ENVIRONMENTAL FACTORS AFFECTING SMALL AND MEDIUM SCALE ENTERPRISES’ VIABILITY IN EDO STATE ABSTRACT The aim of this study was to investigate the influence of environmental factors on viability of SMEs in Nigeria. Within this broad objective, the specific objectives were to: to examine the influence of economic factors, legal factors, political factors, technological factors and social-cultural factors on the viability of SMEs in Benin City. This study used the structured questionnaire to collect the needed information from the owners/managers of SMEs in Benin City. The data generated through the questionnaire were analyzed with descriptive statistics which include frequency, percentages, mean, standard deviation, and standard error mean and inferential statistics (multiple regression analysis). The analyses were aided with the use of the Statistical Package for Social Sciences (SPSS). The study found that economic factors have negative and significant impact on SMEs viability; legal environment have negative and significant impact on SMEs viability; political factors have positive and insignificant impact on SMEs viability; socio-cultural factors have negative and significant impact on SMEs viability; and technological factors have positive impact on SMEs viability in Benin City. On the basis of the findings of this study, it is recommended that: government of Nigeria should address economic factors by reducing the cost of borrowing, offering SMEs unhindered access to bank loans at a cheaper rate without collateral security, striving to bring down foreign exchange rate and stabilizing it and increasing the purchase power of its citizen through increase in minimum wages in order to increase patronize of SMEs products, government should also collaborate with telecommunication companies to improve network quality and reduce the cost of accessing internet and making calls. Doing this will increase internet penetrations, access to internet and use of internet for marketing of SMEs products thereby increasing the viability of SMEs. Besides, SMEs should take advantage of socio media to market their products, trained their employees on how to use modern technological facilities and engage in e-payments/electronic money transactions like mobile banking and point of sale (POS), government of Nigeria should improve the quality of legal systems in Nigeria by training law enforcements in order to increase their skills, knowledge and attitude, improving the quality regulations on products, competitions, promotion and business practices in general as well as ensuring timelines and fairness in delivery of justice by judges or law court, and government of Nigeria should improve socio-cultural environment by genuinely fighting incidence and sources of corruptions, improving the quality of education, addressing the prevalence of poverty, poor electricity, poor health, bad roads and transport systems and attitude toward locally made products through enlightenment campaign and directing all it agencies to desist from buying foreign made products.
TABLE OF CONTENTS CHAPTER ONE: INTRODUCTION Background to the Study Statement of the Research Problem - The Research Questions - - The Objectives of the Study - - Research Hypotheses - The Scope of the Study - - The Significance of the Study The Limitations of the Study- CHAPTER TWO: LITERATURE REVIEW Introduction - - Definition of Small and Medium Enterprises Contribution of SMEs to Economic Development - Challenges of SMEs in Nigeria - - Concept of External Environment of Business Environmental Factors and their Impact on SMEs Viability Economic Factors - - - Technological Factors - - Political Factor - - Legal Environment - Socio-Cultural Factors - - Theoretical Framework - Institutional Theory - - - PESTLE Model of Environmental Analysis - CHAPTER THREE: METHODOLOGY Introduction - - - - - Research Design - - - Population of the Study - - Sampling and Sampling Technique - Sources of Data - - - Method of Data Collection - - Operationalisation and Measurement of Variables Reliability of the Research Instrument Method of Data Analysis - - Model Specification - - - CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS Introduction - - - The Profiles of SMEs and their Owners - Impact of Environmental Factors on SMEs Viability - - 4.4 Hypotheses Testing - - Discussion of Findings - CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS 5.1 Introduction - - - 5.2 Summary of the Findings - - 5.3 Contribution to Knowledge - - - 5.4 Conclusions - - - 5.5 Recommendations - - - 5.6 Suggestion for Further Research - References - - - Appendix i - - - Appendix ii : The Research Instrument - Appendix II: Percentage Analyses - Appendix III: Descriptive Statistics58 - - LIST OF TABLES Table 3.1: Cronbach’s Alpha for Construct - Table 4.1: Sex Status of Respondents - Table 4.2: Age of SMEs Owners - - Table 4.3: Educational Qualification of Respondents - Table 4.4: Age of SMEs - - - Table 4.5: Type of SMEs - - - Table 4.6: Number of Full Time Staff - Table 4.7: Profit Level Per Annum - Table 4.8: Regression Results CHAPTER ONE INTRODUCTION 1.1 Background of the Study The role of small and medium scale enterprises (SMEs) in the economic growth and development of the economy has been widely recognized. SMEs have been seen as important tools for local resources utilization which has multiplier effect on industrialization. SMEs facilitate reduction in poverty and enhancement of quality life through employment generation, wealth creation, and redistribution of income and the provision of quality products for both domestic consumption and export. However, in Nigeria many SMEs have gone out of operations and many others cannot produce quality products that can compete globally. This is evident in the study that showed that thirty percent of SMEs in Nigeria have completely folded up, twenty percent had temporarily stopped operations, forty percent are ailing or not viable and only ten percent are operating at a sustainable level (Eniola & Ektebang, 2014). The study further showed that the inability of owners of SMEs to respond with appropriate strategies to the forces in environment impacted not only the viability of these SMEs but also on the degree to which SMEs contribute to the development of an economy. SMEs like every other business enterprise do not operate in vacuum but operate within environments and are affected by the environmental conditions (Duncan, 2002). They are open systems that exist within an environment and thus constantly interact with forces in the environment. This means that enterprises irrespective of the magnitude of their goals and objectives must take into considerations the forces in the environment in order to survive. A business environment has been defined as aggregate of all conditions, events, circumstances that surround and affect the performance of business enterprises (Pearce, Chapman & David, 2014). It is conceptualized as a set of complex and interrelated factors which lie outside the business but which affect or have the potential of affecting the fortune (viability) of the business, now or in the future (Agbonifoh & Inegbenebor, 2008). Agbonifoh and Inegbenebor (2008) further opined that external environment of a business is the source of all inputs (money, raw material, information) the business enterprise requires for its day to day operations. The environment also absorbs the output of the business enterprise. It also serves as a source of change. Some changes may offer opportunities while others offer threats to the business operations and all these may impinge on operations, plans, policies and strategies and viability of SMEs as whole. From the forgoing, the decision, directions, size, health, profitability and viability of SMEs could be impacted by the host of challenges and opportunities that the business environment offers to SMEs. This suggests that owners of SMEs must strive to identity, evaluate and respond to the challenges that the environment poses to SMEs operations in order to make their business competitive and viable.They must not only anticipate the elements in environments but alsoreact to them. This may help them to minimize the threats/constraints and maximize the opportunities the elements in the environment offer to business operations so that their SMEs can be more viable. 1.2 Statement of the Research Problem Small and medium scale businesses in Nigeria have been facing numerous challenges in creating innovative products that can compete globally. Some of the challenges are low productivity and high cost of production occasioned by high exchange rate, poor access to capital, high cost of accessing loans (high interest rate), insecurity in the Northern part of Nigeria, low capacity utilization, poor attitude toward local made products, poor entrepreneurial skill due to quality of educational system, obsolete and weak technologies, low level of income, epileptic electricity supplies and poor transport systems due to dilapidated roads and rail networks (Babatope & Akintunde, 2010). Another study observed that many of the challenges that may have caused low productivity and high production cost among SMEs in Nigeria fall within the peril of external environment of business (Dollinger, 2009). The external business environment comprises of sets of political, economic, social, legal, and technological factors. The political factors include insecurity; the social factors includeattitude toward locally made products; the technology factors include internet penetrations and their access; the legal factors include employment law and the economic factor include access to loans, exchange rate and interest rate. While several studies suggest that these environment factors create incentive for investment, facilitate reduction in business transaction costs and enhance business environment profile (Dess & Beard, 2007). The extent to which they have affected the viability of SMEs in Nigeria have gained little or no empirical front/attention. This study set to fill this gap. 1.3 Research Questions This study seeks answers to the impact of environmental factors on viability of SMEs in Nigeria. Specifically, it provides answers to the following questions, which include: Is there a significant relationship between economic factors and viability of SMEs in Nigeria? Is there a significant relationship between legal environment and viability of SMEs in Nigeria? Is there a significant relationship between political factors and viability of SMEs in Nigeria? Is there a significant relationship between socio-cultural factors and viability of SMEs in Nigeria? Is there a significant relationship between technological factors and viability of SMEs in Nigeria? 1.4 Objectives of the Study This study examines the influence of environmental factors on viability of SMEs in Nigeria. The objectives are: To examine the relationship between economic factors and viability of SMEs in Nigeria. To assess the relationship between legal business environment and viability of SMEs in Nigeria. To ascertain the relationship between political factors and viability of SMEs in Nigeria. To investigates the relationship between social-cultural factors and viability of SMEs in Nigeria. To determine the relationship between technological factor and viability of SMEs in Nigeria. 1.5 Research Hypothesis 1. H0: There is no significant relationship between economic factors and viability of SMEs in Nigeria. 2. H0: There is no significant relationship between legal environment and viability of SMEs in Nigeria 3. H0: There is no significant relationship between political factors and viability of SMEs in Nigeria. 4. H0: There is no significant relationship between socio-cultural factors and viability of SMEs in Nigeria 5. H0: There is no significant relationship between technological factors and viability of SMEs in Nigeria. 1.6 Scope of the study The scope of the content of this study is environmental factors and viability of SMEs. The geographical scope is Benin City, Edo State. The time frame is 2015/2016. 1.7 Significance of the study This study will be of immense benefit to the following stakeholders: government/policymakers, entrepreneurs/SMEs owners, researchers, students, and community. To policymakers: The findings from this study will provide invaluable information to policymakers on the environmental factors that negatively and positively affect SMEs. This information would enable the policymakers to make important decisions to improve on the business environmental factors that negatively affected SMEs. Hence, this study is expected to assist policymakers to develop strategies to overcome environment factors threatening SMEs in Nigeria. To entrepreneurs/SMEs: Findings from this study would expose owners of SMEs and entrepreneurs to the environmental factors that significantly contribute to the viability of SMEs and the ones that do not, in order to make better decisions which would engender higher performance and viability of their SMEs. Thus, for owners of SMEs, this study will aid their understanding of current challenges and reveal the essential factors that promote SMEs viability and thus enable them to focus on the relevant ones in an attempt to enhance their growth and performance. To the researchers/students: The study will add to body of knowledge/literature on entrepreneurship. It will serve as a stepping stone for other researchers in related field or guide other researchers who may be interested in conducting further studies in the field. To the community and others: This study is expected to help the community, including government, validate whether SMEs in Nigeria are truly viable and if not why and ways to improve their viability if need be. 1.8 The Limitations of the Study Although management and social investigations strive to employ scientific tools and methods, even the very attempt is itself faced by various kinds of problems. Such problems limit the level of accuracy the applied researcher can achieve in any specific research endeavour (Agbonifoh & Yomere, 1999). The limitations of this study include: The first limitation of this study is the smallness of the sample because of fact that it focused only on Edo state. The second limitation is the time scope of the study which is just one year.
ENVIRONMENTAL FACTORS AFFECTING SMALL AND MEDIUM SCALE ENTERPRISES’ VIABILITY IN EDO STATE
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