Critical Challenges Facing Small Business Enterprises in Nigeria: A Literature Review

Small business sector supports the Nigerian economy where it provides employment opportunity to most of its citizens. Despite its importance, most small businesses fail within the first five years notwithstanding the agencies established by Nigerian Government to support the sector. Most of the failure is due to numerous challenges facing the sector which borders of the success factors of small businesses. This paper identified the challenges based on the Lampadarious (2015) success factors framework to providing information for owners, managers, and researchers of small business success strategies. The paper identified fifteen critical challenges facing small businesses in Nigeria. The information will help owners and managers of small businesses to develop strategies to mitigate the challenges. Small business researchers will use the information to study challenges that are specific to the industry and investigate the strategies used by successful small businesses to mitigate the challenges. This paper might guide Nigerian government to develop policies that might reduce the external business environmental challenges of small businesses. Index Terms – Small Business Enterprises, Small Business Success, Small Business Failure, Small Business Challenges, Small Business in Nigeria, Small Business Critical Issues, and Small Business Sustenance. ———————————————————— Introduction The Nigerian economy like other African economies has been facing a fight against unemployment since independence. Nigerian government through its economy regulatory agencies have recognized the importance of small businesses in the provision of employment to its citizens. According to SMEDAN (2013), small businesses employed 80% of the Nigerian workforce. Shehu et al. (2013) stated 97% of the Nigerian economy are small businesses and are contributing job to 70% of the country’s job opportunities. Because of the importance of small businesses in the Nigerian economy, local, states, and federal governments recognized the need of stimulating small businesses to provide employment, reduce poverty rate, and improve economic growth. Various agencies were created to do the job of stimulating the development of the small business sector of the Nigerian economy including Small and Medium Enterprises Development Agency (SMEDAN) (Kayode & Ilesanmi, 2014). Others are National Directorate of Employment (NDE), Peoples Bank of Nigeria (PBN), Microfinance Banks, National Economic Reconstruction Fund (NERFUND), and National Bank of Commerce and Industry are the agencies with the mandate to develop the SMEs sector (Kayode & Ilesanmi, 2014). Kayode and Ilesanmi (2014) stated that despite the efforts of creating small business development agencies in Nigeria, small businesses continued to face the challenges that threatened their survival. A study by Adebisi and Gbegi (2013) stated 80% of small business fail within the first five years of formation. According to SMEDAN (2013), small business success involvessustaining small business operations longer than first five years. Notwithstanding the efforts of the government to provide support through its agencies, small businesses are failing (Kayode & Ilesanmi, 2014). In developed countries such as the United Kingdom, and United States small businesses are managed effectively with positive results. The positive management of small businesses in developed countries and some developing countries such as the Philippines and South Africa contributed to their economic growth (Dugguh, 2015). According to Dugguh (2015), small businesses in Nigeria are faced with numerous challenges that resulted in their failure. Dugguh (2013) further stated small businesses must develop strategies that will mitigate challenges and sustain operations. Researchers have continued to identify the challenges facing small business and the strategies of mitigating them (Kayode & Ilesanmi, 2014). Also, researchers claimed researchers had neglected the small business sector (Samujh, 2011). Thus, there is not enough information on the challenges facing small businesses in Nigeria. Reviewing the literature relating to small business challenges will provide researchers with information that will guide them to investigate the strategies used by small business owners and managers to mitigate the challenges. The literature review will also serve as information for small business owners and managers to understand the various challenges facing small businesses in Nigeria which will enable them to avoid being trapped by the challenges that may negate their success. Objective of The Paper The purpose of this paper is to review thescholarly literature on the various challenges facing small businesses IJ ER International Journal of Scientific & Engineering Research Volume 8, Issue 8, August-2017 797 ISSN 2229-5518 IJSER © 2017 http://www.ijser. org in Nigeria to providing small business owners with information that will enable them to avoidbeing trapped by challenges that might negate their success. Mitigating small business challenges might result in sustaining small business operations longer than first five years. Sustaining small business operations might reduce the small business failure in Nigeria which will result in areduction in the rate of unemployment and poverty level in the economy. The information from the paper will enable researchers to investigate the causes of the challenges and strategies to avoid them or resolve the challenges if they erupt in an organization Framework of The Literature Review The review of the literature is based on the success factors framework developed by Lampadarios (2015). The researcher reviewed the scholarly literature with the aim of identifying the challenges facing the success factors identified by Lampadarios in his success factors framework. The three broad categories of small business success factors identified by Lampadarios include factors that affect the entrepreneur, factors relating to the enterprize, and those relating to theexternal business environment. Reviewing the challenges facing the three broad spectrum success factors categorization will enable small business managers and owners to understand the various challengesand avoid being trapped by the challenges. The information will enable researchers to investigate the strategies used by owners and managers to mitigate the challenges. Challenges Facing Entrepreneurial Factors of Small Businesses The entrepreneurial factors are variables that relate to the owners and managers of small businesses and include their personal traits, skills, experiences, and background (Lampadarios, 2016). The entrepreneurial factors were widely used by researchers that were investigating growth and success of small businesses (Lampadarios, 2016). Age, educational level, entrepreneurial orientation, gender, personality, prior work experience and management skills of owners and managers are reviewed to identify their impact to small businesses in Nigeria and the challenges posed by each factor and how the challenges are mitigated in the Nigerian small business environment (Lampadarios, 2016). Each of the factors was assumed to play acritical role in the success of small businesses. An applied qualitative survey of 70 small businesses in Sao Paulo, Brazil on the managerial life cycles of small businesses found the owners’ roles and the managers’ functions changed at different levels of the life cycle of the business (Oliveira, Filho, Nagano, & Ferraudo, 2015). Oliveira, Filho, Nagano, and Ferraudo (2015) found a positive relationship between the roles of the owners and the functions of the managers in small businesses. Bygrave and Zacharakis (2014) defined a small business owner as a person who creates a business with the hope of realizing profits, employs 50 people, and risks financial loss. Hurst and Pugsley (2011) determined most of the small business owners work for their well-being while entrepreneurs desired innovation and growth of their businesses. Small business owners usually strategize to provide an existing product or service to an existing market where competition is imminent while entrepreneurs work toward providing new goods and services with new ideas into an existing market or create a new market (Hurst & Pugsley, 2011). Most small business start-ups have no monetary benefits motive and are usually for the owner to be the boss, have a flexible schedule, or have controlled working hours (Hurst & Pugsley, 2011). Hurst and Pugsley (2011) found learning new skills are necessary for managers of small businesses to make decisions to assist them in creating success. Many small business owners in Nigeria are dissatisfied with being self-employed which leads to low commitment and eventual business failure (Farrington, 2012). For the small business owners to be successful, Farrington found they must be satisfied with self-employment, have a passion for the job, show a commitment to the business, and have a personal involvement in steering the enterprises to success. Small business owners are those operating businesses to provide income to their families while entrepreneurs aimed at achieving profit and growth of businesses (Ionita, 2012). The intention of business owners is important. Farrington stated if owners of small businesses restrict their intention to providing income to their families, the growth of the businessis not guaranteed. Therefore, the small business owners are faced with the challenge of their intention of starting a new business for family income or make aprofit and grow the business. The literature revealed a challenge of intention of owners to the growth and survival of small businesses. There is enough evidence that if the intention of owners is for self-sustenance, small businesses might not grow, but an entrepreneur who set a business for profit usually grow the business. A study on the adoption of e-commerce in small businesses in Nige