Academic journal article Asian Social Science

Influence of Strategic Orientation on SMEs Access to Finance in Nigeria

Academic journal article Asian Social Science

Influence of Strategic Orientation on SMEs Access to Finance in Nigeria

Article excerpt

Abstract

The paper examined the influence of EO, MO, LO, and TO on SMEs financial capital accessibility in Nigeria. The purpose of this paper is to establish the role of firm strategic orientation in helping SMEs improve their financial access. A total of 362 questionnaires from SMEs in North Western Nigeria were used in this study. Partial Least Squares Structural Equation Modeling (PLS-SEM) was used to test the study hypotheses. Using SmartPLS 3.0 the findings indicates that strategic orientations are important drivers of firm success to finance. The result further suggests that SMEs who configured and utilized their strategic activities are more likely to get more cash flow, profit and retained earnings and will obtain a loan from external sources. To get an adequate financial capital SMEs need to improve their marketing activities, learn more from their experience and environment and lastly produce product with high technological improvement. At the same time they should avoid too much emphasis on taking risky business decision and investments.

Keywords: entrepreneurial orientation, market orientation, learning orientation, technology orientation, SMEs access to finance

1. Introduction

According to World Bank (2013), Small and Medium Enterprises (SMEs) contribute to the creation of employment which reduces regional inequalities between urban and rural areas. SMEs are the enging of economy through developing process and become large corporations. More so, CBN (2003) states that SMEs contribute to the employment generation, as it is one of the sectors that provide industrial employment in Nigeria. Because of their level of creativity, SMEs exploited the local raw materials that do not require high level technology to process, this provide an effective means of mitigating rural-urban migration and resource utilization. According to Osotimehin, Jegede, Akinlabi and Olajide (2012), SMEs are very fundamental for economic development. They contribute greatly to the economic and social improvement of the nation. Consequently, boosting the SMEs activities and government policies must go hand in hand to improve the growth and development of SMEs. To round it up, SMEs contribute about less than 46% to the GDP and 25% to employment in Nigeria, which indicate low performance of the sector (Ndumanya, 2013).

In recent times, there is growing agreement that a better access to finance for SMEs can enhance their performance and in turn have private and socioeconomic benefit on the nation's economy (Kumar, 2005). Hence, access to important resources such as finance is one of the major factor that encourages SMEs business activities in any economy (Kelley, Singer, & Herrington, 2012; Xavier, Kelley, Kew, Herrington, & Vorderwiilbecke, 2013). However, accessibility of financing can influence SMEs performance in two ways. According to Margaritis and Psillaki (2010), high level of leverage positively influence superior firm performance of a firm. Then again, high indebtedness may leads to product market underperformance (Campello, 2006).

There is considerable confirmation to support the argument that SMEs, in specific, confront various hindrances and issues in obtaining financial resources (Cassar & Holmes, 2003). Likewise, evidence shows that one of the significant causes for SMEs feeble development is the absence of financial access (Amorós & Bosma, 2014; Rogerson, 2008). Access to finance is fundamental to the operation of the SMEs in a variety of ways, Kyophilavong (2011) confirm that access to finance is among the top obstacles to running SMEs compared to the cost of the finance. Similarly, without sufficient access to finance, SMEs performance will be extremely difficult to achieve such as growth, employment generation, profitability, export performance, efficiency, productivity and returns (Harvie, Oum, & Narjoko, 2011). In developing country like Nigeria, SMEs are constrained in accessing financial resources and other financial assets. …

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