ENTREPRENEURIAL STRATEGIES AND THE DEVELOPMENT OF SMALL AND MEDIUM SCALE ENTERPRISES (SMEs) NIGERIA

(A CASE STUDY OF OGUN STATE, )

By

Author

Presented To

Department of Business Administration and Management

140 Pages 7,976 Words 1,551 Views PDF Format No. of Chapters: 1 to 5 Chapters

ABSTRACT

The development of SMEs has become an important factor in nation’s building and economic

development. While developed nations have leveraged on the growth of SMEs, survival rates

has been less than 10% in Nigeria despite various government intervention programmes. This

study evaluated the effect of entrepreneurial strategies on the development of SMEs on selected

firms in Ogun state Nigeria.

Survey research design was adopted for the study. The population of the study consist of 2425

middle and top level staff of 7 selected firms. Stratified random sampling technique was

adopted to select the sample size of 446. Respondents were determined using Taro Yamane

formula for sample size. Data was collected using self-administered structured questionnaire

and validated for a response rate of 94%. Cronbach Alpha reliability for major constructs had

an average value of 0.83. The data collected was analysed using linear and multiple regression.

Findings revealed that there is a significant relationship between entrepreneurial strategies and

SME development (R = 0.535, at p<0.05).The adjusted R2 =.285 value (alpha) of 44.670, the

coefficient of independent variable (beta = 0.491) and F-Value yielded 163.890. Competitive

strategy had significant relationship on return on investment and this effect was statistically

significant at (R

2 = 0.160, p < 0.05, B = 0.360, F = 77.727). There is a significant relationship

between human resource strategy and employee productivity (R

2 = 0.184, p < 0.05, B = 0.385,

F = 91.833). The effect of market orientation strategy on market share shows a positive

relationship with p < 0.05, R

2 = 0.242, B = 0.395and F = 130.155. A positive and significant

relationship was established between adaptation strategy and business policy with R2 = 0.553,

p < 0.05, B = 0.717 and F value = 504.339.

The study concluded that, entrepreneurial strategies have strong positive relationship on the

development of SMEs in Ogun State. The study recommends that SMEs should adopt

entrepreneurial strategies in the form of competitive, human resource, market orientation and

adaptation to increase survival rate.

Content Page

Title page i

Certification ii

Dedication iii

Acknowledgements iv

Abstract v

Table of Contents vi

List of Tables ix

List of Figures x

CHAPTER ONE: INTRODUCTION

11 Background to the Study 1

12 Statement of the Problem 3

13 Objective of the Study 6

14 Research Questions 7

15 Hypotheses 7

16 Scope of the Study 8

17 Significance of the Study 10

18 Operationalization of Variables 7

19 Operational Definition of Terms 10

CHAPTER TWO: REVIEW OF LITERATURE

21 Conceptual Review 12

211 Entrepreneurial Strategies 12

212 Competitive Strategy 13

213 Human Resource Strategy 14

214 Market Orientation Strategy 15

215 Adaptation Strategy 16

216 SME Development 21

217 Return on Investment 21

218 Employee Productivity 24

219 Market Share 25

Content Page

2110 Business Policy 25

22 Theoretical Review 29

221 The Organizational life-cycle theory 29

222 Resource Based View Theory 33

223 Dynamic Capability Theory 35

224 The Survival-base theory 37

225 Knowledge Based View Theory of the Firm 40

23 Empirical Review 42

231 Entrepreneurial Strategies 42

2311 Competitive Strategy 42

231 2 Human Resource Strategy 43

2313 Market Orientation Strategy 44

2314 Adaptation Strategy 45

232 SME Development 46

2321 Return on Investment 47

2322 Employee Productivity 48

2323 Market Share 48

2334 Business Policy 49

233 Entrepreneurial Strategies and SME Development 50

234 Overview of the Nigerian SME Sector 52

24 Summary and Gaps in Literature 54

25 Conceptual Model 54

CHAPTER THREE: METHODOLOGY

31 Research Design 56

32 Population 56

33 Sample size and sampling Technique 57

331 Sampling Technique 58

332 Sampling Frame 59

34 Method of Data Collection 59

35 Research Instrument 59

36 Pilot Study 60

37 Validity of Research Instrument 61

Content Page

371 Reliability of Research Instrument 61

372 Pre-test reliability Analysis 62

38 Method of Data Analysis 62

381 Model Specification 63

382 Conceptual Model 64

39 A priori Expectation 64

310 Limitation of the Methodology 65

311 Ethical Consideration 65

CHAPTER FOUR: DATA ANALYSIS, RESULTS AND

DISCUSSION OF FINDINGS

41 Data Presentation, Analysis and Interpretation 67

42 Demographic Data of Respondents 68

43 Data analysis, Interpretation and discussion 69

44 Summary Table of Findings 96

CHAPTER FIVE: SUMMARY, CONCLUSION AND

RECOMMENDATION

51 Summary 97

52 Conclusion 100

53 Recommendations 101

531 Policy Makers 102

532 SME Sector 102

533 Society 103

54 Contribution to Knowledge 103

55 Limitation of the Study 105

56 Suggestion for Further Studies 105

References 107

Questionnaire 122

CHAPTER ONE

INTRODUCTION

11 Background to the Study

Small and medium enterprises (SMEs) have increasingly become a powerful engine for

economic growth and development in today’s rapidly growing and dynamic competitive global

economy (Khan, Obaidullah & Alam, 2011) On the contrary, the performance and

effectiveness of small and medium scale enterprises as an instrument of economic growth and

developmentinNigeria haslongbeen under academic scrutiny This intense scrutiny has been against

the backdrop of the low performance and inefficiency that characterized small and medium

scale enterprises particularly in assessing its role on economic growth and development (Small

and Medium Enterprises Development Agency of Nigeria, SMEDAN;2010) The future of

entrepreneurship is a moving target and a work in progress that is widely expected to lead

through innovation and adaptation for the development of entrepreneurs (Snyder, 2011)

The work of Snyder (2011) further noted that majority of job losses in America occurs in large

companies which form less than 20% of American businesses while majority of jobs were

created by small businesses An entrepreneur is an innovative person who maximizes his/her

profit by following strategies on venturing into commercial undertaking (Dabson & Wilcox,

2012) The characteristics of an entrepreneur include risk taking, curiosity, imaginative,

persistence, goal setter, hardworking, confident, flexible and independent A study by

Kauffman foundation in 2011 examined the relationship between economic growth and

entrepreneurship and came to the conclusion that nations with higher level of entrepreneurship

activity have better rate of economic growth Clifton (2009), noted that what the whole world

need is a good job and good jobs are unavailable as entrepreneurs have not been able to develop

the needed strategies for job creation Good jobs have become necessary because social

contracts between big companies and their employees have changed overtime Therefore, the

best job available is that where you are owner and

self-employed (Clifton, 2009) Dabson and Wilcox (2012) noted that most developing

countries use entrepreneurship as an economic development of last resort For Nigeria to develop through the use of entrepreneurship like other developing nations the leaders must take

cognizance of the people’s ability to create wealth, the process through which growth is

achieved, the community where the activities take place and policies and practices that foster

entrepreneurship in both public and private sectors (Dabson & Wilcox, 2012)

An SME according to the Central Bank of Nigeria (CBN) is one whose capital employed excluding land

is between ₦1 million and ₦150 million and employs not more than 500 persons (Ebitu, Ufot, & Olom,

2015) Ogundele (2007), noted that SMEs represent 90% of the enterprises in African, Caribbean and

Pacific (ACP) countries Also, SMEs provide 70% of employment opportunities for the citizens and

promote the development of local technology Oyedijo (2012), have observed that small businesses

employ 53% of the private workforce and account for 47% of sales and 51% of private sector gross

domestic product SMEs possess great potential for employment generation, improvement of local

technology, output diversification, development of indigenous entrepreneurship and forward integration

with large scale industries (Central Bank of Nigeria quarterly publication, (2011)

Entrepreneurial strategies on the other hand is the means by which an organization establishes and re-

establishes its fundamental set of relationships with its environment characterized by changes in the

pattern of decisions taken by the organization These strategies include competitive strategy which

involves the ability of the organization to achieve leadership status in the dynamic and uncertain

market they operate; human resources strategy which capitalizes on the use of the employees to

achieve the organizations aims and objectives; market orientation strategy involves aligning the

organizational output to suit the market and customers need and adaptation strategy which involves

the use of innovation to allow the organization becomes relevant all in a bid to achieving SME

development

SME development is the growth of a SME with the systematic use of scientific and technical knowledge

to meet specific objectives or requirements of the organization

SME development in this study is measured with the organization’s return on investment (ROI),

employee’s productivity, market share and the business policies of the firm A major gap in Nigeria’s

industrial development process in the past years has been the absence of a strong and virile small and

medium enterprises sub-sector (SMEs) due to financial constraints explained by high lending rates,

high loan requirements and lack of viable entrepreneurial skills which does not allow SMEs to possess

the much needed competitive strategies

Furthermore, SMEs cannot employ the full arsenals of their entrepreneurial strategies due to

constraints such as lack of adequate credit for SMEs, traceable to the reluctance of banks to extend

credit to them This situation arises due to poor documentation at project proposals because the

human resources strategies are poorly implemented or inadequate Matanmi and Awodun (2005)

posit that if Nigeria desire to move out of the disturbing high level of unemployment and ravaging

level of poverty, adequate attention must be given to the growth of entrepreneurship They concluded

that Nigeria still remain in the doldrums because of the combination of ignorance, low capacity

building and lack of encouragement for entrepreneurship coupled with lack of entrepreneurial

strategies

This work will focus on SMEs within Ogun State and analyze entrepreneurial strategies in the form of

competitive strategy, human resources strategy, market orientation strategy and adaptation strategy

and how it relates to the development by considering market share, return on investment, business

policy and employee productivity

12 Statement of the Problem

Akingbolu (2014), Okezie, Odii, and Njoku (2013) has documented that 70% of SMEs fail in their first

three years of operations in Nigeria because of their economy of scale This is coupled with the

dynamic nature of the environment, greater competitive firms and the need for continuous

innovation Product customization and growing use of ICT, forces firms to face challenges of improving

their competitiveness These difficulties are greater for the highly competitive environment for small

scale businesses which negatively affect their Return on Investment (ROI) The inability of top

management of SMEs to properly analyze the market is one of the leading causes of reduction in

Return on investment (ROI) for SMEs (Aaker, Kumar & Day, 2008) This is as a result of their

inability to formulate and implement appropriate competitive strategies for diversification, to fulfill

their role of being an industry low cost provider, developing expertise and creating a niche for their

companies that will allows for SME Development

Mwangi and Omhui (2013) posit that inability of small scale and medium scale enterprises (SMEs) to

gear effort towards applying effective competitive strategies reduces return on investments because

of the severe competition they face from multinational companies in the market and the need to meet

consumer's requirement for quality, quantity and price has been a major challenge that has led to the collapse and eventual failure of many SMEs The entrepreneur’s inability to put in place adequate

competitive strategy that would lead to responsive customer satisfaction, revenue growth and

increased returns on investment is a factor that leads to failure (Offor, 2012)

With greater competition in the globalized market, emphasis on firm management employing human

resource strategies through recruitment and selection, employee retention, compensation in SMEs

have been insufficient and this inhibits their performance and diminishes finances (Apulu, Lathan &

Moreton, 2011)

Asiedu-Appiah, Aduse-Poku and Abeeku-Bamfo (2013) in their study revealed that majority of SMEs

do not follow formal recruitment and selection practices It was also evident that existing recruitment

and selection practices were not systematic and lacked consistency as these practices were based on

the understanding of owner-managers who had little or no expertise in the subject These lackadaisical

human resource strategies does not allow for the input of the best entrepreneurial team that will lead

to increasing financial performance for the SMEs

Despite, its significant position as the giant of Africa, in terms of natural resources, majority of firms

predominantly small and medium scale enterprise still underperform while others wind up within first

five years of business in Nigeria Only five to ten percent survive to achieve maturity stage, even with

available financial resources (Ayanda & Danlami, 2011; Onugu, 2005), due to lack of strategic human

resource planning (Okpara, 2011) and this lack of human resource strategies has not given room for

increasing performance by the SMEs The poor performance of Nigerian small and medium enterprises

(SMEs) is an issue of serious concern to all Nigerians and other

stakeholders (Ibru, 2013) The current chief executive officer (CEO) SMEDAN, Nadada (2013),

admitted the following problems facing SMEs in Nigeria to include, among others poor market

orientation strategies, inadequate knowledge of managing firms, poor marketing skills, low

entrepreneurial spirit and the absence of this leads to reduction in their market share

Dzisi and Ofosu (2014) posit that SMEs are still lacking in so many spheres in Nigeria, as their

perception of marketing has not shifted from mere advertising unto formulation and implementation

of market orientation strategies SMEs fail to utilize market orientation strategies derived from

marketing research and new product development that could attract the improved market share and performance thereby leading to inadequate exploitation of its benefits as well as not giving

appropriate value to the entrepreneurs (Leopoulos, 2006)

A study by Ebitu (2015) exposes that in the southern part of Nigeria, marketing problems such as

difficulty in managing firm’s advertising, lack of adequate marketing research, unawareness of

competition, poor branding and packaging, low level of knowledge on business market analysis, poor

promotion, poor segmentation strategy, poor pricing technique and unplanned distribution

contribute negatively in affecting SMEs’ profit margin and their sales volume Ebitu (2015) further

observed that most of these problems were as a result of the fact that most of the managers of the

SMEs are not knowledgeable about the principles and practice of marketing orientation strategies

Today’s organizations have to deal with dynamic and uncertain environments In order to be

successful, organizations must be strategically aware They must understand how changes in their

competitive environment are unfolding and they have to innovate so as to enhance their performance

thereby increasing their market share The adaptation strategy of innovation can be used by small and

midsized firms over large firms which is one area that has been underexplored (Papulova &Papulova,

2006)

Uchegbulam, Akinyele and lbidunni (2015) in their study posited that with Nigeria's business

environment situated in the midst of a challenging economic landscape and intense competition,

Managers are increasingly seeking for strategic approaches to

accomplish, improve and sustain organizational performance which is lacking in most SMEs therefore

causing underperformance, under productivity and inefficiency of the SMEs Currently, business

environment is perceived to have been rarely exceeded in complexity, turbulence and rapid in change,

all Nigerian organizations (large or small) must pay greater attention than ever before to their

environments when formulating and implementing policies and strategies in order to survive and grow

(Otokiti & Awodun, 2003)

Otokiti and Awodun (2003) posit that the performance of Nigerian companies is predicated on factors

such as low-sales, high cost of production, low capital utilization, lack of foreign exchange to source

needed inputs, poor power supply, and low quality of goods and services, among others These issues

have led to lack of proper integration and coordination of various corporate subsystems in Nigerian organizations, resulting in the failure to achieve the stated goals and objectives Enterprises are

subsumed in the environment with which they interact by importing inputs and exporting outputs

Thus, the vagaries and the extremities of the environment affect the fortunes of organizations unless

adaptive strategies are implemented to mitigate this (Kennerly & Nelly, 2003) Therefore, given the

important contributions of SMEs to the economy and the survival rate of SMEs in Ogun state for the

period 2010-2013 at 22% when compared to Lagos 54% and Oyo at 73% (Nadada, 2013) and

considering the proximity of Ogun State which is between Lagos and Oyo States, investigation in the

state is unavoidable

This research aims at determining the relationship between entrepreneurial strategies and

development of SMEs in Ogun State, Nigeria

13 Objective of the Study

The main objective of the study is to evaluate the impact of entrepreneurial strategies on the

development of SMEs in Ogun State, Nigeria The specific objectives are to:

1 examine the effect of competitive strategy on Return on Investment;

2 identify the effect of human resources strategy on employee productivity;

3 evaluate the effect of market orientation strategy on market share;

4 determine the effect of adaptation strategy on business policy and

5 examine the effect of Entrepreneurial Strategies on SMEs development

14 Research Questions

The study answered the following research questions:

1 What is the effect of competitive strategy on Return on Investment for SMEs

development?

2 How does human resources strategy affect employee productivity for SMEs development?

3 What is the effect of market orientation strategy on market share for SMEs development?

4 What is the effect of adaptation strategy on business policy for SMEs development?

5 How does Entrepreneurial Strategies affect SMEs development?

15 Hypotheses

The hypotheses for the study are as follows:

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