LEADERSHIP SKILLS AND GROWTH OF SMALL SCALE

BUSINESS IN IJEBU NORTH LOCAL GOVERNMENT

A RESEARCH PROJECT

BY

OMOSOLA AYOMIDE OMOLARA

MATRIC NUMBER: CSB01675122

DEPARTMEMT OF BUSINESS ADMINISTRATION

SUPERVISOR: DR O.A OGUNKOYA

DECEMBER, 2022
 CHAPTER ONE

INTRODUCTION

1.1 Background to the study

Leadership has been a topic of interest, speculation and debate. Since the time of Plato,

studies on leadership have examined leaders focusing on what leaders do in the physical

world of human beings. One principal factor which makes organisations to survive, grow and

adapt to environmental challenges is leadership (Darwish, and Abdeldayem, 2019).

The distinction between successful and unsuccessful organisations can be attributed to

differences in the levels of intellectual development and effectiveness of leadership in each

group (Okyere, 2016).

Kim (2004) is of the view that the kind of leadership style exhibited by managers to a

large extent influences organizational valued outcomes such as low employee turnover,

reduced absenteeism, customer satisfaction, and organizational effectiveness. Similarly,

leadership style controls interpersonal, reward and punishment that shapes employee

behaviour, motivation and attitude which impacts on organizational performance (İşcan, et

al., ). It can either lead to inspiration or disenchantment among employees resulting in

increase or decrease productivity (Sander, 2007). Furthermore leadership style at the

workplace can affect employee‘s self-image either positively or negatively particularly an

employee‘s health and energy level by creating a stimulating work climate or one filled with

tension or fear (Okyere, 2016).

The debate over whether leadership style can lead to firm performance has largely been

contested. Those who support the veracity and efficacy of leadership style and firm

performance believe that the disposition of leaders, their roles and responsibilities in

decision-making assist organizations to find solution to challenges and adapt to the complex
competitive environment which impact on profitability. The literature revealed that without

good decisions organizations would lack competitive advantage. In contrast, other theorists

believe that organizations which are less endowed resourcefully are so disadvantaged that on

its own leadership is too weak to influence performance except through the combination of

several factors. Though the view seems reasonable, empirically, evidence suggested that

leadership plays limited distinguishing role in influencing organizational members towards

firm performance are scanty. (Dzansi and Okyere, 2015)

Governments all over the world recognize the significance of the small business sector

as one of the key areas contributing to employment creation and economic growth (Okyere,

2016). Likewise, Lesotho has seen a rapid increase of SMMEs over the past decade.

Studies have confirmed that SMME owners/managers are the sole decision makers,

therefore, what they decide have dire consequences on the success or failure of the business

(Dzansi and Okyere, 2015; Okyere, 2016). It is therefore imperative for owners/managers to

lead their employees in an effective manner in order to sustain the growth and survival of the

business.

Mgeni (2015) argues that success of small business requires effective leadership styles.

Studies by Uchenwamgbe (2013), Lawal et al. (2014) and Mgeni (2015) reveal that effective

leadership styles can positively influence SMMEs competitiveness in numerous ways, such

as increased growth, profitability, motivated employees, satisfied customers, among others.

Therefore, for SMMEs to sustain their growth and survival, effective and dynamic leadership

would be needed so as to guide employees to achieve the goals of the business. Yukl (2002)

and Zaccaro and Klimoski (2001) in Hashim et al. (2012) advise that without effective

leadership, productivity, innovation and profits in businesses would not only be affected but

also survival and future of the business would be at risk too. This proves that the important
role of leadership in business management cannot be underestimated. Meanwhile, literature

search suggests that studies on leadership styles of businesses have mainly focused on big

corporations. Leadership in small businesses has yet to attract much interest from researchers,

particularly studies that attempt to investigate the leadership styles found in small business.

Prior literature search revealed no parallel studies on the impact of leadership styles of

Small scale business owners/managers on firm performance in Lesotho. Therefore, this gap

creates an interesting proposition for investigation. The outcome of this study is expected to

enhance SMME owners/managers leadership styles to lead their employees to achieve

business goals. Again, policy makers will find this study helpful in their quest to develop

appropriate and effective support mechanisms for promotion of the Small scale business

sector (Lawal et al., 2014)

Small scale business are the backbone of virtually all economies of the world because

of their role in employment creation and provision of personalized services

(Wattanapruttipaisan, 2013) SMEs have strong influence on the sustainable development

process of less developed as much as developed countries because they foster economic

growth and alleviate poverty (Ayyagari, Beck and Demirguc-Kunt, 2012). Udechukwu

(2013) asserts that the development of SMEs is an essential element in the growth strategy of

most economies and holds particular significance for developing countries like Nigeria.

The best performing economies in Asia are heavily based on SMEs which are major

sources of dynamism in economic development. The requirements for SMEs to access the

global market and upgrade their position within the international market as a result of trade

liberalization are becoming increasingly difficult due to competition (Abonyi, 2013). Berry

(2012) suggests that the increasing prevalence of flexibility and specialization of SMEs has

persuaded many business analysts to believe in the strategic role SMEs play in the industrial
structure of any developing nation. But he noted that SMEs are quite vulnerable to external

shocks due to the global competition from the liberalization of trade. There is reasonable

assurance that given favourable policy environment, SMEs can successfully compete in the

global market (Briggs, 2015).

Most governments, especially in Less Developed Countries (LDCs) now recognize the

need to formulate policies that create conducive atmosphere for the establishment and

operation of SMEs. The new emphasis by various governments in LDCs on SME

development can be linked with the current global trend of economic liberalization and the

need to bridge the development gap that hitherto exists between them and industrialized

countries. Governments in developing countries, especially in Nigeria, provide a wide variety

of programs to develop and assist SMEs. Despite these programs, it has been observed that

their impact on the performance of SMEs has been less than satisfactory (Manbula, 2012).

This can be attributed to some factors that governments and policy makers in developing

countries have failed to put into consideration in the design and implementation of SME

development programs.

Most SMEs either remain small, moribund or shut down within few years of operation

due to some constraints that hinder their growth, especially finance (Rodriguez and Berry,

2012). There is no available evidence in Nigeria that the situation has improved with

economic liberalization (trade and financial market) that brought about stiff competition from

well-established Multinational Corporations (MNCs). The proponents of economic

liberalization claim that it improves the situation of SMEs by giving them better access to

finance and encourages competition which will in turn reduce poverty (Tagoe, Nyarko and

Anuwa-Amarh, 2015).
 It develops the argument that government programs for SMEs development are not

properly implemented which has hindered SMEs competitiveness. The institutional structures

upon which these programs can function effectively are either not in place or insufficient.

This has resulted in a biased economic environment for SMEs to compete with well-

established MNCs under a liberalized trade environment.

Every year, a lot of people take a leap of faith to quit their nine to five jobs and start a

business. While many aspire to be entrepreneurs, few really understand what it takes, or

know how to start a business. There are a lot of requirements that must be fulfilled, and steps

that must be followed to successfully start and grow a business in Nigeria or anywhere else in

the world. Most SMEs in Nigeria die within their first five years of existence, a smaller

percentage goes into extinction between the sixth and tenth year while only about five to ten

percent survive, thrive and grow to maturity (Aremu & 106 Adeyemi, 2011). Many factors

have been identified to contributing to this premature death of SMEs. Key among them

include: insufficient capital, irregular power supply, infrastructural inadequacies (water, roads

etc.), lack of focus, inadequate, market research, over-concentration on one or two markets

for finished products, lack, of succession plan, inexperience, lack of proper book keeping,

lack of proper records or lack of any records at all, inability to separate business and family

or personal finances, lack of business strategy, inability to distinguish between revenue and

profit, inability to procure the right plant and machinery, inability to engage or employ the

right calibre of staff, cut-throat competition (Basil, 2005).

Beckman, (2013) contends that most of the problems of SMEs are external to it, among

them are those related to capital shortage, taxation and regulations, product liability patent

and franchising abuses. The internal problems of SMEs in Nigeria include: inadequate

working capital, stiff competition from larger companies, difficulties in sourcing raw

materials, low capacity utilization, lack of management strategies, poor educational

background of operators, and huge financial problems while the external problems include:

policy inconsistencies, multiple taxation, harsh regulatory requirements and trade groups

(Osamwonyi, 2009).

1.2 Statement of Problem

Small scale business are attracting the attentions of individuals, governments and Non-

Governmental organisations all over the world. This makes them to be the most common

form of enterprises across the globe. Small scale business are easy to set up in the sense that

most of them do not require much capital and rigorous legal formality. Small scale business

cover different aspects of business life ranging from manufacturing to merchandising and

services.

They are also the cornerstone of economic development in all human societies in the

sense that they contribute toward improving productivity, employment generation, poverty

reduction and improvement of standard of living. It should however be noted that despite all

these laudable contributions of Small scale business to societal development, most of them

fold up at infancy within few years of their establishment as a result of inefficiency which

was occasioned by inability of keeping and maintaining financial records in a proper

accounting format and poor management. In line with these, Adamu in Gidado and Akaeze

(2014) states that some SMEs find it difficult to grow, secure loan from financial institutions

and determine their profits because of their inability to keep financial records.

Aruwa in Gidado and Akaeze (2014) also stresses that managerial incompetence is one

of the problems confronting entrepreneurship in Nigeria. To cap it all, Onyechinyere and

Amasike (2017) point out that lack of management skills, poor record keeping and the

adoption of accounting that lacks standard which lead to improper assessment of the

performance of SMEs lead to their downfall.

1.3 Aim and objectives

The aim of the study is to examine the effects of leadership style on organisational

growth of Small scale business with key objective of determining the preferred leadership

skill that can enhance organisational performance of Small Scale business with the following

objectives;

(i) To determine the impact of leadership skills on small scale business.

(ii) To determine how leadership skill affect small scale business.

(iii) To determine how democratic leadership skill affect small scale business.

1.4 Research Questions

The research questions are in line with the objectives of the study and they are as follows:

1. Does leadership skills have effect on the growth of Small scale business?

2. Is there any relationship between leadership skills and performance of Small scale

business?

3. Is there any relationship between the economy and growth of small scale business?

4. What impact does small scale business does in the growth of the economy?

1.5 Significance of the Study

 This study has provided information that would inform prospective and current owners

of Small scale business on the impact of leadership skills and growth of small scale business.

It would also recommend ways of managing the factors identified. This information shall also

provide the basic data for further research. The finding of the study would also be of

relevance to policy makers in formulating strategies for the development of Small scale

business in the study area. Similarly, this study will give recommendation on some of the

important measures that the entrepreneurs should take towards improving performance and

growth of small scale business. The study will achieve this by bridging the gap that exists on

the relationship between leadership skills and growth of the small scale business.

1.6 Operational Definition of Terms

1. Leadership:

2. Growth:

3. Small Scale Business:

4. Performance:

5. Entrepreneurial skill: