e-sRC

CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Over the last decade the world has become more digitalized and mobile. This digitalization
brought about by the advancement in technology has affected all sectors of the economy
which the small and medium enterprise sector is not an exception. As a result of this, business
organisations world over have sought for ways of improving their business operations through
improved technologies in order to serve their customers better. Consequently, the advent of
Electronic commerce has assisted business organisations in achieving this desired goal. ECommerce refers to online transactions- buying and selling of goods and/or services over
electronic medium especially the internet (Yeo & Huang 2003). It consists of all commercial
transactions mediated by digital technologies such as landline telephone, electronic mails,
mobile-phones and internet which takes place over electronic networks.
As conceived by some schools of thought, Mobile-commerce is an extension of E-commerce
to mobile phones. Therefore, M-commerce involves an emerging set of applications and
services people can access from their Web enabled mobile devices (Sadeh, 2002). According
to this definition, m-commerce represents a subset of all e- commerce, including both
business-to-business and business to consumer. M- Commerce uses the internet for purchasing
goods and services as well as sending and receiving messages using hand- held wireless
devices. Some other schools of thought think it is another new channel after the internet, since
Mobile phones itself provides an easier way to access the internet as it brings about flexibility
and speed in its operations, thereby facilitating improvement in its operations leading to
substantial cost savings as well as increased efficiency and competitiveness. Generally, mcommerce refers to any transaction with a monetary value that is conducted via a mobile
telecommunications network, thus enabling Wireless web applications users with Internet
enabled cell- phones undertake and carry out several kinds of transactions.
One of the fastest developments in mobile commerce has been made in Africa where the
inadequate bank infrastructures have encouraged financial firms to make use of mobile phones
rather than other E-commerce devices. One of the major characteristics that made Mcommerce a major contender in the business world is its accessibility. It gives consumers the
flexibility to access goods/services regardless of location or time, other characteristics include;
convenience, ubiquity or immediacy, real time, context awareness and personalization
(Boateng 2013);
Today, the mobile Internet is emerging even faster because network providers, content
partners, customers, and investors are leveraging lessons from e-commerce. Cellular carriers,
both nationally and globally, have made significant advances to enable next generation data or
wireless Web services and mobile commerce. M- Commerce is believed to be driving
fundamental changes in the way business is conducted in many industries, particularly in
telecommunications, information technology, media and financial services. As such,
accessibility to the mobile phone is to both the poor and the rich.
According to Lennart& Bjorn (2010), the fast diffusion of mobile money transfer was viewed
as a potential key tool for facilitating financial transactions. This indicates that the rapid
adoption of mobile phone was seen as a means of uplifting the financial functionality of Small
and Medium Enterprises. Since some SMEs can be found in rural or remote areas, a positive
aspect of mobile phone is that mobile networks can reach remote areas at low cost thereby
making it possible for financial transactions to be made in a simple and faster manner from
any point in so far as there are mobile money service provider which makes it easier t
transact at a lower cost as against the conventional electronic commerce which provides
anytime services but seriously constrained by locational accessibility thereby, improving the
performance of the SMEs. The contribution of the SME sector to the development of the
Nigerian economy cannot be over emphasised
According to the United Nations Industrial Development Organization (UNIDO) report of
2012, SMEs have a significant role to play in economic development. They formed the
backbone of the private sector; they make up over 90 per cent of entrepreneurs of the world
and account for 50 to 60 per cent of employment generation. They also play an important role
in poverty alleviation.
In the words of Fashola (2013) “The SME sector in any nation is the main driving force
behind job creation, export earnings, poverty reduction, wealth creation, income redistribution
and reduction in income inequality.” SMEs contribute to a more efficient allocation of
resources. They tend to adopt labour intensive method of production and support the
development and diffusion of entrepreneurship spirit and skills and helps in reducing
economic disparity between rural and urban centers.
Nwosa and Oseni (2013) enunciated that the contributions of the SME sector to output growth
and employment generation in United States and some Asian countries has helped in a long
way in renewing the focus of economic planners and policy makers in Nigeria on the
importance of the sector in aiding industrial growth and reducing the level of unemployment
rate in the country. However, Alalade, Amusa and Adekunles (2013) maintained that SMEs
whether starting ups or existing entities need capital either to be able to grow or expand
operations. Capital can be in form of internally generated funds or external funds such as
capital contributed of some types.
Also, poor economic conditions which also imply poor finance and inadequate infrastructures
have been identified as the most crucial factors. And no doubt access to finance at relatively
cheap cost is the most crucial problem hindering the development of the SME sector in
Nigeria. Fashola(2013) described the problem of finance of the SMEs in the country to have
essentially accounts for the pervasive level of unemployment we still record in the country. It
is however believed that banks have the capacity to spur the growth of SMEs at relatively
cheap costs and equally provide some other funding facilities, financial advisory services
among others to the sector. It was against this background that the Central Bank of Nigeria
(CBN) initiated a directive which mandates banks to set aside 10 per cent of their profit before
tax for the funding of the sector. It is somewhat surprising however why the SMEs in Nigeria
still lag behind in terms of development despite the huge emphasis the sector is receiving
among economists and development experts, with the sector still contributing a minuscule
percentage to the country‟s GDP. It is therefore imperative at this time to examine the role of
mobile commerce in enhancing the performance of SMEs in Nigeria,
Financial performancecontinues to be one of the most significant challenges for the creation,
survival and growth of SMEs especially innovative ones.Generally, SME owners are the main
decision makers in the business. Thisdeterminesthe probability of success or otherwise of the
business as their judgments is key determinants of success or failure of the business.
Legally, Cassar (2004) notes that incorporation may be perceived by banks and other finance
suppliers as an encouraging sign of the firm‟s formality and creditability. Consequently,
incorporated firms appear to be in a very favoured position to receiving external funding in
comparison with unincorporated firms such as family and single ownership businesses.
Incorporated firms are more organised and possess accurate financial data (books of account)
along with good loan proposals. For many SMEs in Nigeria, access to finance and capital
appear to be difficult. This comes as a consequence of weak banking institutions, lack of
capital market and inefficient legal framework regarding credit and collateral assessment.
Financing of SMEs and access to finance play a crucial role in the growth process and
development of the enterprises (WB, 2011).
According to Fatoki&Garwe (2010), the lack of capital seems to be the primary reason for
business failure and is considered to be the greatest problem facing the survival of small and
medium enterprises. This was supported by Shafeek (2009) who view that, from a business
viewpoint without adequate financing, the business will be unable to maintain and acquire
facilities, attract and retain capable staff, produce and market a product, or do any of the other
things necessary to run a successful operation
Stokes & Wilson (2006) also added that financial difficulties of SMEs arise, either because of
an inability to raise sufficient funds to properly capitalise the business, or a mismanagement of
the funds that do exist or a combination of both. He explained that, access to external funds
may be difficult to achieve for new or young, small and micro businesses with no track record,
especially for owners without personal assets to offer as security. Also, it is widely accepted
that the size of an organization in terms of its assets is a proxy for financial robustness
considerations. Therefore, the importance of these variables (survival, asset size and access to
credit) makes it necessary to serve as proxies for the measurement of SMEs performance in
this study
1.2 Statement of the Problem
According to figures made available by the National Bureau of Statistics (NBS) and the Small
and Medium Enterprises Development Agency of Nigeria (SMEDAN) documented in the
Survey Report on Micro Small and Medium Enterprises in Nigeria (MSMEs) 2013 declared
that Nigeria boasts of specifically, 17,284,678 registered Small and Medium Enterprises in
which probably only 50 per cent of this number operates formally.
Famously, SMEs have been acknowledged worldwide as the engine room of national
economies, even in developed countries, the SME sector is one of the most critical sectors of
the Nigerian economy. Ironically, it appears that considering the enormous potentials of the
SMEs sector, and despite the acknowledgement of its immense contribution to sustainable
economic development, its performance still falls below expectation in many developing
countries (International Finance Corporation, 2014). This may be because the sector in
developing countries has been bedeviled by several factors such as government policies and
competition from Multi-National Corporations as militating against its performance thereby
leading to an increase in the rate of SMEs failure. SMEs are faced with the threat of failure
with past statistics indicating that most SMEs die within their first five years of existence.
Another smaller percentage go into extinction between the sixth and tenth year, thus only
about five to ten percent of young companies survive, thrive and grow to maturity (Basil
2005).
However, most empirical studies on impacts of mobile commerce services on SMEs
performance have shown that studies in this area are scanty in Nigeria and have shown mixed
findings for instance, Chogi (2006), Bangens&Soderberg (2008), Wambari (2009), Huang
(2008), Donner &Escobari (2010)are foreign works conducted majorly in African countries on
mobile commerce service usage,their studies used questionnaire to collect data from SMEs
and it revealed positive and significant relationship with SMEs performance. Whereas in
Nigeria, Okolo and Obidigbo (2014) examined the effect of mobile commerce on the
performance of SMEs in Nigeria and how its performance can be boosted, their study adopted
survival, asset size and access to credit as a proxy to measure SMEs performance, but the
study did not make use of sufficient test on their time series data. Consequently, Okolo,
Ani&Ofoegbu (2014) in their study made use of mobile penetration internet penetration and
lending rate as their independent variable which the current study adopted but the study was
conducted on economic growth as against SMEs performance considered for the current
study.
Therefore,considering the constraints faced by the Nigerian SMEs and the relevance of mobile
commerce services on SMEs performance most especially in the aspect of accessibility to
finance and low cost, this study empirically assesses the impact of mobile commerce services
on the performance of SMEs in Nigeria.
1.3 Research Questions
i. To what extent has Mobile commerce impacted on the survival of small and medium
enterprises in Nigeria?
ii. To what extent has mobile commerce impacted on the asset size of small and medium
enterprises in Nigeria?
iii. To what extent has mobile commerce impacted on SMEs access to credit in Nigeria?