ABSTRACT
The development of SMEs has become an important factor
in nation’s building and economic development. While developed nations have
leveraged on the growth of SMEs, survival rates has been less than 10% in
Nigeria despite various government intervention programmes. This study
evaluated the effect of entrepreneurial strategies on the development of SMEs
on selected firms in Ogun state Nigeria.
Survey research design was adopted for the study. The
population of the study consist of 2425 middle and top level staff of 7
selected firms. Stratified random sampling technique was adopted to select the
sample size of 446. Respondents were determined using Taro Yamane formula for
sample size. Data was collected using self-administered structured
questionnaire and validated for a response rate of 94%. Cronbach Alpha
reliability for major constructs had an average value of 0.83. The data
collected was analysed using linear and multiple regression.
Findings revealed that there
is a significant relationship between entrepreneurial strategies and SME
development (R = 0.535, at p<0.05).The adjusted R2=.285
value (alpha) of 44.670, the coefficient of independent variable (beta = 0.491) and F-Value yielded 163.890. Competitive strategy had
significant relationship on return on investment and this effect was statistically
significant at (R2 = 0.160, p < 0.05, B = 0.360, F = 77.727).
There is a significant relationship between human resource strategy and employee
productivity (R2 = 0.184, p < 0.05, B = 0.385, F = 91.833). The
effect of market orientation strategy on market share shows a positive
relationship with p < 0.05, R2 = 0.242, B = 0.395and F = 130.155.
A positive and significant relationship was established between adaptation
strategy and business policy with R2 = 0.553, p < 0.05, B = 0.717
and F value = 504.339.
The study concluded that,
entrepreneurial strategies have strong positive relationship on the development
of SMEs in Ogun State. The study recommends that SMEs should adopt
entrepreneurial strategies in the form of competitive, human resource, market
orientation and adaptation to increase survival rate.
CHAPTER
ONE
INTRODUCTION
1.1
Background to the Study
Small
and medium enterprises (SMEs) have increasingly become a powerful engine for
economic growth and development in today’s rapidly growing and dynamic
competitive global economy (Khan, Obaidullah & Alam, 2011). On the contrary, the performance and effectiveness
of small and medium scale enterprises as an instrument
of economic growth and development in Nigeria has long been under academic scrutiny.
This intense scrutiny has been against the backdrop of the low performance and
inefficiency that characterized small and medium scale enterprises particularly
in assessing its role on economic growth and development (Small and Medium
Enterprises Development Agency of Nigeria, SMEDAN;2010).The
future of entrepreneurship is a moving target and a work in progress that is
widely expected to lead through innovation and adaptation for the development
of entrepreneurs (Snyder, 2011).
The work of Snyder (2011) further noted that majority
of job losses in America occurs in large companies which form less than 20% of
American businesses while majority of jobs were created by small businesses. An entrepreneur is an
innovative person who maximizes his/her profit by following strategies on
venturing into commercial undertaking (Dabson & Wilcox, 2012). The
characteristics of an entrepreneur include risk taking, curiosity, imaginative,
persistence, goal setter, hardworking, confident, flexible and independent. A
study by Kauffman foundation in 2011 examined the relationship between economic
growth and entrepreneurship and came to the conclusion that nations with higher
level of entrepreneurship activity have better rate of economic growth. Clifton
(2009), noted that what the whole world need is a good job and good jobs are
unavailable as entrepreneurs have not been able to develop the needed strategies
for job creation. Good jobs have become necessary because social contracts
between big companies and their employees have changed overtime. Therefore, the
best job available is that where you are owner and self-employed (Clifton, 2009). Dabson and Wilcox
(2012) noted that most developing countries use entrepreneurship as an economic
development of last resort. For Nigeria to develop through the use of
entrepreneurship like other developing nations the leaders must take cognizance
of the people’s ability to create wealth, the process through which growth is
achieved, the community where the activities take place and policies and
practices that foster entrepreneurship in both public and private sectors
(Dabson & Wilcox, 2012).
An
SME according to the Central Bank of Nigeria (CBN) is one whose capital
employed excluding land is between ₦1 million and ₦150 million and employs not
more than 500 persons (Ebitu, Ufot,
& Olom, 2015). Ogundele (2007), noted that SMEs represent 90% of the
enterprises in African, Caribbean and Pacific (ACP) countries. Also, SMEs
provide 70% of employment opportunities for the citizens and promote the
development of local technology. Oyedijo (2012), have observed that small
businesses employ 53% of the private workforce and account for 47% of sales and
51% of private sector gross domestic product. SMEs possess great potential for employment generation,
improvement of local technology, output diversification, development of
indigenous entrepreneurship and forward integration with large scale industries
(Central Bank of Nigeria quarterly publication, (2011).
Entrepreneurial
strategies on the other hand is the means
by which an organization establishes and re-establishes its fundamental set of
relationships with its environment characterized by changes in the pattern of
decisions taken by the organization. These strategies include competitive
strategy which involves the ability of the organization to achieve leadership
status in the dynamic and uncertain market they operate; human resources
strategy which capitalizes on the use of the employees to achieve the
organizations aims and objectives; market orientation strategy involves
aligning the organizational output to suit the market and customers need and
adaptation strategy which involves the use of innovation to allow the
organization becomes relevant all in a bid to achieving SME development.
SME
development is the growth of a SME with the systematic use of scientific and
technical knowledge to meet specific objectives or requirements of the
organization.
SME
development in this study is measured with the organization’s return on
investment (ROI), employee’s productivity, market share and the business
policies of the firm. 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 (SMEs) due to financial
constraints explained by high lending rates, high loan requirements and lack of
viable entrepreneurial skills which does not allow SMEs to possess the much needed
competitive strategies.
Furthermore,
SMEs cannot employ the full arsenals of their entrepreneurial strategies due to
constraints such as lack of adequate credit for SMEs, traceable to the
reluctance of banks to extend credit to them. This situation arises due to poor
documentation at project proposals because the human resources strategies are
poorly implemented or inadequate. Matanmi and Awodun (2005) posit that if
Nigeria desire to move out of the disturbing high level of unemployment and
ravaging level of poverty, adequate attention must be given to the growth of
entrepreneurship. They concluded that Nigeria still remain in the doldrums
because of the combination of ignorance, low capacity building and lack of
encouragement for entrepreneurship coupled with lack of entrepreneurial
strategies.
This
work will focus on SMEs within Ogun
State and analyze entrepreneurial strategies in the form of competitive
strategy, human resources strategy, market orientation strategy and adaptation
strategy and how it relates to the development by considering market share,
return on investment, business policy and employee productivity.
1.2 Statement of the Problem
Akingbolu
(2014), Okezie, Odii, and Njoku (2013)
has documented that 70% of SMEs fail in their first three years of
operations in Nigeria because of their economy of scale. This is coupled with
the dynamic nature of the environment, greater competitive firms and the need
for continuous innovation. Product customization and growing use of ICT, forces
firms to face challenges of improving their competitiveness. These difficulties
are greater for the highly competitive environment for small scale businesses
which negatively affect their Return on Investment (ROI). The inability of top
management of SMEs to properly analyze the market is one of the leading causes
of reduction in Return on investment (ROI) for SMEs (Aaker, Kumar & Day,
2008). This is as a result of their
inability
to formulate and implement appropriate competitive strategies for
diversification, to fulfill their role of being an industry low cost provider,
developing expertise and creating a niche for their companies that will allows
for SME Development.
Mwangi
and Omhui (2013) posit that inability of small scale and medium scale
enterprises (SMEs) to gear effort towards applying effective competitive
strategies reduces return on investments because of the severe competition they
face from multinational companies in the market and the need to meet consumer's
requirement for quality, quantity and price has been a major challenge that has
led to the collapse and eventual failure of many SMEs. The entrepreneur’s
inability to put in place adequate competitive strategy that would lead to
responsive customer satisfaction, revenue growth and increased returns on
investment is a factor that leads to failure (Offor, 2012).
With
greater competition in the globalized market, emphasis on firm management
employing human resource strategies through recruitment and selection, employee
retention, compensation in SMEs have
been insufficient and this inhibits their performance and diminishes finances
(Apulu, Lathan & Moreton, 2011).
Asiedu-Appiah,
Aduse-Poku and Abeeku-Bamfo (2013) in their study revealed that majority of
SMEs do not follow formal recruitment and selection practices. It was also
evident that existing recruitment and selection practices were not systematic
and lacked consistency as these practices were based on the understanding of
owner-managers who had little or no expertise in the subject. These lackadaisical
human resource strategies does not allow for the input of the best
entrepreneurial team that will lead to increasing financial performance for the
SMEs.
Despite,
its significant position as the giant of Africa, in terms of natural resources,
majority of firms predominantly small and medium scale enterprise still
underperform while others wind up within first five years of business in
Nigeria. Only five to ten percent survive to achieve maturity stage, even with
available financial resources (Ayanda & Danlami, 2011; Onugu, 2005), due to
lack of strategic human resource planning (Okpara, 2011) and this lack of human
resource strategies has not given room for increasing performance by the SMEs.
The poor performance of Nigerian small and medium enterprises (SMEs) is an
issue of serious concern to all Nigerians and other
stakeholders (Ibru, 2013). The current chief
executive officer (CEO) SMEDAN, Nadada (2013), admitted the following problems
facing SMEs in Nigeria to include, among others poor market orientation
strategies, inadequate knowledge of managing firms, poor marketing skills, low
entrepreneurial spirit and the absence of this leads to reduction in their
market share.
Dzisi
and Ofosu (2014) posit that SMEs are still lacking in so many spheres in
Nigeria, as their perception of marketing has not shifted from mere advertising
unto formulation and implementation of market orientation strategies. SMEs fail
to utilize market orientation strategies derived from marketing research and
new product development that could attract the improved market share and
performance thereby leading to inadequate exploitation of its benefits as well
as not giving appropriate value to the entrepreneurs (Leopoulos, 2006).
A
study by Ebitu (2015) exposes that in the southern part of Nigeria, marketing
problems such as difficulty in managing firm’s advertising, lack of adequate
marketing research, unawareness of competition, poor branding and packaging,
low level of knowledge on business market analysis, poor promotion, poor
segmentation strategy, poor pricing technique and unplanned distribution
contribute negatively in affecting SMEs’ profit margin and their sales volume.
Ebitu (2015) further observed that most of these problems were as a result of
the fact that most of the managers of the SMEs are not knowledgeable about the
principles and practice of marketing orientation strategies.
Today’s
organizations have to deal with dynamic and uncertain environments. In order to
be successful, organizations must be strategically aware. They must understand
how changes in their competitive environment are unfolding and they have to
innovate so as to enhance their performance thereby increasing their market
share. The adaptation strategy of innovation can be used by small and midsized
firms over large firms which is one area that has been underexplored (Papulova
&Papulova, 2006).
Uchegbulam,
Akinyele and lbidunni (2015) in their study posited that with Nigeria's
business environment situated in the midst of a challenging economic landscape
and intense competition, Managers are increasingly seeking for strategic
approaches to
accomplish, improve and sustain organizational
performance which is lacking in most SMEs therefore causing underperformance,
under productivity and inefficiency of the SMEs. Currently, business
environment is perceived to have been rarely exceeded in complexity, turbulence
and rapid in change, all Nigerian organizations (large or small) must pay
greater attention than ever before to their environments when formulating and
implementing policies and strategies in order to survive and grow (Otokiti
& Awodun, 2003).
Otokiti
and Awodun (2003) posit that the performance of Nigerian companies is
predicated on factors such as low-sales, high cost of production, low capital
utilization, lack of foreign exchange to source needed inputs, poor power
supply, and low quality of goods and services, among others. These issues have
led to lack of proper integration and coordination of various corporate
subsystems in Nigerian organizations, resulting in the failure to achieve the
stated goals and objectives. Enterprises are subsumed in the environment with
which they interact by importing inputs and exporting outputs. Thus, the
vagaries and the extremities of the environment affect the fortunes of
organizations unless adaptive strategies are implemented to mitigate this (Kennerly
& Nelly, 2003). Therefore, given the important contributions of SMEs to the
economy and the survival
rate of SMEs in Ogun state for the period 2010-2013 at 22% when compared to
Lagos 54% and Oyo at 73% (Nadada, 2013) and considering the proximity of Ogun
State which is between Lagos and Oyo States,
investigation in the state is unavoidable.
This research aims at determining the
relationship between entrepreneurial strategies and development of SMEs in Ogun
State, Nigeria.
1.3 Objective of the
Study
The
main objective of the study is to evaluate the impact of entrepreneurial
strategies on the development of SMEs in Ogun State, Nigeria. The specific
objectives are to:
1.
examine the effect of competitive
strategy on Return on Investment;
2.
identify
the effect of human resources strategy on employee productivity;
3.
evaluate
the effect of market orientation strategy on market share;
4.
determine
the effect of adaptation strategy on business policy and
5.
examine
the effect of Entrepreneurial Strategies on SMEs development.
1.4
Research Questions
The
study answered the following research questions:
1. What is the effect of competitive
strategy on Return on Investment for SMEs development?
2. How does human resources strategy
affect employee productivity for SMEs development?
3.
What is the effect of market orientation
strategy on market share for SMEs development?
4.
What is the effect of adaptation
strategy on business policy for SMEs development?
5.
How does Entrepreneurial Strategies
affect SMEs development?
1.5 Hypotheses
The
hypotheses for the study are as follows:
H01: Competitive Strategy has no significant
effect on return on investment for SMEs development.
H02: Human Resources Strategy has no
significant effect on employee productivity for SMEs development.
H03: Market Orientation Strategy has no
significant effect on market share for SMEs development.
H04: Adaptation Strategy has no significant
effect on business policy for SMEs development.
H05: Entrepreneurial Strategies has no
significant effect on SMEs development.
1.6 Scope of the Study
This
study investigated entrepreneurial strategies and SME development in Ogun
State. The state was chosen because of its position as second to the least
state in south west Nigeria in terms of SMEs development (National MSME survey report, 2013).
Available Statistics from SMEDAN shows that as
at 2013, Lagos had 11,663, Ogun 1,794, Oyo 7,987, Osun 2,273, Ondo 1,999 and
Ekiti 1,030 SMEs respectively as shown in Table 1.1 and Figure 1.1. Statistics
shows that of the 26,746 SMEs in the South west states of Nigeria, Ogun
accounted for only 1,794 which is 6.7% of the total SMEs business in the
region. The survival rate of SMEs in the state for the period 2010-2013 is 22%
when compared to Lagos 54% and Oyo at 73% (Nadada, 2013).
Table 1.1: Number of SMEs in South Western Nigeria by
State as at December 2013
State
|
Number of SMEs
|
Percentage SMEs (%)
|
Lagos
|
11,663
|
44%
|
Ogun
|
1,794
|
6.5%
|
Oyo
|
7,987
|
30%
|
Osun
|
2,273
|
8.0%
|
Ondo
|
1,999
|
7.5%
|
Ekiti
|
1,030
|
4%
|
Total
|
26,746
|
100%
|
Source:
National MSME Survey Report. (2013)
Source: Researcher field work 2017
The
research was limited to SMEs within the Ota/Agbara Industrial axis. This
location was selected because the bulk of the SMEs, about 78% are located
within this region (Small and Medium Enterprises Development Agency of Nigeria,
2010). SMEs were selected because of their importance to the development of any
nation.
The
target respondent for the study consisted of management personnel as well
supporting personnel working at the top and middle management level within the
selected firms. The total estimated figure for the population arrived at, based
on survey of few selected firms was two thousand four hundred and twenty-five
(2425) personnel. Information with regards, the population number was sourced
from the human resource department (HRD) of the firms. Using Yamane (1967)
formula for sample size determination, the study was able to arrive at a sample
size of four hundred and forty-six (446) respondents including a provision for
thirty percent non respondent. Lastly
the study would be carried out using descriptive survey design.
1.7 Significance of the Study
The
general understanding of this study would serve as a useful guide to
management, practitioners, executive, corporate managers most especially in
SMEs to understand how entrepreneurial strategies in their business policies,
leadership styles, recruitment and selection, innovation and pricing aid or
enable, the relationship and the extent of its effect on the attainment of
development by the SMEs. The study would also enable the SMEs to proactively
respond to changes within the environment more effectively as well as enable
them implement better business strategy for their operation and development.
This study would enable stakeholders in SMEs to understand that employing all
these strategies together would enable them achieve organizational growth and
development.
Understanding
from this study would enable the government to create better policies and
regulation with regards to the research variables in a way to enable
development and growth within the country’s economy and sector as well.
Findings from this study will enable the society to be more informed and
provide more knowledge with regards to entrepreneurial strategies as it relates
to SMEs development. It would also provide more knowledge concerning
entrepreneurial strategies and reveal what makes it to be entirely different
from one SME firm to another. Lastly, it
is also hoped that these findings would contribute to the body of knowledge and
stimulate more researcher’s interest in this field of study.
1.8 Operationalization of Variables
The
variables of this study are operationalized as follows:
Y = f(X)
Y = Dependent Variable
X
= Independent Variables
Where:
Y = SME Development
X
= Entrepreneurial Strategies
Y = (y1, y2,
y3, y4)
X
= (x1, x2, x3, x4)
Where:
y1
= Return on Investment (ROI)
y2
= Employee Productivity (EP)
y3
= Market Share (MS)
y4
= Business Policy (BP)
x1
= Competitive Strategy (CS)
x2
= Human Resources Strategy (HRS)
x3
= Market Orientation Strategy (MOS)
x4
= Adaptation Strategy (AS)
y1=
f (x1) …………………………………………. Equation 1
y2=
f (x2) …………………………………………. Equation 2
y3=
f (x3) …………………………………………. Equation
3
y4= f (x4)
………………………………………… Equation 4
Y=f (X) …………………………………………… Equation
5
The
variables in Equation 1- 5 are the working Equations that were evaluated in
this study.
y1 = a0 +
β1x1
+ e
y2 = a0 +
β2x2
+ e
y3 = a0 +
β3x3
+ e
y4 = a0 +
β4x4+
e
Y = a0 + β1x1
+ β2x2
+ β3x3
+ β4x4
+ e
1.9 Operational
Definition of Terms
The
operational definitions of terms for this study are:
Entrepreneurial Strategy: is the
means by which an organization establishes and re-establishes its fundamental
set of relationships with its environment characterized by changes in the
pattern of decisions taken by the organization.
Competitive Strategy: is defined
as long term strategies taken to attract customers, withstand the competitive
pressures of the market and also to help and strengthen the firm's market
position taken after evaluating its strengths and weaknesses compared to those
of its competitors.
Human Resource Strategy: is a
coordinated set of actions aimed at identifying current and future human
resources needs in order to integrate an organizations, people, system and
culture towards achieving the organizational goal.
Market Orientation Strategy: are
business strategies that focus on identifying and meeting the stated or hidden
needs or wants of customers through its product mix.
Adaptation Strategy: is defined as the modification of strategies in a business to cope
with cultural and demographic differences in the market to make it successful
in situations different from originally anticipated.
SME Development: this refers
to the growth of an SME with the systematic use of scientific and technical
knowledge to meet specific objectives or requirements of the organization.
Return on
Investment: this is a ratio that takes
the firm’s profit for a given accounting period.
Employee
productivity: this is defined as
production attributable to staff with the least effort.
Market
Share: this is the share of product or revenue
held by a firm in a relevant market.
Business
Policy: this is defined as plans or principles
which guide the thinking and decision making and action of an organization.
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