ASSESSMENT OF ENTREPRENEURIAL MINDSET ON THE SUSTAINABILITY OF SELECTED SMALL AND MEDIUM ENTREPRISES IN SOUTH-EAST, NIGERIA

CHAPTER ONE

INTRODUCTION

1. Background of the Study

Interest in the functioning of the human mind can be traced back to Plato and Aristotle who dealt with issues of perception and motivation. While the Greeks may have contemplated the human condition, the modern study of the human mind can be traced back to Sigmund Freud (1900) and the psychoanalytic movement. He began the exploration of both conscious and unconscious factors that propelled humans to engage in a variety of behaviors. The concern in this study lies not in the above, but in the determination of the cognition and motivation, that shape successful entrepreneur’s mindset and its effect on the survival and sustainability of businesses in Nigeria.

Entrepreneurship is the moving engine of business innovation, competition, job creation and economic growth. The European Commission, 2003 asserts that Entrepreneurship is what makes a new idea to be transformed into a real successful business. It is the process that brings into existence a new business. Entrepreneurship is what gives a chance to people with fewer opportunities in the job market to create their own employment and to improve their status in society. The important role of entrepreneurial activities for the conversion of technological and organizational innovation into new and more efficient products and services is a known fact. In order for individuals to be motivated to become entrepreneurs, they should be aware of the concept of Entrepreneurship; and for the entrepreneurial ventures to develop into healthy firms, supportive framework conditions are essential.

Business success in any economy is not merely a function of relevant skills but also entrepreneurial mindset. In the words of Dhilwayo and Vuuren (2007), entrepreneurial mindset indicates a way of thinking about business and its opportunities, formed through formal learning (of expertise law, position, policies), perception (feelings, convictions, causes, purposes, insight, impression, subconscious,  observations, facts, assumptions, formulas, facts, data, biology, sociology), personal experience (direct knowledge from the senses), orientation, mentorship, among others, in such a way that captures the benefits of uncertainty. It portrays the innovative and energetic search for opportunities and facilitates actions aimed at exploiting opportunities (Senges 2007). Establishing an entrepreneurial mindset is relevant for the sustenance of competitiveness of economic organizations and the economic lifestyles of the population through value and job creation. This importance is viewed from the point that it enables supporters of new ideas to establish organisations with new valuable ideas. The resources needed are drawn and developed within an enabling culture (Thompson, 2004). The importance of developing an entrepreneurial mindset has been highlighted worldwide. In Europe, the most recent is the 2003 Green Paper on entrepreneurship document. The document identified the strategies and actions that the European Countries should take for the improvement of entrepreneurship in the area. Among the different policy options contained in it were the need to work at three levels – individuals, firm and society (European Commission, 2006). There is a clarion call by Ireland, Hitt and Sirmon (2003) for the future generation to be more entrepreneurial; that is, creative and innovative, with the ability to act on opportunities. This perspective is in line with the stipulation that the successful future strategists will exploit an entrepreneurial mindset – the ability to rapidly sense, act, and mobilize, even under uncertain conditions. McGrath and MacMillian (2000) further assert that individuals and SME owners capture these benefits in their attempts and search to exploit high potential opportunities commonly associated with uncertain business environments.

To sense and adapt to uncertainty distinguishes a critical entrepreneurial resource (Ireland, 2003; Krauss, 2005; McGrath & MacMillian 2000), while the ability to act, sense and organize may be central to entrepreneurship. Entrepreneurial mindset focuses primarily on cognitive processes that slow down adaptive cognitions in the face of dynamic, uncertain environments (Mitchell, Busenitz, Lant, McDaugall, Morse, and Smith, 2002), decision heuristics (Alvarez & Busenitz, 2001; Busenitz & Barney, 1997), and overconfidence bias (Hayward, Shepherd & Griffin, 2006), which investigates those cognitive processes that enable entrepreneurs to think beyond existing knowledge structures and heuristics. The foundation of entrepreneurial mindset is cognitive adaptability, which is defined as the ability to be dynamic, flexible and self-regulating in one’s cognition, considering the dynamic and uncertain task environments.

The history of industrial growth in developed and developing countries has shown that

SMEs are the driving force of industrial development due to their small initial capital requirement and their contributions to output, employment and growth (Diejomaoh, 1980). The role of SMEs is dynamic, accelerating increase in per capita income, output, employment opportunities, and enhancing regional economic balance through industrial dispersal, effective resource utilization, development of local technology, diffusion of management skill and stimulation of indigenous entrepreneurship (Adenuga, Ohuche and Ogujuba, 2004).

The SMEs sector accounts for about 70.0 percent of industrial employment worldwide (World Bank, 1995). SMEs have become the focus of industrial policy in recent times as revealed by the Central Bank of Nigeria (CBN Report, 1997). In the same vein, they have also become the engine of economic growth and development in many nations since such industries are likely to facilitate the development of broad-based indigenous entrepreneurial culture and value added to domestic industrial production (Olorunsola, 2001). In developed economies such as the United States, SMEs have played an important role in their transition from the industrial age to the post industrial information technology era (Soludo, 2005). Similarly, in the Asian countries such as Japan, South Korea, Indonesia, Singapore among others, SMEs have considerably contributed to their GDP and served as a linkage between the industrial sector and other sectors of the economy through the production of raw materials, spare parts and machineries (Otaru, 2008). Today, about seventy percent of the values of export of Japanese large enterprises are traceable to SMEs (Soludo, 2005).

Developing countries have since the 1970s shown greater interest in the promotion of the

growth of SMEs for three main reasons: (i) the failure of past industrial policies which were anchored on the establishment of large firms to generate efficient self-sustaining growth, (ii) increased emphasis on self-reliant approach to development, and (iii) the greater attention paid to aspects of development other than investment and output growth (Anyanwu, 1996).

Various efforts have also been put in place to stimulate economic growth and development through SMEs in Nigeria. The post-colonial Nigerian governments have evolved various monetary and fiscal incentives and scheme to address the financial constraints facing this category of industries (SMEs). Such initiatives include the establishment of the Nigeria Industrial Development Bank (NIDB), Nigerian Bank for Commerce and Industry (NBCI), the National Economic Reconstruction FUND (NERFUND). Export incentives and import duty drawback schemes were put in place for the stimulation and expansion of non-oil exports which include the Nigeria Export Import Bank (NEXIM) and the Nigeria Export Promotion Council, specifically established to administer export stimulation facilities to SMEs (Olurunsola, 2001).

Despite the dynamic and important role played by SMEs in economic development, and the various efforts put in place by the Nigeria government, the development of SMEs is still constrained by exogenous and endogenous factors. Exogenous factors are those outside the control of SMEs and they include (i) inconsistent government policies (ii) poor infrastructures and (iii) lack of access to affordable credit. The endogenous factors are internal to the SMEs and include: (i) weak corporate governance, poor management skills and accounting practices, (ii) poor business partnership /alliance culture, (iii) low human capital development and (iv)  low level of technology (CBN Report, 2006).

Aremu and Adeyemi (2011) in their study on SMEs as a survival strategy for employment generation in Nigeria revealed that the wide spread of SMEs in Nigeria have a multiplier effect on the rest of the economy that can enable them to be the engine of economic progress. They also noted that SMEs are the main driving force behind job creation, poverty reduction, wealth creation, income distribution and reduction in income disparities. The study further revealed that most of government interventions failed to create the much needed transformation due to poor coordination and monitoring and policy inconsistencies. Their findings have revealed that most SMEs in Nigeria die within their first five years of existence; smaller percentage goes into extinction between the sixth and tenth year while only about five to ten percent of young companies survive, thrive and grow to maturity. This findings were confirmed at the 27^th Annual General Meeting of the Manufacturing Association of Nigeria (MAN) held in September 2015, in which the Chairman of MAN Enugu/Anambra/Ebonyi Branch, Chief Okafor Azubuike, stated that between 1998 and 2015, out of about 1,290 registered SMEs in the region, about 774 (60%) member businesses have gone into extinction, only about 516 businesses (40%) are stilll in existence. Out of the 40% of businesses in existence, only about 129 (10%) businesses are healthy (MAN, 2015). Key among the factors responsible for the premature death include insufficient capital, lack of focus, inadequate market research, overconcentration on one or two markets for finished products, lack of succession plan, inexperience, lack of proper book keeping, irregular power supply, infrastructural inadequacies, lack of proper records or lack of any at all, poor business mindset, inability to separate business and family or personal finances, lack of business strategies, inability to distinguish between revenue and profit, multiple taxation, inability to procure the right plant and machineries, inability to engage or employ the right caliber staff, cut-throat competition (Basil, 2005).

The contributions of the SMEs cannot be sustained without the creation of new SMEs (Caree and Thurnik, 2003). Maas and Herrington (2006) view this from the perspective of economic development and as essential component for the solution of a country’s development issues. The inability of SMEs to either create more job opportunities or grow is because of the perceived mindset of its owners and managers which has been identified as one of the causes of SMEs failure rates (Nieman, 2006). Entrepreneurs with entrepreneurial mindset see needs, problems and challenges as opportunities to develop innovative ways to deal with the challenges, exploit and merge opportunities (Eno-Obong 2006). McGrath et al (2000) argue that possession of an entrepreneurial mindset is a primary way individuals can successfully move forward in an entrepreneurial process. The need for entrepreneurial mindset cannot be over emphasized for it is a foundation housing entrepreneurship. Morris and Kuratko (2002) agree with the statement above and assert that the current business environment needs an entrepreneurial mindset that must unlearn traditional management principles in order to minimize the high failure rates of SMEs.

Motivation, on the other hand, reflects a complete psychological force that directs a person’s behavior, a person’s level of effort, and a person’s extent of persistence in the face of set-backs (Dunnette, 1990). Motivation helps entrepreneurs to acquire knowledge, skills, and abilities and also provide the impetus and energy needed to implement their actions (Shane, Locke and Collins, 2003). Motivation is a dividing line between individuals who positively evaluate opportunities and those who do not; those who practice rapid growth and those for slow growth; those who receive outside funding and those who do not; and those who pursue opportunities as opposed to those who abandon all their efforts. To this end, there is a positive relationship between motivation and opportunities. The influence of motivation on entrepreneurial decisions can be determined by measuring its effect on the entrepreneur, and the attendant entrepreneurial decisions made in simulation.

1.2.      Statement of the Problem