Determinants of Competitiveness of Small Scale Industries in Nigeria
Determinants of Competitiveness of Small Scale Industries in Nigeria
Chapter One of Determinants of Competitiveness of Small Scale Industries in Nigeria
INTRODUCTION
In this era of globalization, competition has become fiercer than ever. Reduced trade barriers, spread of technology and lower costs for communication and transportation have sharpened international competition. This intense competition in global and local markets requires firms to improve their competitiveness. This improvement not only benefits the firms themselves, but also has a direct impact on the competitiveness of an economy as a whole. A nation’s standard of living is increasingly dependent on the competitiveness of its firms.
The international business literature is replete with empirical and conceptual works pertaining to competitiveness. However, there is still debate among several disciplines regarding how the competitiveness of these firms should be measured and what factors affect competitive performance.
The purpose of this thesis is to develop and implement an adequate framework of firm competitiveness. Accordingly, a complete competitiveness analysis must define what competitiveness means and how it is to be measured and also identify the most important factors that determines it, the interactions between these factors and how they affect the competitiveness of the small scale industries.
This thesis tries to offer a framework to understand the meaning of firm competitiveness and its application. Our specific research question is: “What are the determinants of competitiveness in successful SSIs operating in distressed industries and exposed to international competition?”
Note that the nature and types of (SSIs, SMEs, and small businesses) are often considered together because it may be difficult to draw a distinct line of demarcation between them.
BACKGROUND OF THE STUDY
Small Scale Industry (SSI) according to the National Council of Industries (NCI) is an industry with a labour size of 11 – 100 workers or a total cost of not more than N50 million, including working capital but excluding cost of land (NASMI 2003). Central Bank of Nigeria (CBN) defined Small Scale Industry in line with the definition given by the National Council on Industry. Both asserted that a Small Scale Industry is an enterprise with a labour size of between 11 – 100 workers or a cost of between N1.5 – N50 million including working capital but excluding cost of land (NCI 2003).
Small Scale Industries form the nucleus of majority of the world’s economies. It has been argued that they are effectual instruments for economic growth and development in Developed and Less Developed Countries (Nitani, 2005). This is consequent of the fact that SSIs contribute monumentally to the Gross Domestic Product (GDP) and produce extensive amounts of locally consumed products (Saleh and Ndubuisi, 2006). Small Scale Industries play paramount roles in the economic growth of any country incorporating industrialised countries because they account for more than half a country’s output and employment (Hussain et al, 2008). More so, Udechukwu (2003) avows that the development of SSIs is an integral element in the growth strategy of most economies, which holds particular significance for developing countries like Nigeria. In Nigeria, Small Scale Industries make up about 97% of the economy (Stephen, 2011). Though viewed as quite infinitesimal in structure, however, they are the most paramount and inevitable enterprise as far as Nigerian economy is concerned due to their sheer vastness when compared to their Medium and large Scale counterparts. They form the significant part of any market economy in Nigeria because they are represented in all major branches of manufacturing and service sectors (Obokoh, 2008c). They are the engines of growth in Nigerian economy and a veritable tool for the development of indigenous technology, rapid industrialization, generation of employment for the teeming youths; providing about 50% of all jobs, also the pivot for sustainable economic development in Nigeria (Onugu, 2015). More so, in lieu of their inventive nature, they pioneer the utilization of our vast natural resources which can in turn culminate to increase in Gross Domestic Product via higher productivity, and by so doing, overhaul the standard of living of the rural populace where they have uttermost dominance.
In recent times, it is quite pathetic that the fatality rates of these inevitable enterprises have increased tremendously thereby putting the economy and the Gross Domestic Product (GDP) of the country in jeopardy especially at the global outlook. According to the Small and Medium Enterprises Development Agency of Nigeria (SMIDAN) Nigeria, about 80% of SSIs die before half decade of initial start-up. Key to this ugly trend is poor competitive status of the Nigerian SSIs in general (Onyemenam, 2004). Competitiveness, according to Andrea (2010) is viewed as the capability of companies, industries, regions, nations and supranational regions to create a relatively high income factor and relatively high employment levels on a sustainable basis, while permanently being exposed to international competition.
The government in attempt over the years to boost the competitiveness of SSIs has embarked on umpteen economic policies such as Import Substitution Industrialisation (ISI) strategy, Structural Adjustment Programme (SAP) trade, Financial Market Liberalisation (FML) etc. (Giron & Owie, 2008). These policies were made in a bid to develop the country economy via creating a prospective operating environment for SSIs to thrive with firm competitiveness.
The Import Substitution Industrialisation (ISI) policy was meant to improve the industrial potentials of SSIs, however, some analysis opine that the programme’s success was on the low ebb. The ISI programme however, was marred by impedances ranging from policy instantaneousness and shabby staunchness on the part of the government and its Agencies to instigate and optimally implement economic programmes (Adegbite & Ayadi, 2008). The shabby commitment and instantaneousness were fingered to the government’s ineptitude and lackadaisical attitude to prudently and judiciously manage the revenue proceeds from the sale of primary products with public governance shortly after independence, towards sustainable economic development of the county (Akyuz & Gore, 2001).
Nigeria’s Gross Domestic Product per capita was put to $300 per annum in 1998 and in 2001 was estimated $1,169. The country is pigeonholed among the Less Developed Countries of the Sub Sahara Africa under the tariff order of 2005, (UNSD, 2009). Less Developed Countries in accordance with World Development Report are countries that their level of economic and social development are lower than that of advanced capitalist West Countries due to their low industrial base and dependence on primary product export. Nigeria’s zenith dependence on primary product (crude oil) and subsequent low industrial base vis-à-vis SSIs bizarre competitiveness and growth was exposed during the drop in international market price for primary products in 1980’s (Akinlo 1996) and hitherto in recent time, resulting in balance of payment problems. Sequel to this sordid development, the government in a bid to attenuate the problem, attempted to create a favourable competitive environment for its SSIs and boost her industrial base by embarking on a deep-seated economic reform process termed Structural Adjustment Programme (SAP) with the interest of SSI’s firm competitiveness at the cutting edge, in respect to International Monetary Fund (IMF) and World Bank’s (WB) recommendations (Okome, 199).
The Structural Adjustment Programme’s core remit aim was to create a competitive business environment for manufacturing SSIs. Towards this effect, SAP prepared the ground for radical liberalisation of the Nigerian economy (Onyeonwu, 2003). This liberalisation was extended to financial market with the aim of creating avenues for hitch-free and less exorbitant access to finance by SSIs, so as to boost their competitive ability. It was generally believed that the financial market was tremendously curbed by government’s regulation of the interest rates via CBN (Akinlo & Odusola, 2003). In order to make liberalisation of the financial market effective, the government removed the curb on exchange rate movement to allow for free flow of investible funds to and fro outside and within the country and also make market forces determine the Naira exchange rate (Obadan, 2006). The liberalisation of financial market that culminated in the deregulation of interest and exchange rates was initiated with the fore sole aims; to maintain a positive real interest rate so as to encourage savings which would make funds available and accessible to SSIs, and by so doing, boost competitiveness. The latter aim was to devaluate the naira exchange to make import of finished goods more exorbitant and less attractive to Nigerians (Ikhide & Yinuba 1998), and by so doing, provide an enabling competitive environment for the SSIs. It was also envisaged that this would provide the needed avenue for SSIs development via the utilisation of local raw materials and intermediate inputs for production (Dawson, 1994), and also create chance to exploit the domestic and international markets occasioned by the liberalised business environment (Vachani, 1994). In so doing, SSIs would have hitch-free environment to compete optimally and contribute meaningfully to the economic development of Nigeria and boost the country’s low ebb industrial base by attenuating the astronomical level dependence on primary products (Obokoh, 2008).
However, despite the perceived advantages of these activities and/or policies, geared towards creating high competitiveness of SSIs, the outcome created impedances to SSIs competitiveness and performance in Nigeria, which invariably speak less volume of their determinants to competitiveness of SSIs. They have put SSIs in position where they have to struggle for survival and have even led to the death of some SSIs contrary to the expectations of exporting their finished products as was anticipated. Mores so, Nigeria’s GDP since inception hitherto have not come up to scratch as anticipated, which fingers to the unfavourable nature of these activities as determinants of competitiveness, to create better competitive advantage for SSIs when manipulated. Thus, this foretells that there are major determinants to SSIs competitiveness in desertion, which if critically instigated will anticipatorily increase SSIs competitiveness in both domestic and global markets. It is on this note that this thesis is founded, to assess the major determinates of competitiveness of Small Scale Industries in Nigeria, with a view to improve SSIs competitiveness in Nigeria to sustainable thrive and development.
STATEMENT OF THE PROBLEM
Competitiveness of Small Scale Industries (SSIs); which entails the degree of superiority by which SSIs produces goods, services and related functions when compared to peers (Onyemenam, 2004), is a key and inevitable factor to sustainable growth and development of any country whether developed or less developed. A Small Scale Industry with mediocre competitiveness risks failure and in the same vein not adding to any meaningful increase in GDP. Consequently, SSIs have been recognized by governments and development experts as the main engine of economic growth and a major factor in promoting private sector development and partnership (Basil, 2005).
Over the years and hitherto, findings have shown that most small scale businesses particularly in Nigeria die within their first five years of existence due to lack of competitiveness, (Aremu & Mukaila, 2011). It was also revealed that between the sixth and tenth year a smaller proportion fails leaving about of five to ten percent to come up to scratch vis-à-vis domestic and global competition, survive, thrive and grow to maturity. The government in a bid to ameliorate the dismal competitiveness of SSIs embarked on a number of umpteen activities but these efforts amounted to building castles in the air due to the recent international plunge in oil price in 2015 and 2016, which yet exposes Nigeria’s astronomical level dependence on crude oil and subsequent low industrial base, a synonymous situation which occurred in 1980’s that culminated in the liberalization of financial market to boost SMIs competitiveness and thrive.
The government over the years in an attempt to promote SSI competitiveness, apart from enacting economic policies, have also advanced loan facilities to Small Scale Industries via establishments, or agencies created for the purpose. These include, the Nigerian Bank for Commerce and Industry (NBCI), Small Scale Industries Credit Scheme established under the third National Development Plan, National Economic Reconstruction Fund (NERFUND) and Family Economic Advancement Programme (FEAP) was also established as the micro-credit scheme geared towards investment promotion and poverty alleviation in the various local governments in Nigeria (Udechukwu 2003). However, despite all the incentives by the government, small scale industries still fail thereby leading to a fall in Nigerian economy as they are considered the cutting edge of any county’s economic growth, boosting GDP as well as employment rates etc. Consequently, Nigeria still trails in the world’s economy ranking and about 33.1% population of Nigeria live below poverty line (Zhattau, 2013), and unemployment rate hiked from 7.5% in the first quarter of 2015 to 8.20% in the second quarter of 2015. Consequently, this poses unanswered questions such as; are the efforts made by government to boost the competitiveness of Small Scale Industries properly formulated and implemented. Did new firms especially SSIs in Nigeria systematically sought to identify ways to survive; did they arrive at the appropriate determinants of SSI’s competitiveness? If not affirmative, then what are the major determinants of competitiveness of small scale industries? Considering the significance of the problem, it is against this that the researcher seeks to investigate the determinants of competitiveness of small scale industries in Nigeria. This study seeks to identify and enumerate the determinants of competitiveness of a firm operating in a volatile economy like Nigeria’s.
The happenings in the world economy and Governments responses to them
OBJECTIVES OF THE STUDY
The main objective of the study is to explore and analyse the determinants of competitiveness of Nigeria’s Small Scale Industries vis-à-vis the extent to which theentrepreneurial competencies i.eknowledge, capabilities and resources of the owner) and changes in the impact of the firm’s external environment on its competitiveness i.e changes in theglobal economy as well as the extent and effects of government policies and provisions in creating an enabling economic environment)The firm’s internal environment .the firm’s internal resources, processes and capabilities.
Changes in global business environment are related to globalization of production and markets, high rates of technological development and modernization, short product life cycles, high degree of diversification of products and services, increasing value of intangible production, creative capital and knowledge economy in the global economy; increasing requirements for environmental friendliness and safety of products; Increased demands for quality of goods and services, introduction of unified international quality standards.
Government provisions are the provision of infrastructure facilities, quality and cost of infrastructure facilities, as well as government’s policies and incentives to SSIs. Infrastructure facilities are related to power, transportation (roads, ports, and air), market information, technology upgrade and quality certification. Government’s incentives refer to access to finance, credits and loan facilities, tax deduction, economic policies etc. Specifically, the study will strive to achieve the following objectives;
(i) Examine the extent to which the entrepreneurial competencies i.e the knowledge, capabilities, processes and resources of the owner contribute to determining the competitiveness of SSI.
(ii) Examine the extent to which the firm’s internal environment. i.e the firm’s internal resources, processes and capabilities contribute to determining the competitiveness of SSI.
(iii) Impacts of the external Business Environment on competitiveness of small business
This thesis therefore seeks contribute to the national competitiveness by providing deeper understanding of the dynamics of firm-level competitiveness and provides some implications and suggestions for further studies.
RESEARCH QUESTIONS
Based on the set objectives, this thesis sought answers to the following research questions:
(i) What are the effects of entrepreneurial competencies on the competitiveness of Small Scale Industries?
(ii) To what extent has the firm’s internal environment i.e the firm’s internal resources, processes and capabilities contribute to the competitiveness of Small Scale Industries?
(iii) What are the effects of external business environment on the competitiveness of Small Scale Industries?
RESEARCH HYPOTHESES
The following null Hypotheses will be tested in the course of the thesis;
- Ho1: There is no significant relationship between entrepreneurial competencies and the competitiveness of Small Scale Industries.
- Ho2: There is no significant relationship between the firm’s internal resources, processes and capabilities and the competitiveness of Small Scale Industries.
- Ho3: There is no significant relationship between the external business environment and the competitiveness of Small Scale Industries.
SIGNIFICANCE OF THE STUDY
Nigeria as a country has been tormented by high level of poverty, unemployment and subsequently a high crime rate. This sordid development has been a thorn in the flesh to the three tiers of government and the country in general. Every concerned Nigerian has been perturbed on how to devise a panacea to these ever hiking pathetic developments. Given the paramount and inevitable role which SSIs play in advanced economies, and considering the direction of the fiscal and policies, which is primarily aimed at creating stable economy, attenuating poverty via generation of employment, re-orientating values, and stimulating real economic growth, it becomes very imperative for the competitiveness of SSIs sub-sector to be rejuvenated. The Small Scale Industries remain absolute vehicle for such anticipated radical overhaul in Nigeria economy. Thus, if the attainment of Vision 2020 is to be feasible, the competitiveness of Small Scale Industries needs to be made firm and formidable by the government.
This thesis is thus intended to analyse critically the determinants of the competitiveness of small scale industries and proffer appropriate recommendations for addressing them so as to make SSIs contribute meaningfully to the development of Nigeria.
More so, the result of the study if squarely implemented will give the Small Scale Industries the edge to hitch-free operations so as to come up to scratch vis-à-vis the challenges of domestic and global industrial and economic competitions. It will also help policy makers such as government agencies in the provision of favourable economic policies to create a firm competitiveness among Small Scale Industries in Nigeria. Finally, it will also help other scholars in further research into all aspects of promoting the growth of Small Scale Industries for sustainable economic growth, and to the researcher; it is an immense benefit in partial fulfillment of the requirements for the award of a Master of Science in Business Management at University of Nigeria, Enugu Campus.
SCOPE OF THE STUDY
This thesis was delimited to the determinants of competitiveness of Small Scale Industries (SSIs). It examines the effects of the entrepreneurial competencies, the firm’s internal resources, processes and capabilities, and the external business environment the external business environment includes. Government incentives refer to access to finance, credits and loan facilities and tax deductions and provision of enabling business environment etc. However, no attempt was made to delve into the intricate analysis of empirical data using advanced statistical methods and also, the study area is limited to only a handful of small scale industries out of umpteen SSIs scattered all over the country.
DEFINITION OF TERMS
The terms used in this study, which have inimitable meaning that could be subjected to different interpretations by different readers of this thesis, are defined as thus:
(i) Small Scale Industries (SSIs): An enterprise whose total cost including working capital but excluding cost of land is between ten million naira (N10,000,000) and one hundred million naira (N100,000,000) and/or a workforce between eleven (11) and seventy (70) full-time staff and/or with a turnover of not more than ten million naira (N10,000,000) in a year.
(ii) Competitiveness: This refers to the capability of small scale industries to create a relatively high income factor and relatively high employment levels on a sustainable basis, while permanently being exposed to global and international competition.
(iii) Infrastructure: This refers to power, transportation, market information, telecommunication, upgrades and quality certification which are inevitable for the optimal operation of Small scale industries.
- Onyemenam, C.E. (2004). “Firm level competiveness in Nigeria”,Paper presented to ODINESG Seminar, City University, Northampton Square London. June15-16.