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THE ROLE OF ENTREPRENEURIAL COMPETENCIES ON THE SUCCESS OF SME IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND TO THE STUDY

Small and Medium Enterprises (SMEs) are the backbone of the contemporary economic development due to the significant role they play in the sustainability of the world economic development (Carter and Tamayo, 2017; Wattana pruttipaisan, 2002). SMEs account for more than 90 percent of businesses, contribute to more than 50 percent of employment and over 50 percent of gross domestic products (GDP) in the world (Kessey, 2014). In Africa, the commonest business entities are SMEs. The enterprises contribute significantly to the provision of employment, the formation of capital, economic viability and poverty alleviation among others (Ganyaupfu, 2013). Today, Africa’s growing economy sees SMEs as the mechanism for achieving growth and excellence (Roldan, 2015). The sector provides substantial employment and stimulates economic growth. For example, in Ghana, the sector constitutes 92 percent of businesses in the country (Steel and Webster, 1991). In South Africa, Ganyaupfu, (2013) confirmed that 91 percent of all the registered business entities fall under SMEs and constituting about 52 to 57 percent of the country‟s GDP. However, in Nigeria, a number challenges overwhelmed the country‟s business milieu, which renders the environment not only difficult for business but resulting to the increasing failure of SMEs in the country. Studies established that 85 percent of businesses in the country do not survive beyond the first five years of their establishment (Ogboru, 2005; Olu and Haynes, 2006; Ariyo, 2008).

Moreover, even the little percentage that manages to sustain beyond five years, collapse between sixth to tenth years of their existence which leaves only around 5 to 10 percent of the SMEs in business (Onugu, 2005). Despite the effort and contribution of the Nigerian government to the development of SMEs, yet the input of the enterprises including micro businesses to the country‟s exportation is as low as 7.27 percent (SMEDAN, 2013). The lack of entrepreneurial competencies has been identified as the leading cause of business failure in the country (Inyang and Enuoh, 2009). Therefore, the need for entrepreneurial competency become necessary as it provides practical solutions to the mystery of business downfall (Sánchez, 2013). Competency of the entrepreneurs is one of the significant determining factors for success, performance and growth or failure of business operation (Kiggundu, 2002; Brinckmann, 2008; Mitchelmore and Rowley, 2013). Furthermore, female Entrepreneurs mostly operate small-scaled type of businesses which requires the businesses to depend mainly on the competencies of the owner. Thus, understanding the nature of such competencies in the context of female Entrepreneurs is very important (Mitchelmore and Rowley, 2010; Mitchelmore et al. 2008).

Competencies as the characteristics of entrepreneurs that differentiate excellent from average or poor entrepreneurial performance are a cluster of knowledge, behaviours, skills and abilities (Wu, 2011; Athey and Orth, 1999). Similarly, Man, Lau, and Chan, (2002) view entrepreneurial competencies as nothing but a bunch of high-level characteristics which includes knowledge, skills and personality traits. Entrepreneurial competencies lead enterprises to achieve sustainable competitive advantage and eventually result in the achievement of business success and growth (Man et al., 2002). Tehseen and Ramayah, (2015) stressed the need for the understanding of the significance of entrepreneurial competencies more especially in the developing economies because entrepreneurs‟ competencies are vital for business survival, performance and success. However, the measurement of entrepreneurial competencies varies depending on the context, prediction and assumption (Mitchelmore and Rowley, 2010). Therefore, in the Nigerian business milieu, as established by numerous scholars, the leading competencies related obstacles that result in poor performance and failure of businesses in the country are; lack or ineffective innovation, unfavourable marketing strategies, lack of distinctive entrepreneurial traits (Duru, 2011; Eneh, 2010; Onugu, 2005; Adeoti, and Adeoti, 2005; Siyanbola et al., 2012). The principal aim of the study is therefore to examine the relationship between the entrepreneurial competencies and business success in SME’s in different settings within the same country.

1.2   STATEMENT OF THE PROBLEM

Even with the fact that SME’s in all sectors of the economy; they are dominant in trade (54%) followed by services (34%). Micro and small enterprises are critical for supporting livelihoods as well as overall prosperity and progress. They create employment at relatively low levels of investment per job; utilize and add value to local resources; foster equitable income distribution; and are better positioned to meet local needs in small markets. The technologies used by them are easier to acquire, transfer and adopt even for people with little education and training. They have the potential to compliment large enterprises through partnerships and subcontracting relationships. Micro and small enterprises also serve as training ground for entrepreneurship managerial development (Olomi, 2006). Lots of problems makes it very difficult for SME’s to exploit the existing potentials for further employment and wealth creation. One of the most serious impediments is the competency of the entrepreneur, in terms of the attitudes, motivation, exposure, skills and experiences. This capacity limitation is exacerbated by the effects of other problems including a cumbersome regulatory framework, limited access to finance and working premises. At the same time, entrepreneurship development are underdeveloped and not readily available or affordable to SME’s.

1.3   OBJECTIVES OF THE STUDY

The main objective of this study is to find out the role of entrepreneurial competencies on the success of SME in Nigeria, specifically the study intends to;

1. Find out how competence entrepreneurs are in terms of skills and experience

2. Analyze the effect of entrepreneurial competencies on the success of SMEs in Nigeria

3.  Examine the challenges of SMEs in Nigeria

1.4   RESEARCH QUESTION

1. How competence are entrepreneurs in Nigeria in terms of skills and experience?

2. Is there any significant effect of entrepreneurial competencies on the success of SMEs in Nigeria?

3.  What are the challenges of SMEs in Nigeria?

1.5    RESEARCH HYPOTHESIS

Ho: there is no significant effect of entrepreneurial competencies on the success of SMEs in Nigeria

Hi: there is a significant effect of entrepreneurial competencies on the success of SMEs in Nigeria

1.6  SIGNIFICANCE OF THE STUDY

The study aims to address the extent to which entrepreneurial attributes lead to business success. The study attempts to identify the challenges and prevailing factors against the success of SMEs, analyze them and then proceed to make appropriate recommendations towards alleviating them. The findings of the study are useful to entrepreneurs in SME’s since they highlight the focus on training that is adequate to improve effectiveness in managing SME’s activities and implication to policy matters. The findings of the study serve as departing point for further researchers.