CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Although specific statistical evidence may not yet be readily available, there is hardly any doubt that business enterprises employing less than fifty full-time employees dominate the Nigerian economy today, not only in terms of their sheer number but also in terms of volume of employment. They dot every nock and cranny of every city; even in the rural areas, they predominate. With every limited growth and employment in the large scale business sector and dwindling employment opportunities in government, the various levels of government in Nigeria have continued to encourage young school levers and the large number of young and not so-young people who have been retrenched in recent time to seek self employment.

     The kind of business described above is small-scale business which Osaze (1986) describes, as “(a business) which is owned, managed, controlled by one or two persons, his family influenced in decision making, has an undifferentiated organizational structure, has a relatively small share of the market and employs less than fifty people”. The history of industrial revolution in developed and developing countries have shown that Small-scale businesses are the driving force of industrial development.

The attentions of national government all over the world have therefore focused on funding and supporting them through the creation of enabling environment.

      Expanding an understanding of small-scale business, Adamu (2005) explains that a major characteristic of Small-scale business worldwide is that they are generally managed by their owners either as sole proprietorship or partnership and are also largely local in their area of operation. They depend on internal source of capital and are relatively small size within the industry. The relative importance of the small-scale business differs considerably from one type of business to another. The major areas of business enterprise activities are in manufacturing, distribution of products and rendering of services some of which may involve the use of products. 

 Baumbacle (1983) shows in his publication on “Basic Small Business Management” that more than one third of all the manufacturing firms at all, and that close to two-thirds employ fewer than twenty workers. On the whole, his study revealed that 95 percent of the non-form business of all kind employs fewer than fifty workers each. The aforementioned characteristics of Small-scale businesses largely constitute the very basis of their problem and the need for effective strategies for their survival.

Today, businesses in Nigeria, as in any other country of the world, are facing faster pace of environmental changes and uncertainty than was typically the case even a few years ago. This change and uncertainty has been manifested in a wide variety of ways and has led to a series of environmental pressures and challenges with which managers need to come to terms. Wilson and Gilligan (2003) mention these to include; 

Market fragmentation, the increasingly global nature of many    market,  shorter product life cycle, product proliferation, increased energy and  sales force costs and downward price pressure. Others include, greater customer sophistication and  increased customer demands, an increased emphasis upon environmental and ‘green’ issue, the stagnation of many  market, and the erosion of many of the traditional bases of competitive advantage.

This pressure poses serious challenges to businesses particularly the small-scale ones given their peculiar and fragile nature. To succeed and survive in the market they must formulate and execute marketing strategies that make sense to the environment. Marketing strategy, Armstrong (2004) points out is an essentially iterative process. It is iterative for a number of reasons, the most significant of which is that as the company’s external environment changes, so opportunities and threats emerge and disappear only to re-emerge perhaps in a modified form at a later stage. Because of this, the marketing strategist need to recognize the fundamentals necessary both for an environmental monitoring process that is capable of identifying in advance any possible opportunities and threats, and for a planning system and organizational structure that is capable of causing a radical change to reflect the environment so that effects of threats are minimized and that opportunities are sized.

In essence, therefore, the formulation of marketing strategy is concerned with matching the capabilities of the organization with the demands of the environment. In doing this, the strategist is faced with a difficult problem, since what is typically referred to as the environment encapsulates a wide variety of influences. The difficulty lies therefore in coming to terms with this diversity in such a way that it contribute to effective decision making, since it is this that has a direct influence upon business performance. This difficulty in coping with the environment was viewed by (Bliss, 1980) under two headings:

i. Understanding the extent to which the environment effects strategy ii.  Understanding the ways in which environmental pressures can be related to the capabilities of the organization.

The preceding paragraphs have tried to give full emphasis to the need for objectives and strategy to be realistic, obtainable, and based firmly on corporate capability. In practice, of course, this translates into an almost infinite number of strategies that are open even to small-scale businesses. Porter (1980) has, however, pulled them together and identified three general types of strategy — overall cost leadership, differentiation and focus; that provide a meaningful basis for strategic thinking. In doing this, Porter emphasize the need for the strategist to identify a clear and meaningful selling proposition for the organization. In other words, what is the competitive stance of the organization, and what does it stand for in the eyes of its customers?   

This study takes a psychological and marketing point of views to look at process characteristics of action and strategies of small scale business owners in Kontagora Local Government Area of Niger State. These strategy characteristics are then related to the firms` success and survival. I, therefore, intend to provide an answer to the question, how strategies are used and how strategy-relevant behavior by the owner/manager is related to success in the small-scale business. In the realm of psychology, the strategies that shall be deliberated and investigated vis-à-vis small scale business in our area of study are reactive strategy, opportunistic strategy, complete planning strategy and critical point strategy, and routine/habit strategy (Bhide,1994).These strategies can be differentiated according to orientation to the goal, situational responsiveness, pro-activeness, and the overlap between planning and action. Under the marketing perspective, pricing strategy and value added strategy shall be focused. It should, however, be noted that pricing and value-added as strategies can be applied differently under the psychological strategies depending on the psychology of the business owner/manager.

1.2 Statement of the Problem 

Since the dawn of political independence in the early 1960s, smallscale business has attracted increasingly attention from researchers and policy makers concerned with economic growth and development. The pioneering studies on this sector, beginning with the 1963 study conducted by the World Bank, viewed the sector as essentially dysfunctional. Heightened interest in the activities of small-scale businesses can be attributed to a renewed awareness of potential benefits from the sector as an agent for employment creation, the promotion of indigenous

technology, local resource utilization, income generation and as a catalyst for social change.

Official statistics on the small-scale industrial sector are virtually non existent. Available information limited to survey carried out in various localities at various times, coupled with ocular and anecdotal evidence, indicates that the informal sector is one of the most dynamic areas in developing economies of which Nigeria is one.

Despite its many virtues, its dynamism and potential vehicle for endogenous growth, this sector has recorded high mortality rate, often within the first three years of operation. The increasingly high rate of failure of small-scale business is caused mostly by the ever-changing and challenging business environment which made adherence to yesterday’s wining formulae a recipe for failure today. The same is true when one business try to apply the success equation of another firm even in the industry.

Small-scale business owners/managers are confronted with the awesome challenge of crafting, evolving and implementing strategies that will ensure the survival and growth of their businesses. Pricing is often used as a strategic weapon for survival. But making any changes to prices, the strategist need to consider the impact on the triumvirate of customers, the trade, and competitors, which often prove counterproductive not only to the firm initiating the price change but also to all industry player. Value adding as a strategy to either maintain market share or increase market share or both is not without its cost which sometimes outweigh the benefits. The application of the psychological strategies of complete planning, critical point, opportunistic, reactive and routine/habit can lead to the success and survival of small-scale business as it can also lead to their failure.

1.3 Objectives of the Study

The study aimed at assessing the effectiveness of strategies for survival of small scale businesses in Kontagora Local Government Area of

Niger State will result in attainment of the following benefits:

i.          Increase in sales ii.    Increase in profit margin of businesses as a result of sales increase. iii.    More branches of business will be established.

iv.              Increase in employment.

v.                 Easy cash recovery. vi.    Economic development.

To attain these, the study shall:

i. Find out what constitute small-scale businesses, its characteristics and the peculiar problems confronting small-scale businesses in this part of the country.

ii.                      Assess the impact of pricing strategy and value adding strategy on small-scale business success iii.  Take a psychological point of view to look at process characteristics of action strategies of small-scale businesses owners and then relate it to the firm’s success. iv.  Examine governments effort at promoting the survival and growth of small-scale businesses; and

v.       Proffer a strategic plan for development of the small-scale business sector.

1.4       Research Questions

Based on the purpose of the study, the following research questions were raised:

i.                   What are the causes of small business failure?

ii.                 Does business failure has any effect on the economy?

iii.              What strategies for survival do small-scale businesses use?

iv.              Do small-scale business use marketing strategies in their businesses? v    Could poor planning affect small-scale business survival?

vi.  What possible effect could the application of marketing strategies have on the performance of small-scale business?

1.5       Research Hypotheses

The following null hypotheses will be tested in this study:

small-scale business

1.6 Significance of the Study

This study when completed is expected to be beneficial to the selected small-scale businesses under study as well as other small-scale business managers and entrepreneurs both within and outside Kontagora Local Government Area.

 It is believed that this study will be valuable to government and policy makers in the formulation of programmes, policies and strategies aimed at promotion of small-scale business development. Practicing marketers and academic will also find this research work to be of great value, as it will help them know what strategies are been used in practical term in local setting to help businesses, especially small-scale business survive, grow and develop.

1.7 Scope of the Study

For obvious reason of financial and time constraints, this study was restricted to Kontagora Local Government Area of Niger State. Kontagora is no doubt one of the most cosmopolitan town in the State. It is also one of the most commercialized town. These qualities make it a choice in the state. The study was restricted to 72 small-scale businesses.

Industries strategy is a very wide field. It is therefore virtually impossible or impractical to cover all aspects of strategy. The main area of success that impact on small-scale business success are marketing strategy, psychology action strategy and government strategy directed at small and medium scale enterprises. However, this study covers only market segmentation strategy; pricing strategy (in the realm of marketing) and five different action strategies: complete planning, critical point, opportunistic, reactive and routine/habit.