ENVIRONMENTAL FACTORS AND PERFORMANCE OF SMALL SCALE BUSINESS IN NIGERIA

UDOIME SAMUEL BASSEY

MATRIC NO:NOU110726400

B.SC.ENTREPENEURIAL AND BUSINESS MANAGEMENT

SCHOOL OF MANAGEMENT SCIENCE

NATIONAL OPEN UNIVERSITY OF NIGERIA

OCTOBER 2015

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Introduction

Global competition, information technology, quality service revolution and

corporate social responsibility which are compelling managers to rethink and

reshape their approach to their various operation responsibilities. Due to this

paradigm shift, new firms are emerging that are more responsive to both their

internal and external environments (Luthans, 1995). The internal factors exist

within the operational base of an organization and directly affect the different

aspect of business. These internal factors include firms Mission, resistance to

change, poor quality staff, lapses in internal control, bad resource/financial

management, operational weaknesses, high staff turnover and over-leveraging

while the external factors include government regulation, economic recession,

political turmoil, low cost competitors, changes in customer behavior,

environmental/ health issues, technological changes, natural disasters, change in

input supply, changes in macro economic variables and terrorist attacks. Hence, it

is important for a business to keep a pace with the various changes in the

environment in order to survive in the long run. Similarly, every business settings

often bring in new way of thinking about the business environment and new ways

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of acting. (Belohlav, 1996). Hence, coping with these multitude of challenges

require a firm that can easily adapt to change. This makes the small and medium

scale enterprises (small scale business) the driving force in economic growth and

job creation in both developed and developing countries due to their ability to

experiment new approach at minimum cost and create a standardized product/

services that can meet the needs of a large target market (Sunter, 2000). However,

more than half of newly established businesses survive beyond five years. Hence,

the identification of those factors which empirically lead to entrepreneurial

success/failure would assist in equipping small business owners with the necessary

managerial skills to survive in today’s competitive environment as well as exploit

several strategies that will improve their operational efficiencies.

Background of study

Smith (2007), define business environment as all factors or variables, both

inside and outside the organization that may influenced the continued and

successful existence of the organization. Beck (2006), says that for small

businesses to achieve their objectives, they have to strengthen their internal and

external business environment. There is controversy that small scale business in

any part Nigeria where they operate play important role in the economic growth

and development in Nigeria and it improves the quality of life of individuals

(Ohanemu, 2006).Business organizations anywhere in the world operates within

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environments which according to Adidu & Olanye (2006) is an aggregate of all

conditions, events, circumstances and influences that surround and effect the

business organization. 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 business organizations as a separate entity as

well as other business organizations. This means that business organizations

must interact with those forces that influence its decisions, directions, actions, size,

health, profitability and performance of the organization as a whole. Ukaegbu

(2004) stated that the contemporary environment is becoming dynamic and

competitive and since business organizations do not operate in vacuum, they affect

and are affected by environment 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 organizational

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

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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 adopt to

these challenges posed by the ever changing environment (internal & external) in

which managers operate means that mangers must not only be aware of what

constitutes the elements of their business environment but also should be able to

respond to the forces of the environment which inevitably impinges on the

operations of the business organization.

Ukaegbu (2006) further stated that the relationship between a business

organization and its host environment can be examined from three strategic ways;

Firstly, 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. A second approach is the study of the relationship between the

organization and the society. It focuses on the demands and legitimate rights of

different claimants such as employees, consumers, suppliers, stakeholders,

government and the community. A third 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

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as well as those elements within the organizations. The external elements of the

environment constitutes the initial conditions facing entrepreneurs in any economy

(Aldrich et al., 1999). Environmental characteristics are important in resource-

based theory. It is no doubt that environment is an important factor in relation to

firm’s performance. Even in behavioral approach the personality, motivation,

attitudes of the entrepreneur are dependent from environment (Gartner, 1985).

Literature Preview

According to Ciano (2011), business is a series of collisions with the future

while its present day challenges include convergence, corporate governance,

corporate reporting, fraud, operating globally, improving business performance,

managing assets, change and people, mergers and acquisitions, risk management,

shareholder’s values and sustainability. He opined that since it is neither the

strongest of the species that survives, nor the most intelligent; it is the one that is

most adaptable to change; hence companies that make up the industry have faced

the need for equivalent of self-administered surgery with no insurance, no

aesthetic, and no assurance of long-term health. Thus, the success of every

business depends on adapting itself to the environment within which it functions.

Hence, the term business environment represents all forces, factors and institutions

that are beyond the control of the business and affect the functioning of a business

enterprise. These include customers, competitors, suppliers, government, and the

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social, political, legal and technological factors etc. While some of these factors or

forces may have direct influence over the business firm, others may operate

indirectly (Duncan, 1972). Thus, business environment may be defined as the total

surroundings, which have a direct or indirect bearing on the functioning of

business. It may also be defined as the set of external factors, such as economic

factors, social factors, political and legal factors, demographic factors, technical

factors etc., which are uncontrollable in the nature and it affect the business

decisions of a firm.

OBJECTIVE OF THE STUDY

According to Adebayo et al. (2005) business environment can be broadly

categorized into internal and external environment with the former comprising

variables or factors within the control and manipulation of the firm to attain set

objective while the latter encompasses factors that are outside the control and

manipulation of the firm. Hence, firm must develop a plan that will help it to cope

with the various environmental forces (Oluremi and Gbenga, 2011). Similarly, the

nature of business environment are said to be classified as dynamic, stable and

unstable which often help a firm in the selection of appropriate strategies (Ibidun

and Ogundele, 2013). Adeoye (2012) opined that in order for business to cope with

the dynamic and rapidly changing business environment, there is a need to develop

and implement appropriate strategies that would safeguard their operations and

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yield the desired results. Similarly, Ogundele (2005) added that a firm perception

of the nature of the business environment is a function of its size and industry.

Business survival is the ability of a firm to continuously be in operation despite

various challenges i.e. the managerial process of directing the affairs of a firm

regularly on a going concern basis and meets the needs of all stakeholders

(Akindele et al., 2012). Dun and Bradstreet (1979) viewed business failures as a

situation where a business go into bankruptcy or cease operations which results in

losses and failure to meet its various financial commitment to creditors. In order to

survive, firms always keep a close tab on the various activities that determine their

continuity. Adeoye (2012) submitted that the present form of complexities facing

firms include leadership styles, changes, uncertainty, conflict, culture, technology,

structure, competitive market, profitability and workplace motivation. Hence, firms

must develop a strategically plan and tactical procedure that is appropriate and

adaptive to the present business environment that will aid its optimum resources

utilization and attainment of set goals.

JUSTIFICATION OF THE STUDY

Burns (2001) opined that small scale business cannot be characterized as only

scaled down versions of large firms since they show a number of fundamental

differences which can be explained through absence of economies of scale and

scope which amongst others is also caused by less provision of factors of

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production. Thus, Ciano (2011) opined that there are four determining factors in

any transformation initiative for any business entity. This includes duration of time

between reviews of milestones; the project team’s performance integrity which is

the ability to complete the initiative on time that depends on members’ skills and

traits relative to the project’s requirements; the commitment to change of the top

management and employees affected by the change display and the effort over and

above the usual work that the change initiative demands of employees. Alexander

(2000) observed that the dynamic and rapidly changing business environment in

which most businesses operate has made business environment to have significant

impact on organizational survival and performance. This implies that the external

environment is complex and constantly changing and its significant characteristic

is competition. The recognition of the presence of an intense competition often

compel the need to seek more information about customers for the purpose of

evaluation and to use such information to their advantage thus enabling

competition to drive business organizations to look for their customers in order to

understand better ways to meet their needs, wants, and thereby enhances

organizational performance (Azhar, 2008). Porter (2004) developed the five forces

of competitive position analysis as a simple framework for assessing and

evaluating the competitive strength and position of a business organization. His

theory is based on the concept that there are five forces which determine the

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competitive intensity and attractiveness of a market and helps to identify where

power lies in a business situation. This is useful both in Understanding the strength

of an organization’s current competitive position, and the strength of a position that

an organization may look to move into. The five forces are supplier power, buyer

power, threat of substitution, threat of new entry and competitive rivalry.

SCOPE OF THE STUDY

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 environmental factors on performance of small scale business in

Nigeria 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.

To an entrepreneur: The knowledge obtained from this study will enable

them to know how critical environmental factors are and how to effectively

manage these factors for the survival and growth of small scale businesses.

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To organizations and the society: The study will equally be useful to

organization and the society at large in the sense that knowledge about

technological advancement generation through small scale business source

of credit facilities to establish small business will be acquired.

To the Government:   This research will also be useful to the government

in the formulation of policies towards small scale enterprises development in

Nigeria. It will also help the government to identify the importance of small

scale enterprises in the achievement of economic growth and development in

Nigeria.

LIMITATIONS OF THE STUDY

The researcher was unable to lay hand on some recent publication on

environmental factors due to logistic and financial constraints. it has not been easy

visiting various small businesses in the various towns that made up the local

government.

Definitions of Terms

The Environment: The environment consists of the set of external conditions and

forces that have the potential to influence the organization. It is useful to break the

concept of the environment down into two components. The general environment

(or macro environment) includes overall trends and events in society such as social

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trends, technological trends, demographics, and economic conditions. The industry

(or competitive environment) consists of multiple organizations that collectively

compete with one another by providing similar goods, services, or both.

The concept of performance: Performance is the act of performing; or doing

something successfully; using knowledge as distinguished from merely possessing

it. However, performance seems to be conceptualized, operationalised and

measured in different ways thus making cross-comparison difficult.

Small scale business: A proper definition of small scale business is important to

distinguish between the different categories of the production units in terms of

factors like; number of employees, the value of fixed assets, production capacity,

basic characteristics of the inputs, level of technology used, capital employed,

management characteristics, etc. It is hard to develop a general definition of a

small scale business because the economies of countries differ, and people take on

particular standards for special uses. Different institutions and nations use different

standards to define small scale business. Because, a lot of their bodily processes

depend on the industry in which they operate, also, the personalities and ambitions

of those in charge of these businesses.

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