Small And Medium Business In Nigeria Commerce Essay

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

This chapter will examine updated literature on determinants, motivations and barriers of export performance in small Nigerian firms. As mentioned in chapter one, export business is an important business worldwide. It is vital to study existing researches to achieve the research questions, aims and objectives. The literature is reviewed to gain the context of answering the research question of "what are the factors that determine export performance of small Nigerian firms", "what motivate export performance of Nigeria small firms and "what are the barriers to export performance of small firms in Nigeria"?

A number of researches had been done to identify Nigeria's SME{ Small and medium enterprises} (Ayanda & Laraba, 2011; Aremu 2010; Okpara & Wynn, 2007), export business in Nigeria (Opara, 2010; Esu & Awara, 2010; Edozien, 2010; Onafowora & Owoye, 2008), determinant, motivations and barriers of export performance (Leonidou, 2004; Czinkota, 1994; Diamantopoulos, 1999; Zou & Stan 1998; Leonidou et al., 2007; Stewart & McAuley, 1999) separately but this research linked all to achieve meaningful result.

This literature review is divided into five parts. The first part includes a review of small and medium businesses in Nigeria. The second part involves export business in Nigeria. The third, fourth and fifth parts are narrowed down to the research questions which include the determinant, motivation and barriers of export performance.

The export barriers are in several forms and are subjected to different stages of export performance which includes internal and external barriers. The export motivation is also divided into different categories. The details of the literature review on the various kinds of export determinants, motivations and barriers are discussed below.

Wide ranges of research have been reviewed and each of the research includes qualitative and quantitative research papers.

Small and Medium business in Nigeria

Small and medium businesses in developed and developing countries have led and will continue to lead to many significant benefits and development of economy such as employment generation, increased level of modernization, distribution of income etc. Small and medium business in Nigeria was discovered in 1946, when the developmental needs of Nigerians were identified (Ayanda & Laraba, 2011). Small and medium business in Nigeria is seen as alleviation of poverty, unemployment reduction, engine for creating and developing entrepreneurial qualities (Aremu, 2010). As the business environment in Nigeria changes continuously due to technological innovations and globalisation process, small and medium business are forced to search for new competitive advantage to increase and maintain market positions. The increase contribution of small and medium business sectors in Nigeria's export portfolio help in creating foreign exchange and reducing the unfavourable condition of balance of payment (Aremu, 2004). SMEs in Nigeria have adopted structural adjustment programme which the larger firms refuse to adopt in order to fill the supply gap (Olorunshola, 2003).

Countries in the world have different definition for classifying small and medium business sectors. Each of the definitions depends on the policies and requirement that governs the small and medium business. Most countries base their definition on the three factors which include; volume of production or business turnover, capital investment on plant machinery and number of staffs employed (Aremu, 2004).

"In 1990, the Federal Government of Nigeria defined small scale enterprises for the purpose of commercial loan as those enterprises with annual turnover not exceeding N500, 000 and for merchant loan as those for the purpose of commercial loan as those enterprises with capital investment not exceeding N2 million (excluding cost of land or a maximum of N5 million)". Also the "Central Bank of Nigeria in its monetary policies circular No. 22 of 1988 view small scale industry are those enterprises which has annual turnover not exceeding 500,000 naira" (CBN; 1988).

The central bank of Nigeria introduced credit guidelines in order for small businesses to receive loans from commercial banks and merchant banks. Furthermore, many schemes and developmental financial institutions were established to assist small businesses in Nigeria such as; the Nigerian industrial development bank, World Bank SME, Nigerian bank of commerce and industry, Nigerian export-import bank to encourage export loans to small businesses and Nigeria export promotion council to administer export duties (Okpara & Wynn, 2007).

Some of the reasons why most of the small and medium business die in Nigeria is because of inadequate market research, insufficient capital, inadequate infrastructures, lack of focus, inexperience, lack of business strategies, lack of proper book keeping and records, inability to separate business and family (Brasil, 2005). The above problem of small and medium business in Nigeria is similar to other developing countries.

2.3 Export Business in Nigeria

The importance of export business in Nigerian economy has been seen as an agent of development. Historically, export business in Nigeria primarily focuses on mining, traditional agriculture and other similar products before the discovery of crude oil (petroleum) in 1950s (Opara, 2010). During this period, the government revenues rely strongly on taxes on exports (Osuntogun et al., 1997). Between 1960 and 1970, agricultural commodities largely sustained the Nigerian economy export earnings (Onafowora & Owoye, 2008). In 1960, the non oil export products provide 85% of total export earnings and 63% of gross domestic products (Opara, 2010). Nigeria joined the organisation for petroleum exporting countries (OPEC) in 1970 (Onafowora & Owoye, 2008). The manufacturing, agricultural and oil sector attained a positive GDP growth rate of 5% per year between 1987 and 1992 (Moser et al., 1997).

Furthermore, a group of Nigerian expert in 1976 travelled to Japan and South Korea to study export policy in both countries and through the studies, Nigerian Export Promotion Council (NEPC) was established in 1976 by the government to promote government policies, monitor and coordinate operation of export activities of good and service made in Nigeria (Edozien, 2010). After the establishment of the Nigerian export promotion council (NEPC), many of the Nigerian firms embraced the need to export into international market. Nigerian export promotion council registers new entrants into exporting business in Nigeria (Esu & Awara, 2010). In 2008, NEPC identified two types of exporters in Nigeria: manufacturing exporter; manufacture products and at the same time export products internationally. Secondly, export merchant; the exporter buys goods from manufacturer domestically and export the product brought internationally (Esu & Awara, 2010). From the survey conducted by Nigerian export promotion council on Nigeria export potentials and foreign market opportunities, it was identified that Nigeria has comparative advantage to produce and supply manufacturing and agricultural commodities not only to African countries but also to other developed countries (Ogunusi, 1986). Also Ogwo (1998), identified that Nigerian non oil export as market opportunities to produce and supply countries such as sub Saharan Africa, Asia, northern Africa, ECOWAS, European union, eastern Europe, north and south America, Mediterranean and middle east. In spite of the opportunities of Nigeria's export business, some of the exporting firms face different export barriers.

This research focuses more on the non oil export than the oil export in Nigeria and some of the Nigerian export commodities of non oil export are in 8 categories which comprise of the following:






Glass sheets

Carbon black

Drilling equipment

Palm kernel etc.







Vegetables & oil

Charcoal etc.



Music etc.


Iron ore






Pyrite etc.





Metal carvings

Wood cravings

Talking drums



Anti biotics

Anti malaria

Anti pyretics

Anti histamine





Bitter leaf

Yam flour

Ground crayfish

Ground melon

Plantain flour etc.




Sugar cane



Source: (Adeyemi; 2012) Export business in Nigeria site

Export Performance of Small Firms

Export performance is an essential guide for any exporting firm to analyse its level of achievement both in home and foreign markets (Das, 1994). Export performance is of great importance to three major groups: government, who see exporting as a way of creating employment, gathering of foreign exchange reserves, enhancing societal prosperity, improving productivity and engine for economic growth (Czinkota, 1994; Diamantopoulos, 1999); business managers of export firms, who view exporting as a tool for increasing corporate growth, competitive advantage, financial performance, capacity utilization and survival of firm in high globalized market (Kumcu et al., 1995; Samiee & Walter, 1990); and marketing researchers, who see exporting as a promising area for building theory in international marketing (Zou & Stan 1998). Export performance illustrates the result of export behaviour under different environment and organisational condition (Diamantopoulos, 1998).

Another approach to the classification of export success is to categorize performance in terms of non-economic and economic outcomes (Katsikeas et al., 2000). Noneconomic outcomes are potentially of interest to exporting researchers, since they may play key mediating roles in shaping economic outcomes. For instance, a firm's degree of internationalization is partially a function of the number of country markets it operates in: firms operating in more country markets may find they are less vulnerable to fluctuations in demand happening within individual markets, and so may be better able to ride out market shocks. Simultaneously, such firms may be better positioned to capitalize on growth opportunities arising in markets in which they already operate. Accordingly, it would not be unusual for exporters to have as a formal strategic objective the expansion of their export operations into new markets, and as a result, market expansion goals might legitimately be translated into non-economic effectiveness measures of export success. From this discussion, one can clearly see that non-economic factors may become important export performance indicators. However, the export performance indicators of greatest interest are the economic measures: these contain sales-related dimensions, such as sales growth and revenues relative to competitors (market share), and profit-related dimensions, such as profit margins, ratios, and growth trends. Ultimately, all profit-oriented businesses are seeking success in terms of economic performance dimensions and, justifiably, economic export performance indicators receive most research attention. In terms of modeling determinants of export success, economic performance indicators are the ultimate endogenous variables, with non-economic indicators playing important but subservient mediating roles. Economic performance indicators can be of the effectiveness kind or the efficiency kind, or both simultaneously, since the operational distinction between effectiveness and efficiency is often vague (Oliverira et al, 2012).

Numerous studies have been conducted on firm's export performance to identify the interrelationships among export performance determinants. The dynamic of these identify a model consisting three variables: background, intervening and outcome variable (Axinn, 1994; Da Rocha & Christensen, 1994; Cavusgil & Zou, 1994; Holzmuller & Kasper, 1991).


Background variables Intervening variables Outcome variable

Targeting Marketing factors strategy factors

Export performance

Managerial factors Environmental Organisational

factors factors

Source: Adopted from (Katsikeas et al., 2000)

The background consists of environmental, organisational and managerial factors that affect export performance indirectly; intervening consist of targeting and marketing strategy factors that affect export performance directly and outcome variable which result to firm's export performance (Katsikeas et al., 2000).

Export performance takes different measures and this has been widely explored by many researchers. The measurements of export performance are incorporated into three sub dimensions: financial performance, satisfaction gained and strategic export performance (Zou et al. 1998). According to Cavusgil & Zou, (1994), the financial export performance measures include growth, export sales and profitability. The financial measure is mostly used at the international level (Evangelista, 1994). Leonidous et al., (2002) argues that assessing export performance can be a complex issue because firms do not regularly report their financial details of their exporting activities. Also, some of the small and medium firms may lack proper export accounting mechanisms. According to Diamantopoulos & Schlegelmilch, (1994), assessing the usefulness of export performance depends on the credibility of export performance measures and using the export performance measure can be very complicated because export performance can be operationalised and conceptualised in many ways. On the other hand, some research suggest using multiple measure of export performance is wise, to capture the intricacy of export success (Cameron, 1986; Shoham, 1996; Bijmolt & Zwart, 1994).

Determinants of Export Performance

The determinants of export performance are of two theoretical approaches; the resources based paradigm which is classified as the internal factor and the contingency paradigm, classified as the external factor. The resource based theory is directed on how export firm sustain competitive advantage by the unique bundle of resources (Conner & Prahalad, 1996). The resource based paradigm point out the issue of how better export performance can be achieved in relation with other firms in the same marketplace. It also suggests that better and increase export performance is attained from exploiting and acquiring the unique resource of firms (Dhanaraj & Beamish, 2003). Resource based paradigm assumed that export performance of a firm is based on its size, competencies and experience (Zou & Stan 1998). On the other hand, the contingency paradigm suggests that export performance and firm's strategies are influenced by the environmental factors. The theory is rooted in the structure, conduct and performance framework of the organisation and it relies on two parts: the organisation may depend on their environment for sources (Pfeffer & Salancik, 1978), and the organisation can manage to develop and maintain proper strategies (Hofer & Schendel, 1978).

The key determinant of export performance consists of internal, external uncontrollable factors and marketing strategy. The internal factor is divided into four parts; firm characteristics and competencies, product characteristics, management characteristics and management attitudes and perceptions (Zou & Stan, 1998). The external uncontrollable factors are also divided into three parts; industry characteristics, domestic market characteristics and foreign market (Zou & Stan, 1998). The last key determinant of export performance which is marketing strategy is made up of the 4Ps; product adaptation, price adaptation, promotion adaptation and distribution adaptation (Zou & Stan, 1998).



*Product adaptation

* Price adaptation

* Promotion adaptation

* Distribution adaptation


* Industry characteristics

* Domestic market characteristic

* Foreign Market


* Firm characteristic and competencies.

* Product characteristic

* Management characteristic

* Management attitudes and perceptions

Source: (Zou & Stan, 1998)

Export Stimulations

Export stimulation is relevant to both management of a firm, especially small and medium firm operation and policy maker. Export stimuli are referred to as attention evokers, motives and incentives. It also referred to as those essential elements that influence the initial and the sustaining export activities (Leonidou et al., 2007; Stewart & McAuley, 1999). The nature of export stimulation has seen to have affected the internationalisation of many firms (Welch & Wiedersheim-Paul, 1980). The exposure of many firms to export stimuli are shown to be organisational learning process in which firm are able to get information needed to expand (Tan et al, 2007). The adequate functions of export stimulus are controlled by the roles of background variables i.e. the environment, organisation and the manager (Leonidou et al., 2007).

Export stimuli is divided into two parts; internal and external stimuli. Internal stimuli are factors that influence the endogenous of firms. The internal stimuli are objective, problematic and rational oriented. The internal stimuli are divided into areas that are functional in the organisation such as production, human resources, marketing and research and development. External stimuli are factors that influence the environment in which the firm operates. The external factors are referred to as the government, the competition, the market, the customers, the intermediaries and miscellaneous (Leonidou et al., 2007). Apart from the internal and external factors, export stimuli can also be classified as proactive (pull factor) and reactive (push factor) stimuli. Proactive stimuli are the use of firm's interest to gain market opportunities into foreign market (e.g. exceptional management interest) (Johnston & Czinkota, 1982). The proactive stimulus is also strategic, deliberate, positive and aggressive oriented. Reactive stimuli are referred to as the response to internal or external pressure in export activities (e.g. high domestic competition). The reactive stimuli use opportunistic, tactical and passive method in entering the international marketplace (Johnston & Czinkota, 1982). Export performance of the initial and sustaining export activities can be influence by the internal proactive, external proactive, internal reactive or external reactive (Albaum et al., 2004). The measurement of each of the stimuli can be perceived by firm's export managers. In the early stage of exporting, firms are influenced by external and reactive factors and in the development stage; firms are influenced by internal and proactive factors (Leonidou et al., 2007). The effect of the various export stimuli is not constant but changes from one stage to other (Czinkota & Johnston, 1981; Barker & Kaynak, 1992).


Internal Factors









Export performance

External Factors

Market related





Export Marketing Strategy;

Type of strategy

Source: (Stewart & McAuley; 1999)

Export Barriers

An export barrier is described as the internal (e.g. company approach to export activities and firm's resources) and external (e.g. home and foreign environment) constraints that hinder firms from initiating and expanding export activities in the international market (Leonidou, 2004). The internal export barrier is divided into informational, marketing and functional barriers. Informational barrier is referred to as problems of contacting and identifying the foreign market opportunities due to insufficient information (Morgan & Katsikeas, 1997).

Marketing barrier consist of company's pricing, product, distribution, promotional and logistic. Functional barrier is referred to shortages of working capital, inadequacies of export managers and lack of production capacity (Leonidou, 2004).

External export barrier is also broken down into governmental barriers, procedural barriers, environmental barriers and task barriers (Leonidou, 2004). The barriers of export performance are in different forms and categories. According to Katsikeas & Morgan, (1994), export barriers can be internal, external, informational and operational barriers. Furthermore, Leonidou (1993), classify export barriers to domestic and foreign barriers. In 1995, export barriers are categorised into four parts; internal domestic, internal foreign, external domestic and external foreign barriers (Leonidous, 1995). The internal, external export barrier is referred to as the environment of export firms and domestic, foreign export barrier is referred to as country of export operation, that is export performance hindrances come from where the firm is situated and in foreign market where the firm carryout its export activities (Leonidous, 1995).

Export barriers can also take the following dimensions; lack of strategic resources, exogenous barriers and lack of information and knowledge of export operations (Arteaga-Ortiz & Fernandez-Ortiz, 2010). Lack of strategic resources is referred to insufficient managerial skills and capabilities to operate in the international markets. It also referred to as inadequate financial resource. Lack of information and knowledge are barriers of identifying export opportunities in foreign market and difficulties in understanding foreign business practise and cultures (Pinho & Martins, 2010; Blomstermo et al., 2004). Exogenous barriers consist of firm's environment. It is difficult to foretell and control the occurrence of this barrier (Leonidou, 2004). This following dimension of export barriers falls under the internal and external export barriers.

Export barriers can be experienced by three groups of firms: Non exporter; firms who are not exporting presently but have future potentials. Current exporter; firms who are presently involved in export business activities but face barriers in their daily export activities in foreign market. Lastly, ex-exporters; consist of firms who used to export in foreign market in the past (Leonidou, 2004).






Marketing Price


Barrier Logistic

Procedural Promotion


Task Economic

External Environmental Political-Legal


Source: (Leonidou, 1994)

The nature of export barriers, as well as their combine importance and frequency occur differently from one stage to another stage (Bilkey, 1978; Ford & Leonidou, 1991). Export barriers during the initial stage of export activities can cause inactive or negative attitude toward foreign market operations and also result to total failure which makes the exporting firm withdraw permanently from exporting business (Leonidou, 2004; Wiedersheim-Paul et al., 1978). Knowing and taking appropriate step to remove or reduce export barriers in the initial and sustaining export stage is very important to achieve future success in the foreign markets.