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Gse 301 lecture

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  • 1. 1GSE 301VOLUME 1: CONCEPT OF SMALL-SCALE ENTERPRISESThere is no internationally accepted definition of small-scale enterprises because small is a relative concept. Variables used to describe small scale enterprises include:(i) Number of employees;(ii) Sales(iii) Project costs(iv) Turnover scale(v) Investment or(vi) Combination of some or all of theseProblems with most of the single variable definitions are:(i) They are inflexible and arbitrary in classifying these enterprises. For example global inflation render them irrelevant in later years.Definition of small-scale enterprises in NigeriaThe definition varies over the years depending on the organization and bodes. For example(a) Federal Government Industrial Policy of 1999 definition of SSE 2 million naira excluding cost of land.(b) National Economic Reconstruction Fund (NERFUND) defines SSE as one in which the total outlay did not exceed thirty million naira (N30,000,000.00). The reason for huge amount of capital is because most of the enterprises they support have a substantial off shore components that require foreign currency input especially for technical equipment and parts.(c) The Federal Government in the 1995 budget defines SSE as a firm with a turnover of less than one million naira.

2. 2(d) The Federal Ministry of Industry based its definition of SSE on the value of Fixed Capital. Such values are not statistic, but subject to the prevailing objective of the government policy. For example In 1972 it was fixed at N50,000 In 1975 1980 it was fixed at N150,000 In 1989 it was fixed at N500,000 excluding cost of land but including working capital.The Federal Government in its new Industrial Policy, defines SSE as one with total investment of between 100,000 and 2 million naira (excluding cost of land capital but including working capital).The development of SSEs in the Industrial of the country Prior to 1954 industrializaiton in Nigeria was anchored on making Nigeria producer of primary raw materials for British industries and importer of British industries and importer of British manufactured. The first indigenous administration in Nigeria see for itself the task of transforming the country into a modern economy. To do this, the Federal Government pursued the programmes of processing of raw materials for export and import substitution industries (ISIs) from 1954 1960. After early 1960s, the Nigeria Government pursued of programme of (ISI) more vigorously than the processing of raw materials for export, The Nigerian Government pursued ISI programme for the purpose of producing certain commodities in Nigeria. The project set up by the Nigeria Government to produce those commodities were few and established in Urban Centre Enugu, Ewekoro and Ikeja. 3. 3Problems of the project established to produce certain commodities in Nigeria are:(i) Inability to generate employment opportunities proportionally to the accumulating manpower(ii) Under employment(iii) Regional economic disparities.(iv) Undue concentration of power in the hands of raw people in the Urban Centres.(v) Wasteful utilization of productive resources(vi) Mass migration of youths from rural areas of Urban Centres.The above problems became more and more aggravated during the Military regime when many development projects that were large were cited in the Urban centres.From 1970s, the effects of ISI programme became glaringly manifested in the economy of the country. Some of the effects are:(i) Decline in Gross Domestic Product(ii) Higher cost of production in ISI sector relative to imported goods which created excess demand over supply for goods in ISI sector that manifested itself in substantial increase in importation of raw materials.In order to address the problems by ISI and export processing of raw materials that were characterized by the establishment of large scale enterprises, Federal and State Government decided to try an alternative industrialization strategy the development of small scale industries or enterprises.The Role and Importance of Small Scale Enterprises (SSEs)Small scale enterprises are very important in any economy and doubly so in a developing economy such as Nigeria. 4. 4Small Scale Enterprises(i) Account for 30 40% of all employment in developed economies such as USA and Europe and in the advance Asian Tiger Economies such as Malaysia, Indonesia and Thailand.(ii) Are the engines of innovation in any economy. Even in developed economies, most innovative companies started up SSEs before they grew overtime into large companies which we see and observe today.SSEs are created with a number of developmental attributes. Some of which include the following:1. Provision of the platform for the development of an army of entrepreneurs who are ever willing to take advantage of available business opportunities.2. Offering of a very good avenue for mobilization of the domestic saving for investment.3. Generation of more jobs per unit of capital or energy than large businesses.4. Facilitate flexibility of operations.5. Help to accelerate Industrial Dispersal and6. Accelerate linkage between small and big firms.Small scale Enterprises can serve the interest of the owner insignificant wys, among which are:i) Generation of Salaryii) Provision of securityiii) Serving as asset builderiv) Provision of independence and freedomv) Provision of fulfillment. 5. 5Types of Small Scale BusinessThere are two main types of small scale businesses. These are sole proprietor and partnership.Sale ProprietorThe business is owned by one man or tone woman. It is the oldest, commonest, easiest and least expensive unit of business. The business ownership has advantages aw well as disadvantage some of the advantages are:(i) It can be commenced with minimal expenses and legal formalities;(ii) The proprietor enjoys almost absolute privacy.(iii) The business is run and decisions is taken promptly solely by the owner.(iv) The owner takes responsibility of his own actions and inactions.(v) The business gives its owner the opportunity to do more than any form of business.(vi) The owner has credit advantagesSome of the disadvantage are:(i) Lack of continuity(ii) Low capacity utilization(iii) Management problems(iv) Unlimited liabilities.PartnershipA partnership is a type of business where two or more persons (but not more than twenty) come together to carry on a business in common with a view of making profit and sharing thereon. 6. 6Kinds of PartnersThere are 5 kinds of partners. These are:(i) Active partnerHe participate in all activities of the business(ii) Dormant or sleeping partnerHe does not take active part in the activities of the business but shares in the profit. Generally, He is not known by the public.(iii) Silent partnerHe is known by the public as part of the partnership but he does not take active part in the management of the business.(iv) Nomina partnerHe lend his name to a partnership without having any financial contribution in it. He lends his name to the partnership for a consideration.(v) Secret partnerHe takes an active part in the affairs of the enterprise but he is not known by the public as part of the ownership.Partnership has advantages as well as disadvantages. Some of the advantages are:(i) More capital is available than is in the case under sole proprietorship.(ii) More skills and abilities of partners are pooled together thereby promoting the efficiency of the business operation.(iii) Ability to enjoy economies of scale.(iv) Eliminates cut-throat competition.Some of the disadvantages of partnership are:1. The ability of each member of an ordinary partnership is unlimited.2. Short length of life.3. It is not uncommon for disagreement to ensure among partners. 7. 74. It is possible for a partner to enter into a contract on behalf of the partnership which then becomes binding on the rest of the partners irrespective of the financial implications and economic worthwhileness of the contract.CAUSES OF SMALL SCALE BUSINESS FAILUREOnly few small-scale businesses in Nigeria are successfully Reasons while most of the businesses failed in Nigeria include the following:1. Lack of training and adequate preparation in the line of business2. Inability to separate self from the business3. Lack of proper understanding of the market.4. Getting too involved or preoccupied with day-to-day details that the owner has no time to plan for future and analyze the business.5. Tying available capital in buildings and cozy offices and furnishings.6. Premature expansion7. Poor owners managers attitude towards the customers and employees.8. Lack of or inadequate succession plan9. Inadequate product mix10. Wrong pricing of products11. Lack of adequate infrastructural facilities12. Poor accounting system.VALIDATION OF PRODUCT/SERVICE IDEALess than 25% of new businesses are successful in providing a high standard of living for the proprietors and making a significant contribution to solving the unemployment problem.Some are launched without sufficient research and others on wave of oven optimism. But others fail simply because those who started them were not of the right temperament to set up on their own. 8. 8The reason or need for validation of product/service idea is to reduce the possibility of a proposed business owner from joining the 75% who are unsuccessful.Going through the process of validation of product/service idea will enable the would be proprietor to give more thought to the problems he will likely face and to prevent some of the worst from happening.Also going through the process of validation of production /service idea will give the would-be proprietor better appreciation of his business sense, management abilities and his deficiencies.The process of validations of product/service idea involve providing answers to questions that can be categorized into six sections. Namely(1) Are you a person who should start the proposed project or service

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