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THE EFFECT OF SURVIVAL STRATEGIES ON THE PERFORMANCE OF SMALL AND MEDIUM SCALE ENTERPRISE

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Small and medium-sized enterprises (SMEs) are increasingly recognized as vital contributors to economic development, job creation, and innovation across the globe. They represent a significant portion of the business landscape, providing a source of income and employment for millions of people. According to the World Bank, SMEs account for about 90% of businesses and more than 50% of employment worldwide (World Bank, 2020). However, despite their importance, SMEs face numerous challenges that can hinder their growth and sustainability, particularly in developing economies. These challenges often compel SMEs to adopt various survival strategies to navigate the turbulent business environment and enhance their performance.

Survival strategies are actions and plans developed by businesses to remain viable and competitive in a constantly changing environment. In the context of SMEs, these strategies can include cost reduction, diversification of products and services, improving operational efficiency, and adopting technology (Agyapong, 2020). Effective survival strategies are crucial for SMEs to cope with challenges such as limited access to financing, lack of skilled labor, and competition from larger firms. The ability to adapt and implement appropriate survival strategies can significantly influence an SME's performance, particularly in terms of profitability, growth, and market share (Khan & D’Silva, 2021).

Research has shown that SMEs that employ robust survival strategies tend to exhibit better performance outcomes compared to those that do not (Badi & Almubarak, 2018). For instance, a study conducted by Abor and Quartey (2018) highlighted that SMEs in Ghana that adopted innovative strategies experienced increased revenue and market competitiveness. This trend underscores the critical role of strategic management in enhancing the operational efficiency and sustainability of SMEs. Moreover, survival strategies can also help SMEs to mitigate risks associated with market fluctuations and economic downturns, thereby ensuring long-term viability (Hassan, 2019).

The significance of SMEs extends beyond economic contributions; they also play a crucial role in fostering social development and entrepreneurship. By encouraging local entrepreneurship, SMEs contribute to the empowerment of individuals and communities, thereby enhancing social cohesion and stability (OECD, 2020). In many countries, especially developing nations, the success of SMEs can lead to poverty alleviation and improved living standards. However, the interplay between survival strategies and performance in SMEs remains an under-researched area, necessitating further exploration and understanding.

This study aims to investigate the effect of survival strategies on the performance of SMEs, focusing on various factors that influence their ability to thrive in competitive environments. By examining the relationship between survival strategies and performance metrics, this research will provide valuable insights into the best practices that SMEs can adopt to enhance their operational success. Additionally, the findings of this study will contribute to the existing body of knowledge on SME management and provide practical recommendations for entrepreneurs and policymakers.

1.2 Statement of the Problem

Despite the recognized importance of SMEs in driving economic growth and creating jobs, many small and medium enterprises struggle to survive and achieve sustainable performance. The high rate of failure among SMEs is often attributed to various internal and external challenges, such as inadequate access to finance, high operational costs, market competition, and regulatory constraints (Khan & D’Silva, 2021). As a result, many SMEs find themselves unable to compete effectively in the marketplace, leading to stagnation or failure.

The problem is further exacerbated by a lack of knowledge and understanding of effective survival strategies that can be implemented to enhance performance. Many SMEs operate without a clear strategic direction, relying on reactive measures rather than proactive strategies to navigate challenges (Agyapong, 2020). This gap in knowledge can result in poor decision-making and ineffective resource allocation, ultimately impacting the overall performance of these enterprises.

Furthermore, the dynamic nature of the business environment, characterized by rapid technological advancements and changing consumer preferences, demands that SMEs continuously adapt their strategies to remain competitive. However, many SMEs lack the necessary resources, expertise, and support to implement effective survival strategies (Badi & Almubarak, 2018). This situation raises concerns about the long-term sustainability and growth potential of SMEs, necessitating a thorough examination of the survival strategies employed and their impact on performance.

This study aims to address the identified gaps by investigating the relationship between survival strategies and the performance of SMEs. It seeks to provide empirical evidence on the effectiveness of various survival strategies and their influence on the operational success of small and medium enterprises.

1.3 Objectives of the Study

The main objective of this study is to determine the impact of survival strategies on the performance of small and medium-sized enterprises (SMEs).

Specific objectives include:

i. To evaluate the impact of strategic planning on the financial performance of SMEs.

ii. To determine the effectiveness of innovation and technology adoption as survival strategies for enhancing SME performance.

iii. To find out the relationship between cost management practices and the operational efficiency of SMEs.

1.4 Research Questions

i. What is the impact of strategic planning on the financial performance of SMEs?

ii. What is the effectiveness of innovation and technology adoption as survival strategies for enhancing SME performance?

iii. How does the relationship between cost management practices and the operational efficiency of SMEs affect overall performance?

1.5 Research Hypotheses

Hypothesis I
H0: There is no significant impact of strategic planning on the financial performance of SMEs.
H1: There is a significant impact of strategic planning on the financial performance of SMEs.

Hypothesis II
H0: There is no significant effectiveness of innovation and technology adoption as survival strategies for enhancing SME performance.
H2: There is a significant effectiveness of innovation and technology adoption as survival strategies for enhancing SME performance.

Hypothesis III
H0: There is no significant relationship between cost management practices and the operational efficiency of SMEs.
H3: There is a significant relationship between cost management practices and the operational efficiency of SMEs.

1.6 Significance of the Study

This study is significant for several reasons. First, it contributes to the existing literature on SMEs by providing empirical evidence on the relationship between survival strategies and performance. Understanding these dynamics can inform entrepreneurs, policymakers, and scholars about the best practices and strategic approaches that SMEs can adopt to enhance their operational success.

Second, the findings of this research can serve as a valuable resource for SME owners seeking to navigate challenges and improve their business performance. By identifying effective survival strategies, this study aims to empower SMEs to make informed decisions that can lead to sustained growth and competitiveness.

Lastly, the insights derived from this research may have broader implications for economic policy and development strategies aimed at supporting SMEs. Policymakers can utilize the findings to formulate targeted interventions and support mechanisms that enhance the sustainability and growth potential of small and medium enterprises.

1.7 Scope of the Study

This study focuses on small and medium-sized enterprises (SMEs) operating in [specific geographical location or industry, e.g., "Lagos State, Nigeria"]. It aims to investigate the survival strategies adopted by these enterprises and their impact on performance indicators such as profitability, market share, and operational efficiency. The study will encompass various sectors within the SME landscape, including manufacturing, retail, and service-oriented businesses.

The research will employ both qualitative and quantitative methods to collect data from SME owners and managers, ensuring a comprehensive understanding of the survival strategies implemented and their effects on performance. However, the study will be limited to SMEs within the defined geographical area, which may affect the generalizability of the findings to other regions or countries.

1.8 Limitations of the Study

Despite the rigorous approach adopted in this study, certain limitations should be acknowledged. One of the primary limitations is the reliance on self-reported data from SME owners and managers. This method may introduce biases, as respondents might overstate the effectiveness of their survival strategies or underreport challenges faced.

Additionally, the study's focus on a specific geographical area may limit the applicability of the findings to other regions with different economic contexts and business environments. Future research could expand on this study by exploring the effects of survival strategies in different geographical locations and industries.

Lastly, the dynamic nature of the business environment means that survival strategies may evolve over time. Therefore, the findings of this study may need to be revisited periodically to remain relevant and applicable to current market conditions.

1.9 Definition of Terms

1.    Small and Medium-sized Enterprises (SMEs): Businesses that maintain revenues, assets, or a number of employees below a certain threshold. The definition may vary by country but generally includes businesses with fewer than 500 employees (OECD, 2020).

2.    Survival Strategies: Plans and actions implemented by businesses to remain competitive and sustain operations in challenging environments.

3.    Performance: A measure of the efficiency and effectiveness of a business in achieving its objectives, often evaluated through financial metrics such as profitability, revenue growth, and market share.

4.    Strategic Planning: The process of defining an organization's direction and making decisions on allocating resources to pursue that strategy.

5.    Innovation: The introduction of new ideas, products, or processes that improve efficiency and effectiveness.

6.  Cost Management: The practice of planning and controlling the budget of a business to ensure financial efficiency and sustainability.