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Full Project – THE EFFECT OF ENTREPRENEUR CHARACTERISTICS ON BUSINESS PERFORMANCE IN NIGERIA: A STUDY OF SELECTED SMES IN LAGOS NIGERIA

THE EFFECT OF ENTREPRENEUR CHARACTERISTICS ON BUSINESS PERFORMANCE IN NIGERIA: A STUDY OF SELECTED SMES IN LAGOS NIGERIA

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CHAPTER ONE

INTRODUCTION

1.1   Background to the Study

The link between entrepreneur characteristics and Business performance has received a lot of focus by studies. Studies (Erikson, 2002; Westerberg & Wincent, 2008; Islam et al., 2011) show that characteristics of an entrepreneur which include demographic factors, individual background, personal traits, entrepreneur orientation, and entrepreneur readiness play an important role in performance of business in Nigeria. These factors which form the character and behaviour of the entrepreneur are crucial internal capacities that impact on firm performance (Schreckenberg et al.,2006; Dubey, 2008; Zoysa & Herath, 2007; Islam et al.,2011). Thus an enterprise reflects the characteristics of the entrepreneur whose commitment and vision are central to firm performance. The entrepreneur combines both tangible and intangible resources into a business organization (Gómez, 2006). Erikson (2002) observed that characteristics of the entrepreneur are determinants of firm performance. Essentially, firm performance is determined by the attributes of the entrepreneur driving the process.

All over the world as well as in Nigeria, several characteristics and factors have been identified to be key determinants of entrepreneur’s survival, although with inadequate empirical results. With SME survival rate generally low across the globe, it is necessary to establish an understanding of key entrereneurial characteristics and business practices that can help in the understanding and promotion of SMEs long-term survival. It is alleged that if business owners and managers are good at managing their businesses, then they will do extremely well in terms of ensuring the continuous survival of their businesses.

Therefore, for entrepreneurs to survive and succeed in their business operations, it is pertinent that its owners or managers possess certain entrepreneurial characteristics and carry out specific business practices. In this regards, SMEs deserve much more attention, especially with regards to the entrepreneurial characteristics and the business practices of the entrepreneur, which are often developed as part of the entrepreneur‟s personal life strategies. These business practices and personal life strategies are used as a means of earning a living, which in turn is largely influenced by the entrepreneur‟s personality characteristics.

Furthermore, given that entrepreneurial characteristics can influence both the type of firms to be created and the manner in which they are managed, little has been established on which of these characteristics and business practices influence the long- term survival of SMEs and the extent of its impact. Based on the gaps identified, this study seeks to determine which key entrepreneurial characteristics and business practices that entrepreneurs possess, that would influence the longterm survival and sustainability of SMEs. This knowledge will enable entrepreneurs in the SME sector to understand and focus on implementing the key business practices and adopting the key entrepreneurial characteristics that can lead their businesses to long-term survival. Achieving this will contribute to the reduction of the high SME failure rates and increase SMEs long-term survival.

1.2   Statement of Problem

Businesses in the SME sector all over the world are more prone to failure due to the specific qualities possessed by the businesses, their owners and managers (Bannock, 2005). In Nigeria, entrepreneurial ventures have a low survival rate as entrepreneurs start businesses but are unable to turn them into sustainable businesses. Also, most new SMEs in Nigeria do not move from the first stage (existence) to other stages such as survival, success, take off and resource maturity.

Akingbolu (2014), Okezie, Odii, and Njoku (2013) has documented that 70% of SMEs fail in their first three years of operations in Nigeria because of their economy of scale. This is coupled with the dynamic nature of the environment, greater competitive firms and the need for continuous innovation. Product customization and growing use of ICT, forces firms to face challenges of improving their competitiveness. These difficulties are greater for the highly competitive environment for small scale businesses which negatively affect their Return on Investment (ROI). The inability of top management of SMEs to properly analyze the market is one of the leading causes of reduction in Return on investment (ROI) for SMEs (Aaker, Kumar & Day, 2008). This is as a result of their inability to formulate and implement appropriate competitive strategies for diversification, to fulfill their role of being an industry low cost provider, developing expertise and creating a niche for their companies that will allows for SME Development.

Mwangi and Omhui (2013) posit that inability of small scale and medium scale enterprises (SMEs) to gear effort towards applying effective competitive strategies reduces return on investments because of the severe competition they face from multinational companies in the market and the need to meet consumer’s requirement for quality, quantity and price has been a major challenge that has led to the collapse and eventual failure of many SMEs. The entrepreneur’s inability to put in place adequate competitive strategy that would lead to responsive customer satisfaction, revenue growth and increased returns on investment is a factor that leads to failure (Offor, 2012).

Despite, its significant position as the giant of Africa, in terms of natural resources, majority of firms predominantly small and medium scale enterprise still underperform while others wind up within first five years of business in Nigeria. Only five to ten percent survive to achieve maturity stage, even with available financial resources (Ayanda & Danlami, 2011; Onugu, 2005), due to lack of strategic human resource planning (Okpara, 2011) and this lack of human resource strategies has not given room for increasing performance by the SMEs. The poor performance of Nigerian small and medium enterprises (SMEs) is an issue of serious concern to all Nigerians and other stakeholders (Ibru, 2013). The current chief executive officer (CEO) SMEDAN, Nadada (2013), admitted the following problems facing SMEs in Nigeria to include, among others poor market orientation strategies, inadequate knowledge of managing firms, poor marketing skills, low entrepreneurial spirit and the absence of this leads to reduction in their market share.

1.3   Objective of the Study

The main objective of the study is to effect of entrepreneur characteristics on business performance in Nigeria. The specific objectives are to:

  1. examine the effect of entrepreneur competitive strategy on Return on Investment;
  2. identify the effect of entrepreneur human resources strategy on employee productivity;
  3. evaluate the effect of entrepreneur market orientation strategy on market share;
  4. determine the effect of entrepreneur adaptation strategy on business policy and
  5. examine the effect of Entrepreneurial Strategies on SMEs development.

 1.4 Research Questions

The study answered the following research questions:

  1. What is the effect of entrepreneur competitive strategy on Return on Investment for SMEs development?
  2. How does entrepreneur human resources strategy affect employee productivity for SMEs development?
  3. What is the effect of entrepreneur market orientation strategy on market share for SMEs development?
  4. What is the effect of entrepreneur adaptation strategy on business policy for SMEs development?
  5. How does entrepreneurial Strategies affect SMEs development?

1.5  Research Hypotheses

The hypotheses for the study are as follows:

H01: Entrepreneur Competitive Strategy has no significant effect on return on investment for SMEs development. H02: Human Resources Strategy has no significant effect on employee productivity for SMEs development.

H03: Entrepreneur Competitive Strategy Market Orientation Strategy has no significant effect on market share for SMEs development.

H04: Adaptation Strategy has no significant effect on business policy for SMEs development.

H05: Entrepreneurial Strategies has no significant effect on SMEs development.

1.6 Scope of the Study

This study investigated the effect of entrepreneur characteristics on business performance in Nigeria: A Study of Selected SMEs in Lagos Nigeria.

 

1.7 Significance of the Study

The general understanding of this study would serve as a useful guide to management, practitioners, executive, corporate managers most especially in SMEs to understand how entrepreneurial strategies in their business policies, leadership styles, recruitment and selection, innovation and pricing aid or enable, the relationship and the extent of its effect on the attainment of development by the SMEs. The study would also enable the SMEs to proactively respond to changes within the environment more effectively as well as enable them implement better business strategy for their operation and development. This study would enable stakeholders in SMEs to understand that employing all these strategies together would enable them achieve organizational growth and development.

Understanding from this study would enable the government to create better policies and regulation with regards to the research variables in a way to enable development and growth within the country’s economy and sector as well. Findings from this study will enable the society to be more informed and provide more knowledge with regards to entrepreneurial strategies as it relates to SMEs development. It would also provide more knowledge concerning entrepreneurial strategies and reveal what makes it to be entirely different from one SME firm to another. Lastly, it is also hoped that these findings would contribute to the body of knowledge and stimulate more researcher’s interest in this field of study.

1.9   Operational Definition of Terms

The operational definitions of terms for this study are:

Entrepreneurial Strategy: is the means by which an organization establishes and re-establishes its fundamental set of relationships with its environment characterized by changes in the pattern of decisions taken by the organization.

Competitive Strategy: is defined as long term strategies taken to attract customers, withstand the competitive pressures of the market and also to help and strengthen the firm’s market position taken after evaluating its strengths and weaknesses compared to those of its competitors.

Human Resource Strategy: is a coordinated set of actions aimed at identifying current and future human resources needs in order to integrate an organizations, people, system and culture towards achieving the organizational goal.

Market Orientation Strategy: are business strategies that focus on identifying and meeting the stated or hidden needs or wants of customers through its product mix.

Adaptation Strategy: is defined as the modification of strategies in a business to cope with cultural and demographic differences in the market to make it successful in situations different from originally anticipated.

SME Development: this refers to the growth of an SME with the systematic use of scientific and technical knowledge to meet specific objectives or requirements of the organization.

Return on Investment: this is a ratio that takes the firm’s profit for a given accounting period.

Employee productivity: this is defined as production attributable to staff with the least effort.

Business Policy: this is defined as plans or principles which guide the thinking and decision making and action of an organization.

Entrepreneurial Characteristics – Entrepreneurial Characteristics are feature or qualities belonging typically to an entrepreneur.

1.8       Operationalization of Variables

The variables of this study are operationalized as follows:

Y = f(X)

Y = Dependent Variable

X = Independent Variables

Where:

Y = SME Development

X = Entrepreneurial Strategies

Y = (y1, y2, y3, y4)

X = (x1, x2, x3, x4)

Where:

y1 = Return on Investment (ROI)

y2 = Employee Productivity (EP)

y3 = Market Share (MS)

y4 = Business Policy (BP)

x1 = Competitive Strategy (CS)

x2 = Human Resources Strategy (HRS)

x3 = Market Orientation Strategy (MOS)

x4 = Adaptation Strategy (AS)

y1= f (x1) …………………………………………. Equation 1

y2= f (x2) …………………………………………. Equation 2

y3= f (x3) …………………………………………. Equation 3

y4= f (x4) …………………………………………  Equation 4

Y=f (X) …………………………………………… Equation 5

The variables in Equation 1- 5 are the working Equations that were evaluated in this study.

y1 = a0 + β1x1 + e

y2 = a0 + β2x2 + e

y3 = a0 + β3x3 + e

y4 = a0 + β4x4+ e

Y = a0 + β1x1 + β2x2 + β3x3 + β4x4 + e

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