Economic Development in Nigeria - Essay Example

Introduction Small and Medium Enterprises (SMEs) are one of the most important ‘engines’ for economic growth for any nation. This is so, as SMEs often integrate into the society and work at the ground level providing employment opportunities as well as other benefits to the masses, in a manner which large organizations may not be able to provide due to their geographical concentration. In many developed and developing countries, SMEs occupy a sizeable share of their industrial base, scattering geographically and contributing towards the economic development of the country. Among those developing countries, the African country of Nigeria is a key one and in that country, SMEs account for almost 95% of the total industrial base of the country. “The formal and organised SMEs represents more than 95% of the organised manufacturing sector in Nigeria in terms of numbr of units” (Mamman, Eldridge & Branine 2007, p. 152) Nigeria is a country with a population of over 149 million people, and politically speaking, it remained under the military control for most part of its modern history. (CIA.gov 2009). According to World Bank figures (2009), Nigeria economy comes under the category of lower middle income countries or developing country with potential for good growth due to its substantial oil resources, which can provide the necessary stimulus for the economic growth. Due to the inefficiencies of the previous and current governments in managing the overall affairs of the economy, Nigeria is not able to fully tap its resources and achieve economic success. It is because of this reason that Nigeria is still considered among the 20 most poor nations of the world as 57% of its population are still living below the poverty line. (Canagarajah & Thomas 2001). However, the Present government of the country is believed to have undertaken steps to undo the damage that has been done to the economy in the past. One of the key steps is the diversification the economy as almost 85% of the economic is dependent on the oil sector. “The Nigerian economy is heavily dependent on the oil sector, with this industry accounting for more than 95% of export earnings and about 85% of government revenues, says the World Bank” (cited in Brinded 2010). With this diversification, Nigeria can have a diversified base of businesses which invariably can provide the stable and sustainable economic development for the country. In such a scenario, SMEs can play a critical role in providing diversification and serve as the necessary catalyst for the economic growth of the country. This leads to the question of exploring, the role of SMEs and how they can prove to be a catalyst for the economic growth. SMEs, as mentioned above, can provide the necessary impetus because it has some peculiar benefits, which can be beneficial to the Nigerian economy. Due to lack of capital formation and non-availability of sophisticated technology, Nigeria accordingly can rely on these SMEs. That is, as SMEs does not need very high investments as well as advanced technologies to establish and run, even while providing good outputs, it can be apt for the Nigerian economy. This being the case, this research study will therefore, attempt to study as to how the SMEs can serve as the catalyst for the economic growth of Nigeria with special reference to AUSTINE .U. FURNITURE & CO LTD. Austine. U. Furniture & Co Ltd (thereafter called as firm) is a small firm with interests in the furniture business. The firm has two factories and six showrooms, located in the Edo- State of Nigeria, employing 8 permanent workers and 15 apprentices making the overall work strength to 23. There are four departments in the firm namely the Production, Upholstery, Sales as well as the Administration department, which only oversees other departments or all the affairs of the firm. This research study will therefore, prepare a case study using Austine. U. Furniture & Co Ltd and will attempt to come up with answers and analyses to find whether the Small and Medium Enterprises (SMEs) can prove to be a strong catalyst for the economic growth of Nigeria. Significance of the Study The significance of the study will include the implications for the organization being studied as well as for the economy of Nigeria. This is critical because the intended objectives of this research study include understanding the impact of SMEs on the economy of the Nigeria. In the larger context, as this specific firm will also be benefited if the Nigerian economy grows, this research study will attempt to outline how SMEs can contribute to economic growth. Besides, this study will also be beneficial from the organizational (or firm’s) point of view, as it will provide answers to many important strategic issues, the firm may face in future and how it can overcome them. Research Objectives 1. To develop a growth strategy for Austine. U. Furniture & Co Ltd. 2. To critically evaluate the internal resources requirements required to achieve a growth factor of Austine. U. Furniture & Co Ltd. 3. To critically examine the prospects of increased to assist in achieving growth. Literature Review From an organizational perspective, SMEs are considered as the important economic agents because they can bring in more innovation and creativity, thereby profits to the economy. Such capability of the SMEs, therefore, provides the economy an added advantage to have a much diversified base of businesses that can offer the economy, necessary depth as well as resilience to withstand the external economic shocks to the economy. (Fletcher 2008). As Schumpeter states the entrepreneurs are the major agents for the economic development because they are not only the risk takers but also tend to become more creative in the process of utilizing their skills in times of need, thereby optimizing their firms. As such the SMEs are considered as the major ‘breeding grounds’ for the entrepreneurs who can serve as important economic agents for bringing in the desired change within the society. (Morrison 2000). With SMEs forming the largest percentage of businesses in any country, it can be effective in bringing in the economic benefits to the common men, given their penetration into the economy at the very gross root level. (Kuratko 2008). It is also argued that the term entrepreneurship is moreover associated with the SMEs, as the entrepreneurs will start their new businesses at the smaller and medium level. Another similarity between SMEs and entrepreneurship is that entrepreneurs normally face the same type of problems SMEs face such as restricted access to external financing, sophisticated technology, etc. These impediments to SME’s or entrepreneurs may not allow them to flourish as expected and could impede their contribution towards economic development of the country. (Johnson 2001). Establishment of SMEs also results into the creation of human capital. That is, SMEs due to their outreach into the society as well as economy brings in far more skilled, knowledgeable, competent and prospective employees than other sectors, leading to accumulation of optimum work capital. Such ‘production’ of human capital often provides SMEs an upper hand in becoming the agents of economic change, even while enabling them to take optimum benefits from the abundant human resources. As pointed out by Harvie & Lee (2002) SMEs are also considered as organizationally efficient and creative entities therefore, creation and access to human capital will eventually result in their own development as well as the development of the economy as a whole. The growth of the economies also offer an opportunity for smaller firms to become more competitive and form clusters among them, which can then provide the relative benefits at the regional, national as well as at the international level Furthermore, SMEs allow an economy to make a transition from an agro-based one to a more industrial based economy, when the going gets tough in the agriculture culture sector. For a country like Nigeria where Agriculture (along with oil extraction and refining) still plays an important role in local economic activity, SMEs can provide a viable and better alternative to the agriculture, and thus lessen the reliance of the population on just one source of economic activity. (Lal 2007). There are various examples, wherein the growth of SMEs has led to economic development and wholesome economic growth for a country. China is one of the leading examples of how SMEs can ‘blossom’ anywhere and basically contribute towards the economic development of country. (Zhang & Wang 2009). As far as Nigeria is concerned, access to finance remains one of the leading causes for the SMEs not to realize their true potential. That is, the Central governments or even the state governments not providing enough financial backing or other concessions, exemptions, etc for these SMEs. Many entrepreneurs believe that the overall attitude of the public officials as well as the government is not supportive of the smaller firms. (Nwaobi 2004). So, restricted access to the finances from the government side is resulting in significant problems for the firms to become more competitive. Thus, they take advantage of the leverage that external finances offer. With this offer, they have good flow of finances and has this basic need of finances is taken care, SME’s or its employees can function with a lot of motivation. According to Abraham Maslow, employees have five levels of needs: physiological, safety, social, esteem, and self- actualizing. He argued that lower level needs of the hierarchy have to be satisfied before the other higher needs come into the picture. That is, firstly if the physiological need of the employee is fulfilled, he/she will get good motivation. Following the physiological need, if other needs are subsequently fulfilled, the employees will have optimum motivation to perform effectively. Once, the finances is accessed and motivation gets imbued in the organisation, the internal process can be optimized based on Balanced Scorecard. So, this initiative in line with the third strategic model of internal analysis, as per the Balanced Scorecard, could make the SME’s function optimally and achieve success. The above literature review indicates that the SMEs can serve as the important agent to accelerate the economic growth. However, at the micro-level, in Nigeria, there may be significant constraints on the SMEs to grow to their full potential. Research Methodology Research Philosophy The basic research philosophy plays a significant part in deciding the overall outcome of the research objectives. From philosophical point of view, the objectives of the research therefore shall be generally acceptable and must contribute towards the overall ethical responsibilities of the researcher. The basic philosophical aim of any research, therefore, is to understand as to how the certain aspect of the world around us actually works and how our understanding of that aspect can be improved with the intended research. Thus, the overall research should be corroborating with the philosophical roots of conducting research and must contribute towards our understanding of the world. Accordingly, the contemporary social science research requires that the more positive approach to research shall be undertaken, wherein the most fundamental questions are challenged and explored without restoring to positive approach to research. (Goodard & Melville 2004). An important different between positivism and realism is in their respective views of what scientific inquiry or analysis aims to achieve. As the positivists think logically and scientifically, to connect the events without irregularity, it is better choice. Ontological basis of the research Objectives Ontology, as a field of philosophy, studies the nature of being and existence and how various entities can be grouped into existence. The main research objectives indicate that there is an attempt to understand as to how the different entities interact with each other and can result into the development of other entities as well. (Wrenn, Stevenson & Loudon 2007). Thus this grouping of various entities and their interaction with each other justify the ontological basis of this research study. Qualitative and qualitative approaches This research study will be qualitative in nature given the overall objectives of the research. Since there will be thorough exploration of the ways in which the firm can grow and develop within the larger context of the Nigerian economy, it is therefore imperative that a multi-dimensional approach of qualitative as well as the quantitative approach has to be adapted. Qualitative approaches are often considered as the ‘general’ approach of conducting the research in qualitative manner. There are various sub-approaches as well and that can be adapted while conducting the research, and this research study will be focusing on the adaptation of the ethnography as the major qualitative approach to conduct the research. Ethnographic approach requires that the researcher must study a whole new culture or geographic location and as such studying of the organizations as well as any groups associated with the organisation also come under this approach. Though ethnographic studies require active field participation, it is, however, critical to note that this research intends to perform this task by surveying the literature as well as taking active participation in understanding the local dynamics of SMEs in Nigeria. Similarly, the quantitative research methodology will also be used to explore some of the subtle observations such as the study of various factors that have affected the growth of the firm as well as what can be the key drivers for the SMEs which can result in growth and development. As such, the impact of various strategies on the profitability of the firm will also be discussed to quantify the impacts of the different drivers on the growth of the firm. Research Strategy The overall research strategy for this study will be based on the standard research strategy approach which is a step by step process. This research study will therefore, first identify and develop the topic (which has already been identified and refined), followed by collecting the background information that is needed to complete this research study. The background information will be found from various resources including books, journals as well as internet. Research Methods As outlined above, this research study will attempt to use the qualitative as well as quantitative methods. As part of the quantitative method and to address all the objectives, the Triangulation method needs to be tried with all the resources. That is, by basing on Semi-structured Interviews which includes Face to Face interaction or Telepone, all the data needed for the study can be collected and will be useful in the not so distant future. Triangulation, validity, reliability Triangulation, Data validity and reliability can be carried, when the data collected from various sources, are counter-checked through different other sources to confirm that the data that has been obtained is valid and reliable. In order to check the validity and reliability, the researcher may have apt and an effective model for data, using which the gathered data can be counter-checked. Also, the collected data can be counter-checked with a successful framework as well. Thus, this focusing of collected data in the form of triangulation will improve validity and reliability of the collected data. This will help the researcher to overcome any deficiencies in collecting the data as well as to lessen the impact of other errors that may be committed during the research study. Thus triangulation, validity as well as reliability of the data will be done at the same time to save the cost and time so that the study can be completed in time. Critical Evaluation Research studies and the research methods have their own weaknesses and those shortcomings may have an impact on the overall results of the research. This research study will not be an exception because the inherent weaknesses of the various methods may contribute towards the distortion of the results. These distortions could negatively impact in the achievement of the research objectives. So, before discussing critically the shortcomings of the different approaches that was adapted for conducting this research, it important to note that as mentioned above every research study is limited in its scope. Thus, the results and validity of the various approaches that are to be adapted will depend mainly upon their relative importance to the study considering the overall research constraints. However, these research constraints can be overcome with some counter strategy, but even that could have constraints and so that could also impact the research objectives. Firstly, the ethnographic approach often requires that the field study shall be conducted with active participation from the researcher. As part of that field, important field notes need to be taken and also on-field research need to be done. However, due to the time and resource constraints, it will be impossible for the researcher to undertake the field research on a full-time basis. Thus, it will be critical to note that this research study will be smaller in its scope as well. That is, this research study is being done as a part of the research assignment for an academic purpose. Therefore considering the lack of resources and time available, the researcher will be focusing more on using desktop approaches to conducting research, rather than engaging in thorough ground work to understand the SME’s and the Nigerian economy in a first-hand manner. More reliance, therefore, will be placed on understanding the Nigerian SMEs by surveying the present literature from various sources in order to overcome the resource and time constraints. This constraint could impede the researcher from finding out what is happening on the ground, that is inside the firm, Austine .U. Furniture & Co Ltd. and thus could impede in achieving the objective of evaluating the internal resources requirements in a detail manner as required to achieve the growth factors. That is, restricted knowledge about the internal processes and lack of ground work could make it difficult to evaluate the internal processes. This will lead to some negative impacts on the achievement of the objectives. However, to overcome this shortcoming, rather a different approach will be adapted. Since this research study is about developing a case study for a firm, the researcher will be attempting to study the organization as a whole, by conducting face-to-face interaction as well as collecting data through a questionnaire directly from the employees working in the firm. There are also some important ethical considerations regarding the ethnographic approach. That is, while conducting the research, the researcher could maximally avoid revealing the true aims and objectives of the research from the respondent, owner/manager. This act of concealment of the true motives from the respondents can be carried out because it is believed that if responders know about the actual aims and objectives of the research, they may be behaving in an entirely different manner with varying consequences for the research study. This could impact the research objective of finding out the feasible growth strategies for the firm because even slight distortions in response from the owners/manager could make it difficult to find out the exact or even the tentative growth strategies of the firm. Secondly, because of the minimal work strength of the current firm and also because of the minimal number of SMEs (just one firm) to be studied, there is a very small sample size. That is, with only one firm under the study, the overall data collection, especially for quantitative purposes may be distorted. This distortion could not reflect upon the actual or intended objectives of the firm including the growth strategies and importantly how the current firm could impact the overall economy. Thus, small sample size, therefore, can be one of the biggest constraints on this study given the fact that this research study is going to focus on the overall role of SMEs in the whole scenario of Nigerian economy. Therefore there is a strong possibility that the correlating the research results of the firm with that of the Nigerian economy will be an important research constraint. In conclusion, it is clear that with the firm under study being relatively small and occupy a ‘minor stake’ among all the SME’s of the Nigerian economy, it is quite difficult to achieve the research objective of understanding how these SMEs can act as a catalyst for the growth of the Nigerian economy. However, if one looks from an overall perspective, since this research study will first study and outline the different factors at the macro level particularly the factors that are negatively impacting or contributing towards the economic growth of Nigeria, it could provide inputs of about the particular SME’s (Austine .U. Furniture & Co Ltd.). That is, as that SME operates in the Nigerian economy, the happenings in that particular economy could have an impact on the SME. So, this approach will allow the researcher to focus exclusively on the firm and its relationship with the economy and how different macro- economic factors can impact the internal processes of the firm at the micro level and thereby impact its growth strategy. Bibliography Brinded, L 2010, Shell: Nigerian oil and gas production is falling, Available from: http://www.risk.net/energy-risk/news/1593666/shell-nigerian-oil-gas-production- falling [Accessed 10 March 2010]. Canagarajah, S & Thomas, S 2001, Poverty in a Wealthy Economy: the Case of Nigeria . Journal of African Economics, vol. 10, pp. 143-173 cia.gov 2009, CIA World Factbook, Available from: https://www.cia.gov/library/publications/the-world-factbook/geos/ni.html. [Accessed 10 March 10]. 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