ABSTRACT
Export strategies are tools through which companies can respond to
the mutual effects of the internal and external factors for obtaining their
export goals. Despite the accumulated efforts of academic, specialist’s,
researchers and public policy instruments in the Nigerian economies, progressively
geared to actively internationalize the SMEs’ and compete in foreign markets,
international market penetration remains a major challenge for most SMEs’ in
Nigeria and the expected effects of export strategies
on small and medium sized firms
performance remain unanswered. Consequently, this study examined the
influence of export strategies on the performance of small and medium sized
manufacturing firms in Lagos state, Nigeria.
A survey research design was adopted for the study. The population
of study comprised 514 middle level managers ofsmall and medium sized firms in
Lagos state, that are registered in the export group of Manufacturers
Association of Nigeria. The Cochran formula was used to arrive at a sample size
of 316. A structured questionnaire was used to generate data. The questionnaire
which was partly developed and partly adapted was validated with Cronbach’s
Alpha reliability co-efficient for major constructs of the variables yielding
between 0.815 and 0.941 respectively. A response rate of 77% was obtained. The
data were analysed using descriptive, correlation and regression analysis.
Findings revealed that there was a
significant positive effect of export strategies on SMEs’ sales performance
= 0.899, p = 0.000).
Export strategies had a significant positive effect on SMEs’ growth
performance. (
= 0.873,p = 0.000).
Export strategies had a positive and strong significant effect on SMEs’
customer performance(
= 0.891,p = 0.000)
and export strategies was significantly and positively related to SMEs’
performance in Lagos state. (r = 0.712 p = 0.000).
Also, there is strong
positive significant moderating effect of export experience and educational
level of managers on the relationship between export strategies and SMEs’
performance. (
= 0.863,
p = 0.000< 0.05).
It was concluded that export strategies influences SMEs’
performance in Lagos state, Nigeria. The study therefore recommended that small
and medium sized firms in the manufacturing industry of Lagos state, should
adopts export strategies such as direct exportation , joint ventures, strategic
alliance and licencing when approaching the international market for business
expansion.
CHAPTER ONE
INTRODUCTION
1.1
Background to the Study
International
trade and sales activities in the world has gradually expanded the market
boundaries within which a firm operates irrespective of its scale or target
market. Exporting businessactivities is
progressively seen as a prospect for corporate growth, expansion and improved
profitability among small and medium scaled firms in various industries (Amira,
2006). Whorapot (2009) assert that exporting has traditionally been the most
common approach of international market access, chosen exclusively by small and
medium-sized firms. It tends to be associated with less risk, minimal
financial, human, and other resource commitments; exporting is a feasible means
of global engrossment for the small and medium scale enterprises (Levi, Martin &
Justus, 2010).
Internationalization
procedure of many small and medium sized (SMEs) firms in Nigeria is still in
the primitive stages, with exporting being the prominent mode of their foreign
market involvement (
John & Nicholas, 2007). Over the years, the participation of small &
medium scale enterprises in the international market has extensively been under
scrutiny. This powerful inspection has been against the backdrop of stumpy
performance and competitiveness in exportation that characterised small and
medium scale enterprises predominantly in evaluating its role in international
business and foreign market participation. The export market has become
more of a matter of endurance than choice for many small and medium sized firms
(Odularu, 2010).Firms that seek to participate in the international markets employ
specific strategies to attract international buyers of their goods. The
competitive strategies adopted by firms comprise of productivity strategy,
export strategy, follower strategy and differentiation strategy (Odularu, 2010). Export
strategy is the most adopted foreign market penetration strategy by small and
medium sized firms(Levi, Martin & Justus, 2010).
Export
strategy is a tool through which companies can respond to the mutual effects of
the internal and external factors for obtaining their export goals.It requires low resources, low exposure to business
risks, and high strategic flexibility. Small and medium sized Firms within a certain
industry adopt different export strategies and the strategies adopted influence
the firm’s growth and performance (Amira,
2006).Smile & Danile (2014)assert
that adopting the right export strategy is presumed to be a success factor for
the SMEs’ in the International markets.
Davide & Erdal (2012) affirmed that the business
managers are responsible for making decisions thatform the
essential features of their firms’ exporting strategy development and
implementation in terms of strategy selection, market segmentation, period of
exporting, export market selection, degree of export dependence, designing and
execution of export strategies in order to overcome a perceived impediment to
exporting and attempt to maximise export objective function. Smile & Danile (2014)had
earlier affirmedthat international experience and entrepreneur orientation of
owner/manager of business plays a key role in their firms’ export strategies
development and firms’ export performance. Theirmanagerial
judgment consequently determines the performance of firms in the international
market.
Export strategies in Nigeria remain unclear for the SMEs’
and their international business performance remains less than satisfactory in
light of the potential such firms hold (John & Nicholas, 2007). Over the
years, the Nigerian government have
devised and implemented a number of export strategies and
polices to foster SMEs’ export
involvement, competitiveness, corporate growth and performance level in the
international market.In 1976, The Nigerian Export
Promotion Council (NEPC) was vested with a major role for export development
and promotion strategy. In 1991, The Nigerian
Export-Import Bank (NEXIM) was established under the Structural Adjustment
Program as an Export Credit Agency to promote export Trade (Isaac,
2012).Despite the public policy
instruments in the Nigerian economies, progressively geared to actively
internationalize the SMEs’ and compete
in foreign markets, international market penetration remains a major challenge
for most SMEs’ in Nigeria. There is a high percentage of SMEs’ in Nigeria that remains small
without realizing their growth potentials or appropriate strategies for
international market penetration (Isaac, 2012).
1.2
Statement of the Problem
The
strategies adopted by most SMEs’ and their managerial judgement in the
formation of their export business activities has remained ineffective without
yielding the expected multiplying effects on the performance of SMEs’ in the
international market.Most SMEs’ do not seek for or
acquire adequate information and knowledge about foreign markets and how to
manage foreign activities while formulating their exporting strategies (Mwebaze
& Hisali, 2013). This has really hampered the export involvement,
competitiveness, performance level and corporate growth of the SMEs’. The exportation portion of these companies
against their production is low with overall poor export performance(Tongesai & Shylet, 2013).
SMEs’ are
characterized with repeated inabilities to effectively respondto the frequent
changes in consumer preferences and innovation development due to their
smallness nature. Hence, some SMEs’ pursue an agreement with other firms as a
strategy to complement their weaknesses in terms of sharing resources to earn a
competitive advantage and achieve common objectives (Amira, 2006). Often, the cooperative agreement between the firms is also associated
with uncertainty regarding a partner future behavior and the absence of
superior authority to ascertain compliance, poor stability with overall poor
performance which later results into collapse of the formed partnership (Rosemary,
2007).
Huawei (2013) observed that the cooperative agreement and partnerships are associated
with high failure rates because they neither achieved the parent companies
goals or the common objective behind the motive of cooperation. There is a high
rate of termination of cooperative agreements which later results into the
destruction of shareholder value.Identifying the
appropriate export strategies for international market entry remains a big
obstacle for most small and medium sized firms in Nigeria. Most SMEs’ do not
seek to participate in the international market for business expansion,while
the potential exporters arediscouraged as a resultof non-availability of export business information and
strategies for targeted countries (Mwebaze & Hisali,
2013).
Craig
(2010) noted that being able to identify the successful or unsuccessful strategies for
international market participation hasremained major challenge for most SMEs’. Although, firms in the same industry tends to
adopt similar export strategies especially the one adopted by the leading firms.
However, the performance and international market success of firms within the
same industry tends to be unequal, as some firms are more successful than
others in the export business despite the adoption of similar strategies. Davide &
Erdal (2012) opines that the factors which influence firm’s
internationalisation differ between companies and industries with specific
hindrances and opportunities that requireunique export strategies. Potential exporters lack the knowledge of
applying the appropriate export strategies for a particular market, industries
and business model when approaching the international market.
Albert and
Yuan (2006) contributes that the
internationalization process is elongated and most SMEs do shorten or skip the
necessary stages of this processes which later result into serious problems
after some time. Often times, most small and medium sized firms neither
inquires about the dynamism of the host market business environment, product
specification requirement nor possesses the required skills and experience to
identify business opportunities, risk
and strategy formulation before approaching
the international market. Their products are rejected in the host market
after much commitment of resources due to their inability to meet the required
standard and specifications by the leading customers in the host market (Jolanda &
Siri, 2007).Tongesai & Shylet (2013) assert
that small and medium sized firms are typically resource constrained, lacks the
international market power, knowledge and resources to operate feasibly in the
international markets. They lack the
financial resources to pursue a market development strategy that requires direct foreign investment in the host
countries. Often, their exportation strategies option to compete in the global competitive
landscape remains unclear and ineffective.
The competitive pressure in the manufacturing
industries and frequent changes in the taste of leading
customers to demands for high standard products in the host market has necessitated the frequent creation of
new products. Hence, the small firms are weak in terms of insufficient
infrastructural facilities, technology and financial resources to meet up to
the demand and compete with large firms. This has resulted to the poor
performance of small and medium sized firms in the international market (Candace &
Thomas, 2012).
Jennifer(2010)
opinesthat although small firms’ mostly from developing nation often
times directly interface with host market potential customers, but their
products are often rejected and sent back to the home country as a result of
not meeting the client product specification and standards in addition to the
fact that smallfirms have no representatives who can coordinate their export
activities in the host market. Trust is another major concern for most clients
in the host market and most of the leading potential customers are veryskeptical
in doing business directly with small firms from developing nations (Isaac, 2012).
1.3 Objective of the Study
The main objective of
this study is to determine the relationship between export strategies and performance
of small and medium scale enterprises in Lagos State, Nigeria.
The specific objectives are to:
1. determine the effects of export strategies on SMEs’
sales performance;
2. examine the effects of export strategies on SMEs’
growth performance;
3. evaluate
the effects of export strategies on SMEs’ customer performance;
4. assess
the relationship between export strategies andSMEs’ performance and
5. determine the combined moderating effect of
export experience and educational level of managers on the relationship between
export strategies and SMEs’ performance.
1.4
Research Questions
The
study answered the following questions:
1. What is the effect of export strategies on SMEs’
Sales performance
2. How does export strategies affectSMEs’ Growth performance
3. What is the effect of export strategies on SMEs’
Customer performance
4. What is the
relationship between export strategies and SMEs’ performance
5. How the effect of export experience and
educational level of managers does moderates the relationship between export
strategies and SMEs’ performance.
1.5
Hypotheses
educational level of managers on the
relationship between export strategies and SMEs’
performance.
1.6 Scope of Study
The
scope of the study examined the effect of export strategies onperformance of small
&medium scale enterprises. The population for this study were the middle
managers insmall and medium sized manufacturing firms
in Lagos state, that are registeredin the export group directory of Manufacturers
Association of Nigeria.The justification of Lagos state is that, Lagos state
represent major economic centre of the nation and over sixty percent of
manufacturing firms in Nigeria are located in Lagos (MAN, 2016).
The
sample frame for the study was limited to the middle managers of small and medium
sized manufacturers registered in the export group directory of Manufacturers
Association of Nigeria (MAN) in five selected local governments in Lagos state.
The collected data
were analysed using frequency distribution and percentages to analyse the respondents’
demographic characteristics and descriptive analysis such as mean and standard
deviations to answer the research questions, while inferential statistical tool
such as correlation analysis and regression analysis to determine the effects between
dependent and independent variables.
1.7
Significance of the Study
The significance of this study examined the
exact transmission mechanism through which export strategies have significant
impact on performance of small and medium scale enterprises. Most literature
rather focuses on the impact of export marketing strategy (product, price,
place and promotion strategy) on the macroeconomic indicators such as foreign
exchange, balance of payment, GDP, without looking at the strategies that
impact the performance of SMEs’ in the
international market.
Existing literature see’s lack of finance, low
entrepreneurship skills& orientation, government policies among other
problems as the major problems affecting the performance of small and medium scale enterprises in the international
market;whereas there is a superficial relationship between the export
strategiesand the performance of small and medium scale enterprise.This
study elaborates more than earlier works to properly examine the relationship between
exportstrategies and
the performance of SMEs in Lagos state, Nigeria.Furthermore,
the study established the relationship between export strategies and SMEs’ performance.
The result would facilitate to build better knowledge for international
business managers to discover export strategies that would achieve
international business objectives and enhance optimal firm’s performance. It
will also benefitsowners of SMEs’, marketing & sales managers, business
development executives andmanufacturing companies to have access to comprehensive information on
various export strategies that can
enhance firms performance in the international market and achieve export
objectives.
1.8 Operationalization of Variables
The
Operationalization of the research variables are presented below:
1.
Independent
Variable
X = Export Strategies
2.
Dependent
Variable
Y = Small and Medium Scale Enterprises
Performance.
3.
Moderator
Variables
Z =
,
)
Regression Models
Y= f (X)
Y = f (DE, SA, LI, JV)
Y=
+
+
+
...……………………………..iv
Y=
+
...………………………………………….v
1.9 Operational Definition of Terms
Export Strategy: These
are processes and policies adopted by a firm to strategically positioned itself
to explore and maximise international business opportunities, minimization of
risk towards the achievement of the organizational goal and international
market success.
Direct Exportation: This is a strategy adopted in which the firm
directly undertake a full export activities to the host countries. Direct
export entry approaches are preferred whenever a comparatively high capacity of
exports is predictable; hence an advanced level of asset is required.
Strategic Alliance: This is a
strategic relationship in form of simple licensing contracts amongst two
associates, market (access)-based alliances, operations and logistics
alliances, operations (shared production)-based alliances. Strategic alliance
is made to pursue a common goal by both parties to pursue a common goal such as
building a market position.
Licensing: This type
of export strategy is based on a contractual relationship between the licensor
and the licensee. Licencing
is a form of international market penetration mode which tends to involve an
agreement between the licensor and the licensee. It tends to be associated with low resource
requirement and firms commitments Licencing is a substantial foreign market
entry mode for a low risk international business relationships between the home
and host countries firms.
Joint Venture: This
is a supportive relationship between two or more firms. Joint ventures
is a possession distribution system of business partnership which can involve
parities from the within the domestic countries or from the host countries. It
can also involve the government as a trading partner to form a joint venture
for business participation in the international market.
Small & Medium Scale Enterprises: Ekpenyong (1992) classify SMEs’ as it varies
between countries. In countries Such as: USA, Britain, and Canada; small and
medium scale business is defined on the premise of yearly revenue and the total
of salaried staffs. In Britain small scale business is well-defined with yearly
income of £2.8 million or less and below 200 salaried staffs. The medium scale
enterprise is defined with revenue of not more
than £11.2 million; and not more than 250 staffs.In Nigeria, there is no clear-cut definition
for small scale enterprises. The current national definition
of SMES in Nigeria as advocated at the National Council on Industry (NCI) in
1996 and as quoted by the Central Bank of Nigeria (CBN) in 1997 is to classify
small scale enterprises as those with entire cost with working capital
inclusive but excluding cost of land above N1.0 million, but not more than N
40.0 million with number of employees between 11 and 35 workers. Medium Scale
Enterprises are well-defined as those with total cost, comprising capital but
excluding cost of land above N40.0 million but not exceeding N150.0 million
with a labour size of between 36 and100 workers (Olowofeso, 2010; Ayozie, 2011).But for the purpose of this study, small scale enterprises are defined
as those industries with total project cost (investment and working capital)
not exceeding 100 million naira ( N100, 000,000) and not more than 100
employees and medium scale enterprise, not exceeding two hundred million naira
(N 200,000,000) and not more than 200 employees.
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