Entrepreneurship Project Topics

Determinants of Small and Medium Scale Enterprises’ (SMEs) Success in Nigeria

Determinants of Small and Medium Scale Enterprises’ (SMEs) Success in Nigeria

Determinants of Small and Medium Scale Enterprises’ (SMEs) Success in Nigeria


Aim of the study 

The aim of this research is to investigate the determinants of the success of SMEs and how the different factors of the business operations of SMEs affect the success of SMEs in urban centres in Lagos state, Nigeria. Considering the great impact Small and medium scale enterprise have on the economy of every nation, there is need for a rapid growth of SMEs in Nigeria.

This research aims to help in the development of small scale businesses by outlining the determinants ofs the success of SMEs and offering commendable advices to intending entrepreneurs on how to effectively manage their enterprise. Therefore, the researcher is keen on researching the determinants of the success of SMEs in urban centres in Lagos despite many researches by various scholars.




Definition of small and medium scale enterprise 

It is obvious that so many authors and scholars have written on small and medium scale enterprise all over the world. However, their definitions differ based on different economic situations of various countries and their level of development. This signifies how crucial the SME sector is to the development of the economies of nations. According to Carpenter (2003) the definition of SMEs may involve the following various combinations: size of fixed asset, financial strength, Sales value, Relative size, initial investment and the type of industry. In developed countries, especially in Britain and United State of America, the term small and medium scale enterprise refers to a business with an annual sales of €2 million or less and with 200 employees or less (Inang & Ukpong 1992). Definition of SMEs also depends on the level of capacity of production of the business in terms of the level of technology employed in production process.

Anderson (1980) also expressed his own opinion that deciding on the size of the enterprise is one of the major decisions to be taken by an entrepreneur. In most cases, entrepreneurs are limited by the amount of the capital they have. The small scale industries produce at a lower level using local method of production with limited number of technological equipment. Akinyemi, (1991) is of the opinion that industrialist, technocrats, academic and even the government are not exactly in the agreement about what a small scale industry is. At the industrial research unit of the Obafemi Awolowo University in Ile-Ife, a small scale enterprise was defined and regarded as one whose total assets in the capital equipment, plant and working capital are not less than N50, 000.00 and the staff strength is not more than 50 full time workers. The government definition of small scale industry emphasizes the fact that industry must be “wholly indigenous owned”. The official definition was further reviewed for the third National development plan period 1975 and 1980 when government agreed to an investment of between N25, 000.00 and N75, 000.00 for small scale industry. According to the central bank of Nigeria (CBN) in its report in 2010, it defined SMEs as industries with asset base of N5million (N: Naira) to N500million (Naira: Nigeria currency) which is equivalent to $25,119.35 to $2,511,987.00 (American Dollar) with employees size of eleven (11) to three hundred (300). The NASME defined SMEs as businesses with turnover of less than N100M per annum and/ or less than 300 employees. In my own opinion, small and medium scale industries are those industries that make less use of highly sophisticated machineries with division of labour in low practice. A small business is that which is independently owned, operated, and not dominant in its field.

Types of small and medium scale enterprise 

According to Fasua (2006), small and medium scale enterprise can be divided into various classes such as soap production, catering and restaurant services, bread and cake production, garment and clothing production poultry and farming, retailing services, foam and mattress production, nylon production, concrete block production, cosmetic productions, chemical production, education, food and beverage production to mention a few.

Chapter Three


Sampling method 

The researcher used a quantitative study where the respondents who are the owners of the SMEs where selected through the application of a purposive snowball technique. The researcher designed a likert scaled questionnaires to obtain data from the respondents.

Population of the research 

The case of this study is on Nigeria as a country. However, the investigation was carried out precisely in Surulere and Mushin local government areas in Lagos state, South Western Nigeria and respondents were carefully sample out of a clusters of two international markets – Iponri market located along Costain road Surulere Lagos which consists of manufacturing, textile and clothing, services, agriculture, construction sections and Ladipo international market located in Ladipo Mushin Lagos which consists majorly of auto spare part and machinery dealers as well as manufacturing sections etc. The researcher chose Lagos state because it is the most populous state in the whole of Nigeria as well as the commercial heart of the country according to Idahosa (2014) in her thesis where she cited Adewuyi and Akinnade (2010).




Descriptive Statistics and interpretation

In order to test the hypothesis, the Statistical Package for Social Science software (SPSS) was used as the main analysis to get some reliability test, regression analysis and descriptive statistics. This sector describes the factor variables used in the analysis of the dependent variable of this research and they are as follows:

Chapter FIVE


Summary of findings and conclusion

The outcome of the findings of this research is very interesting. Unlike the common believe that most SMEs perform poorly due to the lack of finance, lack of managerial, high cost of production as well as ban on importation, this research has revealed that the poor marketing system and lack of division of labour are the major problems that lead to the poor performances of SMEs in urban centres in Lagos Nigeria. A similar research was also found by Onugu, (2005) where he found that poor marketing system constitutes the major problems of small businesses.

The reason for this is not far-fetched. In Nigeria, small businesses are mainly owned by families and individuals who fail to see the marketing of their goods and services as important for the improvement of the success of their businesses. Some of the entrepreneurs fail to market their brands despite the tough competition it faces against other established businesses. To solve this problem, SMEs needs to invest adequate resources into promoting their products through the right channels and make sure their target markets know that they can exactly fulfil their needs.

Finally, this research has also shown that division of labour is not often practiced in the small firms and this diminishes specialization of cooperating workers performing specific tasks and roles. This decreases the productivity of the firm and eventually results in its poor performance.

Suggestions for further studies 

The industries selected as samples for this study is appropriate and it shows the true representation of all the industries in urban centres. It is therefore suggested that this research could be used as larger sample to cover Lagos state as a whole. This research would also be of interest and usefulness to the ministry of trade and investment both at the federal and state levels.


Considering the problems identified in this study, the following solutions are recommended for the problems of small and medium scale businesses. First, government should focus more attention on small scale industry if the whole of Nigeria needs to be industrialized. Training of technologists such as design engineers is essential to accelerate the acquisition of design capability. This would enable the trained engineers to produce sophisticated machineries useful for large scale production and enhance the specialization of labour.

For the government to succeed in reinventing the future of SMEs, it has to create a system where entrepreneurs can be educated on the importance of marketing for the development of their businesses.

There is also the urgent need for government to assist greatly in solving other major problems that are not in the coverage of this research but highly affects the business such as: lack or inadequate power supply, inadequate transport facilities, inadequate and unreliable network of roads to facilitate smooth and efficient distribution of finished products to customers as well as the transportation of raw materials to the industrial site. Most especially the poor technology that leads to lack of access to internet which facilitates online marketing is a must these days and should not be ignored. However, the physical reach of traditional marketing methods such as brochures, flyers and business cards should also not be ignored.

In conclusion, government should encourage investment on marketing in the industrial sector at the local, state and federal levels. The high luxury of advertisement poses a threat to SMEs therefore association like NASME, NASSI, NACCIMA etc. should make a proposal on policies that will reduce the price of advertisements for their members.


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