FAILURE OF SMALL SCALE BUSINESS IN NIGERIA: CAUSES AND SOLUTIONS (A CASE STUDY OF SELECTED FIRMS IN ABUJA).

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

Small and medium sized enterprises (SMEs) are the backbone of virtually all economies of the world because of their role in employment creation and provision of personalized services (Wattanapruttipaisan, 2003). SMEs have strong influence on the sustainable development process of less developed as much as developed countries because they foster economic growth and alleviate poverty (Ayyagari, Beck and Demirguc-Kunt, 2003). Udechukwu (2003) asserts that the development of SMEs is an essential element in the growth strategy of most economies and holds particular significance for developing countries like Nigeria.

The best performing economies in Asia are heavily based on SMEs which are major sources of dynamism in economic development. The requirements for SMEs to access the global market and upgrade their position within the international market as a result of trade liberalization are becoming increasingly difficult due to competition (Abonyi, 2003). Berry (2002) suggests that the increasing prevalence of flexibility and specialization of SMEs has persuaded many business analysts to believe in the strategic role SMEs play in the industrial structure of any developing nation. But he noted that SMEs are quite vulnerable to external shocks due to the global competition from the liberalization of trade. There is reasonable assurance that given favourable policy environment, SMEs can successfully compete in the global market (Briggs, 2007). Most governments, especially in Less Developed Countries (LDCs) now recognize the need to formulate policies that create conducive atmosphere for the establishment and operation of SMEs. The new emphasis by various governments in LDCs on SME development can be linked with the current global trend of economic liberalization and the need to bridge the development gap that hitherto exists between them and industrialized countries. Governments in developing countries, especially in Nigeria, provide a wide variety of programs to develop and assist SMEs. Despite these programs, it has been observed that their impact on the performance of SMEs has been less than satisfactory (Manbula, 2002). This can be attributed to some factors that governments and policy makers in developing countries have failed to put into consideration in the design and implementation of SME development programs.

Most SMEs either remain small, moribund or shut down within few years of operation due to some constraints that hinder their growth, especially finance (Rodriguez and Berry, 2002). There is no available evidence in Nigeria that the situation has improved with economic liberalization (trade and financial market) that brought about stiff competition from well-established Multinational Corporations (MNCs). The proponents of economic liberalization claim that it improves the situation of SMEs by giving them better access to finance and encourages competition which will in turn reduce poverty (Tagoe, Nyarko and Anuwa-Amarh, 2005). This paper focuses on the manufacturing SMEs in Nigeria and the programs designed by the Nigerian government for the development of SMEs.

It develops the argument that government programs for SMEs development are not properly implemented which has hindered SMEs competitiveness. The institutional structures upon which these programs can function effectively are either not in place or insufficient. This has resulted in a biased economic environment for SMEs to compete with well-established MNCs under a liberalized trade environment.

This research work on “The failure of small-scale Business in Nigeria; Its causes and solutions” with a study of selected companies in Enugu State is conducted to proffer solutions by way of recommendations to the problems of small scale business.

1.2 STATEMENT OF THE PROBLEM

There are a lot of problems which this research work seeks to address. It is in agreement with certain experiences that the inability of the management of the small scale businesses to determine causes of failure may have led to low growth rate. Also it is perceived that the inability of the management to develop policies for solving the problem of small scale businesses may have reduced the profitability of such enterprises. Indeed, nothing weakens organization more than when management develops poor attitude to personnel training. Experiences show that the poor attitude of the government to creation of conducive environments for business may have reduced the chances of survival of small scale enterprises. The inability of works to implement management policies just as experiences have shown, may have led to unproductivity.

Again poor financial management strategies may have aggravated the situation just as the perceived inability of management to employ competent personnel may have led to unproductivity. Above all, the poor marketing strategies of most organizations just as experience can show may not have helped matters. It is in view of this problem that this research work is conducted.

1.3 OBJECTIVES OF THE STUDY

This work is conducted to achieve the following objective

1. To determine the causes of failure of small scale businesses.

2. To find out whether government creates a conducive environment for small scale businesses.

3. To determine which workers do not implement management policies in small scale businesses.

4. To evaluate if finance options affect small scale businesses.

5. To determine whether the employment of incompetent hands leads to small scale business failure.

1.4 RESEARCH QUESTIONS

In order to address the above stated problem, the following research are essential, hence they are reflected in the questionnaire.

1. What are the causes of small scale business failure in Nigeria?

2. Does the government provide conducive environment for Small Scale business?

3. Do workers implement management policies?

4. Does finance options affect small scale business?

5. Does the employment of incompetent hands lead to the failure of small scale business?

1.5 RESEARCH HYPOTHESIS

The hypotheses stated earlier in this research work are:

Ho: The cause of small scale business failure is due to poor policy

H1: The cause of Small scale business failure is not due to poor policy

Ho: There is no proof that government can create a conducive environment for Small scale business.

H2: There is a proof that lack of conducive environment is not responsible for failure of small scale business in Nigeria.

Ho: There is no evidence to show that workers implement management policies in small scale business.

H3: There is evidence to show that workers implement management policies in small scale business.

Ho: There is no significant relationship to show that finance option can affect Small scale business.

H4: There is a significant relationship to show that finance option can affect Small scale business.

1.6 SCOPE OF THE STUDY

It is the desire of the researcher to investigate into the causes and solutions to the failure of small scale businesses in Nigeria as it affects all organization. But due to time and financial constraints, the researcher has chosen SCR Busiess Cetre, Tasco investment, Jah Bless furniture’s, Nelo Tailors, Francis foods and Nucon Ventures as case study firms. It cannot also be said that it is only the factors or points given in this work that will cause the failure of small scale businesses in Nigeria.

1.7 SIGNIFICANCE OF THE STUDY:

Information gathered from the study could be used by Managers of Small and medium Scale Enterprises for planning appropriate measures for business growth and survival as well as the effective allocation of resources. To students in every higher institution of learning, it will provide them with some vital information concerning strategies for small scale business survival. Also, it will provide basis for which further research could be conducted. Finally, it is believed that this research study will be of great use to general public by expanding their knowledge on small scale business.

1.8 LIMITATIONS OF THE STUDY

A lot of constraints were encountered in the course of carrying out this research work. The researcher lacked sufficient resources to face the challenges of this research work. It was not easy to source for the adequate material to be used to carry out this research. Indeed the researcher found it difficult to collect certain information from the management staff of the organization and it was quite uneasy to educate the respondents on the best ways of filling the questionnaire.

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