DETERMINANTS OF ATTRITION IN SMALL AND MEDIUM TEXTILE ENTERPRISES IN NIGERIA

DETERMINANTS OF ATTRITION IN SMALL AND MEDIUM TEXTILE ENTERPRISES IN NIGERIA

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CHAPTER ONE

INTRODUCTION

1.1     Background of the Study

The world’s leading textile country is China which holds approximately 45 percent of global textile and garment production, while India holds a share of around 20 percent and yet in both countries, their textile SMEs are the biggest contributors to the National economy (National Union of Textile Garments and Tailoring Workers of Nigeria Publication 2008).

The textile industry belongs to the so-called first generation industry.  The textile industry in Nigeria was the third largest in Africa after Egypt and South Africa. (Eneji, Onyinye, Kennedy, & Rong, 2012). The global textile and garment market is valued at around $400 billion which is an interesting figure that attracts entrepreneurs from around the world to venture e into the sphere (http//www.com.ng). Unfortunately, for the African sub-continent and for Nigeria in particular, the trade has not been profitable because of the state of its textile industry, and also with particular reference to its textile SMEs (Aguiyi, Ukaoha, Onyegbulam & Nwankwo, 2011). The modern textile industry in Nigeria, typically represents simple input substitution industrialization of the post-colonial state (Aremu 2003). The sector in the past was the largest employer of labour after government as it employed over one million Nigerians   either directly or indirectly and secured 250,000 tons of raw cotton for growers (Umar, 2008).  While a large number of African countries are further taking advantage of the opportunity thrown open by African Growth and Opportunity Act (AGOA) and other preferential trade concessions, the Nigerian industry is still grappling to find a space in the international market.  A former Minister of communications; Audu Ogbe captured the picture when he said:

The private sector which should indeed be the engine of growth is encumbered by impossible obstacles. For about 18years now, industrial growth has almost come to a half, not only are new industries impossible to establish, most old ones have nearly all shut down. (Quoted in Umar, 2008).

By and large, the contribution to economic development by small and medium enterprises which is the segment under study is not in doubt. The best estimates available, suggest that MSME comprise 87% of all firms operating in Nigeria, although the total number of registered firms is unknown (Oyelaran-Oyeyinka, 2011). The scenario is that if the general industrial outlook is bleak, the segment under study could equally be affected and it raises fears.

Generally, it is believed that firms survival is at least in the long run a prerequisite for success which is often measured in terms of market share or profitability. To date, however, studies of firm longevity have focused on large companies (Pasanam 2003). For the Nigerian, small and medium textiles, there has been practically no empirical study so far undertaken. Public commentaries on the state of the Nigerian textiles cannot provide the desired solution, and thus calls for proper investigation. A preliminary interview with a senior  lecturer in the department of textile technology of Kaduna Polytechnic on the dearth of local works, hinted that the students and the general academic population to sustain such works has diminished considerably (Raji, 2011).

1.1.1  SMEs

The Small and Medium Sized Enterprises (SMEs) are heterogeneous and can be found in a number of business activities. They may embody different levels of skills and maybe found in either the formal or informal economy. (OECD, 2004).

SMEs definition can be broadly categorised into two: economic and statistical. Under the economic definition, a firm is regarded as small, if it has a relatively small share of the market, and is managed by owners in a personalized way and not through the medium of a formalized management structure; while statistical definition varies by country and is usually based on the number of employees, and the value of sales and/or value of assets (Makenbe, 2011). Due to its ease of collection however, the most commonly used variable is the number of employees (OECD, 2004).

Small and medium enterprises contribute substantially to output and employment in both developed and developing countries. Recent empirical studies show that SMEs contribute to over 55% of GDP and over 65% of total employment in high-income countries. Similarly, they contribute 60% of GDP and over 70% of total employment in low income countries, while they contribute over 95% of total employment and about 70% of GDP in middle-income countries (OECD, 2004).

A comparison of SMEs in different developing countries shows that there is no uniformity in the definition (Khrystya, Melina, & Rita, 2010). The major indices used, however are number of employees and net worth. In Thailand, any manufacturing outfit that employs less than 50 workers is regarded as a small enterprise, while those employing between 51 and 200 workers fall within the medium sector. (www.adfiap.org/w.p.contents/uploads/2011/06). In Egypt, where a firm employs between 10 and 50 workers with a turnover of 3 million dollars, the business is regarded as small; whereas those that employ between 30 and 50 workers with a turnover of $15 million dollars are regarded as medium enterprises. (www.citasal.org./inglish/informationcentre/ibr-MSME database).  The assessment of the profile of SMEs in South Africa reveals that they are categorized by the number of employees. Between 10 and 20 workers in any organization is regarded as small while organizations employing between 100 and 200 workers are regarded as medium. In Nigeria, there was a time, when small-scale enterprise was defined by the Federal Ministry of Industries as that in which the value of the total assets including working capital but excluding land does not exceed N15,000,000 or where the number of employees does not exceed 50. (Inegbenebor, 2006).  Considering the inherent conflicts in the definitions of SMES which vary from one country to another, UNIDO generally advises countries to take into account the quantitative and qualitative indicators for SMEs definitions (see appendix VI). On the current industrial policy of Nigeria, small and medium enterprises are now defined on the basis of employment. In line with this, Inegbenebor (2006) gives concise differences between micro, small, medium and large scale firms. The micro/cottage firms are those that employ between 1 and 10 workers; while the small scale firms are those that employ between 11 and 100 workers; medium firms employ between 101 and 300 workers, whilst the large scale firm employs above 300 workers. This study is thus using the terms defined above which is contained in Nigeria’s current industrial policy.

1.1.2  Attrition

Attrition has been defined as a reduction or decrease in numbers, size or strength. It can also be seen as the wearing down or weakening of resistance, especially as a result of continuous pressure or harassment. There can be decrease in employee numbers and there can also be a decrease of firms within an industry. (Dictionary.reference.com/browse/attrition). For this study, attrition can be measured by the number of SME textiles that stopped production between 1995 and 2012.

Decline 

Figure 1.1: Enterprise life cycle diagram (Source:

Rejuvenation

Maturity  

Time   

Growth stage breakthrough   

Start-up stage

Pre-start-up (incubation)

CHART

          Source: Stokes & Wilson, 2006.

1.1.3  Textile Industry

Traditional textiles (handmade) have been produced in Nigeria for many years, but real industrial production of textiles has been a recent activity (Aguiyi, Oroha, Onyegbulam, & Nwankwo 2011). The Kaduna textiles mills being the first textile mill was established in 1956, whilst the Nigerian textile mill was established in 1962. These industries were setup to be vertically integrated mills, designed to process locally sourced cotton, through spinning for yarn production and weaving for the production of grey cloth, dyeing, printing and finishing for the production of fully finished textile clothing.

The sector produces a variety of fabrics annually and markets the goods within the country and also extends the marketing to neigbouring West African countries. The fabrics range from African prints, shirtings, embroideries, guinea brocades and wax prints. Between 60% and 70% of the cotton is sourced locally (Eneji, Onyinye, Kennedy & Rong 2012).  

The industry raises millions of middlemen, marketers of finished goods, tailors and garment makers. The popular traditional fabrics include the Asoke, Adire, Whasa, Akwete, Okene and traditional mat.

1.1.4  Small and Medium Textile Industry in Nigeria

Nigeria’s small and medium textile sector has developed to incorporate fibre production, spinning, weaving, knitting, lace and embroidery making, carpet production, packaging, dyeing, printing and finishing (Mohammed, 2011). The sector produces a varied series of fabrics annually ranging from African prints, shirtings, embroideries (Okene), to guinea brocades, wax prints, jute and other products (www.mbendi.com/a.sndmsg/org.srch.asp). The Central Bank of Nigeria (CBN) annual report as far back as 1995 showed that out of 13 sub-sectors in the manufacturing sector, the textile sub-sector comprising cotton textile and synthetic fabrics accounted for a significant proportion of the over all growth of manufacturing production. Between 60% and 70% of the raw materials used in the industry is sourced locally, the main exception being high quality cotton and synthetic materials (www.mbendi.com.indy/txte/at/ng/p005.htm) . The SME textile industry in Nigeria is labour intensive with little mechanization, while the use of hand looms is prevalent (Banjoko, 2009). The textile firms are scattered all over the country, but there is greater concentration around Kano and Kaduna in the North, Lagos in the South-West and Aba, Port-Harcourt in the South East, and also Asaba and Benin. (See appendix 5) for the location of failed and standing textile firms.  

1.2     Statement of the Problem

The recent world production of textiles is estimated to be around 25million tones annually (Nina, 2012). In the last decade, the world cotton production increased from 20 million to 27 million tones, but in Africa, it dropped from 1.8 million to 1.5 million tones (Olarewaju, 2008). The importance of the cotton crop to the Nigeria economy cannot be over emphasized as the lint removed from the seed is used as raw materials for the textile industry (Chukwumaeze, 2009). The textile industry in Nigeria generally includes cotton growers, those who make the thread into cloth, chemical manufacturers and those who dye, bleach and the textile merchants. Although statistics is not readily available for the cotton growers and those engaged in other ancillary cotton services, Navdep (2009): indicated that those who have lost their jobs as a result of the attrition/closure of these textiles mills is estimated at about 250,000. According to Banjoko (2009), the industrial estates in Kaduna, Lagos, Aba and Sherada as well as Bompai in Kano which thrived on textile manufacturing activities have turned into ghost towns as mills after mills have shut down  production in the last five years (Banjoko, 2009). The state of the textile industry is particularly pathetic as most operators have converted their mills into the production of other goods like Alkem Textile Company that has creatively redesigned the extruders to manufacture plastics and artificial hairs for women. (Osuji, 2011). Those that do not re-adjust themselves close down causing unemployment and this has become prevalent since 1995 (see Appendix 5 for closed textiles). Many public commentators have blamed the dwindling fortune of the sub-sector on a number of perceived constraining factors mentioning power, poor technology, dumping of foreign textiles, lack of finance, lack of government commitment to the textile sub-sector as well as poor management, but nobody really knows the answer (Kwajafa, 2013). What is therefore the cause of this attrition in the textile industry? This is the subject of this study.

1.3     Objectives of the Study

          1.3.1  General Objective

To investigate the determinants of attrition of textiles SMEs in Nigeria

          1.3.2  Specific Objectives

i.        To investigate the influence of technology on attrition of textile SMEs in Nigeria.

ii.       To determine how marketing efforts contribute to the attrition of textile SMEs in Nigeria

iii.      To establish if poor managerial skills contribute to attrition of textile SMEs in Nigeria.

iv.      To find out if cost of capital/access to capital contribute to attrition of textile SMEs in Nigeria

v.       To establish if government policy moderates the attrition of textile SMEs in Nigeria.   

1.4     Research Hypothesis

i.        Ho:     There is no relationship between technology and attrition of textile SMEs in Nigeria.

ii.       Ho:     There is no relationship between marketing efforts and attrition of textile SMEs in Nigeria

iii.      Ho:     There is no relationship between managerial skills and attrition of textile SMEs in Nigeria

iv.      Ho:     Financial factors are not related to the attrition of textile SMEs  in Nigeria.

v.       Government policy is not a moderating factor between the independent and dependent variables in the attrition of textile SMEs in Nigeria. 





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