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Growth, Sustainability and Inhibiting Factors of Family Owned Business in the South East of Nigeria

Growth, Sustainability and Inhibiting Factors of Family Owned Business in the South East of Nigeria

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Published by xaxif8265
This paper presents and discusses the various challenges in family owned
businesses in the South East of Nigeria. The attitudes of business owners in the region and
inadequate planning often lead to the limited life span of most businesses. The responses
from two hundred and fifty small business owners/executives in the South East of Nigeria
confirmed that family owned businesses suffer many management and attitudinal problems
ranging from individualistic spirit, lack of planning and basic information, lack of political
awareness, wrong line of business, and poor book keeping among others. The implication is
that businesses start and fail, rarely succeeding the owner. It is strongly recommended that
business owners should invest heavily in training and courses locally and abroad to
sensitize, orientate and change their mindset as well as adequately develop their
management skills and abilities. It is also imperative for business owners to adequately
scan the Nigerian business environment so as to identify the opportunities and threats
therein, and develop the various techniques that will help them to adapt to the changing
environments as they emerge.
This paper presents and discusses the various challenges in family owned
businesses in the South East of Nigeria. The attitudes of business owners in the region and
inadequate planning often lead to the limited life span of most businesses. The responses
from two hundred and fifty small business owners/executives in the South East of Nigeria
confirmed that family owned businesses suffer many management and attitudinal problems
ranging from individualistic spirit, lack of planning and basic information, lack of political
awareness, wrong line of business, and poor book keeping among others. The implication is
that businesses start and fail, rarely succeeding the owner. It is strongly recommended that
business owners should invest heavily in training and courses locally and abroad to
sensitize, orientate and change their mindset as well as adequately develop their
management skills and abilities. It is also imperative for business owners to adequately
scan the Nigerian business environment so as to identify the opportunities and threats
therein, and develop the various techniques that will help them to adapt to the changing
environments as they emerge.

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International Bulletin of Business AdministrationISSN: 1451-243X Issue 11 (2011)© EuroJournals, Inc. 2011http://www.eurojournals.com149
Growth, Sustainability and Inhibiting Factors of Family OwnedBusinesses in the South East of Nigeria
Ifekwem, N. E.
 Department of Business Administration, University of Lagos Akoka-Yaba, Lagos, Nigeria
E-mail: nkyifek@yahoo.comTel: +2348033253217
Oghojafor, B. E. A.
 Department of Business Administration, University of Lagos Akoka-Yaba, Lagos, Nigeria
Kuye, O. L.
 Department of Business Administration, University of Lagos Akoka-Yaba, Lagos, Nigeria
Absrtact
This paper presents and discusses the various challenges in family ownedbusinesses in the South East of Nigeria. The attitudes of business owners in the region andinadequate planning often lead to the limited life span of most businesses. The responsesfrom two hundred and fifty small business owners/executives in the South East of Nigeriaconfirmed that family owned businesses suffer many management and attitudinal problemsranging from individualistic spirit, lack of planning and basic information, lack of politicalawareness, wrong line of business, and poor book keeping among others. The implication isthat businesses start and fail, rarely succeeding the owner. It is strongly recommended thatbusiness owners should invest heavily in training and courses locally and abroad tosensitize, orientate and change their mindset as well as adequately develop theirmanagement skills and abilities. It is also imperative for business owners to adequatelyscan the Nigerian business environment so as to identify the opportunities and threatstherein, and develop the various techniques that will help them to adapt to the changingenvironments as they emerge.
Keywords:
Growth, Sustainability, Family-Owned Business,
1. Introduction
Nigeria is a country made of thirty six states and zoned into six geopolitical zones namely: North West,North East, North Central, South East, South West and South South Zones. The South East of Nigeria,one of the geo-political zones, is made up of five states namely Enugu, Anambra, Ebonyi, Imo, andAbia. They are predominantly Igbos, ethnically. Igbo culture impacts the enterprise culture. The Igboindividual is that equalitarian and republican who is very enterprising but without firm economic baseand economic power and also lacking in political power and perspicuity. He does not have all it takesto operate, compete and succeed in present day Nigeria (Nwankwo 2000).
 
 150In the journey of Nigeria’s first generation entrepreneurs, the early Igbo tycoons likeOdimegwu Ojukwu and others who went from produce buying to becoming a transportation magnatemade sizeable fortunes. It is true however that few of the early wealthy families have been able tosustain wealth past one generation, many of the ventures have in fact failed rather than changeownership (Utomi 2008).Developing economies like Africa and Asian countries have come to realize the value andsignificant role family owned businesses play in their economic development. In these countries, muchof the entrepreneurship activities and wealth lies with family owned businesses hence, they arebecoming the fastest growing sector of the economy. They are seen to be characterized by dynamism,witty, innovations, efficiency, and their small size allows for faster decision making process. In somecountries many of the largest publicly listed firms were family owned. Indeed, Charkrabarty (2009)maintains that many businesses that are now public companies were family businesses.A family business is a business in which one or more members of one or more families have asignificant ownership interest and significant commitments towards the business’ overall well being(Charkrabarty, 2009).According to Charkrabarty (2009), a firm is said to be family owned if a person is thecontrolling shareholder, that is a person (rather than a state, corporation, management trusts and mutualfund) can garner enough shares to assure at least 20% of the voting rights and the highest percentage of voting rights in comparison to other shareholders.Family business may have owners who are not family members. Family business may also bemanaged by individuals who are not members of the family. However, family members are ofteninvolved in the operations of their family business in some capacity and in smaller companies usuallyone or more family members are the senior officers and managers.Nwankwo (1990) is of the opinion that when family business is basically owned and operatedby one person, he or she usually does the necessary balancing automatically. For example, the foundermay decide that the business needs to build a new plant and decide to take less money out of thebusiness to live on for a period of time in order for the business to generate the cash needed to expand.In making this decision, the founder is balancing his personal interest (taking cash out) with the needsof the society (expansion).The people of the south East of Nigerian are believed to be hardworking and enterprising, andfamily owned business is a common phenomenon in this part of the country. The question is how manyof these businesses survive the founders? There is probably a high level of small business failure in theSouth East of Nigeria. Factors responsible for these failures may include poor management, lack of basic information and planning, wrong line of business, poor book keeping, and inadequate start-upcapital, among other environmental factors. Since the vital aspect of any business is its survival andgrowth, this paper examines the necessary strategies for the survival and growth of family ownedbusiness (FOB) in the South East of Nigeria. The study, among other things, examines successionplanning, management, finance, internal and external environment of business, and other challengesthat family owned businesses face.
2. Review of Literature
2.1. The Role of Family Owned Business in Economic Development
Many management and economic theories and concepts are relevant in discussions of economicdevelopment without the exclusion of developing countries.The developing economies including African nations are yet to attain technological andindustrial threshold. Most African countries generally have remained increasingly poor in spite of theirabundant resources with incidence of poverty rising from 28.1% in 1980, 65.6% in 1986 and further to70.6% in 1999 (Neshamba, 2004). Even now, the trend has not changed. For any meaningful economic
 
 151development to take place the trend must be reversed and strategies for development must take intoaccount the people’s historical socio-cultural and institutional realities.In making a case for planning African economies, Neshamba (2004) argued that meaningfuleconomic development must aim at total transformation of the entire economy from traditionalsubsistence society to a modern monetized, industrial and self sustaining economy. This transformationcan only be achieved if the small-scale enterprises (family owned businesses included) are encouragedto grow through the provision of the badly needed financial and other resources.The Central Bank of Nigeria (CBN) in its monetary policy circular No. 36 declares that the roleof small scale enterprise (FOBs inclusive) in employment generation, skill acquisition, output growth,enhancement of local technology and mitigation of rural – urban drift cannot be over emphasized(CBN, 2002). The few large scale multinational companies, state corporation etc where they exist havefailed to provide employment to teeming unemployed Nigerians. For example, in Nigeria, the frequentupheaval in the oil rich Delta region caused by dissatisfied and frustrated youths of the locality is amanifestation of the failure of the multinational companies. If the impact of these multinationalcompanies can not be felt in the localized operational areas, their capacity in providing the catalyticimpetus needed for national economic development becomes very much in doubt.Family firms introduce dynamic personalized control that is different from the institutionalizedcontrol in non family firms, significantly affecting the strategic orientation and processes of these firms(Charisman, Chua,and Sharma, 2005).
2.2. Financing Family Owned Business and Sources
All businesses, not withstanding size, need adequate funds for start off and for healthy operations.Most family owned businesses like many small scale enterprises have greater disability in sourcing therequired funds because of institutional inadequacies, their inability to provide necessary collateral andaccess the capital market.Finance is an indispensable ingredient in any business establishment, the size not withstanding.It is the life wire that determines the success or failure of the business entity; a lubricant that insuresthe proper functioning of the system. Ardener (1995) reiterated that every new business requiresfinance to get started just as existing ones need the same for expansion and growth.Sources discussed relate to both new and existing family owned business and are broadlyclassified into internal and external sources:
Internal Sources
Ardener (1995) asserts that whatever the form of business organization, the promoters are requiredboth by business ethics and commercial prudence to provide reasonable part of their start up capital.The types and sources of their contributions to the new venture depend on the type and legal form of the business organization. So, in family owned businesses, the owners majorly rely on what they canprovide. For a more formal organization such as cooperative society, internal sources of fundinginclude share capital contribution, thrift savings, special deposits and loans from members etc(Akeredolu-Ale, 1975). According to Akeredolu-Ale (1975), retained profit accounts for half of thetotal finance used by the business sector in recent times. In business the undistributed profit constitutedominant source of internally generated fund.
External Sources
For small scale businesses in Nigeria, important external sources of fund include trade credits, short-term loans/credits, factoring and prepayment. Trade credit is in effect a loan made by supplier when hedelivers goods to the buyer in anticipation of payment at a future date to the extent that goods delivereddo not have to be paid for on receipt. The company receiving the goods obtains credit for the periodallowed before payment. Odueyungbo (2006) asserts that trade credit constitute the largest source of short term finance for business firms collectively. However, trade credit carries some costs which have

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