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Small Scale Business
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Friday, September 12, 2008
Small Scale Business
APPRAISAL OF THE IMPORTANCE OF SMALL SCALE BUSINESS ENTERPRISE TO A NATION BUILD
ING
Critiques of the Nigerian economy and economic policies abound and several solut
ions to the country's economic problems have been proposed by genuine nationalis
ts, patriots, friends and cynics. A large sum of money has been spent on the ser
vices of consultants to obtain expert opinions on much of the now well-known pro
blems of Nigeria. From all these may be articulated the general conclusion that t
here have been, through the years, several inconsistencies in many aspects of th
e national economic policies which have seemed to render them antagonistic to la
id down objectives. The existing incentives to industry are at variance with the
priorities spelt out in various development plans the findings by reference to
industries based on domestic raw materials.
According to reports agro-allied and export industries based on imported raw mat
erials are accorded a low priority in theory but attract 'very high' incentive.
Report claimed that a study of 74 industrial activities in Nigeria concluded tha
t the existing structure of incentives showed a bias against agro-allied industr
ies, against industries based on mining or forestry, against the few sectors whi
ch were able to compete in the world markets, against industries processing dome
stic raw materials but in favour of industries that process imported raw materia
ls and companies assembling imported components for the Nigerian domestic market
.
The present paper attempts to identify some concrete issues which should form th
e basis of consistent policies. It is their absence in the observed system that
creates the impressions of "lack of fit" which is so aptly observed by both Nige
rian nationals and their critiques, paid and unpaid. The main focus here is on th
e small scale industrial sector. The emphasis is on how its development may be b
ased on the adoption of adequate financial strategies and development of the Nati
on's resource endowments.
The special features of small-scale industry (SSI)
As a result of several legal and administrative actions necessary for the promot
ion and development of SSI, all countries have at any given time a definition of
SSI. These are defined by reference to certain specified parameters such as num
ber of employees, amount of money invested or mode of management, among others.
It is difficult to set exclusive criteria; some popular criteria may be helpful
in understanding the essence of the classification.
Nigerian economy depends on the recognition of SMEs
Historical facts show that prior to the late 19th century, cottage industries, m
ostly small and medium scale businesses controlled the economy of Europe. The in
dustrial revolution changed the status quo and introduced mass production. The t
win oil shocks during the 1970s undermined the mass production model, which trig
gered an unexpected reappraisal of the role and importance of small and medium s
ized enterprises in the global economy. Findings by economists over the years sh
ow that small firms and entrepreneurships play a much more important role in eco
nomic growth and development
Small and medium businesses was a tradition confined to economic development stu
dies that focus on the role of enterprises in encountering poverty as well as in
employment in poor countries. It is worth mentioning that the conception of big
companies as the cornerstone of modern economy dates back on the onset of the i
ndustrial revolution and the concept of large-scale economies, small businesses
were never viewed in terms of their ability to play a key role in the economy, b
ut rather a source for big companies.
Importance of SMEs
Many economies, developed and developing have come to realise the value of small
businesses. They are seen to be characterised by dynamism, witty innovations, e
fficiency, and their small size allows for faster decision-making process. Gover
nments all over the world have realised the importance of this category of compa
nies and have formulated comprehensive public policies to encourage, support and
fund the establishment of SME's. Developments in small and medium enterprise ar
ea sin quo non for employment generation, solid entrepreneurial base and encoura
gement for the use of local raw materials and technology.
The economic contribution and benefits of small scale industry
The relevance of SSI to economic development is hotly debated but the consensus
clearly endorses its usefulness. The mechanism of its contribution, however, rem
ains a contested issue. On the side of optimism articulate the roles of SSI as fo
llows:-
v They are an integral element in the socio-economic structure at all stages of
development.
v They are intermediary stabilisers as well as positive dynamic promoters of eco
nomic development.
v They are valuable tools for regional development and industrial decentralizati
on.
v They provide employment outside the cities and can proliferate industrial grow
th centres within a short time span.
v They provide a wide base for flexible economic activities.
v They complement large industry as ancillaries and sub-contractors; as parts, c
omponents and other consumption
v Items suppliers, they help large industry to carry out sound production activi
ties and reduce the outflow of foreign exchange through import substitution.
v They make an impressive contribution to employment, industrial production and
exports.
v Contribution to the economy in terms of output of goods and services;
v Creation of jobs at relatively low capital cost, especially in the fast growin
g service sector;
v Provide a vehicle for reducing income disparities;
v Develop a pool of skilled and semi-skilled workers as a basis for the future i
ndustrial expansion
v Improve forward and backward linkages between economically, socially and geogr
aphically diverse sectors of the economy.
According to the study conducted based on a survey of a considerable number of n
ew enterprises, in an attempt to attain a better understanding of inventions and
innovations, emphasis was made on enterprises that were established and existed
for 10 years,1983-1986 and survive until 1993.
The findings of this assisted in spreading and disseminating the importance and
roles of small industries in innovation and inventions. For instance, small ente
rprise operating in the field of electronics and related fields had very clear i
nventions and innovations as other enterprises engaged in other industrial activ
ities managed to introduce inventions and innovations in their pertinent fields.
Thus, inventions and innovations enhance the capacity of the enterprise to pers
ist and compete in the enhance skills of employees.
Thus, the importance of the relationship between innovation and enterprise growt
h is very clear. the successful new enterprises and most capable of growing are
those enterprises that had innovative and creative activities in the form of new
products,technologies,human resources development or dissemination of new techn
ologies. This played a key role in having an active and dynamic economy as well
as a high productivity for the small businesses, the use of computer, for instan
ce, decreased the cost in small businesses. The important of these factors varie
s between developing and developed countries whereas inventions,innovations,mark
et modernization and creation of new enterprise are of primary importance in the
developed countries, contribution to employment ,creation of employment opportu
nities and encountering poverty are of parallel importance in developing countri
es too. Thus developed countries showed inclination to explore and study patents
filled by small businesses
The small-scale business sector is currently one of the fastest growing and impo
rtant sectors as far as labour absorption and poverty reduction are concerned. T
his is so especially when the state sector is downsizing. Small businesses also
serve as seedbeds for entrepreneurs, contribute to more balanced development and
facilitate the process of adjustment in large enterprises, by emerging as compe
tent suppliers of products and services previously not available in the market p
lace. At a sectoral level, it is estimated that micro and small enterprises (MSE
s) account for 75 per cent of all new jobs created and 61 per cent of all wage e
mployment. This sector contributes 15 per cent of the gross domestic product (GD
P) and constitutes 98 per cent of all businesses in the country. The sector also
embodies most of the potential for future growth, and has championed most of th
e transformation in the nation.
The immediate effect of the deregulation of national markets and devaluation has
been large price hikes which have resulted in a dramatic reduction in the buying
power and
contractions in the local market in both rural and urban areas. Retrenchment in
the public sector has further contributed to reduced purchasing power. Cheaper c
onsumer goods imports from other states and second hand clothes from the United
States and Europe have saturated the local market. On the supply side, downsizin
g in the public sector has caused intense competition among small enterprises. T
his is mainly due to the large number of new entrants who also happen to possess
superior skills and levels of education. Presumably, small enterprises have bee
n the most vulnerable to both the contracting domestic market and increased comp
etition.
Despite the preceding structural changes, economic agents operate in business
environments characterized by fragmented and incomplete information where awaren
ess
of markets, technology, policy, regulations and finance is limited. For micro an
d small enterprises (MSEs) and enterprises located in rural areas, these problem
s are more accurate. This constraint adversely affects entrepreneurial activity
since the absence of information impinges on the scope for discovery of profitab
le opportunities.
In the context of globalization, it is doubtful how these enterprises will take
advantage of
emerging opportunities in local and export markets in the presence of both imper
fect
markets and information. Markets, therefore, fail poor entrepreneurs not just in
terms of
information chain processes but also in terms of input - they do not provide eno
ugh raw
It is acknowledged that information is a basic requirement for enterprise creati
on, growth
and survival, and that information and communications technologies (ICTs) are ca
pable of
easing information gaps in the business sector. Unfortunately, little is known a
bout institutions governing information flow in the MSE sector; the implementati
on of socially equitable projects; and perceptions of entrepreneurs about the in
formation and communication technologies. Since networks are known to facilitate
the flow, sharing and dissemination of information, it is important to understa
nd how these social institutions operates. Since communication is essentially a
social process, the essence of communication and development should not be to ch
ange people, but to give. It must be noted that, though understanding informatio
n gaps is important, information is not the be-all and end-all of enterprise dev
elopment. Enterprise development is a multi-dimensional process that requires an
understanding of other critical factors such as credit, skills, markets, financ
es, and so on.
Posted by k.c at 11:58 AM
Labels: MANAGEMENT
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October 18, 2012 at 10:51 PM
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