The Effect of Internal and External Factors as the Determinants of SMEs Sustainability in Nigeria
Chapter One
Research Objective
In line with the research gap identified and the research questions raised, this study aims to investigate the effect of Internal and external factors as the deeterminants of SMEs sustainability in Nigeria. The specific objectives are to . There are:
- examine the relationship between external factors (government intervention and access to finance) and SMEs sustainability in chosen states in the southeast and south-western Nigeria.
- investigate the relationship between internal factors (measured by entrepreneurial leadership and human capital) and SMEs sustainability in the southeast and south-western Nigeria.
- Evaluate the combined effect of the internal and external environment on SMEs sustainability in Southeastern and Southwestern Nigeria
CHAPTER TWO
LITERATURE REVIEWS
Introduction
Specifically, the study investigates the definition and notion of sustainable practices in this chapter. Furthermore, the theoretical viewpoint on sustainable practices was explored in this chapter. As a result, the elements of sustainable practices were also investigated in more depth. Additionally, works of literature about the factors of sustainable practices are welcome. Based on this, the study team gained some insight into external influences by reviewing relevant literature on political, economic, social-cultural, and technical aspects. Last but not least, the last portion of this chapter reviews previous pieces of literature that link sustainable practices in emerging nations.
Concepts of Organizational Sustainability
Sustainability practices have gained widespread recognition, particularly with adopting the United Nations (UN) convention on sustainable development practices. Since then, researchers have argued that the phrase sustainable practises refers to a broad idea that may be examined from several different perspectives (Ogba & Okpanachi, 2015). According to Ogba and Okpanachi (2015), the essential value of sustainability practices is based on the balance between conflicting requirements of economic, social, and environmental restrictions in society. This must be distinguished from post-war growth.
While this is going on, Miceli et al. (2021) believe that sustainability practice should be seen as a philosophy that is twinned against truism since the environment is all we have left and must be preserved. As a result, Dzhengiz (2020) concludes that strong sustainability policies are impossible and unsatisfactory, but ‘weak’ sustainability practices cope with resource consumption while providing suitable compensation levels for the resources used. According to Dzhengiz (2020), the issue addressed under weak and robust sustainability practices is equivalent to conventional economic welfare maximisation, which is the goal of most people.
According to Joseph et al. (2019), to achieve effective and meaningful sustainability practises, scientists, science, and technology must coordinate the boundaries between action and knowledge ‘awareness’ that simultaneously enhance the legitimacy, salience, and credibility of the information they produce through the application of several institutional mechanisms that influence communication, translations, and mediates relationship across borders.
An even more incisive definition of sustainability practices was discovered in the research conducted by Bastas and Liyanage (2019). The authors defined it as development that meets today’s demands without jeopardising the ambitions and needs of the next generation. On the other hand, sustainability practices for business have become well-known in business settings because researchers and business strategists feel that for a firm to thrive in today’s intensely competitive market, such organisations must implement sustainability practices (Grant, 2016). Accordingly, Meza-Ruiz et al. (2017) defined corporate social responsibility practises as a business strategy that operates in the interest of both current and future stakeholders in such a way that the company’s long-term survival in terms of its environment, economy, and social system is ensured. A company sustainability model is thus concerned with the social, economic, and environmental systems in the operation’s mind regarding long-term planning.
Finally, information from earlier research concerning the idea of sustainable practices indicates a scarcity of conceptual definitions for the term. According to this research, sustainability practice balances resource use and resource compensation, achieved by balancing the interaction between conflicting environmental, economic, and social requirements.
Definition and Elements of Business Sustainability
Business sustainability is defined differently by different people, and it is dependent on the quality of the sources and the timing of their distribution. According to Dzhengiz (2020), it may be stated that the idea of business sustainability is constantly evolving and that there is no universal opinion on the subject at present. Depending on the definition, it may use different interpretations or assumptions. However, economic, social and environmental components are universally recognised.
Rezaee et al. (2019) assert that business sustainability has progressed over the past three decades, with an initial emphasis on sustainable development to leave a better environment for future generations, followed by CSR and corporate governance, and now with the primary goal of creating shared value for all stakeholders, including shareholders. According to (Jeanrenaud et al., 2017), business sustainability is defined as a shift in the organisational perspective” from the inside out to the outside to incorporate non-business considerations into planning and actions that result in significant contributions to overcoming social and planetary challenges (Jeanrenaud et al., 2017). Business sustainability is defined as a shift in the organisational perspective from the inside out to the outside. The notion of corporate sustainability has evolved over the previous few decades. As a result, the following information illustrates some of the changes in this notion throughout time.
John Elkington introduced the concept of the triple bottom line in 1994, and it recognises the first three essential dimensions of business sustainability. These are the Economic Bottom Line, which refers to the profit figure used as the earnings figure in the earnings-per-share statement, which is a part of standard accounting practice (Elkington, 1997), the Environment Bottom Line, which refers to the natural capital that is classified into critical natural capital. However, it must take into account broader indicators of a society’s health and wealth-creation potential (Peter et al., 2018). Achieving sustainability requires going beyond economic considerations alone and using only ecologically favourable technology. Elkington (1997) used contemporary ideas on accountability, accounting, performance indicators, auditing, reporting, and benchmarketing to understand the company’s performance in each area. As a result, TBL is fundamentally an accounting paradigm that evaluates performance in three dimensions: social, environmental, and economic performance. Environmental and social metrics are included in the TBL, in contrast to standard reporting frameworks. However, it might be difficult to determine the most acceptable way of measuring these two subjective qualities without consulting the literature.
The following framework, developed by Laurell and colleagues (Laurell et al., 2019), is one of the most recent insights into the TBL technique, and it incorporates several items for each dimension. Several metrics or Key Performance Indicators (KPIs) enable monitoring sustainability in real-world business practice, which presents and operationalises the three aspects of economic, social, and environmental sustainability
Main Concepts of Business Sustainability
Business sustainability can’t be defined as sustainable development can be defined (Azapagic, 2003). An essential issue is the absence of a widely agreed definition of sustainable business since the definition is a key instrument for implementing new policies and practices. A few organisations have attempted to address this issue by introducing the concept of a sustainably run company. An environmentally friendly firm has no negative environmental repercussions on its operations, goods, or services since it uses environmentally friendly business procedures, according to Lara (2022). According to Powel (2022), a sustainable business is a firm that contributes to an egalitarian and environmentally sustainable economy. By these criteria, sustainable businesses provide goods and services that meet the requirements of society while also benefiting the well-being of all people on the planet. It’s time for a paradigm shift in business that considers not just current but also future generations’ requirements when making company decisions. Firms require a paradigm change to include sustainable development in their company.
The Triple Bottom Line (TBL), which includes environmental, economic, and social aspects, must be well harmonised for a company to be sustainable. As a critical component of sustainable development, the TBL should be well-understood and incorporated into all organisational policies, plans, and decision-making processes. An organisation’s many operations, goods, and services all influence the environment. They should be recognised at all phases of the organisation’s whole life cycle to monitor environmental progress, help policy assessment, and educate the public. Environmental indicators include how much energy and water are used, how polluted the air is, and how much solid and hazardous waste is generated.
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
At this stage, this chapter discusses the research approaches to be employed in collecting the research data on the determinants of external as well as internal factors towards SMEs sustainability. To measure this relationship, this chapter will explain the research design to be adopted, research methodology, research framework, research population and samples, measurement of investigated variables as well as questionnaire development and design. This chapter will also focus on the analysis tools that will be used in analyzing the collected data.
Research Design
Mondofacto, (2009) states that a strategy to gather information for data collection is known as the research design. Through research design, the appropriate instruments and methods used to gather accurate data and how those instruments and gathered material was evaluated and directed accordingly can be identified. The resolve of the current study is to research the external and internal factors of SMEs sustainability in Nigeria. The nature of the current research is quantitative as it is the best method to measure the effects of the variables which have been proposed in the research framework. Cohen et.al, (2000) stated that survey research is one of the methods that use scientific sampling and questionnaire design for measurement. Pickard (2007) also explained that the benefit of quantitative research is it provides an estimation of the population at large. Quantitative research can gather valuable data and prove the correlation between transactional and transformational leadership styles and job satisfaction. Therefore, questionnaires were designed and will be distributed to the respondent. With this, the researcher attempts to collect the data once using a predesigned questionnaire. The research plan to distribute and collect the data from SMEs in Enugu and Lagos state with some special characteristics examples of which include (a) operating for at least 5 years and (b) have at least 5 employees. The rationale behind these is that operating an SME for at least 5 years shows that the firm is in some way practicing sustainability based on the definition of SME giving by SMEDAN (2013). More so, based on the variables examined ‘Entrepreneurial Leadership’, the researcher can have more insight into the Firm leadership skills.
This study takes the form of cross-sectional design, which involves the collection of data/information from any given sample/population at once or at one point in time to realize the objective of the study (Cavana, Dalahaye & Seltaran, 2001; Bichi 2004). This method of the study is believed to be the most appropriate as it would limit the non-responsiveness of respondents, less time consuming, and would be less cost-effective to undertake (Seltaran, 2003; Churchill, 1995; Wilson, 2010).
Population and Sample
Research Population
The population is defined as members of a well-defined class of people, events, and/or objectives (Ary, Jacobs & Razavich, 2002). It is made up of a collection of information whose properties are to be assessed in a specified research situation (Sekaran & Bougie, 2010). The population also refers to the total group of individuals, events/things of concern that the investigator desires to study (Sekaran, 2000). Therefore, the population is the universe of entities from which a sample is selected, as it consists of all units such as individuals, households, or organizations to which one desires to generalize survey results (Dillman et al., 2007). Cresswell (2012) described a population as a group of individuals who have the same features and other characteristics that the researcher can identify and study. This study population comprises all SMEs firms Enugu and Lagos state, Nigeria based on the SMEDAN (2013).
According to the latest census on SMEs in Nigeria conducted by SMEDAN and Nigeria Bureau of Statistics (NBS) in the year 2013, the total population for SMEs including Micro Enterprise is 37,067,416 that is, firms regarded as Small Scale are enterprise equals 68,168 and Medium enterprise equals 4,670. Meanwhile, Micro businesses are 36,994,578.
From the census conducted by SMEDAN and NBS in the year 2013, it was observed that Lagos state which is the context of this research has the highest numbers of both SMEs and MSMEs having 11,663 SMEs and 3,224,324 MSMEs. However, the focus of this research is geared towards SMEs, as such, the population for this research is limited to the SMEs population that is, 11,663 (SMEDAN & NBS, 2013). In a similar view, in the southeastern region, Enugu state has the highest number of SMEs and MSMEs in the region having 1093 SMEs and 1,319,607 MSMEs. This research uses samples from two different regions that is, the southeast and the southwestern region. Therefore, the total population for this study is 12756 (11,663 + 1093).
CHAPTER FOUR
RESULTS AND DISCUSSION
The study investigated the effect of Internal and external factors as the determinants of SMEs’ sustainability in Nigeria. A total of 387 (five hundred and one) questionnaires were administered to the respondents in different sectors in Enugu and Lagos State. These states were considered for the survey because it is its commercial hub. However, 325 questionnaires were retrieved and considered usable for analysis. The study achieved a response rate of 83.9%, which was considered sufficient based on Mugena and Mugena (2003), who assert that 50% is deemed suitable and sufficient for analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
Summary
The study investigated the effect of the internal environment (entrepreneurial leadership, founders’ social capital and human capital) and external environment (government and access to finance) on SMEs’ sustainability. Anchored on the social capital and human capital theories, the study revealed the interaction between the business environment and sustainability. Focusing urgently on cutting interest rates, resolving several tax concerns and making it easier to apply for loans from established financial institutions would help Nigeria’s small and medium-sized enterprises (SMEs). It has been shown that governments who are not concerned with the development of small companies are key drivers through their policies and programs that affect SMEs
SMEs in Nigeria depend just on government interventions instead of developing plans to enter new markets, raise income, and extend their client base, rather than relying solely on government agencies. They can increase client retention and save operating expenses by developing long-term connections with them. The study reveals that it is also critical for company owners in Nigeria to conduct thorough scans of the business environment to identify potential opportunities and dangers and devise strategies to deal with these changes.
Because the cost of raw resources is always rising, the government must be in charge of their distribution, no matter how tough it may be. Providing a proper location and taxation that is proportional to their earnings will solve the working premise problem. Since most small businesses lack audited financial records, the current subjective method of tax assessment and levy is causing a lot of angst among these businesses, which is why the tax system needs to be fixed as soon as possible. Market information is a big problem for the MSEs sector, as is a lack of knowledge about the product. Exhibition and bazaar participation is particularly important, as it helps the economy as a whole and SMEs in particular. Furthermore, there is a severe dearth of market knowledge about the rapidly changing environment; if small and medium-sized businesses are to remain viable, this information must be readily accessible. As a final step, SMEs should build a harmonious working relationship and clear division of roles and responsibilities amongst themselves via the development of official rules and regulations, addressing work-related issues.
Conclusion
When conducting this study on small and medium-sized businesses in Enugu and Lagos states, Nigeria, our primary goal was to critically examine the elements that determine their viability. Small and medium-sized businesses (SMEs) encounter a wide range of internal and external factors that directly impact their long-term profitability and survival. This research aimed to identify the most important characteristics impacting small and medium-sized enterprises in Nigeria. Internal factors, such as lack of motivation, a lack of initiative, and a lack of tolerance for hard work, are the main factors affecting the sustainability of Nigerian SMEs, as represented in the findings of this research.
Give elements are examined in this research as they relate to the long-term viability of small and medium-sized businesses. Study results showed little government assistance for Nigeria’s majority of small and medium-sized businesses. The study reveals a need for government intervention efforts to significantly lower the incidence of small company failure in Nigeria. This result is consistent with this finding.
A final finding of this study shows how prevalent most of these key elements are throughout all SMEs, even if their importance varies greatly. Financial and work-related variables have been shown to have a greater impact on the long-term viability of MSEs than other factors studied.
Recommendations
According to the findings, there is a strong link between the external and internal business environments. In line with the findings of this study, the following recommendations are madel
- Businesses may benefit from our results because they demonstrate the importance of knowing the elements that drive long-term sustainable competitive advantage. Research shows that both the company’s internal and external environments have a vital impact on creating and maintaining a competitive advantage.
- Both external and internal variables greatly influence an organisation’s competitive advantage. SMEs must first understand their internal and external environments to build healthy enterprises.
- Managers and decision-makers might benefit from understanding the difference between tangible and intangible assets. Managers are urged to consider these aspects while assessing the two environments in which they operate.
- Managers must pay attention to the dynamic external environment while making decisions. If a company wants to maintain a competitive edge over the long term, its leaders must be adaptable and adjust the way they operate and make decisions.
- Firms must pay attention to both external and internal elements to obtain and maintain a competitive edge in the future. Given that uncommon resources are difficult or impossible for firms to acquire, they must generate a competitive advantage from their existing resources and competencies. Local and federal governments should give small and medium-sized businesses more responsibilities. In the interim, the local government should implement rules and procedures to limit the growth of informal companies
- Managers and owners of small and medium-sized businesses (SMEs) should avoid making their own management choices. You must subcontract this task to someone who has the necessary management abilities. They have to figure out how to deal with the difficulties.
Suggestions for Further Study
The study is limited to Enugu and Lagos states alone. This could limit the generalisation of the results from this study. The study recommends that further study be conducted using more stays and other variables of internal and external environment to reveal more critical aspects of the business environment.
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