Friday, September 12, 2008

Small Scale Business

APPRAISAL OF THE IMPORTANCE OF SMALL SCALE BUSINESS ENTERPRISE TO A NATION BUILDING

Critiques of the Nigerian economy and economic policies abound and several solutions to the country's economic problems have been proposed by genuine nationalists, patriots, friends and cynics. A large sum of money has been spent on the services of consultants to obtain expert opinions on much of the now well-known problems of Nigeria. From all these may be articulated the general con­clusion that there have been, through the years, several inconsistencies in many aspects of the national economic policies which have seemed to render them antagonistic to laid down objectives. The existing incentives to industry are at variance with the priorities spelt out in various development plans the findings by reference to industries based on domestic raw materials.

According to reports agro-allied and export industries based on imported raw materials are accorded a low priority in theory but attract 'very high' incentive. Report claimed that a study of 74 industrial activities in Nigeria concluded that the existing structure of incentives showed a bias against agro-allied industries, against industries based on mining or forestry, against the few sectors which were able to compete in the world markets, against industries processing domestic raw materials but in favour of industries that process imported raw materials and companies assembling imported components for the Nigerian domestic market.

The present paper attempts to identify some concrete issues which should form the basis of consistent policies. It is their absence in the observed system that creates the impressions of "lack of fit" which is so aptly observed by both Nigerian nation­als and their critiques, paid and unpaid. The main focus here is on the small scale industrial sector. The emphasis is on how its development may be based on the adop­tion of adequate financial strategies and development of the Nation's resource en­dowments.

The special features of small-scale industry (SSI)
As a result of several legal and administrative actions necessary for the promotion and development of SSI, all countries have at any given time a definition of SSI. These are defined by reference to certain specified parameters such as number of employees, amount of money invested or mode of management, among others. It is difficult to set exclusive criteria; some popular criteria may be helpful in understanding the essence of the classification.

Nigerian economy depends on the recognition of SMEs
Historical facts show that prior to the late 19th century, cottage industries, mostly small and medium scale businesses controlled the economy of Europe. The industrial revolution changed the status quo and introduced mass production. The twin oil shocks during the 1970s undermined the mass production model, which triggered an unexpected reappraisal of the role and importance of small and medium sized enterprises in the global economy. Findings by economists over the years show that small firms and entrepreneurships play a much more important role in economic growth and development

Small and medium businesses was a tradition confined to economic development studies that focus on the role of enterprises in encountering poverty as well as in employment in poor countries. It is worth mentioning that the conception of big companies as the cornerstone of modern economy dates back on the onset of the industrial revolution and the concept of large-scale economies, small businesses were never viewed in terms of their ability to play a key role in the economy, but rather a source for big companies.





Importance of SMEs
Many economies, developed and developing have come to realise the value of small businesses. They are seen to be characterised by dynamism, witty innovations, efficiency, and their small size allows for faster decision-making process. Governments all over the world have realised the importance of this category of companies and have formulated comprehensive public policies to encourage, support and fund the establishment of SME's. Developments in small and medium enterprise area sin quo non for employment generation, solid entrepreneurial base and encouragement for the use of local raw materials and technology.

The economic contribution and benefits of small scale industry
The relevance of SSI to economic development is hotly debated but the consensus clearly endorses its usefulness. The mechanism of its contribution, however, remains a contested issue. On the side of optimism ar­ticulate the roles of SSI as follows:-
v They are an integral element in the socio-economic structure at all stages of develop­ment.
v They are intermediary stabilisers as well as positive dynamic promoters of economic development.
v They are valuable tools for regional development and industrial decentralization.
v They provide employment outside the cities and can proliferate industrial growth centres within a short time span.
v They provide a wide base for flexible economic activities.
v They complement large industry as ancillaries and sub-contractors; as parts, components and other consumption
v Items suppliers, they help large industry to carry out sound production activities and reduce the outflow of foreign exchange through im­port substitution.
v They make an impressive contribution to employment, industrial production and ex­ports.
v Contribution to the economy in terms of output of goods and services;
v Creation of jobs at relatively low capital cost, especially in the fast growing service sector;
v Provide a vehicle for reducing income disparities;
v Develop a pool of skilled and semi-skilled workers as a basis for the future industrial expansion
v Improve forward and backward linkages between economically, socially and geographically diverse sectors of the economy.
According to the study conducted based on a survey of a considerable number of new enterprises, in an attempt to attain a better understanding of inventions and innovations, emphasis was made on enterprises that were established and existed for 10 years,1983-1986 and survive until 1993.
The findings of this assisted in spreading and disseminating the importance and roles of small industries in innovation and inventions. For instance, small enterprise operating in the field of electronics and related fields had very clear inventions and innovations as other enterprises engaged in other industrial activities managed to introduce inventions and innovations in their pertinent fields. Thus, inventions and innovations enhance the capacity of the enterprise to persist and compete in the enhance skills of employees.

Thus, the importance of the relationship between innovation and enterprise growth is very clear. the successful new enterprises and most capable of growing are those enterprises that had innovative and creative activities in the form of new products,technologies,human resources development or dissemination of new technologies. This played a key role in having an active and dynamic economy as well as a high productivity for the small businesses, the use of computer, for instance, decreased the cost in small businesses. The important of these factors varies between developing and developed countries whereas inventions,innovations,market modernization and creation of new enterprise are of primary importance in the developed countries, contribution to employment ,creation of employment opportunities and encountering poverty are of parallel importance in developing countries too. Thus developed countries showed inclination to explore and study patents filled by small businesses

The small-scale business sector is currently one of the fastest growing and important sectors as far as labour absorption and poverty reduction are concerned. This is so especially when the state sector is downsizing. Small businesses also serve as seedbeds for entrepreneurs, contribute to more balanced development and facilitate the process of adjustment in large enterprises, by emerging as competent suppliers of products and services previously not available in the market place. At a sectoral level, it is estimated that micro and small enterprises (MSEs) account for 75 per cent of all new jobs created and 61 per cent of all wage employment. This sector contributes 15 per cent of the gross domestic product (GDP) and constitutes 98 per cent of all businesses in the country. The sector also embodies most of the potential for future growth, and has championed most of the transformation in the nation.

The immediate effect of the deregulation of national markets and devaluation has
been large price hikes which have resulted in a dramatic reduction in the buying power and
contractions in the local market in both rural and urban areas. Retrenchment in the public sector has further contributed to reduced purchasing power. Cheaper consumer goods imports from other states and second hand clothes from the United States and Europe have saturated the local market. On the supply side, downsizing in the public sector has caused intense competition among small enterprises. This is mainly due to the large number of new entrants who also happen to possess superior skills and levels of education. Presumably, small enterprises have been the most vulnerable to both the contracting domestic market and increased competition.

Despite the preceding structural changes, economic agents operate in business
environments characterized by fragmented and incomplete information where awareness
of markets, technology, policy, regulations and finance is limited. For micro and small enterprises (MSEs) and enterprises located in rural areas, these problems are more accurate. This constraint adversely affects entrepreneurial activity since the absence of information impinges on the scope for discovery of profitable opportunities.

In the context of globalization, it is doubtful how these enterprises will take advantage of
emerging opportunities in local and export markets in the presence of both imperfect
markets and information. Markets, therefore, fail poor entrepreneurs not just in terms of
information chain processes but also in terms of input - they do not provide enough raw

It is acknowledged that information is a basic requirement for enterprise creation, growth
and survival, and that information and communications technologies (ICTs) are capable of
easing information gaps in the business sector. Unfortunately, little is known about institutions governing information flow in the MSE sector; the implementation of socially equitable projects; and perceptions of entrepreneurs about the information and communication technologies. Since networks are known to facilitate the flow, sharing and dissemination of information, it is important to understand how these social institutions operates. Since communication is essentially a social process, the essence of communication and development should not be to change people, but to give. It must be noted that, though understanding information gaps is important, information is not the be-all and end-all of enterprise development. Enterprise development is a multi-dimensional process that requires an understanding of other critical factors such as credit, skills, markets, finances, and so on.

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