location of the firm, the purpose of the business, and date of inception.

  1. Mutual agency

This means that each partner acts on behalf of the partnership when engaging in partnership business. i.e. The act of any partner is binding on all other partners.

  1. Joint Property Interest

This is a situation whereby each joint venturers participant contributes property, cash, or other assets and organizational capital for the pursuit of a common and specific business purpose. Thus, an IJV is not merely a contractual relationship, but rather the contributions are made to a newly formed business enterprise, usually a corporation, limited liability company, or partnership.

  1. Due diligence

Due diligence is the investigation of a country, business or person, for the purpose of obtaining useful information on the potential benefits, pitfalls and costs. It helps investors to make better profit and mitigate risk.

8. Limited liability

This allows to limit debts and losses to the assets of the venture and protect the assets of the members themselves from being liable for the venture’s debts.i.e. the partners have limited liability and can be held liable only to the extent of their capital investments.

9. Co-venturers

co-venturers": this is a situation when two or more persons come together to form a temporary partnership for the purpose of carrying out a particular project, such partnership can also be called a joint venture where the parties are "co-venturers".

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