Globalization and performance of small and medium scale enterprises in Nigeria.
Faloye, Dotun Olaleye
Abstract
The integration of the world into one huge market has increased
market for businesses all over the world. Besides, it has opened the
developing economies to attacks from the developed and emerging
economies. Small and medium scale enterprises (SMEs) in Nigeria have
been confronted with an increasingly competitive environment due to
globalization and liberalization. This paper examines the impact of
globalization on innovative performance of SMEs in South- Western
Nigeria. Both primary and secondary data were employed. The primary data
were derived from the survey carried out on 996 selected SMEs in the
South-Western region of Nigeria, while the secondary data were obtained
from government agencies / establishments. The data collected were
analyzed using appropriate descriptive statistics and inferential
techniques. The study revealed that bulk of the selected SMEs was
involved in the incremental product innovations while few that were
engaged in product innovation were medium businesses. The study also
showed that after trade liberalization, the growth rate of production
and the value of exports of Nigerian SMEs have decreased. The paper
concluded that on the overall, the impact of trade liberalization on the
innovative performance of Nigerian SMEs is negative.
Keywords: Globalization, Trade Liberalization, Innovative
Performance, Small and Medium Scale Enterprises, Southwest Nigeria.
1. INTRODUCTION
Small and Medium Enterprises (SMEs) play a vital role in economic
development as they have been the main source of employment generation
and output growth, both in developing as well as in developed countries
(Love and Roper, 2013). They make up the largest proportion of
businesses all over the world and play tremendous roles in employment
generation, provision of goods and services, creating a better standard
of living, as well as contributing immensely to the Gross Domestic
Products (GDP) of many countries (OECD, 2000). Thus, SMEs are important
players in national development, in both developed and developing
countries.
However, the contribution of the SMEs to the economic growth and
development of the developing countries is almost eroded as a result of
economic globalisation-the integration of the whole world into one huge
market. Negative impact of globalisation on developing economies'
SMEs has been reported by scholars such as Sonia and Rajeev (2009).
Globalization is the process of opening up of economies to the outside
world to facilitate trade, reduction in physical and other barriers to
increase mobility of goods and factors of production as well as labor
force (De and Pal, 2011) cited in Karadagli (2012). Thus, market for
businesses all over the world has been increased. In the last two
decades, we have witnessed rising globalization as countries opened up
their economies, creating a new economic environment particularly for
developing countries. With the removal of barriers to trade, competition
has intensified and has presented both opportunities and challenges to
domestic firms to innovate and improve their competitive position
(Nguyen et al., 2011).
The ability to export is a function of competitiveness. Thus, many
initiatives have been proposed to improve the competitiveness of SMEs in
both developed and developing countries; among these is innovation
policy which has attracted the attention of not only policy makers, but
also researchers and the business community (McAdam et al., 2008; Nguyen
et al., 2011). This initiative is based on the assumption that providing
innovative products with enhanced utility may help firms strengthen
their competitive position at home as well as international markets.
(Dangayach, et al., 2005; Spielkamp & Rammer, 2006).
The Nigerian government embarked on economic reforms in 1987 with
the adoption of the liberalization policy. As a result, barriers to
international trade have been removed or substantially reduced. A lot of
interventionist measures have been put in place by the governments at
various levels to improve the productive and innovative capacities of
the domestic SMEs, among these are the recently approved two hundred
billion naira (about 1.2 billion USD) intervention fund for SMEs,
establishment of Bank of Industry (BOI) in 2002, Nigeria Export
Promotion Council, National Economic Reconstruction Fund (NERFUND)
Export Credit Guarantee Scheme, and the idea of Free Trade and Export
Processing Zones, all in a bid to encourage the growth of this sector,
and enhance the ability of the country's SMEs in competing with
imported products in domestic and in international markets for
exportable goods.
The performance of Small and Medium Scale Enterprises (SMEs) in the
post trade liberalization era in developing countries has attracted the
attention of scholars generally (Acheampong et al., 2000; Peltonen et
al., 2008; Georgiou, 2011; Akinola, 2012). However, their interest has
been on financial, output, export, and marketing performance of firms
while the innovative aspect of the performance has not received much
attention. Thus, the link between globalization and innovation processes
in SMEs requires further investigation in developing countries like
Nigeria, hence this study. The paper is organized as follows. First, it
sets the background for the study and relates globalization to the
performance of SMEs in developing countries, particularly, Nigeria. The
second part presents relevant literature review and conceptual framework
for the study. The third part discusses the study methodology. The next
part discusses the empirical results. It shows the linkages between
trade liberalization and the innovative performance of Nigeria SMEs. The
last section concludes the paper.
2. LITERATURE REVIEW
2.1. Small and Medium Scale Enterprises: the Nigerian Context
Numerous scholars have attempted to define the concept of SME in
Nigeria. For instance, according to Omisakin (1999), the Central Bank of
Nigeria states that in the area of commercial banks, small scale
industries are those with annual turnover not exceeding N5 million
($30,303). The Nigerian Industrial Development Bank (NIDB) now Bank of
Industry (BOI) defines as small scale, industries with project cost
(investment and working capital) not exceeding N3 million ($18,182).
Moreover, the National Economic Reconstruction Fund (NERFUND) defined
small-scale industries as those with fixed assets other than land but
inclusive of the cost of new investment as not exceeding N10 million
($60,606). In the Federal Ministry of Commerce and Industry's
guidelines to the Nigerian Bank for Commerce and Industries (NBCI) in
1981/82, small scale enterprises are those with total investment cost
not more than N500,000 ($3,030) (excluding cost of land but including
working capital). However, the NBCI, in its agreement with the World
Bank, over the same period, defined small scale enterprises as one with
project cost not exceeding N300,000 ($1,818) and with cost per job
created not more than N7,500 ($45.5). Yet some states and institutions
in Nigeria have reduced the capital base for the industry to as low as
N150, 000 ($909.1) and N250, 000 ($1,515.2) respectively (Olayiwola and
Adeleye, 2005). The Centre for Industrial Research and Development
(CIRD) at the Obafemi Awolowo University, Ile-Ife (1979) had defined a
small scale industry as an enterprise having a capital base excluding
land of between 1 and 20 million ($6,060.6 and $121,212) and employing
fewer than 50 full time workers (Johnson, 2006).
As in developed economies, Nigeria with the introduction of the
National Policy on Micro, Small and Medium Scale Enterprises (MSMEs) has
recently addressed the issue of definition as to what constitutes micro,
small and medium enterprises. The definition adopts a classification
based on dual criteria, employment and assets (excluding land and
buildings) as shown below.
* Micro Scale Enterprises are those enterprises whose total assets
(excluding land and buildings) are less than Five Million Naira
($30,303) with a workforce not exceeding ten employees.
* Small Scale Enterprises are those enterprises whose total assets
(excluding land and building) are above Five Million Naira ($30,303) but
not exceeding Fifty Million Naira ($303,030) with a total workforce of
above ten, but not exceeding forty-nine employees.
* Medium Scale Enterprises are those enterprises with total assets
(excluding land and building) above Fifty Million Naira ($303,030), but
not exceeding Five Hundred Million Naira ($3,030,303) with a total
workforce of between 50 and 199 employees.
This paper adopted the SME definition given by the National Policy
on MSMEs.
2.2. Globalization
According to Ardyc (2009) the term 'globalization' is
used to refer to a single phenomenon, it is not a single, unified
process. It is a catch-all concept to describe a wide range of forces
(Archibugi and Iammarino, 2002). There are four major dimensions of
globalisation namely; economic, political, cultural, and ecological
globalisation (Manfred, 2003). This paper focuses on the economic
globalisation (trade liberalisation). Trade liberalization is the major
instrument geared towards the goal of global economic integration. It
has been at the heart of World Trade Organization (WTO) negotiations and
agreements (Obadan & Obioma, 1999; Shaffaedin, 1994; NACCIMA, 2002).
Many scholars have attempted to define economic globalisation among
these are Kefela (2011) who sees globalisation as a process that has
effects on the environment, on culture, on political systems, on
economic development and prosperity, and on human physical well-being in
societies around the World. According to Sonia and Rajeev (2009)
globalization is the process of integrating various economies of the
world without creating any hindrances in the free flow of goods and
services, technology, capital and even labour or human capital.
According to the duo, the term globalization has four parameters namely:
(a) reduction of trade barriers to permit free flow of goods and
services among nation-states (b) creation of environment in which free
flow of capital can take place among nation-stated (c) creation of
environment, permitting free flow of technology; and (d) creation of
environment in which free movement of labour can take place in different
countries of the world. Also De and Pal (2011) see globalization as the
process of opening up of economies to the outside world to facilitate
trade, reduction in physical and other barriers to increase mobility of
goods and factors of production as well as labor force. According to
Sebastian (1993), trade liberalization is a process of removing barriers
to trade, reducing tariffs, reducing/eliminating quotas, reducing
non-tariff barriers between different countries.
2.3. Innovation
Different authors have different opinions about what can be called
an innovation. For instance, Acs and Audretsch (1988) see innovation as
a process that begins with an invention, proceeds with the development
of the invention, and results in the introduction of a new product,
process, or service to the marketplace. According to Damanpour (1992),
innovation is the adoption of an idea or behavior, whether a system,
policy, program, device, process, product, or service, that is new to
the adopting organization. Avlonitis and Salavou (2007) see innovation
as a company's ability to introduce new products, which are also
successful. The third edition of the Oslo Manual (OECD/Eurostat, 2005)
defines innovation as "the implementation of a new or significantly
improved product (good or service), or process, a new marketing method,
or a new organizational method in business practices, workplace,
organization or external relations." Also McCormick and Maalu
(2011) defines innovation to comprise product or process, continuous or
discontinuous, radical or incremental innovations leading to improved or
new products. McCormick and Maalu (2011) see 'radical'
innovations as new products that result from advances in
knowledge/technology. 'Incremental' innovations include
improvement of process or product designs, with or without up-grading of
machinery and/or acquisition of new machinery. The duo concluded that
the most common form of innovation for small firms is non-technological
innovation which includes marketing innovation, measured by whether or
not the firm has implemented a new design or product packaging,
significantly changed the way merchandise is displayed, introduced a new
channel for selling goods and services, or introduced a new method of
pricing products. For the purpose of this study, the definition given by
McCormick and Maalu (2011) is adopted because the definition is given in
the context of SMEs.
2.3. SMEs and Economic Growth: Evidence from Developed and
Developing Countries
The contribution of SMEs to gross economic productivity and
employment and other economic development parameters in both developed
and developing countries is succinctly summarized in this Table 1 below.
In developed countries, the contribution of Small and Medium
Enterprises (SMEs) to the growth of national economies is significant.
For instance, in the enlarged European Union of 25 countries,
approximately 23 million SMEs provide around 75 million jobs and
represent 99 percent of all enterprises, and account for 25% of UK
export (European Commission, 2005). According to the United States of
America, Small Business Administration publication 4125 (2010), SMEs
accounted for approximately 50% of private nonagricultural Gross
Domestic Product (GDP) between 1998 and 2004. Also, SMEs accounted for
approximately 33% of known United States of America's merchandise
exports between 1997 and 2007. In 2007, United States of America's
SMEs exports amounted to $306.6 billion. SMEs contributed $4.7 trillion
to the United States of America's economy in 2004, or roughly 50%
of United States of America's private nonagricultural GDP. Besides,
United States of America's SMEs accounted for 99.9% of the 27
million employers and non-employer private non-farm businesses in the
United States of America in 2006. The publication also states that SMEs
employed roughly half of the 120 million nonfarm private-sector workers
in the United States in 2006. In China, SMEs provide 63% of total
employment, contributed 35.7 to the country's GDP, and accounted
for 60% of export.
The statistics are not much different in some developing countries.
For instance, across the South Asia, the contribution of SMEs to the
overall economic growth and the GDP is high. It is estimated that SMEs
contributed 50% of Bangladesh's industrial GDP and provide
employment to 82% of the total industrial sector employment. Besides, it
accounts for 89% of export. In Nepal, SMEs constitute more than 98% of
all establishments and contribute 63% of the value-added segment. In
India, SMEs contribute about 30% to GDP, 45% of industrial output,
between 30% and 40% of exports, employ 60 million people, create 1.3
million jobs every year and produce more than 8,000 quality products for
the Indian and international markets. While in Pakistan SMEs
contribution to GDP is 30%. Also, 90% of the very small establishments
accounts for 80% of all non- agricultural sector employment and 25% of
export in Pakistan. In Philippine, 99.6% registered enterprises are
SMEs, as Small and Medium enterprises contribute 32% to the
country's GDP, account for 22% of the country's export, and
employ 69.9% of the labor force. In Malaysia, SMEs make up 99.2% of all
businesses, contribute 47.3% of GDP, provide 65.3% of employment and
account for 15% of export. In Indonesia, SMEs have always been the main
players in domestic economic activities, accounting for more than 90% of
all firms across sectors, providing employment for over 90% of the
country's workforce and accounting for around 58% of GDP in the
2006-08 periods. (Economic Survey of Pakistan 2008-2009; Tambunan, 2009;
Ojeka, 2011; Johnson, 2011; Tulus, 2011).
In Africa, SMEs account for over 90% of private businesses and
provide more than 50% of employment and of GDP in most countries (UNIDO,
1999). For instance, in Morocco, 93% of industrial firms are SMEs,
accounting for 38% of the production, 33% of investment, 46% of
employment, and 30% of exports. In Ghana, Small enterprises are said to
be a characteristic feature of the production landscape and have been
noted to provide about 85% of manufacturing employment of Ghana. SMEs
are also believed to contribute about 70% to Ghana's GDP,
accounting for about 92% of all businesses and 40% of export in Ghana
(Abor and Quartey, 2010). The situation is not different for Republic of
South Africa where over 91% of the formal business entities are Small,
Medium and Micro Enterprises (SMMEs). They also contribute between 52
and 57% to GDP and provide about 61% of employment (CSS, 1998; Ntsika,
1999; Gumede, 2000; Berry et al., 2002). In Nigeria, the statistics are
similar. Apart from very low contribution of SMEs to GDP and exports,
Nigerian SMEs provided 70% of employment but contribute a mere 3% of
exports and contribute about 10% of country's GDP (Bello, 2013;
Akingunola, 2011; Sanusi, 2011; Ariyo, 1999).
The above statistics shows that SMEs in both developed and
developing economies make-up the largest proportion of businesses all
over the world and play tremendous roles in employment generation,
provision of goods and services, creating a better standard of living,
as well as immensely contributing to the Gross Domestic Products (GDP).
2.4. Trade Liberalization and Innovation
Innovation and improvement in performance are commonly found in
SMEs (O'Regan, Ghobadina & Sims, 2006). Greater flexibility
enables small firms to be more innovative and to perform higher, as they
are in a better position to respond to market changes and have shorter
and faster decision chains (less bureaucratic inertia). SMEs can gain
competitive advantages by dominating market niches through innovation
efficiency (Hafeez, Shariff & Lazim, 2013). They have more capacity
for customization and possess the ability to learn faster and adapt
routines and strategies to leverage firm performance. Recent literature
on trade and growth shows that international trade affects firms'
innovative activities through increased competition.
As Licandro (2010) noted, increasing evidence supports the claim
that international trade enhances innovation and productivity growth
through an increase in competition. In an earlier work, based on
Schumpeterian growth theory and using firm panel datasets for India and
the UK, Aghion and Burgess (2003) found that reducing barriers to entry
to foreign products and firms has a more positive effect on economic
performance for firms and industries that are initially closer to the
technological frontier. Incumbent firms that are sufficiently close to
the technological frontier can survive and deter entry by innovating. On
the other hand, firms that are far below the frontier are in a weaker
position to fight external entry since this will reduce their expected
payoff from innovating. Thus liberalization encourages innovation in
industries that are close to the frontier and discourages innovation in
industries that are far from it.
Fernandes (2009) examined the effects of increased import
competition to product quality upgrading using Chilean manufacturing
plant data. The results showed a positive and significant effect from
import competition on product level or product quality upgrading. The
author suggested that increased exposure to import competition,
including from China and India, may be beneficial because it encourages
producers to focus on offering upgraded and differentiated products,
rather than "mundane" labor intensive ones.
Nguyen et al., (2008) posited that trade liberalization could
affect domestic enterprises and their innovation. According to them,
increased competition: lower import barriers (tariffs, quotas and other
non-tariff barriers) would lead to increased foreign competition in the
domestic market which will force inefficient domestic firms to try to
improve their productivity by eliminating waste, exploiting external
economies of scale and scope, and adopting more innovative technologies.
Another strand of the literature emphasizes the importance of
international exposure through exporting as a source of new knowledge
accumulation. Being exposed to international competition, the exporting
firms can acquire important new knowledge through the process of
learning by exporting (Girma et al., 2004).
As with trade liberalization, investment liberalization also has
positive and negative impacts on domestic firms and the SMEs. Sutton
(2007) develops an industrial organization model to explain the impact
of trade liberalization on the behavior of firms in the emerging market
economies. The model predicts that after an initial shakeout, firms in
emerging markets will strive to adjust by raising their capabilities,
which may be improved by the vertical transfer of capabilities to the
emerging market economies through the supply chain of Multi-National
Enterprises (MNEs). With the characteristic of public goods, knowledge
and technologies that MNEs bring along when they invest abroad could
have long-run impacts on the host country through the externality
generated as suggested in endogenous growth models (Grossman and Helpman
1991, Lucas 1988, Romer 1990).
2.5. Conceptual Framework
After reviewing the relevant literature and in the light of the
specified study objective, Figure 1 below presents a simplified
conceptual framework underlying the empirical work in this paper.
[FIGURE 1 OMITTED]
4. STUDY METHODOLOGY AND MODEL SPECIFICATION
The study employed the survey research design. In order to carry
out the empirical research, it was first necessary to identify suitable
geographic areas to study. South-Western Nigeria was purposively
selected for the study because of a high concentration of SMEs in the
areas making up the region. This region houses almost 50% of the total
SMEs in Nigeria. Since there is no national survey that contains
innovation information for enterprises in general, thus, SMEs'
self-report of various types of innovation activities was adopted in the
study. Primary data were obtained from a survey of SMEs that have
employees of between 10 and 199 and registered with Small and Medium
Enterprises Development Agency of Nigeria (SMEDAN). The total population
of registered SMEs in the selected region is 7,474. Out of these 1,495
SMEs representing 20% were selected for survey using a random sampling
technique. The response rate was above average, altogether 996 SMEs
representing 66.62% of the sampled SMEs completed and returned the
questionnaire. The primary source involved the administration of
questionnaire to the selected SMEs owners/representatives. A detailed
questionnaire composed mainly of closed questions was designed to
collect the data from the sample of SMEs. The questionnaire was
organized into several sections. The data were collected through the
help of research assistants. However, before the full scale survey,
pilot study was conducted in order to ensure reliability of the research
instrument and results at the pilot stage were carefully analyzed in
order to deal with any problem that could arise. The Primary data were
collected on variables relating to SME's innovative performance and
variables that capture the linkages and exposure to foreign firms and
international trade. The survey distinguishes between whether or not the
selected SMEs introduced new products (product innovation), improved
existing products (product modification), introduced new production
process (process innovation), and whether the selected enterprises
introduced new organizational techniques. These are the measures of
innovation adopted in this study. As the dependent variable is a binary
response variable, the analysis of the link between trade liberalization
and innovative performance of SMEs was examined by estimating a Logistic
model. The Logistic model for this study is specified as follows:
I = ([[beta].sub.0] [[beta].sub.1][x.sub.1] +
[[beta].sub.2][x.sub.2] + [[beta].sub.3][x.sub.3] +
[[beta].sub.4][x.sub.4] + [[beta].sub.5][x.sub.5] + [epsilon] ...
equation1.1
In a more compact form, equation (3.1) can be rewritten as
I = [beta].[X.sub.i], + [epsilon] ... equation1.2
Where:
I = Innovation (an indicator taking value of 1 if firm is an
innovator and 0 otherwise)
[[beta].sub.0] = Intercept
[beta]. = Coefficient
[x.sub.1] = Firm imports input(s); this is a dichotomous variable
that takes the value 1 when the firm imports input(s); and 0 otherwise.
[x.sub.2] = Firm exports its product(s); this is a dichotomous
variable that takes the value 1 when the firm exports its product! s);
and 0 otherwise.
[x.sub.3] = Sales to multinational corporation(s); this is a
dichotomous variable that takes the value 1 when firm makes sales to
multinational corporation(s); and 0 otherwise.
[x.sub.4] = Exposure to foreign competition; this is a dichotomous
variable that takes the value 1 when the firm is facing foreign
competition; and 0 otherwise.
[x.sub.5] = Influence of competitors' price(s) on firm's
pricing; this is a dichotomous variable that takes the value 1 when firm
price its product(s) according to competitors' price(s); and 0
otherwise.
[epsilon] = an error term.
The study considered major measures of innovations namely;
technological (product, product modification, and process innovation)
and non-technological innovation (Marketing, financial, and managerial
innovations):
(i) Product Innovation: PRODINN 1 if firm introduces new
product(s), 0 otherwise
(ii) Process Innovation: PROCINN 1 if firm introduces new
production process, 0 otherwise
(iii) Modified Product Innovation: MODIPRODUCT 1 if firm makes
major improvements of existing product(s), 0 otherwise
(iv) Organisational Innovation: ORGINN 1 if firm introduces change
in marketing structure, financial structure, production operations,
managerial style, and logistics management, 0 otherwise.
5. DISCUSSION OF FINDINGS
5.1. Socio-Demographic Characteristics of Respondents
The analysis of the data collected shows that the level of
education and literacy among the SMEs owners/managers in the Southwest,
Nigeria is very high. The study shows that majority of the SMEs
owners/managers have formal education. Besides, the level of literacy
among the SMEs owners is very high. For instance, 99% of the business
owners/managers attended a minimum of elementary education. Out of those
that have formal education, at least 74.8% of the SMEs managers claimed
to have one tertiary education certificate or the other. The proportion
of those with only high school education is small. This is represented
by 22.1%. However, the proportion of SMEs' owners/managers without
formal education is only 1%. This is in support of the previous study of
Bowale & Akinlo (2012) which notes that level of education and
literacy among SMEs' owners in Southwest Nigeria is high.
The bulk of the SMEs in the selected region were established within
the last 15 years. Altogether, almost 80% of the sampled SMEs had been
in operation within the last 15 years. Only 9% had been in operation for
more than 25 years. The proportion of SMEs that were established within
last 5 years (16.7%) is low when compared with the proportion of those
that were established between 6 and 10 years (25.95%) and between 11 and
15 years ago (29.3%). This shows that the number of SMEs established or
surviving in the region in the last 15 years is decreasing. But the fact
that a sizeable number of the SMEs had been in operation for the past 15
years is a sign of improvement in the survival rate of the SMEs in
South-West Nigeria. The decrease in the number of SMEs in operation
within the last 5 years may be one of the reasons for increase in the
unemployment rate in Nigeria.
The type of SMEs in the selected region by ownership structure
revealed that majority of the SMEs (45.3%) were sole proprietorship,
while family business is the least (12.2%) in the region. The SMEs were
also classified into two, based on the number of the employees engaged
in the business. Those SMEs with less than 50 workers are regarded as
small enterprises and those with not more than 50 workers but less than
200 employees are the medium scale enterprises. The majority (94.38%) of
SMEs operating in the South-West Nigeria were small businesses with less
than 50 workers. The proportion of partnership form of business is low
compared with limited liability business which represent 15.2% and 24.6%
respectively.
Four major business lines were predominant among the South-Western
states' SMEs namely: manufacturing, trade, service providers, and
agro-allied businesses. Among these four lines of business, trade and
services are the most common forms of business that the SMEs engaged in.
These are represented by 38.43% and 32.12% respectively. This is
followed by manufacturing (25.05%), and agro-allied businesses (4.40%).
5.2, Analysis of Performance of SMEs in Southwest Nigeria
The production level of the SMEs in southwest Nigeria decreased in
the last 5 years. This is contained in the responses of the selected
SMEs (see appendix 1). Majority of the sampled SMEs experienced decrease
in their production level 531 (53.3%), while 198 (19.9%) did not
experience changes in their production level. Only 26.6% indicated
increase in production level. Out of the 920 Small businesses that were
sampled, only 51 (5.5%) claimed to export their product(s). While out of
76 medium businesses selected, 39 (51.3%) engaged in export. In terms of
new product introduction, relatively, medium businesses were more
innovative than small businesses. 47.7% of selected medium scale
businesses introduced new products into market while only 18.7% of small
businesses claimed to introduce new products in the last 5 years.
Altogether, only 208 (20.9%) of the SMEs were involved in new product
innovation. Bulk of the selected SMEs was involved in product
modification. 786 (78.9%) SMEs claimed to modify their products. This
shows that majority of the SMEs in the Southwest Nigeria is engaged in
incremental product innovation (see appendix 2).
Innovative Performance
In this section, logistic regression model was specified to analyze
the influence of globalization on the SMEs' innovative performance
in Southwest Nigeria. The results are presented in table 2 below, the
table is divided into four major columns and each column represents each
type of innovation considered in the study. The variables used were as
earlier defined.
The estimates in the Table 2 showed that importation of inputs has
negative and insignificant effects on all categories of innovation
considered in the study. The estimated effect of exporting is not
statistically significant. The coefficients on the firm export are
positive but insignificant in both technological and non-technological
innovation apart from product modification which has negative
coefficient. The coefficient on sales to multinational corporations is
negative and insignificant on all innovation activities. Pressure from
foreign competition has positive and significant effect on both product
modification and marketing innovation. The implication of this is that
foreign competition pressure helps to improve SMEs' innovation
activities in terms of product modification/improvement and marketing
innovation, but not in new product, process, and other forms of
innovations. This is in support of the previous study of Nguyen, et al
(2011) that firms improve their products and processes as a result of
foreign competition pressure. There is no significant effect of pressure
from price competition on all aspects of innovations in the domestic
SMEs.
6. CONCLUSION
The study attempted to empirically investigate the influence of
trade liberalization on innovation activities by SMEs in South-west
Nigeria. In general, export, inputs importation, competition prices,
sales to MNCs, and foreign competition have no significant influence on
the new product and process innovation. Thus, innovation, when measured
directly by new products and new production process is not influenced by
trade liberalization. However, trade liberalization through foreign
competition has significant positive influence on product modification
and marketing innovation. Findings also revealed that the performance of
the Nigeria SMEs in this era of trade liberalization in terms of their
contribution to the country's export and production level is not
encouraging. Only few SMEs actually export their products while bulk of
the Nigeria SMEs production level dropped in the last five years.
Besides, majority of the SMEs were not involved in new product and
process innovation. Among the few that were involved in new product
innovation, medium businesses have larger proportion when compared with
small businesses. However, majority of the SMEs were involved in product
modification. This shows that Nigeria's SMEs were mainly involved
in incremental product innovations. The paper concluded that trade
liberalization has not affected the Nigeria SMEs positively. In view of
these findings, given the crucial role of competition in the
relationship between trade liberalization and innovation, it is
important that the competitiveness of the domestic SMEs be enhanced
through marketing innovation and other means so that they can withstand
the pressure from foreign competition.
Appendix 1
Firm's Production level/service rate in the last 5 years
Frequency Percent Valid Cumulative
Percent Percent
Valid Increased 267 26.8 26.8 26.8
decreased 531 53.3 53.3 80.1
No changes 198 19.9 19.9 100.0
Total 996 100.0 100.0
Source: Field Report, 2014
Appendix 2
Crosstabulation
Number of
Employee
10-49 50-199 Total
Introduction of No Count 197 13 210
significantly improved
goods/services in % within 21.4% 17.1% 21.1%
the last 5 years Number of
Employee
Yes Count 723 63 786
% within 78.6% 82.9% 78.9%
Number of
Employee
Total Count 920 76 996
% within 100.0% 100.0% 100.0%
Number of
Employee
Introduction of new No Count 748 40 787
goods/services in
the last 5 years % within 81.3% 52.6% 79.1%
Number of
Employee
Yes Count 172 36 208
% within 18.7% 47.4% 20.9%
Number of
Employee
Total Count 920 76 996
% within 100.0% 100.0% 100.0%
Number of
Employee
Do you by any means No Count 869 37 906
export your product(s)?
% within 94.5% 48.7% 91.0%
Number of
Employee
Yes Count 51 39 90
% within 5.5% 51.3% 9.0%
Number of
Employee
Total Count 920 76 996
% within 100.0% 100.0% 100.0%
Number of
Employee
Source: Field Report, 2014
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DOTUN OLALEYE FALOYE, Department of Business Administration,
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Table 1
Contribution of SMEs to Economic growth in Selected Countries
S/N Country Economic Growth Indices (%)
Employment Contribution
to GDP
1 United State of 50% (non-farm 50% (non-
America private sector agricultural
worker) GDP)
2 UK 65% 30%
3 China 63% 35.7%
4 Japan 70% 53.3%
5 India 76% 20%
6 Indonesian 90% 58%
7 Bangladesh 58% 50%
8 Nepal 86% 63%
9 Pakistan 80% 30%
10 Philippine 69.9% 32%
11 Malaysia 65.3% 47.3%
12 Ghana 85% 70%
13 Morocco 46% 38%
14 South Africa 61% 57%
15 Nigeria 70% 10%
S/N Country Economic Growth Indices
(%)
% of SME in all Export
Establishment
1 United State of 99.9% (private 33%
America non-farm
businesses)
2 UK 99.8% 25%
3 China 99.6% 60%
4 Japan 99.7% 10%
5 India 91% 38%-40%
6 Indonesian 90% 18%
7 Bangladesh 95% 89%
8 Nepal 98% NA
9 Pakistan 93% 25%
10 Philippine 99.6% 22%
11 Malaysia 99.2% 15%
12 Ghana 92% 40%
13 Morocco 93% 30%
14 South Africa 91% 35%-40%
15 Nigeria 97% 3%
Source: Author's Design
Table 2
Summary of Results for the Logistic Regression
Variable Product Modification Product Innovation
Coff Std. P>Z Coff Std. P>Z
Err. Err.
Inputs -0.086 0.197 0.662 -0.296 0.208 0.154
Importation
Firm Export -0.189 0.303 0.534 0.108 0.279 0.700
Sales to MNCs 0.016 0.209 0.941 0.075 0.208 0.717
Foreign 0.424 0.179 0.018 0.099 0.165 0.550
Competition
Competitor Price -0.234 0.201 0.245 0.097 0.203 0.633
Constant 1.408 0.345 0.000 -1.422 0.327 0.000
Category 78.9% 78.0%
Prediction
Cox & Snell R -0.009 0.003
Square
Nagelkerke 0.014 0.004
Hosmer & Lemeshow 0.743 6.648
2 Log likelihood 1016.79 1045.5
Variable Process Innovation Non-Technological
Innovations
Marketing Structure
Coff. Std. P>Z Coff Std. P>Z
Err. Err.
Inputs -0.299 0.186 0.108 -0.394 0.209 0.059
Importation
Firm Export 0.357 0.264 0.177 -0.388 0.373 0.298
Sales to MNCs 0.209 0.193 0.279 -0.054 0.241 0.822
Foreign 0.250 0.150 0.094 0.486 0.206 0.018
Competition
Competitor Price -0.292 0.196 0.137 -0.317 0.223 0.155
Constant -1.341 0.309 0.000 2.094 0.419 0.000
Category 70.2% 84.4%
Prediction
Cox & Snell R 0.011 0.014
Square
Nagelkerke 0.015 0.024
Hosmer & Lemeshow 7.166 1.151
2 Log likelihood 1202.4 1175.12
Variable Non-Technological Innovations
Managerial Structure Financial Structure
Coff Std. P>Z Coff Std. P>Z
Err. Err.
Inputs -0.210 0.187 0.262 -0.257 0.165 0.119
Importation
Firm Export 0.221 0.264 0.403 0.012 0.231 0.959
Sales to MNCs -0.235 0.184 0.203 -0.526 0.174 0.102
Foreign -0.053 0.155 0.729 0.220 0.139 0.114
Competition
Competitor Price -0.008 0.190 0.968 -0.278 0.173 0.107
Constant -0.899 0.301 0.003 0.427 0.270 0.114
Category 72.1% 50.6%
Prediction
Cox & Snell R 0.004 0.017
Square
Nagelkerke 0.005 0.023
Hosmer & Lemeshow 1.151 7.774
2 Log likelihood 1175.16 1362.23
