EFFECT OF BUSINESS ENVIRONMENT ON PERFORMANCE OF SMALL

BUSINESS IN NIGERIA: A CASE STUDY OF BOSCO NIG.ENTERPRISE

BY

NNAJIOBI UGOCHI LOVETH

MATRIC

18D/27BA/00872

BEING A RESEARCH PROPOSAL SUBMITTED IN PARTIAL

FUFILLMENT OF
AWARD OF BACHELOR OF SCIENCE (B.Sc.) DEGREE IN BUSINESS

ADMINISTRATION OF THE DEPARTMENT OF BUSINESS AND

ENTREPRENEURSHIP, SCHOOL OF BUSINESS AND GOVERNANCE,

FACULTY
OF HUMANITIES, MANAGEMENT AND SOCIAL SCIENCES, KWARA
STATE UNIVERSITY, MALETE

SUPERVISOR:

MR.B. HAMZAT

MARCH, 2021

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 CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The national economy has remained a focal point in recent debates owing to the rising
level of unemployment, poverty, insecurity, low productivity, human capital flight/brain
drain. The need to advancing the socioeconomic, political and technological growth of any
nation relies heavily on the creativity and technical ingenuity of the players/actors in that
economy in transforming the available resources into productive use. Hence, in a world
where technological change, liberalization, outsourcing, and restructuring rule the business
enterprises, Small and Medium Scale Enterprises (SMEs) has been seen as a driving force
in developing and developed nations alike as stressed out by scholars that the subject of
entrepreneurship has gained greater interest. This is because entrepreneurship is seen as a
method of bridging the gap between science and the marketplace, creating new enterprises,
and bringing new products and services to the market. Despite the globalization of
business, firms must abide by the rules and regulations of the countries in which they
operate. There are lots of environmental factors that affects business negatively and
positively. However, managers must address these factors and make decisions that
minimize the impact of environment on their business. These factors include political
factors, economic, social, technological, legal and environmental also known as PESTLE
Analysis.

The existence of conducive business environment is a prerequisite for the success of

any business organization, (Hill, 2011). The absence of enabling business environment in
Nigeria has been responsible for the dismal performance of the small businesses,
(SBs/SMEs) when compared with their counterparts in Asian and Europe. Small businesses
play major roles in the economic development of any nation. In Asia, the SBs and SMEs
have been the major forces propelling the economic growth of such countries like India,
Pakistan, Taiwan, Japan and Indonesia. In Nigeria, the contribution of the small businesses

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and the SMEs to the nation’s GDP, employment of labor and food production has remained
low. In fact, their contribution to the economic development of the country has been
anything but impressive. The reason for this dismal performance is not far fetched. As
stated earlier, successful businesses thrives, in a conducive business environment. To state
that the Nigerian Business Environment is not conducive for the development of For the
SBs and SMEs to develop and play prominent role in the economic growth and
development of the country, the aforementioned problems must he addressed by the present
administration

The government must address the poor infrastructural facilities — roads, water supply,
Power supply, communication etc.,. Government must provide enabling laws aimed at
developing the SBs and the SMEs in the country. Effort must be made to create pool of
funds to assist the SBs with both short and long term credit facilities, there should be
improvement in the current level of security to lives and properties, liberalization of trade
and ownership of businesses in Nigeria should be done in a manner that encourages the
development of SBs, government must check the activities of non-Nigerians doing
businesses in the country especially the Asians, the various tier of government must de-
emphasis religion and encourage peaceful co-existence among the various ethnic
nationalities in the country, a total restructuring and re-orientation of the entire police, the
armed forces as well as the various agencies in the country are some of the issues that
needed to be addressed if the performance of the SBs and SMEs is to improve in Nigeria.

Sam & Murphy (2010), the development that does occur must consider all pertinent
social, environmental and economic factors in order to be beneficial in the long-run;
however, the inequities that exist must be weighed when devising solutions. The
establishment of an environmental institutional framework along with the encouragement
of responsible international investment can be considered as necessities in facilitating
environmentally sustainable development. The fact that trade has the potential to be very
beneficial in terms of business environmental improvement and human development must
be realized; however, it cannot be forgotten that a global economy requires global

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standards. The implementation of business environmental policies requires a great deal of
political maneuvering. The new politics of a sustainable environment should be
contemplated in terms of the benefits of setting aside differences and acknowledging
inequities in order to tackle a problem that cannot be confined with boundaries and borders.
To do so allows business to interact with their environment in a manner that will be
sustainable for generations to come.

1.2 Statement of the Problem

There are certain basic requirements that must be put in place to enable small
businesses operate optimally. These include good roads, water supply, power supply,
efficient communication network, security, enabling laws and policy guidelines to mention
a few. This essential Business Environment is in short supply in Nigeria and the resultant
effect is the low productivity and stagnated economic growth and development. That
Nigeria is endowed with both human and material resources that are begging to be tapped
is an understatement. Mineral resources are found all over the country with tin in Jos, gold
in Sokoto, limestone in Nkalagwu and Coal in Enugu etc. The country is endowed with
adequate annual rainfall and temperature, which supports agriculture all the year round. It
is lamentable therefore that the SMEs have not been able to take advantages of these
resources for development due to lack of conducive business environment. If the absence
of infrastructure has militated against the development of the SBs in Nigeria, the absence
of a clearly defined government policy on the development of SBs and SMEs has done
more harm than good. Other factors that have contributed to the poor performances of the
SBs and the SMEs are the unfavorable political climate, death of information on SBs
development, the wholesome activities of the Asians in Nigeria especially the Indians and
Chinese. Other factors include the high interest rate, the exchange rate, competition from

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 foreign products, the bad image most Nigerians portray to the outside world to mention
just a few. It is against this backdrop that the study set out to investigate the effect of
business environment on the performance of the small businesses in Nigeria.

1.3 Research Objective

The aim of this is to investigate the impact of Business Environment on SME Business in
Ilorin while other objectives are to;

i. explore the impact of Corporate Culture on the service quality of SMEs business in
Ilorin.
ii. determine the extent at which Corporate Culture affects the market share of SMEs
business in Ilorin
iii. examine the extent to which Organizational structure affects service quality of
SMEs business in Ilorin.
iv. identify the extent to which Organizational structure affects the market share of
SMEs business in Ilorin

1.4 Research Question

i. how has Corporate Culture affects the service quality of SMEs business in Ilorin?
ii. Is there any effect of Corporate Culture affects the market share of SMEs business in
Ilorin?
iii. To what extent has Organizational structure affects the service quality of SMEs
business in Ilorin?
iv. How has Organizational structure affects the market share of SMEs business in Ilorin?

1.5 Research Hypothesis

The following research hypothesis will be formulated for the study

HO1: There is no significant impact of Corporate Culture on the service quality of SMEs
business in Ilorin.

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HO2: Corporate Culture as no effect on the market share of SMEs business in Ilorin.

HO3: Organizational structure does not have any effect on the service quality of SMEs
business in Ilorin.

HO4: There is no significant impact of Organizational structure on the market share of

SMEs business in Ilorin.

1.6 Significance of the Study

This research study titled impact of business environment on SMEs performance shall
provide insight and help managers anticipate the required strategy needed in political
environmental circumstances ahead of their occurrence. The study shall provide ground
for business owners and investors to navigate political conditions prevalent in the nation’s
economy to aid business planning and actions. Also, this research work shall serve as a
supplement to existing literatures relating to this research topic. The result shall also expose
managers to the behavior of forces in the political environment and guides them to make
provision for cushioning measures to salvage adverse effects.

1.7 Scope of the Study

This research work, titled impact of political environment on SMEs performance

in Ilorin, with a particular focus to BOSCO NIG.ENTERPRISE, tends to cover from the
last five years of the BOSCO NIG.ENTERPRISE. The research work will focus on
internal environment.

1.8 Outline of the Study

This research work is mainly concerned with the impact of political environment
on SMEs performance. The overriding objectives of this research are to investigate the
impact of political environment on SMEs performance. To achieve this, this study is
divided into five chapters. Chapter one; dealt with the Background of the Study, Statement

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 of the Problem, Objectives of the Study, Questions of the study, Scope of the Study,
Outline of the Study, Operationalization and Definition of Terms.
Chapter two: Literature Review, Conceptual Review, Theoretical Review, and
Gaps in literature, Chapter three: focused in Research Methodology, Instruments that will
be used in Data Collection, Chapter four: data Analysis and Interpretation, Presentation.
The last chapter which is Chapter five comprised the Summary of Findings, Conclusions
and Recommendations for further study and De-limitation of the study.

1.9 OPERATIONALIZATION

Topic: Effect of business environment on performance of small business in Nigeria: A

CASE STUDY OF BOSCO NIG.ENTERPRISE

The two construct Include:

1. BUSINESS ENVIRONMENT
2. PERFORMANCE OF SMALL BUSINESS

Y=f (x)

Where Y = Dependent Construct (Variable)

Where X = Independent Construct (Variable)

Where:

X= Business Environment Y= Performance of Small

Business

x1 Corporate Culture y1Service Quality

x2 Organizational Structure y2Market Share

x3 Human Resources y3 Effectiveness

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x4 Physical Resources y4Efficiency

Selected Variables

x1 Corporate Culture y1Service Quality

x2 Organizational Structure y2Market Share

1.10 Definition of Terms

BUSINESS ENVIRONMENT:

It is set of those inputs to an organization which are under the control of other organizations
or interest groups or are influenced by interaction of several groups, such as economy

CORPORATE CULTURE:

Corporate culture refers to the beliefs and behaviors that determine how a company's
employees and management interact and handle outside business transactions.

ORGANIZATIONAL STRUCTURE:

An organizational structure is a system that outlines how certain activities are directed
in order to achieve the goals of an organization.

HUMAN RESOURCES:

Human resources is the set of people who make up the workforce of an organization,
business sector, industry, or economy.

PHYSICAL RESOURCES:

Physical resources refer to the things in nature such as land, water, plants, minerals,
animals, wind and sunlight.

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SERVICE QUALITY:

Service quality generally refers to a customer's comparison of service expectations as it

relates to a company's performance. A business with a high level of service quality is
likely capable of meeting customer needs while also remaining economically competitive
in their respective industry.

MARKET SHARE:

This is the number of products or services that a company sells compared to the number
that other companies sell: lose/gain/increase market share The company has increased
its market share.

SOCIAL ENVIRONMENT:

The social environment, social context, sociocultural context or milieu refers to the
immediate physical and social setting in which people live or in which something happens
or develops. It includes the culture that the individual was educated or lives in, and the
people and institutions with whom they interact.

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 CHAPTER TWO

LITERATURE REVIEW

2.1 INTRODUCTION

This Chapter intends to discuss the related literatures to this study in relation to
existing body of knowledge in the field. Different concepts, theories and empirical
evidences will be employed to help bring clarity to the study of political environment on
business performance.

2.1.1 Conceptual Review

The conceptual review will be on business environment, types of environment and also its
importance.
Business Environment
Different scholars have given different definition and views about the concept of
business environment. According to UBC Net Tutor Commerce (2008), environment is
the sun total of conditions that surrounds us at a given point of time and space. It is
comprised of the interacting systems of physical, biological and cultural elements which
are interlinked both individually and collectively. It states further that environment is the
sun total of conditions in which an organism has to survive or maintain its life process. It
influences the growth and development of living forms. Environment refers to anything
that immediately surrounds an object and exerting a direct influence on it. It consists of
the interacting systems of business physical and cultural elements which are interlinked
both collectively. According to business dictionary (2013) business environment can be
defined as the combination of internal and external factors that influence organization
operating situation. The business environment can include factor such as clients and
suppliers, it competitors and owners, improvement in technology laws and government
activities, markets, social and economic trends. Fermando (2017) regards business
environment as external forces, factors and institutions that are beyond the control of the
business and they affect the functioning of a business enterprise, these include customers,

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competitors, suppliers, distributors, industry trends, substitutes, regulations government
activities, the economy, demographics, social and cultural factors, innovations and
technological developments. Kinuu (2014) posit that the business environment in which
organization operates exerts pressure on them the pressures from the environment provoke
different responses as organization seek legitimacy in order to survive and prosper in the
environment.

Blurtit (2013) also regards business environment as those conditions and forces
which are eternal to the business and are beyond the individual business unit, but they all
operate within it. .Fermando (2011), regards business environment as external forces,
factors and institutions that are beyond the control of the business and they affect the
functioning of a business enterprise. These include customers, competitors, suppliers,
government and the social, political, legal and technological factors etc. Oyebanji (1994)
defined business environment as those factors that can influence the individual’s business
organization. He stressed further by saying that every organization must take into
consideration the environmental constraints, material and human resources in their
respective business in spite of their differences in status and that the effect of the
environment caries from one situation to another. Business Environment have the
following features: (a) Business environment is the sum total of all factors External to the
business firm and that greatly influence their functioning. (b) It covers factors and forces
like customers, competitors, suppliers, government and the social, cultural, political,
technological and legal conditions. (c) The business environment is dynamic in nature,
which means, it keeps on changing. (d) The changes in business environment are
unpredictable. It is very difficult to predict the exact nature of future happenings and the
changes in economic and social environment. (e) Business environment differs from place
to place, region to region and country to country. (Ogundele 2012).

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2.1.2 TYPES OF ENVIRONMENT
There are two types of environment, External environment and internal environment
(Ogundele 2005) internal environment includes situational factors within the organization.
These factors are largely the result of decisions of the management process; it is described
as the strengths, behavior, resources, and weaknesses within or internal to the organization.
For instance, a healthy and safety regulation is an external factor that influences the internal
environment of business operations. You should keep in mind that external factors and
internal factors could influence each other and work beyond your control. External factors
are often called external constraints. Let us take a look at some key environmental factors.

2.1.2.1 INTERNAL FACTORS

Internal Environment refers to the factors existing within a business firm. These internal
factors are considered to be controllable because the enterprise has control over these
factors. The main internal factors which influences Business Decisions are as follows:

2.1.2.1.1 Organizational Culture:

This factor is also referred to as “value system”. It is the framework of values2, vision,
norms, and customs shared by the members of an organization. Your business culture
affects how the employees in your business interact with each other, its customers, and
other stakeholders.3 The value system and ethical standards are also among the factors
evaluated by many companies in the selection of the suppliers, distributors, collaborators
etc. Corporate Social Responsibility (CRS) emerges from this system.

2.1.2.1.2 Organizational Direction:

It can also be called as “company leadership”. The role of company leadership – along
with internal power relationship (i.e. management structure) – is an important internal
business factor. Your leadership style and the styles of other company management impact
organizational culture. The positive or negative nature, level of family-friendliness,
effectiveness of communication and value of employees are cultural implications that

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result from leadership approaches. Companies often provide formal structure or direction
with mission and vision statements. These forward-looking statements provide the
business for company decisions and activities.

2.1.2.1.3 Mission and Objectives: -

This factor is known as the “Vision and Mission” of the company. The mission and
objectives of the company guide the business domain of the company, and its priorities,
directions of development, business philosophy, business policy etc. Ranbaxy’s thrust in
to the foreign markets and development have been driven by its mission “to become a
research based international pharmaceutical company.” Arvind Mills’ mission – “to
achieve global dominance in select businesses built around our core competencies through
continuous product and technical innovation, customer orientation and focus on cost
effectiveness” – has driven its future development strategy including the portfolio strategy,
and indicated the thrusts required in the functional areas to help achieve the mission.

2.1.2.1.4 Management Structure and Nature: -

Structure is the manner or hierarchical relationship in which the tasks and sub-tasks of the
organization are related. The organizational structure, the composition of the Board of
Directors, professionalization of management etc., are important factors influencing
business decisions. Some management structures and styles delay decision making while
some others facilitate quick decision-making. The Board of Directors being the highest
decision making body which sets the direction for the development of the organization and
which oversees the performance of the organization, so the quality of the board is very
critical factor for the development and performance of the company.

2.1.2.1.5 Human Resources: -

The characteristics of the human resource like skill, quality, morale, commitment, attitude
etc., could contribute to the strength and weaknesses of an organization. Some
organizations find it difficult to carry out restructuring or modernization because of

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resistance by employees whereas they are smoothly done in some others. Human Resource
Management (HRM) has become more relevant in business management together with
business intelligence and business ethics.

2.1.2.6 Corporate Culture

Corporate culture refers to the beliefs and behaviors that determine how a company's
employees and management interact and handle outside business transactions. Often,
corporate culture is implied, not expressly defined, and develops organically over time
from the cumulative traits of the people the company hires. A company's culture will be
reflected in its dress code, business hours, office setup, employee benefits, turnover, hiring
decisions, treatment of clients, client satisfaction, and every other aspect of operations.

2.1.2.7 Physical Resources

The physical resources of a business include all the tangible resources owned and used by
a company such as land, manufacturing equipment and office equipment. Information
technology and its attendant equipment, computers, networks, servers and others, are
included in the category of physical resources. The physical resources of a business include
all the tangible resources owned and used by a company such as land, manufacturing
equipment and office equipment. Information technology and its attendant equipment,
computers, networks, servers and others, are included in the category of physical resources.

2.1.2.2 EXTERNAL FACTORS

External Environment refers to the factors existing outside a business firm. These External
factors are considered to be uncontrollable because the enterprise has No or Partial control
over these factors. Further, External Environment can be divided into two types namely:

2.1.2.2.1 Micro Environment:

Micro Environment consists of the factors in the company's immediate environment.
These factors affects the performance of the company and its ability to serve the
customers. Micro Environment consists of the following:

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 Customers: Customers constitutes an important segment of the micro environment.
Customer is the king of the market and every business exists to serve its customers. A
business has no meaning until and unless there are customers to serve.
 Suppliers: Suppliers are the person who supply various inputs such as money, raw
material, fuel, power etc. and help in the smooth conduct of business. Further, firms
should have more than one supplier so that changes in the policies of one supplier does
not effect their production schedules.
 Competitors: Competitors form an important part of the Micro Environment. Business
Firms compete to capture a larger share in the market. They constantly watch the
competitors policies and adjust their policies to gain customer confidence.
 Company Image and Brand Equity: The image and Brand Equity of the company
plays a very important and significant role in raising finance, forming alliances,
choosing dealers and suppliers etc.

2.1.2.2.2 Macro Environment:

The Macro Environment consists of the Economic and Non-Economic variables that
provide opportunities and threats to firms. This is largely uncontrollable and therefore,
firms must adjust their operations to these environmental factors. Macro Environment
consists of the following:

 Political
The influence of political environment on business is enormous. The political system
prevailing in a country decides, promotes, fosters, encourages, shelters, directs and controls
the business activities of that country. Stable, honest, efficient and dynamic political system
ensures political participation of people, and assures personal security to the citizens. It is
a primary factor for economic development. Political system comprises three vital
institutions, viz., legislative, executive or government and judiciary. Legislature, also
called the parliament, is the decision making body. Executive also called the government
implements and enforces whatever has been decided by parliament. Judiciary monitors the

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actions of both parliament and executive. Judiciary intervenes whenever the other two work
against public interest or trespass constitutional guarantees.

 Economic:
Business depends on the economic environment for all the required inputs and also to sell
the finished goods. Dependence of business on economic environment is not surprising
because, as it is rightly said, business is one unit of the total economy. Economic factors
decide the nature and direction of the economy in which a firm operates. Strategic decisions
are influenced by economic factors, therefore managers must monitor economic
environment continuously. It is very difficult to be precise about the factors which
constitute the economic environment of a country. At the same time, it is equally difficult
to draw the lines of distinction between the political environment and the economic
environment and the technological environment.
 Social and Cultural:
The social factors that affect a firm’s business include: values, beliefs, attitudes, opinion,
and life styles. These are developed from culture, ecological, demographic, religious,
education and ethnic conditions. Socio-cultural trends are shaping the way people live,
work, produce and consume. The change in socio-cultural environment creates a different
type of consumers and consequently the need for different products and different services.
In the changing socio-cultural environment firms need to use different strategies. For
example, changes in life style create demand for fashionable items like jeans pants, cell
phones, clubs, amusement parks and the like. Similarly, with the increase in percentage of
working women demand for ready to eat foods is increasing. Greater concern for health
and fitness has created demand for physical fitness equipment and health foods.
 Technological:
Among all the segments of the external environment, technological environment exerts
considerable influence on business. During the last 150 years, technology has developed
substantially. Since technology enable them to conquer distances; control birth rate; save
lives, generate preserve and distribute energy; discover new raw materials and substitutes
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to existing ones and so on. The impact of technological developments on strategy not only
fast but also far reaching. Development of technology can reduce or increase opportunities
for a firm. It can reduce opportunities when a firm is not able to see the technological
changes taking place in industry. For example take Dynora, EC TV Companies which are
closed. Creative technological adoptions can suggest new opportunities for new products,
or improvements in existing products, improving service quality, reducing manufacturing
cost and deliver products to end users.

 Legal Environment:

The Legal Environment consists of the regulatory forces that will affect the business
activities and operations. The main components of Legal Environment are: Current
Legislation, International Legislation. Regulatory bodies and processes, Tax Regulations,
Competitive Regulations, Industry Specific Regulations and Government Regulations.

 Demographic:
Demographic factors are commonly used to differentiate groups of present or potential
customers. These factors are easily understandable and quantifiable and therefore easy to
use in strategy formulation. Demographic factors include age, sex, family size; family life
cycle, education, occupation, income, religion, race, and nationality. These are the root for
many changes in society. Demographic factors influence (affect) all industries either
positively or negatively.

2.1.3 IMPORTANCE OF BUSINESS ENVIRONMENT

2.1.3.1 Image Building:

Environmental understanding helps the business organizations in improving their image
(reputation) by showing their sensitivity to the environment within which they are working.
For example, in view of the shortage of power, many companies have set up Captive Power
Plants (CPP) in their factories to meet their own requirement of power. Similarly, GE is
said to be image conscious. It divested its computer and air-conditioning business because

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they could not attain 1st or 2nd position in the business as per their policy. Now they are
snickering to out sourcing in India, aircraft engineering, plastic etc.

2.1.3.2 Meeting Competition:

It helps the firms to analyses the competitors’ strategies and formulate their own strategies
accordingly. Competition becomes meaningful where there is competitiveness. Strategists
can gather qualitative information regarding business environment and utilizing them in
formulating effective plants. For example: ITC Hotels foresaw bright opportunities in the
travel and tourism industry and started building hotels in India and abroad.

2.1.3.3 Identifying Firm’s Strength and Weakness:

Business environment helps to identify the individual strengths and weaknesses in view of
the technological and global developments. SWOT (strengths, weaknesses, opportunities,
threats) analysis is integral to a firm’s potential and performance. Business Environments
provide constraints as well as opportunities for the businessperson. For example, the
regulation such as MRTP Act and wealth restriction put constraints on the businessperson.
On the other hand, the liberalization policies, import relaxation policies bring opportunities
for the businessperson.

2.1.4 DIMENSIONS OF BUSINESS ENVIRONMENT

Business environment is not one-dimensional. There are five dimensions of business
environment. They are: (i) revenue, (ii) cost, (iii) assets and liabilities, and (iv) strategy

2.1.4.1 Revenue:
Business revenue depends on several factors, such as pricing power, competition and
product quality. A business with a reputation for high-quality products may have pricing
power, which means that it may be able to increase selling prices to offset increases in raw
material costs and wages. The competitive environment can affect revenue in two ways:

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First, a small business may not be able to increase prices if it is in a very competitive
market; second, a business may have to change its product mix and product designs to
respond to the competition.
2.1.4.2 Cost:
Cost and revenue are important dimensions because they determine profitability. During
economic downturns, businesses reduce costs to maintain profitability. During periods of
strong economic growth, a small business may experience increases in input costs, such as
raw materials prices and wages. However, during economic downturns, input cost
pressures may ease as businesses scale back manufacturing operations and lay off staff.
Supply contracts may also affect cost. For example, if a restaurant owner can negotiate
discount prices for flour and eggs, operating costs would drop and profits would rise.

2.1.4.3 Asset & Liabilities:

Assets include cash and inventory, while liabilities include short-term and long-term debt.
Small businesses that have too much debt may lose operational flexibility because of
interest expenses, especially in a period of rising rates. Although significant cash balance
acts as a safety cushion during downturns, companies with too much inventory and
accounts receivable may risk cash flow shortfalls.

2.1.4.4 Strategy: -
Successful businesses anticipate and embrace change. They know how to balance day-to-
day operational management with long-term strategic thinking, which includes forming
partnerships and exploring mergers to grow market share. Strategic management also
involves communicating plans and expectations to stakeholders, especially during
uncertain economic times.

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2.1.4.5 Stakeholders:
Stakeholders are another important dimension of the business environment. In addition to
the founders, suppliers, customers and employees, public companies must deal with boards
of directors, investors, stock market analysts, business reporters, and regulatory authorities.

2.1.5 Concept of Small and Micro Enterprises (SMEs)

SMEs remain an important sub-sector in the nation’s economy. The contribution of SMEs
has been recognized as sustenance of the economy because of their capacity in enhancing
the economy’s output and human welfare (Akingunola, 2011). SME is one of the indices
of measuring economic development, and as such, the establishment and proper
management of SMEs have a positive effect on the nation’s economic development. The
term SMEs has been described by different authors in different ways. The Nigeria Bank
for Commerce and Industry (as cited in Jimah, 2011) defined a small scale enterprise as
one whose capital does not exceed #750,000. The above definition plays emphasis on the
capital requirement in the formation of the business. Though capital is not the only
consideration in determining whether a business venture is a SMEs or not. According to
Osazee and Anao (as cited in Inegbenebor, 2006). a small scale business is any business
undertaken, owned, managed and controlled by not more than two entrepreneurs, has no
more than twenty employees, has no definite organizational structure (that is, all
employees report to the owners) and has a relatively small share of its market. In a similar
vein, Inegbenebor (2006:11) opined that the current industrial policy of Nigeria, Small and
Medium Scale Enterprises (SMEs) are now defined on the basis of employment.

2.1.6 Types of Small and Medium Enterprises (SMEs)

According to Asaolu (2005) and Oyelara (2012), some types of small scale business
enterprises are identified. These include:
2.1.5.1 Sole proprietorship:

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 A number of small scale enterprise identified by different scholars, amongst them
are: The sole proprietorship is the simplest business form under which one can operate a
business. The sole proprietorship is not a legal entity. It simply refers to a person who owns
the business and is personally responsible for its debts. A sole proprietorship can operate
under the name of its owner or it can do business under a fictitious name, such as Abode’s
beauty Salon. The fictitious name is simply a trade name and it does not create a legal
entity separate from the sole proprietor owner. A sole proprietorship is a business owned,
established, and managed by one person.

2.1.5.2 Partnership:
Partnership is defined by section 3(1) of the partnership act as the relation which
subsists between persons carrying on a business in common with a view of profit. The legal
definition of a partnership is generally stated as "an association of two or more persons to
carry on as coowners of a business for profit" (Revised Uniform Partnership Act 101
[1994]). Partnership can be in two forms which are general partnership and limited
partnership. In a general partnership, the partners manage the company and assume
responsibility for the partnership's debts and other obligations. The limited partners serve
as investors only they have no control over the company and are not subject to the same
liabilities as the general partners. Persons can form a partnership by written or oral
agreement, and a partnership agreement often governs the partners' relations to each other
and to the partnership.

2.1.5.3 Cooperative enterprise:

A cooperative enterprise is an association or corporation established for the purpose
of providing Services on a nonprofit basis to its shareholders or members who own and
control it. It is established for their mutual benefit and for the sale of their products at the
maximum possible price. It is an autonomous association of persons who voluntarily
cooperate for their mutual, social, economic, and cultural benefit. Cooperatives include
non-profit community organizations and businesses that are owned and managed by the
people who use its services.

20
2.2 THEORETICAL REVIEW
2.2.1 Resource Based View
This study is anchored resource based view and dynamic capability theory. Resource based
view theory has its origin from the work of Penrose (1959), though inadvertently the view
was formerly presented by Wernerfelt (1984). A resource based view (RBV) emphasizes
the firm’s resources as the fundamental determinants of competitive advantage and
performance. The model assumes first that firm’s within an industry (or within a strategic
group) may be heterogeneous with respect to the bundle of resources that they control
(Bridoux, 1997). Second assumption is that resource heterogeneity may persist over time
because the resources used to implement firm’s strategies are not perfectly mobile across
firms. A resource based view (RBV) is one of the most widely accepted theories of strategic
management (Powell, 2001). New organisational resources may increase the flexibility in
strategic choices, by allowing firms to benefit from new opportunities (Rangone,
1999).The RBV could be considered as an “inside-out” process of strategy formulation:
starting from the internal resources of the firm, their potential for value generation has to
be assessed in order to define a strategy allowing the firm to achieve the maximum value
in a sustainable way (Grant, 1991; Barney, 1986). In this way, the firm product
development strategy is determined by the resources available and the capability to deploy
them in the best way to obtain a good performance.

2.2.2 Michael Porter Theory

Michael Porter proposed the theory of competitive advantage in 1985. The competitive
advantage theory suggests that states and businesses should pursue policies that create
high-quality goods to sell at high prices in the market. Porter emphasizes productivity
growth as the focus of national strategies. This theory rests on the notion that cheap labor
is ubiquitous, and natural resources are not necessary for a good economy. The other
theory, comparative advantage, can lead countries to specialize in exporting primary goods
and raw materials that trap countries in low-wage economies due to terms of trade. The

21
competitive advantage theory attempts to correct for this issue by stressing maximizing
scale economies in goods and services that garner premium prices.

Competitive advantage occurs when an organization acquires or develops an attribute or

combination of attributes that allows it to outperform its competitors. These attributes can
include access to natural resources, such as high grade ores or inexpensive power or access
to highly trained and skilled personnel human resources. New technologies, such as
robotics and information technology, are either to be included as a part of the product or to
assist making it. Information technology has become such a prominent part of the modern
business world that it can also contribute to competitive advantage by outperforming
competitors with regard to Internet presence. From the very beginning (i.e., Adam
Smith’s Wealth of Nations), the central problem of information transmittal, leading to the
rise of middle men in the marketplace, has been a significant impediment in gaining
competitive advantage. By using the Internet as the middle man, the purveyor of
information to the final consumer, businesses can gain a competitive advantage through
creation of an effective website, which in the past required extensive effort finding the right
middle man and cultivating the relationship.

2.3 EMPERICAL REVIEW

Mark and Nwaiwu (2013), conducted a study directed to investigate the impact of
political environment on business performance of multinational companies in Nigeria. To
achieve this purpose, a review of extant literature was made which was supported by
hypothesis. The population of this study consists of quoted manufacturing companies in
Nigeria. About twenty-seven (27) of such companies were identified and the necessary
data were sourced from the Nigerian Stock Exchange Fact Book of 2012 and the World
Development Indicators of World Bank Group. Political environment was measured as the
degree of political stability and absence of violence while business performance was
measured by the profitability of the companies for the period 1999-2013. Our findings

22
showed that political environment has a negative significant impact on business
performance of multinational companies in Nigeria.
Kinyua (2013) empirically looked at factors affecting an entrepreneur performance
in Jua sector in Nakuru Town of Kenya. The data was collected through primary source.
Data collected was analyzed descriptively and inferentially and also it was presented
through figures, tables and percentages. The findings indicate that access to finance had
the potential to positively affect performance of SMEs management skill, macro
environment factors significantly affect the performance of SMEs, but infrastructural did
not significantly affect the performance of SMEs

Furthermore, in a study conducted by Muzenda (2013) investigated the concept

model for the measurement and assessment of performance of tourism sector of SMEs in
South-African. Entrepreneur attitudes, firm characteristics and macro environment were
used in the study as the factor that influenced or affect SMEs performance. Chi-square and
SPSS were the tools used for data analysis. The finding indicated that a significant
relationship existed between entrepreneur attributes firm characteristics, external
environment and SMEs performance.

In a study conducted in Nigeria, by Mohammed and Bashir (2014), opines that

political instability and investment Performance is becoming more complex to
organization. The performance of an organization is enhanced if the environment of the
business is well known in terms of stability to the operation of the organization. This paper
therefore is set to examine the performance of organizations under unstable political
environment. There are certain factors however that affects the performance of the
business. This may include the change in government (political risks) associated with the
performance of organization. Data used was on the political instability and the performance
of organizations in the country from 1979 to 1993. The chi-square and correlation statistical
tools are used to determine and to ascertain the relationship and the level of performance
of organizations. The study concludes that the performance of organization depends on
stability of government. However, the study recommends that a country with high

23
instability of government makes difficult for organizations to perform. Thus, organizations
require relatively stable operating environment for better performance.
Chittithaworn (2013) in their work investigated the factors that affect the success of
SMEs in Thailand. They highlighted the influencing variables to include management and
know-how, doing business and cooperation, product and services, resources and finance,
strategy and external environment. Data collated through questionnaire and ordinary least
square (OLS) was used to measure or test the hypothesis under study. There was an
indication that Macro element is positively related to the business success of SMEs in
Thailand.
Furthermore, Idowu (2019), conducted a research study which was directed to know
the influence of political environment on firms’ corporate performance: evidence from
selected manufacturing firms in Oyo State, study focuses on the influence of the political
environment on firms’ corporate performance with evidence from selected firms in the
manufacturing sector of the Nigerian economy. The study used research survey using
questionnaire to elicit data from the middle and top managers about their perception of the
effect of political environment measured by government regulations, legislation, policy
and security on corporate performance using multiple regression techniques. The
individual effect of each of the proxy for the independent variable on the dependent
variable was mixed. The study reveals that political environment has a significant effect at
p < 0.05 on corporate performance for the two objectives and hypotheses raised.
An empirical study was also carried out by Mohammed and Nzelibe (2019) to assess
the performance of SMEs as a tool for wealth and employment creation in Nigeria.
Financing, anticipated political environment and lack of management skill was used as the
factors that influenced the performance of SMEs. Data collected through questionnaire and
regression analysis model was used to text or analyzed the hypothesis. The results
suggested that there is an association or correction between the perceived political
environment and performance of SMEs and lack of management skill affect and influenced
the performance of small and medium scale enterprises in Nigeria.

24
 In another study by Noriode and Agbele (2020) which paper was directed assess
the effect of political environment on organizational performance with a focus on selected
SMEs in Delta State. The objectives of the study are to determine the correlation between
political environment and efficiency of small scale enterprises, to ascertain the relationship
between political environment and customer satisfaction, and also to assess the relationship
between political environment and employee retention. Four (4) hypotheses were tested
and research questions were also formulated. Descriptive survey research design was used
because a field research was conducted. The research population is 371 that make up the
number of workers of the selected industries across the state. A judgmental sampling
technique was adopted to pick 356 respondents as the sample size. The study used both
primary and secondary data collection. Correlation coefficient was employed for data
analysis. The finding revealed that efficiency of SMEs is dependent and sensitive to
political environment. Again, stable political environment influences customer satisfaction
and also encourages employee retention. We recommend that organizations should be
environmentally conscious and constantly monitor and conduct environmental scanning
for proper adaptability by business organization.

2.4 The gap in the literature

From the careful examination of several studies made by researchers in the
preceding sections, there are vast literatures on business performance, there by placing this
study within the review of existing literature, but this study noted that the results of most
of these researches conducted have not been all conclusive in terms of the impact of both
internal and external environmental factors on profit, sales, and employment (performance
indicators) of SMEs. This study also found that in Nigeria such effort has not been made
in the past, particularly in Kwara states. Therefore, this study aims at assessing Business
Environment and SMEs performance from 2017 to 2020 in order to fill up this gap.

25
 CHAPTER THREE
METHODOLOGY
3.0 Introduction
The chapter will examine the research design and the research methodology that will be
adopted in answering the research question and testing the research hypothesis regarding
the relationship between Business environment and Performance of Small Business. The
chapter will also be discussing on research philosophy, population of study, sample size
determination, sampling techniques, source of data, research Instruments, validity of
research instruments, reliability of the research Instruments and ethical consideration.

3.1 Research Methods

Research method consists of all techniques that are used for conducting research. For the
purpose of this research, survey and observation methods will be used. Apart from this
method, there are other methods such as case study, archival, action research, grounded
theory, Ipso factor etc. survey and observation method is considered to be more suitable
because the population is too large to be studied. Moreover, these methods give room for
flexibility in terms of data collection.

3.2 Research Philosophy

The philosophy guiding this research work is epistemological (Knowledge based). And the

approach for this study is pragmatism, it allows for a mix method (qualitative and

quantitative). It will involve distribution of questionnaires, whereby the opinion of

respondents will be collected so as to use it for the research work. Furthermore, the

researcher will observe Thirdly, the research study is base in Nigeria but will limits its

scope to BOSCO NIGERIA LIMITED and its activities while interviewing the staffs in

order to validate the data to be collected.

26
3.3 Research Design
This section will provide a detailed outline on how the data will be collected in order to
deliver valid, reliable and accurate results. This study will adopt both qualitative and
quantitative method, as to enable the researcher to describe and explain clearly, the
phenomenon under study. Due to time constraint, the study will also adopt the cross
sectional time horizon as well as prospective reference period. It allows the researcher to
view the current situation and predict the future. This research will use both primary and
secondary data for the purpose of analysis.

3.4 Population of the Study

The population of this study will consist of members of staff Thirdly, the research study is

base in Nigeria but will limits its scope to BOSCO NIGERIA LIMITED. The information

on the population of employees in the branches of the bank in Ilorin metropolis was

gathered from the Human Resource Manager of the regional branch who made it known

to the researcher that the population of members of staff is 172 If the population is less

than 50, all should be taken while Surely opined that if the population is less than 30, all

should be taken. Since the number of employees in total is 172 Staffs (Researchers field,

2021)

3.5 Sample Size Determination

Owing to the fact that, it is impossible to study the entire population due to some
constraints. To obtain a valid representative sample from the total population, the
researcher will be adopting Taro Yamane (1976) formula which is stated as follows
N
n=
1+N∗(𝑒)2

n= sample size
N= population size
e= sampling error when e= 0.05

27
 172
n=
1+172∗(0.05)2
172
n=
1+172∗(0.0025)
172
n=
1+.0.43

172
n=
1.43

n= 120.2
n= 120 (approximately)

3.6 Sample Frame

The sample frame describes the list of the accessible population from which the sample
will be drawn. For this study, out of 250 total populations, the questionnaires will be given
to 85 students according to what is determined using Taro Yamane formula to represent
the whole population.

3.7 Sampling Techniques

This study will be using non-probability sampling techniques to select participant for the
study. Convenience sampling techniques is used so as to make the researcher get adequate
information at his disposal conveniently.
Convenience sampling will be adopted to select participant in a larger population for a
study by assigning unique numbers to members of the target population that includes 1-10
digits numbers in such a way that each digit selected in each numbers has no connection
or relationship with the previous or subsequent digits.

28
3.8 Sources of Data
There are two main sources of data, primary and secondary sources of data. This study will
utilize primary source of data due to the nature of the research, this will be done by
distributing questionnaires to the students and a bit of personal interview by the researcher.

3.9 Research Instruments

This research will be a qualitative and quantitative research. The core assumption of this
form of inquiry is that the combination of both approaches provides more complete
understanding of the research problem than either approach alone (Kins, 2018). The
questionnaires will be closing ended (structured) in order to restrain the respondents from
derailing from expected results (Agabri & Olofe, 2018). The structured questionnaires
allows for coding and quantitative analysis. In designing the questionnaires, Likert scaling
technique will be used from a 5 point (strongly agree) to 1point (strongly disagree). The
researcher will also employ an interview method (open ended) especially for the
management.

3.10 Validity of research instruments

In clarifying the validity of the research instrument to deliver objective response, four types
of validity has been identified such as content validity, predictive validity, con-current
validity, construct validity. In order to test the validity of this research, the interviewed
majorly will be on final year students and the work of other scholars relating to this research
work will be reviewed for comparison.

3.11 Reliability of research instrument

Research reliability relates to the consistency in results obtained. There are various
methods of testing the reliability e.g. test re-test, split half test etc. For the purpose of this
research, test& re-test will be adopted. Three weeks’ interval will be given after first
administration of questionnaires to test the reliability of the first results obtained.

29
3.12 Ethical Consideration
While carrying out the research, the respondents will neither be pressurized nor intruded
to the privacy of respondents/students in any way. The information to be gathered will be
treated with extreme caution and the identity of respondents/students remains confidential.
The consent of the organizations will be sought before commencement of the research.
Moreover, this research will avoid any form of inappropriate use of information which can
affect the safety of the respondents.

30
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