DETERMINANTS OF GROWTH FOR INDIGENOUS CONSTRUCTION SMALL AND MEDIUM ENTERPRISES IN NIGERIA
ABSTRACT
This study was aimed at investigating the factors that constrained the growth of Indigenous construction SMEs in Nigeria. The study examined the determinants of growth of construction SMEs in Nigeria and was guided by the following research objectives; to determine how resources, management skills, entrepreneurial skill, individual owner/manager characteristics influence and environmental factors moderate the growth of construction SMEs in Nigeria. The study adopted an exploratory approach using a descriptive survey and random sampling design. The study targeted 1500 indigenous construction SMEs in Abuja and Kaduna where majority of the construction SMEs have offices but 150 SMEs were used as the sample size. In order to collect the relevant data a structured questionnaire was used. The statistical analysis of the data was done using the statistical package for social scientist (SPSS) to calculate both the descriptive and inferential statistics. Chi-square tests, correlation and regression analyses, were used where necessary. The study found out that, capital investment, the availability of plants/machines and the number of skilled human resources available; the style of leadership practiced, entrepreneur’s needs for achievement, his risk taking propensity and his internal locus of control; the Owner level of education and the individual owner work experienceinfluence the growth of construction SMEs and thepolitical, economic, socio-cultural factors and marketing moderate construction SMEs in Nigeria. Based on the findings, the following recommendation were made; to become competitive, indigenous construction SMEs need to increase their number of skilled personnel, and other resources;construction SMEs in Nigeria should practice the democratic leadership style;there is need for entrepreneurs to have both industry specific and working experience;construction SMEs can compete with bigger firms through vigorous advertising and marketing and the Federal Government through the commercial banks should create special intervention fund.
Table of Content
TITLE PAGE i
DECLARATION ii
DEDICATION iii
ACKNOWLEDGEMENT iv
TABLE OF CONTENT v
LIST OF TABLES ix
LIST OF FIGURES xiii
LIST OF APPENDICES xvi
LIST OF ACRONYMS/ABBREVIATIONS xvii
DEFINITION OF TERMS xviii
ABSTRACT xx
CHAPTER ONE
INTRODUCTION\l "
1.0 Introduction ……………………………………………...................................................................1
1.1 Background of the Study 1
1.1.1 The Nigerian Construction Industry 3
1.2. Statement of the Problem 5
1.3. Study Objectives 6
1.4 Research Hypotheses 7
1.5 Justification of the Study 7
1.6 Scope of the Study 8
1.7 Limitation of the Study 8
CHAPTER TWO\l "
LITERATURE REVIEW
2.1 Introduction 9
2.1 Theoretical framework 9
2.1.1 Growth 9
2.2.1 Resources Based Theory 10
2.1.3 Management Theory 10
2.1.4 Theories of Entrepreneurship 11
2.1.5 Theory on Environment 12
2.2 Conceptual Framework 12
2.3 Empirical studies 14
2.3.1 Resources 15
2.3.2 Managerial skills 15
2.3.3 Entrepreneurial Skills: 15
2.3.4 Owner manager characteristics 16
2.3.5 Environment 16
2.4 Contextual Factors 17
2.4.1. Resources 17
2.4.2 Management Skills 21
2.4.3 Entrepreneurial Orientation/ Skills 27
2.4.4 Individual Owner Characteristics 30
2.4.5 Environmental Factors 32
2.5. Summary 39
2.6 Research Gaps 41
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction 43
3.2. Research design 43
3.2.1 Research Philosophy 44
3.3 Population of the study 44
3.3.1 Target population 45
3.4. Sampling frame 45
3.5. Sample size 46
3.6 Sampling Technique 48
3.7 Data Collection Instrument 48
3.7.1 Small and Medium Nigerian Construction Firms Growth Determination Instrument 49
3.7.3. Administration of research instrument 49
3.7.4 Pilot testing 49
3.8 Validity and reliability of Instruments 50
3.9 Data Collection Procedure 50
CHAPTER FOUR
RESEARCH RESULTS AND DISCUSSION
4.0 Introduction 53
4.1 Response Rate 53
4.2 Pilot Study Result 54
4.2.1 Reliability 54
4.2.2 Cronbach’s Alpha Test 54
4.2.3 Principal Component and Factor Analyses 55
4.3 Data Presentation 56
4.3.1 Demographic Characteristic of responding firms 56
4.4 Descriptive Analysis of Data 61
4.4.1 To Determine If Resources Influence the Growth of Indigenous Constructions Small and Medium Firms in Nigeria 61
4.4.2: The Influence of Management Skills on the Growth of Indigenous Small and Medium Constructions Firms in Nigeria 70
4.3.2:3 Specific Objective three: The Influence of Entrepreneurial Skills on the Growth of Indigenous Constructions Small and Medium Firms in Nigeria 76
4.4.4 To Determine If Individual Owner Characteristics Influence the Growth of Indigenous Small and Medium Construction Firms in Nigeria 80
4.4.5 To Determine If environmental factor moderates growth of Indigenous Small and Medium Constructions Firms in Nigeria 83
4.5 Inferential Analysis 88
4.5.1 Influence of resources on SMEs growth 88
4.3.2 To Determine If Management Skills Influence the Growth of Indigenous Constructions Small and Medium Firms In Nigeria 94
4.3.3 To Determine If Entrepreneurial Skills Influence the Growth of Indigenous Small and Medium Constructions Firms in Nigeria 100
4.3.4 To Determine If Individual Owner Characteristics Influence The Growth of Indigenous Small And Medium Constructions Firms In Nigeria 105
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction 116
5.2 Summary of Findings 116
5.2.1 The Influence of Resources on Growth of Indigenous Small and Medium Constructions Firms in Nigeria 116
5.2.2 The Effect of Management Skills on the Growth of Indigenous Small and Medium Constructions Firms in Nigeria 118
5.2.3 Specific Objective three: The Influence of Entrepreneurial Skills on the Growth of Indigenous Constructions Small and Medium Firms in Nigeria 120
5.2.4: To Determine If Individual Owner Characteristics Influence the Growth of Indigenous Small and Medium Construction Firms in Nigeria 123
5.2.5 To Determine If environmental factor moderates growth of Indigenous Small and Medium Constructions Firms In Nigeria 124
5.3 Conclusion 126
5.4 Recommendations 128
5.5 Recommendation for further research: 130
LIST OF TABLES
Table 3.1: Sample Frame ………………………………………………….……….46
Table 3.2: Sample Size calculation ……………………………………….………..48
Table 4.1: Response Rate Details………………………………………………......54
Table 4.2 Respondents per State ……………………………...…………….……...54
Table 4.3 Reliability Test Results……………………...……………………….…..55
Table 4.4: distribution of respondents based on the number of
permanent staff……………………………………………………………....……..56
Table 4.5: Distribution of respondents based on registration category……...……..57
Table 4.6: Distribution of respondents based on firm’s years of operation…...…....57
Table 4.7: Distribution of respondents based on type of ownership………………. 59
Table 4.8: Distribution of respondents based on current market coverage.………. .60
Table 4.9: Distribution of respondents based on number of employees in the
firm………………………………………………………………….…...62
Table 4.10: Distribution of respondents based on the effect of requisite skills........ 64
Table 4.11: Distribution of respondents based on the profit per annum made
by the firm………………………………………………………..…….65
Table 4.12: Distribution of respondents based on adequacy of working
Capital……..…………………………………………………..………...66
Table 4.13: Distribution of respondents based on types of machinery own
by their firm……………………………………………………............67
Table 4.14: Distribution of respondents’ responses attributing the growth of
firm to ICT…………………………………………………...…..........69
Table 4.15: Distribution of SME based on the use of project planning…..………..70
Table 4.16: Distribution of SME based on how work plans and schedule
influence the growth………………………………………….………70
Table 4.17: Distribution of SME based on the impact of leadership style
Chosen…………………………………………………………………72
Tabhle 4.18: Distribution of SME based on Job Specification……………...…..…73
Tale 4.19: Distribution of SME based on setting performance goal ………...…….74
Tale 4.20: Distribution of SME based on employee’s appraisal ……….………….75
Table 4.21: Distribution of SME based on the need for achievement.……………..76
Table 4.22: Distribution of SME risk propensity…..…………………………...…..77
Tale 4.23: Distribution of SME based on Risk type……………...…………….…..78
Tale 4.24: Distribution of SME based on creativity…..……………………...….....78
Table 4.25: Distribution of Internal Locus of Control……………..……….............79
Tale 4.26: Distribution of SME based on level of Education……..…..…………....80
Table 4.27: Distribution of SMEs based on work Experience …………..……........81
Tale 4.28: Distribution of SME based on previous experience.…………...……….82
Table 4.29:Distribution of respondents based of sources of political
instability…………………………………………………….……….83
Table 4.30 Distribution of respondents based on socio-cultural factors .…………86
Table 4.31: Distribution of Responses to Advertisement ……………………..…..87
Table 4.32: Distribution of Responses to effect of Advertisement………………...88
Table 4.33: Distribution of respondents conducting market research ……………..88
Table 4.34 Chi Square result on Human Resource ………………………..….…..89
Table: 4.35: Chi-Square Table for Capital Investment……….……………..…….90
Table 4.36 Chi-Square Tests for ICT…………………………………………..….91
Table 4.37: Chi-Square Tests result for No of Plant and Growth ……….………..92
Table 4.38: Correlation for all variables of Resources ………………………...…..93
Table 4.39 ANOVA for Resources ………………………………………………...94
Table 4.40 Coefficients for Resources ………………………………………...…...94
Table 4.41: Chi-Square Tests for Planning and growth ……………….……...........95
Table 4.42: Chi-Square Tests for Leadership Style * Growth (Profit) ……...........96
Table 4.43 Chi-Square Tests for Organising ……………………………..............97
Table 4.44: Chi-Square Tests showing result for job Specification…….………...98
Table 4.45: Regression Model….for Mgt. skills………………………….………99
Table 4.46 Coefficients……………………………………………….……….….99
Tables 4.47Chi-Square Tests……………………………………..………….….100
Tables 4.48: Chi-Square Tests showing risk taking prosperity…….…………....101
Table 4.49: Chi-Square Tests for Creativity………………………….…….…...102
Table 4.50: Chi-Square Tests for internal Locus of Control……….……….…..103
Table 4.51: Model Summary ………………………………….…………….…104
Table 4.52 ANOVA………………………………………………….…….…….104
Table 4.53 Coefficients…………………………………………………………..105
Table 4.54Model Summary for Level of Education ……………….…………...106
Table 4.55 ANOVA for Level of Education ……………….……………....…....106
Table 4.56: Chi-Square Tests result for work experience ……………….….........108
Table 4.57: Model Summary ………………………………………….………...109
Table 4.58: Correlations for Environmental Factors …………….....……..........111
Table 4.59 Model Summary…………………………………………..…………112
Table 4.60 Chi-Square Tests for Advert ……………………………….....…….113
Table 4.61: Coefficients for all Variables...........................................................115
CHAPTER ONE
INTRODUCTION
1.0 Introduction
This study explores the determinants of growth to indigenous small and medium construction enterprises in Nigeria with particular interest in Kaduna state and Abuja city.Chapter one examines the general background of the construction SMEs in the construction industry from global and international perspectives to the regional level and finally to the Nigerian context, other sections contained in this chapter include: statement of the problem, objectives of the study, research questions, significance of the study, and justification of the study, scope and definition of terms.
1.1. Background of the Study
Empirical studies suggest that most small and medium construction firms are not growing and sustainable(Akindoyemi, 2008; Bala, Bello, & Kolo, 2008; Odunlami, 2009; Olalokun, 2007; Onugu, 2005). The main objective of this study is to investigate the determinants of growth and sustainability of indigenous construction SMEs in Nigeria. The construction industry is that sector of national economy saddled with the responsibility of producing building for housing and other infrastructures such as roads, railways, airports, seaports(Abdu, 1986; Hackett, 2002).
In addition, it has the responsibility of the maintenance and repair of the existing stock of building and other structures. The construction sector is a major component in any economy. In the UK, the construction industry constitutes about 20% of its total enterprisesBERR (2008 ) and with an output worth over £100bn a year; this industry accounts for 8% GDP and provides employment for around 3million workers BERR (2008 ). Based on the fact that the UK construction SMEs alone account for the bulk portion of employment (8-]3.7%) and turnover generation of 67.4% in the industry, BERR (2008 ) therefore concludes that the construction industry makes an important contribution to the competitiveness and prosperity of the UK economy. It is thus not surprising that Bosher, Carrillo, Dainty, Glass, and Price (2007) inBERR (2008 ) asserted that the UK construction industry is not only a critical component of the nation’s economy; it is also a fundamental factor in the quality of people’s lives and the ability of the government to achieve many of its policies aims. Interestingly over 99% of private sector businesses operating in UK construction sector fall to the category of Small and Medium Enterprises (SMEs).
In other countries such as Chile, Greece and Thailand, the sector generates 80% employment while its contribution to the GDP varies from 9% in Switzerland to 71% in Thailand and in USA construction SMEs contribute 10% to the GDP Bosher et al. (2007). In Organization for Economic Cooperation and Development OECD (2012) countries, construction SMEs account for over 95% of firms and 60% -70% of employment and generate a large share of new jobs OECD (2012). The Spanish central directorate of companies put the construction SMEs at 12.79% in the construction industry and gave the numbers of houses built to range from 302,000 units in 1995 to 750,000 in 2006. The administrative department of national statistics DANE (2006) of Columbia put the contribution of this sector at 5.2% to the GDP; 96.4% of industrial activities; generate 63% employment and in 2003 built 70,000 dwellings for social interest and other 125,000 dwellings for non-social interest DANE (2006). In Korea, construction SMEs with 250 workers account for 58.7% of the employment while in china’s GDP they contribute 70%, 75% of workforce and average staff range from 136 to 343(Yanju S., 2008).
SMEs in China have formed the backbone of the Chinese economy since the launching of her economic reform in 1979 and have helped achieve many important socio-economic objectives of the Country. The growth and sustainability of SMEs have been widely examined in developed economies. For instance, Mata, Portugal, and Guimaraes (1995), studied the Portuguese SMEs;Harhoff, Stahl, and Woywode (1998)and Audretsch, Santarelli, and Vivarelli (1999), examined that of Germany and Italy; Doms, Dunne, and Roberts (1995)assessed the SMEs in America; Tveterås and Eide (2000),studied the Norwegian SMEs; Kimura and Fujii (2003)examined Japanese SMEs and Gakure (2003) assessed Kenyan SMEs.
Thus, SMEs are increasingly being recognized as productive drivers of economic growth and development for African countries. The Global Entrepreneurship Monitor (GEM) on South Africa, Kenya, Uganda, Angola, Ghana, Zambia suggests that the number of small established businesses is high Monitor (2012). For instance it is estimated that SMEs account for 70% of Ghana’s GDP and 92% of its businesses (Abor & Quartey, 2010). They make up 91% of formalized businesses Mamman, Elridge, and Brainine (2009); contribute 22% to the GDP and generate 55% employment in South Africa Kauffmann (2005).Apart from contributing to the gross domestic product (GDP) 11% annually, employment generation – 25% and building internal landmarks, construction SMEs has globally become foreign exchange earners for many countries both developed and developing ones Akindoyemi (2008)
1.1.1 The Nigerian Construction Industry
In Nigeria, the construction industry on the whole has always occupied an important position in the structure of the economy. According to the Central Bank of Nigeria (CBN) Report, the contribution of the industry to Nigeria’s GDP was N1.64 billion in 1987, N1.73 billion in 1990, N1.8billion in 1991, and N1.87billion in 1992. In terms of the value output, its contribution has been relatively modest over the years representing an average of about 5.0% of the GDP (Olalokun, 1987). The construction industry largely utilizes the products of other sectors of the economy in terms of materials such as timber, nail, cement, roofing sheets, steel, equipment and finance .
Raftery (1991),further asserted that this makes the construction industry an important source of demand generation at the microeconomic level. In other words the high multiplier effect of the industry having the capacity to generate employment, income and expenditures in the other sectors of the economy constitutes another contribution. According to Abdu (1986), the industry needs large investments of capital and human effort and that this human efforts is drawn from a wide range of professional and technical disciplines such as engineering, architecture, building, quantity surveying, surveying, accounting, design arts, administration etc. He opined that in addition to all these; the industry provides a substantial source of employment especially for unskilled labour that cannot readily find jobs elsewhere in the economy.
Olalokun (1987) estimated that the industry employs close to one-third of the country’s total labour force wage employment. In the developed economies, construction capacity is a potent export commodity, bringing hard currency and national respect as gains. However, in Nigeria, the only gains accruable are packaged products with little or no local value added. In spite of the presence of the indigenous contractors the industry is still dominated by large expatriate firms (multinationals) which for example executes 90% of the works in the industry (Olalokun, 1987). Liu and Pang (2006), postulated that macroeconomic conditions and firm level characteristics (such as age, size,), resources, management, environment, capacity to obtain external finance to start and expand are of fundamental importance in explaining an SME’s long-term growth and sustainability. Researches have been conducted to show relationships between some of these factors and growth and sustainability of SMEs. However, these relationships are yet to be fully been confirmed and in addition, none of these studies have analysed the determinants of growth and sustainability of construction SMEs in Nigeria. Despite the potentials and significance of SMEs sector in the national economy, there exists lack of detailed understanding of the factors behind construction SMEs growth and sustainability in a fast growing economy like Nigeria. It therefore becomes pertinent to examine how these determinants influence the growth and sustainability of construction SMEs in the country. This forms the basis from which this study derives its motivation.
1.2. Statement of the Problem
Although most small firms are expected to grow, they generally lag behind larger ones when it comes to growth (McMahon, 2004). Studies by Mosaku (2008) ,Bala et al. (2008) and Odulami ( 2009) suggested that small and medium indigenous construction firms in Nigeria are not growing and that most of them fold up within the just five years of their establishment. This lack of growth of the indigenous construction SMEs has manifested in the domination of Nigeria’s construction industry by expatriate construction firms. According to Mosaku (2008), indigenous construction contractors have suffered lack of growth and up till now, foreign construction firms such as Julius Berger, B. Stablini, AG Fererro, Strabag, Bouygues, Cappa D’ Alberto, and Ghitto, have dominated construction practice in Nigeria carting away all the major and sensitive jobs from the government. According to Adams (1995), the Nigerian construction industry is largely underdeveloped and dependent on foreign construction capacity for development of national infrastructure.
Adams (1995) further observed that local construction firms have limited contracting capacity as a result of this lack of growth and are predominantly small and medium sized with participation in major construction works marginal. According to Bala et al. (2008), these deficiencies in indigenous construction growth have resulted in the unwholesome dependence on foreign firms to implement much needed construction projects, while heavy and highly technical constructions are in the hands of foreign firms (Olateju, 1991). A situation where the country’s construction industry is in the hands of foreign firms because of lack of growth and development of indigenous firms has serious socio-economic and security implications. Okpara and Wynn (2007),opined that the jobs that should have been done by Nigerians have been taken over by expatriates in a country whose unemployment is already high and has become a challenge to the government. Bassey and Atan (2012),((Bala et al., 2008) andAdams (1995), pointed out that the security of the country’s state houses has been compromised and cannot be guaranteed since they are built by foreign firms. At the industry level, the lack of growth is also shown in the quality of jobs’ execution by the surviving indigenous onesas reported cases of building collapses are rampant with attendant loss of lives and properties (Dimuna, 2010).
Despite the undeniable importance of growth in explaining construction firm’s performance, the impact of growth or performance is still very little understood by indigenous construction firm owners, first, there is a lack of understanding about the drivers of growth and secondly growth’s impact on construction firm’s performance remains untested.The literature review in chapter two showed that most of the studies conducted on growth have been done on large firms and in developed and developing countries outside Nigeria. It is therefore important to fill this gap by carrying out a study on the situation in Nigeria in order to come up with empirical information on how to grow this important sector. How to enhance the growth of small and medium construction firms in Nigeria is therefore the thrust of this study.
1.3. Study Objectives
General Objective
To investigate the determinants of growth in indigenous construction SMEs in Nigeria
Specific Objectives
1. Determine how resources affect growth of indigenous construction SMEs in Nigeria.
2. Examine how management skills influence growth of indigenous construction SMEs in Nigeria.
3. Establish how entrepreneurial skills limit growth of indigenous construction SMEs in Nigeria.
4. Examine how owner characteristics affect growth of indigenous construction SMEs in Nigeria.
5. Determine how environmental factors moderate growth of indigenous construction SMEs in Nigeria.
1.4 Research Hypotheses
1. Ho: There is no significant effect of resources on growth of indigenous construction SMEs in Nigeria.
2. Ho: Management skills have no significant influence on the growth of indigenous construction SMEs in Nigeria.
3. Ho: Entrepreneurial skills do not significantly limit the growth of indigenous construction SMEs in Nigeria.
4. Ho: Individual owner characteristics have no significant effect on the growth of indigenous construction SMEs in Nigeria.
5. Ho: Environmental factors moderation/mediation on the growth of indigenous construction SMEs in Nigeria is not significant.
1.5 Justification of the Study
There is a growing interest in growth and sustainability of indigenous construction firms in the country as a result of their poor job execution, which consequently has led to the dominance of the Nigerian construction industry by the foreign firms. The negative effect of this dominance has been highlighted in section 1.2 above and this is very much documented in literature. Therefore, researches that will focus on finding solutions to this problem could be considered as welcome developments. In this vein, the findings from this research will benefit construction professional bodies in reviewing their syllabus and registration procedure as well as their professionals will find jobs when the indigenous firms become healthy. The governments will benefit through greater GDP contribution, enhanced security and it will lead to employment generation thereby reducing unemployment and social unrest in the country. The construction SMEs too will benefit, as findings from the research will enhance their growth and sustainability, position them to be competitive thereby winning more jobs and earning profit and survival. Researchers and academicians will also benefit, as they will use the findings for empirical and further studies
1.6 Scope of the Study
This study focused on small and medium indigenous construction firms or contractors in Kaduna State and Abuja. Kaduna State from pre-colonial days has been the regional headquarters of one of Nigerians regional governments while Abuja is the present Federal Capital territory of Nigerian where a lot of construction works are going on to develop the city. Whatever study is carried out in these two places can therefore be replicated and be seen to be a fair representation of the entire country.
1.7 Limitation of the Study
One of the limitations of the study was the administration of the questionnaire to the sampled population. Some of the addresses of the firms on the sampling frame were not descriptive enough for easy location, so the researchers had to adopt some form of snowballing in the inquiry for the actual location of the firms.
The misplacement of questionnaires by the respondents was also another problem encountered which resulted in the need for additional photocopying and re-administration of questionnaires to the same respondents.
Some respondents failed to completely fill their questionnaires and these were removed from the analyzed data.
.