A MODEL LINKING RESEARCH AND DEVELOPMENT TO SME GROWTH IN

NIGERIA

A. A. Okesola, M.S. Gana, R.A Agava, A. A. Suleiman*, D. Dania, M. S. Haruna

National Agency for Science and Engineering Infrastructure (NASENI) Abuja.
*Corresponding e-mail; aabubakarsule@yahoo.ca

ABSTRACT

The growth of Small and Medium Entrepreneurs (SMEs) have been shown to be the back
bone of many industrialized nation. The industrial revolution, which occurred between 1760
and 1840, brought significant reliance of businesses on Research and Development (R&D)
outcomes and hence nations that were advanced in R&D activities became the nations that
were advanced technologically and economically. Small and Medium Entrepreneurs (SMEs)
are heterogeneous group of businesses that usually operate in the service, trade, agri-
business, and manufacturing sectors of economies. Such businesses could include a wide
variety of firms; i.e. handicraft makers, small machine shops, and other skill offering
businesses. Nigerian business organizations or Small and Medium Entrepreneurs, SME’s
(especially manufacturers) have to introduce innovations and technology to increase
productivity, global patronage and deliver quality products and services. Thus it is
imperative to establish, explore and sustain a solid link between R&D and SMEs in general,
and Manufacturing Sector in particular. In this paper, the existing policy of R&D activities
in Nigeria and its practical application within businesses is presented. This is compared to
what obtains in some economies and how relevant R&D outcome is to businesses and
economic diversification. Furthermore, the paper proffers ways that will make R&D
activities in Nigeria more responsive to societal needs and ensure economic diversification
and sustainable growth.

KEYWORDS: SME, Industrialized, Economy, Diversification, Manufacturing, R&D

INTRODUCTION

Small and Medium Entrepreneurs (SMEs) are heterogeneous group of businesses that usually
operate in the service, trade, agri-business, and manufacturing sectors of economies. Such
businesses could include a wide variety of firms; i.e. handicraft makers, small machine shops,
and other skill offering businesses (Shenkar and Luo, 2008). In developing countries like
Nigeria, these businesses face numerous challenges that stunt their growth, weakens them and
thus make them unable to compete with other similar type of businesses from developed
economies (Onugu, 2005).

However, as the world of businesses are evolving (Shenkar and Luo, 2008), businesses in
Nigeria must also evolve in tandem with those from other economic blocks for them to
remain globally competitive and sustained. Thus Nigerian business organizations or Small
and Medium Entrepreneurs, SME’s (especially manufacturers) have to introduce innovations
and technology to increase productivity, global patronage and deliver quality products and
services.

It has been established that in recent times, the growth rate of countries depends on their
ability to integrate with global economies, have capacity to maintain sustainable government
finances and their ability to maintain appropriate institutions to enforce contracts and uphold
property rights (Lukács, 2005, Shenkar and Luo, 2008). This was used to subtly change the
economy of Japan as they built their SMEs on a strong technological infrastructure, sound
business and engineering expertise, and organizational routines all of which are deeply
embedded to create the relatively stable enterprises (Liker et al., 1995). It is therefore
appropriate to deduce that development and sustainability of SMEs in Nigeria will only be
possible when there is a sound base upon which to build.

When nations have strong technological institutions to support SME growth, it gives relative
stability to the businesses and its employees (Kuan and Chau, 2001); thus no matter the
economic condition, the SMEs would weather the storm. Hard time should be opportunities
to withstand external pressure caused by imports, to reduce cost of production and encourage
competitiveness.

Without the requisite infrastructure to support their growth, SMEs in Nigeria continue to die
even though the Nigerian Government have been obtaining and spending huge funds for
entrepreneurial and small development programs (Mambula, 2002). Hence all the large
market, mineral deposit and huge workforce would not add value to local production;
importation would continue and jobs would not be created.

Although studies have shown that very little research is available on the growth constraint of
businesses in Nigeria (Okpara and Wynn, 2007, Roberts and Malonet, 1996), the relationship
between research and development, Small and Medium Businesses (SMEs) and economic
growth abound (Lukács, 2005, Shenkar and Luo, 2008). This paper presents a link between
Research and Development and the growth of Small and Medium Businesses (SMEs) and
how this link should be explored and strengthened in the interest of building a sustainable
economic growth and diversification of Nigeria.

APPLIED RESEARCH AND DEVELOPMENT

It is known that Nigeria is backward in terms of product development and most of the
country’s research and product development occur in universities and government owned R
& D Institutions (Mambula, 2002, Okpara and Wynn, 2007, Onugu, 2005), whose researches
are mainly basic. Thus, the few companies that manufacture in Nigeria therefore are left to
import large components of their product raw materials or knocked-down parts to assemble.

This trend would have to be reversed by encouraging the SMEs to carry out responsive
research that leads to product development. Responsive research puts a product somewhere
between basic research and engineering development (Liker et al., 1995). Engagement of
SMEs in responsive research would provide a platform for development of specific products
that would purposely address societal needs as well as sustaining the businesses. This
proposed approach of initiating research from industries have been successfully used in most
Southeast Asian countries like Japan, Malaysia, China, Korea, etc. (OECD, 2011).

Responsive research and development creates an approach to the research of a product born
out of the need for the product concept generated by the end user that would eventually lead
to the development of such product that meets the need already defined and created. Thus the
outcome of such research would be a tangible product to fulfil a market need.

Responsive research and development strategies allow R&D managers and product
development teams to adapt quickly when internal shifts or external events disrupt ongoing
programs. This is so because the planning of the final product has taken into account the
dynamics of the product and made arrangements to accommodate demand-oriented changes.

Also, for a system to be more responsive, R&D managers need to become facility managers
and shift the lexicon of the workplace from policies to programs, and from managing
furniture and space allocations to supporting how product design and development work is
really done (Jim Meredith, 2005).

This approach is the only way the system can actually act as a truly responsive one and carry
out the research and development work in a responsive manner to achieve the greater goal.

RESEARCH INSTITUTES AND THE SMEs IN NIGERIA

ŀ

The SMEs are the very crucial element in the whole process of institutionalizing and
promoting responsive R&D. The European Commission (European Commission, 2003, EUR-
Lex, 2003) classified an enterprise as any entity or concern that is engaged in any activity that
can be classed as economical or profit oriented irrespective of the legal form of the business.
This classification includes all known businesses, self employed individuals, artisans, family
owned businesses or any other concern engaged in economic activity.

The body went on to adopt the following as a cap for what can be called SME:

1. Any enterprise that employs fewer than 250persons and with annual turnover
not more than 50 million Euro is classified as Micro, Small and Medium-sized
enterprise (SMEs). The business in this category must have an annual balance sheet
total not exceeding 43 million Euro

2. Within the category of SMEs, a small enterprise is further defined as an

enterprise which employs fewer than 50 persons and whose turnover and/or balance
sheet total does not exceed 10 million Euro annually.

3. Also, within the SME category, a microenterprise is defined as an enterprise

which employs fewer than 10 persons and whose turnover and/or balance sheet total
does not exceed 2 million Euro annually.
Considering the number of people employed by and the turnover of businesses in Nigeria, the
above definition and classification actually put a very large number of enterprises in Nigeria
as Small and Medium Scale. This means that 99% of the business operating in Nigeria falls in
the category of SMEs.

Based on the above definition, it will be a very great loss if the research and development unit
of any organization or country works without any reference to the Small and Medium Scale
Enterprises.

In a recent study jointly done by Small and Medium Scale Enterprise Development Agency
of Nigeria (SMEDAN) and the National Bureau of Statistics in Nigeria in 2003, they found
that the total number of Medium, Small and Micro Enterprises (MSMEs) stood at 37,067,416
(Micro36,994,578, Small-68,168 and Medium-4,670) (SMEDAN 2013). Figure 1 below
shows the distribution of the MSME across Nigeria.

Fig. 1: Pictorial representation of the MSME distribution.

From the Figure above, it can be clearly seen that micro enterprise has the highest percentage
of the MSME’s in Nigeria, with both small and medium enterprises occupying an almost
invisible spot on the chart (about 0.01%). This micro enterprise will easily grow to small and
medium level if the SME is able to carry out required research on their own without having to
depend on the results fed to them by the established institutions. This way the solutions sort
after will be obtained locally and used immediately and turned to products which generates
revenue for further development of the business.

Access to finance, poor infrastructure, obsolete technology and inconsistent government

policies affect the MSMEs adversely. For example, the start-up capital for the micro
enterprise which covers 68.35% of MSMEs in Nigeria is less than fifty thousand Naira, while
small and medium enterprises were predominantly less than ten million Naira.

With the challenges, the MSMEs were still able to employ 84.02% of the total labour force of
Nigeria as at December of 2013. And the group was able to contribute up to 7.27% of the
export in that same year. And all these put together brought about a total contribution of
48.74% to the Nation’s Gross Domestic Product.
The survey also concluded that most of the MSMEs are operating below optimum capacity.
Which is a very negative indicator as this continually leads to waste of resources and little or
no development to show for effort.

From the report above, it is clear that the MSMEs are the major employer of labour in Nigeria
having over 80% of the total labour force. But it clearly showed also that the interactions
between this massive labour force with SMEDAN, the body responsible for regulating and
helping them grow is almost non-existence. This has hampered the growth of the SMEs and
increased the difficulty in getting economic relevance. All of the problems highlighted in the
survey stems from the lack of research and development units within the SMEs , the presence
of R&D unit will not only take care of the innovation but also the identification of the
body(s) responsible for helping the industry grow.

THE PROPOSED MODEL

For the Small and Medium Entrepreneurs in Nigeria to receive global patronage and be able
to deliver quality product, there will have to be a concerted effort by the group (especially the
manufacturing arm of the SMEs) to establish research and development unit capable of
innovative thinking and quality technological strength. This unit will be able to easily link up
with the already established research and development centres in Nigeria to turn out world
acceptable standard product in good time.

The SMEs must understand the need of the end user and also have capacity to understand the
resources required to satisfying such needs. SMEs are therefore required to develop the
technical knowhow to merge the abundantly available resources to the need of the market as
shown in Figure 2; this missing link would be provided by the responsive research and
development team.

Fig.2: Role of R&D within MSMEs

The proposed model in figure 2 above displays a loop where the R&D that is domiciled in the
MSME takes care of the innovative design and production that is sent to the market and at the
same time use the market as a feedback loop to quickly make adjustment when required or
get new ideas for products to be sent back to the market in good time. The R&D unit of the
MSMEs also exchanges innovative technology ideas with the research centres funded by the
government. If the above model is implemented correctly, the MSMEs will not only satisfy
the local populace but also feed the international market and earn foreign exchange.

CASE STUDY
A typical case study where the proposed model could be easily applied is the National
Agency for Science and Engineering Infrastructure (NASENI) where the mandate is to carry
out research and development of the product of the research for seeding to the MSMEs. The
government already fund the research and this makes it easy for the Agency of government to
commit manpower to research and development, the result of the work is passed on to the
MSME for proliferation.

The MSME on the other hand have the direct link to the market they serve, this will lead to
easy and faster flow of information from the end user to the research team through the
MSMEs

This type of model has a great advantage in that, the turnaround time for research is faster
than if individual MSMEs will have to do theirs and it also takes off the burden of research
funding from the MSME.

RECOMMENDATIONS

• SMEs are to be sensitized to know the importance and benefits of responsive R&D
input to the delivery of quality products and services, and being able to be globally
competitive.
• SMEs are to be sensitized and encouraged right from the time of inception of the
business to adopted or institutionalize responsive research and development into their
operations.
• SMEs with R&D units should get further tax reliefs and government matching grants
to aid further R&D activities
• SMEs are to liaise with government funded R&D Agencies or institutions to help
them carry out R&D activities while they continue to build and develop in house
capacities
• As a matter of national strategic interest Government R&D Agencies and institutions
that support SMEs R&D activities be given matching grants in respect of the SMEs
R&D activities they under take
CONCLUSION

To maximally harness the natural and human endowment of Nigeria as a country, responsive
research and development should not only be adopted or institutionalized but ingrained in the
system of the SME’s right from the time of inception of the business.

With the Micro Small and Medium Enterprise having their own R&D unit, the turnaround
time for products will be reduced and innovation will get to the market faster, creating more
wealth to the SME’s and better development for the country.

With a right attitude towards R&D in the SMEs in Nigeria, most of the challenges faced by
the country will be solved with minimal cost and speed of light.
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