UNIT ONE

SMALL AND MEDIUM SCALE ENTERPRISES (SMEs)

SUMMARY
This topic has specifically x-rayed the concept of Small and Medium Scale Enterprises (SMEs) and it was
defined as a business which is owned, led by one or a few persons, with direct owner(s) influence in decision
making, and having a relatively small share of the market and relatively low capital requirement. The
contributions of SMEs to the economy were examined. The problems confronting SMEs and the possible
strategies of combating the problems were also examined.

INTRODUCTION
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. It has been stressed by scholars that Small and Medium Scale Enterprises (SMEs) is a driving
force in developing and developed nations alike. The emphases on SMEs remain a recurring decimal in the
lexicon of Nigeria and this is not unconnected with the realization of the roles of SMEs in job creation,
poverty alleviation and foreign exchange conservation (Jimah, 2011; Ikherehon, 2002; Akingunola, 2011).

Agu (2001) defined SMEs as a business which is owned, led by one or a few persons, with direct owner(s)
influence in decision making, and having a relatively small share of the market and relatively low capital
requirement. The earliest manifestations of SMEs in advanced countries were cottage industries that later
transformed into industrial complexes and tech factories. SMEs today account for the bulk of output in most
countries today. It is also a proven job creator: the share of SMEs in global productivity is over 30% higher in
some countries, but generally growing. In China, SMEs employ over 50% of the workforce while in the
United States (US), SMEs account for over 50% of Gross Domestic Product (Ehinomen & Adeleke, 2012). In
Nigeria, SMEs employ over 60% of the labour force both in formal and informal sectors. The need to have a
regulatory body to control the activities of SMEs in the country led to the formation of Small and Medium
Enterprises Development Agency of Nigeria (SMEDAN) in 2004 by an act of parliament towards the
realization of the goals and objectives of SMEs.

There is no doubt that SMEs play significant roles in the advancement and development of the economy.
Some of these roles which have been briefly identified above remain integral to the progress of the nation.
For these roles to be fully realized there is need for our educational system to fully be repositioned with the
aim of accelerating the growth and development of SMEs. The establishment and management of SMEs no
doubt have numerous implications on the economic development of the nation as documented by scholars
in the field. The term Economic development has been defined by various scholars in different ways.
According to Misra and Puri (2003), economic development means growth plus progressive changes in
certain critical variables that determine the well-being of the people. They assert that there are qualitative
dimensions in the development process which may be missing in the growth of a given economy expressed
in terms of an increase in the national product or the product per capita. From the foregoing, it becomes
obvious that economic development is far beyond the numerical growth in a nation’s income which
politicians often express to draw the attention of unsuspecting electorates. This growth or changes must cut
across all the sectors of the economy and must be felt in the living standard of the citizens and this is what
SMEs seeks to bring to reality.

UNIT TWO
CONCEPT OF SMALL AND MEDIUM SCALE 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. Adidu & Olannye
(2006), states that different countries have different basis of defining small and medium scale enterprises,
some on capital investment, while others define it on the basis of management structure. There are many
definitions on small and medium scale enterprises (SMEs) as there are experts on the subject. The Nigerian
industrial policy describes SMEs as those whose total investment is between N100, 000 and N2million
exclusive of land but including working capital. 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. That is:
Micro/cottage industries 1 and 10 workers
Small – Scale Industries 11 and 100 workers
Medium Scale industries 101 and 300 workers
Large scale industries 301 and above

The development of many countries either developed or undeveloped is often measured by such indices as
the level of industrialization, modernization, urbanization, gainful and meaningful employment for all those
who are able and willing to work, income per capital, equitable distribution of income, and the welfare and
quality of life enjoyed by the citizenry. There is no doubt that small scale enterprises exist in most economic
environment. The historical background of small and medium scale enterprises in Nigeria can be traced back
to 1946 when the essential paper No. 24 of 1945 on “A Ten year plan of development and welfare of Nigeria
1946 was presented. Small and Medium Scale Enterprise has been described as an all time necessity in any
economy. It was there at the beginning; it has gained prominence today and will increase its importance
tomorrow. This is simply dictated by the developmental needs of the Nigeria society (Aremu & Adeyemi,
2011). In recognition of the depth and breadth of the consequences of small-scale enterprises in alleviating
poverty and national development, there has been a deep-self interest in recent years for development of
Nigerians small-scale enterprises particularly since the adoption of the economic reform in 1986 (Aremu,
2004).

The small and medium scale industry is seen as a key to Nigeria's growth and alleviation of poverty and
unemployment in the country (Basil, 2005). With the increasing number of SMEs in the country, the need to
harmonizing their policies programmes and activities became very important and this led to the formation of
Small and Medium Scale Enterprises Agency of Nigeria (SMEDAN) in 2004. This agency was establishment by
the government for the sole aim of regulating the activities concerning SMEs in the country. Some other
agencies also work in collaboration this SMEDAN to ensure healthy business climate in the country.

OTHER DEFINITIONS OF SMEs ARE:

There is no generally accepted definition of a small business because the classification of businesses into
large-scale or small-scale is a subjective and qualitative judgement. In countries such as the USA, Britain, and
Canada, small-scale business is defined in terms of annual turnover and the number of paid employees. In
Britain, small-scale business is defined as that industry with an annual turnover of 2 million pounds or less
with fewer than 200 paid employees.
In Japan, small-scale industry is defined according to the type of industry, paid-up capital and number of
paid employees. Consequently, small and medium-scale enterprises are defined as: those in manufacturing
with 100 million yen paid-up capital and 300 employees, those in wholesale trade with 30 million yen paid-
up capital and 100 employees, and those in the retail and service trades with 10 million yen paid-up capital
and 50 employees.

In Nigeria, there is no clear-cut definition that distinguishes a purely small scale enterprise from a medium-
scale enterprise. The Central Bank of Nigeria, in its Monetary Policy Circular No. 22 of 1988, defined small-
scale enterprises as having an annual turnover not exceeding 500,000 naira. In the 1990 budget, federal
government of Nigeria defined small-scale enterprises for purposes of commercial bank loans as those with
an annual turnover not exceeding 500,000 naira, and for Merchant Bank Loans, those enterprises with
capital investments not exceeding 2 million naira (excluding cost of land) or a maximum of 5 million naira.
The National Economic Reconstruction Fund (NERFUND) put the ceiling for small-scale industries at 10
million naira.

Section 37b(2) of the Companies and Allied Matters Decree of 1990 defines
a small company as one with:
(a) an annual turnover of not more than 2 million naira;
(b) net asset value of not more than 1 million naira.
 UNIT THREE
INTER-RELATED VARIABLES THAT ARE ASSOCIATED WITH
SMALL AND MEDIUM SCALE ENTERPRISES (SMES)
The framework shows at a glance the inter-related variables in the study and it is used in illustrating the
various factors and variables that are integral in the establishment and management of Small and Medium
Scale Enterprises (SMEs). Below is the illustration of the framework.

Imeokparia and Ediagbonya Model on SMEs

Source: Author’s field work

The framework above gives a vivid illustration of the inter-related variables that are associated with Small
and Medium Scale Enterprises (SMEs) ranging from its establishment to its outcome. It has been able to
illustrate various factors that can possibly pull or push one into establishing SMEs. These factors are
synonymous with what Inegbenebor (2006) describes as pull and push hypotheses of entrepreneurship.
Shapero and Sokol (1982) describe some of these factors as negative displacement, between things and
positive pull (Ediagbonya, 2013). These factors that necessitate the establishment of SMEs include: out of
school (unemployment), fired, bored, insulted, forcefully emigrated, favourable government polices and
favourable business environment. The current growth of SMEs in the country today may not be
unconnected with the above factors. Owing to the current level of unemployment in the country, most
graduates from out institutions are quick to settle for self-employment. That is, establishing a Small and
Medium Scale Enterprises (SMEs).

There is no doubt that there are a number of factors militating against the establishment and
management/growth of SMEs in the country. Several literatures have attempted to document some of the
challenges facing SMEs and these challenges are summarized in this model as: poor infrastructural base,
poor data base, multiplicity of government policies and regulations, inadequacy of skilled and technical
knowhow, poor accounting system, inadequacy of finance, human capital flight, etc. These factors have
posed serious threat to the establishment, management and growth of SMEs in the country. It is believed
that if SMEs must continue to flourish, these challenges must be addressed.

This model has equally emphasized the roles of bodies/agencies in regulating the establishment and
management of SMEs in the country. Some of the bodies or agencies explained in this model include:
SMEDAN, CAC, IDCC, MAN, NACCIMA, NAFDAC, NEPC, SON, FEPA, RMRDC, etc. these bodies ensure that
there is harmony and proper co-ordination of the activities of SMEs in the country. The final phase of this
model is on the effects of SMEs on economic development. SMEs no doubt play a significant role in the
economic development of the nation and these roles have been documented in several scholarly books and
journals. This model has briefly summarized the effects of SMEs on economic development and they include:
creation of job opportunities, poverty alleviation, reduction of food insecurity, reduction of dumping by
industrialize nations, promotion of local or indigenous technologies, correcting unfavourable balance of
payments, encouragement of import-substitution, increase in National Income (N.I) and reduction of over-
dependence or reliance on imported goods.

UNIT FOUR
CHARACTERISTICS OF SMALL AND MEDIUM ENTERPRISES
(SMES)
There are however, some qualitative indicators that are common to most definitions namely: size of capital,
the number of employees, the annual turnover. Adidu & Olannye (2006), summarize SMEs as those business
whose capital investment do not exceed #5 million (including land and working capital) or whose turnover
are not more than N25million annually. The Small Business Administration SBA in the USA measures SME as
one which posses at least two of the following criteria.
 Managers are also owners, Owners supply the capital, Area of operation mainly local, and Small in
size within the industry.
 It is therefore glaring that there is a universal cord that links all the above definition and that SMEs
are generally low in terms of number of persons employed and the amount of investment and annual
turnover. Thus, a review of existing literature on the subject suggests the following as the mostly
used criteria for the definition of small and medium scale industries.
 No of employees
 Sales volume: The size of sales volume in any business will determine where to group it, i.e. whether
to a very small, small or medium business.
 Financial strength: This as well determines whether it is a very small, small or medium business. The
amount of fixed assets and current assets each business is having helped to determine where to
categorize them.
 Relative size: The relative size of the business is determined by number of people working in this
business, that is, the number of employees helps in determining whether it is a small, very small or
medium business.
  Initial take-off capital: This means that the amount of shares used to start or incorporate business
will help in large way to determine where to categorize the business.
 Personal management style, Independent ownership, Name of business, and Composition of
ownership and types of industry (Bhatia, 2003).

RELEVANCE OF SMALL AND MEDIUM ENTERPRISES (SMES)

SMEs have drawn attention in developing countries, transition countries as well as in advanced developed
countries. Success stories of small and medium scale enterprises are talked about in many countries and
their activities in contributing to revitalize local communities. SMEs is a common topic of discussion in many
bilateral and international meetings and has become the target of official development assistance. Behind
this lies the increasingly common recognition that small and medium scales enterprises play a key role in the
revitalization and development of national economy in many countries (Omotoso, 2000).

To Namiki (1998) SMEs have been described as the lifeblood of most economies. On average, they represent
90% of enterprises and account for 50 – 60% of employment at a rational level.
He also agrees that SME’s are particularly important in supporting economic growth in developing countries
because:
i. they tend to use more labour intensive production process than large enterprises, boosting employment
and leading to more equitable income distribution;
ii. they provide livelihood opportunities through simple, value-adding processing activities in agriculturally
based economies.
iii. create employment opportunities; they mobilize local resources;
iv. SMEs mitigate rural-urban migration;
v. they help to distribute industrial enterprises;
vi. SMEs help to supply potential entrepreneurs and
vii. they support the building up of systematic productive capacities and the creation of resilient small
economic systems, through linkage between small and large enterprises and mature entrepreneurship.

SMEs are primarily expected to serve as bedrock of supply of promising entrepreneurs who would be ready
to take calculated chances to explore new ideas or favourable market development. They are also expected
to assist further entrepreneurship and skill development.
In most developing economies, unemployment is the greatest threat to economic growth and development.
Hence, the proliferation of virile SMEs could be an antidote to large-scale unemployment in these
economies. This could be especially helpful in mitigating the rural- urban drift, a burgeoning socio-economic
problem in the developing economies. This is because most of the enterprise in the rural areas is small scale
in nature and an increase in their change of survival could spell their greater ability to sustain the trust of
rural dwellers.

SMEs are expected to ensure the supply of high quality parts and components and intermediate products;
thereby minimizing the dependence on imported materials. Thus SMEs would not only encourage
indigenous technology but also promote the establishment of import substitution industries. They are
expected to produce for exports; thereby generating additional foreign exchange and hence help to
strengthen the national currency and the balance of payment position. SMEs are expected to ensure better
use of scarce financial resources and appropriate technology.

UNIT FIVE
PROBLEMS CONFRONTING SMES IN NIGERIA
There are several challenges/problems confronting the establishment, growth and continued existence of
SMEs in Nigeria; and some of them will be examined in the paragraphs below:
 Small and Medium Scale Enterprises in Nigeria is confronted with the problem of inadequate funds
(Adelaja, 2012). There is no doubt that capital/fund is a major requirement in the establishment and
expansion of SMEs. Over the years, there has been complaints/outcry by prospective entrepreneurs
or job seekers of not having enough capital to establish their own businesses. In some cases, those
that graduate from schools or skill acquisition centres are not able to access fund or loan facilities in
order for them to fully take off/establish their businesses.

 There is also a problem of inadequate infrastructural base in the country and as such, the
establishment and growth of SMEs are hampered (Adelaja, 2012). Infrastructure in this context
include good road network, electricity, telecommunications, pipe born water and others. For SMEs to
actually thrive very well there must be adequate infrastructural base but this is not the case in this
country. The problem of electricity supply remains a major challenge to SMEs in the country. The
power cut or outage often experienced in the country has a great negative effect on the SMEs.

 There is also a problem of poor entrepreneurial or technical knowhow (Adelaja, 2012). This has
remained a major problem to the growth of SMEs. For one to start up SMEs there must be some level
of technical knowhow. That is, in terms of skills that is needed in that particular business. The
possession of appropriate entrepreneurial skills – sales, marketing, finance, human relations, etc. will
boost the growth of SMEs. Unfortunately in Nigeria, this is not the case. It was upon the realization of
this major deficiency that the government decided to introduce Entrepreneurship Education into the
curriculum of tertiary institutions and made it compulsory.

 Government policies seem to have constituted a serious problem area for SMEs. That is, the
multiplicity of policies and regulatory measures has in recent times been negatively affecting the
establishment and growth of SMEs in Nigeria (Adelaja, 2012). The polices and regulatory measures
put in place by the government has been on the increase and this has a way of discouraging
Entrepreneurs in investing owing to the numerous stages and formalities they have to go through
before starting and remaining in business. Some of these policies and measures include registration
of names, sign boards, payment of bills/rates and payment for outdoor adverts.

 The inadequacy of raw materials is a major challenge confronting the establishment and growth of
SMEs (Adelaja, 2012). Most would-be entrepreneurs have business ideas but the lack/inadequacy of
raw materials has made it difficult for these business ideas to be translated into reality. At times,
where these raw materials are located may not be easily accessible probably owing to the poor road
network.

 The absence of proper and accurate data base regarding SMEs is also another problem. It is often
difficult to ascertain the number of SMEs in a particular local government, state or country. There are
registered and unregistered SMEs in the country but getting the accurate figures remained a major
challenge. This phenomenon has greatly been negatively affecting research works in the area of SMEs
(Adelaja, 2012). Researchers in this field may not be able to access accurate records on SMEs and as
such, their findings may be misleading.

 The unstable policy environment in the country has been negatively affecting the growth of SMEs
(Adelaja, 2012). In recent times, there has been frequent and series of policy changes in the country
without due consultation with the stakeholders (that is, those concerned). The ban on motor-cycle in
 Edo State in 2013 which was less than a week notice is one too many to mention. This rendered most
of the SMEs (spare parts sellers) owners’ unemployed and brought untold hardship to them.

 The high level of insecurity in the country ranging from kidnapping to the ‘Boko Haram’ insurgency
remains a major problem confronting the establishment and growth of SMEs in the country. Most
SMEs owners have shut up their businesses while would-be entrepreneurs are apprehensive to
invest. Most persons have acquired the necessary entrepreneurial skills/technical knowhow and have
the required funds, but the insecurity in the country has made them indecisive because no one will
be willing ‘to fish in troubled waters’.

GUIDELINES FOR THE DEVELOPMENT OF SMES

In 1986, the Federal government established certain guidelines for the development of SMEs which
included:
 establishing more industrial development centres (IDCs);
 establishing model industrial estates to encourage prospective small-scale industrialists;
 exploiting to the fullest existing World Bank-assisted programmes for the small-scale enterprises;
 introducing the "Work-For-Yourself' programme a drive towards self employment;
 introducing SME-related programmes, such as the Small-Scale Industries Scheme; the National
Economic Reconstruction Fund; and the Small and Medium-Scale Enterprises Loan Scheme.

UNIT SIX
STRATEGIES TO COMBATING THE PROBLEMS CONFRONTING
SMES IN NIGERIA
There is no doubt that the problems confronting the growth and development of SMEs are numerous. Haven
identified the problems in the above section, the need to identifying the possible ways of addressing the
problems become imperative and these solutions are discussed in the paragraphs below.
 The provision of adequate funds to the operators or actors in SMEs remains one of the outstanding
panaceas to the challenges confronting the establishment, growth and development of SMEs in the
globe and the country in particular. Most entrepreneurially minded individuals desire to invest in
SMEs but the financial constrain possibly arising from the unemployment and low income which
eventually leads to low savings and which climax in low investment. According to Ediagbonya (2013),
the author recommended that the government should make accessible loan facilities available to
entrepreneurs/would-be entrepreneurs (SMEs operators). The position of this author becomes very
crucial because it is not all loan facilities released by the government that are accessible. Some of
these loan facilities may possibly be used in gratifying politicians or may be used as a ‘political tool’ in
getting the votes of electorate.

 The provision of adequate infrastructural base remains a major driving force in ameliorating the
plights of SMEs operators. When there is reliable and dependable infrastructure on ground, this will
serve as a catalyst in boosting the growth and development of SMEs in the country. Some of these
infrastructural facilities have been identified in the previous section and they include: electricity,
good road network and communication network. The current electricity supply in the country is not
helping the growth of SMEs and as such, all stakeholders in this area must make conscious effort to
improve electricity supply.

 The need to strengthening Entrepreneurship Education across all levels of the nation’s educational
sector will surely go a long way in equipping prospective SMEs owners with the necessary
entrepreneurial skills and technical knowhow required to establish, grow and develop SMEs
 (Ediagbonya, 2013). Apart from this formal education acquired from various institutions,
trade/commercial centres and apprenticeship should also be encouraged especially for those that
will not be able to meet the requirements in the formal schools. Most craftsmen and artisans
acquired their skills outside the conventional school system and they have been able to start up their
businesses.

 The Government should put in place the necessary machinery so as to streamline the policies and
regulations covering SMEs in the country. The issue of frequent policy changes with its unpleasant
result should be given serious thought by the government. Whenever there is need for policy
changes, there should be due consultation among the stakeholders and such policy changes should
be relatively stable in order not to unduly displace SMEs actors.

 The Government should make conscious efforts to ensure that there is always regular/adequate
supply of raw materials. This should be a cardinal issue in the policy of the government. For instance,
the raw material needed in operating SMEs like saw mill is timber. So, the government should
encourage the people to carryout afforestation (that is, planting of tree seedlings) activities in order
to ensure regular supply of timber over the years.

 All stakeholders should be given proper orientation on the need to maintain proper and accurate
data base. The Small and Medium Scale Enterprises Development Agency of Nigeria (SMEDAN)
should ensure that all stakeholders maintain proper and accurate records. It should also publish the
activities of SMEs in the country from time to time as this will go a long way in keeping all
stakeholders abreast about the activities of SMEs and in particular it will facilitate quality research
work as researcher may not have need to falsify data.

 The problem of insecurity in the nation has been attributed to so many factors ranging from fall in
value system, poor delivery on electioneering promises and idleness among the teaming population
(Ediagbonya, 2013b). The government should continue to strengthen educational programmes like
civic education and peace and conflict resolution in schools. The Government should also make
conscious effort to deliver her electioneering promises and the unemployed should be encouraged to
acquire saleable/money-making skills that will make them engaged.

UNIT SEVEN
ROLES OF SMES IN PROMOTING ECONOMIC DEVELOPMENT IN
NIGERIA
Small and Medium Scale Enterprises no doubt play an integral role in promoting the economic development
of any and Nigeria in particular. The roles SMEs play in promoting economic development in Nigeria are
therefore discussed in this section.

 SMEs play an invaluable role in creating jobs for the teeming population that is unemployed (Adelaja,
2012). The major issue confronting Nigeria as a nation is the high level of unemployment in the
country which is having an adverse effect on the economic development of the nation. With the
increasing establishment of SMEs in the country, there is an assurance that greater percentage of the
population will be meaningfully engaged and thereby reducing the economic tension in the country.

 SMEs ensure effective and efficient utilization of the available human and material resources in the
country. In this context, the human resources refer to the labour force. That is, the individuals that
are willing and able to work; while the material resources are the non-human factors that are needed
in the production process. The growth of SMEs will therefore engage these resources and thereby
 avoiding wastages and underutilization. All these will in turn lead to economic development of the
nation.

 The growth of SMEs also plays a major role in reducing food insecurity in the nation. Hunger is one of
the indices of a poor and economic less developed nation. Food insecurity incorporates a measure of
resilience to future disruption or unavailability of critical food supply due to various risk factors
including droughts, shipping disruptions, fuel shortages, economic instability and wars. With the
establishment of more SMEs in the country, more food is made available to the population at a
reasonable price. This trend in turn will lead to better standard of living which is tied to economic
development.

 The establishment and growth of SMEs in the country reduces the level of dependency of the
country. In other words, there will be some level of self-reliance in the nation. It implies that the
country is able to utilize her local technologies in getting things done in order to meet her economic
demands. This scenario is a very healthy way of checking an unfavourable balance of payment
position which has an adverse effect on the economic development of the nation. Once the country
has less dependence on other countries as regards goods and services, the lesser the country’s
expenditure; and thereby making more resources available in executing people-oriented projects.

UNIT EIGHT
SOURCES OF FINANCE FOR SMALL SCALE ENTERPRISES
Leon, (2009) lists the following as various sources of finance for small scale enterprise:
Personal savings: Personal savings is a major source of finance for SMEs. To a large extend, one may say that
it is the most assured source of finance. Most start-ups are usually planned; therefore, we may safely
assume that the prospective owner will provide the initial capital. Such capital comes from savings kept for
various eventualities and unforeseen mishaps that may require money.

Borrowing from friends and relations: Apart from sourcing finance from personal savings, many businesses
are set up or financed by money borrowed from friends or relations. In some cases, the finance is provided
either as a gift or soft loan to be repaid at mutually agreed terms. One major problem associated with this
source however, is that it is not easy to get because friends and relations may not trust the sincerity of the
borrower to repay the loan.

Borrowing from commercial and microfinance banks: One major function of commercial banks is to lend
money to customers be it individuals or corporate organizations. Part of the purpose of such loans is to
enable the customers undertake capital projects that ordinarily their savings cannot finance. Usually the
loans are repayable within a specified period of time and at an agreed rate of interest per annum. In
addition, most banks normally require collateral securities before any loan is granted.

Lease financing: Lease financing is a type of financing that is available to small and large business
organizations. Basically, a lease is a contract whereby one party (the leasee) hires equipment from another
party (the leasor) in a way that the leasee uses the equipment without purchasing it. But in return the leasee
pays the leasor agreed periodic fees called lease rentals. At the end of the lease period, the leasee may have
the option to purchase the equipment. Typical equipment financed through lease agreements are oil
tankers, luxurious buses, tractors etc.

Borrowing from the Bank of Industry (BOI) and other government institutions: The Bank of Industry
Limited is Nigeria’s oldest and industrial financing institution. It was reconstituted in year 2001 out of the
defunct Nigerian Industrial Development Bank Limited which was incorporated in 1964. The mandate of BOI
is to provide financial assistance for the establishment of large, medium and small scale enterprises as well
as expansion, diversification and modernization of ailing ones. Presently, huge sum of funds are been
channeled through this bank for small scale enterprises.

PROSPECT OF FUNDING FOR SMALL SCALE ENTERPRISES IN

NIGERIA
According to Okereocha (2014), the future of small and medium scale enterprises sector looks promising. Of
late, local and foreign financial institutions, government agencies state governments and well meaning
individuals have been focusing attention on the sector. The World Bank has in a bid to help close the funding
gap for small and medium scale enterprises, approved $500m (N21.7b) lifeline for the sector in Nigeria. This
is coming on the heels of similar intervention by the central bank of Nigeria, which has launched N220b
small and medium scale enterprises (SMEs) fund. If these enterprises could take advantage of these efforts
and also key into several capacity building programmes of some states, then, the sector will no doubt fulfill
its role of creating jobs and ensuring inclusive economic growth and development.

While the Central Bank of Nigeria and the World Bank are showing the way in the area of access to finance,
some state governments and public agencies have concluded partnership arrangement that promises to put
the sector on the path of sustainable growth. Already, the Small and Medium Enterprises Development
Agency of Nigeria (SMEDAN) in conjunction with United Nations Development Programme (UNDP) have
conclude plan to train women entrepreneurs with the hope of leveraging the CBN N220b SMSEs fund.

UNIT NINE
INTERNATIONAL BUSINESS
INTRODUCTION
International business relates to any situation where the production or distribution of goods or services
crosses country borders. International business encompasses a full range of cross-border exchanges of
goods, services, or resources between two or more nations. These exchanges can go beyond the exchange
of money for physical goods to include international transfers of other resources, such as people,
intellectual property (e.g., patents, copyrights, brand trademarks, and data), and contractual assets or
liabilities (e.g., the right to use some foreign asset, provide some future service to foreign customers, or
execute a complex financial instrument). The entities involved in international business range from large
multinational firms with thousands of employees doing business in many countries around the world to a
small one-person company acting as an importer or exporter. This broader definition of international
business also encompasses for-profit border-crossing transactions as well as transactions motivated by
nonfinancial gains (e.g., triple bottom line, corporate social responsibility, and political favor) that affect a
business’s future.

DEFINITION OF INTERNATIONAL BUSINESS

International business is the study of transactions taking place across national borders for the purpose of
satisfying the needs of individuals and organizations. These economic transactions consist of trade as in the
case of exporting and importing and foreign direct investment as in the case of companies funding
corporations in other countries.

International business involves commercial activities that cross national frontiers. It concerns the
international movement of goods, capital, services, employees and technology; importing and exporting;
cross-border transactions in intellectual property (patents, trademarks, know-how, copyright materials, etc.)
via licensing and franchising; investments in physical ; financial assets in foreign countries; contract
manufacture or assembly of goods abroad for local sale or for export to other nations; buying and selling in
foreign countries; the establishment of foreign warehousing and distribution systems; and the import to one
foreign country of goods from a second foreign country for subsequent local sale.

International business consists of transactions that are devised and carried out across national borders to
satisfy the objectives of individuals, companies and organizations as well as countries.

Czinkota et al (2002) says international business could be and is always interrelated; it involves export and
import trade or direct foreign investment. International business could take the form of owning a subsidiary
company fully, joint ventures, licensing, and franchising or management contract.

Definition of international business bordered on two issues, namely.

a. National borders
b. Transactions
Nations have borders; it therefore means transacting business across borders is an international business,
whether the business is within nations in the same region or across two different regions.

HISTORY OF INTERNATIONAL BUSINESS

Ball et al (2002), believe that international business as a discipline is relatively new but international business
practice is not. It is believed that international business practice started before Christ. Phoenician and Greek
merchants used to send their representatives abroad to sell their goods. In 1960, British East India Company
had established branches in Asia; within this same period, American traders were involved in international
trade in Asia. Dutch companies later joined British East Company at the same period and were involved in
international business.
In 1868, Singer sewing machine built its foreign factory in Scotland and its branches grew in other countries.
J and P Coats (UK) and Ford followed suit with companies in other foreign countries; since then foreign
businesses started springing up. In Nigeria, foreign business can be traced to the period of slave trade.
However, Europeans traded in Nigeria with their business even before independence. Some of the
noticeable companies that were present in Nigeria in early 1970s include UAC, John Holt and host of others.
Today, Nigeria too has established business in other foreign countries.

DIFFERENCES IN INTERNATIONAL BUSINESS

International business and domestic business differ for the fact that international business has three forces
to content with once it operate outside the shore of its country. They include:
 Domestic
 Foreign
 International
While domestic business contends only with one group of problem which is domestic All the same, domestic
business sometimes contends with issues of competing with foreign business that establish their business
within the country.

WHY COMPANIES GO GLOBAL

Companies decide to go global and enter international markets for a variety of reasons, and these different
objectives at the time of entry should produce different strategies, performance goals, and even forms of
market participation. However, companies often follow a standard market entry and development strategy.
The most common is sometimes referred to as the “increasing commitment” method of market
development, in which market entry is done via an independent local partner. As business and confidence
grows, a switch to a directly controlled subsidiary is often enacted. This internationalization approach results
 from a desire to build a business in the country-market as quickly as possible and by an initial desire to
minimize risk coupled with the need to learn about the country and market from a low base of knowledge.

International markets evolve rapidly and very often companies struggle to keep up in terms of their strategy.
It is therefore reasonable to deduce that many companies’ international operations will consist of a collage
of country market operations that pursue different objectives at any one time. This, in turn, suggests that
most companies would adopt different entry modes for different markets. More commonly, however, is for
companies to evolve a template that is followed in almost all markets. This usually starts with market entry
via an indirect distribution channel, usually a local independent distributor or agent.

The factors leading to the wide acceptability of international business are:

1. Globalization of economics: The policy of liberalization was adopted which led to the globalization of
various economics including the former communist countries and socialist pattern of the society.
The globalization of economics has been instrumental in the growth of international business.
2. Rapid technological advancement: Many firms have emerged up with innovated products or with improved
process technology. With the demand for such products and technology being price-inelastic, these firms
have moved abroad in order to reap large profits. The development of information technology has bought
different countries closer and has encouraged firms to move abroad with the minimum of difficulties.
3. Establishment of WTO: In today’s highly competitive globalized business environment, WTO is
indispensable enables a country to attain the status of MFN clause which is required for scaling
the international competitiveness and it implies that any concession given to any nation becomes available
to all the member countries.
4. Increase in Competition: With increasing competition, firms have preferred not only to source raw material
and intermediate goods from the least-cost country but also to set up their units in different countries,
which minimizes the cost of operation and reduces financial risk. The growing concept of cost
minimization and risk reduction, with a view to surviving in a competitive environment, has led to rapid
growth of the internationalization process.
5. Higher growth rate of GDP in developing countries: Higher growth rate of GDP of China, India, South Korea,
Singapore, Malaysia, Thailand, Brazil and Mexico and other developing countries has also been one of the
significant factors for changing scenario of international business.
6. Increase in business alliance in degree and variety: During last 15 years international business alliances,
joint ventures, mergers, amalgamations and takeovers have occurred in the world by the companies of
different countries. This has further led to widening of international business.
7. Increase in educational and career orientation opportunities: These factors resulted in enhancement of
opportunities for higher value addition in developing countries. The developing countries started attracting
multinational companies to establish their businesses in their countries.

REASONS FOR COMPANIES ENGAGE IN INTERNATIONAL

BUSINESS
There are several drivers of international business. The driving forces that motivate companies to go global
can be classified into Pull forces and Push forces. The pull forces are proactive which pull the business to
foreign markets. The push forces on the other hand are reactive forces which promote the companies to go
international. (When we are reactive to problems, we react to previous events instead of attempting to
anticipate future ones. When we decide to be proactive, we choose to act on a situation before this situation
becomes a crisis. Reactive: Reacting to the past rather than anticipating the future. Proactive: Acting before a
situation becomes a source of confrontation or crisis. Reactive business strategies are those that respond to some
unanticipated event only after it occurs, while Proactive strategies are designed to anticipate possible challenges.
Because no one can anticipate every possibility, no organization can be proactive in every situation)
 PULL/ PROACTIVE FORCES - Attractiveness of the Foreign Markets:
Pull factors are phenomena in other international markets that draw the company to them. Pull factors are
commonly seen as positive or opportunistic drivers for internationalisation. For example, a new international
market may have an emerging middle class with increased spending power, presenting a potential
opportunity for a company to exploit. Pull factors can include market size, economic and social conditions,
and foreign market characteristics.
 Profit advantage due to increase in volume: For companies, mostly in the developed countries, which have
been operating below their capacities, the developing markets offer immense opportunities to increase their
sales and profits.
 Low wage/ cheap labour attraction: Many multinational companies (MNCs) are locating their subsidiaries in
low wage and low cost countries to take advantage of low cost production.
 Taking advantage of growth opportunities: MNCs are getting increasingly interested in a number of
developing countries as the income and population are rapidly rising in these countries. Foreign markets, in
both developed country and developing country, provide enormous growth opportunities for the developing
country firms too.
 Growth of regional trading blocs: Regional trading blocs are adding to the pace of globalization. WTO, EU,
NAFTA, MERCOSUR and FTAA are major alliances among the countries. Trading blocs seek to promote
international business by removing trade and investment barriers. Integration among countries results in
efficient allocation of resources throughout the trading area, promoting growth of some business and
decline of others, development of new technologies and products, and elimination of old.
 Declining trade and investment barriers: Declining trade and investment barriers have vastly contributed to
globalization. The free trade regime, business across the globe has grown considerably. Goods, services,
capital and technology are moving across the nations significantly.

PUSH/ REACTIVE FORCES - Compulsion of the Domestic Market:

Push factors relate to phenomena in a company’s domestic market that motivate it to enter into new
markets. Push factors tend to be regarded as negative (Evans et al. 2008). For example, a firm may find that
it has saturated its domestic market and is therefore driven to enter a new market. However, push factors
need not always be negative; for example, a domestic government may encourage a domestic firm to trade
globally and offer tax benefits or support to do so. Push factors can include resources, management
expertise, company culture and environmental factors.
 Saturation of domestic demand: The market for a number of products tends to saturate or decline in the
advanced countries. This often happens when the market potential has been almost fully tapped. For
example, the fall in the birth rate implies contraction of market for several baby products. Businesses
undertake international operations in order to expand sales, acquire resources from foreign countries, or
diversify their activities to discover the lucrative opportunities in other countries.

 Scale economies and technological revolution: Economies of scale are reductions in unit production costs
resulting from large-scale operations. The technological advances have increased the size of the optimum
scale of operation substantially in many industries making it necessary to- have foreign market, in addition
to the domestic market, to take advantage of scale economies.
 Technological revolution: Revolution is a right word which can best describe the pace at which technology
has changed in the recent past and is continuing to change. Significant developments are being witnessed in
communication, transportation and information processing, including the emergence of the internet and the
World Wide Web.
 Domestic recession: Domestic recession often provokes companies to explore foreign markets. One of the
factors which prompted the Hindustan Machine Ltd. (HMT) to take up exports very seriously was the
recession in the home market in the late 1960s.
 Competition as driving force: Competition may become a driving force behind internationalization. There
might be intense competition in the home market but little in certain foreign countries. A protected market
does not normally motivate companies to seek business outside the home market.
 Government policies and regulations: Government policies and regulations may also motivate
internationalization. There are both positive and negative factors which could cause internationalization.
Many governments offer a number of incentives and other positive support to domestic companies to
export and to invest in foreign investment.
 Improving image of the companies: International business has certain spin-offs too. It may help the
company to improve its domestic business; international business helps to improve the image of the
company. There may be the ‘white skin’ advantage associated with exporting- when domestic consumers
get to know that the company is selling a significant portion of the production abroad, they will be more
inclined to buy from such a company.
 Strategic vision: The systematic and growing internationalisation of many companies is essentially a part of
their business policy or strategic management. The stimulus for internationalisation comes from the urge to
grow, the need to become more competitive, the need to diversify and to gain strategic advantages of
internationalisation.

IMPORTANCE OF INTERNATIONAL BUSINESS

 High living standards: Comparative cost theory indicates that the countries which have the advantage of
raw materials, human resources, natural resources and climatic conditions in producing particular goods can
produce the products at low cost and also of high quality.

 Increased Socio-Economic Welfare: International business enhances consumption level, and economic
welfare of the people of the trading countries. For example, the people of China are now enjoying a variety
of products of various countries than before as China has been actively involved in international business like
Coca-Cola, McDonald’s range of products, electronic products of Japan and coffee from Brazil.
 Wider Market: International business widens the market and increase the market size. Therefore, the
companies need not depend on the demand for the product in a single country or customer’s tastes and
preferences of a single country.
 Reduced effect of Business Cycles: The stages of business cycles vary from country to country. Therefore,
MNCs shift from the country, experiencing a recession to the country experiencing ‘boom’ conditions. Thus,
international business firms can escape from the recessionary conditions.
 Reduced risks: Both commercial and political risks are reduced for the companies engaged in international
business due to spread in different countries.
 Large scale economies: Multinational companies due to wider and larger markets produce larger quantities,
which provide the benefit of large-scale economies like reduced cost of production, availability of expertise,
quality, etc.
 Potential untapped markets: International business provides the chance of exploring and exploiting the
potential markets which are untapped so far. These markets provide the opportunity of selling the product
at a higher price than in domestic markets.
 Provides the opportunity for and challenge to domestic business: International business firms provide the
opportunities to the domestic companies. These opportunities include technology, management expertise,
market intelligence, product developments, etc.
 Division of labor and specialization: International business leads to division of labor and specialization.
Brazil specializes in coffee, Kenya in tea, Japan in automobiles and electronics. India in textiles garments, etc.
 Economic growth of the World: Specialization, division of labor, enhancement of productivity, posing
challenges, development to meet them, innovations and creations to meet the competition lead to overall
economic growth of the world nations.
 Optimum and proper utilization of World Resources: International business provides for the flow of raw
materials, natural resources and human resources from the countries where they are in excess supply to
those countries which are in short supply or need most.
 Cultural Transformation: International business benefits are not purely economical or commercial; they are
even social and cultural. It does not mean that the good cultural factors and values of the East are acquired
by the West and vice versa. Thus, there is a close cultural transformation and integration.
 Knitting the World into a Closely Interactive Traditional Village: International business ultimately knits the
global economies, societies and countries into a closely interactive and traditional village where one is for all
and all are for one.

INTERNATIONAL BUSINESS: ISSUES AND CHALLENGES

International business means producing and selling goods and services between/amongst various countries.
A business is said to be international if it produces in its home country and sells in another country. Or, it
manufactures products in a foreign country but sells only in the home country. Or, it manufacturers in
another country, but sells in home and foreign countries. Doing international business is appealing.
However, doing international business has its own set of issues and challenges.

Every country has its own policies, laws, culture, and regulations. Along with these, the differences in time
zone, currency, languages and more, also present issues and challenges in international business. Following
are the issues and challenges in doing international business:

1. Language Barrier: It is the most significant thing to take into account when thinking of taking business
internationally. The language barrier doesn’t just mean a problem in communication. But, one must also
consider if the name of the product fits well in the foreign language or not. For example, Mercedes-Benz
when entering China chose a local name, which was similar to “Benz”: Bēnsǐ. However, in the local language,
it meant “rush to death.” The automaker then has to change its name to Bēnchí, meaning ‘run.’
2. Cultural Differences: Every country has its own traditions and cultures. And, to achieve success, it is important for a
foreign company to respect those cultures. Culture includes holidays, food, festivals, social values, and more. For
example, McDonald’s’ doesn’t serve beef or pork in India for religious reasons. Moreover, the fast-food chain offers a
variety of vegetarian options in India than in any other country.
3. Managing Global Teams: When you are doing an international business and have operations in many
countries, you will have to deal with employees of different backgrounds. Managing those employees is
definitely a challenge due to the differences in language, culture, and time zones. One can, however,
overcome this barrier by frequently communicating with the global teams. It will help to slowly melt down
the differences.
4. Currency Exchange and Inflation Rate: The exchange rate is the worth of one nation’s currency in relation to
the other. The currency rate between the two countries doesn’t remain constant or is always changing. You
must consider the exchange rates when making any financial decision as it may increase or decrease the
final payout which may affect the business profits. Along with the exchange rate, one also needs to consider
the inflation rate as well. The inflation rate can vary across countries and can affect the pricing of the
product.
5. Deciding Company Structure: One requisite of making big at the international stage is to decide on a
company structure that is efficient. Having an efficient structure, allows a company to take a quick and
better decision. When deciding on the structure, one important thing to consider is the location of the
headquarters and the number of offices a company would have. For example, Coca-Cola has one of the most
efficient company structures worldwide. Coca-Cola is divided into continental groups and each group is
headed by a President.
6. Foreign Politics and Policies: The politics and policies of a country play a crucial part in the performance of a
company. Any new political policy concerning taxes, labor laws, and more can have a direct impact on the
 cost of the company. Thus, it is important for a company to closely follow the politics and policies of the
country it is operating. For example, suppose the Chinese government starts giving subsidies to the local
automakers. This would allow local companies to adopt aggressive pricing. Such policies would be unfair to
foreign automakers operating in China.

7. International Accounting: It gets very difficult for a company to operate if it lacks proper accounting. And, in
the case of international business, accounting gains even more relevance. Adhering to international
accounting standards is not an easy job as it requires a lot of effort to conform to different tax systems. A
company, however, can overcome this challenge by hiring the right experts to take care of the accounting.
8. Product Pricing: Setting the product price in the overseas market is a big challenge. To set the right price, a
company must consider its costs, logistics cost, as well as the price of the same products from local
competitors. Moreover, when pricing your product, you also need to consider how you plan to position your
product – as a low-cost product or a luxury brand.
For example, Ikea, which is a low-cost European furniture dealer, was unable to gain market in China
initially. This is because of the low-cost products from the local dealers. Ikea then relocated production to
China and was able to reduce the prices of its products.
9. Payment Methods: When operating internationally, a company must select the payment methods that are
convenient for the local customers. Not only the convenience, but the entity needs to understand and
 appreciate the cost of the various payment methods before making the final selection. Also, the company
must ensure that the payment method it selects is credible, safe, and secure. It is better if a company offers
global payment methods, such as PayPal, as well as local ones, such as Yandex Money in Russia.
10. Supply Chain Risks: Having a short and efficient supply chain is a crucial requirement for a company’s
success in a foreign market. However, managing those supply chains is not an easy task because of
differences in regions and regulations.
11. Environmental Concerns: When a company starts operating in a foreign country, it is very important that it
follows the environmental norms. Moreover, it should take extra efforts to reduce environmental concerns
in the regions it operates. Any ignorance or avoidance on the part of the company to take care of such issues
could seriously damage its brand image and will hurt its business. Also, the local social groups would make it
difficult for the company to operate smoothly.

CONCLUSION
Though international business presents several challenges, a company can overcome them easily with focus
and determination. A simple way to overcome these challenges is to respect the culture and tradition of the
countries they are operating in. And, once a company overcomes those challenges, it gives it unlimited
opportunity on various business fronts – volume, revenues, profits, goodwill, brand image, stability, and so
on.

INTERNATIONAL BUSINESS TERMS

Organization structures have given rise to the following companies:
International companies are importers and exporters and have no investment outside their country.
Multinational companies have investment in other countries, but do not have coordinated product offerings
in each country. They more focused on adapting their products and services to each individual local market.
Global companies have invested and are present in many countries. They market their products through the
use of the same coordinated image/ brand in all markets. Generally one corporate office that is responsible
for global strategy. Emphasis is on volume, cost management and efficiency.
Transnational companies are much more complex organizations they have invested in foreign operations
have a central corporate facility but give decision making, R&D and marketing powers to each individual
foreign market.
Multidomestic industries: firms compete in each national market independently of other national markets.
Involves products tailored to individual countries innovation comes from local R&D. There is decentralization
of decision making within the organization
These corporations have been oriented into four types:
Ethnocentric: governance is top down, strategy is global integration, products development is determined
primarily by the needs of home country customers and people of home country are developed for key
positions everywhere in the world.
Polycentric: governance is bottom up where each subsidiary decides on local objectives, strategy is national
responsiveness, local products are developed based on local needs and people of local nationality are
developed for key positions in their own country.
Regiocentric: governance is mutually negotiated between regions and its subsidiaries, strategy is regional
integration and national responsiveness, products are standardized within region but not across regions,
regional people are developed for key positions anywhere in the region,
Geocentric: governance is mutually negotiated at all levels of the corporation, strategy is global integration
and national responsiveness, global products with local variation, best people everywhere in the world are
developed for key positions everywhere in the world.
 UNIT TEN
MANAGEMENT SUCCESSION/SUCCESSION PLANNING
(FAMILY BUSINESS SUCCESSION)

SUCCESSION PLANNING
INTRODUCTION
While the majority of family business owners would like to see their business transferred to the next
generation, it is estimated that 70% will not survive into the 2nd generation and 90% will not make it to the
3rd generation.

Succession planning is the process of transferring control from owners to the successor in an organization.
Small and Medium Enterprise sectors that are seen to be major contributors to job creation and Gross
Domestic Products are bedeviled with the lack of succession planning on the death/retirement of the owner.
Small and Medium Enterprises Development Association of Nigeria report in 2017 indicated that over
2.783m SMEs were temporarily closed down due to the death/sickness of the owners. This figure threatens
the sustainability, future performance and ability to have a generational enterprise in the sector.

Succession planning has continued to receive attention not only as a concern for the management of human
resources, but also as institutional strategic management component for ensuring performance and growth
across the globe. Traditionally, succession planning has been used to prepare new leaders for governing
nations and large family-owned businesses; it also helps to ensure that a well-trained cadre of leaders is
available to step in where and when the need arises (Cole and Harbour, 2015). The thoroughness and vigor
of today’s succession planning will not only determine the future performance of any company but leads to
generational enterprise.

However, Succession planning in small scale business is associated with the transfer of ownership and
management to the next generation (Akpan and Ukpai, 2017) which is largely caused by lack of talent
management, reward management, career development, training and development of potential successor.

Business is operating in a dynamic, complicated and insecure environment that may cause unpredictability in
the organization performance, therefore, every organization that intends to adapt with all the changes must
applied a proper approach to retain their employees. SMEs can use talent management to build winning
teams which will be formed by talented people; the team can be used to solve problems or weaknesses in
their business because they are competent and experienced. When talent management practices are not in
place attracting, retaining and nurturing talented employees in SMEs for its benefits becomes a big
challenge. Thus, talent management is one of the components of succession planning practice.

Positive reinforcements given by the organization to the employee inform of reward spur them to
reciprocate with maximum performance and make employees feel appreciated and valued. Motivated
employees are more productive, more efficient and more willing to work towards organizational goals than
the employees who are experiencing low levels of motivation (Armstrong, 2007). Reward management
could be applied as one of the tools for succession planning; a well-rewarded employee can be retained for
succession planning. Goldstein and Ford, (2002) described training as a systematic method for learning and
development to increase person, team and the organizational efficiency. On the other hand, organizations
may choose to train or develop their employees in alignment to their present needs and also prepare them
for future organizational needs hence; it should be monitored in order to achieve its desired purpose. For
succession planning to be successful and sustained effectively, the contribution of employees should be
optimized to the goals of the organization and this can best be achieved through training and development
of the employees.

Despite the importance of SMEs and the positive economic impact it has on our economy, their longevity is
often short, Kellermanns, and Eddleston, (2006) cited lack of succession planning as a major cause of the
high mortality rate in small scale businesses and noted that succession planning does not take place in most
small-scale businesses. Very promising and vibrant firms have closed down at the death of their founders,
due to lack of adequate planning for succession (Ogundele, Idris, and Ahmed-Ogundipe, 2012). For example,
The Estate of business mogul, Chief M.K.O Abiola, ODUTOLA, ODUTOLA & CO, Famous Bobby Benson Hotel,
Ekenedili Chukwu Transport Company and the host of others were denied the opportunity of being a
generational enterprise in Nigeria. This protein a potential danger for the SME sector and Nigeria economy
at large.

Succession arguably possess serious threat to most SMEs performance and survival, those that have good
succession planning are opportune to identify and understand the developmental needs of employees and
select effective leaders who can guarantee its continuity. Majority of family firms were either sold or
wounded up after the founder’s death for lack of succession planning. Hence, there is the need for
succession planning in SME’s in Nigeria.

TYPES OF SUCCESSION PLANNING

There are five types of succession plans as described by Salleh and Rahman (2017). These are discussed
briefly as follows:

 Relay Succession (also known as ‘Crown Prince/Princess or Crown Heir Succession’): This plan
identifies a member of senior management as heir ahead of the actual transition. The essence of this
practice is to avoid or minimize the risk of choosing the wrong candidate, and to take advantage of
the successor’s industry- based experience.

 Non-Relay Succession (also known as ‘Horse Race’): Non-relay succession involves a competitive
process that requires candidates for a leadership position, comprising employees of the organization,
to undergo series of screening or filtration stages. This screening might include an all-inclusive check
into professional competencies, as well as fulfilling several criteria laid down by the top leadership of
the organization.
 Outside Succession: This plan involves hiring a candidate for a leadership position from outside the
organization. Engaging in this type of succession has often helped organizations in bringing a fresh
perspective to their operations.
 Coup d’Etat: This is a sudden and unorganized succession plan. This practice involves a stakeholder
(or a group of stakeholders) forcing the succession transition. Coup d’Etat is an act of power grab
(which is sometimes violent), occurring when the stakeholder feels unsatisfied with key aspects of
the organization’s management.
 Boomerang Succession Plan: This is the practice of bringing back a former leader to lead the
organization. Boomerang Succession Plan is adopted if there are no other suitable candidates to
choose from at that particular instant, or if the

COMMON SUCCESSION PLANNING PROBLEMS

1. Focusing exclusively on the executive level: Given the time and resources required for effective
succession planning, many organizations tend to focus their efforts solely on executive level positions. This
approach can lead to detrimental gaps in important non C-suite roles, particularly when individuals in
lynchpin roles suddenly leave the company. Don’t forget to consider including key positions in
administration or IT when developing your succession plan.

2. Using a one-size-fits-all competency framework: A common succession planning mistake is adopting an

existing or dated competency framework on which to evaluate succession candidates. This may save
organizations a great deal of time. However, any off-the-shelf framework is unlikely to adequately capture
the complexity and uniqueness of your organization. Don’t let the convenience of ready-to-use competency
models lead you to overlook characteristics that are important to your organization.

3. Describing an idealized version of the role: When identifying which competencies are needed for a given
role, there can be a tendency to describe those qualities you’d like to see of the individual in the focal role,
rather than the actual requirements. Remember to focus on what is essential to success in that position.

4. Underestimating the changing nature of work: An important part of succession planning is anticipating
future needs. Part of this means taking time to reflect on the future of the focal role. Consider how changes
in technology, your organization, or the broader industry might impact the responsibilities associated with
the position. Be sure the successors you identify are being developed for a role that will still be around when
they are ready, and that they are being trained in skills that will be essential in the future.

5. Keeping the succession plan a secret: Succession planning is an important strategic process and there can
sometimes be the feeling amongst leadership that the plan should not be communicated throughout the
organization. However, a lack of transparency might lead some high-potential employees to leave the
organization if they do not perceive the availability of strong advancement opportunities. Communicating to
employees that these opportunities exist is likely to have a positive impact on their motivation to pursue
developmental goals, and to remain with the organization long-term.

6. Relying on only one successor per role: When asked about their succession plan, some companies feel
they are on the right path because they have identified a successor for key roles. However, this can be a
problem if your one internal candidate decides to leave the organization or accept a position in a different
department. Taking a more narrow focus can also make it difficult to fill the inevitable vacancy left in middle-
level leadership roles when an employee steps up into a senior leadership role. Having a talented pool of
candidates gives you options when it comes to filling a focal role, and ensures you’ve developed sufficient
talent to fill vacancies as they arise.

7. Assuming that success in one position will extend to success in a higher position: A common mistake
made in succession planning is the assumption that high performing individuals at one level will continue to
perform well in a higher-level position. Continued success is not a guarantee, which is why it is so important
that you carefully identify the competencies needed for success in the focal role. Evaluate all succession
candidates against this criteria, not their past performance.

UNIT ELEVEN
INTERNATIONAL ENTREPRENEURSHIP
What Is Entrepreneurship?
Entrepreneurship can be called a technique for developing a new company by tackling all the possible risks
for making profits. In simple language, it is referred to as a procedure for finding investment and production
chances so that profit or social needs can be fulfilled. This process has turned out to be a very important
process for boosting economic development in a certain market.
Entrepreneurship is the ability and readiness to develop, organize and run a business enterprise, along with
any of its uncertainties in order to make a profit. The most prominent example of entrepreneurship is the
starting of new businesses.

Meaning of Entrepreneur
The entrepreneur is defined as someone who has the ability and desire to establish, administer and succeed
in a startup venture along with risk entitled to it, to make profits. The best example of entrepreneurship is
the starting of a new business venture. The entrepreneurs are often known as a source of new ideas or
innovators, and bring new ideas in the market by replacing old with a new invention. It can be classified into
small or home business to multinational companies.

INTERNATIONAL ENTREPRENEURSHIP
According to McDougall and Oviatt, “International Entrepreneurship is a combination of innovative,
proactive, and risk-seeking behavior that crosses national borders and is intended to create value in
organizations.“

When an Entrepreneur goes to other countries to run and operate their business, then it is known as
International Entrepreneurship. These are the industries that cross the national boundaries of their nation.
These types of Entrepreneurship include exporting of goods, licensing as well as commencing a sales office in
other countries. Under this, an Entrepreneur operates all the business activities out the boundaries of the
nation and it indicates the development of the business internationally.

Most of the businesses across the national border to establish value and grow the business. A different set
of innovative activities performed by most of the businesses across the borderlines and enhance those
opportunities to create some creative products and services.

In short words, International Entrepreneurship defined as the development of a new venture on a global
basis, and their operation domain is considered international from the very beginning stages of operations.

FAMOUS EXAMPLES OF INTERNATIONAL ENTREPRENEURS

There are many industries that have produced numerous international entrepreneurs Coca-Cola, Nike,
MacDonald, BMW, Puma, Philips and Tata etc. But most famous entrepreneurs are came from techy world,
who started there business from a small ventures but then took it to international level. Some examples are
 Apple- Steve Jobs
 Google- Larry Page and Sergey Brin
 Microsoft- Bill Gates
 Facebook- Mark Zukerberg
 Yahoo- Jerry Yang and David Filo
  Amazon- Jeff Bezos
 Alibaba- Jack Ma
 Tiktok- Zhang Yiming

IMPORTANCE OF INTERNATIONAL ENTREPRENEURSHIP

For the satisfaction of foreign customers, they have to produce the products that meet the demands
internationally. One important thing that every Entrepreneur has to consider is the quality of the products in
global as well as domestic markets and fulfill all the requirements of the potential customers. Customer
satisfaction is important to run the business smoothly.
Thus, International Entrepreneurship is of utmost importance for the people living across various areas of
the nation. Let us have a look at some of the vital points due to which the international Entrepreneurship is
considered on top.
 A Decline in domestic Market
If the sales of products are low in the domestic market, then the Entrepreneur has a very effective option to
sell the same at the global market. Thus, they can sell their products in the international market as per the
demand instead of wasting such products by keeping them in the warehouse.
 Maturity Stage
First off, an Entrepreneur should grow their business within the domestic nation, and then, the best time to
move forward for international business is when it reaches the maturity stage. When the business is well-
developed in own nation, then it is more significant to choose international Entrepreneurship.
 Reduce Manufacturing Costs
The majority of the companies have fixed costs at a high level that can also be helpful to lower the
manufacturing cost of the products. When the products are selling in the global market, then a large number
of units are required and hence, the manufacturing cost reduces.
 Enhance Reputation
As the products are selling in the international market, then it is obvious that there is a positive impact on
the reputation of the business and it helps to establish a professional image of the business. Not only
reputation but also they can compete with other firms that are engaged in the same arena.
 Meet the Quality Expectations
Entrepreneurs who want to fulfill all the expectations of their foreign customers have to provide a high
quality of products to meet the expectations of their customers. An international Entrepreneur will not only
in the global market but also produce premium quality products in the national market.
 Customer Relationship Management
Through the expansion of the business out of the borderlines, an international Entrepreneur learns how to
inculcate the habit of customer relationship management. So, it improves the relationship between the
business and its potential customers. Moreover, it develops respect and become sensitive towards all sort of
customers and develop foreign habits.
 Hire Employees Globally
As the business is going to expand its arms across other nations, then it is obvious that there is a need to hire
staff that is from that particular location. It is helpful to deal with the customers of that nation as the
employees can easily understand the demand of people residing over there. So, international
Entrepreneurship creates a large number of employment opportunities at various locations across the
nationwide. Thus, they can look internationally and begin developing an outlook from a global perspective.

INTERNATIONAL ENTREPRENEURSHIP VS DOMESTIC

ENTREPRENEURSHIP
A variety of factors affecting the decision-making power in both types of Entrepreneurship is quite dissimilar
but they are only concerned with the profits, sales, and costs too. The decision in the case of International
Entrepreneurship is flooded with a lot of complexities due to some factors that are not in control like
economic, technology, political as well as cultural too.
Here are some of the distinctions between the international Entrepreneurship and Domestic
Entrepreneurship that you ought to know. Let us have a quick look at the chart below.
Basis of difference International Entrepreneurship Domestic Entrepreneurship
Economics Dealing with the various levels of The focus of entrepreneurial efforts is
economic developments, valuation in related to only a single nation and thus,
currencies, government rules and it is easy to control economics.
regulations, venture capital, marketing,
and distribution systems that took a lot
of entrepreneurial efforts.
Cultural Environment A lot of cultural issues are also there An Entrepreneur is already aware of the
and it affects the business as well as cultural stuff and knows how to deal
strategies too. An Entrepreneur should with it.
need to cope up with the different
cultural beliefs of local people.
Technological advancements It is surprising if there is no availability An Entrepreneur is aware of the
of updated technologies in the host technologies available within borderline
nation as if the entrepreneur belongs and uses the same to develop products.
to a developed nation.
Government Policies An Entrepreneur who wants to do They just need to consider the
internationalization of the business regulations and policies of the domestic
need to aware of all domestic as well nation.
as international policies of the
government.
Legal environment To expand the business internationally, No need to understand global legalities.
it is required to understand all ins and
outs of legal communities at the global
level.

BARRIERS TO INTERNATIONAL ENTREPRENEURSHIP

International Entrepreneurship is all about expansion and availability of all types of products all over the
world. It takes a lot of effort to take any domestic business to the next level at international
Entrepreneurship and it is quite thrilling seeking to face some barriers while taking the business to a great
extent.
Here, we have jotted down some of the hurdles to international Entrepreneurship which are given below.
Let us have a look at these below.
 Attitude of Entrepreneur
When there is negativity in the mind of the Entrepreneur that they do not have any knowledge about the
global market and he has a misconception that they will not able to set up a business. This attitude emerges
as the biggest hurdle.
 Lack of Information
As a newbie to the international market, the Entrepreneur has no info about the market conditions and
unaware of the customer’s taste as well as the preference of products.
 Lack of Network Influences
If the Entrepreneur has some links with the business firms in the host nation, then it becomes easy to deal
with the new conditions and get some info. In the case of no connections, it is somehow difficult to
commence business and establishing it.
 Financial problems
As the Entrepreneur is going to expand their business in other nations, so there is a financial risk as the
financial institutions are reluctant to provide any kind of assistance.

 Tariff barriers
Tariff refers to the duty that is levied on products while importing. The price of imported goods rises with
the increase in tariffs and also, seems unattractive from a customer’s point of view.
 Non-Tariff Barriers
Apart from the tariff hurdles, some other obstacles are dealt with by businesses such as testing,
bureaucracy, certification, and so on. These are some problems raise by the government to limit foreign
goods.
 Technical Barriers
Before the goods enter into the global market, it has to clear the testing and authentication. For instance,
food testing for bacteria, chemical tests in other harmful products, and so on.
 Political Barrier
There is a question mark in business success due to the high rise in some illegal activities in the host nation
such as kidnapping, discrimination, employee violence, and others. These unstable political scenarios make it
difficult for a business to grab abundant opportunities for growth.
 Human Resource
The existence of labor unions, strikes, lockdowns, and incline in labor coats make it tough for entrepreneurs
to set up a successful business.
 UNIT TWELVE
FRANCHISING
Franchising is a form of marketing and distribution in which the owner of a business system (the franchisor)
grants to an individual or group of individuals (the franchisee) the right to run a business selling a product or
providing a service using the franchisor's business system.

Franchisees are also given permission to use the franchisor's branding, trademarks, and identifying marks
under specified guidelines. It is important for anyone deciding to start a business by becoming a franchisee
to remember that in franchising the franchisee is bound to a partnership agreement with the franchisor for a
defined period of time (some exceptions do exist).

Franchising as we know it today is widely believed to have originated with Isaac Singer in the 1850s. After
Singer invented his sewing machine he encountered two main problems when introducing it to the
marketplace. The first was that customers needed to be taught how to use the new invention before they
would buy it. The second was that Singer did not have enough capital to manufacture his machine in large
numbers.

In response, Singer, along with business partners, came up with the idea of selling the rights to sell the
sewing machines as well as train those who bought one to local business people across the country (and
eventually internationally).

Once he employed this system, Singer’s enterprise expanded rapidly. The royalties earned from the license
rights helped offset manufacturing costs and, because each franchise was self-financed, Singer
Manufacturing Company was able to tap into the entrepreneurial attributes and local market knowledge of
the franchisees to help Singer become more successful than he could have by himself.

The tipping point for franchising came in the 1950s. In 1954, Ray Kroc, a successful business man from
Illinois, saw the potential in franchising a successful southern California hamburger stand owned by a couple
of brothers. This restaurant chain, McDonald’s, is perhaps the most well-known example of franchising in
the world. Kroc has drawn comparisons to auto maker Henry Ford for bringing an assembly line-like concept
to the fast food industry through his belief that customers of McDonald’s should have an idea of what to
expect wherever in the world they may be.

When asked, the majority of people when asked for a commonly known franchise would name a fast food
franchise most often. However, franchising is extremely diverse. Name a product or service from ATMs to
yogurt and there’s likely a franchise industry for it.

While franchising is a staple of the American business landscape, the merits of franchising have not been
ignored abroad. It is steadily increasing its footprint in numerous other countries. This is especially true in
emerging markets such as China, India, Russia, Brazil and the Middle East among others.

Elements of the franchise model has also been woven into the fabric several other industries. For example,
Coca-Cola was able to expand throughout the United States by shifting the burden of manufacturing, storing
and distributing its product to local business people who acquired bottling rights. Car manufacturers who
had been spending enormous amounts of capital tooling their assembly lines found they could develop retail
distribution networks using capital provided by independent dealers. Oil companies such as Standard Oil and
Texaco also started granting franchises to convenience stores and repair mechanics across the U.S. to
efficiently expand their reach.

TYPES OF FRANCHISES
There are three main types of franchises.
• Most franchises fall under the business format type where the franchisor licenses a business format,
operating system, and trademark rights to its franchisees.

• The second type of franchise is product distribution, which is more of a supplier-dealer setup. The
franchisor grants the franchisee permission to sell or distribute a product using their logo, trademarks and
trade name, but typically does not provide an operating system to run the business with.

• The third is manufacturing, where the franchisor permits the franchisee to manufacture their products
(e.g. clothing) and sell them under its trademarks.

When the purchase of a franchise is made, the franchisee is required to comply with strict guidelines and
rules regarding the operation of the business. These guidelines are in place to maintain brand consistency.

In addition, fees are collected regularly for as long as the franchisee owns the franchise. In exchange for
these payments, the franchisee will receive continued support such as marketing assistance and ongoing
training opportunities.

Despite its strong association with fast food, franchising is not confined to a narrow range of business
segments. Name an industry from drug testing to dog walking, and there’s likely a franchise in it.

Not only is it used in many different industries and sectors, but elements of franchising are becoming a
feature in many areas of business. For example, car manufacturers who had been spending enormous
amounts of money building up centralized assembly lines found they could more efficiently build and sell
their cars by developing networks for manufacturing and retail distribution in different areas using capital
provided by independent dealers.

ADVANTAGES AND DISADVANTAGES OF FRANCHISING

Some businesses don’t want to expand by recruiting more staff and opening more offices because of the
added costs, risks and responsibilities involved.

For these businesses, franchising can be a better alternative because the franchises are set up in locations
near to the people that are demanding their products or services. This allows the business owner to focus on
supporting the franchisees from one location and ensures that all their customers’ needs are met.

However, according to Carlos Garcia, the franchisor of Total Clean, franchising is not an easy way to grow
your business.

The table below shows more advantages and disadvantages of franchising for the franchisor:
FRANCHISING-TABLE
ADVANTAGES DISADVANTAGES

Expansion can be faster because Franchisees cannot be managed as closely as employees

 franchisees provide the labour and their
and they may have different goals to the franchisor
sales provide the growth

Franchisees are responsible for their

Franchise recruitment can be slower and less efficient than
company’s success so they are more
employee recruitment
motivated

Franchisees may be more talented at Franchisors earn royalties from sales. Franchisees earn
growing the business and turning a profit money from profits. Achieving growth in both isn’t always
than employees would be possible, potentially causing conflict

The franchisor puts relatively little money

Franchisees don’t always work together like employees
into new locations as this comes from the
might, thus losing any potential collective benefit
franchisee

Successful locations can return high The upfront investment (time and money) required can be
royalties huge – a pilot operation may need to be tested

Consistent operations across the business

Selecting one wrong franchisee can ruin the reputation of
generally means improved efficiency and
the whole franchise
higher quality levels

Franchisees should be fully committed due Sharing confidential information with franchisees is risky if
to the investment they put in they are not fully committed to the business

UNIT THIRTEEN
BUSINESS PROPOSAL
A business proposal is a sales document created with the purpose to persuade your potential customers to
buy from you. Whether you’re starting a new business or growing an existing business, a business proposal is
used in a variety of industries to help sell a wide range of products or services.

TYPES OF BUSINESS PROPOSALS

There are two types of business proposals: unsolicited and solicited.
 Unsolicited Business Proposals - With unsolicited business proposals, you approach a potential
customer with a proposal, even if they don't request one, to gain their business.
 Solicited Business Proposals - Solicited business proposals are requested by a prospective client so
that they can decide whether or not to do business with your company.

In a solicited business proposal, the other organization asks for a request for proposal (RFP). When a
company needs a problem solved, they invite other businesses to submit a proposal that details how they'd
solve it.
Whether the proposal is solicited or unsolicited, the steps to create your proposal are similar. Ensure it
includes three main points: a statement of the organization's problem, proposed solution, and pricing
information.

HOW TO WRITE A BUSINESS PROPOSAL

1. Begin with a title page.
2. Create a table of contents.
3. Explain your “why” with an executive summary.
4. State the problem or need.
5. Propose a solution.
6. Share your qualifications.
7. Include pricing options.
8. Summarize with a conclusion.
9. Clarify your terms and conditions.
10. Include a space for signatures to document agreement.

Before writing your business proposal, it's crucial you understand the company. If they've sent you an RFP,
make sure you read it carefully, so you know exactly what they want. It can also be helpful to have an initial
call or meeting with the new client to ensure you fully understand the problem they're trying to solve and
their objectives.

Once you've done your research, it's time to begin writing your business proposal. There's no one-size-fits-all
approach to writing a business proposal, but let's take a look at some elements proposals often include. (I
designed this example business proposal using Canva).

1. Begin with a title page.

You have to convey some basic information here. Introduce yourself and your business. Be sure to include
your name, your company's name, the date you submitted the proposal, and the name of the client or
individual you're submitting the proposal to.
Your title page should reconcile engagement with professionalism. It's a tone-setter, so you need to make
sure yours is sleek, aesthetically appealing, and not too "out there."
Here's an example of what a business proposal template looks like when done right:

2. Create a table of contents.

A solid UX is valuable in virtually any context, and business proposals are no exception. You need to make
things as simple and accessible as possible for the people on the other side of your proposal. That starts with
a table of contents.
A table of contents will let your potential client know exactly what will be covered in the business proposal.
If you're sending your proposal electronically, it helps to include a clickable table of contents that will jump
to the different sections of your proposal for easy reading and navigation.

3. Explain your "why" with an executive summary.

The executive summary details exactly why you're sending the proposal and why your solution is the best for
the prospective client. Specificity is key here. Why are you the best option for them?
Similar to a value proposition, your executive summary outlines the benefits of your company's products or
services and how they can solve your potential client's problem. After reading your executive summary, the
prospect should have a clear idea of how you can help them, even if they don't read the entire proposal.
Here's what one should look like:

That example thoughtfully and effectively conveys both what the business does as a whole and how it can
specifically serve the reader's needs. Here's what yours shouldn't look like:
This particular example is extremely vague. It doesn't allude to what the reader specifically stands to gain
from doing business with Outbound Telecom and fails to actually speak to why it should be considered "the
best in its industry."

4. State the problem or need.

This is where you provide a summary of the issue impacting the potential client. It provides you with the
opportunity to show them you clearly understand their needs and the problem they need help solving.
Research, critical thinking, and extra thought are key here. You have to do your homework. Take a holistic
look at the specific issues your client faces that you can help solve. Then, compellingly frame them in a way
that sets you up for the next step.

5. Propose a solution.
Here's where you offer up a strategy for solving the problem. Like the last step, you need to lean into
specificity and personalization on this one. Make sure your proposed solution is customized to the client's
needs, so they know you've created this proposal specifically for them.
Let them know which deliverables you'll provide, the methods you'll use, and a timeframe for when they
should expect them.

6. Share your qualifications.

Are you qualified to solve this prospect's problem? Why should they trust you? Use this section of your
business proposal template to communicate why you're best for the job. Include case studies of client
success stories and mention any relevant awards or accreditations to boost your authority.

7. Include pricing options.

Pricing is where things can get a bit tricky, as you don't want to under or over-price your product. If you'd
like to provide the prospect with a few pricing options for their budget, include an optional fee table. Some
proposal software offer responsive pricing tables which allow clients to check the products or services
they're interested in, and the price will automatically adjust.

8. Summarize with a conclusion.

After providing the above information, it’s necessary to simplify it into one final section. Briefly summarize
the proposal. Touch on your qualifications and why you’d serve as the best choice. To prompt further
conversation, confirm your availability. At the end of the proposal, the goal is to have the client ready to
work with you. Provide your contact information to allow them to follow up easily.

9. Clarify your terms and conditions.

This is where you go into detail about the project timeline, pricing, and payment schedules. It's essentially a
summary of what you and the client agree to if they accept your proposal. Make sure you clear the terms
and conditions with your own legal team before sending the proposal to the client.

10. Include a space for signatures to document agreement.

Include a signature box for the client to sign and let them know exactly what they're agreeing to when they
sign. This is also a chance to include a prompt for the prospect to reach out to you if they have any
unanswered questions you can address.