ENTREPRENEURIAL BEHAVIOUR AND SMALL-SCALE BUSINESS

PERFORMANCE IN LAGOS METROPOLIS

CHAPTER ONE

1.1 INTRODUCTION

Entrepreneurial behaviour is often characterized by innovativeness, risk-taking and

proactiveness. Risk-taking reflects an acceptance of uncertainty and risk inherent in original
activity and is typically characterized by resource commitment to uncertain outcomes and
activities. Innovativeness captures a bias toward embracing and supporting creativity and
experimentation, technological leadership, novelty and research and development in the
development of products, services and processes. Proactiveness relates to a forward-looking
perspective where companies actively seek to anticipate opportunities to develop and
introduce new products to obtain first-mover advantages and shape the direction of the
environment. These three elements, which are widely evoked in most studies dealing with
entrepreneurship (Zahra, Jennings, and Kuratko, 1999; Wiklund and Shepherd, 2005),
actually represent the common denominator to all the different forms of entrepreneurship.
Entrepreneurial behaviour can be a critically important factor in a firm’s profitability and
growth (Lumpkin and Dess, 1996; Zahra, 1996). Indeed, small scale businesses that engage
in the innovative, proactive, and risk taking behaviours that characterize firm-level
entrepreneurship are major contributors to economic development and growth (Zahra,
Hayton, and Salvato, 2004).

Entrepreneurs use their social and personal networks (their ‘strong ties’) in the realization of
opportunity (Chell and Baines, 2000). However, there is substantial agreement that social
capital facilitates individual, organizational, and collective action that contributes to superior
business performance (Portes and Sensenbrenner, 1993; Carney, 2005). Whilst financial capital
has been a commonly discussed issue in small business development, social capital provides
another dimension in the analysis on why business organisations survive, prosper, or decline.
By treating social networks, norms, and trust as sources of capital, it allows for quantification
of this valuable resource in the same way financial and human capital have been used to gauge
the performance of businesses (Roxas, 2008).

The influence of culture on entrepreneurship has been of continued scholarly interest over three
decades. It is now virtually undisputed in the entrepreneurship literature that culture bears
profound impact on all facets of entrepreneurship in societies (George and Zahra 2002). An
ever-growing body of literature posits that cultural attributes are one of the primary
determinants of a nation's level of economic (Porter, 1990) and entrepreneurial development
(House, Javidan, Hanges and Dorfman, 2002). In line with this view, cultural factors are
emphasized as the major strength of entrepreneurial behaviour and seem to be the
differentiating factor for higher levels of entrepreneurial activity (Minniti and Bygrave, 2003).
Hence there is increasing empirical support for the proposition that cultural attributes can have
a strong impact on the formation and incidence of entrepreneurial behaviours (Mueller and
Thomas, 2001). However there are reasons to believe that sub-culture within the African
national contexts are of vital importance. They are important for the development of social
skills, trust and social network and hence play important role in business performance.

1.2 STATEMENT OF THE PROBLEM

Despite the prevalence of small scale businesses, one is seldom provided with a thoughtful
analysis of their contributions and strength. Notwithstanding the role being played by these
forms of businesses in Nigerian economy, scholars have not been able to portray an
unambiguous picture of how entrepreneurial behaviour (innovativeness, proactiveness, and risk
taking) are catalyzed, initiated, developed and sustained in the small business sector.

However, it is acknowledged that Social capital plays an important role in small scale business
networks but little is known of the dynamics of its utilization in enterprise growth (Maurer and
Ebers, 2006). The absence of social capital in business reduces small business owners’
accessibility to productive elements, increases the costs of renting space and reduces the
likelihood of locating clients for their products and services. Therefore, most small scale
businesses often experience early extinction as a result of poor management of the social
capital accessible to them.

Furthermore, cultural values play an important role in influencing the willingness of SMEs to
display proactive firm behaviour. However the underlying attitudes and dispositions of
entrepreneurs, which have deep roots in the traditional socio-cultural system, can seriously
impede development of the entrepreneurial behaviour necessary for good performance of
Nigerian SMEs (Ekpenyon and Nyon 1992). Differences in business performance can be
explained by cultural factors. These cultural factors which include attitude to education,
language, ethnicity and religion of a given society may have both positive and negative
consequences on small scale business performance.

Most studies in entrepreneurship literature are centred on examining the aggregate effects of
entrepreneurial behaviour on business performance. In Nigeria specifically, despite the plethora
of literature on entrepreneurship (Ehigie and Umoren, 2003; Ariyo, 2006; Okpara, 2007;
Akwani, 2007; Abimbola, 2007; Akinbogun, 2008; Adeoti and Adeoti, 2008; Akinwale, 2009
and Okafor and Amalu, 2010), critical gaps still remain. Moreover, most recent studies that
have been carried out in respect of small scale businesses have not adequately captured the
roles of this entrepreneurial behaviour. However, a study that examined the impacts of
entrepreneurial characteristics on small scale manufacturing industries in Nigeria (Adegbite, et
al 2007) did not include cultural factors and social capital. The challenge is that relying on the
main effect relationship between aggregate entrepreneurial behaviour and performance
provides an incomplete understanding of small business performance. A greater understanding
is gained by the concomitant consideration of disaggregated entrepreneurial behaviour
(innovativeness, risk taking and proactiveness), social capital and cultural factors. Hence the
consequence of small scale business owners not exhibiting components of entrepreneurial
behaviour, as well as taking cognisance of the role of social capital and cultural factors will be
obvious in their poor performance. This study, therefore, was embarked in order to fill this gap
by examining the entrepreneurial behaviour of small-scale business owners and its influence on
their business performance.

1.3 RESEARCH QUESTIONS

To clearly understand the influence of entrepreneurial behaviour, social capital and cultural
factors in the performance of small scale businesses, this research sought to provide answers to
the following questions arising from the focus of the study.
1. How does entrepreneurial behaviour of small-scale business owners affects their
performance?

2. What is the role of social capital in small scale business performance?

3. In what ways do cultural factors influence the performance of small scale businesses?

1.4 OBJECTIVES OF THE STUDY

The broad objective of this study was to examine the influence of entrepreneurial behaviour in
small scale business performance in four local government areas of Lagos State
Specific objectives of the study were to:
1. Examine the relationship between proactiveness of small-scale business owners and
perceived business performance.

2. Examine the influence of risk-taking of small-scale business owners on the perceived

business performance

3. Investigate the effect of innovativeness as an entrepreneurial behaviour on perceived

performance of small-scale business.

4. Identify the roles of social capital in small scale business performance.

5. Examine the relationship between cultural factors and small scale business performance.

1.5 JUSTIFICATION FOR THE STUDY

Entrepreneurial behaviour is important for the support of small and medium enterprises (United
Nations, 2006). With an active Small and Medium Enterprises (SMEs) sub-sector in the
production process, developed and less developed countries are expected to depend less on
large industries to drive their economy towards posterity (Okafor and Amula, 2010).Whilst it
has (gradually) become accepted that there is likely to be no single business size uniquely and
unambiguously optimal for industrial innovation, wisdom nonetheless maintain that small scale
businesses have a distinct and critical role to play. Given the importance of small scale
businesses to a nation's economic growth, and also the role they play in poverty reduction,
there is need to indicate that an understanding of the roles of entrepreneurial behaviour in the
performance small scale businesses in Nigeria is a vital first step in managing and avoiding the
massive failure of these small businesses.
In entrepreneurship research, the general consensus is that a high level of social capital, built on
a favourable reputation, relevant previous experience and direct personal contact, often assists
entrepreneurs in gaining access to venture capitalists, key competitive information and
potential customers which are very vital to business performance. The availability of resources
enabled by entrepreneurial networks greatly enhances the survival and growth potential of
business. Hence, the justification for examining the importance of social capital in small scale
business performance. However, the study will draw management and policy-makers' attention
to the urgent need for specific management practices to enhance the effectiveness and
sustainability of entrepreneurial behaviour in small-businesses in Nigeria. Finally, from an
academic perspective this study's insights should contribute to the future development of this
line of research, particularly in a developing country like Nigeria. Therefore, given the growing
sentiment among researchers that the relationship between entrepreneurial behaviour and
business performance may be contingent rather direct one (Lyon, Lumpkin and Dess, 2000).
There is need to identify contextual factors linking entrepreneurial behaviour to performance.

1.6 SCOPE OF THE STUDY

This study focuses mainly on three components of entrepreneurial behaviour (proactiveness,

innovativeness and risk taking) and small scale business performance using four local
government areas out of the twenty four local government in the Lagos state of Nigeria as a
case study. The study involves small scale businesses in trading, manufacturing and service
sub-sectors. The rationale for choosing these three sectors is based on the observation that
majority of small businesses in Lagos metropolis are concentrated around these sectors.

1.7 CONCEPTUAL CLARIFICATION

Business performance: It is the achievement of organisational goals related to profitability

and growth in sales and market shares as well as the accomplishment of general firm’s strategic
objectives (Hult, Hurley and Knight, 2004). It is generally view from two perspectives that is
subjective concepts which is primarily concern with the performance of businesses relative to
that of their competitors (Golden, 1992; Kreiser, Marino, and Weaver, 2010). The objective
concept is based on absolute measure of performance. This subjective concept was used for this
study. This was operationalized by the perceived satisfaction with net profit margin.
Entrepreneur: An entrepreneur is person who has possession over an enterprise or venture and
assumes significant accountability for the inherent risks and outcome.

Innovativeness: This involves supporting and encouraging new ideas, experimentation and
creativity likely to result in new products, services or process Lumpkin and Dess, 1996. It is
upgrading existing products’ appearance and performance. The study adopted this as its
working definition.

Proactiveness: This refers to how a business venture relates to market opportunities in the
process of new entry. It defines the propensity of a business to anticipate and act on future
market needs in order to influence trends or create demand.

Risk taking: This means the extent to which the business owner is willing to engage in
behaviours with uncertain and significant outcomes for the firm. The term uncertain refers to
the variability of outcomes, the lack of knowledge of potential outcomes, distribution and the
uncontrollability of outcome attainment.

Small scale business. This is a form business employing between 1-10 employees with capital
outlay of between ₦100, 000.00 and ₦2m excluding cost of capital but including working
capital.

Social capital: This is sum of the resources, actual or virtual, that accrue to an individual or a
group by virtue of possessing a durable network or more or less institutionalised relationships
of mutual acquaintance and recognition. This involves membership of such network which
includes social, religious and trade associations.

Cultural factors: These are operationalized in terms of education, language and ethnic group,
since they shape values and beliefs and an entrepreneur’s cultural skills (Basu and Altinay,
2002). This was adopted in the study.