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Innovation can be defined as the invention and commercialization of new products or services based on the application of technological and/or market knowledge (Hitt & Ireland, 2000)
Kuczmarski, Middlebrooks, & Swaddling (2000) suggested that innovation brings a new perceived benefit or value to a customer, employee, or shareholder. The new perceived benefit ranges from minimal to massive and may be functional, psychological, emotional, or financial. For example, a process innovation could bring a time-saving benefit to employees.
To innovate is to introduce something new - an idea, method or device - it is a combination of processes: generating new ideas and their implementation. It's a type of change which can be either a series of steps or one huge leap towards in a desired direction which calls for good leadership and management at all levels of the organisation. Good leaders will stimulate people to be more 'hands on' and interested in their work, and in turn, this will lead to the generation of more good ideas (Adair & Thomas, 2004).
New product development (NPD) is virtually established as the most viable tool for long-term corporate growth if properly managed (Ilori, Oke & Sanni, 2000). The continuous development and market introduction of new products is an important determinant of sustained firm performance (Hardy, 1996).
Several studies have been devoted to investigate how small medium enterprises (SME's) manage their NPD process. For example, Huang, Soutar & Brown (2002) examined the NPD process in Australian SMEs and established that market-related activities were manage badly and improperly executed than technical activities. However, their analysis only examined the various activities through the NPD process, and did not consider activities emphasized in each stage. March-Chorda, Gunasekaran & Lloria-Aramburo (2002) studied the determinants of NPD in Spanish SMEs, and concluded that the cost of the new project and the market uncertainty were major factors discouraging SMEs' engagement in NPD. Hadjimanolis (2000) studied the background of innovation activity in small firms in Cyprus using firm data and found that strategy, expenditure on R&D, cooperation with external technology providers, use of technological information sources, and overall performance of the firm were the main determinants of the firm's innovation activities.
Similarly, recent studies have examined the Nigerian private sector in general and the industrial sub-sector in particular. Forrest (1994) conducted an impressive census of the growth of an indigenous private sector. Brautigam (1997) documented how local industrialists in southeast Nigeria substituted for the absence of a developmental state. Nnadozie (2002) examined the resurgence and growth of Igbo entrepreneurship after Biafra.
The research aims to cover these objectives:
- What factors trigger product innovation in the company?
- What are the challenges to the company's innovative process in the short and long run and how it intends to overcome them?
- To evaluate government efforts in supporting small businesses through policies (with regards to the seven point agenda and vision 2020) and creating an encouraging business environment, as commonsense suggests, and academic studies agree, that business environment enables entrepreneurial activity and boosts enterprise performance (Agboli & Ukaegbu, 2006).
The research attempts to understand the innovation process of PMS electrical manufacturing Nigeria Limited. A manufacturing company located in Nnewi, Anambra State, the Eastern region of Nigeria. The company is the pioneer and only manufacturer of electrical accessories of its kind in Nigeria and as such is strategically positioned to command a good proportion of the available market. PMS currently has thirteen product lines in the market which are; wall switches, 13 amps fused plugs (with light, sockets and switch plugs), switch sockets, junction boxes, 25mm moulded box, 5amp ceiling rose, etc.
The company is an offspring and subsidiary of Globelight Nigeria Limited which started off as a retailer in electrical goods in 1980. PMS was incorporated in 1989 as a private company limited by shares, with an initial capital of 150,000 Naira and increased to over 1,000,000 Naira. It is a family business in its first generation where ownership and management responsibility rests on the family.
Production of high quality Bakelite electrical accessories kicked off three years later with the 25mm deep moulded box and other product lines followed suit. It currently has staff strength of ninety-four, twenty seven machines and two 315kva generating set. The company's production process is both manual and semi- automatic i.e. it uses compressing machines which are manually fed by inserting the moulds containing the basic raw material (resins) into the cavities. Prior to this process, the resin for each process is weighed into the moulds then to the compressing machine where it's been shaped into the desired product then polished before the brass components and screws are inserted using electric semi-driver drills, forward to quality control and lastly, packaging.
THE NIGERIAN ECONOMY AND BUSINESS ENVIRONMENT
The Nigerian economy was basically agrarian before colonization; the agrarian economy was supported with various craft works on which the local industries (of low technology) thrived. With the advent of colonialism in late 19th to mid-20th century, agricultural products were exported abroad encouraging peasants to produce at full capacity. After independence in 1960, manufacturing technology had been intensified, and the by-products of agriculture were manufactured in the modern way for internal consumption. Invariably, efforts by government and individuals intensified on the establishment of industries, thus, many industries in the areas of agro allied, textiles, ceramics, beverages, building materials were set up (Shokan, 2000).
However, by the early 1970s, large crude oil reserves were discovered in Nigeria, and exploration commenced. Nigeria earned huge foreign exchange opportunities from exporting large quantities of crude oil. Unfortunately, the nations gain in the oil sector was not directed towards the development of the industrial sector, hence the industrial sector could not make significant contributions to the Nigerian economy (Akinbogun, 2008).
Despite major steps taken to foster the private sector in Nigeria's economic and social development through economic reorientation policies, promotion of non-oil small and medium enterprise (SME) development and foreign investment, financial reforms, and struggle against corruption. These efforts and momentum is attributable to the return of a democratic government are reflected in the "improvement and optimism indexes" compiled by the World Economic Forum's Africa Competitiveness Report (WEF, 2003), which ranks Nigeria fourth among 12 African countries in terms of improvement and first in terms of "optimism."
A good business environment or investment climate will encourage private firms to be well managed and efficient, be profitable to grow, create jobs, increase the rate of economic growth, and reduce poverty (Development Gateway 2004).
Gnyawali and Fogel (1994) view the business environment as the overall economic, socio-cultural and political factors that influence people's willingness and ability to undertake entrepreneurial activities.
An adverse business environment can increase production costs substantially. It is estimated that the manufacturing sector in Nigeria has to bear additional indirect costs amounting to 16 percent of sales because of bottlenecks in the business environment (Larossi, Mousley & Radwan, 2009).
SMALL BUSINESS ENTERPRISES (MANUFACTURING SECTOR)
According to the Central Bank of Nigeria (2003) small scale enterprise can be defined as an industry with a labour size of 11-100 workers or a total cost of not more than 50 million naira, including working capital but excluding cost of land. Nigeria's National Council on Industry defined SME in terms of employment as one with between 10 and 300 employees
In the United States of America, the Small Business Administration (2003) has various definitions for small businesses depending on the type of industry. Manufacturing and mining businesses with fewer than 500 employees are considered small businesses while businesses in wholesale trade industries must have fewer than 100 employees. For other industries, such as retail and construction, businesses are classified based on annual revenue.
Tybout (2000) highlighted the manufacturing sector as the darling of policy makers in less developed countries (LDCs) because it is viewed as the leading edge of modernization, skilled job creation, as well as a fundamental source of various positive spillovers. He further pointed out government participation through special tax concessions and relatively low tariff rates for importers of manufacturing machinery and equipment.
The CBN conducted a survey in 2003 and described features of SME'S one of the general features of SMEs is that they are either sole proprietorships or partnerships. Even when registered as a limited liability company, which is merely on paper. Secondly, most SMEs have labour intensive production processes, centralised management and have limited access to long-term capital; even their access to short-term financing is inadequate and sometime attained at a penal rate of interest and other conditionality.
Another major feature of many SMEs is their over-dependence on imported raw materials and spare parts. Many entrepreneurs who set up and manage SME's lack the appropriate management skills and due to lack of adequate capital or sheer ignorance of technological advances, such entrepreneurs purchase obsolete and inefficient equipments thereby setting the stage "ab initio" (from the beginning), for lower level of productivity and poor product quality with serious consequences on product output and market acceptability.
In a recent report by the Manufacturers Association of Nigeria (2009) the sector's performance decreased from nearly 13% in the 1980's to a shocking 4.13% in 2008 as a result of the global economic crisis which destabilized macroeconomic variables leading to a reduction in capacity utilization of the sector and hindering the potential growth in the sector based on speculations regarding certain economic variables and challenges such as depreciation of the value of the naira, increase in the cost of raw materials procurement, high interest rate, increased taxes by state and local government, port congestion as 48 hours cargo clearing is not working, persistent poor power supply, high cost of petroleum produce and more.
CHALLENGES OF SME'S IN NIGERIA
Spring & McDade (1998) outlined some factors limiting the growth of small enterprises in Africa, including lack of access to capital, lack of business training of owners, and poor facilities. They noted that legal requirements and regulations for establishing and operating formal sector businesses work against the expansion of firms, ranging in size from micro to more visibly small and medium-sized businesses. This leads entrepreneurs to prefer to diversify into other micro-enterprises rather than expand or upgrade existing ones.
According to the World Development Report (2005), electricity is the biggest infrastructure problem in developing countries, and larger firms express more concerns than smaller firms about all services. The irregular power supply affects all other sectors of industrial manufacturing. Regular power supply is the backbone of industrial manufacturing, however, the incessant power failure is one of the factors responsible for the high cost of manufacturing in Nigeria. Nigeria depends basically on hydroelectric power generation which is insufficient in meeting the demands of the nation as a whole and does not correspond with the total energy required in the country (Agboli & Ukaegbu, 2006).
Mimiko (2002) identified two critical features that define Nigeria's economy since 1960; the first is a high propensity for policy turnover resulting from acute political instability. And the second feature is government tendency at managing the more peripheral indexes of the economy, the attendant marginalization of the productive orientation and development agenda. The policies that have negatively affected the small-scale industries in general are the monetary policies, export and import policies, and incessant upward review of petroleum products prices.
Kilby (2003) eloquently reiterated his longstanding thesis on the problems of managerial coordination and control in developing countries. He noted that the managerial gaps, especially the reluctance to delegate power and authority, would have been more visible if the external turbulence had been less extreme
In 2004, United Nations Industrial Development Organisation (UNIDO) stated that Nigeria had very high costs for the most important inputs when compared to the input costs of a panel of countries with which it competes (Young-Ahiaume, 2004)
A survey conducted by the Regional Program on Enterprise Development (RPED) which explained that value added per worker is driven by firm size. The smallest firms have the lowest value added and the very large firms have a value added per worker that is significantly greater than other types of firms. Local firms have less than half the value added of firms with foreign equity, and firms owned by indigenous entrepreneurs have a lower value added than firms owned by entrepreneurs of non-African descent.
There are several challenges affecting the innovation process these occur from the idea generation stage to the commercialisation of the idea. This research will consider a few of those challenges.
One of the major barriers to innovation is creativity. Large corporations lack the motivational capacity of small companies to nurture or motivate innovative people who have new, creative and break-through ideas. However, some companies rely upon historical experience to help them solve their problems and come with solutions (Marnix, 2006). Creativity in new product development can be approached in different ways, such as technology driven product development or in some cases companies have been successful through a thorough understanding of the customer needs (Mahesh & James, 2008, p.1021).
The level of priority given to the innovation process in an organisation affects its implementation and contributes to its achievement. Many organisations itemise innovation as part of its goals but without the necessary steps to put it into action (Kuczmarski, Middlebrooks & Swaddling, 2000, p21).
Without fail risk aversion is the most frequent barrier to innovation. Most companies inform employees that they simply will not tolerate failure. The challenge of balancing the need for success with the need to accept risk can be daunting (Kuczmarski et al., 2000, p23). Knight (1971) suggests that innovation is risky because innovative actions aimed at the future always confront uncertainty. Innovation can create human resource risk as explained by Henrik (2007) that there was an ever-present risk of losing key people especially technically skilled personnel; this is due to the fact that certain projects maybe neglected to assist the companies in reaching their innovative goals. He also found that there was a risk of senior employees retiring with essential skills because of the pressure to train and learn new customs at a later stage in their careers than they expected.
According to Marnix (2006), managers cannot predict exactly the outcome and reactions of the market, resulting to uncertainty. Uncertainty makes it hard to obtain long-term internal support and resources. A framework was developed by Pearson used for analysing and understanding uncertainty in the innovation process. The framework was developed due to research in case studies in technological innovation with companies like 3M, Pilkington's float glass process and Sony's walkman, Pearson divided uncertainty into two: Uncertainty about ends and uncertainty about means (Trott, 2005, p.79)
An applied research that seeks to solve innovative problems in PMS electrical manufacturing company by providing information that will facilitate an appropriate business decision making process with regards to new product development. This will be achieved by employing both primary and secondary methods in accordance with the non-repetitive redundant measures (REF).
In the words of Franklin D. Roosevelt, (Kemp & Kemp, 1994)
"It is common sense to take a method and try it. If it fails, try another, admit it frankly and try another. But above all, try something"
Primary data will be collected through multiple choice questionnaires from a reasonable sample size and analysed statistically using the SPSS tool to test for significance and other relevant tests to check for errors. An open ended interview with the chief executive of the company is very vital to the outcome of the research in evaluating the research objectives. The open ended choice will allow detailed information concerning the company.
Secondary methods will involve review of literature in the area of study including innovation process, Nigerian economy for a given period and how it evolution period into the manufacturing sector, contribution and prospects, business environment and its effects on productivity, manufacturing sector and other pertinent literature.
The questionnaires will seek to answer questions in these areas of the company's' marketing, product image, quality control, raw material vendors, substitutability of the current raw material, warehousing, alternatives to inconsistent power supply, nature of production.
Also the research will utilize one of the innovation models to the business, as mentioned earlier the Pearson's framework will applied in the area of uncertainty. Early models regarded innovation as a linear process driven by either technology push or market pull, although later models recognized that success was dependent on the coupling of both with feedback loops (Tidd, 2006)
The major limitation foreseen is time constraint for the reason that a further research on other small businesses would enhance the results obtained as one company cannot be a standard for an entire industry in measuring their innovative productivity. Also response time of the questionnaires depends on the respondents, which to a great extent will affect the research.
Another major challenge is retrieving information on the Nigerian economy. Unlike industrialized economies, information can be easily accessed, but in Nigeria, for example, companies are required to file their annual returns within 42 days of their AGM (Annual General Meeting) and there, as in many countries, they can be inspected by any member of the public on payment of a fee but the lack of consistency and, in particular, the lack of any specialized business databases, sadly makes retrieval of company report information from quite difficult. Added to this problem is the fact that some companies in Nigeria have Web sites that are perpetually 'under construction (Adeloye, 2001).
Furthermore, the challenge of validity and reliability of the research methods is paramount in any research. This research will be valid when the results actually measure what is supposed to be measured achieved by controlling the variables, therefore being reasonably sure the results from the test is due to the test variables. Such a result would be valid. Reliability is the probability that the research would obtain the same results if repeated in the same way. This research would have reliability if the results can be duplicated consistently. Fortunately, both validity and reliability can be increased through proper research design (Kemp & Kemp, 2004).