SMALL BUSINESS MANAGEMENT - Past Questions and Answers

SMALL BUSINESS MANAGEMENT

Question:

·         Define the term “Small Business”, indicate clearly the criteria used to arrive at your definition.

·         What are the rationale for studying Small Business Management in Nigeria?

Answer:

The growing want of uniform criteria for identifying small business led scholars to define it with one or more of the following:

a.      Number of employee

b.      Capital outlay

c.       Asset base

d.      Market size and

e.      Sales volume

Against the above, Baum back (1983) observed that attempts to define small business in terms of employment, asset value or sales volume have proved unsatisfactory because, a firm in one industry may loom large relative to its competitors, yet be small in employment, assets and sales relative to firms in other and sales, or vice versa. 

The first attempt to overcome this definition was by the Bolton Committee (1971) which formulated an “economic” and statistical definition.  Under the economic definition, a firm is regarded as small if it has a relatively small share of the market place; managed by owners in a personalized way; is in depended in the sense  of not forming part of a large enterprise.

In an attempt to overcome the problem of definition between small and large scale enterprises, the European Commission (EC) coined the term Small and Medium Enterprises (SMES): The three components of the SMES are:

i.                    Firms with 0-9 employees are micro enterprises

ii.                  Firms with 10-99 employees are small enterprises

iii.                Firms with 100 – 499 employees are medium enterprises

The EC definitions are based solely on employment rather than multiplicity of criteria and restricted to enterprises, which employs less than 500 workers.

This definition is considered too all embracing for a number of countries.  Thus, researchers adopt definitions for small firms which are more appropriate to their particular target group, that is, operational definition.  Consequently, definitions vary across countries and business environment as a result of differences in industrial organization at different levels of economic development in parts of the same country (Sule, 1986).

In 1992, the National Council on Industry, stream lined the various definitions in order to ensure uniformity and provided for its review every four years.  The definition adopted used a combination of capital investment and employment for categorization of industry. The definitions were first revised in 1996 and then 2001 as follows (Ukeje 2003).

·         Micro/cottage Industry: Enterprise with a labour size of not more than 10 workers or total cost (including working capital  but excluding cost of land) not more than N1.5m

·         Small-scale industry: Enterprise with a Labour Size  of between 11-100 workers or a total cost (including working capital but excluding cost of land) not more than N500m.

·         Medium –scale industry: Enterprise with a labour size of over 101-300 workers or a total cost (including working capital but excluding cost of land over N200m) but not more than N200m.

·         Large-scale industry: Enterprise with a labour size of over 300 workers or a total cost (including working capital but excluding cost of land of over 200m.)

From the various viewpoints above, the small and medium enterprises are characterized by;

a.      Simple management structure resulting from the rousing of ownership and management by one or very few individuals. 

b.      There is often greater subjectivity in decision-making and prevalence of largely informal employer-employee relationship.

c.       They have very limited access to long-term capital and their access to short-term financing is often limited and sometimes obtained at a penal rate of interest based on the perception of the sector as risky by the formal  financial institution.  

d.      The inadequate funds often results in the non-adoption of modem technology and the resort to labour intensive production processes. This, coupled with very poor inter and intra-sectoral linkages do not allow the enterprises take advantage of the benefits associated with economies of the large-scale production

Answer:

IMPORTANCE OF SMALL BUSINESS

Small business organizations are very important in any economy, especially in a developing economy like that of Nigeria.  They are the back-bone of our economy as they provide employment for the people, service the local market and also provide the raw materials or inputs used by large business organizations.

Hardly any major industry can succeed without the services of Small Business Enterprises. The relative strength of their importance may vary from one industry to another.  Small firms show their greatest strength (Compared to larger firms) in service industries, whole sale, distribution, retailing.  In Nigeria, there are thousands of small business which include farming, piggery and animal husbandry, fishing, pottery and ceramics, brick, and block molding, baker, weaving and tailoring, printing press, wood and metal works, poultry and a host of others which depend mostly on local raw material inputs.

The importance of small business enterprises in any economy cannot be over-estimated.  Firstly, the continuing growth in the economy of any nation depends to a large  extent on the start-ups and development of small business. 

Even on a recessionary economy, small scale business are a legitimate and viable component in any strategy for reconstructing the economy.  Further, it is emphasized that the small business enterprises make the possibility of the equitable distribution of national income more realistic by providing employment on a large scale.  By creating more employment opportunities, small business enterprises help in mobilizing capital and human resources that would otherwise be left idle.

Small scale businesses economize resources.  Resources such as capital, technical and management skills are scare and constitute the central problem of underdevelopment.  The capital that goes into the start up of small business is relatively easier to come by and this is an advantage to a developing economy in view of the limited amount of savings in such economy.

Small scale enterprise promotes competition and hinders monopoly.  The relative ease with which small scale businesses are established and the responsiveness of entrepreneurs to innovations are major factors for the preponderance of small scale enterprises in any economy especially a developing economy. 

Observation has it that the existence of many healthy business firms in an industry constitutes a barrier against monopoly. The importance of a competitive market to the consumer in particular and the economy in general cannot be over flogged.  

Small businesses also provide options for self employment.  Small businesses constitute a vital source of self employment for retired officers or retrenched workers or even older persons and others who are handicapped and find it difficult to obtain gainful employment elsewhere.  This advantage is particularly obvious in Nigeria.

The contribution of the small firms in a developing country may be exemplified by the Indian experience where small industries accounted for about 50 percent of industrial output in 1987.  They are also responsible for 10 percent of industrial fixed capital formation and over 18 percent of the total industrial employment in that country (Ezeh, 1999).