Small Business in Nigeria - Case Study Example

Small Business in Nigeria Introduction to Small Business The term small-business pertains to the concerns that are low-cost and low-revenue based small companies. They do not have a formal organizational structure and the company is usually headed by its owner who is mainly an entrepreneur. An entrepreneur is a person who has a vision, an idea and the thirst to prove himself. (Strauss, 2005). He is highly motivated, very dynamic, full of energy, future oriented and not afraid of taking risks. Entrepreneurs are good leaders have the ability to take their organization past through any trouble using their skills and abilities. Entrepreneurs have a desire to be the master of themselves and have a high degree of commitment. Thus, instead of working for someone else, they choose to start up a small-business of their own. (Longnecker, Moore, Petty J. and Palich, 2005). When it comes to small-business, there is no set definition since different experts tend to define a small business differently. There are many factors through which small businesses are defined, including factors like size of the company, revenue, profits, operations, etc. The Bolton committee for instance has devised a definition of a small business called the economic definition. The economic definition is a more qualitative definition that emphasizes that a firm is called small when it has a relatively smaller chunk of the total market share of the industry, it is managed by owners in an informal and highly personalized environment and does not have a formal structure and that it is not a part of any large concern or a corporation and operates independently. (Corman, and Lussier, 2008). On the other hand, the European Commission defines a small business quantitatively. They coined a term Small & Medium Enterprise (SME) to refer to a small business. According to the European Commission, a business is a micro-enterprise if it has 0 to 9 employees, it is a small-enterprise if it has 10 to 99 employees and it is a medium-enterprise if it has 100 to 499 employees working under its umbrella. Organizations with employees 500 and above are hence called large-enterprises. Thus, a small business, in its true essence, is basically any firm that has a relatively smaller number of employed workers, has a small concern in the market, has a very informal organizational structure etc., however, at the end of the day, the exact measurement of any business as “small” is still a very vague concept and experts and analysts have thus been interpreting it differently according to the given situation and the circumstances. (Repa, 2006). Small Business Environment in Nigeria The small business environment in Nigeria is very encouraging. Since Nigeria is a developing country, hefty amounts of capital are often unavailable. (Strauss, 2005). Plus, even in tough economic times, small-businesses usually find a way to get past through the economic turmoil, in contrast to large corporations which have been observed going bankrupt or minimizing their operations in times of economic meltdown to avoid bankruptcy. (Repa, 2006). Moreover, a small business can serve as a stepping stone towards making it big in the market and achieving economic prosperity. (Strauss, 2005). Also, considering the unemployment level is very high, many people cannot find white-collar jobs. Hence they tend to start up a small-scale business of their own. (Corman, and Lussier, 2008). Furthermore, the small scale businesses are considered to be very respectable and highly positively recognized in a Nigerian society. Nigerians appreciate those people who take up the courage to start up a business of their own and encourage such moves. (Oluonye, 2007). Since small businesses are not very formally structured, it is easier for them to adjust to even the most radical changes in the business environment as compared to the large corporations and that adds another advantage of having a small business in developing countries like Nigeria where the economic, social, political and other conditions may transform overnight. (Strauss, 2005). PESTEL Analysis of Small Business in Nigeria In any business environment, there are various factors that influence the company’s operations, decisions, etc. directly or indirectly. These factors can largely be classified as political, economic, socio-cultural, technological, environmental and legal and an analysis of all such factors affecting any business environment is called a PESTEL analysis. A PESTEL analysis for small businesses in Nigeria is hence described below. (Repa, 2006). Political Factors Political factors in a business environment may be discussed on various levels, i.e. global, regional, local and national, etc. These factors include governmental regimes, level of corruption, taxation policies and government’s policies pertaining to business, etc. (Strauss, 2005). Another aspect of political factors is globalization and it pertains to a country’s policies regarding global trade, foreign influences, lobbying by foreign global corporations, etc. (Little, 2005). These are the factors that usually affect any business indirectly influencing its processes and procedures and affecting its operations. In Nigeria, the current political condition is pretty stable with no major issues raising their heads. This might be a great opportunity for small investors to avail in their benefit. (Oluonye, 2007). Economic Factors Economic factors are one of the most important criteria for a small business. These factors include, rate of inflation, exchange rates, interest rates prevailing in the market, income distribution and per capita income, etc. Since the business concern is small, it does not have enough resources to influence the market in accordance to its goals. Hence, it has to strategize given the current economic conditions. In present times of recession throughout the world, Nigerian economy is not too strong either. Hence the buying power of people is low and the supply of goods exceeds demand. For example, the current rate of inflation is 11.5% in Nigeria that is very high for such country. (Levy, 2004). This would affect the operations of businesses negatively increasing their costs and expenditures and lowering their market share as people may not be able to afford various products due to soaring prices. (Oluonye, 2007). Socio-Cultural Factors Socio-cultural factors of a business environment are the major factors that may affect any business organization. They include factors like demographic factors of the target market (age, gender, etc.), their values and attitudes towards various aspects of life, especially the aspects that directly link to the respective business, their level of education, their concern towards health, various trends and fads prevailing in the society, the impact of media, income distribution and the factor of affordability, etc. (Corman, and Lussier, 2008). For example, the level of education is a very important factor in shaping the market. In Nigeria, the literacy rate is 68% which is neither very high nor very low. The life expectancy rate, however, is relatively low being 52years in Nigeria as compared to 68 years on an average around the world. (Oluonye, 2007). Moreover, 5.8% people are infected with HIV (AIDS) which is a very high figure as compared to the rest of the world where it is 1.2% on an average. All these and numerous other factors shape up trends, values and lifestyles in a society and are very important for a business operating in that area. (Levy, 2004). Technological Factors Today’s world is loaded with high-tech stuff. It is very difficult to spend even some time without coming into contact with a technological product, be it a cell-phone or a computer or any other device. Companies have shifted their operations from manual to computerized long ago and are working day-in day-out to optimize their systems to yield maximum output in the most effective and efficient manner. (Longnecker, Moore, Petty J. and Palich, 2005). The technological factors affecting a business environment include breakthrough technology, Research & Development, information communications, innovative processes and procedures, etc. Small businesses can reap many benefits out of these technological innovations. (Repa, 2006). For example, the new work-from-home concept is maturing very rapidly and is an excellent option for small businesses. Especially in developing countries like Nigeria, the cost of setting up the whole infrastructure of a business organization may be very easily avoided by the use of such system through which all the employees and other stakeholders in a business can easily remain in continuous contact through these online systems and everyone can work from home or where ever they want to in the most flexible manner. This can also help in businesses that include operations outside the country since there is no nationality of the internet. (Little, 2005). Environmental Factors Environmental factors include the weather and climate of a particular region and the climatic change that occurs. It also pertains to factors like global warming, depletion of natural resources, pollution, etc. With the growing concern regarding conservation of environment globally, companies tend to indulge in various CSR activities and labeling themselves as Green Organizations. (Strauss, 2005). For example, in Nigeria there is a special emphasis on Corporate Social Responsibility on both private and governmental levels and Nigeria is the first country in the world to legislate CSR activities. (Oluonye, 2007). In early 2009, a bill was proposed to the National Assembly of Nigeria under which, all businesses are legally liable to spend at least 3.5% of their gross profits on CSR activities by law. This is a very positive initiative and many nations of the world appreciated this motive of the Nigerian government. (Levy, 2004). Legal Factors Legal factors are also a very important aspect of conducting business in any environment. They include laws and legislations pertaining to various aspects of the organization like labor laws, trade laws, ethical code-of conduct acts, etc. (Little, 2005). For example, like many countries, Nigeria too has a minimum wage-rate. It is the lowest possible wage that has to be paid per employee per month. In Nigeria, it is 5,500 Nigerian Naira, i.e. 36.6 US Dollars. (Oluonye, 2007). Similarly, there is a detailed Labor act that defines every single aspect of employing labor at an organization in Nigeria. (Oluonye, 2007). Also, as mentioned above, there are certain legislations pertaining to CSR in Nigeria where businesses are liable to spend 3.5% of their gross profits for CSR activities. When conducting business, all such matters should be taken care of accordingly, in order to avoid any mishaps in the future. (Levy, 2004). Recommendations for Improving Small Business in Nigeria There are many steps that entrepreneurs can take in order to enhance and improve their small-business. The first and the foremost initiative is to know the market and the business like the top of your hand. In a developing country like Nigeria, the following tips may be useful in improving the small-business. (Longnecker, Moore, Petty J. and Palich, 2005). Monitoring trends It is extremely important for a small business owner to stay in touch with the current trends in the market since new trends can open up a totally new arena of opportunities and may also close down various business options previously available in the market. (Repa, 2006). Best Practices Every industry has a set of practices that may be labeled best according to the type of business and operations. The small-business owner should always strive to determine and implement those best practices to his business in order to yield maximum output from the business. (Levy, 2004). Market yourself properly Another important aspect is effective and efficient marketing of your business. Here, in addition to effective marketing strategies, the most important thing to know is when and where to advertise, since a small business cannot afford to spend much on its marketing and proper marketing analysis is necessary to ensure the marketing is cost-efficient and benefit-yielding. (Strauss, 2005). Keep track of your financials It is important for an entrepreneur to keep track of his business’s financials. He should keep an updated record of the weekly, monthly, quarterly and annual financials and should know how to analyze them for the betterment of the business. It might be astonishing to see how well keeping records may work for a small-business. (Little, 2005). Conclusion Concluding the discussion, it can easily be stated that Nigeria is a very lucrative and a viable market for small businesses. All one needs is an entrepreneurial mindset and proper set of strategies to make the business a success. With a proper analysis of the industry and its subsequent implementation, the business would flourish and prosper day-in and day out. REFERENCES Books Longnecker,Justin; Moore Carlos; Petty J. and Palich, Leslie. 2005. Small business management: an entrepreneurial emphasis. Cengage Learning Corman, Joel and Lussier, Robert. 2008. Small Business Management: A Planning Approach. Cengage Learning. Little, Steven. 2005. The 7 irrefutable rules of small business growth. John Wiley & Sons. Repa, Barbara. 2006. The small business start-up kit. Nolo. Root, Hal and Koenig, Steve. 2003. The small business start-up guide: a surefire blueprint to successfully launch your own business. Sourcebooks, Inc. Strauss, Steven. 2005. The small business bible: everything you need to know to succeed in your small business. John Wiley & Sons. Worthington, Ian and Britton Chris. 2006. The Business Environment. Financial Times/Prentice Hall. O’Sullivan, David and Dooley, Lawrance. Applying Innovation. SAGE. Levy, Patricia. 2004. Nigeria. Marshall Cavendish. Oluonye, Mary. 2007. Nigeria. Lerner Publications. Read More