EFFECT OF ENTREPRENEURIAL CHARACTERISTICS ON BUSINESS PERFORMANCE IN NIGERIA

EFFECT OF ENTREPRENEURIAL CHARACTERISTICS ON BUSINESS PERFORMANCE IN NIGERIA: A CASE STUDY OF FOODCO NIGERIA LIMITED

ABSTRACT

The purpose of this study is to investigate the effect of entrepreneurial characteristics on business performance in Nigeria, a study of FoodCo Nigeria Limited. The study examines relationship between entrepreneurial characteristics and SMEs performance, also assess the relationship between entrepreneur socio-economic factors and SMEs performance and it examine the possession of technical/technological skill by SMEs with their firms performance. Both primary and secondary sources of data were adhered to on the course of this study and the attitude and responses of those interviewed were noted. The sample size for this study is fifty (50) people in line with the FoodCo Nigeria Limited. Data was obtained through questionnaire. The data that will be collected from various sources, will be analyze using the following statistical measurement are simple percentage and chi-square (X2). The study reveals that entrepreneurial characteristics have any significant relationship with SMEs Performance. Also it shows that entrepreneur’s orientation has significant relationship with SMEs performance. The study conclude that managerial competence and education had the highest statistically significant positive effects on SMEs success; followed by experience, period of enterprise in business, location of firm, size of the firm and sector of the firm; respectively. It is recommended that likewise, leadership characteristics in entrepreneurs should be developed through experimental learning, social interaction learning, training in leadership knowledge and skills development, motivation, communication skills and team working

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Entrepreneurial characteristics for both developing and developed countries, small and medium scale firms play important roles in the process of industrialization and economic growth. Apart from increasing per capita income and output, Small Medium businesses create employment opportunities, enhance regional economic balance through industrial dispersal and generally promote effective resource utilization considered critical to engineering economic development and growth. However, the seminal role played by Small Medium businesses notwithstanding its development is everywhere constrained by inadequate funding and poor management. The unfavourable macro-economic environment has also been identified as one of the major constraints which most times encourage financial institutions to be risk-averse in funding small and medium scale businesses. The reluctance on the part of financial institution to fund Small Medium businesses can be explained by the insufficient capital base of banks and information asymmetry that often exists between Small Medium businesses and lending institutions entrepreneurial characteristics (Islam, Khan, Obaidullah & Alam, 2011).

This study critically examines the availability of business credit to small business in Nigeria, and how more funding can be made to support small businesses. However, this chapter, forms the basic foundation for this study as it presents the objectives of the study, and the statement of problem that motivated the researcher to undertake the study entrepreneurial characteristics

As far back as the 1950s, researchers began linking personality characteristics and entrepreneurship by examining personality characteristics that could determine who was more likely to become a successful entrepreneur (Byers, Kist and Sutton, 2012). McClelland (1991) for example asserted that entrepreneurs possessed certain personality characteristics than non-entrepreneurs. While on the other hand, Carter, Gartner, Shaver and Gatewood (2008) acknowledged that the only main difference between entrepreneurs and non-entrepreneurs is that entrepreneurs want to be in control of their own destiny. This control is indicative and draws attention to the fact that, “there is no set of behavioural attributes that allow us to separate entrepreneurs from non-entrepreneurs”. They argue that anyone wishing to become successful needs to achieve, and that all achievement elements are found not only in entrepreneurs but also in all successful people. Drucker (2012) in concurrence states that “It is not a personality trait; … everyone who can face up to decision making can learn to be an entrepreneur and to behave entrepreneurially”. Additionally, literature studies on entrepreneurship portray successful entrepreneurs as individuals who possess a personal quality that enables them to make decisions that have far reaching effects in conditions of uncertainty. The ability to make such decisions can be achieved in some people through training, while in others, it is inborn.

In today’s rapidly growing and dynamic competitive global economy, small and medium enterprises (SMEs) have increasingly become a powerful engine for economic growth and development (Islam, Khan, Obaidullah & Alam, 2011). Most governments in numerous emerging economies across the world have realised the important contribution made by SMEs towards achievement of sustainable growth, employment and poverty reduction (Swerczek & Ha, 2008). In South Africa, a study by Abor & Quartey (2015) estimates that 91 percent of formal business entities in the country are SMEs; andsuch SMEs contribute between 52 to 57 percent to GDP and accounting for about 61 percent to employment (NCR, 2015). Given that research on performance of SMEs has dominated the center stage in the arena of industrial development (Akhtar, 2009), the importance of SMEs performance cannot be over emphasized; especially in such today’s global economy characterised by rising trends of industrialization.

In an effort to enhance development of SMEs, increasing numbers of public, private and academic institutions have extended considerable support to SMEs across various industrial sectors (Staddard, 2011).To make such support successful, the investigation of factors affecting performance of SMEs has broadened from largely focusing on institutional arrangements alone, but also on the effects entrepreneur and firm characteristics have on performance of such SMEs (Woldie, Leighton & Adesua, 2013). Survey literature indicates that entrepreneur characteristics with effects SMEs performance include gender, age, education, work experience, and managerial competence (Mahmoud, 2011); while firm characteristics include SME which has been in business, size of SME, source of capital, sector and location (Khan, Obaidullah & Alam, 2011).

The link between entrepreneur characteristics and firm performance has received a lot of focus by studies. Studies (Erikson, 2002; Westerberg & Wincent, 2008; Islam et al., 2011) show that characteristics of an entrepreneur which include demographic factors, individual background, personal traits, entrepreneur orientation, and entrepreneur readiness play an important role in performance of small and medium enterprises (SMEs). These factors which form the character and behaviour of the entrepreneur are crucial internal capacities that impact on firm performance (Schreckenberg et al., 2006; Dubey, 2008; Zoysa & Herath, 2007; Islam et al.,2011).

Thus an enterprise reflects the characteristics of the entrepreneur whose commitment and vision are central to firm performance. The entrepreneur combines both tangible and intangible resources into a business organization (Gomez, 2006). Erikson (2002) observed that characteristics of the entrepreneur are determinants of firm performance. Essentially, firm performance is determined by the attributes of the entrepreneur driving the process.

Entrepreneurship is not an easy vocation, and it does not always guarantee a 100% success. There are several critical factors that must be in place to enable entrepreneurs achieve a measure of success. The kind of economic policies that have been followed in many African countries especially in Nigeria in the two to three decades after political independence have not always been conducive to small scale enterprise in Nigeria.

This position is consistent with the view of Adjebeng-Asem (2009) that the African entrepreneur is alive and well, but that he or she, rather than undertaking manufacturing businesses, has been diverted to non-productive, rentseeking activities which some researchers have reference to as commercial entrepreneurship and this has often led to a decline in the performance of SMEs in Nigeria.

In Nigeria, SMEs represent about 90% of the industrial sector in terms of the number of enterprises. They also account for 70% of national industrial employment. If the threshold is set at 10-50 employees, they contribute 10% of manufacturing output and a meager 1% of gross domestic product (GDP) in 2001 (Ajayi 2007). Similarly they have also contributed significantly to economic development through employment, job creation and sustainable livelihood (Nigerian Investment Promotion Commission, 2009). Against this background, the study examine the relationship between entrepreneur characteristics and SMEs performance with particular reference to FoodCo Nigeria Limited, Ibadan, Oyo state

1.2 Statement of the Problem

Although several new SMEs are being established in the Nigerian economy (Baron, 2008), but the alarmingly high rate of failure in this segment has become a serious cause for concern to industrial development stakeholders (Cornwall & Naughton, 2008; and Santrelli & Vivarelli, 2012). According to the Small Business Development Agency (NCR, 2011), indicate that eight in every ten new businesses fail within their first five years of operation.

Businesses in the SME sector all over the world are more prone to failure due to the specific qualities possessed by the businesses, their owners and managers (Bannock, 2010). In Nigeria, entrepreneurial ventures have a low survival rate as entrepreneurs start businesses but are unable to turn them into sustainable businesses. Also, most new SMEs in Nigeria do not move from the first stage (existence) to other stages such as survival, success, take off and resource maturity.

In spite of the significant contribution of SMEs to the national economy, many problems and constraints still exists in promoting their development and growth. For instance, an International Labour Organization (2004) study shows that inadequate technical entrepreneurial talent particularly affects the development of small scale manufacturing and processing industries. While a large scale business can be established with expatriate capital, small scale businesses need to have a domestic entrepreneurial and industrial base. Another obstacle affecting the performance of small scale businesses in Nigeria is the persistent low level of technical and technological expertise of the owners, the shortage and inadequate entrepreneurial skills of operators and the absence of an effective management technique.

Their low product quality makes it difficult for them to compete in a technologically driven, knowledge based and export oriented globalized economy. The level of education of most entrepreneurs are mostly limited to primary education and this affect how they will be to handle their businesses in terms of account recording and balancing, record keeping using a computer and other facilities which they could use to improve their business but are not able to use them due to their level of education In developing countries especially in Nigeria, the primary barrier to economic growth is often not so much with the scarcity of capital, labour or land but it is the scarcity of the dynamic entrepreneurs that can bring the markets and mechanisms that can facilitate the economic growth.

Entrepreneurial activity is the key to growth and prosperity in many countries. Most of these entrepreneurial activities require a very good entrepreneurial characteristics and skills since entrepreneurship development is the key factor in economic development (Harper, 2008).

According to Islam et al. (2011), entrepreneur traits relate to demographic, personal and individual characters, entrepreneur orientation and readiness. There are many problems being faced by SMEs in Nigeria but some of these problems relate to the entrepreneurs (Ayozie, 2011). Performance of firms including SMEs anywhere even in Nigeria will start from its owners’ capabilities, management abilities, technical know-how and its adaptability to the internal and external business environment in gaining competitive advantage. This study examines the relationship between entrepreneur characteristics and SMEs performance with particular reference to FoodCo Nigeria Limited, Ibadan, Oyo state.

1.3 Aims & Objectives of the Study

The aim of the study is to analyse the SMEs performance in FoodCo Nigeria Limited, Ibadan with a view to examining proper improvement

The objectives of the study are to:

i. examine relationship between entrepreneurial characteristics and SMEs performance.

ii. assess the relationship between entrepreneur socio-economic factors and SMEs performance.

iii. examine the possession of technical/technological skill by SMEs with their firms performance.

1.4 Research Questions

The following questions were used by the researcher in achieving the research objectives of this study:

i. How do entrepreneurial characteristics have any significant relationship with SMEs performance?

ii. Whatis the relationship between entrepreneur’s socio-economic factors and SMEs performance?

iii. Does technical/technological skill by SMEs owners have relationship with their firm’s performance?

1.5 Statement of Hypotheses

The following hypotheses were formulated in line with the objectives of the study

Hypothesis One

H0: There is no relationship between entrepreneurial characteristics and SMEs performance.

H1: There is relationship between entrepreneurial characteristics and SMEs performance.

Hypothesis Two

H0: There is no relationship between entrepreneur socio-economic factors and SMEs performance.

H1: There is relationship between entrepreneur socio-economic factors and SMEs performance.

Hypothesis Three

H0: There is no relationship between technical/technological skill by SMEs owners and firm’s performance.

H1: There is relationship between technical/technological skill by SMEs owners and firm’s performance.

1.6 Significance of the Study

This study aspires to indicate the type of entrepreneurial characteristics and business practices an entrepreneur will need to have; cultivate and/ or develop, in order to drive his or her venture forward successfully.

Besides, the gains of the research showed the significance to the Nigerian economy, not required for the long-term survival of SMEs. Once the discovery is completed, basic educational programs will be developed to address the need as inputs into entrepreneurship education. In addition, banks and institutions could use the result to predict SMEs success for loans and other support activities, as well as enabling investors to judge the managerial balance of the ventures to which they are called upon to commit themselves.

In addition, this study contributes the extensive and on-going research gathering of reliable and accurate information about entrepreneurs in Nigeria. It offers solid guidance on the combination of entrepreneurial characteristics and business practices that make some entrepreneurs more successful than others.

1.7 Scope of the Study

The area chosen for this study is FoodCo Nigeria Limited in Ibadan, Oyo State of Nigeria. The study is limited to the effects of entrepreneurial characteristics on business performance in Nigeria, using FoodCo Nigeria Limited in Ibadan, Ring Road Branch, Oyo State as a case study.

1.8 Limitations of the Study

In undertaking this research, the researcher encountered the following problems;

The time used to undertake the study was limited. The time was loaded with other academic activities and as a result limited time was made available the study.

Also, response from the various small business owners through the questionnaire provided by the researcher was also a bit slow. This is because of reasons such much work load on the part of the respondent’s entrepreneurial characteristics.

1.9 Definition of Terms

i. Entrepreneurship: Is the process of designing, launching and running a new business, which is often initially a small business. The people who create these businesses are called entrepreneurs(Drucker, 2007).

ii. Enterprise: This can be defined as any institution or organization that is set up to carry out business activities with the aim of making profit and satisfying public wants(McClelland, 1991).

iii. Firm: A firm is an organization which sells or produces something or which provides a service which people pay for(Franz, 2005).

iv. Performance: Performance is completion of a task with application of knowledge, skills and abilities (Pasanen, 2006).

v. Small and Medium Enterprises: They are enterprises that employ a small number of workers and do not high a high volume of sales. Such enterprises are mostly(Drucker, 2007).

vi. Unemployment: Unemployment or joblessness is the situation of actively looking for employment, but not being currently employed (Chell, 2001).