CHAPTER ONE

INTRODUCTION

1.1Background of the study

According to Grasmuck (2000), a small enterprise is a type of small business, often registered, having five or fewer employees and requiring seed capital of not more than $35,000. The term is often used to refer to a business with a single owner-operator, and having up to 20 employees. The European Union defines micro-enterprises as those that meet 2 of the following 3 criteria of fewer than 10 employees, balance sheet total below EUR 2 million and turnover below EUR 2 million. The term small enterprise connotes different entities and sectors depending on the country. In developed countries, microenterprises comprise the smallest end (by size) of the small business sector, whereas in developing countries, microenterprises comprise the vast majority of the small business sector result of the relative lack of formal sector jobs available for the poor. These micro entrepreneurs operate microenterprises not by choice, but out of necessity (Munoz, 2010).

Micro and Small Enterprises (MSE's) are important for raising the economic efficiency of a country. They are breeding grounds for entrepreneurship, innovations and inventions hence a reservoir for employment. Sustainable jobs, creates income which in turn reduces the level of poverty, (Bokea, 2005). The challenges faced by SMEs in Nigeria are; inadequate knowledge and skills, most managers of SMEs in Nigeria  lack adequate education, they are not well informed in terms of managerial knowledge and skills. Lack of managerial training, More often than not small and medium enterprises establish managerial strategies through trial and error mechanism. Their managerial techniques only focus on operational plans rather than strategic plans of their organization. In addition, these managerial techniques are not standard with those of other global managers. Consequently, managers of small and medium enterprises are not able to adequately handle challenges facing enterprises. Rapid technology changes, Technology change poses a big challenge to the growth of small and medium enterprises. Most of these enterprises are not able to adopt new technology due to its high initial and installation costs. In addition, this new technology, more often than not, does not suit the needs of these enterprises. For example, a small enterprise located in a rural area cannot reap the full benefits of internet connection due to lack of rural electrification. Adopting to new technology has also been hampered by the slow rate of economic growth in Nigeria . Lack of adequate finance, many small and medium enterprises do not have access to finance and credit especially from financial institutions such as commercial banks. This is because of the lending conditions given to them such as collateral for the loan. These enterprises may not be able to provide collateral such as immovable assets due to their small asset base. Consequently, most of these enterprises resort to borrowing from friends and relatives. However, this type of finance is inadequate to cater for all the needs of the medium and small enterprises. As a result, lack of credit forces the management to use cheap and local technology which most times is inappropriate. And new laws and regulations, Everyday, the government and other stakeholders continue to introduce new regulations for industries and enterprises in Nigeria . New laws are being enacted in a bid to regulate the operations of enterprises. These laws are also meant to spearhead sustainable economic growth in the country. However, such regulations sometimes pose tremendous threat to the growth of small and medium enterprises in Nigeria . This is because some of these laws are too tough. (Viona, 2012).

Several factors are identified as limiting market access to SMEs in Nigeria  and include; lack of market information, poor access to physical markets, market premises and spaces, poor linkages with export markets, weak advertising and promotional capacities, poor quality products and services that restrict entry in some markets, limited market research and analysis, narrow product diversity, weak capacity for e-commerce and imperfect markets. Stiff competition due to globalization, high transaction costs due to inefficiency, distance to markets, poor systems and concentration of activities in a few sectors making them vulnerable to risks and competition (GOK, 2005, KIPPRA, 2006). Many SMEs lack the necessary information on market opportunities limiting them to narrow local markets; on customers and market demand due to lack of market research leading to saturated markets with goods whose demand is low. Many SMEs produce goods and services without considering the market and customer needs and consequently

they are not able to penetrate the market. Lack of physical market structures to sell is another challenge for Nigeria n SMEs resulting in illegal hawking of their goods at the road side and in town streets leading to running battles with the authorities. Transaction costs remain a major problem affecting market access in SMEs. According to the Transactional cost theory, reduced transactional costs are important in marketing and in enhancing market access. The high costs arise due to market inefficiencies, poor infrastructure and information asymmetry. Stiff competition due to globalization and liberalization bar SMEs from accessing most of the local and international markets. SMEs are not able to compete effectively due to poor quality products, skewed customer preference, unconducive pricing and limited product diversity. Most SMEs in Nigeria  exhibit weak linkages with customers contrary to the relationship marketing theory that argues that good customer’s relationships are essential for successful marketing. (KIPPRA, 2006).

1.2 Statement of Problem

SMES are the major agents of economic growth and employment, and they lead to increased participation of indigenous people in the economy in the economy, use mainly local resources, promote the creation and use of local technologies and provide skills training at low cost to society (ILO 1989). In Nigeria  over 60% of small businesses are estimated to fail each year (Nigeria  National Bureau of statistics, 2007). Mead (1998) observes that the Heath of the economy as a whole has strong relationship with the health and nature of SMEs. However, despite government efforts in Nigeria  to promote SMEs service delivery, not much progress seems to have been achieved, judging by the performance of the informal sector. When the state of the macro economy is less favorable, by contrast, the opportunities for profitable employment expansion in SMEs are limited. Not many small enterprises grow into medium-scale and large scale enterprises to significantly contribute to employment creation and economic growth. This study sought to investigate the factors influencing the performance of SMEs that may have on service delivery improvement in the Central Business District (CBD) Uyo municipal.