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Assessment of Environmental Factor Affecting The Performance of Small Business Enterprises

Assessment of Environmental Factor Affecting The Performance of Small Business Enterprises complete project material download


Background of Study

Small scale enterprises is defined differently by authors ,though all definations describe small scale enterprises as an enterprises that has relatively little capital investment and produces in small quantity as a result control small share of the market with less than 50 employees (Olatunji N.D). The management , marketing and entrepreneurial function are vested on the proprietor.

Inspite of the vital role of small and medium scale enterprises in the economic growth and development of a nation, many factors still mitigate the effectiveness of these enterprises such as: inadequate capital, poor record keeping poor or wrong location poor planning inadequate infrastructural focuses, lack of skilled manpower etc.

Adidu & Olatunji (2006) states that different countries have different basis of defining small and medium scale enterprises some as capital investment while others define it on the basis of management structure: The Nigerian industrial policy describes SMEs as those whose total investment is between N100,000 and N2 million exclusive of land but including working capital .

SMEs are also describe as those business whole capital investment does not exceed N5million (including land and working capital or whose turn over are not more than N25 million annually. The Small Business Administration (SBA) in the USA measures SMEs as one which poses at least two of the following criteria.

-Managers are also owners

-Owners supply the capital

-Area of operation mainly local

-Small in size within the industry

Environmental factors can pose a positive or negative impact on small and medium scale business below are some environmental factors that may have effect on SMEs

-Historical factors

-Inadequate infrastructural facilities

-Financial constraints

-Technological opportunity

-Company size

-Socio – cultural environment

-Lack of proper business management


-Geographical policy

-Economic factors

Above factors will be discussed in detail in the preceding chapters.

A small scale business anywhere in the world operates within environments which is an aggregate of all conditions, events, circumstances and influences that surround and affect the business, Adidu and Olanye (2006). In management, the term “Environment” does not necessarily mean physical surroundings but, it is used as a total forces, factors and influences that surround and affect small scale businesses as a separate entity as well as other SME’s. This means that small scale businesses must interact with those forces that influence its decisions, directions, actions, size, health, profitability and performance and survival of the business as a whole.

Ukaegbu (2004) stated that the contemporary environment is becoming dynamic and competitive and since small scale business does not operate in vacuum, they affect and are affected by environmental conditions. Therefore, business organizations irrespective of their objectives must take into consideration, these environmental opportunities and constraints. Businesses affect the environment by providing the required goods and services thereby contributing to the development of the business by presenting opportunities and threats. One thing to be emphasized at this point is that, the extent to which managers could identify, evaluate and react to the environmental forces will have considerable impact on business performances.

Kuye, (2004), emphasized that the need to study business environments is very important considering the fact that business organizations do not operate in vacuum and an effective management in complex and dynamic society requires the assessment of strengths and weaknesses of the organization and the opportunities and threats provided by the challenges of the external environment, hence for survival and growth, organizations must cope and adapt to these challenges posed by the ever changing environment (internal and external)

Ukaegbu (2006) stated that the relationship between a business organization and its host environment can be examined from three strategic ways; the organization can be viewed as importing various kinds of inputs (resources), such as human resources, capital, managerial and technical inputs. These inputs are then transformed to provoke output which takes the form of goods and services. It focuses on the demands and legitimate rights of different claimants such as employees, consumers, suppliers, stakeholders, government and the community. Approach is to view the organization as operating in an external environment of opportunities and constraints. Thus no single approach is sufficient for all times and in all circumstances. They are complementary. The elements external to the organization affects its performance as well as those elements within the organizations.

1.1Statement of the Problem

Small business enterprises have limitation and problems, although, all business organization irrespective of their objectives have philosophy of growth, survival and adaptivesness (Lawal, 2003). The inability of a business to maintain this philosophy can be regarded as business failure. Hence, the following paragraphs elaborate on the problems of the study.

Lack of managerial technical know-how: Here, majority of small scale business enterprises lack necessary managerial know-how for effective and efficient running of the business.

  • 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 favor imported finished products.
  • Lack of access to appropriate technology as well as near absence of research and development
  • High dependence on imported raw materials with the attendant high foreign exchange cost and scarcity at times
  • 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 characterized by the dumping and importation of substandard goods by unscrupulous businessmen. This situation is currently being aggravated by the effect of globalization 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 death of such skills in most SMEs due to inadequate educational and technical background on the part of the SME promoters and their staff.

The problem of this study is that, in spite of the numerous opportunities made available to assist small scale businesses by the Kaduna State Government, many small scale businesses in the State are still either not doing well or have failed resulting to further unemployment and poverty with their attendant consequences on the state.

I therefore interested in finding out those skills which could enhance their entrepreneurship competence, but which they may not have. The effects of environment on organizational performance vary from one situation to another. The environment suitable for the growth of a particular business may be hostile to the survival of another business.

1.2Objectives/Scope of the Study

The purpose of the study is to assess the extent to which environmental factor affects the performance of small business enterprises.

The other objectives this research seeks to achieve are:

1.To determine the extent to which environmental factors affect organizational growth and survival of small scale business.

2.To determine the relationship existing between small scale business and its operating environments.

3.To examine how small scale business manage these environmental factors.

1.3Research Questions

In order to arrive at a precise answer to the effect of environmental factors on the performance of small scale businesses, the following research questions shall be tested;

  1. To what extent do environmental factors affect growth and performance of small scale businesses?
  2. How does an external factor affect performance of small scale business in Nigeria?

iii.Is there a relationship existing between small scale business and its operating environment?

1.5 Statement of the Hypotheses

The following formulated hypothesis would be tested in order to help provide answers to the research questions;

1- H1: There is a significant relationship between environmental factors and performance of small scale business.

2-H1: There is a significant relationship between increased productivity of small business and socio-cultural factors within the business environment where it operates.

3- H1: There is a significant relationship between the fiscal incentives provided by the government, and enhanced performance of small business.


1.6 Significance of the Study

Entrepreneurial skills are crucial element in the management of any enterprise and as such the result would be of benefit to present and potential entrepreneurs in identifying relevant skills necessary for the effective management of small scale businesses to achieve desired goals.


The findings of the study could be of assistance to the entrepreneurs, as it would create awareness of relevant and tested skills that will enable them to manage their businesses efficiently, thus could result to expansion of such businesses and more employment for the unemployed.


Governments and their agencies charged with skill acquisition and poverty alleviation programmes could benefit from this study, if the identified appropriate skills are articulated into the training programmes of their trainees, so that the training programmes become adequate in turning out individuals who can manage their own businesses properly. This could reduce the incidences of business failure and unemployment rate among youth and young school leavers, by making them gainfully employed in the world of work and also self reliant.

The result of this study could be of great benefit to would be entrepreneurs, because the assessed relevant entrepreneurial skills if applied to the management of their businesses could result in successful running of their own businesses and thus contributing to the overall well being and growth of the Nation’s economy. The adoption of the assessed skills in the study could also assist the teaming Unemployed youths who are eager to establish their businesses, as it will help them in running their businesses effectively.


This study will be highly useful after its completion for both current and future entrepreneurs, business organizations and the government. This research study on the effects of environment factors on performance of small scale business in Kaduna State Businesses Metropolis would have considerable benefits on the small scale business operating within this business environment in that it would help these businesses become sensitive to the uncontrollable external environmental factors impinging on the performance of their businesses and how they can effectively manage these factors and top the opportunities for enhanced productivity and profitability.

1.7 Justification of the Study

The use of SRS method in the selection of participant SMEs used in the study was a sure way to reduce bias to the barest minimum. This approach was also used in order to ensure that the sample used in the study was a true and fair representative of the population of SMEs in Kaduna State. The relatively precise and concise questions in the questionnaires employed in the study were carefully crafted in order to reduce boredom, fatigue and demand on the target participants so that they do not exhaust their energy, time and effort in answering the questions.

I believed that this approach is bound to elicit the best responses from the participants in terms of objectivity, frankness, originality, on key issues and promptness of response. The rationale for using two forms of questionnaires was to cater for the peculiarities, differences and viewpoints between the two main groups of respondents, (banks on one hand and SME owners/operators on the other hand) in terms of functions, operations, perspectives and roles as regards the SME sub-sector’s challenges, problems and operations.

The open-endedness of some questions in the questionnaires provided sample opportunity and leverage for respondents who wished to elaborate or write at length on some pertinent issues relating to the SMEs. This further served as a means of validating some earlier answered questions and the respondent’s consistency also. A few questions were also constructed in order to confirm the validity of the answers to some questions stated earlier in the questionnaire.

The personal interviews represent excellent media for close interaction and rapport between the researcher and the respondents, which enabled the former to elicit more pertinent information and data, which the questionnaire neither captured nor provided for. The personal interviews in addition provided a source of presenting the researcher to the search light of the respondents’ personality, composure and psychology and vice versa.


This interaction will be deeply appreciated by many respondents who itches for this type of study as the government had most of the time paid lip service to the SME sub-sector. It will creat a lot of excitement and interest in many of the respondents. The personal interviews also afforded the researcher the flexibility to cater for and appreciate the peculiarities and uniqueness of some of the respondents especially the non-operators of SMEs like the DFIs through asking them pertinent questions and listening to their own perspectives and views on the subject. The answers obtained from personal interviews also aided the researcher in validating responses. The primary data for this study would be collect using the questionnaires and personal interviews.


The researcher relied on library and desk research, study of various books, magazines, journals, reports, newspapers and publications on the subject matter and related topics for the secondary data. Vast literature (in scattered form) exists on the subject matter even though the researcher was not able to identify or locate any past formal similar study on the subject matter. This notwithstanding, copious literature exists which facilitated the researcher’s literature review.

The combination of the questionnaire and personal interviews complemented by desk research significantly contributed in ensuring that the researcher got to the root of the challenges and draw backs of the SMEs in Kaduna State. The piloting of the questionnaires proved very useful in the crafting of a comprehensive, easy to understand and respond-to final version that would be use in the research.

The wholesome responses from the majority of the participants would be encouraging and made the data collection simple. Enthusiasm, which many respondents exhibited during the personal interviews will also motivate and certainly could be a pointer to the fact that the SMEs have been longing for succor, help and relief from the government. There would also be a few participants who though interested in the study but would not have the time to respond promptly. For this group the researcher had to invest his time and efforts to be able to collect back the completed questionnaires.

1.8Scope of the study

The scope of the study is on assessment of entrepreneurial skills possessed by small scale business operators in Kaduna State. The entrepreneurial skills assessed in the study are limited to ethics and moral skills, self-motivation skills, time management skills and interpersonal relation skills. An area that would not be covered in the study includes managerial skills and marketing skills as many studies had already been carried out on these skills. The consideration for these research work is within 3 months.

1.9Definition of Terms

Definitions of terms used in this study are as follows:

1.Small business enterprises:these are small business that mostly use power and small machines and employ a small number of workers.

2.Performance management:This referred to a strategic and integrated approach to increasing the effectiveness of organization by improving the performance of the people who work in them and by developing the capabilities of teams and individual contributors.

3.Performance:This is task, accomplishment, execution, carrying out, working out of anything order or undertaken in other words it is an outcome of work that provided the strongest linkage to the strategic goals of the organization, customer satisfaction and economic contributions.

  1. Management:The act of running and controlling a business or similar organization.

5.Environmental:it is the study of a range of environments, from the bodies we live, to the physical structures, institutions and industries we build, to the politics, languages and cultural practices we use to communicate, and to the earth and its complex multitude of animals, flora and bio-physical elements and processes

  1. Employee:A person paid to work either for a firm, organization or educational circle.
  2. Employer: A person or company that pays people to work for them.
  3. SMEs: Small medium enterprises

SRS:(Simple random sample) a randomly selected sample from a larger sample or population, giving all the individuals in the sample an equal chance to be chosen.


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