An Examination of the Challenges Facing Small and Medium Scale Enterprises (SMEs)
Chapter One
Objectives of the study
The aim of this study was to examine the challenges facing small and medium scale enterprises (SMEs) in Benue state a case study of some selected SMEs in Makurdi metropolis. The specific objectives are to:
- determine whether poor financing constitute a major challenge in the performance of SMEs in Markurdi metropolis.
- ascertain whether inadequate infrastructure constitute a major challenge in the performance of SMEs in Markurdi metropolis.
- determine whether lack of managerial skills constitute a major challenge in the performance of SMEs in Markurdi metropolis.
CHAPTER TWO
LITERATURE REVIEW
Introduction
The chapter deals with literature review on the concept of an examination of the challenges facing small and medium scale enterprises (SMEs) in Benue state a case study of some selected SMEs in Markurdi metropolis. This involves various definitions of small and medium scale business enterprise, problems of small and medium scale business enterprise, structure and characteristics of Nigeria SMEs, the review of empirical studies, theoretical review, theoretical framework and summary of literature review.
Conceptual Review
In this section, the basic relevant concepts were reviewed. These include small and medium scale business enterprise, among others.
Small and medium business enterprise
Small and medium business enterprise is an enterprise marked by limited number of employees and a limited flow of finances and materials. In Nigeria, there are different definitions of small and medium business enterprise according to Osuagwu (2001) the national council on industry classifies small and medium scale enterprise in Nigeria with regards to employed labour force and capital investment. Griffin and Ebert (1996), sees small and medium scale enterprise as a business owned and managed independently and does not dominate its relevant market segment of interest. The center for industrial research and development (CIRD) at the Obafemi Awolowo University, defines small and medium scale enterprise as those enterprises with total assets not exceeding two hundred and fifty thousand Naira (N250,000) and employing full time workers not exceeding fifty (50) people.
The central bank of Nigeria (CBN) defined SMES as a business having a turnover not exceeding 500,000 Naira. In addition, the CAMA of Nigeria of 1990 defines a small business as one with annual turnover of not more than two million naira and a net value of not more than one million naira.
Problems of small and medium scale business enterprises
Small and medium scale business enterprises in Nigeria do not go without some challenges. Small business enterprises in Nigeria face many problems, they include:
- Financial problem – Small scale business usually do not have sufficient funds to meet their fixed capital and working capital requirements. Institutional lenders are generally reluctant to advance money to small businesses due to risk of default. Many small scale enterprises in the past have closed down due to financial crisis.
- Faulty Planning: Faulty planning is a major problem of the small business. No proper viability studies-technical or economic-are carried out by the small firms; before they are sponsored. Small firms cannot afford the preparation of a project report for which a large unit can pay fat fee to a consultant.
- Shortage of Raw-Material and Other Infrastructural Facilities: Small business industries suffer from acute shortage of basic raw materials. In most of the cases, when raw materials are in short supply, large scale business enterprises grab the entire supply, because of their stronger bargaining position. Small scale enterprises also face lack infrastructural facilities like water and power connections. Shortage of power leads to underutilization of plant capacity.
- Lack of Latest Technology: Most of the small firms use old or outdated techniques of production. They cannot afford new machines and equipment based on latest technology; mainly because of financial crunch. As such, the cost of production of small firms is higher and the quality of production is rather inferior.
- Marketing Problems: Small business enterprises face severe problems in the sphere of marketing of their products. Could be due to lack of funds for proper advertisement, problem of competition, Lack of providing after sales services.
- Lack of Professional Management and Trained Personnel: Small business enterprises have owner based management i.e. owners themselves act as managers. Small business cannot employ qualified and trained manpower.
- Inadequate, inefficient, and at times, non-functional infrastructural facilities, which tend to escalate costs of operation as SMEs are forced to resort to private provisioning of utilities such as road, water, electricity, transportation, communication, etc.
- Bureaucratic bottlenecks and inefficiency in the administration of incentives and support facilities provided by the government. These discourage would-be entrepreneurs of SMEs while stifling existing ones.
- Lack of easy access to funding/credits, which can be traceable to the reluctance of banks to extend credit to them owing, among others, to poor and inadequate documentation of business proposals, lack of appropriate and adequate collateral, high cost of administration and management of small loans as well as high interest rates.
- Discrimination from banks, which are averse to the risk of lending to SMEs especially start-ups
- High cost of packaging appropriate business proposals
- Uneven competition arising from import tariffs, which at times favour imported finished products.
- Weak demand for products, arising from low and dwindling consumer purchasing power aggravated by lack of patronage of locally produced goods by the general-public as well as those in authority.
- Unfair trade practices characterised by the dumping and importation of substandard goods by unscrupulous businessmen. This situation is currently being aggravated by the effect of globalisation and trade liberalization, which make it difficult for SMEs to compete even in local/home markets.
- Weakness in organization, marketing, information-usage, processing and retrieval, personnel management, accounting records and processing, etc. arising from the dearth of such skills in most SMEs due to inadequate educational and technical background on the part of the SME promoters and their staff.
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
This chapter covers the methodology of this study. Key issues discussed includes; data collection, sampling technique, instrument for data collection, method of data analysis among others.
Research Design
The research design used for this study is survey. This is because data gotten through this method can be used to describe the characteristics of small and medium scale business enterprise. It is used as an assessment tool to provide information on which to base sound decisions. It also serves as a foundation for more investigation. The data gathered in a survey are usually answers to predetermined questions that are asked of respondents. This research method was adopted because it offers opportunity for the collation of facts and information from a wide spectrum of respondents without much expense, hence it is expedient for this research.
The use of survey is a favourable option for the following reasons:
- It is most appropriate for analysing the challenges facing small and medium scale business in Nigeria.
- It is accurate
- It is unstructured and can capture time change.
This method is objective in the sense that the personal bias of the researcher is not allowed in findings.
Population of the Study
The population targeted for this study consists of small and medium scale business owners.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
Introduction
In this chapter, the researcher tends to deal with the analysis and presentation of data collected in the course of this project. A total of 400 copies of questionnaire were administered in the area under study and 372 copies were retrieved from the respondents. This represents 93% return rate.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
This chapter deals with the summary of this study, conclusions from the findings and recommendations which can be used for policy making.
Summary
This study examines the challenges facing small and medium scale enterprises (SMEs) in Benue state a case study of some selected SMEs in Markurdi metropolis. The study is in five chapters. In the first chapter, a general background of the study was undertaken. In view of the background, the problems of study were identified and stated, the research questions, the objective, scope and significant of the study were outline and discussed. Finally in the first chapter is the definition of key concepts used in the study.
Chapter two contains the review of various literatures on the concept of an examination of the challenges facing small and medium scale enterprises (SMEs) in Benue state a case study of some selected SMEs in Markurdi metropolis. This involves various definitions of small and medium scale business enterprise, problems of small and medium scale business enterprise, structure and characteristics of Nigeria SMEs. Also in the second chapter is the empirical and theoretical reviews, theory use as a basis for this study (theory of the firm) was found best for this study.
In the third chapter of this work, the research design, population of study, sample size, sampling techniques, instrument for data collection, method of data collection, validity/reliability of instrument and method of data analysis were all discussed.
In the fourth chapter, data collected (primary) were presented and analysed to answer the research questions. Based on the various findings, the three questions were answered. After the analysis, the findings are as follows:
- Poor financing constitute a major challenge in the performance of SMEs in Markurdi metropolis.
- Inadequate infrastructure constitute a major challenge in the performance of SMEs in Markurdi metropolis.
- Lack of managerial skills constitute a major challenge in the performance of SMEs in Markurdi metropolis.
Conclusion
This study examines the challenges facing small and medium scale enterprises (SMEs) in Benue state a case study of some selected SMEs in Markurdi metropolis. Findings from this research uncovered that several challenges affect the performance of small and medium scale business enterprises in Nigeria. Hence management of small and medium scale business enterprise should try to apply appropriate technique in order to boost their capacity. This is consistent with the findings of Alexander Olawumi Dabor (2017) which revealed that multiple taxation, access to finance and power supply are the major challenges facing SMEs in Nigeria. The results also showed that power supply is the 1st ranked challenge while multiple taxation is ranked the least challenge facing SMEs in Nigeria. This position was further restated in the findings of Dr. Mba Okechukwu Agwu and Dr. Cletus Izunwanne Emeti (2014) revealed that poor financing, inadequate social infrastructures, lack of managerial skills and multiple taxation were major challenges confronting SMEs in Port-Harcourt City. This findings of Olusola Ibitoye (2018) further revealed that a myriad of problems still beset the effective performance of SMEs in the state.
The findings of this study have clearly shown that small and medium scale business enterprise make a very significant contribution to the overall effectiveness and profitability of a nation and their expansion can be gotten through eradication of major challenges faced by them.
Recommendations
On the strength of the observations and findings made in this study the following recommendations have been made.
- Financial institutions should be provided that will aid the performance of SMEs in Markurdi metropolis.
- Infrastructural facilities should be adequately provided.
- Management of SMEs should be adequately skilled in carrying out their activities.
Limitations to the Study
The study faced some constraints. They include insufficient literature material, financial constraint, time constraint, location of the case study. However recommendations is valuable for policy implication
Suggestions for Further Studies
This study has researched on the challenges facing small and medium scale enterprises (SMEs) in Benue state a case study of some selected SMEs in Markurdi metropolis. Further research can be done on the following:
- The role of SMEs on economic development in Nigeria.
- The SMEs of Industry in employment creation in Nigeria.
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