ANALYSIS OF GROWTH STAGES IN SMALL FIRMS A STUDY OF SELECTED FIRMS IN ENUGU METROPOLIS

ABSTRACT

Analysis of growth stages in small firms, a study of selected firms in Enugu  metropolis  is  a  research  aimed  at  critical  assessment  of  the metamorphosis  in  the  growth  stages  of  small  firms  and  the  factors incidental to the growth or retardation in the life of the firms in the state. Considering  the  critical  role  small  firms  play  in  catalyzing  rapid economic development, growth in stages of a firm depicts a favourable business  environment  where  the  available  resources  are  efficiently utilized to achieve organisational objectives. But when growth become less dynamic or retards, firms shrink in size thereby showing the pace or prospect  of   economic  growth.   The   variable   responsible   for   these phenomenon are encapsulated in the chapters as follows: Chapter one introduces  the  background  of  the  study,  statement  of  the  problem, objectives of the study, research questions, research hypothesis, scope of the study, organisation of the study and the profile of selected small firms. Chapter  two  literatures  review.  Chapter  three  dwelt  on  the  research methodology used for analysis of research findings. Chapter four presents the data gathered, analysis and interpretation of the data, while chapter five summarizes research findings, conclusion and recommendations as well as suggested areas for further research study.

CHAPTER ONE INTRODUCTION

1.1     BACK GROUND OF THE STUDY

Every business passes through identifiable stages in its life span. Several  growth  strategies  related  to  business  management  approaches have  been  presented  in  the  literature.  Managing  growth  is  a  major strategic issue for a growing firm (Arbaugh and Camp, 2000). Strategy is the most important determinant of firm’s growth (Weinzimmer, 2000). Among  high-growth  firms,  Dsouza  (1990)  identifies  three  primary strategic clusters

(1)    Build strategy, emphasis on vertical integration.

(2)    Expand  strategy,  emphasis  on  resource  allocation  and  product differentiation; and

(3)    Maintain   strategy,   emphasis   on   market   dominance   and/or efficiency.

Patel, (1995) gives an insight into how firm, particularly small firms,  graduate from one stage of growth to another. In his analysis, (Patel, 1995) asserts that firms can be understood as progressing linearly overtime from one stage to another as one management problem after another is solved. Some firms remain small for years, while other small firms grow into medium- sized or even large organisations in a relatively short period. The possibility of small firms re-experiencing early crisis stages would also be seen to be excluded.

A key contribution of the framework of growth stages of small firms in the view of (Churchill and Lewis, 1984) is the identification of the success-disengagement stage, wherein, after reaching a level of stability, the firm’s owner-manager may voluntarily choose not to pursue further growth as an objective.

Literature in industrial economics typically views owner-managed firms as being “equally  if not more  likely to pursue  growth oriented policies  than  management  controlled  companies”.  (Hay  and  Morris,

1991). This is normally due to principal-agent problems associated with management-controlled firms. Thus, the expectation that growth is a desired objective for all small firms underlies most policy intervention tools which try to create conditions in which small and medium firm can grow.

Meanwhile,  a  growth  state  analysis  of  small  firms  needs  to integrate  issues  specific  to  family  firms  since  many  small  firms  are owner-managed. Fundamental factors that make family firms different from other small businesses include:  a strong identification of individuals with  the  business  itself  and  the  challenge  of  establishing  a  balance between family and business concerns (Kets, 1996).

Harvey and Evans, (1994) use a six-stage life cycle model for family businesses to integrate these issues with the growth stage literature; these studies indicate how family firms manage the issues of control and how

owner’s involvements can affect the firm’s growth orientation. Thus the separation of  growing  firms  into  the  success  growth  and  the  success disengage stages in the view of (Churchill and Levis, 1983) may be of greater importance to owner-managed firms than in other types of firms.

Meanwhile, available literature on small scale firms/industry contains a wealth of empirical information on the static aspects of their life cycle. Most of the information is the extent, composition, characteristics,  factor  proportions,  and  consumption  patterns  among others  of  the  sector  are  based  on  cross-sectional  data.  According  to (Chuta,  1995),  time  series  data  on  the  sub-sector  are  however  not available for most developing countries including Nigeria. As such, discussions relating to the dynamism and growth of the sector have not yielded fruitful results. Policy formulation, project and programme design over the years have focused on the problem of short-term employment creation without proper understanding of their long-term implications.

Traditionally, scholars have used a biological analogy to explain the   growth   patterns   of   organisations   (Kazanjian,   1988).   A   basic assumption in an organisation life cycle is that regularities occur in organisational development, and these regularities can be segmented into stages (Dodge and Robbins, 1992). Previous research according to (Lee,

2005) has contained varying numbers of life cycle stages. As noted by

(Dodge and Robbins, 1992), there is a fair broad range in the number of

stages specified as the organisation emerges from birth through maturity and eventually decline. Four general stages appear common to all, a start up or conceptual and developmental stage, a growth or commercialisation stage,   a   domain   protection   or   expansion   stage   and   stability   or consolidation  stage  (Dodge  and  Robbins,  1992; Hanks  and  Chandler,

1994; Miller and Friesen, 1994).

This study as initiated is aimed at assessing the growth orientation of a small firms located in different industries in Eastern Nigeria. These firms belong to the pharmaceutical, oil (petroleum) and manufacturing industries respectively.

Nigerian small firms at present experience a lot of problems and thus  is  not  just  as  an  effect of  the  economic downturn.  There  are  a number of bottlenecks, including under-capitalisation, difficult in gaining access to bank credits and other financial markets; corruption and a lack of transparency, high bureaucratic costs, but most of all, lack of government interest and support for the roles that the small firms play in national economic development and competitiveness.

In an investigation into the reasons why some small firms grow and others do not, (Hay, 1994) concludes that over the long term, it is rather an external  barriers to  growth, that exert  the decisive influence  upon small  firms  production  cost  and  its  rate  of  growth.  The  key  internal growth constraint is managerial capacity and the unwillingness on the

part of the owner-manager to incur the risks associated with growth. In another study that draws lessons for Indians small firms on the basis of inter-country case study comparisons, (Nanjundan, 1994) observes “the size of enterprises does not crucially  determine business performance measured   either   in   economic   or   social   terms.   Instead,   business performance depends decisively on organisation structure, public and private policies which influence growth and development”.

1.2               STATEMENT OF THE PROBLEM

Meanwhile, what is of crucial importance at this stage of our small firm  development is the  need  to ascertain why some small firms are capable of producing at low unit costs while others at the same growth stage with them cannot? This is on the background that there has not been general consensus as to the main reasons behind it. There are technical (input-output relationships), financial managerial and marketing forces, which influence the capacity of firms to achieve optimum cost production level. This has been a major problem in the small firms industry for considerable length of time now.

Again, there has been a major challenge of determining in accurate terms what amount or level of needs of business assistance (in form of government   sponsored   agency,   private   consulting   firms   or   higher academic institutions) is needed for the successful growth operation in

each growth stage of  Nigerian small firms. This of course has not been an easy task.

Lastly, in this segment the most worrisome is lack of adequate financial resources at the disposal of the small firms in Nigeria to vigorously pursue their growth from one stage to another without many tears. So, this problem of non availability of needed funds to operate efficiently and graduate from one stage of growth to another has always been a major challenge to the industry.

1.3.    OBJECTIVES OF THE STUDY

Given the identified problems as contained in the statement of the problem above, the objectives of the study in specific terms are; to ascertain the reasons  why  some firms at a  given state of  growth  are capable of producing at low unit costs while others at the same growth stage cannot, to determine if there are differences in needs of business assistance  areas  by  the  growth  stages  of  the  selected  small firms,  to determine  if  there  is  a  positive  relationship  between  the  financial resources available to  small firms and  growth rate from one stage to another.

1.4.    RESEARCH QUESTIONS

The  dimension  this  study  takes  is  part  is  determined  by  those research questions, which jointly give a sense of direction to the

entire work. In this study therefore, the following questions are posed.

i.         Why are some small firms capable of producing at low unit costs while their counterpart at the  same level of growth with them cannot?

ii.        Are  there  differences  in  needs  of  business  assistance areas by growth stages of the selected small firms?

iii.       Is  there  a  positive  relationship  between  the  financial resource available to small firms and their growth from one stage to another?

1.5.    RESEARCH HYPOTHESES

Simply put, a hypothesis is a statement about how the World is, that  is,  a  statement  about  the population  for  a  study.  It  is  not necessarily true; it can be either right or wrong (Siegel, 1997). In conformity with the above, the following research hypotheses are formulated to serve as an aid jointly in meeting the objectives of the study.

HYPOTHESIS ONE

Null Hypotheses (Ho):

Input-output relationship, financial, managerial and marketing forces are not some of the specific reasons why some small firms at given stages of

growth are capable of producing at lower unit cost than their counterparts at the same growth rate.

Alternative Hypotheses (Hi):

Input-output relationships, financial, managerial and marketing forces are some of the specific reasons why some small firms at given stages of growth are capable of producing at lower unit cost than their counterparts at the same growth rate.

HYPOTHESIS TWO

Null Hypotheses (Ho):

There are no differences in needs of business assistance areas by the growth stages of the selected small firms.

Alternative Hypotheses (Hi):

There are differences in needs of business assistance areas by the growth stages of the selected small firms.

HYPOTHESIS THREE

Null Hypotheses (Ho):

There is no positive relationship between the financial resources available to small firms and their growth rate from one stage to another.

Alternative Hypotheses (Hi):

There is a positive relationship between the financial resources available to small firms and their growth rate from one stage to another.

1.6.    SCOPE OF THE STUDY

Originally, a study of this nature ought to be carried out in all the small firms in Nigeria. However, given the anticipated limitations as part of experience by researchers across the world, the scope of the study is limited to three selected small firms in the South East Nigeria,  representing  three  sub  industries.  Specifically,  these selected small firms include: Winco Foam Industries Limited; A-Z petroleum products Limited and Finoplastika Industries Limited.

The findings that will be derived from analysis on these three selected firms will serve as inference jointly on which conclusion will be reached on other small firms in the region.

1.7.    LIMITATIONS OF THE STUDY

In view of the nature of the study, certain limiting factors posed a constraint in the course of the research; such factors are as discussed here under:

1.       Time: Time constraint made it mostly imperative to restrict the scope of this study to a particular area, which is Enugu State. The obligation to abide by the time frame given for the work coupled with other exigencies created the lacuna.

2.       Finance: The researcher faced a lot of financial problems in carrying out this research. Financial impediments restricted the scope of this study to this State. The cost involved in moving to every State is enormous and since all the firms share the same similarities in growth stages, inference will be drawn based on available data.

3.      Respondent:   The attitude of respondents to answering the questionnaires was not helpful. The perception that they might be divulging information created the fear or lukewarm attitude in answering the questions.

4.       Facility:  Most  of  the  firms  lack  Website  through  which information could be sourced. Most of  the information’s are from primary and manual records.

1.8    OPERATIONAL DEFINITION OF KEY TERMS

Small Firms:  This is defined as any  “business that  is independently owned and operated, that is small in size, and that is not dominant in its markets (Gomez-Mejia and Balkin, 2002)”. The term is always used to refer to firms with less than 250 employees (Debbie, 2006)

ORGANISATION OF THE STUDY

This study is structured into five broad chapters, each dealing with different but coordinated sub-area with others. Chapter one gives the study introduction; chapter two contains review of related literature and the third chapter deals with the methodology adopted in carrying out the research. The fourth chapter contains the presentation, analysis and interpretation of data generated for the study while the last chapter five contains the summary of findings, conclusions, recommendations and suggestion for further research.

PROFILE OF SELECTED SMALL FIRMS

Finoplastika Industries: started the business of manufacturing plastic products in 1995. They started with producing PVC (plumbing pipes) but now they have extended it to producing not only plumbing products but also household plastic utensils.

The company is determined not only in Nigeria plastic market but in West Africa sub-region.

Winco Foam Industry: In 1980 commenced actual production of foam products and now they maintain a leadership position in the industry and controls between 30-50% share of the foam market in Nigeria.

AZ Petroleum products Limited: Has been in existence since

1995  and  are  into  petroleum  products  with  about 16  deport  in different States of the Federation.

Almost every equipment, cars, generators etc need lubricants and AZ has the mission to satisfy these needs of customers, they have introduced so many lubricants into the market that made SON to cap the company with awards.

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