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DETERMINANTS OF
ATTRITION IN SMALL AND MEDIUM TEXTILE ENTERPRISES IN NIGERIA
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.
Decline
Figure 1.1: Enterprise life cycle diagram (Source:
Rejuvenation
Maturity
Time
Growth stage breakthrough
Start-up stage
Pre-start-up (incubation)
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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