i

OBIJURU EMMANUEL UCHE

PG/MBA/08/53407

PROBLEMS OF ESTABLISHING SMALL SCALE INDUSTRIES

IN ANAMBRA STATE (A STUDY OF SOME SMALL SCALE

INDUSTRIES IN THE STATE)

Management

BEING A PROJECT REPORT SUBMITTED PARTIAL

FULFILLMENT OF THE AWARD OF MASTER OF BUSINESS

ADMINISTRATION (MBA)

IN MANAGEMENT

Webmaster Digitally Signed by Webmaster’s Name

DN : CN = Webmaster’s name O= University of Nigeria, Nsukka

OU = Innovation Centre

2010

UNIVERSITY OF NIGERIA

ii

PROBLEMS OF ESTABLISHING SMALL SCALE

INDUSTRIES IN ANAMBRA STATE (A STUDY OF SOME SMALL SCALE INDUSTRIES IN THE STATE)

BY

OBIJURU EMMANUEL UCHE

PG/MBA/08/53407

DEPARTMENT OF MANAGEMENT

FACULTY OF BUSINESS ADMINISTRATION

UNIVERSITY OF NIGERIA

ENUGU CAMPUS

FEBRUARY, 2010

iii

TITLE PAGE

PROBLEMS OF ESTABLISHING SMALL SCALE

INDUSTRIES IN ANAMBRA STATE (A STUDY OF SOME SMALL SCALE INDUSTRIES IN THE STATE)

BY

OBIJURU EMMANUEL UCHE

PG/MBA/08/53407

BEING A PROJECT REPORT SUBMITTED PARTIAL

FULFILLMENT OF THE AWARD OF MASTER OF

BUSINESS ADMINISTRATION (MBA)

IN MANAGEMENT

DEPARTMENT OF MANAGEMENT

FACULTY OF BUSINESS ADMINISTRATION

UNIVERSITY OF NIGERIA

ENUGU CAMPUS

SUPERVISOR: PROF. J. A. EZEH

FEBRUARY, 2010

iv

CERTIFICATION

1, OBIJURU EMMANUEL UCHE, a postgraduate student of the Department

of Management with Registration Number PG/MBA/08/53407 has

satisfactorily completed the requirements of the course and research work

for the award of Masters Degree in (MBA) in Management, Faculty of

Business Administration .

The work embodied in this project report is original and has not been

submitted in part of full for any Diploma or Degree of this in any other

University.

………………… ………………….

PROF. J. A. EZEH DATE

Supervisor

………………… ………………….

C. O. CHUKWU DATE

Head of Department

….……………………………… …….………………

OBIJURU EMMANUEL UCHE DATE

PG/MBA/08/53407

Researcher

v

DEDICATION

This project work is dedicated to Almighty God

for his infinite mercies

vi

ACKNOWLEDGEMENT

It is obvious that a project of this nature must definitely require the

contribution and support of other person. Therefore, I remain grateful to

all the authors and publishers of the various books materials consulted in

the course of the research.

My profound appreciation goes to my project supervisor PROF. J. A.

EZEH for his genuine advice and guidance that help towards the

accomplishment of this project. I am grateful to the Head of Department

of Management, C. O. Chukwu for his fatherly advice, Dr. Gideon

Emerole for his assistance, and all the staff of department of

management.

I am sincerely grateful to my family members for their moral and

financial support and encouragement in the course of my study. My

special thanks go to my mother for her wonderful montherly advice. My

siblings. Samuel I Obijuru, Hannah, Obijuru, Obinna Obijuru, Umunna

Obijuru Chinedu Obijuru and last born Oluchukwu Obijuru, they coopy

special portion in my heart for their wonderful understanding and help. I

remain loyal and grateful to all of you and also my friends, Egeonu, Ogbu

Anthony, Anyanwu Tony, Adubah Paul, Egeonu Chigoziri, Obinna

Fortune a.k.a (Smile for me), Gift a.k.a (Nkem), Ikwo Bassey a.k.a

vii

(Maureen Bee) and my lovely neighbor for their unalloyed and

unflinching support. And also my wonderful Ugwu Nneamaka S. who

made the typing of this work possible.

Above all, I am highly grateful to Almighty God, for providing me with

the knowledge and inspiration that is required for this project.

To God be the Glory.

viii

ABSTRACT

The study was carried out to determine the problems that militate against

the establishment of small scale industries. This necessitated carrying out

a survey of small scale establishments with view to findings lasting

solutions to the problems. Questionnaires are unstructured oral

interviews were the major instruments used in this study. A sample of 44

small scale establishments in Augata, Awka and Nnewi Local

Government Areas of Anambra State were served the questionnaires and

the various Pie charts were used in presentation and analysis of data and

for clarity purpose. It was found out that the problems confronting the

establishment of small scale industries are lack of adequate capital,

problems, relating to management/managerial, marketing, manpower,

quality/standard and non-availability of raw materials. These problems

are caused by political instability in the country, lack of good manpower

development programme, poor leadership style and unawareness cum

non-utilization of government assistance programmes. However, these

problems are at various stages of growth but most at the existence stage

when authority is still centralized and yet to stabilize. To solve these

identified problems, local sourcing or law materials, employment of

trained personnel and skilled manpower, as well as full utilization of

government assistance aimed at improving the productivity of the

establishment were recommended.

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TABLE OF CONTENTS

Title Page i

Certification ii

Dedication iii

Acknowledgement iv

Abstract vi

Table of Contents vii

List of Tables x

List of Figures xii

CHAPTER ONE: INTRODUCTION

1.1 Background of the Study 1

1.2 Statement of Problem 8

1.3 Objective of the Study 8

1.4 Research Questions 9

1.5 Significance of the Study 9

1.6 Scope and Limitations of the Study 10

1.7 Definition of Important Terms 11

References 13

CHAPTER TWO: LITERATURE REVIEW

2.1 The Concept and Nature of Small Scale Enterprises in

Nigeria 14

2.2 The Concept of Manufacturing Industries 18

x

2.3 Development of Small Scale Industries in Nigeria an

Overview 19

2.4 Basic Characteristics of Small Scale Industries 25

2.5 Significance of Small Scale Industries 27

2.6 Government Incentive Policies for the Growth of

Small and Medium Enterprises (SME) 30

2.7 Financial Schemes for SMEs 31

2.8 Realisation of Industrial Policy Monetary and Fiscal

Meaus 35

2.9 Problems Confronting Industries in Nigeria 37

2.10 The Small Business and Business Failure 42

References 47

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction 51

3.2 Sources of Data 51

3.1.1 The Primary Sources 51

3.1.2 Secondary Sources 51

3.3 Population for the Study 52

3.4 Sample Size Determination 52

3.5 Instrument Used for Data Collection 53

3.6 Data Analysis Techniques 54

3.7 Validity and Reliability of Data 55

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1 Data Presentation 56

xi

4.2 Data Analysis 69

4.3 Test of Hypothesis 69

CHAPTER FIVE: SUMMARY OF FINDINGS, RECOMMENDATIONS

AND CONCLUSION

5.1 Summary of Findings 83

5.2 Recommendations 85

5.3 Conclusion 87

Bibliography

Appendices

xii

LIST OF TABLES

Table 2.1: Distribution of Entrepreneurs by what they consider

to be Principal Causes of Small Business Failures 44

Table 4.1.1: Major Problems Confronting the Small Scale

Establishments 5

Table 4.1.2: Stage of development 57

Table 4.1.3: Major Causes of the Management Problem 58

Table 4.1.5: Type of management/leadership style 59

Table 4.1.6: Impact of level of training of managers on level of

management /leadership problems 60

Table 4.1.7: Impact of management on the operational

efficiency/output of the company 60

Table 4.1.8: Level of personnel maintained by the organization 61

Table 4.1.9: major cause of financial problem 62

Table 4.1.10: Financial schemes 63

4.1.11: Benefit from the scheme 64

Table 4.1.12: Raw material procurement 64

Table 4.1.13: Impact of local sourcing of raw materials on

growth variables of the firm 65

Table 4.1.14: Customers preference for foreign made goods

to locally made ones 66

Table 4.1.15: Increase in the market demand of product 67

xiii

Table 4.1.16: Rate of profitability since inception 68

Table 4.1.17: Major factors that militate against the growth of

business enterprises 69

Table 4.2.1: What are the problems confronting small scale

industries 70

Table 4.2.1: Causes of management problems 71

Table 4.2.2: Cause of financial problems (reproduced) 73

Table 4.2.3: Reproduced 75

Table 4.2.4: What are the possible solutions to these problems

facing the small scale industries? 77

Table 4.2.5: Impact of local sourcing 79

Table 4.2.6: Impact of Government 81

Table 4.2.7: Demand of product (4.1.17 reproduced) 82

xiv

LIST OF FIGURES

Fig. 1: Histogram showing the relative importance attached to

the major problems facing small scale industries

Fig. 2: Pie chart showing the major causes of management problems

Fig. 3: Pie chart showing the major causes of financial problems

Fig. 4: Bar chart showing stage of growth at which these problems are

encountered

Fig, 6: Composite bar chart showing the relative impact of local sourcing

of raw materials on the growth variables of small scale firms studied

Fig. 7: Pie chart showing the distribution of the firms studied

xv

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Every organization in the process of pursuing its aims and objectives is

bound to have problems and prospects. Small Scale firms are not left out

in this effect.

The significance of small scale manufacturing enterprises in socio-

economic development, in many parts of the world has been well

documented. In Nigeria the contribution of small-scale business is not in

doubt. However, in the recent times the contribution of this vital sub-

sector to our economy has increasingly, assumed an unprecedented

development. It has come to occupy a central position in the development

aspiration of Anambra State.

As stated already, the concept of small-scale business is not new; it is the

practice that is new. According to UNIDO monographs on industrial

Development review titled: Industrialization of developing countries:

Problems and Prospects of Small Scale Industries there are two broad

categories of small scale industries. The first is the industry carried on by

traditional craftsmen and artisan, some of whom may need assistance to

modernize their skills, tools and techniques of production; the second is

the industry carried on by the group of small manufacturing enterprises

xvi

which produce a variety of consumer and simple producers‟ goods

required by large industry. In both categories the scale of operation is

generally too small to be of interest to a foreign entrepreneur.

According to Peter Ejiofor (1989:69), in pre-colonial Nigeria, the bulk of

the employed labour forces were farmers some were also engaged in

traditional industries and crafts. Such industries and crafts according to

him were small in scale and were mostly practiced in the home. For

example, there were elementary processing of agricultural products such

as floor from yam, garri, cassava and plantain, oil from palm fruits and

gin from palm wine. There were also cloth weaving from cotton yarn,

dying of cloth fabrics, casting and smelting works based on ferrous and

non-ferrous ores and metals, leather works and manufacture of simple

weapons, tools like iron, spores, wooden spore heads, swords, guns,

poisoned arrows, matchets, knives, hoes and household utensils such as

tripods for the fire place, metal cooking pots and oil lamps. These

industries together with crafts like carving from woods and shell,

weaving from raffia and grass, pottery products, calabash decorations and

products from cane and cassava constituted a vital secondary sector in

precolonial Nigeria.

xvii

However, with the advent of colonialism and its introduction of Western

Education, much of the hands involved in the indigenous small scale

cottage industry abandoned it for Western education in order to take up

the so called white-collar jobs. This was further worsened by the

influence of urbanization which led to an unprecedented rural-urban drift

or migration, draining the rural areas of its youths that would have taken

over indigenous crafts from their fathers and mothers and grandparents.

Thus as Nigeria moves from predominantly traditional to a modernized

economy, much of the character of its cottage industry mostly carried out

in the home, has drastically change, as much of it has been replaced by

small but modernized factories.

The much said, and publicized about the numerous documentation on

small scale industries are only on papers, journals and text books and

restrited only to those living in the cities with access to this information.

About 75 percent of Nigerians who live in the rural areas have no access

to this information. During the precolonial days and the period after

independence the then ministry of commencer and industry went from

village to village shooting documentary films on how to improve upon

our small-scale ventures, how to use better improved variety seedlings;

how to combat pests using pesticides etc. Even today, majority of those

who are involved in small-scale business in this country arc not aware of

xviii

the so called numerous research and documentation on small-scale

enterprises.

The major blame of the problems confronting small scale enterprises

today would go to the government which immediately after independence

in 1960 neglected and discouraged this important and indispensable sub-

sector of the economy that would have acted as engine of growth for our

economic development efforts, as reflected in its various economic

development plans. According to J.A. Ezeh (1997:1-2) since 1960 the

year of independence, the country‟s development plans have laid a great

deal of emphasis on public sector controlling of the economy. We have a

situation where the public private sector mix has increasingly titled

towards public sector domination. For instance, while in the first National

Development Plan (1962-1968), the private sector received 62% of the

total capital expenditure, in the Fourth plan (198 1-1985) only 12% of the

total capital investment was accorded the private sector with the public

sector controlling a staggering 88%. This trend has generally

distinguished the government as a major investor in a lot of businesses

which otherwise should have been left to the private sector3. This

apparently wrong development planning did not pass without adverse

consequences for the Nigeria economy that we are in today.

xix

In the developing countries, therefore it is now realized that the

government parastatals and large scale enterprises have not played and

cannot single-handedly be expected to play the dynamic role that they are

supposed to play in the rapid growth and development generation,

increasing local value added, technological development. It is thus

becoming evident as observed by May 1, Nwoye (1991:12) that small

scale manufacturing enterprise which had hitherto generally been

neglected could play the aforementioned roles, as well, if better than the

large scale establishment.

The specific attention now paid to small-scale enterprises is based on

their expected impact and potential contribution on broad and diversified

production base, as well as their accelerated effect in achieving macro

objectives pertaining to full employment, income distribution,

development of local or indigenous technology among others. Peter

Drucker (1980:7) clearly pointed out that small scale industries are

important not only because they account directly for a significant

proportion of the investment output and employment in a nation, but also

and even more significantly, because they provide vital links in the chain

of the economy at large, motivating, energizing and connecting various

sectors and sub sectors for greater over all output, employment and

productivity.5

xx

Indeed, the country‟s low per capita income, low technological know-

how and abundant supply of cheap labour force, make small-scale

manufacturing enterprises an important anchorman to national

development. It was therefore, in recognition of this unique position of

small scale enterprises within the national economy that a National

workshop-the first of its kind-on promotion and development of small

and medium scale enterprises was sometime held at the Administrative

College of Nigeria (Kuru Plateau State). Among the objectives of

workshop were to highlight the importance which the small and medium

scale enterprises could play in the revival and restructuring of the

Nigerian economy; to identify the problems confronting this category of

enterprises and to bring these to the notice of the Federal and State

Governments so they can adopt necessary measures to facilitate the

promotion and development of these vital sub-sectors of the economy. To

this effect, therefore, the need to promote active indigenous participation

in all aspects of the economy has never been in doubt through deliberate

policies by government at different stages of their economic

development. Thus the promulgation of the Nigeria Enterprises

promotion Decree, 1972 was the first real scientific approach to tackle

this subject with the full appreciation of its magnitude and complexity.

The Nigeria Enterprises Promotion Decree of 1977 has been

promulgation in consequence of a comprehensive appraisal of the result

xxi

oaf that of 1972. Besides providing for further indigenization of

enterprises in Nigeria, the primary objective of the decree is to promote

and protect the participation of all Nigerians in all spheres of the

economy.

Interestingly, enough, emphasis by the recent government policies on

expansion and setting up of new ones by private individuals through the

establishment of peoples banks, Community banks, Nigerian Bank for

Commerce, Credit and Industry, export promotion through many

incentives to discourage import so as to encourage local industries, Fund

for Small Scale Industries (FUSSI), Small Scale Industries Scheme

(SSIS), Industrial Development Centre (IDC), National Economic

Reconstruction Fund (NERFUND) etc. It is therefore not surprising that

the 3rd

National Development Plan (1975- 1980) specifically state that

the main objective of the government programme for the development of

small scale industries are the creation of employment opportunities,

mobilization of local resources, mitigation of rural urban migration and

even more distribution of industrial enterprises in different parts of the

country. Presently, emphasis is on small scale enterprises in all sector of

the economy. The Federal government has established some agencies to

device and coordinate the efforts of small scale business entrepreneurs.

However, the impact of these agencies is yet to be felt.

xxii

1.2 STATEMENT OF PROBLEM

According to statistics, one in every new businesses fails within the first

year of operation, while a staggering four out of five small business fail

during the first five years. These problems which include managerial,

financial, marketing, raw material acquisition, accessibility and other

environmental factors militate against the efficient and smooth attainment

of the organizations immediate, attainable or visionary objectives. Obong

and Jakande have attributed the failures to management and financial

problems.

The present research seeks to investigate the viability and rapid folding

up of these small scale industries in our fledging and developing

economy.

1.3 OBJECTIVE OF THE STUDY

The study has the following objective:

1. To determine the major problems encountered by small scale

establishments which pose danger to their survival and growth.

2. To determine the nature and causes of these problems as well as

their impact on the small scale businesses.

3. To find out the best and most efficient way of handling these

problems with view of finding lasting solution.

4. To make recommendations based on the findings of this study.

xxiii

1.4 RESEARCH QUESTIONS

This study endeavoured to answer the following questions:

1. What are the major problems confronting the small-scale

industries?

2. What are the causes of these problems?

3. What are the possible solutions to these problems facing the small

scale firms?

4. At what stage of growth are these problems encountered?

1.5 SIGNIFICANCE OF THE STUDY

The study is significant because the resultant findings and

recommendations will:

1. Reflect problems areas which would aid in better decision making

towards the continued and successful operation by the owners.

2. Draw attention of the small industrialists to vital factors or

problems that may impinge on their growth.

3. Provide information on how best to avoid or tackle the problems

that are „defined‟ and as are common with small businesses.

4. Help government identify requiring attention, thus stimulating

government into proper directing of incentive and loans to improve

upon existing infrastructures.

xxiv

5. Provide useful guide for prospective entrepreneurs that wish to

choose self employment as a career.

6. Form or serve as secondary data for subsequent studies by a

prospective entrepreneur or researcher.

1.6 SCOPE AND LIMITATIONS OF THE STUDY

Small scale industries are beset with myriads of problems. These

problems cannot be adequately covered in a research work taking into

cognizance the time constraint, financial and material (data) resources at

our disposal. Nevertheless much was covered and the research was

limited to Animal Husbandry farms, Restaurants, and Bankers within

Anambra. Thus study was based on data collected from the few selected

small scale enterprises in Anambra State.

In the pursuance of a successful completion if this study, certain

limitation posed some threats to the researcher. Among them were the

unavailability of sufficient books by Nigerian Authors in area of small

business management and other problems associated with data collection

(which includes misleading and incomplete information from

respondents); limited time available for completion of the enormous work

and family, the financial resources available to carry out the research.

However, the researcher despite all odds was able to counter the affects

of these limitation.

xxv

1.7 DEFINITION OF IMPORTANT TERMS

1. Small-Scale Industry: The definition of small-scale industries

varies with people and countries (localities) such that it is better

defined based on the characteristics. In the Nigeria context small

scale enterprise is any servicing, processing or manufacturing

industry with an investment in machinery and equipment above

N500, 000 (Uaboi, l987). According to the Center for Management

Development, (CMD) in a policy proposal on Federal Government

in 1982, „A small scale enterprise‟ is a manufacturing, processing

or service enterprises involved in a factory or producing type

operation employing up to 50 full time employees, investment in

plant machinery are utilized in its operation.

2. Manufacturing: This is the mechanical or chemical

transformation of inorganic or organic substances into new

products (Heyel (ed) 1963).

3. Management: According to Akpala (1990:3) management is the

process of combining and utilizing an organization‟s input (men,

material, and money) by planning, organizing, directing and

controlling for the purpose of producing outputs (goods and

services) desired by customers so that organizational objectives are

accomplished.

xxvi

4. Restaurant: According to Obong (1993:27) place where meals

can be bought and eaten. This definition excludes canteens and

other road side eating places popularly known as „Mama Put‟.

5. Animal Farms: According to Jakande (1990:45) business

involving the rearing of animal (and birds) for meat and other dairy

products. Raw materials for further processing could also be

obtained here. Thus the farms include poultry, piggery, fishery etc.

xxvii

REFERENCES

Akpala A. (1990), Management: An introduction and the Nigerian

Perspective, Enough: Published by the Department of‟

Management, university of Nigeria, Enugu Campus.p.3.

Drucker P. Management: Tasks, Responsibilities and Practices, London:

Helnmann 1980 p.7

Ezeh, J. A. (1996), Small Business Management (Unpublished).

Heyel, (1963), The Encyclopeadia of Management New York. Litton

Educational Publishing Inc. (ed) p. 1020.

Nwoye, M.1. (1991), Small Business Enterprises: How to Start and

Succeed, Benin City: Ambik Press ltd. p. 1 2

Obong Z. and Y. Jakande, (1993), Major problems of Small Scale

Enterprises, Business Times January, p. 5.

Peter N. Ejiofor, (1989), Foundation of Business Administration,

Onitsha; African-Publishers Ltd. pg. 72-73

Uaboi S. A. (1987), „Development of Small Scale Sector: What role for

Federal Government? The Nigeria Banker Vol. 7 No. 1.

United Nation‟s Industrial Development Organization UNI DO),

Investors guide to Nigeria, Vienna UNIDO 19890 pg. 23

xxviii

CHAPTER TWO

LITERATURE REVIEW

2.1 THE CONCEPT AND NATURE OF SMALL SCALE

ENTERPRISES IN NIGERIA

All definitions of small-scale enterprises are pragmatic; there is nothing

sacrosanct about any of them, any definition is good if it serves its

purpose. (Peter Drucker, 1969:5). In order words, the definition of small

scale enterprises differ from one industry to industry and from country to

country.

Small Scale Industries assume heterogeneous character. According to

Uaboi (1987:19), various qualitative, statistical and combined descriptive

definitions have been offered to suit particular circumstances. Thus, no

universally accepted definition has as yet been adopted. The salient point

of comparison according to B.F. Hoseliz (1981:205), whether the

business is situated in developed or developing countries are often

consumption of raw materials, output, number of employees on the pay

roll, capital employed and some line sales volume.

As Baylis (1982:17) observed, main features might be necessary for a

qualitative definition. First it is managed by its owners or part owners in a

personal way. Secondly, those owners are free to make their own

xxix

decisions. Thirdly, it has very little real market power and little or no

ability to influence its own environment.

Statistically, a number of criteria have been applied in the definition

(Uaboi, 1987:19) Blank (1961:95) stated the definition offered by the

Small Business Administration (SBA) in USA as one which employs 250

or fewer people. Hoseliz (1981:205) pointed out that critical question

have different answers in different business situations, political

boundaries, and financing situation in relation to small scale business

are:-

a. How small is the small scale; that is how can these small

businesses be qualified and quantified?

b. Should universal yardsticks apply in determining business sizes or

should emphasis be on specific yardsticks in specified situations?

c. Independent ownership: should this yardstick be considered

crucial?

d. In comparison, is it capital employed or number of people on the

payroll considered more important in measuring the „small‟ This is

in consonance with J.A. Ezeh‟s view that one of the problem of

understanding the concept of small-scale business enterprises is the

problem of knowing what we are talking about, a problem of clear

definition. WaIts (1975:6) tried to answer some of these questions

xxx

by citing the confederation of British industries. He argued that

although the definition of small business is necessarily arbitrary,

number of employees and turn over are paramount indicators.

However, the Central Bank of Nigeria in February 1988 for the purpose

of its credit guidelines in Financial Institutions come out with a definition

of a small scale industry which addressed two financial areas - the

Merchant Banks and the Commercial Banks. it states that, for the lending

purposes of Merchant Banks, a small scale industry is one with a

maximum annual turnover of N500,000 or with a capital investment of

not more than N200,000 (excluding the cost of land). And Commercial

Banks, a small-scale industry is one with annual turnover not exceeding

N500,000.

The Centre for Management Development (CMD) in a policy proposal on

small-scale industrial services to the Federal Government in 1982, give

the following definition.

“A small scale Enterprise is a manufacturing, processing or service

enterprises involved in a factory or production type operation, employing

up to 50 full time employees, investment in plant and machinery not

exceeding 500,000 and power plant and machinery are utilized in its

operations.

xxxi

The structure of the small-scale enterprises has also been reported by

many authors. in one such reports, Jegede (1990:10) observed that in the

early I 970s and according to a survey conducted by center for Industrial

Research and Development (CIRD), small and medium scale enterprises

concentrated on narrow range of activities with garment making and

allied activities accounting for more than 50% of the total number of

small and medium scale enterprises (SMES). Furniture making 0.0% and

mechanically-based service enterprises such as motor vehicle repairing

accounted for 9% SMES. Although wearing apparel remained a dominant

enterprises within the small-scale industries in the early I 980s, the pre-

eminence in the previous decade has been considerably reduced,

dwindling to 30% of the total employment ion the small-scale sector.

Food and beverages group of the enterprises has assumed a substantial

importance accounting for 20%, while the furniture industry remains

unchanged accounting for 8% of the total employment during the period.

In all, manufacturing sector in 1980s was characterized by high

geographical concentration, high production costs, low value added, low

capacity utilization, high import content and low level foreign investment

(Jegede, 1990:10).

According to the United Nations Industrial Development Organization

(UNIDO) report (1989:23)‟‟ the manufacturing sector is expected to grow

xxxii

at an annual average rate of 7.5% between 1989 and 1994 and to account

for over 10% of GNP by 1992 with the small and medium enterprise

contributing more than half of the manufacturing sector‟s contribution to

GNP the report observes that much of the growth is expected to come

from the small and medium enterprises using local resources and

employing labor-intensive or capital-intensive technology as appropriate.

It further notes that government investment is likely to remain of

considerable importance in the heavy industries particularly petro-

chemical, steel and gas infrastructure projects while the private sector is

expected to invest in the small and medium enterprises.

2.2 THE CONCEPT OF MANUFACTURING INDUSTRIES

The art of manufacturing as a process has been extensively studied by

numerous authors. The University English Dictionary (p. 249) has

defined manufacturing as the process of making anything by hand or

machinery from raw materials. Balkashin (1971) in one of his studies

describes the concept of manufacturing as follows: “...Man must always

expend labour to accomplish the qualitative transformation of the objects

of Nature which can be called a manufacturing process”

According to Degarme (1974:6) manufacturing can be classified as being

job-shop, mass-production or process-type. He described the job shop

plan as consisting of a group of general purpose machines that when

xxxiii

operated by highly skilled labour, permit a wide variety of products to be

produced. While the mass-production plants are composed of specialized

equipment that is designed and selected to, in combination, manufacture a

certain product or group of related products, the process type plants are

constructed around specific process usually chemical in nature such as

refining or distillation. Like the concept of Small Scale Business, Small

Scale manufacturing Industry varies from one country to another. Uaboi

(1987:19) reported the definition adopted by three countries including

Nigeria, namely:- Nigeria: Any servicing, processing or manufacturing

industries with an investment in machinery and equipment not above

N500,000.

India: All manufacturing enterprises with an investment in capital not

more than 750 rupees (75,000) except ancillary enterprises for which

capital is 1,250.00 rupees (N25,000). U.S.A.: According to the Small

Business Association in the U.S. any business which has less than 250

employees and whose annual turnover is not more than $1 0 million

(N100million).

2.3 DEVELOPMENT OF SMALL SCALE INDUSTRIES IN

NIGERIA AN OVERVIEW

Over the years, experience has taught and established the Fact that the

present requires the history of the past for a better understanding. And

xxxiv

this proper understanding of the present favours corrects prediction of the

future. This means therefore, that a historical understanding of the

development of small scale manufacturing enterprises may be good

indicator of its future performance. Dating back to the Pre-colonial

Nigeria, it would be remembered that the bulk of the employed labor

force were farmers but some were also engaged in traditional industries

and crafts. Such industries, according to Pita Ejiofor (1989), were small

in scale and were mostly practiced in the home. For example, there was

elementary processing of agricultural products, such as flour, grains, oil

from palm fruits and gin from palm oil, cloth weaving from cotton,

casting and smelting works based on ferrous and non-ferrous ores and

metals etc. These industries together with crafts like carvings from wood

and shell etc., constituted a vital secondary sector in pre-colonial Nigeria.

As Nigeria moves from a predominantly traditional to a more modernized

economy, much of the character of its cottage industry has changed as

much of it has been replaced by small but modern factories. Though,

without doubt, some traditional industries and crafts have continued and

have been expanded.

What this clearly shows is that the historical development of small scale

manufacturing enterprises dates back to the pre-colonial time. That is to

rightly say that the concept of small scale manufacturing business is not a

xxxv

novelty in Nigeria. The striking differenced between the pre-colonial and

post-colonial period, then was a conscientious and conscious attempt by

the government to practically be involved in the development of this

hitherto to neglected sub-sector, realizing the importance. But in the pre-

colonial period there was visibly and practically no organized and

conscious effort on the part of the government to stimulate or encourage

entrepreneurship.

Hence, tracing from history, Jegede (1 990) noted that the earliest attempt

of the government to develop small-scale enterprises in Nigeria dated

back to 1946 when the sessional paper No. 24 of 1945 on “A Ten- year

plan of Development and Welfare for Nigeria, 1955, as amended by the

legislative council on 7th February, 1946. He also identified that the first

stage of development involved the establishment of a “Nigeria Local

Development Board” whose functions among others were primarily

associated with:

1. The promotion and development of the village crafts and the

industrial development of the products of Nigeria.

2. The setting up and operation of experimental under-taking for the

testing of industrial or processing development of any Nigerian

products.

xxxvi

3. Other suitable projects approved by the Governor-in-council. These

laudable schemes were designed to assist small-scale enterprises,

develop faster and to obtain a higher level of efficiency so that they

could become highly rewarding and profitable to the owners and

government alike. Jegede (1990:10) also pointed out that though,

there was no coherent industrial policy geared at promoting small

scale enterprises, during the pre-independence era, the former

Western and Eastern Regional Governments managed to set up

industrial estates-Yaba Industrial Estate (1958) and Enough

Industrial Estate in (1959).

By the 1960 survey of Eastern Nigeria, Small-scale establishments totaled

about 35,000 to 40,000 of which about 40% were one man operation.

(World Bank, 1974:82) Government during this period laid emphasis on

light industry and assembly plants and not small scale enterprises. This

time manufacturing products, if any, were mainly simple machine tools,

electric fans, kitchen utensils and motor vehicle assembly.

Between 1962 and „63 Jegede (1990:10) observed that the Ford

Foundation of U.S.A. joined hands with then Eastern and Northern

regional governments to set up an Industrial Development Centres

(IDCS) in Owerri and Zaria for the purpose of promoting the

development of small scale industry. These industrial Development

xxxvii

centres assisted in financing small-scale industries as well as in rendering

techno-managerial services to them.

Jegede (1990:10) further pointed out that the Federal Government at the

end of the Civil War assumed the leadership role in fostering the

development of small scale industry in the country by setting up a small

scale industry Division within the Federal Ministry of Industry and eleven

Industrial Development Centres (IDCs) in different states of the

federation in addition to re-activating the ones in Owerri and Zaria. In

addition to these too, small scale industries Credit Loan Scheme was

established in each state matching grants from the Federal Government.

The lukeworm emphasis given to the Small Scale sector in the first,

second and third National development Plans viz: (1962-66), (1970-74)

and (1975-80) respectively almost completely marred the progress so far

made in the development of the Small-scale enterprises. Also, Jegede

(1990:10) reported the numerous constraints, ranging from inadequate

funding and mismanagement of the state‟s small-scale industries credit

scheme to shortage of staff, funds and equipment, that confronted 13

IDCS then established.

Federal Government as reported by Babarinsa (1987:34) reaction to this

negative trend in the sectors development quickly set up the Nigerian

xxxviii

Bank for Commerce and Industry (NBC 1), on the 2 April, 1973 by

Decree No. 22 to act as a catalyst for Industrial growth of the Small Scale

sector. Thus, during the fourth National Development Plan period of 198

1-1985, the Nigeria Bank for Commerce and Industry was saddled with

the responsibility to administer loans to small scale enterprises, inculcate

financial discipline into borrowers, assist better with project appraisal and

offer advisory services to Small Scale enterprises. The plan also indicated

that state government would establish more industrial estates and

Industrial Promotion Centres (I.P.C.S).

The Fourth National Development Plan laid more emphasis on public

sector control of the economy. According to J. Eze (1992) while in the

first National Development Plan (1962-66), the private sector received

62% of the total capital expenditure, in the fourth plan, (1981-1985) only

12% of total capital investment was accorded the private sector with the

public sector controlling a staggering 88%. This trend generally

distinguished the government as a major investor in a lot of businesses

which otherwise should have been left to the private sector. But this

apparently wrong developmental planning did not pass without adverse

consequences for the Nigeria economy.

xxxix

2.4 BASIC CHARACTERISTICS OF SMALL SCALE

INDUSTRIES

The overall business scene and activities in Nigeria appear to be

dominated by small businesses which are established by individuals,

groups, companies and or cooperatives.

Most businesses start off as small, but with proper planning and

management, they expand and grow. However, it will be risky to assume

that small industries are exactly like big ones after all the difference is

size. But it is necessary to differentiate the small business from the large

ones and to associate those characteristics with problems inherent in the

small business.

In summary, characteristics as indentified by several writers among

whom are Broom and Longnecker (1972) Mussel man and Hughie (1973)

and Yewande (1991) are presented here. It must not however be taken

that these characteristics are all embracing or that all must be present in

the same magnitude in a business for such a business to qualify as a

“Small Scale Business”.

(1) Management is not independent. Generally the managers are also

the owners. This means that the manager/owner can run the

business as he pleases. Discipline as the control factor in this case

xl

may sometimes be missing. This lack of proper managerial

discipline lead to business failures.

(2) Capital is supplied and ownership is held by a small group or an

individual. The initial capital, usually equity holdings is supplied

by the owner or co-owner of the business. Often for working

capital, they depend on trade credit or credit fiancé or both.

(3) Capital requirement is small and therefore within reach of the

indigenous entrepreneurs.

(4) The area of operation is mainly local employees/workers and

owners all like in one home community. Most small scale firms

even those identified as modern utilizing plants and machinery, are

run along family lines. However, market served by them are not

always local. Modern small scale firms serve markets across

ethnic, cultural and even nation or state boundaries.

(5) The size of the small business firm within industry is usually small.

Thus they are not dominant in their individual fields of‟ operation.

(6) Majority of the modern small business units are labor intensive and

are able to achieve high productivity. These units are concentrated

in areas of low technology.

(7) One other all embracing characteristics of small scale business in

Nigeria is the apparent lack of attention to managerial functions, of

planning, organizing, directing, coordinating and controlling.

xli

All the entrepreneur set out to achieve is high return on sales or

investment. The workers are not adequately remunerated and therefore

not sufficiently motivated. Business is often poorly managed and failure

rate is high. Most of them do not keep records either due to ignorance or

deliberately evade tax.

2.5 SIGNIFICANCE OF SMALL SCALE INDUSTRIES

The contributions of small scale manufacturing industry n a developing

economy like ours cannot be overstated. Various scholars authors have

done a lot of research studies on this subject. In a study of the

development of the small and medium scale industry in Nigeria, Jegede

(1990:9) observed that the economic conditions that prevailed in the

country during the 1 970s and I 980s raise doubts about the large-scale

industry fulfilling the dynamic roles bringing about rapid growth and

development of the Nigerian nation. The roles include substantial

contribution of‟ the sector to the gross domestic product (GDP),

increasing local value added, employment generation and technological

development. By 1985, it became clear that the small scale industries

which had hitherto been neglected could play the aforementioned roles as

well, if not better than the large scale enterprises.

xlii

Many reasons have been advanced by the advocates of small-scale

industries development in Nigeria. These reasons include:

(a) The low level of capital required for establishment of the industry

(Osoba, 1987:98-116).

(b) The large number of the establishment and their labor-intensive

modes of operation guarantees employment for a large number of

persons (Adejugbe, 1987:73).

(c) Inventions, adaptations and general technological development are

common in these enterprises (Adejugbe 1987:82-86)

(d) A more equitable, distribution of income is usually achieved in this

sub sector (Oshagbemi and Sanai, 1987 p. l47-15).

(e) Industrial diversification and relatively more balanced regional

development is assured (Ige 1987, p. 67-7l).

(f) General enhancement of the tempo of industrial development is

visible among small and medium scale establishments (Oshagberni

and Oguntoye, 1987:156).

(g) Tendency among small and medium scale industries to become

feeders of the large-scale firms and services products made by the

latter (1-lealey and Lutkerhorst, 1989: l56).

Pita Ejiofor (1989:72.75) summarized the place or importance of small

scale business in the economy as follows-creation of employment,

manpower training, local development, fill in employment, waste-

xliii

utilization, introduction to big business, promotion of competition, self-

reliance, and to industrialization and catering for small demands.

From a broader or global perspective, Weaver (1990:68) highlighted three

main reasons that justified the importance of‟ a healthy manufacturing

industry. They are: -

a) To create a successful economy depends on successful

manufacturing of goods.

b) Manufacturing industry provides the best exploiter of technology.

c) Manufacturing sector plays vital role in providing internationally

tradable goods. He noted that industry and commerce provide the

means by which mankind in general benefits from invention and

innovation and the channel through which the creative ideas of the

few can benefit the majority.

In support of this view, a former Minister for Science and Technology, G.

Ezekwem in a paper presented on the occasion of the Launching of

project and Development Agency (PRODA) permanent site observed that

if Nigeria should overcome its present economic malaise, great emphasis

must be laid on the small scale manufacturing enterprises in all sectors of

the economy especially if raw materials are locally sources. He further

cited Japan, South Korea, Taiwan, Singapore, India etc as few

technological developed nation that attained their enviable

xliv

industrial/technological height through maximurn emphasis on small and

medium scale industries.

Sutton (1990:59) in a similar view observed that in the advanced of a

country from a level of low productivity and low income to one of high

productivity and high income, one usually finds that the strategic role is

1ayed by the industrial rather than by the service and other sectors.

According to him, improvement in efficiency in the non- industrial

sectors such as financial and other service sectors or government agencies

have not helped to greatly increase the wealth of a nation.

Suffice it to say that the achievement of a strong economic cum

technological future in Nigeria, in this regards, lies on a careful down-

ward movement to start re-constructing the foundations via proper

development and exploitation of small and medium scale manufacturing

enterprises which will later grow into large scale types.

2.6 GOVERNMENT INCENTIVE POLICIES FOR THE

GROWTH OF SMALL AND MEDIUM ENTERPRISES (SME)

In full realization and recognition of the myriads of problems confronting

small and medium scale enterprises in Nigeria, and in attempt to mitigate

these inadequacies so as to realize the benefits and objectives of

promoting SMEs, the Federal government has devised a comprehensive

xlv

policy packaged to stimulate the growth or SMEs. The “hey is aimed at

encouraging the private investors comprising local and/or foreign

investors to shift from assembly-type operation to manufacturing

activities, which increasingly utilize the domestic resources. The

incentive policies consist of three related approaches

1) Financial Schemes for SMEs.

2) Specialized Agencies of SMEs.

3) Monetary and Fiscal measures through which industrial policy

goals and objectives are attained.

2.7 FINANCIAL SCHEMES FOR SMEs

The government, recognizing the importance of finance in the growth of

an economy, usually allocated substantial funds, through its National

development plans and annual budgets as well as its agencies, for

providing necessary financial assistance and other extension services to

SMEs. Some of these specialized schemes include:

1) Fund for Small Scale Industries (FUSSE)

FUSSI is set up in different states of the Federation as an arm of the

Ministry of Commerce and Industries. It was meant toy be a medium of

channeling government assistance to small-scale businesses in state. The

FUSSI scheme is derived from both states and Federal governments. The

loans are given to SME on application.

xlvi

2) Small Scale Industries Credit Scheme (SSICS)

The Scheme is a joint programmes both Federal and State governments

for financing viable industrial projects. It is specifically meant to assist in

the improvement and expansion of existing small industries. SSICS is

also employed in financing new manufacturing industries that produce

accessories and components for other industries. Unlike commercial

financial institutionps loans by SSICS are subject to a moratorium period

of about 2 years.

3) National Economic Reconstruction Fund (NERFUND)

This was announced by the Federal government during the 1988 budget

speech. The fund was created and earmarked for medium and small-scale

enterprises as a means of encouraging them with easy access to loan.

These loans are to be administered through participating commercial and

merchant banks, on favourable terms. There is also a clause that the

ownership of the project, to benefit from this facility will e wholly

Nigeria. NFRFIJND finally became operational with the NERFUND

decree, 1989. However, the proprietors of these small scale industries

claim not to have seen the impact of the scheme as both the UND

proposals and NERFEBD decree seem to be only on paper.

xlvii

4) Nigerian Bank for Commerce and Industry (NBCI)

Receive financial support from the Federal government NBCI. Apart

from providing equity and loan finances, it performs consultancy

services, carries out feasibility studies and guarantees letters of credit

among others.

5) Small and Medium Loan Scheme

(SME Loan Scheme) This was set up in 1989 by the Federal Government

to support programmed of assistance to SME; helping SME entrepreneurs

become more competitive by encouraging and engaging the rehabilitation

and expansion of existing enterprise as well as encourage the

establishment f new ones.

In summary, Jegede (1990:11) observed an active participation of the

Federal Government in the development of SMEs through:

1. Initiating and providing financial backing for various schemes such

as the work for yourself, programme (WYP), Open Apprenticeship

Programme, Entrepreneurship Programmed.

2. Initiating, funding and setting up of industrial estates, Export Free

zones (EFZ) and Industrial incubators to reduce overhead costs of

SMEs;

3. Providing local and foreign finance through its agencies;

xlviii

4. Facilitating and guaranteeing external finance through the World

Bank, African Development Bank (ADB) etc;

5. Initiating in its fiscal policies-taxation, tariffs, subsidies, customs

and excise duties, and income policies;

6. Setting up and funding the national Directorate of Employment

(NDE)-for the purpose of generating employment and setting up of

small scale enterprises.

Jegede noted further that for proper execution of the above policies, the

government set up the following organs:

1. Small Industries Credit Committee (SICC). To administer small

industries credit fund (SICF) throughout the country between 1975

and 1980

2. Industrial Development Centres (IDCs) to provide extension

services to SMEs in terms of technical appraisal of loan

application, managerial assistance, product development and

production planning and control.

3. The National Directorate of Employment (NDE) established in

1986, to promote the development of small and medium scale

enterprises and as a result of which over 148,000 new jobs were

created in 1987 alone through the funding and setting up of small-

scale enterprises (Philips 1989:13)

xlix

4. The Central Bank of Nigeria (CBN) to oversee projects and the

implementation of government financial policy on funding of

SMEs.

5. The Nigerian Bank for Commerce and Industry (NBCI) to provide

financial services to SMEs through loans and equity investments

(Anyanwu, 1989:10)

6. The Nigerian Industrial Development Bank (NIDB) set up in 1964

to provide credit and other facilities to industrial enterprises

especially medium and large scale industries.

2.8 REALISATION OF INDUSTRIAL POLICY MONETARY

AND FISCAL MEASU

The major targets of government goals and objectives policy, between

1986 and 1989, has continued to be employment, generation,

maximization of local value added export promotion forward linkages

through SMEs. Jegede (I990:13) “observed that various measures

undertaken by the government to achieve these goals and objectives

include as follows:

a) Establishment of National Economic; Recovery Fund

(NERFUND), Export Promotion Fund, Export Credit Guarantee

and Insurance Scheme, Export Development Fund, Export

Expansion Fund and Export Adjustment Scheme Fund which

l

would provide local and foreign currencies to eligible SMEs

(Anyanwu, 1989:5-l0).

b) A new definition for SMEs in view of‟ recent business

environment: Capital investment between Nl00,000 and N200,000

refers to „small‟ Capital investment between N2 million and N5

million refers to medium Capital investment which falls below N

100,000 refers to cottage industries

Note: Capital investment excludes land but including working capital

c) Small business relief that provided lower taxes of 20% on

manufacturing, mining or agricultural enterprises

d) A comprehensive new tariff structure with a time scale of 7 years,

fully operational since January, 1 988.

e) Retention of lowered personal and corporate tax rates introduced in

1987

(f) A reflationary package which among other thins, allocates about

N200 million to employment, labor and productivity and to

scheme.

(g) Special allocation to the Directorate of Food, Roads and Rural

Infrastructure (DFFRI) to enable it perform wide range services on

integrated rural development

li

(h) An additional 5% allowance on capital allowance on new

expenditure on plant and machinery.

(i) Provision of new incentives for less and least industrially and

economically developed local Government Areas in all states of the

Federation.

2.9 PROBLEMS CONFRONTING INDUSTRIES IN NIGERIA

Small Scale Industries owing to their peculiar nature are beset with

myriads of special problems which directly or indirectly militate against

their survival and growth. Saha (1983:13) observed that these problems

generated public and private concern.

A lack of‟ indigenous entrepreneurial initiative for industrial development

is a characteristic of most developing countries: Limited sources of

capital and of skilled labour, a lack of technological and managerial

knowledge and limited markets are importance handicaps to the

acceleration of industrial development in Nigeria. In large Industrial

establishments, some of these handicaps are alleviated by foreign

assistance or collaborations unfortunately, the small scale industries do

not enjoy such benefits and as such dependent almost entirely on

indigenous entrepreneurs.

lii

The problems encountered by SMEs may be broadly classified into

management and Financial problems.

2.9.1 Management Problems

According to Akpala (1990:3) „, management is the process of combining

and utilizing or of allocating an organization‟s inputs (material and

money) by planning, organizing directing and controlling purpose of

producing outputs (goods and services whatever the objectives are)

desired by customers so that the organizational objectives are

accomplished. Nwoye (1991:78) defined it as the s of employing diverse

resources of material, fiancé people and in a manner as to achieve a set of

objective of an organization. The management problems may be

addressed based on the definitions cited above.

(a) Technological and Managerial Knowledge: One of the

characteristic of small entrepreneurs is lack of technological and

Managerial knowledge. The managers are faced with problem of

combining in themselves both responsibilities and functions of the

management which usually in large industries are shared. Often

time, they are inexperienced and lack training in many of these.

Their experience if at all is always limited to one or no areas. Thus

the average small entrepreneur if uniformed about the right ice of

industry or product lines, the amount of capital needed, the

liii

economic, size of plant, the nest equipment and materials and the

most efficient production process.

(b) Training manpower: Shortage of adequately trained manpower is

a common problem the various sectors of the economy. The small-

scale are worse affected since they have t complete with large firms

fort the services of the skilled workers at the wages terms they can

afford to offer. They are therefore obliged to recruit unskilled

workers and train them on the job. This may lower productivity.

Small limited training facilities and the skill of the workers

therefore remains low. They cannot employ skilled staff like

Engineers, technical staff etc Uaboi (1987:17)

(c) Marketing: Small Scale Industry also suffers from special

difficulties in marketing. The limited resources and lack of

qualification for efficient marketing management makes it almost

impossible for these SMEs to maintain showrooms or keep up

contacts with distant markets or contribution agencies.

(d) Difficulty in Retaining competent Personnel: Employing

retaining competent personnel is a business be it large or small

enterprise. But the problem is more severe business where

entrepreneur lacks the managerial know-how and funding is

meager. Because of this, chances of growth and self- development

are less likely on small enterprises.

liv

(e) Quality and Standards: Small entrepreneurs are generally

unaware of the importance of quality. Apart from their lack of

knowledge about standards, they may not have the facilities. Their

machinery and equipment are not always the best and they often

lack the equipment for quality control and testing. They also lack

the training and resources needed to present their wares with proper

consumer appeal.

2.9.2 Financial Problems

One area of particular concern lies in the effective management of

financial matters the sources and uses of funds. In recent years as out

earlier small scale industries in Nigeria are being given Creasing policy

attention and financial incentives.

a. Capital: Pita Ejiofor (1989:75) observed that the literature on the

problems of small business in Nigeria emphasized the lack of

capital as the principle constraint of small entrepreneurs.

Entrepreneurs often complain of inadequate working capital aid

lack of access to credit facilities.

The most serious of the entrepreneur is the difficulty in obtaining credit

facility as it limits his ability to obtain the services necessary to operate

his enterprise. There are seldom-institutional credit agencies to take care

lv

of their needs. Where such institutions exist, the small are unlikely to

satisfy the strict criteria for eligibility generally used.

A small entrepreneur needs capital to acquire machinery, equipment and

factory promises and for the (lay-to-day management of business. Often,

therefore, he has to depend on the meager loans or money lenders may be

willing to offer at the terms of rest, security and repayment that are much

exacting than those of the banking institutions, so they find it difficult

generally to obtain assistance.

The entrepreneur is often obliged to pay higher prices for raw materials or

accept lower price for finished products as he may be financially

dependent ion the suppliers of raw materials or middlemen. Re is

handicapped in selling his products, as he may be able to offer the credit

terms given by large producers to the distributing agencies.

Thus financial difficulties are a handicap to the small entrepreneur at

every state of its operations and help to keep it weak.

b. Acquiring Machinery and Raw Materials: It is difficult for small

scale manufacturing enterprises to purchase machinery, equipment

and raw materials. In most developing countries, machinery and

equipment have to be imported, the small entrepreneur. The worst

sufferers from the shortage of foreign exchange. Large industries

establishment may qualify for credit from foreign government

lvi

suppliers of foreign machinery and therefore suffers less. Small

industrialists generally have to make do with second best

alternatives are sometimes often discriminated against in the

allotment of scare raw materials.

Even in purchasing other raw materials, small industrialists are

handicapped. Since their requirements as well as resources are limited,

they cannot get the benefit of discounts and other concessions that go

with bulk buying.

c. Factory Accommodation: There is acute shortage of

accommodation and so entrepreneurs are therefore obliged to pay

for the construction of their factory building. Apart from the

financial implication the entrepreneur is also faced with 1the

problem of new site selection, getting utilities such as gas, water

etc. These are generally more difficult for the small entrepreneur.

d. Poor Financial Record Keeping: Small business entrepreneurs

often neglect the services of professionals because of their small

capital start off. So they feel of professional services are not

necessary in record keeping.

2.10 THE SMALL BUSINESS AND BUSINESS FAILURE

According to Dun and Breadstreet, a business credit rating agency U.S,

whether boom or recession, nine out of ten business failure are traceable

lvii

to managerial inexperience or ineptitude. It goes further to point out the

included here are both poor management decision making g and poor

planning especially with regards to what products or services to be

offered and what markets are to be served.

Annarnmah (1989:14) in listing the various problems that plague the

small scale manufacturing ventures grouped them into two broad

categories viz: those problems inherent in their size and those attributed

by the environment in which these ventures operate.

A problem that draws from the firm‟s risk. Comparing the large and small

size firm by degree of risk. Bates (1964:8) concluded that although all

firms face risk, the degree of risk is proportionately for the small firm. He

argued, by way of emphasis that the Jure of a production batch in a small

unit may spell disaster while a „similar failure in a bigger organization

could have been easily predicted better absorbed. The higher the risk, the

more the chances of the business to fail us small business being riskier

are more prone to failure.

a) Studies have been done by various authors to determine what

actually makes a venture risky. Akeredolu (1977) in his findings or

studies of some privately owned small businesses in Lagos came

up with two factors namely: - Different people identify different

causes of business failures.

lviii

b) These people place varying degree of emphasis on different causes

of which business fail. See the following table.

Table 2.1: Distribution of Entrepreneurs by what they consider to

be Principal Causes of Small Business Failures

Principal Causes No of

Respondents

Percentage

(%)

Poor Management/Bad organization 22 49. 1

Inadequate retained Earnings 7 1 5. 1

Expatriate competition 4 8.8

Capital shortage 3 5.4

Labor deficiency 3 6.5

Others 7 15.1

Total 46 100

Source: E. O. Akeredolu, the Underdevelopment of Entrepreneurship

in Nigeria.

Ibadan University Press, Nigeria (1975:84) An earlier survey by Prevau

and Lassers (1960) revealed that half of small business that fail had root

in bad financial management which includes bad record keeping,

inadequate costing, poor financing, unwise credit granding, personal

extravagancies too much overheads carried, it was these author‟s opinion

that the other half of the problem revolve around poor management of the

human resources and material specifically managerial incompetence or

inexperience, neglectful employees, poor promotion, poor selling, interior

lix

product, poor location, failure to create reserves during boom periods,

over expansion and too much adventure speculating. So many other

authors have similar news as regards the failure of small business.

Nwoye (1991:121) M attributed business failure in Nigeria to aid,

neglect, disaster, management incompetence and other external impact.

Infact she categorized them into External and Internal factors.

The External factors include:

1. Constant change of government in Nigeria bringing about

corresponding changes in industrial policies

2. Restriction on raw materials sourcing which has negative effect on

already established industries as adaptation to other areas may not

easily confirm with the type of already acquired machinery or

technology.

3. The discriminatory attitude of banks in granting loan to small-

scale industries.

4. Lack of‟ liberalized export policy poses limited possible outlet for

finished goods. There is also lack of government patronage for

local goods by small business.

b. Internal Factors Include:

1. Small business in general have limited access to finance and this

can cause inadequate funding.

lx

2. Poor Location

3. Lack of Management ability

4. Poor financial record-keeping

5. Premature diversification

6. Investing too much in fixed assets and managerial comfort even

before the business gets it‟s footing.

7. Inability to manage and retain personnel

lxi

REFERENCES

Drucker, P. (1969). Management: Tasks, Responsibilities and Practices1

London: Heinernann, p.5.

Uaboi, S. A. “Development of Small-Scale Sector: What Role for Federal

Government” The Nigerian Banker, Vol. 7 No. 1, p.19.

Hoseliz, B. F. (1981). Small-Industry in Underdeveloped Countries,

Develop Economics, and Policies: Readings, Lan Livingstone (ed)

NY: Georege Allen and Uniwn p. 205.

S.A. Uaboi, op. cit pg. 5.

S. Blank (1961). “Small Business and Tight Money”, Journal of Finance,

p. 95.

6BF Hoseliz, op. cit.

J.A. Ezeh, (1996). Small Business Management (Unpublished).

B.K. Waits, (1975). Business and Financial Management, London M.

and F. Handbook, Second Edition, p. 9.

CMDL, (1982). Policy Proposal on Small Scale Industry Service,

Submitted to the Federal Government of Nigeria, June.

C,T. Jegede, (1990). “The Development of the Small and Medium Scale

Industry in Nigeria, Management in Nigeria journal of NIM, vol.

26, No. 3 May/June, p. 1 0.

UNIDO Monograph on Industrial Development: Industrialization of

Developing Countries, Problems and Prospects on Small Scale

Industry, New York: United Nation‟s Publications, 1969, p.5.

R. Patterson, (1986). The University English Dictionary, New

York: Union Publishers Ltd, p. 249

Balkashin, Fundamentals of Manufacturing Engineering. Moscow:

MIR Publishers.

Heyel, (1963). The Encyclopeadia of Management, New York. Litton

Educational Publishing Inc. (ed) p. 1020.

lxii

Degarmo, E. P. (1974). Materials and Processes in Manufacturing, 4th

ed. New York: Macmillan Publishing Co. Inc. p.6

IS.A. Uaboi, op. cit.

Ejiofor, P. N. (1989). Foundation of Business Administration, Onitsha: I.

African-Publishers Ltd. pg. 72-75

C.T. Jegede op. cit.

Ibid

World Bank Nigeria: Options for Long-term Development Baltimore:

John Hopkins University Press 1974 p. 82

C.T. Jegede op. cit.

Ibid.

Ibid

Babarinsa, D. “Industrialization”, Newswatch, vol. 6, No. 4, Lagos:

Newswatch Communication Ltd. October 5, p. 34.

Eze op.cit.

Broom, H. and Longneckes, Small Business management, Cincinatti,

U.S.A.: South Western Publishing Co. 1972. p. 9. V. Mussel man

and RE. Hughie, Introduction to Modern Business Analysis and

Interpretation, New Jersey. Prentice Hall Inc. Englewood Cliffs,

1973 p. 69.

E.O. Yewander, (1991). Financing Small Scale Business in Nigeria,

Business Times, Sept. 9.p. 14.

C.t. Jegede op. cit.

Osoba A.M. (1987). “Small Scale Industries and Capital” in Towards the

Development of Small-Scale in Nigeria, A.M. Osoba (ed) Ibadan

Rosprint Industrial Press, p. 98-116.

lxiii

Adejugbe, M. A. (1987). “The Impact of Small Scale Industries on the

Nigerian Economy” Towards the Development of Small Scale

Industries in Nigeria, A.M. Osoba, (ed) Ibadan: Rosprint Industrial

Press p.73

Ibid p. 82-86

T.A. Oshagbemi and J. Sana: the Motivating factors in the Development

of Small Scale Industries in Nigeria, in Towards the Development

of Small Scale Industries in Nigeria, A.M. Osoba, (ed) Ibadan:

Rosprint Industrial Print, 1987, p. 147-155

C.S. Ige (1987). “The Structure of Small-Scale Industries in Nigeria, “ in

Towards the Development of Small Scale Industries in Nigeria,

A.M. Osoba (ed) Ibadan: Rosprint Industrial Press, p. 67-7.

Oshagbemi T.A. and O. A. Oguntoye, (1987). “Prospects for the

Development of Small Industries in Nigeria A.M. Osoba, (ed)

Ibadan: Rosprint Industrial Press, p. 1 56.

Healey, Derek and Lutkenhorst, (1989). Export Processing Zonis: The

case the Republic of Korea”, in Industry and Development, United

Nations Industrial Development Organization, Vienna, UNIDO, p.

72-73

Ejiofor P. N. op.cit p. 72-73

Weaver, L. J. “The Importance of a Healthy Manufacturing Industry,

“The Agricultural Engineer Incoorp. Soil and Water, Vol. 45, No.

Autumn, p. 68.

Sutton. D. H. “Manufacturing in the Third World”, The Agricultural

Engineer Incorp. Soil and Water. Vol. 45 No. 3, Autumn, p.59

C.T. Jegede op. cit. pg. 1.

Philips, T. (1989). “Government Financial Policies in respect of Small

and Medium Scale Enterprises, “being a paper delivered at the

Seminar on “Nigeria Banks and Small Scale Business” Organized

by the Nigerian Institute of Bankers (NIB, Lagos, 13th -14

th March,

p. 12-13.

lxiv

CM. Anyanwu, “Government Financial Policies in respect or Small and

Medium Enterprises in Nigeria, being a paper delivered at the

Centre for Industrial Research and Development (CIRD), Obafemi

Awolowo University, Ile-Ife during the Financing of Small Scale

Industries”, Seminar paper, June 19, p. 10-11.

C.T. Jegede op. cit. p. 13

C.M. Anyanwu op. cit.

Saha, A. K. Problems and Prospects of Small Furniture Business, in

Nigeria, Department of Management, University of Calabar,

Oduduma Business Journal, No. 18, p. 13.

A. Akpala, (1990). Management: An Introduction and Perspective,

Enugu Published by the Department of Management, Faculty of

Business Administration, University of Nigeria, Enugu Campus, p.

3.

S.A. Uaboi op. cit.

P. N. Ejiofor op. cit.

Dun and Bradstruct. (1988). A Business Credit Rating Agency, United

States, p.6

B. O. B. (1 989). Annammah SAP and Small Scale Industries, Business

Times, August 1 4, p. 14

Bates, J. (1964). Financing Small Business: London: Sweet and Maxwell,

p. 8.

Akeredolu, E.O. (1975). The Underdevelopment of Entrepreneurship in

Nigeria, Ibadan: University Press, 1975, p. 84

Prevau S. and J.K. Lassers, (1980). Business Management Handbook,

New York McGraw-Hill Publishing Co. Inc.

Nwoye, M. I. (1991). Small Business Enterprises. How to Start and

Succeed, Benin City. Ambik Press p. 12.

lxv

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 INTRODUCTION

The aim of this chapter is to discuss the method adopted by the researcher

in carrying out this research investigation. The chapter contains. Sources

of data, population of the study sample size determination, instruments

used for data collection, techniques for data analysis, validity and

reliability of data.

3.2 SOURCES OF DATA

These include primary and secondary sources.

3.2.1 Primary Sources

Primary sources of data are first hand information. The data is generated

by the researcher for the purpose of the study, primary data collected for

these study are questionnaires given to the enterprises under study.

3.3.2 Secondary Sources

These are facts that the researcher collected from already existing

sources. The secondary sources from which data were generated are

newspapers, textbooks, magazines, journals, published research work,

memographs. Some establishment were consulted to obtain publication

and information, they include:

lxvi

(a) Anambra State Ministry of Commerce and industry

(b) Manufacturers Association of Nigeria (MAN) Awka chapter.

(c) Awka chamber of commerce, industry mines and Agriculture

(ACCCIMA) Awka.

(d) National Association of Small scale industrialists (NASSI) Awka,

Onitsha.

3.3 POPULATION OF THE STUDY

The population of the study consists of limited and no limited liability

companies registered with manufactures association of Nigeria (MAN)

and/or the National Association of Small Scale Industrialists (NASSI) in

Onitsha Anambra State. The limited companies are 25 and non limited

companies are 25 in numbers. The total of the selected small scale stands

at 50.

3.4 SAMPLE SIZE DETERMINATION

The researcher used a normal confidence level of 5% and the error

tolerance of 5%. Given the population, then sample size was determined

using the Yaman‟s formular

Where;

n = sample size

lxvii

N = population size

e = proportion of sampling error (0.05)

I = constant

Therefore;

= 44.44 = 44

This correspondents to a sample proportion of :

= 0.88 – 88%

3.5 INSTRUMENTS USED FOR DATA COLLECTION

The instruments used for data collection are as follows:

(1) Questionnaires

(2) Interview

(3) Observation

Questionnaire

A total of 50 questionnaires were distributed to the selected small and

medium scale industries in Onitsha Anambra State. It comprises of 31

questions which is made up of multiple choice and open ended questions.

Interview

The interview gives the researcher an on the spot response from the

respondents which provided a complimentary data to the questionnaires.

lxviii

Observation

Observations were made on the physical environment of the selected

small scale industries in Anambra.

3.6 DATA ANALYSIS TECHNIQUES

The analysis of data shall be done in the following order:

(a) General description of the data

(b) Answering of the researcher questions some of which are also

incorporated in the questionnaire

In making a general description of data, the full meaning and implications

of the facts and figures contained in a given data would be explained. The

interrelationship existing between the variables contained in any of the

given data would be explored and explained.

In the study, the presentation of the research results were both descriptive

and analytical. In the data analysis, the following statistics were used.

Simple percentage and tables, histograms, bar charts and pie charts were

used for descriptive purposes and to answer the research questions as well

as describe responses. This technique enabled the drawing of conclusions

from responses that could not be subjected to hypothesis testing.

lxix

3.7 VALIDITY AND RELIABILITY OF DATA

The questions were made simple and easy to understand so as to be

clearly understood by the respondents. The researcher was available to

make necessary explanation on the questions where there is need

lxx

CHAPTER FOUR

PRESENTATION AND ANALYSIS OF DATA

This chapter deals with the presentation and analysis of data. The

research questions raised at the beginning of the work would be answered

through the analysis of the responses to the questionnaire. Graphs and

charts were utilized for a clear presentation of information.

4.1 EQUITY COMPOSITION OF OWNERSHIP

Interestingly enough all the establishment studies indicated sole

proprietorship type of business thus giving a hundred percent 100%

value.

Table 4.1.1: Major Problems Confronting the Small Scale

Establishments

Major problems No. of Companies Percentage (%)

Capital 18 40.9

Management 6 13.6

Marketing 3 6.9

Quality/standard 2 4.5

Raw material 10 22.7

Staff strength 5 11.4

lxxi

Total 44 100

According to the table 4.2, the respondents representing (18) 40.9 percent

of the overall responses agreed to capital being the major problems

confronting the small scale industries,10 (22.7%) of the respondents

identified the major problems to be Raw material; 6 (13.6%)

management; 5 (11.4%) staff strength; 3 (6.9%) marketing; and finally 2

(4.5%) representing the quality or standard of goods and services.

However, the respondents unanimously agreed that the underlisted factors

– capital, management. Raw material, staff strength, marketing, quality or

standard as well as political instability and consumption pattern etc

constitute the major problems confronting these industries.

Table 4.1.2: Stage of development

Stage No. of Companies Percentage (%)

Existence 10 22.7

Survival 22 50

Success 6 13.6

Take off 33 6.8

Resources Maturity 3 6.8

Total 44 100

lxxii

In order to analyse the above data, the researcher quoted “The five stages

of Business Growth” by Nell Churchill and Virginia Lewis (1983) as

published in Harvard Business Review, Vol. 61, No. 3. The tables as

would be seen below defined the stages of growth according to the age

and organizational characteristics of the establishments.

Table 4.1.3: Major Causes of the Management Problem

Major cause of problem No of companies Percentage (%)

a Recruitment of ill-trained/poorly

educated managers

28 63.6

B Improper motivation 10 22.7

c Poor leadership style 4 9.1

d Corrupt management 2 4.5

Total 44 100

From the table above 28 of the companies which represent 63.6% of the

population under study attested to recruitment of ill-trained/poorly

educated manager(s) as a major cause of the management problem.

10 companies representing 22.7% of the population, attested to improper

motivation as the major cause of the management problem. 4 companies

representing 9.1% of the population under study attributed the

management problem to poor leadership style. The remaining 2

lxxiii

companies representing 4.5% indicated corrupt management as the major

cause of management problems affecting the establishment of small scale

industries.

Table 4.1.5: Type of management/leadership style

Type No of companies Percentage (%)

Autocratic 25 56.8

Paternalistic 14 31.8

Laissez faire - -

Participative 5 11.4

Total 44 100

According to the table above a total of 25 companies representing 56.8%

indicated the autocratic type of leadership. This may be as a result of the

sole-proprietorship of the firm, thus authority is centralized. 31.8% (14)

of the respondents indicated paternalistic while 11.4% (5) indicated

participative especially where the leadership/authority has decentralized

and there are functional managers. There was no respondent for laissez

faire leadership.

lxxiv

Table 4.1.6: Impact of level of training of managers on level of

management /leadership problems

Responses No of companies Percentage (%)

Yes 29 65.9

No 6 13.6

Undecided 10 22.7

Total 44 100

According to the study, 65.9% (20) of the respondents accepted that the

level of training of managers has effect on their level of

management/leadership system. 13.6% representing 6 of the respondents

disagreed with the assumption, while the remaining 22.7% (10) were

undecided about the issue.

Table 4.1.7: Impact of management on the operational

efficiency/output of the company

Responses No of companies Percentage (%)

Yes 10 22.7

No 26 59.1

Undecided 8 18.2

Total 44 100

lxxv

From the table above 22.7% representing 10 companies of the

respondents agreed to the fact that management has some impact on the

operational efficiency/output of the company. The percentage that

disagreed is given by 59.1% representing 26 companies while 18.2%

presenting 8 companies were undecided about the issue.

Table 4.1.8: Level of personnel maintained by the organization

Level No of companies Percentage (%)

Overstaffed 10 22.7

Understaffed 26 59.1

Optimum staffed 8 18.2

Total 44 100

22.7% representing 10 of the respondents under study indicated that

their establishments were overstaffed. A greater percentage of the

population under study 59.1% (26) indicated that their own

establishments were understaffed. 18.2% representing 8 of the

respondents showed optimum staffing.

lxxvi

Table 4.1.9: major cause of financial problem

Cause No of companies Percentage (%)

a Poor collateral base limited accessed to

borrowed capital

28 63.6

b Recruitment of ill-educated/unqualified

finances

10 22.7

c Poor and inefficient accounting/internal

control system

4 9.1

d Non-exploration of government

assistance programme

2 4.5

Total 44 200

45.5% representing 20 of the respondents or companies or

establishments, under study attributed their financial problems to poor

collateral base which limits access to borrowed capital. 31.8% (20) of the

respondents attributed the financial problem to the recruitment of ill-

equipped and unqualified financies. On the other hand, 9.1% representing

4 of the respondents/internal control system. And interestingly 13.6% (60

of the remaining respondents their non-exploitation of government

special assistance programme.

And interestingly 13.6% of the remaining respondents their non-

exploitation of government special assistance programme.

lxxvii

Table 4.1.10: Financial schemes

Financial scheme No of companies Percentage (%)

a Funds for small scale industrialist

(FUSSI)

- -

b Small scale industries credit scheme

(SSICS)

- -

c National Economic Reconstruction

Fund NERFUND

- -

d Nigerian Bank for Commerce and

Industry NBCI

6 75

e Small and medium loan scheme (SME)

loan

2 25

Total 8 18.18

There were no respondents for FUSSI, SSICS and NERFUND. However,

75% representing 6 out of 8 respondents indicated to have benefited from

NBCI. While 25% representing the remaining out of the 8 respondents

agreed to have benefited from SME loan scheme.

lxxviii

4.1.11: Benefit from the scheme

Benefit No of companies Percentage (%)

a Consultancy/extension services - -

b Rehabilitation and expansion

programmed

- -

c Financial support/loan - -

d Letter credit (cheques) 8 18.18

Total 8 18.18

According to the table above, it is obvious that 18.18% representing 8

beneficiaries of the scheme did not neither received support through

consultancy/extension services, rehabilitation and expansion programmed

and financing through loan. Rather they benefited through the letters of

credit of these schemes.

Table 4.1.12: Raw material procurement

Method of procurement No of companies Percentage (%)

a Locally sourced 16 36.4

b Imported from abroad - -

c Most imported with little local content - -

d Most locally obtained with little import

content

26 59.1

e Undecided 2 4.5

Total 44 100

lxxix

From the study, 36.4% representing 16 of the respondents indicated that

their raw materials were locally sources. No respondent agreed that their

local content added. Rather on the other hand 59.1% (26) agreed to be

using little import content with more locally obtained raw material. 4.5%

(2) were undecided.

Table 4.1.13: Impact of local sourcing of raw materials on growth

variables of the firm

Variables Increase Decrease Total Percentage

increase

Percentage

decrease

a Capacity utilization 38 6 44 86.4 13.6

b Sales volume 28 16 44 63.6 36.4

c Net profit 32 12 44 72.7 27.3

d Customer base 24 20 44 54.5 45.5

e Annual turnover 30 14 44 86.2 31.8

f Foreign exchange

reserves

38 6 44 86.4 13.6

g Capital base 34 10 44 77.3 22.7

Total 224 84 308

An analysis of responses for the impact of raw material on the seven

growth variables required in the development of small scale industries is

lxxx

as shown in the table above. For capacity utilization, 86.4% (38)

indicated an increased while 13.6% (6) indicated a decrease.

For sales volume 636% (28) agreed raw materials increase it, while the

remaining 36.4% (16) disagreed, thus indicating decrease. For net profit

72.7% (32) voted for increase while 27.3% (12) voted for decrease. For

customer base 54.5% (24) indicated increase while 45.5% (20) indicated

a decrease. For annual turnover, 68.2% (30) of the respondents indicated

increase while 31.8% (14) indicated a decrease. For foreign exchange

reserves 86.4% (38) indicated increase while 13.6% (6) indicated a

decrease. For capital base 77.3% (34) of the respondents agreed that raw

materials increased it while the remaining 22.7% (10) disagreed, thereby

indicating decrease. Generally, it is very obvious that availability of raw

materials affects these growth variables positively.

Table 4.1.14: Customers preference for foreign made goods to locally

made ones

Response No of companies Percentage (%)

Yes 8 18.2

No 24 54.6

Not sure 12 27.3

Total 44 100

lxxxi

18.2% (8) attested toy customers preference of foreign goods to locally

made ones while 54.6% (24) attested to customers preference of locally

made goods to foreign made goods. The preference may be due to

cheapness and availability of these goods and services. Most often, the

foreign goods are difficult and exorbitant to procure. Finally, the

remaining 27.3% were undecided about the issue.

Table 4.1.15: Increase in the market demand of product

Response No of companies Percentage (%)

Yes 41 93.2

No - -

Not sure 3 6.8

Total 44 100

93.2% representing 41 of the respondents indicated increase in the

demand of the product. There was no response supporting decrease in

demand of the product. The remaining 6.8% (3) expressed uncertainty.

lxxxii

Table 4.1.16: Rate of profitability since inception

Rating of profitability No of companies Percentage (%)

a Very high 8 18.2

b High 12 27.3

c Fairly low 20 45.5

d Very low 4 9.1

Total 44 100

18.2% (8) of the respondents indicated a very high rate of profitability

since the inception of the business. 27.3% (12) of the respondents

indicated a high rate of profitability. On the other hand 45.5% (20) of the

respondents indicated a fairly low rater of profitability while 9.1% (4)

expressed very low rater of profitability. Further discussion with the

respondents revealed that this low rate of profitability could be attributed

to political/economic instability in the country; poor management of

scarce resources, inability to rise loan (capital) for expansion and lack of

research and development.

lxxxiii

Table 4.1.17: Major factors that militate against the growth of

business enterprises

Rating of profitability No of companies Percentage (%)

a Political instability 10 22.7

b Poor exchange rate - -

c Poor management/leadership 3 6.8

d Consumption pattern 13 29.6

e Unavailability of finance

Total 44 100

22.7% (10) of the respondents voted political instability of the country as

a major factor militating against the growth of small-scale industries.

6.8% (3) of the respondents voted poor management or leadership to be

the major factor militating against these small-scale industries. 29.6%

(13) identified the consumption pattern as the major of finance as the

major factor confronting the growth of these firms. Unfortunately there

was no respondent for poor exchange rater. However, there are many

other problems militating against the success of these industries other

than the ones listed above.

4.2 ANALYSIS OF RESEARCH QUESTION

Some of these research questions have been incorporated in the question.

Though partially answered, the question would be better addressed and

lxxxiv

treated in this section. Frequencies, percentages and ranks have been

employed for purposes of clarity. The Relevant data already tabulated

earlier will be reproduced to help in answering the research questions.

Table 4.2.1: What are the problems confronting small scale

industries

No problems No of companies Percentage

(%)

Rank

1 Capital 16 40.9 1

2 Management 6 13.6 3

3 Marketing 3 6.9 5

4 Quality/standard 2 4.5 6

5 Raw material 10 22.7 2

6 Staff strength 5 11.4 4

Total 44 100

lxxxv

From the table and histogram (fig. 1) above are six major problems

confronting the small-scale industries, namely capital (40.9%),

management (13.6%), marketing (6.9%) quality/standard (4.5%), raw

material (22.7%), and staff strength (11.4%).

However, oral interview with the managers revealed more problems,

other than those listed above. They include competition with already

established, bigger organizations, high cost and scarcity of machinery

and basic raw materials, factory accommodation etc.

lxxxvi

What are the Causes of these Problems?

This question may be answered, taking a look at the following tables.

Table 4.2.1: Causes of management problems

Causes No of companies Percentage (%)

1 Recruitment of ill-trained/poorly

educated managers

28 63.6

2 Improper motivation 10 22.7

3 Poor leadership style 4 9.1

4 Corrupt management 2 4.5

Total 44 100

lxxxvii

Table 4.2.2: Cause of financial problems (reproduced)

Causes No of companies Percentage (%)

1 Poor collateral base limiting access

to borrowed capital

20 45.5

2 Recruitment of ill-

educated/unqualified financers

14 31.8

3 Poor and inefficient

accounting/internal control system

4 9.1

4 Non-exploitation of government

assistance programmed

6 13.6

Total 44 100

lxxxviii

From table 4.2.1 and figure 1 there are 4 key causes of the

management problem Recruitment of ill-trained/poorly educated

managers (63.6), improper motivation (22.7%), poor leadership style

(9.1%) and corrupt management (4.5%).

On the other hand table 4.2.2 and fig. 2 revealed 4 keys causes of

financial problems-poor collateral base limiting access to borrowed

capital (45.5%), recruitment of ill-educated unqualified financiers

(31.8%), poor and inefficient accounting/internal control system

(9.1%) and non-exploitation of government assistance programmes

(13.6%).

lxxxix

On further discussion with the respondents a number of factors were

mentioned as contributory causes of the problems confronting the

small scale industries they include:

Lack of resourcing for efficient marketing management, lack of

knowledge about quality and standard as it meets/suits consumer‟s

specification, un-implementation of policies and regulations as they

affect the small scale establishments, political customs and value

systems, lack of imported technology etc.

At What State of Growth are these Problems Encountered?

Table 4.2.3: Reproduced

Stage Frequency Percentage

(%)

1 Existence 24 54.5 1

2 Survival 12 27.3 2

3 Success 6 13.6 3

4 Take off 1 2.3 4

5 Resources - - -

6 Maturity 1 2.3 4

Total 414 100

xc

According to table 4.1.4 and fig. 3.54% representing 24 respondents

claimed that these problems were encountered most at stage of

existence. And at this stage the young firm is yet to stabilize

production, the organization simple and so wearing on one

person/director/manager. 27.3% of the respondent identified the

survival stage of most difficult time-decentralized structures

organization, minimal systems development and formal planning

involving cash forecasting. 13.6% identified the success stage to be

their stage of most problem-more decentralized and large to require

functional stage each had about 3.3% of the respondents. There are

very few that comfortable at this stage. Interview revealed that, at this

xci

last two stages some organizations expand in large firms or sell out to

large well established firms.

Table 4.2.4: What are the possible solutions to these problems

facing the small scale industries?

Solution Frequency Percentage

(%)

Rank

1 Recruitment of well educated/experienced

managers

11 25 1

2 Adequate exploitation of government

special programmed of assistance

5 11.4 5

3 Proper motivation of staff and

participative leadership

10 22.7 2

4 Political and economic stability 4 9.1 6

5 Improved collateral base 8 18.2 3

6 Creation of awareness by government 6 13.6 4

xcii

through better reliable media on their

special assistance programme

Total 44 100

Table 4.2.4 and fig. 4 indicate the possible solutions as follows:

recuritment of well educated/experienced managers, proper motivation

of staff and particiaptive leadership (22.7%), improved collateral base

(18.2%), creation of awareness by govenrment through better reliable

media on their special assistance programmed (13.6%), adequate

expliotation of govenrment special programmed of assistance and

finally political and economic stability (9.1%).

What is the impact of local sourcing of raw materials on the small

scale industries?

xciii

This question would be better addressed, measuring taking

cogniziance of the impact of raw materials on the growth parameter or

variables. There are as many as tweleve parameters but only the seven

most important ones would be analyzed as they play vital role in the

measumrent of the industries development. The seven are shown in

the table below.

Table 4.2.5: Impact of local sourcing

Variables Increase Decrease Total Percentage

(%)

increase

Percentage

(%)

decrease

1 Capacity

utilization

38 6 44 86.4 13.6

2 Sales volume 28 16 44 63.6 36.4

3 Net profit 32 12 44 72.7 23.3

4 Customer 28 16 44 63.6 36.4

xciv

base

5 Annual

turnover

30 14 44 68.2 31.8

6 Foreign

exchange

reserves

- - - - -

7 Capital base 34 10 44 77.3 22.7

Total 228 80 308

The table and fig. 5 above indicate that with the sourcing of raw

materials locally, the growth variables recorded high relative increases

as follows:

xcv

Capacity utilization rate 86.4% against 13.6% decrease, sales volume

63.6% against decrease, net profit 72.7% against 23.3% decrease,

customer base 63.6% against 36.4% decrease, annual turnover 68.2%

against 31.8% decrease, foreign exchange 86.4% against 13.6%

decrease, foreign exchange reserves 86.4% against 13.6% decrease

and capital base 77.3% against 22.7% decrease. Thus the result shows

that the sourcing of raw material input locally, to ensure constant

availability and reduced cost of production will accelerate the growth

of the small scale industries faster than it will inhibit it because the

key growth variables are highly susceptible to raw material

availability.

What impact has government assistance programmers on these

establishments?

The impact of government assistance programmes would be measured

by the level of awareness of the supposed beneficiaries. This would be

illustrated in the table below:

Table 4.2.6: Impact of Government

Response Frequency Percentage (%)

Yes 8 18.2

No 23 52.3

xcvi

No idea 13 29.5

Total 44 100

According to table 4.2.6 and fig. 6 only 18.2% of the respondents are

aware of the programmed while the remaining 52.3% and 29.5% are

completely ignorant of the programmed. In other words, the impact

would be small if at all, it is felt, awareness of the programmed does

not make one a beneficiary. Table 4.2.7 how does the consumption

pattern affects these firms. Against, this would be measures by the rate

or frequency of disposal of the goods/services by the firms. Therefore,

cognizance would be taken of the demand of product as well as

consumers preference for foreign goods to locally made ones.

Table 4.2.7: Demand of product (4.1.17 reproduced)

xcvii

Response Frequency Percentage (%)

Yes 41 93.2

No - -

No sure 3 6.8

Total 44 100

93.2% of respondent indicated an increased demand of their

products/services while there was no response for low demand 6.8%

were uncertain about the demand of their products.

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND

RECOMMENDATION

5.1 SUMMARY OF FINDINGS

The findings at the end of this research investigation include the

following

(1) What are the major problems confronting the small scale firms?

Six major problems were indicated in table 4.21 as dangerously

threatening the survival of small scale firms. These problems and the

level of importance attached to them include

Capital

xcviii

Management

Marketing

Quality/standard

Raw material

Staff material

(2) What are the cause of these problem

Eight major causes of the problem confronting these small scale firms.

The problems include recruitment of ill trained/poorly educated managers

improper motivation poor leadership style and corrupt management

(3) What are the possible solutions to these problems facing the small

scale firms

Table 4.2.4 indicated the possible solutions to the problems facing small

scale firms include recuirtment of well educated/experience managers.

Adequate exploitation of government special programme of assistance

proper motivation of staff and participative leadership

Political and Economic Stability

What impact has local sourcing of raw materials on these small scale

firms? Table 4.2.5 indicated that the total sourcing of raw materials

relatively increases the following growth variables.

Capacity utilization rate

xcix

Sales volume

Net profit

Customer bas

Annual turnover

Foreign Exchange Reserves and Capital base the results indicated that the

key growth variables response quickly to changes in raw material

availability. In other words, the sourcing of raw materials locally to

ensure regular availability and reduce cost of production, the growth of

the manufacturing firms would be accelerated more than it would be

inhibited.

5.2 RECOMMENDATIONS

In views of the objectives of this research and based on the findings of

this research or study, the following recommendations are hereby

proposed.

5.2.1 Solutions of Problems Facing these Firms

Management Problems: In the course of this study, it was discovered

that majority of the manages, supervisors etc were illiterates, semi-

illiterates and literates. It is therefore not surprising that these firms had

both management and financial problems. In addition to this, the

managers lacked the basic modern management techniques. Thus they

c

seem not able understand the aspect and terminologies of modern

management.

Based on these deficiencies, the researcher recommends that owned-

directors should ensure that they employ well trained managers and

encouraged the attendance of management workshops, seminars,

symposia and other on the job training programmes.

5.2.2 Leadership/Management Style

The researcher also discovered that most small scale firms studies still

practice the outdated Frederick Taylor‟s Scientific Management which

sees money as the ultimate motivator of workers and sees the workers as

equivalent of machines, and somewhat attached to Gregory‟s theory x.

These the researcher discovered was one of the main causes of the

management problems which leads to low level of productivity/

performance and a low profitability rate experienced by all the firms.

The researcher is therefore recommending a participative leadership/

management style where the whole staff both management and operative

will contribute in decision making of the organization. This, the

researcher hoped will extract the best ideas/talents out of the lot.

5.2.3 Trained/Experienced Financiers

ci

The study revealed that most firms employed untrained and

inexperienced financiers to handle their accounts. Unfortunately they do

not and cannot understand the intricacies of cash management, cash

budgeting or forecasting.

Since finance is a very delicate and crucial area of management requiring

expertise for sound management, the researcher therefore recommends

that financial managers be well trained experienced and qualified.

5.2.4 Improved Collateral Base

The researcher recommend that the small scale firms in order to increase

their collateral base should try investing some of the ploughed back

profits in real and capital estates. This will enhance the ability of the

firms to obtain loan or capital from organized money market.

2.5.5 Political and Economic Stability

The research revealed that the erratic change of government (especially

the military rule) has continued to make the policies ineffective. Policies

are altered when they boomerang on the interest of the military. Studies

have shown that the small scale and medium scale firms are the worst

victims. This is because the purchasing power and foreign exchange

reserves are grossly affected negatively.

cii

The researcher therefore recommends that the governments should

stabilize the political environment if these small medium scale firms are

to thrive.

5.3 CONCLUSION

This research set out to investigate the problems that militate against the

growth and development of small-scale establishments in Anambra State.

Thus this study has been essentially directed at examining the major

problems and their impact on the organization studies with a view to

identifying their major causes and finding effective solution to them.

Therefore the study has been able to the following

(1) Identification of major problems confronting the small scale firms.

(2) Identification of the major causes of these problems.

(3) Finding or proffering effective solutions to these problems

(4) The states of development in the course of growth which include:

existence, survival, success, take off and resources maturity

(5) The states at which the problems are most encountered

(6) The impact of local sourcing or raw materials on the growth

variables which include capacity utilization rate, sales volume, net

profit customer base, annual turnover, foreign exchange reserve

and capital base.

ciii

(7) The level of education and training of managers affect the

company‟s efficiency and productivity or output. So the more the

training, the better the efficiency.

(8) The local souring or raw materials will drastically lower the

production cost and improve efficiency and output.

(9) Apart from the major problems identified, lack of skilled, technical

and managerial staff, liquidity constraints, political pattern etc are

other prominent factors affecting growth of the small scale sector.

BIBLIOGRAPHY

BOOKS

Adejugbe, M. A. (1 987), “The Impact of Small Scale Industries on the

Nigerian Economy” Towards the Development of Small Scale

Industries in Nigeria, A.M. Osoba, (ed) Ibadan: Rosprint Industrial

Press

Akeredolu, E. O. (1975), The Underdevelopment of Entrepreneurship in

Nigeria Ibadan: University Press

Akpala, A. (1990), Management: An Introduction and Perspective,

Enugu: Published by the Department of Management, Faculty of

Business Administration, University of Nigeria, Enugu Campus

Bates, J. (1972), Financing Small Business: London: Sweet and Maxwell,

civ

Broom H., Longneckes J. (1972), Small Business Management, Cincinnati,

U.S.A.: South Western Publishing Co.

Degarmo E.P. (1974), Materials and Processes in Manufacturing 4th ed. New

York, Macmillan Publishing Co.

Development of Small Industries in Nigeria A.M. Osoba (ed),

Ibadan: Rosprint Industrial Press.

Ej1ofor P. N. (1989), Foundation of Business Administration, Onitsha:

African-Publishers Ltd.

Heyel, C. (1963), The Encyclopeadia of Management, New York. Litton.

Educational Publishing Inc. (ed)

Hoseliz, B. F. (1981), Small-Industry in Underdeveloped Countries, Develop

Economics, and Policies: Readings, Lan Livingstone (ed) NY: George

Allen and Union

Ige, C. S. (1987), “The Structure of Small-Scale Industries in Nigeria,” in

Towards the Development of Small Scale Industries in Nigeria,

A.M. Osoba (ed) Ibadan: Rosprint Industrial Press

Kashin, BA L B. (1971), Fundamentals of Manufacturing Engineering.

Moscow: MIR Publishers.

Musselman, V., Longnecker, J. (1972), Small Business Management,

Cincinnati, U.S.A.: South Western Publishing Co.

Nwoye, M. I. (1991), Small Business Enterprises How to start and

succeed, Benue City Ambik Press.

Oshagbemi, T.A., Oguntoye, O. D. (1987), Prospects for the

Oshagbemi, T.A., Sana, J. (1987), The Motivating Factors in the

Development of Small Scale Industries in Nigeria, A.M. Osoba,

(ed) Ibadan: Rosprint Industrial Print

Osoba, A. M. (1987), “Small Scale Industries and Capital” in Towards

the Development of Small-Scale in Nigeria, A.M. Osoba Ibadan

Rosprint Industrial Press.

Patterson, R (1986), The University English Dictionary, New York:

Union Publishers Ltd.

cv

Prevau, Lassers, J. K. (1980), Business Management Handbook, New

York McGraw-Hill Publishing Co. Inc.

Walts, B. K. (1975), Business AND Financial Management, London, M.

and E handbook, 2‟ Ed.

World Bank (1974), Nigeria: Options for Long-term Development

Baltimore: John Hopkins University Press.

JOURNALS

Blank, S. (1961), “Small Business and Tight Money”, Journal of Finance

Jegede, C.T. (1990), “The Development of the Small and Medium Scale

Industry in Nigeria, Management in Nigeria -journal of NIM, vol. 26,

No. 3 May/June

Sara, A. K. Problems and Prospects of Small Furniture Business,-in Nigeria,

Department of Management, University of Calabar, Oduduma Business

Journal, No. 18

Sutton, D. H. (1990), “Manufacturing in the Third World”, The

Agricultural Engineer Incorp. Soil and Water. Vol. 45 No. 3, Autumn

Uaboi, S.A. (1987), “Development of Small-Scale Sector: What Role for

Federal Government?” The Nigerian Banker, Vol. 7 No. I

Weaver, L.J. (1990), “The Importance of a Healthy Manufacturing Industry,

“The Agricultural Engineer Incorp. Soil and Water, Vol. 45, No.3

Autumn

SAMINAR PAPERS, MAGAZINES AND NEWSPAPERS

Annammah B.O.B. “SAP and Small Scale Industries” Business Times

Anyanwu, C. M. (1989), “Government Financial Policies in respect of

Small and Medium Scale Enterprises” being a Paper Delivered at the

seminar on Nigeria Banks and Small Scale Business”, Organized by the

Nigerian Institute of Bankers (NIB) Lagos 13th - 14” March.

Babarinsa, D. (1987), “Industrialization”, Newswatch, vol. 6, No. 4,

Lagos: Newswatch Communication Ltd. CMDL (1982) Policy

Proposals on Small Scale Industry Services, Submitted to the Federal

Government of Nigeria, June.

cvi

Healey, Derek and Lutkenhorst, (1989), Export Processing Zones: The

case of the Republic of Korea”, in Industry and Development,

United Nations Industrial Development Organization, Vienna,

UNIDO, P1

Philips, T. (1989), “Government Financial Policies in respect of Small

and Medium Scale Enterprises, “being a paper delivered at the

Central for Industrial Research and Development (CIRD),

Obafemi Awolowo University, Ile-Ife during the Financing of

Small scale Industries Seminar Paper, June 19.

Yewande, E.O. (1991), Financing Small Scale Business in Nigeria,

Business Times, Sept. 9. UNIDO (1969) Monograph on Industrial

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UNPUBLISHED

Ezeh, J.A. (1996), Small Business Management (Unpublished)

Njoku J. C. (1990), Liquidity Management of Small Manufacturing

Enterprises in Enugu Unpublished MBA Thesis Enugu Campus

APPENDIX 1

The sample size for primary data was arrived at based on the

following unbiased estimate method and tolerable error limit of 5

percent or 0.0 5

Where n = sample size

N = population size

e = Proportion of sampling error

Substituting

cvii

Therefore

= 44.44

= 44

This corresponds to a sample proportion based on a random sample

of size 44 drawn from a finite population of 50 elements would have its

variables as:

=

= 0.0024 x 0.12

= 0.0003

The sampling standard deviation Sp =

= 0.02

Therefore, the sample size of 44 was drawn from a population of 50

companies.

APPENDIX 2

Questionnaire

Department of Management

University of Nigeria

Enugu Campus.

Dear Respondent,

cviii

I am a Postgraduate student in the above named Institution currently

carrying out a study on the areas of Small Scale Industries. The aim of the

study is to find out the problems that militate against the establishment

and growth of these industries in Anambra State.

Thus, you will find attached a questionnaire in this regard. Kindly give

your sincere responses and be rest assured that your response would be

held confidential.

Thanking you in anticipation of your cooperation.

Researcher

Section A: Personal Data

(1) Sex

(a) Male [ ]

(b) Female [ ]

(2) Age range

(a) 20-30 [ ]

cix

(b) 30-40 [ ]

(c) 40-50 [ ]

(d) 50-60 [ ]

(e) Above 60 [ ]

(3) Marital status

(a) Married [ ]

(b) Single [ ]

(c) Widowed [ ]

(4) Educational qualification

(a) Diploma/NCE/HND [ ]

(b) B.Sc [ ]

(c) M.Sc/M.A/MAB [ ]

(d) Ph.D [ ]

(5) Occupation/position

(a) Production manager [ ]

(b) Financial manager [ ]

(c) Sales/marketing manager [ ]

(d) Supervisor [ ]

(e) Managing director [ ]

(f) Others specify [ ]

Companies Profile

(6) Name and address of company ……………………………………..

cx

………………………………………………………………………

(7) Date of establishment ………………………………………………

(8) Factory location …………………………………………………….

………………………………………………………………………

(9) Year production started …………………………………………….

(10) Equity composition

(a) Sole proprietorship [ ]

(b) Partnership [ ]

Section B: Research Data

(11) What is the major problem confronting your firms?

(a) Capita; [ ]

(b) Managerial [ ]

(c) Marketing [ ]

(d) Quality/standards [ ]

(e) Raw material [ ]

(f) Other specify ………………………………………………..

(12) At what stage of development is your company?

(a) Existence [ [

(b) Survival [ ]

(c) Success [ ]

(d) Take – off [ ]

(e) Resources maturity [ ]

cxi

(13) At what stage did your company experience most of problem(s)?

(a) Existence [ ]

(b) Survival [ ]

(c) Success [ ]

(d) Take-off [ ]

(e) Resources maturity [ ]

(14) What is the major cause of the management problems faced by

your organization?

(a) Recruitment motivation of staff [ ]

(b) Improper motivation of staff [ ]

(c) Poor leadership style [ ]

(d) Corrupt management [ ]

(15) What type of management/leadership style is practiced in your

firm?

(a) Autocratic leadership [ ]

(b) Paternalistic leadership [ ]

(c) Participative leadership [ ]

(d) Laissez faire leadership [ ]

(16) Do you thin the type of management style practice in your

organization has any impact on the level of its operational

efficiency/output?

(a) Yes [ ]

cxii

(b) No [ ]

(c) Undecided [ ]

(17) What is the level of personnel maintained by your organization?

(a) Over staffed [ ]

(b) Under staffed [ ]

(c) Optimum staff [ ]

(18) Do you thin that the level of education/training attained by

managers strongly affects the level of management problems of

your firm?

(a) Yes [ ]

(b) No [ ]

(c) Undecided [ ]

(19) How was the initial capital for setting up your company raised?

(a) Personal savings [ ]

(b) Facilities from commercial/merchant banks/personal savings [ ]

(c) Others specify [ ]

(20) What do you think is the major cause of the financial problems

faced by your enterprise?

(a) Poor collateral base limited access to borrowed capital [ ]

(b) Recruitment of ill-educated/qualified financers [ ]

(c) Poor and inefficiency account/internal control systems [ ]

(d) Others specify ………………………………………………….

cxiii

(21) Are you aware of the government regulations/special assistance

programmed?

(a) Yes [ ]

(b) No [ [

(c) No idea [ ]

(22) If yes, which of the financial schemes have you benefited from?

(a) Fund for small scale industries (FUSSI) [ ]

(b) Small scale industries credit scheme [ ]

(c) National Economic Reconstruction fun [ ]

(d) Nigerian bank for commerce and industry [ ]

(e) Small and medium loans scheme (SME loan scheme) [ ]

(23) In which way have you benefit from any or all of the schemes?

(a) Consultancy/extension services [ ]

(b) Rehabilitations and expansion programmed [ ]

(c) Financial backup or support/loan [ ]

(d) Letters of credit (e.g. cheques) [ ]

(24) Do you think that the beneficiaries of the schemes are choosen on

merit?

(a) Yes [ ]

(b) No [ ]

(c) Not sure [ ]

cxiv

(25) Which among these do you consider the best solution to the

problems facing you organization?

(a) Recruitment of well-educated/experienced managers [ ]

(b) Adequate exploitation of government special programme [ ]

(c) Proper motivation of staff and participative leadership [ ]

(d) Political and economic stability [ ]

(e) Improved collateral base [ ]

(f) Creation of awareness by government through better reliable

media on their special assistance programme [ ]

(26) How does your company obtain its raw materials for production?

(a) Locally sources [ ]

(b) Imported from abroad [ ]

(c) Most imported, with little local content [ ]

(d) Most locally obtained, with little import content [ ]

(e) Undecided [ ]

(27) What is the impact of local sourcing of raw materials on the growth

variables of you firms?

Impact of Local Sourcing

S/NO Variables Increase Decrease

1 Capacity utilization

2 Sales volume

cxv

3 Net profit

4 Customer base

5 Annual turnover

6 Foreign exchange

7 Capital base

(28) Do the consumers prefer foreign made goods to locally made ones?

(a) Yes [ ]

(b) No [ ]

(c) Not sure [ ]

(29) Is there any increase in the market demand of your product?

(a) Yes [ ]

(b) No [ ]

(c) Not sure [ ]

(30) Considering the period the business started how do you rate the

profitability so far?

(a) Very high [ ]

(b) High [ ]

(c) Fairly low [ ]

(d) Very low [ ]

(31) What among the following factors do you think that militate

against the growth of business enterprises?

cxvi

(a) Political instability [ ]

(b) Poor exchange rate [ ]

(c) Poor management/leadership [ ]

(d) Consumption patter [ ]

(e) Unavailability of finance [ ]

(f) Others specify …………………………………………………