THE EFFECT OF SURVIVAL STRATEGIES ON THE PERFORMANCE OF SMALL AND MEDIUM SCALE ENTERPRISES

CHAPTER ONE

1.0 INTRODUCTION

1.1 Background of the Study

SMEs have been accepted worldwide as instruments of economic growth and development. Governments, particularly in the developing countries, have made tremendous efforts and established policies towards enhancing the capacity and sustainability of SMEs. However, despite government institutional and policy support, there is a grave concern and scepticism about whether SMEs can bring about economic growth and development, particularly in developing countries. In Nigeria, there have been a series of government interventions to boost the activities of SMEs through the establishment of agencies and programmes to provide consultancy, information, and guidelines to Nigerians who establish and own businesses. Some of these programmes include: Small and Medium Enterprise Equity Investment Scheme (SMEEIS) established in 2001 and the Small and Medium Scale Enterprises Development Agency of Nigeria (SMEDAN) established in 2003. Other agencies include: the National Directorate of Employment (NDE), Skills Acquisition Centre and Industrial Development Centres. SMEs are faced with challenges which aect their ability to function and contribute optimally to the economy. Studies have shown that a significant percentage of SMEs dies before reaching five years of establishment. SMEs can be defined in terms of sales volume, number of employees, or investment (Ajide, Hameed, and Oyetade, 2014). A business that is therefore defined as a small- or medium-scale enterprise in a developed country can be regarded as a large-scale enterprise in a developing country. Even in developing countries, this definition changes over time. The European Commission defines SME using three broad parameters: micro-entities, small companies, and medium-sized enterprises.

The category of micro-, small- and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euros and/or an annual balance sheet total not exceeding 43 million euros (European Commission, 2003). The Central Bank of Nigeria defines SMEs in Nigeria according to asset base and the number of sta employed. These criteria are: asset base between N5 Million and N500 Million (excluding land and buildings) and a staff strength of between 10 and 300 employees (CBN Guidelines, 2010). The effort to develop a blueprint for SMEs’ development in Nigeria continued. This was borne out of the desire of the Federal Government of Nigeria to institute a development paradigm that would ensure Nigeria’s position as one of the twenty (20) most industrialized countries of the World. SMEs spring up in towns and cities almost on a daily basis. No sooner are they established that they fold up mostly within the first few years of operation. What is responsible for this? Several problems limit the growth, survival and hence effective contribution of SMEs to the economic growth of Nigeria. Lack of conducive and enabling macroeconomic policy environment among other problems remains the drawback to the survival, development and growth of SMEs (Obitayo, 2001). Appreciation of the most important role of SMEs to the economy, their low survival capacity and need to enhance the entrepreneurial mindset of Nigerians, encouraged successive Nigerian governments since independence in 1960, to intervene in providing subsidies and other support services for SMEs.

The growing concern about unemployment among the youths, especially of graduates of Universities and other tertiary institutions, and diminishing growth potentials in the economy have further drawn increased attention on the need to ensure the survival and growth of SMEs. The general agreement that has come out is that government should work together with the private sector in creating an adequate enabling environment. Anyanwu (2001:12) posits that, ‘programmes of assistance, especially in the areas of finance, extension and advisory services, training and infrastructural facilities have been designed by governments for the development of the sector. Financing programmes have attracted more attention than others because every enterprise will require funds for its capitalization, working capital rehabilitation needs, as well as for the creation of new investments. Access to finance by businesses has therefore, been of prime interest to policy makers in both the public and private sectors’. Inevitable in the discussion of SMEs is the question of what constitutes a small business enterprise (SBE). Each country tends to derive its own definition based on the role SMEs are expected to play in that economy and the programmes of assistance designed to achieve that goal. Varying definitions among countries may arise from differences in industrial organization at different levels of economic development and differences in economic development in parts of the same country (Sule, 1986). For example, a firm that can be regarded as micro or small in an economically advanced country like the United States of America or Japan, given their high level of capital intensity and advanced technology, may be classified as medium or even large in a developing country like Nigeria. Definitions also change overtime, owing to changes in price level, advances in technology or other considerations. Even in the same country, different institutions may adapt different definitions, depending on their policy focus.

1.2 Statement of the Problem

In developed countries such as the United Kingdom, and United States small businesses are managed effectively with positive results. The positive management of small businesses in developed countries and some developing countries such as the Philippines and South Africa contributed to their economic growth (Dugguh, 2015). According to Dugguh (2015), small businesses in Nigeria are faced with numerous challenges that resulted in their failure. Dugguh (2013) further stated small businesses must develop strategies that will mitigate challenges and sustain operations. Researchers have continued to identify the challenges facing small business and the strategies of mitigating these challenges (Kayode & Ilesanmi, 2014). Also, Samujh claimed researchers had neglected the small business sector (Samujh, 2011). Thus, there is not enough information on the survival strategies of SMEs in Nigeria.