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THE EFFECT OF INFORMATION TECHNOLOGY SYSTEM ON THE GROWTH OF SMES IN NIGERIA.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

A great number of organizations around the globe are currently utilizing Information and Communication Technology (ICT), not only for cutting costs and improving efficiency, but also for providing better customer services (Irefin, Abdul-Azeez & Tijani, 2012). Also governments all over the world are adopting ICT to provide better services to their citizens. The adoption of ICT by organizations requires a business environment that encourages open competition, trust and security, interoperability, and standardization and the availability of finance for ICT (UNCTAD, 2004). The effective use of ICT remains at central stage in facilitating the change and growth of enterprises. Many small and medium enterprises (SMEs) consider the creative use of ICT as a key enabler to their development (Dixon, Cambridge, Carl & Andrew 2002). However, as the global economy became increasingly reliant on ICT to receive, process, and send out information, the small businesses within the developing countries (which form a significant portion of their developing economies) have yet to reap these benefits evenly. This is because obtaining such opportunities rests largely upon the ability of SMEs to engage in the regional and global economic business networks which, in turn demand provision of a prerequisite level of access to and use of ICT (Dixon et al, 2002). Unless these prerequisites are in place, these SMEs are set to lose out on opportunities to integrate into the global supply chain, bid for outsourcing businesses, and increase their internal productivity and efficiency.

Irefin et al (2012) made it known that the definition of small-scale enterprises (SSEs) in Nigeria has changed over the years not only in consonance with the changing fortune of the country but also in accordance with the diversity of the Small and Medium Enterprises (SMEs) supporting institutions in the country. Prior to 1992, different institutions in Nigeria adopted varying definitions of small enterprises. However, in 1992, the issues of conflicting definition was resolved with the establishment of National Council on Industry, which is now policy making organ on all matters relating to industry in Nigeria. Among the conceptual issue that was resolved is whether Small-Scale Industry definition should include all economic activities such as trading, buying and selling or whether it should be restricted to productive industrial activities especially manufacturing. Accordingly, a clear distinction was made between small-scale enterprises consisting of trading, buying and selling activities and small-scale industries engaged in manufacturing industry.

The usage of IT in SMEs, engine economic performance, and reduce unemployment rate, IT is having a significant impact in sector of small and medium size Enterprises(SMEs), especially where industries are in decline or when unemployment levels are high (Namani, 2009). Onu et al., (2014) indicate that economic literature shows that IT are important driver of productivity and growth. IT have shown a pick up growth on labour productivity from 1.5 percent to 2.4 percent, which has increased the economic performance and national income (Oliner and Sichel, 2002). Polland (2006) claims that SMEs would need high quality IT and must always provide superior value product better than competitor, when it comes to quality, price and service. Using of IT by SMEs enhance expansion and enable small and medium enterprises to compete with multinational enterprises. In a technological environment enterprise (Multinational, and SMEs) make efficiently and effectively utilize economical resources by producing standard technology goods and services, transform human effort and economic resources to produce the market needs.

1.2 Statement of the Problem

While ICT can benefit SME in multiple ways, SMEs within the developing countries such as Nigeria, have been slow to adopt ICT as they face major constraints such as poor telecommunication infrastructure, limited ICT literacy, inability to integrate ICT into business processes, high costs of ICT equipment, incomplete government regulations for ecommerce, and a poor understanding of the dynamics of the knowledge economy (Lucey, 2005). However, Okwuonu, (2013) asserts that many SME operators are unfamiliar with operating a computer and become sceptical of the benefits and value its gives to the business and have the notion that ICT is only for larger companies even when they have the will and financial resources to integrate ICT into their core businesses. SME operators are often at a loss when the need arises to choose the most appropriate and cost efficient product. Most Nigerians could not participate in the international markets from the comfort of their offices and rooms due to erratic supply of electricity, dearth of adequate ICT facilities and the enabling environment that supports e-business. Low participation in internal market means low transactions and contribution to the global economy but with the use of ICT, weak players in the economy can be empowered by providing them with information, communication and knowledge they could not access before. This enhances the competitiveness of small and medium-sized enterprises (SMEs) and can enable them establish their presence on the internet and use it to communicate with suppliers and customers, to search for business information and to advertise their products (Okwuonu, 2013).

1.3  Research Questions 

Based on the problems indicated, the following research questions were raised. 

a) What is the relationship between information technology system and the profitability of SMEs in Kwara?

b) What are the major constraints to adopting information technology systems by SMEs in Kwara?

c) What is the effect of information technology system on the growth of SMEs in Kwara state?

1.4  Objectives of the Study

The main objectives of this study is to examine the effect of information technology system on the growth of SMEs in Nigeria. However, the specific objectives to:

a) Evaluate the relationship that exist between information technology and the profitability of SMEs in Kwara state.

b) Examine the major constraints of information technology adoption by SMEs in Kwara state.

c) Determine the effect of information technology system on the growth of SMEs in Kwara state.

1.5  Hypotheses of the Study

Based on the research questions and objectives above, the following hypotheses were formulated. 

i. H0: There is no significant relationship between information technology system and the profitability of SMEs in Kwara state.

ii. H0: SMEs in Kwara state are not faced with any constraints in the adoption of information technology system. 

iii. H0: There is no significant relationship of information technology system on the growth of SMEs in Kwara state.

1.6  Justification for the Study

Quite a number of researches have been carried out related to this study such as Adewole and Akanbi (2004) in which they examined the role of information and communication technology investment on the profitability of small medium scale industries – a case of sachet water companies in Oyo state, Nigeria. Similarly, Rufai (2014) studied the impact of communication technologies on the performance of SMEs in a developing economy, a case study of Nigerian SMEs. However, this research is distinct from various similar researches such that it examines the impact of ICT on growth of small and medium enterprises. This research tends to be very beneficial to small and medium enterprises, stakeholders in the country, Nigeria economy as a whole and also adds to the existing literature concerning this topic.

1.7 Scope of the Study

Due to financial constraints, time and mostly academic workload, this research will not be able to cover the entirety of SMEs in Nigeria. Hence, this study deals with SMEs operating in Kwara state only within the last five years. The Ministry of Industry and Solid Minerals Development (2015) put the registered number of SMEs operating in the state at 207 in various sectors ranging from manufacturing, food processing, pharmaceutical, poultry, animal rearing and fabricators.

1.8  Definition of Terms

Small and Medium Scale Enterprises (SMEs): The Central Bank of Nigeria defined Small and Medium Scale Enterprises in according to asset base and in number of staff employed. The criteria are an asset base of ₦5Million and ₦500Million and a staff strength base of 20 to 300 employees.

Business Growth: This is the process of improving some measure of an enterprise’s success. Business growth can be achieved either by boosting the top line or revenue of the business with greater product sales or service income, or by increasing the bottom line or profitability of the operation by minimizing costs.

Information and Communications Technology (ICT): This is an umbrella term that includes any communication device or application, encompassing radio, television, phones, computer hardware and software satellite systems and so on, as well as the various services and applications associated with them, such as videoconferencing and distance learning. ICTs are often spoken in a particular context such as ICTs in SMEs, ICTs in Health care or libraries and so on.

1.9 Plan of the Study

To ensure orderliness of the study, the plan of the study was carried out and reported chronologically, in five chapters. Chapter one which is the introduction to the study provided the background to the study, statement of the problem, research questions, justification for the study, objectives of the study, hypothesis of the study, scope of the study, definition and terms and plan of the study. The second chapter contained the review of relevant literatures while the research methodology is presented in the third chapter and it included the research design, population of the study, sampling techniques, method of data collection and methods of data analysis. The fourth chapter contained the data presentation analysis and discussion of result obtained from the field survey. Chapter five covers the summary, conclusions and recommendations. 

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