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THE MANAGEMENT OF SMALL AND MEDIUM SCALE ENTERPRISES IN A COMPETITIVE ECONOMY

ABSTRACT:

This paper is focused on managing small and medium scale enterprises (SMEs) in a competitive economy. The objective of the paper is to critically and contextually examine some current business ideas and strategies which will not only help Nigerian small and medium scale business enterprises to survive the hard times but rather grow steadily and so become strong enough to contribute their quota to sustainable development in Nigeria. It identifies and exploits investment opportunities in small and medium scale enterprises; highlights preliminary considerations before venturing into SME, and essential tips in planning a small medium scale business and makes vital recommendations by drawing attention to some crucial areas of modern management which Nigerian small and medium scale enterprises would embrace to increase Gross Domestic Product (GDP) and raise the standard of living of all Nigerians. These areas or strategies include design and implementation of system; understanding and applying change management; strategic management/planning model; the environmental scanning model; total quality management (TQM); leadership, motivation/empowerment of our workers and of course team management, among others.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

For more than 55 years since Nigeria became an independent nation, it has been suffering from so many epileptic economic policies and situations that have left it a grossly underdeveloped country, instead of the economic and political giant of Africa which its founding fathers intended it to be. At 55, it has remained a “toddler” in almost every sector of national development. This is a very worrisome situation. To get out of this economic and development quagmire, therefore, policy makers and experts in Nigeria must continue to search for workable strategies of interventions that will catalyze the development process in Nigeria. Recently, Nigeria policy makers and experts within and outside government, including members of the organized private sector, seem to agree that, the catalytic process must start with the urgent setting up and empowering of as many Small and Medium Scale Enterprises (SMEs) as possible in Nigeria. This is because available facts and figures, cases and trends in global economic development, show that SMEs indeed hold the key to the development of developing nations (Onah, Nwosu and Ocheoha, 2004).

The socio-economic imperatives of the Nigerian economy of today are systematically shifting in favour to the growth of small and medium scale business. Among the reasons for this trend is the sudden realization of the colossal wastes associated with public sector domination of the economy. Our public corporations have turned out to be a conduit pipe to entrench mediocrity, inefficiency and enrichment of few at the expense of the struggling masses (Ndubisi, 2006). The concept of SME has enjoyed some measure of controversy in the literature. There are as many definitions of SME as there are scholars and institutions defining it. Scholars would use parameters such as number of employees, sales volume or turnover, capital scale to define SME but some of them rightly contended that these parameters do not provide uniform benchmark for all industries at all time. For instance, For the purpose of this study, we shall adopt the definition by the National Council on Industry (NCI) for its currency and simplicity. NCI at its thirteenth meeting in July 2001, adopted the following as the reclassification of industrial enterprises in Nigeria. (a) Micro/Cottage Industry An industry with a total capital employed of not more than N1.50 million, including working capital but excluding cost of land, and/or, a workforce of not more than 10 workers. (b) Small-Scale Industry An industry with a total capital employed of over N1.50 million, but not more than N50 million including working capital but excluding cost of land and/or a workforce of 11-100 workers. (c) Medium – Scale Industry An industry with a total capital employed of over N50 million, but not more than N200 million, including cost of land, and/or a workforce of 101-300 workers. Following the above classification, SME consist of all business organizations whose total capital employed is above N1.6 million, but not more than N200 million including the cost of land and workforce capacity of between 11-300.Available statistics shows that 85% of establishments in the organized manufacturing sector fall into SME category: More disheartening is the fact that at least three out of every four SME fail every year (Nzelibe 1996; Tinubu 2002). What is more, over 90% of those who wished to go into business do not eventually get to start (Ezeh, 1999). The Micro, Small and Medium Enterprises (MSMEs) have been globally recognised as engines of economic growth. They represent on the average, between 80% -90% of enterprises and 60% -70% of domestic employment in the developed and developing economies of the world. It has also been generally accepted that a thriving MSME sector is essential for job creation, social cohesion and innovation, it also generates economic growth, improve worker skills and alleviate poverty by creating opportunities for local population groups to help themselves (Mboma, 2008). Salaudeen (2007) posits that in India, the SMEs run 97% of the industrial unit (10.5 million); employs 45% (25 million) of labour force; contributes 45% overall export and 7% of gross domestic product (GDP). While in China, they contribute 60% of China’s industrial output with over 23 million SMEs; 60% contribution to GDP; employs over 75% of the workforce; 60% of total exports and 99% of all registered companies, and creating most new jobs. The development of SMEs is the key success factor for the miracle economies that emerged in the Asian countries. Soludo (2007) analyzed the sectoral contributions of MSMEs to the growth of the country’s GDP as agriculture (41.49%), crude oil (25.75%), mining and quarrying (0.27%), manufacturing (4.5%), building and construction (1.53%), wholesale and retail trade (13.74%), services (14.88%). It is obvious from these data that the sectors, where we have reasonable presence of MSMEs, outside agricultural sector, contribute negligible percentages. what could pass for a big capital in food and beverage industry will certainly be small when compared to that in steel or aviation industry. Further, what is a big capital today may become small in five years to come (Ezeife, 1998)

1.2 Objectives Of The Study

 The objectives of the study are;

i. To examine some current business ideas and strategies which will not only help Nigerian small and medium-scale business enterprises to survive the hard times but develop or grow steadily and become strong enough to contribute their quota to sustainable development in Nigeria.

ii. To acquaint entrepreneurs and would be entrepreneurs with the basic ingredients on how to set up and run small and medium scale businesses. III. Theoretical Foundations Ekaete (2008) opined that the discussion on how to manage micro, small and medium Enterprises (MSMEs) for profitability and sustainability requires a proper insight into the anatomy of these types of enterprises: i. They are mostly family owned and owner managed. ii. Most employees are family members iii. Operate on the informal platform iv. Have poor accounting and record-keeping as well as weak internal control management. v. Highly under capitalized vi. Business planning is seen as cosmetic vii. Statutory matters are not usually given the desired attention viii. Sound management practices are lacking ix. Employee training and development are seen as avoidable cost x. Management succession planning is lacking xi. Week customer care xii. Non accessing of available business support services xiii. Poor risk management Managing Small And Medium Scale Enterprises In A Competitive Marketing Economy DOI: 10.9790/487X-1906012131 www.iosrjournals.org 23 | Page xiv. Near absence of financial management practices xv. Lack of vision, and xvi. Absence of core values In view of the above, Bhide (1996), a professor of Entrepreneurship at the Harvard Business school had this to say: “The hundred of thousands of business ventures that entrepreneurs launch every year, many never get off the ground, others fizzle after spectacular rocket starts. These enterprises lack coherent strategies, competitive strengths, talented employees, adequate controls and clear reporting lines” Preliminary Consideration before Venturing into SME Self Analysis: Those who break the frontiers of business to start new ventures, even at the risk of failure, are called entrepreneurs. Self analysis requires that one must objectively appraise himself to ascertain whether he has all it takes to set up small or medium scale enterprise. David McClelland discovered through research findings that successful business owners must have high “need for power and achievement” (Onodugo, 2000). They are generally aggressive, confident, upwardly mobile, positive toward risk, hardworking and dogged. In assessing oneself, one needs to take recourse to one’s aptitudes about the things one has done in the past, opinion of close and yet objective friends and confidants, spouses and professional business consultants (Salema, 2008).

1.3 Financing options:

It is during planning that one determines how to finance a business. Major determinants of the choice of financing option are the willingness or otherwise to dilute ownership, the size of the business and its profitability. The spectrum of financing options available to a prospective SME owner is personal savings and contributions from family members, equity financing from partners and other stakeholders and debt financing from commercial banks, finance houses and government financial institutions. All of them require some processes and technicalities, which for the most part and for a long time, have not been met by SMEs leading to poor flow of funds from such sources. A new scheme however has been invented by the Bankers’ Committee supervised by CBN to help the funding problem of SMEs. It is called Small and Medium Industries Equity Investment Scheme (SMIEIS), which came up to fill the gaps created by debt financing by identifying profitable SMEs business proposals and facilitating such business via equity financing. This is a major milestone in business financing in Nigeria and would be entrepreneurs need to have their business concern registered, with proper records and a good business proposal to apply to one of the commercial banks for equity participation (Chidozie, 2006). iv. Personnel Requirements: The wheel that moves organizations forward are the human resources therein. During planning, a careful design of how to attract and retain requisite personnel to run the firm will be undertaken. An organization may go for experienced people immediately and get trainees later. The approach used is a reflection of the nature of the organization and the strategies with which they want to invade the market with. Personnel policies are designed to guide the implementation of personnel decisions (Fajana, 2002). Identifying and Exploiting Investment Opportunities in Small and Medium Scale Enterprises It is sometimes difficult to identify viable projects, but that precisely is the beginning of starting a business. Over one hundred business opportunities for small and medium scale categories have been identified which cover service oriented ventures, craftsmanship, agriculture, processing, manufacturing and commerce (Ayodele, Nwankwo and Madichie, 2008).

Examples of small-scale businesses are:

1. Backyard poultry raising 2. Firewood supply 3. Operating a nursery for children 4. Home laundry service 5. Arranging foods/drinks for parties 6. Growing fresh maize 7. Charcoal making 8. Making brooms 9. Typing institute 10. Research materials collection, etc. Examples of medium-scale business are: 1. Palm kernel oil production 2. Piggery farm 3. Aquaculture/fish farming 4. Chalk making 5. Foam production 6. Chemical production 7. Concrete block production 8. Ice block production 9. Big Time rental services (chairs, canopies, cutleries, plates, etc. 10. Professional practice (law, accountancy, education etc.).

Paradigm Shift Our attention can be drawn to the current paradigm shift in modern business management practices from focus on profit maximization to focus on customer satisfaction and retention. The logic is not anti-profit because the more customers one can get, satisfy and keep, the more profit one will definitely make. The business slogan of this new paradigm shift in modern business management is “Get ye first the kingdom of the customer and the rest will be added unto you, including profit” (Davidow and Utal, 1990; Nwosu, 2003). Good product no longer sell themselves. The more customer focused one is, the more profit one will make.

This paradigm shift does not only require entrepreneurs (Managers) and would-be entrepreneurs to practice aggressive or proactive marketing but requires them to practice customer relations and customer retention as a Managing Small And Medium Scale Enterprises In

A Competitive Marketing Economy DOI: 10.9790/487X-1906012131 www.iosrjournals.org 25 | Page sure route to steady profit, gaining the competitive edge and ensuring the survival and growth of the business enterprise, no matter how depressed the economy is or how tough the competition is (Nwosu, 2003). The Good Old Management Function Despite the emergence of several new management strategies, the good old management functions are still relevant. Managers of small and large scale enterprises are therefore advised to ensure that they are performing them well in their companies. They are like old firewood that remain always reliable. They include planning, organizing, directing, delegating, controlling, communicating and decision-making. Understanding and properly applying the tenets of the above listed management functions will help us manage well the essential factors of business that include human resources, financial resources, materials resources, technological resources and of course time resources which need to be managed well in the current competitive business environment in which everyone and everything is moving and must move on the “fast lane” of the globalised economy and information super high way (Udemezue, 2006). These resources are always scarce, dynamic, and generate a lot of competition and it is only the application of sound management principles and strategies, the old and the new, that will help us to deal adequately with them in our small and medium scale enterprises. Running of Small and Medium Enterprises No business can survive in the modern business world that is sharply competitive and dynamic, if its mangers do not engage in strategic thinking, knowledge and actions. This is because strategic thinking and actions help any business enterprise to develop shock absorbing capabilities (SAC) which will help it to survive any change or challenge in the current business environment that is globalized, sharply competitive, ever changing and unpredictable (Mboma, 2008). To effectively run SME after inception entail these related activities: design and implement action of systems and structures; mastery of management/planning model and environmental scanning model; understanding and applying change management, total quality management (TQM); motivation/empowerment of our workers; leadership management; team management and of course controlling strategy (Olomia and Swai, 2008). Design and Implementation of Systems Hindsight in consulting for SMEs has shown that most business concerns that fail do not have systematized procedures of doing things. Those who overtime and through rigorous effort were able to systematize the way they recruit, devolve authority and responsibility, manage inventory, train, discipline, record and disburse funds, etc, hardly ever do badly (Onodugo, 2000). Essentially there is need to have the following systems for effective running of SMEs they are;

 i. Administrative System This comprises organogram and job description manual. It shows at a glance who occupies what positions, who reports to whom, and their authority relationships. With this, vacancies can be declared and training of new entrants proceed systematically.

ii. Accounting System This shows in a nutshell how money comes and moves within and outside the organization. It entails the design of requisition forms and payment vouchers. This system defines authority limits in terms of finances. Imprest for various offices and its retirement procedures are identified.

 iii. Inventory System This simply details what happens to raw materials from the point of purchase till it is turned into a finished product. It says something about the required quantities of both finished product and raw materials that should be held at any point in time. Issues as to when to order for more, discard the ones held and the like will be handled by it.

 iv. Personnel policies record It is important for every staff on entry to be acquainted with the code of conduct expected of him/her. It defines what are the dos and don’ts as well as the rewards for the dos and penalties for the don’ts. This is important since most SMEs carry out these things retroactively. Sometimes punishment is determined only when the offence is committed. This does not augur well for the smooth running of the organization. Management/Planning Model Vision refers to creative business idea that can be translated or converted to profitable and sustaining business enterprise. It is a dream, a practical dream that can be converted to business action. It is part of strategic thinking and action which every business, small, medium or largescale must engage in to succeed in today’s business world. Resource managers/entrepreneurs must translate this vision to a sound mission statement that will give us focus to where we are going or what we want the business enterprise to achieve.

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