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DETERMINANTS
OF COMPETITIVENESS OF SMALL SCALE INDUSTRIES IN NIGERIA
CHAPTER ONE 1.0 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.
1.1BACKGROUND
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-Ã -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.
1.2STATEMENT
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-Ã -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
1.3OBJECTIVES
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-Ã -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.
1.4 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?
1.5 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.
1.6
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-Ã -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.
1.7 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.
1.8
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.
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