THE IMPACTS OF ICT ON THE GROWTH AND DEVELOPMENT OF SMALL BUSINESSES IN URBAN CITIES IN NIGERIA A CASE PORT HARCOURT

CHAPTER ONE

                                     INTRODUCTION

1.1      Background to the Study

Small to medium-size enterprises are an integral part of innovation and growth in a dynamic economy; thus, SMEs have a vital role in job creation (Dermol & Tavčar, 2012; Gagliardi, 2013). In developed countries such as the United States and United Kingdom, SMEs account for over 99% of employers and contribute over 50% to the country’s gross domestic product (Gbandi & Amissah, 2014). In developing countries such as Ghana, SMEs contribute approximately 70% to the GDP and account for approximately 92% of business (Asare et al., 2012). In Nigeria, SMEs conduct 90% of business in the country but contribute less than 10% to the GDP (Gbandi & Amissah, 2014). Bringing SMEs up to speed with the digital revolution is not just a matter of improving their quarterly profits, but also about creating growth and jobs. In the digital age, no business can thrive without better use of technology. Jeronimo and De Medeiros (2012) emphasize that SMEs grow two to three times faster when they embrace technology.

A study by BMG et al., (2015) found that almost all SMEs used the internet for business purposes but the intensity of the use varied with increasing size. The most common use of internet was being in touch with customers. While the use of e-commerce was increasing it was still much less prevalent: only 20 per cent of the turnover was delivered from this source in 2013and only 22 per cent of the businesses had e-commerce sales. A quarter of the SMEs reported that they did not possess basic digital skills; there was a positive link between digital skill level and turnover growth. SMEs have an attitudinal barrier towards developing an online presence, there is lack of awareness about the benefits and opportunities available and a lack of understanding about online security threats.

Embedding digital learning throughout the education system is a long-term solution but there is also clear need to enhance digital capabilities in the shorter term. A key to increasing capacities to take advantage of digital opportunities is through providing digital courses, awareness-raising initiatives through existing local private and third sector networks and improving cyber security. In a competitive and changing environment, SMEs have changed their way of working by improving the quality of doing business so that they can compete in regional and global markets. Therefore, digital technologies play a significant role in SMEs’ growth. Growth in ICT adoption within both large and small businesses in developed countries had been significant (Al-Debei & Al-Lozi, 2012). However, the ICT adoption rate within SMEs in developing countries has remained relatively low (Asare et al., 2012; Mokaya, 2012). Innovation in ICT has contributed to the improvement of organizational performance and the achievement of competitive advantage for organizations within developed and developing countries (Al-Debei & Al- Lozi, 2012). Global competitiveness and the need to stimulate growth are compelling reasons why leaders of SMEs need to adopt ICT (Ghobakhloo & Tang, 2013). Researchers have conducted studies on the factors that affect ICT adoption by SME leaders in developing countries such as Nigeria (Apulu & Latham, 2011; Asare et al., 2012; Mokaya, 2012). However, not many studies exist on the factors that influence SME leaders to adopt ICT as a business strategy to achieve competitive advantage in the global market. Therefore, this study shall examine the impacts of ICT on the growth and development of small businesses in urban cities in Nigeria by using Port Harcourt, Rivers State, Nigeria as a case study.

1.2   Statement of the Problem

The Nigerian Government has been making efforts to evolved an empowering environment to support SMEs and has attracted players with good local, regional and international experience in using innovations and technology to expand business activities and increase economic growth. However, a majority of the SMEs are struggling to increase productivity, organizational effectiveness, sustained competitive advantages and satisfactory rates of return on investments. To increase SMEs’ competitiveness in global markets, they should be financially sound and should be well connected to markets. This, however, is not going to be easy in an economy where traditional and informal practices of business management are still applied. It is evident from research that innovative technological strategies are a key resource for gaining competitive advantages, but this is challenging because some enterprises lack entrepreneurship and innovative skills. Consequently, many small businesses fail and close a few days after they start (Ndikubwimana, 2016). Many SMEs are realizing the benefits of using new digital technologies but some are late adopters or need specific support and guidance before they adopt digital technologies.

Although the government and other development partners have rolled out a number of initiatives as far as digital technology is concerned, there seems to be a huge gap in awareness among SMEs about the changes that are inevitably brought about by technology in terms of business growth and how they should adapt to this shift. The focus has shifted from whether or not to use technology to understanding which technologies can be used for what specific business purposes and also on investigating how they can best be applied in a range of contexts.

While SMEs in Nigeria are excited about the changes brought about by the use of technology in business there are also many challenges including lack of network infrastructure and slow or unstable wireless access. Some SMEs do not have the bandwidth to support internet activity in their businesses. This provides a great challenge in the communication process between staff members and the management. The other challenges are poverty, not enough knowledge and lack of training on how to use digital technology. In addition, ensuring that technology is used to enable and to advance effective business practices is also a big challenge. Hence, there is a need to investigate the effects of digital technology adoption in SMEs in Nigeria. However, this study shall examine the impacts of ICT on the growth and development of small businesses in urban cities in Nigeria by using Port Harcourt, Rivers State, Nigeria as a case study.

1.3   Research Objectives

The main objective of this study is to examine the impacts of ICT on the growth and development of small businesses in urban cities in Nigeria by using Port Harcourt, Rivers State, Nigeria as a case study. However, the specific objectives to:

i)             To evaluate the relationship that exists between information technology and the profitability of SMEs in Port Harcourt, Rivers State, Nigeria

ii)           To examine the major constraints of information technology adoption by SMEs in Port Harcourt, Rivers State, Nigeria

iii)         To determine the effect of information technology system on the growth of SMEs in Port Harcourt, Rivers State, Nigeria

1.4   Research Questions

The following are some of the questions which this study intends to answer:

i)             What is the relationship that exists between information technology and the profitability of SMEs in Port Harcourt, Rivers State, Nigeria?

ii)           What are the major constraints of information technology adoption by SMEs in Port Harcourt, Rivers State, Nigeria?

iii)         What are the effects of information technology system on the growth of SMEs in Port Harcourt, Rivers State, Nigeria?

1.5   Hypotheses of the Study

The following are some of the questions which this study intends to answer:

i)             Evaluate the relationship that exists between information technology and the profitability of SMEs in Port Harcourt, Rivers State, Nigeria

ii)           There is no significant relationship between information technology system and the profitability of SMEs in Port Harcourt, Rivers State, Nigeria.

iii)         SMEs in Port Harcourt, Rivers State, Nigeria are not faced with any constraints in the adoption of information technology system. 

iv)         There is no significant relationship of information technology system on the growth of SMEs in Port Harcourt, Rivers State, Nigeria.

1.6   Significance of the Study

Quite a number of researches have been carried out related to this study such as Adewole and Akanbi (2004) in which they examined the role of information and communication technology investment on the profitability of small medium scale industries – a case of sachet water companies in Oyo state, Nigeria. Similarly, Rufai (2014) studied the impact of communication technologies on the performance of SMEs in a developing economy, a case study of Nigerian SMEs. However, this research is distinct from various similar researches such that it examines the impact of ICT on growth of small and medium enterprises. This research tends to be very beneficial to small and medium enterprises, stakeholders in the country, Nigeria economy as a whole and also adds to the existing literature concerning this topic.

1.7   Scope of the Study

Due to financial constraints, time and mostly academic workload, this research will not be able to cover the entirety of SMEs in Nigeria. Hence, this study deals with SMEs operating in Port Harcourt State, Nigeria only within the last five years.

1.8   Definition of Terms

The following terms were used in the course of this study:

Small and Medium Scale Enterprises (SMEs): The Central Bank of Nigeria defined Small and Medium Scale Enterprises in according to asset base and in number of staff employed. The criteria are an asset base of ₦5Million and ₦500Million and a staff strength base of 20 to 300 employees.

Business Growth: This is the process of improving some measure of an enterprise’s success. Business growth can be achieved either by boosting the top line or revenue of the business with greater product sales or service income, or by increasing the bottom line or profitability of the operation by minimizing costs.

Information and Communications Technology (ICT): This is an umbrella term that includes any communication device or application, encompassing radio, television, phones, and computer hardware and software satellite systems and so on, as well as the various services and applications associated with them, such as videoconferencing and distance learning. ICTs are often spoken in a particular context such as ICTs in SMEs, ICTs in Health care or libraries and so on.

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