ENVIRONMENTAL FACTORS AND PERFORMANCE OF SMALL SCALE

BUSINESS IN NIGERIA

UDOIME SAMUEL BASSEY

MATRIC NO:NOU110726400
B.SC.ENTREPENEURIAL AND BUSINESS MANAGEMENT

SCHOOL OF MANAGEMENT SCIENCE

NATIONAL OPEN UNIVERSITY OF NIGERIA

OCTOBER 2015

Introduction
Global competition, information technology, quality service revolution and
corporate social responsibility which are compelling managers to rethink and
reshape their approach to their various operation responsibilities. Due to this
paradigm shift, new firms are emerging that are more responsive to both their
internal and external environments (Luthans, 1995). The internal factors exist
within the operational base of an organization and directly affect the different
aspect of business. These internal factors include firms Mission, resistance to
change, poor quality staff, lapses in internal control, bad resource/financial
management, operational weaknesses, high staff turnover and over-leveraging
while the external factors include government regulation, economic recession,
political turmoil, low cost competitors, changes in customer behavior,
environmental/ health issues, technological changes, natural disasters, change in
input supply, changes in macro economic variables and terrorist attacks. Hence, it
is important for a business to keep a pace with the various changes in the
environment in order to survive in the long run. Similarly, every business settings
often bring in new way of thinking about the business environment and new ways
2

of acting. (Belohlav, 1996). Hence, coping with these multitude of challenges

require a firm that can easily adapt to change. This makes the small and medium
scale enterprises (small scale business) the driving force in economic growth and
job creation in both developed and developing countries due to their ability to
experiment new approach at minimum cost and create a standardized product/
services that can meet the needs of a large target market (Sunter, 2000). However,
more than half of newly established businesses survive beyond five years. Hence,
the identification of those factors which empirically lead to entrepreneurial
success/failure would assist in equipping small business owners with the necessary
managerial skills to survive in todays competitive environment as well as exploit
several strategies that will improve their operational efficiencies.
Background of study
Smith (2007), define business environment as all factors or variables, both
inside and outside the organization that may influenced the continued and
successful existence of the organization. Beck (2006), says that for small
businesses to achieve their objectives, they have to strengthen their internal and
external business environment. There is controversy that small scale business in
any part Nigeria where they operate play important role in the economic growth
and development in Nigeria and it improves the quality of life of individuals
(Ohanemu, 2006).Business organizations anywhere in the world operates within
3

environments which according to Adidu & Olanye (2006) is an aggregate of all

conditions, events, circumstances and influences that surround and effect the
business organization. In management, the term Environment does not
necessarily mean physical surroundings but, it is used as a total forces, factors and
influences that surround and affect business organizations as a separate entity as
well as

other business organizations. This means that business organizations

must interact with those forces that influence its decisions, directions, actions, size,
health, profitability and performance of the organization as a whole. Ukaegbu
(2004) stated that the contemporary environment is becoming dynamic and
competitive and since business organizations do not operate in vacuum, they affect
and are affected by environment conditions. Therefore, business organizations
irrespective of their objectives must take into consideration, these environmental
opportunities and constraints. Businesses affect the environment by providing the
required goods and services thereby contributing to the development of the
business by presenting opportunities and threats. One thing to be emphasized at
this point is that, the extent to which managers could identify, evaluate and react to
the environmental forces will have considerable impact on organizational
performances. Kuye, (2004), emphasized that the need to study business
environments is very important considering the fact that business organizations do
not operate in vacuum and an effective management in complex and dynamic
4

society requires the assessment of strengths and weaknesses of the organization

and the opportunities and threats provided by the challenges of the external
environment, hence for survival and growth, organizations must cope and adopt to
these challenges posed by the ever changing environment (internal & external) in
which managers operate means that mangers must not only be aware of what
constitutes the elements of their business environment but also should be able to
respond to the forces of the environment which inevitably impinges on the
operations of the business organization.
Ukaegbu (2006) further stated that the relationship between a business
organization and its host environment can be examined from three strategic ways;
Firstly, the organization can be viewed as importing various kinds of inputs
(resources), such as human resources, capital, managerial and technical inputs.
These inputs are then transformed to provoke output which takes the form of goods
and services. A second approach is the study of the relationship between the
organization and the society. It focuses on the demands and legitimate rights of
different claimants such as employees, consumers, suppliers, stakeholders,
government and the community. A third approach is to view the organization as
operating in an external environment of opportunities and constraints. Thus no
single approach is sufficient for all times and in all circumstances. They are
complementary. The elements external to the organization affects its performance
5

as well as those elements within the organizations. The external elements of the
environment constitutes the initial conditions facing entrepreneurs in any economy
(Aldrich et al., 1999). Environmental characteristics are important in resourcebased theory. It is no doubt that environment is an important factor in relation to
firms performance. Even in behavioral approach the personality, motivation,
attitudes of the entrepreneur are dependent from environment (Gartner, 1985).
Literature Preview
According to Ciano (2011), business is a series of collisions with the future
while its present day challenges include convergence, corporate governance,
corporate reporting, fraud, operating globally, improving business performance,
managing assets, change and people, mergers and acquisitions, risk management,
shareholders values and sustainability. He opined that since it is neither the
strongest of the species that survives, nor the most intelligent; it is the one that is
most adaptable to change; hence companies that make up the industry have faced
the need for equivalent of self-administered surgery with no insurance, no
aesthetic, and no assurance of long-term health. Thus, the success of every
business depends on adapting itself to the environment within which it functions.
Hence, the term business environment represents all forces, factors and institutions
that are beyond the control of the business and affect the functioning of a business
enterprise. These include customers, competitors, suppliers, government, and the
6

social, political, legal and technological factors etc. While some of these factors or
forces may have direct influence over the business firm, others may operate
indirectly (Duncan, 1972). Thus, business environment may be defined as the total
surroundings, which have a direct or indirect bearing on the functioning of
business. It may also be defined as the set of external factors, such as economic
factors, social factors, political and legal factors, demographic factors, technical
factors etc., which are uncontrollable in the nature and it affect the business
decisions of a firm.
OBJECTIVE OF THE STUDY
According to Adebayo et al. (2005) business environment can be broadly
categorized into internal and external environment with the former comprising
variables or factors within the control and manipulation of the firm to attain set
objective while the latter encompasses factors that are outside the control and
manipulation of the firm. Hence, firm must develop a plan that will help it to cope
with the various environmental forces (Oluremi and Gbenga, 2011). Similarly, the
nature of business environment are said to be classified as dynamic, stable and
unstable which often help a firm in the selection of appropriate strategies (Ibidun
and Ogundele, 2013). Adeoye (2012) opined that in order for business to cope with
the dynamic and rapidly changing business environment, there is a need to develop
and implement appropriate strategies that would safeguard their operations and
7

yield the desired results. Similarly, Ogundele (2005) added that a firm perception
of the nature of the business environment is a function of its size and industry.
Business survival is the ability of a firm to continuously be in operation despite
various challenges i.e. the managerial process of directing the affairs of a firm
regularly on a going concern basis and meets the needs of all stakeholders
(Akindele et al., 2012). Dun and Bradstreet (1979) viewed business failures as a
situation where a business go into bankruptcy or cease operations which results in
losses and failure to meet its various financial commitment to creditors. In order to
survive, firms always keep a close tab on the various activities that determine their
continuity. Adeoye (2012) submitted that the present form of complexities facing
firms include leadership styles, changes, uncertainty, conflict, culture, technology,
structure, competitive market, profitability and workplace motivation. Hence, firms
must develop a strategically plan and tactical procedure that is appropriate and
adaptive to the present business environment that will aid its optimum resources
utilization and attainment of set goals.
JUSTIFICATION OF THE STUDY
Burns (2001) opined that small scale business cannot be characterized as only
scaled down versions of large firms since they show a number of fundamental
differences which can be explained through absence of economies of scale and
scope which amongst others is also caused by less provision of factors of
8

production. Thus, Ciano (2011) opined that there are four determining factors in
any transformation initiative for any business entity. This includes duration of time
between reviews of milestones; the project teams performance integrity which is
the ability to complete the initiative on time that depends on members skills and
traits relative to the projects requirements; the commitment to change of the top
management and employees affected by the change display and the effort over and
above the usual work that the change initiative demands of employees. Alexander
(2000) observed that the dynamic and rapidly changing business environment in
which most businesses operate has made business environment to have significant
impact on organizational survival and performance. This implies that the external
environment is complex and constantly changing and its significant characteristic
is competition. The recognition of the presence of an intense competition often
compel the need to seek more information about customers for the purpose of
evaluation and to use such information to their advantage thus enabling
competition to drive business organizations to look for their customers in order to
understand better ways to meet their needs, wants, and thereby enhances
organizational performance (Azhar, 2008). Porter (2004) developed the five forces
of competitive position analysis as a simple framework for assessing and
evaluating the competitive strength and position of a business organization. His
theory is based on the concept that there are five forces which determine the
9

competitive intensity and attractiveness of a market and helps to identify where

power lies in a business situation. This is useful both in Understanding the strength
of an organizations current competitive position, and the strength of a position that
an organization may look to move into. The five forces are supplier power, buyer
power, threat of substitution, threat of new entry and competitive rivalry.
SCOPE OF THE STUDY
This study will be highly useful after its completion for both current and future
entrepreneurs, business organizations and the government. This research study on
the effects of environmental factors on performance of small scale business in
Nigeria would have considerable benefits on the small scale business operating
within this business environment in that it would;
Help these businesses become sensitive to the uncontrollable external
environmental factors impinging on the performance of their businesses and
how they can effectively manage these factors and top the opportunities for
enhanced productivity and profitability.
To an entrepreneur: The knowledge obtained from this study will enable
them to know how critical environmental factors are and how to effectively
manage these factors for the survival and growth of small scale businesses.

10

 To organizations and the society: The study will equally be useful to

organization and the society at large in the sense that knowledge about
technological advancement generation through small scale business source
of credit facilities to establish small business will be acquired.
To the Government: This research will also be useful to the government in
the formulation of policies towards small scale enterprises development in
Nigeria. It will also help the government to identify the importance of small
scale enterprises in the achievement of economic growth and development in
Nigeria.
LIMITATIONS OF THE STUDY
The researcher was unable to lay hand on some recent publication on
environmental factors due to logistic and financial constraints. it has not been easy
visiting various small businesses in the various towns that made up the local
government.
Definitions of Terms
The Environment: The environment consists of the set of external conditions and
forces that have the potential to influence the organization. It is useful to break the
concept of the environment down into two components. The general environment
(or macro environment) includes overall trends and events in society such as social
11

trends, technological trends, demographics, and economic conditions. The industry

(or competitive environment) consists of multiple organizations that collectively
compete with one another by providing similar goods, services, or both.

The concept of performance: Performance is the act of performing; or doing

something successfully; using knowledge as distinguished from merely possessing
it. However, performance seems to be conceptualized, operationalised and
measured in different ways thus making cross-comparison difficult.
Small scale business: A proper definition of small scale business is important to
distinguish between the different categories of the production units in terms of
factors like; number of employees, the value of fixed assets, production capacity,
basic characteristics of the inputs, level of technology used, capital employed,
management characteristics, etc. It is hard to develop a general definition of a
small scale business because the economies of countries differ, and people take on
particular standards for special uses. Different institutions and nations use different
standards to define small scale business. Because, a lot of their bodily processes
depend on the industry in which they operate, also, the personalities and ambitions
of those in charge of these businesses.

12