EFFECT OF PARTNERSHIP AND JOINT VENTURE BUSINESS IN SMALL SCALE BUSINESS IN NIGERIA, PROBLEM AND PROSPECT
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EFFECT OF
PARTNERSHIP AND JOINT VENTURE BUSINESS IN SMALL SCALE BUSINESS IN NIGERIA,
PROBLEM AND PROSPECT
CHAPTER ONE
INTRODUCTION
BACKGROUND
TO THE STUDY
Small and
Medium Enterprises (SMEs), new or existing, often face certain challenges when
they approach products providers for both enterprise fixed capital investment
and market standards. The insufficient supply of microloans is a major issue,
particularly where business creators are unemployed persons, women or form part
of ethnic minorities with different cultural dependencies. Supporting the
supply of microloans is therefore not only an issue of entrepreneurship and
economic growth, but also of social inclusion.
Nigeria has
been in the constant wheel of fighting for liberalization of market in the
African’s sister countries. This gave to the country the political power but
remaining behind economic development (NSGRP, 2008). Further, it was reported
that there are more than 1.7 million SME projects in Nigeria that employed more
than 3 million people, which represent 20% of labor force in Nigeria, where
SMEs are vital engines for the economy growth and play a great role for gross
domestic product of Nigeria (NSGRP, 2008).
Deakins
(2009) agreed that there are quiet numbers of potential reasons why firms and
organizations merge together to form a partnership or joint venture businesses.
A joint
venture is a procedure used to respond to specific business phenomena such as
access to new markets, specific government policy, business capacity,
technology transfer or economies of scale. An international joint venture is a
separate legal organisational entity representing the partial holdings of two
or more parent firms, in which the headquarters of at least one is located
outside the country of operation of the joint venture. The feasibility and the
desirability of a joint venture must be assembled by careful analysis of the
economic, political, social and cultural environment within which the venture
will be implemented and managed.
A joint
venture (JV) is a business agreement in which the parties agree to develop, for
a finite time, a new entity and new assets by contributing equity. They
exercise control over the enterprise and consequently share revenues, expenses
and assets. There are other types of companies such as JV limited by guarantee,
joint ventures limited by guarantee with partners holding shares.
Companies
typically pursue joint ventures for one of four reasons: to gain faster entry
into a new market; to acquire expertise; to increase production scale,
efficiencies, or coverage; or to expand business development by gaining access
to distributor networks.
On the other
side, A partnership business is an arrangement where parties, known as
partners, agree to cooperate to advance their mutual interests. The partners in
a partnership may be individuals, businesses, interest-based organizations,
schools, governments or combinations. It is also an association of two or more
persons to carry on as co-owners of a business for profit. Partnerships are
sometimes used in small retail, service, or manufacturing companies. It is
fairly easy to form, and they are form simply by a verbal agreement, or more
formally, by written agreement.
Setting up a
joint venture/partnership business among small scale business owners normally
represent a major and mind blowing changes to the business. However beneficial
it may be to growth of the business, it
needs to fit with the overall business strategy before committing to such joint venture business due to the challenges
involved in it setting up, as both partners may need to critically decide
better ways to achieve the partnership aims and objectives, comparing and
learning from the success of other business combination from small scale
business owners, and also trying to identify exceptional skills and expertise
applied to the partners.
Whereas,
most downfall of partnership business emerging through the merging of two or
more small scale business owner can be evaluated when the partners fails to
consider performing a SWOT (strengths, weaknesses, opportunities and threats)
analysis to discover whether the two businesses are a good fit, not taking into account of partners employees' attitudes
bearing in mind that people can feel threatened by a joint venture, and
partners having a different way of doing things in the course of their business
and personal relationship, and this invariably affect the business working
relationship, and causes decrease in profit generation of the partners or
co-venturers.
Finally, In
anticipation of the evaluation of the concept of partnership/joint venture
phrase, which has almost been talked about and documented over the past
(decades), it is extra-ordinary that this subject has been given in research
studies, regardless of the fact that partnership business has been given fewer
research studies and it has been part of the society for a longtime, though the
motivation for partnership business dealings are usually built around some
factor which include the desire to increase profit generation, access to
international market, access to bank loans and grants, and opportunities surrounding it establishment.
It is
against this backdrop that this study seeks to examine and evasluate the
problems and prospect of partnership and joint venture business among small
scale business in Nigeria.
STATEMENT OF
PROBLEM
Though,
Partnering among small scale business owner can be complex and it also takes
time and effort to build the right relationship, and as a result of this
partners are more likely to encounter challenges ranging from the objectives of
the venture which are not 100 per cent clear and communicated to everyone
involve, the partners having different objectives for the joint venture, high
level imbalance in levels of expertise,
investment or assets brought into the venture by the different partners,
different cultures and management styles which is likely to result in poor
integration and cooperation between the partners, and finally the partners may
not be able to provide sufficient leadership skills and support in the early
stages of coming together as partners being that most of the partners are
manager of their various stage and are finding it hard to adapt to the
partnership/or joint venture rules and regulation.
The Nigeria
small scale business industry is one of the most dynamic, risky, challenging
and rewarding business sector in Nigeria
(Mills, 2001). As any other major sectors, it is exposed to a lot of
predictable and unpredictable risks when engaging in a joint venture or
partnership businesses. Among the risks faced by the the small scale sector are
ownership risk, management and capital funding risk, economic risk, technology
risk and social risk. Even though Risk is inherent in every partnership
business and normally assumed by the owners unless it is transferred to or
assumed by another party for fair compensation, it is also a challenges which
pose a great danger for small scale business owners who may wish to come
together to form a joint venture or partnership business if not deal with in
the best possible way.
Non-Access
to International Marketing: International marketing is a multinational process
of planning and executing international marketing standards for pricing,
promotion, distribution of ideas, goods and services to create exchange that
satisfy individual and organizational on national and international level
(Kottler, 2009). Firms expand into international markets slowly and deliberately
over time for the market that are familiar to their home market, in order to
participate effectively in global markets, SMEs are required to have and
maintain significant capabilities in different areas ranging over the industry
value chain, including production, design, distribution, branding, and
marketing, as a result of this challenges small scale has tremendously find
themselves merging or combining personal business capital together, sharing
business ideas through establishment of a partnership/joint venture business in
order to have access to international marketing and gain worldwide recognition.
Furthermore,
Despite existing policies on financial support for small businesses, very few
entrepreneurs receive financial help when they need it. Mambula (2002) find
that 72 percent of entrepreneurs he studied in Nigeria considered lack of
financial support as number one constraint in developing their business.
Although in some African countries banks are by law required to set aside a
certain percentage of their profits for small business loans, many banks would
rather pay a fine than make what they believe to be a high risk loan to SMEs,
this factor also prompt most small scale business owner to pool capital
resources together to start up a partnership business.
Lack of
Skills for entrepreneurship: The challenges facing entrepreneurs and small
medium enterprises in Africa are varied and many; lack of financial support,
weak economic infrastructure, and lack of policy coherence, and lack business
support. Given the small number of indigenous African small firms compared to
firms from other parts of the world, education and training support for
entrepreneurs and small-scale enterprises will help establish a good foundation
for small business growth (Biggs and Shah, 2006).
1.3
OBJECTIVE OF THE STUDY
The
Objectives of this study are as follows;
Assess
challenges facing Small Medium Enterprises (SMEs) towards establishment of
Partnership/joint venture business in Nigeria.
Eliminate
the constraint encountered by small business owners in partnership/joint
venture business in Nigeria.
Determine
the economy effect of partnership/joint ventures in Nigeria.
Ascertained
the benefits and importance of setting up a partnership business by small
business owners.
Provide
useful insight on the concept of partnership business, it merit and demerit, as
well as importance to the growth of the business.
Identify the
key actors key actors and facilitators for establishment of new partnership
business in Nigeria.
RESEARCH
QUESTION
The research
question provides a framework and guidelines through which substantial
knowledge of the research study can be understood.
The research
question asked includes:
What are the
challenges facing Small Medium Enterprises (SMEs) towards establishment of
Partnership/joint venture business in Nigeria?
What are the
constraints encountered by small business owners in partnership/joint venture
business in Nigeria?
Are there
any economy effects of partnership/joint ventures in Nigeria?
What are the
benefits and importance of setting up a partnership business by small business
owners?
Are there
any useful insight on the concept of partnership business, it merit and
demerit, as well as importance to the growth of the business?
Who are the
key actors key actors and facilitators for establishment of new partnership
business in Nigeria?
1.5.
SIGNIFICANCE OF THE STUDY
Though, the
reasons behind forming a joint venture include business expansion, development
of new products or moving into new markets, particularly overseas, yet there’s
a need to also consider the negative aspect of it when setting it up.
This studies
would be relevant to small business owners who may want to agree to setup a partnership business with
another business in a limited and specific way, or small business owners who
may also wish to agree to come together in order to generate large profit for
their business as a result of desire for
expansion.it will also be useful for partners who wish to set up a separate
joint venture business, possibly a new company, to handle a particular
contract.
This studies
will also be useful to small scale owner by providing them useful insight on
the benefit of engaging in a successful joint venturer business such as, access
to new markets and distribution networks, increased capacity, sharing of risks
and costs with a partner and access to greater resources, including specialised
staff, technology and finance.
It will
therefore equally be of immense help to the Small and Medium Scale Enterprises
Development Agency of Nigeria (SMEDAN), in evaluating the success of its
activities with specific reference to the problem encountered by small business
owner towards partnership/joint venture businesses.
Finally, it
will also be of use to the student, researchers for further research study, the
existing and prospective entrepreneur as well as any interested party. It will
assist students in their knowledge build-up and appreciation of the business
formation of partnership business among the small scale business owners.
1.6. SCOPE
OF THE STUDY
The research
work has focused on SMEs because these firms in Nigeria account for more than
90% of the country’s business, though many studies have been conducted on
small-scale, but none of them has looked at the partnership/joint venture
establishment in small scale businesses. It is for this reason that our study
seek to Assess and evaluate the effect of partnership business on small business enterprises in Osun
Metropolis.
The
activities of the regulating body Small and Medium Scale Enterprises
Development Agency of Nigeria (SMEDAN),were also put into consideration.
However, the research was limited to small and medium scale enterprises
operator in osun metropolis due the schedule of the researcher.
1.7.
LIMITATIONS OF THE STUDY
As with all
studies, limitations exist and must be acknowledged. Moreover, the outcomes
were based on the information solicited from the respondents and such might be
subjected to human errors, omissions and possible mis-statements.
The
limitations of the study are as given below:
also the
difficulty of timely availability of published data from various government and
other agencies doing this job in our country. Researcher also faces the problem
on account of the fact that the published data vary quite significantly because
of differences in coverage by the concerning agencies.
The study
could not show the whole scenario of the all small scale business in Nigeria.
The
questionnaire was not understood by some respondent.
Some
respondent did not give enough concentration to understand the significant of
analysis.
The time was
not enough to collect the data from the respondent.
1.8.
DEFINITION OF TERMS
SMALL SCALE
BUSINESS
It is
defined as any business undertaken, owned, managed and controlled by not more
than two entrepreneurs, has no more than twenty employees, has no definite
organizational structure (i.e all employees report to the owners) and has
relatively small shares of its market.
joint venture (JV)
This is a
business agreement in which the parties agree to develop, for a finite time, a
new entity and new assets by contributing equity. They exercise control over
the enterprise and consequently share revenues, expenses and assets. There are
other types of companies such as JV limited by guarantee, joint ventures
limited by guarantee with partners holding shares.
Partnership
business
This is an arrangement where parties, known as
partners, agree to cooperate to advance their mutual interests. The partners in
a partnership may be individuals, businesses, interest-based organizations,
schools, governments or combinations.
Partnership
Agreement:
This is a written and formal document which
contains such basic information as the name and principal location of the firm,
the purpose of the business, and date of inception.
Mutual
agency
This means
that each partner acts on behalf of the partnership when engaging in
partnership business. i.e. The act of any partner is binding on all other
partners.
Joint Property
Interest
This is a
situation whereby each joint venturers participant contributes property, cash,
or other assets and organizational capital for the pursuit of a common and
specific business purpose. Thus, an IJV is not merely a contractual relationship,
but rather the contributions are made to a newly formed business enterprise,
usually a corporation, limited liability company, or partnership.
Due
diligence
Due
diligence is the investigation of a country, business or person, for the
purpose of obtaining useful information on the potential benefits, pitfalls and
costs. It helps investors to make better profit and mitigate risk.
8. Limited
liability
This allows
to limit debts and losses to the assets of the venture and protect the assets
of the members themselves from being liable for the venture’s debts.i.e. the
partners have limited liability and can be held liable only to the extent of
their capital investments.
9.
Co-venturers
co-venturers":
this is a situation when two or more persons come together to form a temporary
partnership for the purpose of carrying out a particular project, such
partnership can also be called a joint venture where the parties are
"co-venturers".
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