EFFECT OF ENVIRONMENTAL FACTORS ON SMALL SCALE BUSINESSES PERFORMANCE

(A CASE STUDY OF KANO AND SOKOTO STATES)

By

Author

Presented To

Department of Business Administration and Management

ABSTRACT
This is survey study carried out to investigate the SSBs performance and examine the 
impact of environmental factors on SSBs performance in Kano and Sokoto states. 
Questionnaire methods were mainly used to collect data from the sampled SSBs. The 
data was analyzed using multivaried discriminant analysis and multiple regression 
technique in order to assess the level of performance as well as establish the 
significance of the relationship. The findings of this study clearly show that SSBs record 
low performance within the period studied and environmental factors have significant 
impact on their performance in Kano and Sokoto states. The study recommends that 
government should create enabling environment for both existing and potential 
investors in the sector, through provision of adequate infrastructures, financial support 
and formulation of policies favorable to SSBs.
TABLE OF CONTENTS
Title Page - - - - - - - - - i
Declaration - - - - - - - - - iii
Certification - - - - - - - - - iv
Acknowledgement - - - - - - - - v
Dedication - - - - - - - - - vi
Abstract - - - - - - - - - vii
Table of Contents - - - - - - - - viii
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study - - - - - 1
1.2 Statement of the Problem - - - - - - 5
1.3 Research Questions - - - - - - - 6
1.4 Objectives of the Study - - - - - - 7
1.5 Research Hypotheses - - - - - - - 7
1.6 Significance of the Study - - - - - - 8
1.7 Scope of the Study - - - - - - - 9
1.8 Limitations of the study - - - - - - 10
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction - - - - - - - - 12
2.2 Concept of Small Scale Business - - - - - 12
2.3 The Importance of SSBs - - - - - - 13
2.4 Problems and Challenges of SSBs in Nigeria - - - 17
2.5 Concept of Business Performance - - - - - 18
2.6 Business and its Environment- - - - - - 19
2.7 Approaches to Studies on Business Performance - - - 21
2.8 Determinants of Business Performance - - - - 24
2.9 Business Performance Measurement- - - - - 26
2.10 Environmental Factors and Business Performance - - - 30
2.11 Theoretical Framework - - - - - - 38
2.12 The gap in the literature - - - - - - 42
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction - - - - - - - - 43
3.2 Research Design - - - - - - - 43
3.3 Population of the Study - - - - - - 44
3.4 Sample and Sampling Techniques - - - - - 45
3.5 Sources of Data - - - - - - - 47

3.5.1 Research Instruments for Data Collection - - - - 47
3.5.2 Validity and Reliability of Instrument - - - - 48
3.6 Methods of Data Analysis - - - - - - 49
3.6.1 Variables Definition - - - - - - - 52
3.6.2 Variables Measurement - - - - - - 53
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Introduction - - - - - - - - 54
4.2 Data Analysis, Hypotheses Testing and Discussion of Findings - 54
4.2.1 Descriptive Analysis - - - - - - - 55
4.2.2 Analysis of the Result of Statistical Testing - - - - 57
4.3 Research Findings - - - - - - - 73
CHAPTER FIVE: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
5.1 Summary - - - - - - - - 74
5.2 Conclusions - - - - - - - - 76
5.3 Recommendations - - - - - - - 77
5.4 Suggestions for Further Studies - - - - - 79
References - - - - - - - - 81
Appendices - - - - - - - - 101



CHAPTER ONE: INTRODUCTION
1.1 Background to the Study
Small scale businesses (SSBs) constitute large population of businesses worldwide and 
they play a significant role in the economy. Consequently, the performance of small 
scale enterprises sub-sector is closely associated with the performance of the nation. 
SSBs play very important role towards fostering accelerated economic growth, 
development and stability within several economies. They play tremendous roles in 
employment generation, provision of goods and services, creating better standard of 
living, as well as contributing to the growth of Gross Domestic Product (GDP) of the 
nation, (OECD, 2000). Small firms create new jobs, open up opportunities for upward 
social mobility, foster economic flexibility, and contribute to competition and economic 
efficiency (Liao, Welsch, & Moutray, 2009). SSBs are the driving force for economic 
growth, job creation, and poverty reduction in developing countries. They have been the 
means through which accelerated economic growth and rapid industrialization have 
been achieved. Furthermore SSBs has been recognized as a feeder service to large- scale 
industries (Fabayo, 2009).
Studies have indicated that SSBs provide an effective means of stimulating indigenous 
enterprises, enhancing greater employment opportunities per unit of capital invested and 
aiding the development of local technology (Sule, 1986; and World Bank, 1995). SSBs 
help in mobilizing surplus income and resources through savings for investment. In 
similar vein they also encourage, as well as, promote the use of local raw materials. 
Their nationwide spread contributes to a more equitable income distribution among 
individuals and regions, as well as mitigating rural-urban migration. They also enhance 
the strengthening of industrial linkages and the integration of industry with other sectors of the economy via production of intermediate products such as raw materials and spare 
parts.
In Nigeria, for instance the recent survey of formal sector of small and medium 
enterprises by National Bureau of Statistics (NBS) and Small and Medium Scale 
Enterprises Development Agency (SMEDAN) reveals that 92.8 per cent of the 
enterprises are small scale while 7.22% are medium scale enterprises, (NBS/SMEDAN, 
2012). Small scale businesses represent about 90% of the industrial sector in terms of 
the number of enterprises; they also account for 70% of national industrial employment 
if the threshold is set at 10 – 50 employees, and contribute 10% of manufacturing output 
in Nigeria (Ajayi, 2002). Anwatu (2006) opined that 75% of the private sector in 
Nigeria is dominated by small scale enterprises reiterating that Organized Private Sector 
(OPS) is the engine of growth and creator of wealth and employment. The Nigeria 
Chamber of Commerce, Industry, Mines and Agriculture (NACCIMA), (2006) argued 
that Small businesses are the vehicle for rapid industrialization and development of any 
nation. Eke (2007) argued that small businesses account for over 93 % of the total 
entrepreneurs in Nigeria. 
However, despite the number of SSBs and assistance given to them by government and 
other agencies toward sustainable economic development, the performance of the sector 
still fall below expectation in Nigeria, (Basil, 2005 & Abiodun, 2011). This may be 
because the sub-sector has been bedeviled by several environmental factors militating 
against its performance. Thus, this study assess the performance of SSBs in Kano and 
Sokoto from 2005 to 2012, and also examine the extent to which the major 
environmental factors (internal and external) impacted on the performance of SSBs in 
the two states using profit, sales (revenue) and employment (number of employees) as 
performance indicators.

Business performance refers to the firm‟s success in the market, which may have 
different outcomes (Lebas & Euske, 2002). Therefore, strategically business 
performance is often referred to as firm success or failure. Business performance is a 
focal phenomenon in business studies. Therefore looking at the firm as a complex 
organization seeking to survive or thrive in its competitive environment, performance 
evaluation and measurement systems serve as a key contributor to the perceptual and 
coordination/control capabilities of the firm. Firms evaluate their performance to help 
monitor and control specific activities; to predict future internal and external states; to 
monitor state and behavior relative to its goals; to make decisions within needed time 
frames; and to alter the firm‟s overall orientation and/or behavior. Firm performance 
measurement has been described in terms of the extent to which a firm‟s economic and 
strategic objectives are achieved in the market place. Since essentially all firms 
regularly set and refine strategic and economic goals for their pursuits, high 
performance is the function of the degree to which the firm has achieved its goals. 
Accurate business performance evaluation is a key to success for enterprises. As such 
the research in the area of SSBs performance assessment is necessary for the success of 
SSBs in developing countries like Nigeria. 
A business organization could measure its performance using the financial and non-
financial measures. Recognizing the limitations of relying solely on either the financial 
or non-financial measures, owner-managers of the modern SSBs have adopted a hybrid 
approach of using both the financial and non-financial measures. The selection of 
performance measures that reflect the true situation of small and medium businesses 
with some degree of certainty and reliability is indeed a crucial process. The lack of 
universally accepted standard performance measures left the door open to business 
organizations to decide and choose their own performance measure. As such this study

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