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DETERMINANTS OF ATTRITION IN SMALL AND MEDIUM TEXTILE ENTERPRISES IN NIGERIA
ABSTRACT
This study focused on attrition determinants of textile (SMES) in Nigeria. The study became necessary because the textile industry in Nigeria which was the second largest employer of labour after government declined in productivity rapidly and between 1995 and 2003, 83 textiles closed shop. The main objective of this study therefore is to investigate the determinants of attrition of textile SMEs in Nigeria. Past studies have focused on firm success, with only few on firm attrition. Again most studies of firm longevity have focused on large firms. The problem is more acute from Nigerian sources. This study reviewed both the theoretical framework and conceptual framework employing independent variables such as government policy, managerial skills, marketing, technology and finance, while the dependent variable is the “attrition of textile SMEs” to examine the past empirical studies. The study identified a gap, since the past studies were not firm specific and did not compare failed and standing firms. This present study focuses on the SME textile sub-sector. The study will be conducted in six textile zones of Kaduna, Kano, Lagos Aba, Onitsha and Asaba. These geographical areas have the largest concentration of textile firms in Nigeria. The study will compare the failed textile SMEs with those standing. The findings of this study can therefore be grossed up to national level. The collapsed SME firms and those standing whose list is with the textile manufacturers association located at No. 4 Kachia Road Kaduna forms the sampling frame. Purposive sampling will be used to enlist 3 entrepreneurs each for both failed and standing firms and 10 senior managers of failed and 3 senior managers of standing firms for a pilot study. A snow-balling method will be employed to enlist the 273 top/senior executives of the sampled failed firms while a simple random sampling will be employed to enlist 100 executives of standing firms for the administration of a four point likert questionnaire. Both qualitative and quantitative data will be generated through depth-interviews and questionnaire administration. The interview will be analyzed through content analysis while principal component analysis will be applied on the survey data to arrive at the findings. Also, independent sample t-test will be conducted to address hypothesis 1 to 4, by making comparison between the failed and functional textile firms in Nigeria.
TABLE OF CONTENTS
CONTENTS PAGE
Title page – – – – – – – – – i
Declaration – – – – – – – – – ii
Dedication – – – – – – – – – iii
Acknowledgement – – – – – – – iv
Abstract – – – – – – – – – v
Table of contents – – – – – – – – vi
List of Tables – – – – – – – ix
List of figures – – – – – – – x
Abbreviations & Acronyms – – – – – – xi
CHAPTER ONE: INTRODUCTION – – – – 1
1.1 Background of the Study – – – – – – 1
1.1.1 Small and Medium Enterprises – – – – 3
1.1.2 Attrition – – – – – – – 6
1.1.3 Textile Industry – – – – – – 7
1.1.4 Small and Medium Textile Industry in Nigeria – 8
1.2 Statement of the problem – – – – – 9
1.3 Objectives of the Study – – – – – – 10
1.3.1 General Objectives – – – – – 10
1.3.2 Specific Objectives – – – – – 10
1.4 Research hypothesis – – – – – 11
1.5 Significance of the study – – – – – – 12
1.6 Scope of the study – – – – – – – 12
1.7 Limitations of the study – – – – – – 13
1.8 Definition of terms – – – – – – 14
CHAPTER TWO: LITERATURE REVIEW – – – 17
2.1 Introduction – – – – – – – 17
2.2 Theoretical Review – – – – – – 17
2.2.1 Technology – – – – – – – 19
2.2.2 Marketing – – – – – – – 25
2.2.3 Managerial Skills – – – – – – 35
2.2.4 Finance – – – – – – – 41
2.2.5 Government Policy – – – – – 44
2.2.6 Attrition/Failure – – – – – – 50
2.3 Conceptual Framework – – – – – – 54
2.4 Review of Important Literature – – – – – 59
2.4.1 Technology – – – – – – – 59
2.4.2 Marketing – – – – – – – 66
2.4.3 Managerial Skills – – – – – – 74
2.4.4 Finance – – – – – – – 82
2.4.5 Government Policy – – – – – 87
2.4.6 Attrition/Failure – – – – – – 96
2.5 Empirical Review – – – – – – – 98
2.5.1 Technology – – – – – – – 99
2.5.2 Marketing – – – – – – – 105
2.5.3 Managerial Skills – – – – – – 106
2.5.4 Finance – – – – – – – 111
2.6 Attrition – – – – – – – – 116
2.7 Critique of Review – – – – – – 120
2.8 Research Gap – – – – – – 122
CHAPTER THREE: RESEARCH METHODOLOGY – 123
3.1 Introduction – – – – – – – 123
3.2 Research Philosophy – – – – – – 123
3.3 Research Design – – – – – – – 124
3.4 Study Population – – – – – – – 125
3.5 Sampling Techniques – – – – – – 125
3.6 Data Collection Procedure – – – – – 127
3.6.1 Interviews Schedule – – – – – 128
3.6.2 Questionnaire – – – – – – 128
3.6.3 Validity of the Research Instruments – – – 130
3.7 Pilot Study – – – – – – – – 131
3.8 Administration of Research Instruments – – – 132
3.9 Data Processing and Analysis – – – – – 132
3.9 Ethical Issues – – – – – – – 134
References
Appendices
Appendix I. – Introduction Letter
Appendix II. – Interview Schedule & Questionnaire
Appendix III. – Working Plan
Appendix IV – Budgeting
Appendix V – Association Members mills that closed since 1995
Association Member mills that are still standing
Appendix VI – Main qualitative indicators that may be used to differentiate between SMEs and large companies
Appendix VII – Non defined population optimal sample size calculation
LIST OF TABLES
Table 2.1: Causes of Failure – – – – – – – 76
LIST OF FIGURES
1.1 Enterprise Life Cycle 6
2.1 Conceptual Model for Technology Acceptance 19
2.1.2 TAM Application 20
2.1.3 A Model of Five Stages in the Innovation-Decision Process: Diffusion of Innovations 23
2.1.4 A Basic Task-Technology Fit Model 25
2.1.5 A Schematic Model of the Resource Advantage Theory of Competition 30
2.1.6 A Schematic Model of the Extended Resource Advantage Theory of Competition 31
2.1.7 The Three Circles of IMC Theory Development 34
2.1.8 Contingency Model 38
2.1.9 Moderated Relationship among Variables 57
2.10 Conceptual Framework Model 58
2.11 The Textile Chain 61
2.12 Managerial Skills required by Managers 79
ACRONYMS AND ABBREVIATIONS
BDS Business Development Services
CBN Central Bank of Nigeria
FOS Federal Office of Statistics
GDP Gross Domestic Product
MSME Micro, Small and Medium Enterprises
PRISMS Promoting Improved Sustainable Micro Finance Service
R & D Research and Development
SME Small and Medium Enterprises
SMEDAN Small and Medium Enterprises Development Agency of Nigeria
SMEEIS Small and Medium Enterprises, Equity, Investment Scheme
SPSS Statistical Package for Social Sciences
U.K United Kingdom
UNIDO United Nations Industrial Development Organization
USA United States of America
OECD Organization for Economic Cooperation and Development
NEPAD New Partnership for Africa’s Development
AGOA African Growth and Opportunity Act
ECA Economic Commission for Africa
ICT Information and Communication Technology
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The world’s leading textile country is China which holds approximately 45 percent of global textile and garment production, while India holds a share of around 20 percent and yet in both countries, their textile SMEs are the biggest contributors to the National economy (National Union of Textile Garments and Tailoring Workers of Nigeria Publication 2008).
The textile industry belongs to the so-called first generation industry. The textile industry in Nigeria was the third largest in Africa after Egypt and South Africa. (Eneji, Onyinye, Kennedy, & Rong, 2012). The global textile and garment market is valued at around $400 billion which is an interesting figure that attracts entrepreneurs from around the world to venture e into the sphere (http//www.com.ng). Unfortunately, for the African sub-continent and for Nigeria in particular, the trade has not been profitable because of the state of its textile industry, and also with particular reference to its textile SMEs (Aguiyi, Ukaoha, Onyegbulam & Nwankwo, 2011). The modern textile industry in Nigeria, typically represents simple input substitution industrialization of the post-colonial state (Aremu 2003). The sector in the past was the largest employer of labour after government as it employed over one million Nigerians either directly or indirectly and secured 250,000 tons of raw cotton for growers (Umar, 2008). While a large number of African countries are further taking advantage of the opportunity thrown open by African Growth and Opportunity Act (AGOA) and other preferential trade concessions, the Nigerian industry is still grappling to find a space in the international market. A former Minister of communications; Audu Ogbe captured the picture when he said:
The private sector which should indeed be the engine of growth is encumbered by impossible obstacles. For about 18years now, industrial growth has almost come to a half, not only are new industries impossible to establish, most old ones have nearly all shut down. (Quoted in Umar, 2008).
By and large, the contribution to economic development by small and medium enterprises which is the segment under study is not in doubt. The best estimates available, suggest that MSME comprise 87% of all firms operating in Nigeria, although the total number of registered firms is unknown (Oyelaran-Oyeyinka, 2011). The scenario is that if the general industrial outlook is bleak, the segment under study could equally be affected and it raises fears.
Generally, it is believed that firms survival is at least in the long run a prerequisite for success which is often measured in terms of market share or profitability. To date, however, studies of firm longevity have focused on large companies (Pasanam 2003). For the Nigerian, small and medium textiles, there has been practically no empirical study so far undertaken. Public commentaries on the state of the Nigerian textiles cannot provide the desired solution, and thus calls for proper investigation. A preliminary interview with a senior lecturer in the department of textile technology of Kaduna Polytechnic on the dearth of local works, hinted that the students and the general academic population to sustain such works has diminished considerably (Raji, 2011).
1.1.1 SMEs
The Small and Medium Sized Enterprises (SMEs) are heterogeneous and can be found in a number of business activities. They may embody different levels of skills and maybe found in either the formal or informal economy. (OECD, 2004).
SMEs definition can be broadly categorised into two: economic and statistical. Under the economic definition, a firm is regarded as small, if it has a relatively small share of the market, and is managed by owners in a personalized way and not through the medium of a formalized management structure; while statistical definition varies by country and is usually based on the number of employees, and the value of sales and/or value of assets (Makenbe, 2011). Due to its ease of collection however, the most commonly used variable is the number of employees (OECD, 2004).
Small and medium enterprises contribute substantially to output and employment in both developed and developing countries. Recent empirical studies show that SMEs contribute to over 55% of GDP and over 65% of total employment in high-income countries. Similarly, they contribute 60% of GDP and over 70% of total employment in low income countries, while they contribute over 95% of total employment and about 70% of GDP in middle-income countries (OECD, 2004).
A comparison of SMEs in different developing countries shows that there is no uniformity in the definition (Khrystya, Melina, & Rita, 2010). The major indices used, however are number of employees and net worth. In Thailand, any manufacturing outfit that employs less than 50 workers is regarded as a small enterprise, while those employing between 51 and 200 workers fall within the medium sector. (www.adfiap.org/w.p.contents/uploads/2011/06). In Egypt, where a firm employs between 10 and 50 workers with a turnover of 3 million dollars, the business is regarded as small; whereas those that employ between 30 and 50 workers with a turnover of $15 million dollars are regarded as medium enterprises. (www.citasal.org./inglish/informationcentre/ibr-MSME database). The assessment of the profile of SMEs in South Africa reveals that they are categorized by the number of employees. Between 10 and 20 workers in any organization is regarded as small while organizations employing between 100 and 200 workers are regarded as medium. In Nigeria, there was a time, when small-scale enterprise was defined by the Federal Ministry of Industries as that in which the value of the total assets including working capital but excluding land does not exceed N15,000,000 or where the number of employees does not exceed 50. (Inegbenebor, 2006). Considering the inherent conflicts in the definitions of SMES which vary from one country to another, UNIDO generally advises countries to take into account the quantitative and qualitative indicators for SMEs definitions (see appendix VI). On the current industrial policy of Nigeria, small and medium enterprises are now defined on the basis of employment. In line with this, Inegbenebor (2006) gives concise differences between micro, small, medium and large scale firms. The micro/cottage firms are those that employ between 1 and 10 workers; while the small scale firms are those that employ between 11 and 100 workers; medium firms employ between 101 and 300 workers, whilst the large scale firm employs above 300 workers. This study is thus using the terms defined above which is contained in Nigeria’s current industrial policy.
1.1.2 Attrition
Attrition has been defined as a reduction or decrease in numbers, size or strength. It can also be seen as the wearing down or weakening of resistance, especially as a result of continuous pressure or harassment. There can be decrease in employee numbers and there can also be a decrease of firms within an industry. (Dictionary.reference.com/browse/attrition). For this study, attrition can be measured by the number of SME textiles that stopped production between 1995 and 2012.
CHART
Source: Stokes & Wilson, 2006.
1.1.3 Textile Industry
Traditional textiles (handmade) have been produced in Nigeria for many years, but real industrial production of textiles has been a recent activity (Aguiyi, Oroha, Onyegbulam, & Nwankwo 2011). The Kaduna textiles mills being the first textile mill was established in 1956, whilst the Nigerian textile mill was established in 1962. These industries were setup to be vertically integrated mills, designed to process locally sourced cotton, through spinning for yarn production and weaving for the production of grey cloth, dyeing, printing and finishing for the production of fully finished textile clothing.
The sector produces a variety of fabrics annually and markets the goods within the country and also extends the marketing to neigbouring West African countries. The fabrics range from African prints, shirtings, embroideries, guinea brocades and wax prints. Between 60% and 70% of the cotton is sourced locally (Eneji, Onyinye, Kennedy & Rong 2012).
The industry raises millions of middlemen, marketers of finished goods, tailors and garment makers. The popular traditional fabrics include the Asoke, Adire, Whasa, Akwete, Okene and traditional mat.
1.1.4 Small and Medium Textile Industry in Nigeria
Nigeria’s small and medium textile sector has developed to incorporate fibre production, spinning, weaving, knitting, lace and embroidery making, carpet production, packaging, dyeing, printing and finishing (Mohammed, 2011). The sector produces a varied series of fabrics annually ranging from African prints, shirtings, embroideries (Okene), to guinea brocades, wax prints, jute and other products (www.mbendi.com/a.sndmsg/org.srch.asp). The Central Bank of Nigeria (CBN) annual report as far back as 1995 showed that out of 13 sub-sectors in the manufacturing sector, the textile sub-sector comprising cotton textile and synthetic fabrics accounted for a significant proportion of the over all growth of manufacturing production. Between 60% and 70% of the raw materials used in the industry is sourced locally, the main exception being high quality cotton and synthetic materials (www.mbendi.com.indy/txte/at/ng/p005.htm) . The SME textile industry in Nigeria is labour intensive with little mechanization, while the use of hand looms is prevalent (Banjoko, 2009). The textile firms are scattered all over the country, but there is greater concentration around Kano and Kaduna in the North, Lagos in the South-West and Aba, Port-Harcourt in the South East, and also Asaba and Benin. (See appendix 5) for the location of failed and standing textile firms.
1.2 Statement of the Problem
The recent world production of textiles is estimated to be around 25million tones annually (Nina, 2012). In the last decade, the world cotton production increased from 20 million to 27 million tones, but in Africa, it dropped from 1.8 million to 1.5 million tones (Olarewaju, 2008). The importance of the cotton crop to the Nigeria economy cannot be over emphasized as the lint removed from the seed is used as raw materials for the textile industry (Chukwumaeze, 2009). The textile industry in Nigeria generally includes cotton growers, those who make the thread into cloth, chemical manufacturers and those who dye, bleach and the textile merchants. Although statistics is not readily available for the cotton growers and those engaged in other ancillary cotton services, Navdep (2009): indicated that those who have lost their jobs as a result of the attrition/closure of these textiles mills is estimated at about 250,000. According to Banjoko (2009), the industrial estates in Kaduna, Lagos, Aba and Sherada as well as Bompai in Kano which thrived on textile manufacturing activities have turned into ghost towns as mills after mills have shut down production in the last five years (Banjoko, 2009). The state of the textile industry is particularly pathetic as most operators have converted their mills into the production of other goods like Alkem Textile Company that has creatively redesigned the extruders to manufacture plastics and artificial hairs for women. (Osuji, 2011). Those that do not re-adjust themselves close down causing unemployment and this has become prevalent since 1995 (see Appendix 5 for closed textiles). Many public commentators have blamed the dwindling fortune of the sub-sector on a number of perceived constraining factors mentioning power, poor technology, dumping of foreign textiles, lack of finance, lack of government commitment to the textile sub-sector as well as poor management, but nobody really knows the answer (Kwajafa, 2013). What is therefore the cause of this attrition in the textile industry? This is the subject of this study.
1.3 Objectives of the Study
1.3.1 General Objective
To investigate the determinants of attrition of textiles SMEs in Nigeria
1.3.2 Specific Objectives
i. To investigate the influence of technology on attrition of textile SMEs in Nigeria.
ii. To determine how marketing efforts contribute to the attrition of textile SMEs in Nigeria
iii. To establish if poor managerial skills contribute to attrition of textile SMEs in Nigeria.
iv. To find out if cost of capital/access to capital contribute to attrition of textile SMEs in Nigeria
v. To establish if government policy moderates the attrition of textile SMEs in Nigeria.
1.4 Research Hypothesis
i. Ho: There is no relationship between technology and attrition of textile SMEs in Nigeria.
ii. Ho: There is no relationship between marketing efforts and attrition of textile SMEs in Nigeria
iii. Ho: There is no relationship between managerial skills and attrition of textile SMEs in Nigeria
iv. Ho: Financial factors are not related to the attrition of textile SMEs in Nigeria.
v. Government policy is not a moderating factor between the independent and dependent variables in the attrition of textile SMEs in Nigeria.
1.5 Significance of the Study
The textile SMEs contribution to the economy is very substantial to be ignored. However, there are very few empirical studies on attrition/failure factors and in Nigeria in particular, the literature is scanty, with most commentaries on the pages of newspapers. According to Welter (2005) only few studies in entrepreneurship focus on failed ventures and failed entrepreneurs as business failure is often equated with personal failure and entrepreneurs might be reluctant to admit that they have not achieved their goals. This study will provide useful insights on the determinants of attrition for the textile manufacturers whilst the government and other stakeholder will use the recommendations for policy decisions. The study will equally contribute to knowledge, as other incoming researchers will also find this work a useful material for further empirical studies on attrition/failure of SMEs. Providers of BDS. (Business development Services) such as SMEDAN (The Small and Medium Enterprises Development Agency of Nigeria) will find the work very germane to their strategic goals.
1.6 Scope of the Study
The SMEs textiles that have gone out of operation are scattered all over the country, but this research will however focus on only the registered textile SMEs. These registered textiles even though are out of business, their addresses are still available with the textile manufacturers association at No.4 Kachia Road, Kaduna. The list to be used, includes all the textile SMEs into the production of textile materials in clearly identifiable cities of Kano and Kaduna in the North, Aba and Onitsha in the East; Port-Harcourt and Asaba in the South-South and Lagos in the South West. These are the cities with the largest concentration of textile producers and Lagos has the highest number. It is believed, that the results of the study can be generalized considering the geographical dispersion of the firms, and the external validity that will be achieved through proper instrumentation.
1.7 Limitations of the Study
The study is delimited to textile SMEs that are registered and therefore those in the informal sector such as farmers are not included in this study. However, this provides avenue for further research. Because of the interpretative nature of the part of the research that is qualitative, there is a possibility of an element of bias. A research of this nature might experience some difficulties in assessing information, because of the difficulty that might arise in extracting information from these founders who might show reluctance because of a feeling of personal failure. This assertion is supported by Ooghe and De Frijcker (2008) who observed that once a population of distressed firms has been identified and delimited, it is difficult to contact their leaders and to get information about the fundamental causes of their failure. Also Barker (2006) said that “individuals have a natural reticence to discuss failure and its causes”. This perceived difficulty will however not have a significant effect on the generalizability of findings because there is active support from the Textile Manufacturers Association of Nigeria, who will assist with contacts.
1.8 Definition of Terminologies
Small and medium textiles (SME textiles). There is no single universally accepted definition of SMEs as these definitions vary from country to country (Inegbenebor 2006). In Nigeria the classification in largely based on the current industrial policy. The specification is that firms that employ between I and 10 workers are classified as micro or cottage; whilst the small scale firms are those that employ between 11 and 100 workers. In contrast, medium firms are those that employ between 101 and 300 whilst large scale firms employ above 300 workers (Inegbenebor 2006). This has been adopted in this study.
Attrition/Failure
Many researchers see attrition from many perspectives. According to Carter & Auken (2006), sponsors might view attrition or failure as inability to provide adequate returns for their investment. Bakaen & Ooghe (2005) regard a firm as a failure when it involuntarily becomes unable to attract new debt or equity funding to reverse decline. In this study, attrition/failure is seen from that broad spectrum of firm closure which might be bankruptcy, loss-cutting or whatever acronym as long as it is a closure or exit which prevents the firm from operation.
Entrepreneurship
Schumpeter (1934) has defined an entrepreneur as an innovator who implements entrepreneurial change within markets. Someone who organizes a business venture and assumes the risk for it (Abu-Saitan 2012). This definition is adopted for this study.
Innovation
Something original and new that breaks into the market or into society. A successful exploitation of new ideas. (Eveleens, 2010).
Creativity
This can be defined as the tendency to generate or recognize ideas, alternatives or possibilities that maybe useful in solving problems, communicating with others and entertaining ourselves and others. (Franken 2010).
Locus of Control
Originally conceptualized by Julian Rotter (1966). It refers specifically to people’s perceptions of control over access to reinforcements. Expanding the original concept, it refers to an individual’s perception about the underlying main causes of events in his/her life, which might either be external or internal locus (Anderson, Hattie, & Hamilton 2005). This concept is applied in this study.
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