ENTREPRENEURIAL DEVELOPMENT AND EMPLOYMENT CREATION
CHAPTER TWO
LITERATURE REVIEW
2.1 Conceptual Review
2.1.1 Entrepreneurial Development
Conceptual review of entrepreneurial development can be traced to entrepreneurship itself. The word entrepreneurship has been defined by various professions to mean many things since the middle age (Igbo, 2006 cited in Oviawe, 2010). Inegbehebor (1998) cited in Oviawe (2010) defines entrepreneurship as the willingness and ability of an individual to seek investment opportunities, establish and run an enterprise successfully. More so, entrepreneurship can be defined in terms of risks. In this case entrepreneurship can be considered as an act of starting a company, arranging business deals and taking risks in order to make a profit.
Furthermore, entrepreneurship can be seen as the effective manipulation of human intelligence to develop a new venture or apply a new approach to an old business (Esomonu cited in Oviawe, 2010). Oviawe (2010) further notes that the definition of entrepreneurship according to the National Directorate of Employment (NDE) involves the recognition of business opportunities, mobilization of resources and persistence to exploit the opportunity.
Subsequently, entrepreneurship can be defined in terms of learning technical, management and organizational skills. For instance, Agomua (2002) cited in Ezeani, Ifeonyenatalu and Ezemoying (2012) considers entrepreneurship as a process of bringing together creative and innovative ideas, combining them with management and organizational skills in order to combine people, money and resources to meet an identified need and thereby create wealth. It is the intelligence and ability of an individual to seek out investment opportunities, establish and run an enterprise successfully.
2.1.1.1 Characteristics of Entrepreneurial Development
The characteristics of entrepreneurial development can be traced to entrepreneurship which helps in successful entrepreneurial ventures. These characteristics include desire for achievement, focus of control, risk taking propensity, pro-activeness, tolerance and security (Rotter, 1966; Brochaus, 1980; Miller, 1983; Share 1983; Drucker, 1985;Betaman & Grant, 1993;Mclelland, 2006 cited in Izedonmi & Okafor, 2010).
Furthermore, Aig-Imoukhuede (1988)identifies ten activities and skills that would-be entrepreneurs must develop. They are positive attitudes, high aptitude for rational critical thinking and timely decision making, clear vision, generation of progressive ideas, drive and passion for success, ability to convert vision to concrete reality, creativity, innovativeness, courage and self-confidence, ability to assume reasonable risk, mercurial integrity, patience and resourcefulness, confidence, good judgments as well as prudence and hard work. It is these characteristics that enable them to carry out their activities effectively. These activities include ceramic production, wood work, poultry farm, packaging of food items, distilling and bottling water, barbing and vetinerary services (Anene &Imam, 2011).
2.1.1.2 Origin of Entrepreneurial Development
The origin of entrepreneurial development can be traced to the origin of entrepreneurship. Wiley (2011) says that entrepreneurship dates back to the time of Richard Contillon and Adam Smith in the late 17th and early 18th centuries but was largely ignored theoretically until late 19th and 20th centuries and especially until a profound resurgence in business and economics in the last 40 years.He says, however, that in the 20th century, the understanding of entrepreneurship owes much to the works of an economists such as Joseph Schumpeter in the 1930s and other Austrian economists such as Carl Menger, Ludwig Von Mises and Fredrick Von Hayek. On the other hand, Oshorun (2009) gives the historical account of entrepreneurship as having started when people started producing and exchanging their products and services at values warranting profit.
In Nigeria, indigenous entrepreneurship began with the introduction of Federal Loans Board in May, 1946 with the purpose of carrying out lending activities of the Colony Development Board (CDB), (Akeredolu – Ale, 1975). Corroborating the view of Akeredolu – Ale; Oshorun (2009) mentions that entrepreneurship was first noticed in Nigeria in 1956 when ordinance No. 24 of 1945 in a ten year rolling plan was put in place for the development and welfare of Nigeria. Consequently, the Nigeria local Development Board was established to assist Nigerian entrepreneurs.However, Akhuemonkhan, Raimi and Sofoluwe (2013) are of the opinion that entrepreneurship has been an age – long tradition in Nigeria, a cultured habit that has consistently been transferred from one generation to another generation with the diverse ethnic nationalities that make up Nigeria. So, entrepreneurial mindset is prevalent in Yoruba in the west; Hausa in the north and Igbo in the east since time immemorial.
2.1.1.3 Scaling Entrepreneurial Development
Entrepreneurial development is considered as a programme of activities enhancing the knowledge, skills, behavior and attitudes of individuals and groups to assume the role of entrepreneurs. Therefore, entrepreneurial development can be measured through entrepreneurship characteristics. For instance, Kee, Rodrigues, Kundu,and Racine (2008) assess the efficacy of the entrepreneurship curriculum, they recourse to identifying a measure for entrepreneurship which is the Global Entrepreneurship Monitor(GEM) project, that is mainly based on surveys and expert interviews. To them, therefore, a measure of entrepreneurship focuses on the rate of creation of new start-up.
Kee, et al., (2008) acknowledged their source of difficulty as the absence of tools to measure the probability of entrepreneurship, short of waiting for 15 to 20 years to see which individuals do indeed start companies. Recent findings support the idea that psychological attributes associated with entrepreneurship can be culturally and experientially acquired as verified by Vesper(1990) and Gorman(1997) cited in Kee et al., (2008). Individuals are predisposed to entrepreneurial intentions based on a combination of personal and contextual factors observed Boyd and Vozikis(1994) in Kee et al., (2008). Personal factors such as prior experience as an entrepreneur and contextual factors such as job displacement have limited applicability to entrepreneurial propensity among youth. Psychological attributes, on the other hand, have produced the most support for predicting whether a person will pursue entrepreneurship or not (Wayne, Watson, Carland & Carland, 1998 cited in Kee et al 2008).
2.1.1.4 Importance of Entrepreneurial Development
Entrepreneurship has the ability to create employment and improve productivity and economic growth (Organization for Economic Conglomeration and Development (OECD) in Deakins & Feel, 2009). Corroborating the view of OECD mentioned above, the Chief Executive of Media production of Nigeria, Eric Moore, asserts that the drivers of development generally are small and medium enterprises which are invariably the largest employers of labour (Joseph, 2010). This assertion confirms the fact that entrepreneurship development is labour intensive and therefore capable of offering employment opportunities(Ahmed, Baharun&Rahman, 2004).
Entrepreneurship is internationally recognized as the very source of dynamism, innovative and flexibility as well as having the ability to create jobs in advanced industrialized countries, emerging and developing economies (Deakins & Feel, 2009). Udeh (1999) asserts that SMEs are comparatively more labour intensive than large companies (i.e. they employ more labour per unit of capital employment and less capital created per unit of employment). The bulk of new employment in the last ten years has been in the small business sector and the number of self – employed people has grown significantly. In addition to its ability to provide employment, Ogujiuba et al, 2004 cited in Ohachosin et al 2013, say it also helps in reducing poverty and sustains livelihood. The SMEs/entrepreneurship possess the needed catalyst to turn the economy around for good (Udechukwura, 2003; & Anyanwu, 2003). Mitchell and Reid, 2000; Nandan, 2010 in Ohachosin et al 2013 also state that entrepreneurship /SMEs have the ability to start small and grow gradually as well as source the rapid resource adjustment in good and bad economic times as they have short – term gestation period and high potential for quick yield on investment.
2.2 Self-Employment
Self-employment can be defined based on the traditional employment classification used by ILO and OECD or based on the subject itself—self-employment.Based on the ILO and OECD classification, self-employment is defined as such work when wages directly depend on the profit (or future profit) gained from goods produced or services provided (Pedersini& Coletto, 2009 in Startiene et al 2010). The definition based on the subject, sees self-employment as an employment engaging a self-employed, that is, an incorporated selfemployed person, a person choosing a form of legal entity to develop the activity all in incorporated person (Evans, Leihtor, 1989, Schuetze, 2000; Lun Stean, 2000; Thomas, 2009 in Startiene et al, 2010).
However Startiene et al (2010) are of the opinion that, based on previous studies by experts on main characteristics of the self-employed, self-employment can be defined as a simplified form of entrepreneurship, where a person, by combining financial resources and personal capacity offer market (consumers) goods/services in order to obtain financial and/or non-financial benefits and assuming the risks of self-employment.
Indeed, self-employment and its subject concept show that self-employment can be defined differently in different countries on the basis of tax regulations, social security contributions, unemployment, sickness and disability benefits, the rights to social security and, finally, the responsibility for their work (Startiene et al,2010). That is why in countries such as Hungary, Ireland, Norway and United Kingdom there is no legal backing for selfe-mployment description.
2.3 Vocational Skills
Skills mean the ability, talent or experience of a person to execute a task (Akutson & Udeh, 2015). These authors refer to vocational skills as special skills (non-academic based) pertaining to a vocation. To them, a vocation is proclivity to undertaken a certain type or kind of trade or work. Therefore, a vocational skill is that ability or talent that has a tendency to lead to a particular trade or work. Akutson & Udeh (2015) are of the opinion that skills acquisition is an important component of entrepreneurship and without the skills; a small business owner is bound to fail. They believe that skills acquisition lead to the creation of millions of small businesses which create employment.
Anene & Imam (2011) are of the opinion that there are many skills that can be acquired. They revealed that the Nigerian Institute of Management (NIM) recommended about one hundred (100) skills to the Federal government of Nigeria as skills to be included in the university curriculum for entrepreneurship education so that the students can acquire them while in school.. Among these skills are salon, interior decoration, electrical/installation, electric wiring, fashion designing, bakery, hair weaving, soap making, operating a business centre, raising of flowers, vegetable oil production, tailoring, pottery making, graphic design and making of decoration pots.
Also, All Saints University revealed that these skills can be learnt. In 2016, the list of vocational training courses released by it shows an indication that these skills can be learnt. The university goes further to say that there are some vocational skills that are popular and are of high demand. These skills include computer specialists, fashion designer, electrician, plumber, bricklayer, medical laboratory technician, carpentry, blacksmithing, daycare management, diesel mechanics, and hairstyling and pharmacy technician. Those who acquire these skills readily find employment after completing their training programmes.
Wealth .com in their July, 2016 release indicates also that there as some skills that are in high demand and which easily fetch employment in Nigeria. According to their report, there are 10 skills that fetch reliable means of income in Nigeria and that these skills can be learnt within two months. These skills are phone repair, graphic design, house painting, hair barbing, wristwatches repair, hair dressing and make up, interior decoration, laptop repairs, bead making and fancy brick making. Apart from the ability of these skills to generate income easily for those who acquire them, the short period of training also helps in reducing unemployment since these skills are in high demand.
Contrary to the formal system of learning skills as released by All Saint University cited above, International Labour Organization (ILO, 2012) disclosed that in India and many African countries, the predominant source of vocational education or training is conveyed in traditional or informed apprenticeship system, outside of formal vocational or general schooling. While knowledge is transmitted between generations within a family or clan in traditional/informal means, apprenticeship is open to opportunities not belonging to a family or clan. Despite taking place in the informal sector, these traditional or informal apprenticeships have some locally standardized structures and durations and are based on some contractual agreements between craftsmen and the trainees.
2.4 Theoretical Review
2.4.1 Theories of Entrepreneurial Development
The Need for Achievement Psychological Approach
The pioneering research work of the Harvard Psychological Clinic in the 1930s, summarized in Explorations in Personality, provided the start point for future studies of personality, especially those relating to needs and motives. McClelland's and his associates' investigations of achievement motivation have particular relevance to the emergence of leadership. McClelland (1961) was interested in the possibility of deliberately arousing a motive to achieve in an attempt to explain how individuals express their preferences for particular outcomes—a general problem of motivation. In this connection, the need for achievement refers to an individual's preference for success under conditions of competition.
The vehicle McClelland employed to establish the presence of an achievement motive was the type of fantasy a person expressed on the Thematic Apperception Test (TAT), developed by Christiana Morgan and Henry Murray, who note in Explorations in Personality that "when a person interprets an ambiguous social situation he is apt to expose his own personality as much as the phenomenon to which he is attending. Each picture should suggest some critical situation and be effective in evoking a fantasy relating to it. The TAT has been widely used to support assessment of needs and motives.
In 1961 McClelland published The Achieving Society, which articulated his model of human motivation. McClelland (1961) contended that three dominant needs -for achievement, for power, and for affiliation- underpin human motivation. McClelland (1961) believed that the relative importance of each need varies among individuals and cultures. Arguing that commonly used hiring tests using IQ and personality assessments were poor predictors of competency, McClelland (1961) proposed that companies should base hiring decisions on demonstrated competency in relevant fields, rather than on standardized test scores.
2.4.1.1 Risk Taking Theory (RTT)
This is the view of Richard Cantillon (1755) and John Mill. It is also a psychological theory of entrepreneurship. The theory considers entrepreneurship as a mentality to take chance or calculated risk (Oladele et al, 2011). The higher the ability of an individual to take risk the higher the rate of increase in entrepreneurship activities. When individuals have the ability to take high risk, the theory believes that it is only then that such individuals can go into entrepreneurship. When individuals who have ability of taking high risk, such individuals will be able to use their traits of creativity, risk taking, innovations, strategic thinking and constructive engagement directed to entrepreneurship development (Raimi, 2010 in Oladele et al, 2011).
2.4.1.2 The Schumpeter/Entrepreneurial Effect
Schumpeter was probably the first scholar to theorize about entrepreneurship, and the field owed much to his contributions. His fundamental theories are often referred to as Mark I and Mark II. In the first, Schumpeter argued that the innovation and technological change of a nation come from the entrepreneurs, or wild spirits. He coined the word Unternehmergeist, German for "entrepreneur-spirit", and asserted that "... the doing of new things or the doing of things that are already being done in a new way"stemmed directly from the efforts of entrepreneurs.
Mark II was developed when Schumpeter was a professor at Harvard. Many social economists and popular authors of the day argued that large businesses had a negative effect on the standard of living of ordinary people. Contrary to this prevailing opinion, Schumpeter argued that the agents that drive innovation and the economy are large companies which have the capital to invest in research and development of new products and services and to deliver them to customers cheaper, thus raising their standard of living.
In one of his seminal works, "Capitalism, Socialism and Democracy", Schumpeter wrote: As soon as we go into details and inquire into the individual items in which progress was most conspicuous, the trail leads not to the doors of those firms that work under conditions of comparatively free competition but precisely to the door of the large concerns – which, as in the case of agricultural machinery, also account for much of the progress in the competitive sector – and a shocking suspicion dawns upon us that big business may have had more to do with creating that standard of life than with keeping it down.
2.5 Theories of Self-Employment
There are different perspectives that have been suggested by the literature in relation to self – employment and these include economic and sociological – psychological theories as well as the “Push” and “Pull” theories (Startiene, Remeikiene & Dunciuviene, 2010).
2.5.1 Economic Theories
Economic theories of self – employment interpret financial motives of the person to pursue own business. There are very few economic theories, exclusively dealing with self – employment in the literature. The reason for this is not unconnected with the fact that economic theories that analyze self-employment and entrepreneurship often coincide and supplement each other (Balka, 1989 cited in Startiene, et al., 2010).
2.5.2 Occupational Theory
One of the economic theories is occupational choice theory. Earlier studies of occupational choice theory mainly focuses on the neoclassical theory of human capital in which individuals are more likely to choose a profession that offers the highest possible earnings in the future (Becker, 1964 cited in Startiene, et al., 2010). However, in the view of Parker (2004 in Startiene et al,2010), occupational choice is treated as modern economic theory to explain what qualities people who decide to become entrepreneurs must have and why they should have them.
In traditional economy, only one choice is considered – the choice of the employee among various professions (Roy, 1951 in Startiene et al 2010). However, in entrepreneurial economy, there are three classical occupational choice models analyzing entrepreneurship as one of the possible alternative in the labor market (Lucas, Kilhstrom & Laffornt(year); Holnes & Schrutz(year)cited in Parker, 2005). For instance, Lucas (1978) proposes a static model whereby a person can choose from two options: paid employment or entrepreneurship (management). Individuals differ in their innate entrepreneurial ability and Lucas showed how the most talented individuals established large enterprises while the less talented opted out for paid employment.
Kihlstrom & Laffornt (1979) developed general equilibrium theory based on Knight (1920) model of entrepreneurship. In this model, people choose between risky decision to manage an enterprise or less risky and less paid work in wage employment. According to them, people differ in what level of risk they assume as people who take the greater risks will choose entrepreneurship. They further explain that even among entrepreneurs, the larger business enterprises are managed by those whose risk – taking level is high.
More recently, Holmes and Schmitz (1990) developed a model in which individuals constantly taking the new opportunities of technological progress set up their own businesses, however, differing in business survival probability. In their study, these authors examined factors which encourage entrepreneurs to continue the existing business or create a new one, transferring the latter one to the less skilled businessmen. Holmes and Schmitz model has proved that the least talented entrepreneurs manage business established by others, while the most talented specialize in business creation. So entrepreneurs with average ability either manage established businesses or buy from the most talented entrepreneurs high -quality business: scarcely do they venture into creating new businesses.
Many researchers (Calvo, 1980; Jovanovic, 1994; Fetzer, 1998; Artunes & Calvacanti, 2002; Parker, 2004; Jacobs, 2007 cited in Startiene, et al., 2010) rely on the classical model of Lucas for the fact that most talented people choose entrepreneurship. Calvo & Wellisz (1980) extended Lucas model to include learning process through which entrepreneurs acquire the necessary knowledge. However Jovanovic (1994) usingRoy & Lucas occupational choice theories and evaluating heterogeneous management and operational skills reveals that most talented people do not necessarily become entrepreneurs and that indeed, more educated people may choose both options (paid employment and self–employment). Educated individuals could have both forms of employment by engaging in wage employment and at the same time engage in self–employment on part – time basis.
2.6 Empirical Review
2.6.1 Self–Employment
Before the colonial era, there was in existence, a form of employment that was traditional in nature in Nigeria. This type of employment was based on the predominantly agricultural economy, culture and traditions – these were then the basis for systems of work and reward as revealed by Ubeku, (1993) cited in George, Owoyemi and Onokala (2012).
In most cases the employer was the family head while the employees were members of his immediate family and the extended family as reported by Yesufu (1982) in George, et al., (2012). This employer/family head determined the reward systems, recruitments, and selections, promotions which were not necessarily based on merit or seniority. As a reward he provided food, housing and security for all the employees (mostly family members) and even determined when they would get married and to whom says (Iwuji, 1968 cited in George, et al., 2012).
Iwuji (1968) cited in George, et al., (2012) reported further that in some areas farming was carried out on a cooperative basis; people of the same age organized to work for themselves in turns. On such occasions remuneration was mainly through exchange of food and drinks as the economy was rural with no acceptable monetary currency or probably to reciprocate good gestures by working on another person’s farm when required, or at the extreme end by providing security in case of invasion of friend’s farm or household by an enemy and in some cases as part of the dowry for a very beautiful fiancée (Iwuji, 1968cited in George, et al., 2012).
From the foregoing, in the traditional system in Nigeria; the family head provided employment for members of the family. This system of employment was passed from generation to generation. This was the system in practice before the colonial era. In that system, it was the responsibility of the head of the family to create employment for his families. This was done by each family head, in this way the society made by the family units can be said to have created employment opportunities for all members of the society. So, in traditional African society, unemployment does not exist. Nigerian government has established agencies to run entrepreneurship programmes, to provide employment for the teeming applicants just as the Nigerian society was doing in the past as reported earlier (Alarape, 2008; Aladekomo,2004).
2.7. Vocational Skills
Educational Trust Fund(ETF) (2007) revealed that in Ghana, the statistics of those trained in skill development and employed in 2011 stood at 12100 and that they were all graduates of tertiary institution. Also International Labour Organization (ILO)/United Nations Development Programme (UNDP) disclosed in ETF(2007), that one of the trainees of the community based skills project carried out by them in Cambodia, the follow-up surveys (tracer studies) revealed that over 82 percent of the trainees got employed using their acquired skills and were earning on average, US $ 33 a month, well above the average per capita GDP of about US $ 22 a month.
ILO further disclosed that in their projects (2002-2005) carried out in Pakistan and the Philippines – Training for Rural Economic Empowerment (TREE) -that participants of the programme used the skills they acquired for income generation -in the region of 81 percent and 85 percent for Pakistan and the Philippines respectively. The World Bank disclosed that it financed vocational educational reform project in China between1996-2004. 80 key secondary vocational and technical schools were used as models for upgrading the quality and efficiency of vocational education in areas where demand for skilled labour out passed supply to the extent that 91 per cent of students trained in these schools found employment within six months of graduation.
2.8 Small and Medium Scale Enterprises (SMES) in Nigeria
Olaniyan (2005) carried out his study on small scale business in the informal sector in Nigeria. He used data from a survey of 417 small wood working enterprises in Nigeria and found out that characteristics of entrepreneurs have a strong impact on the performance of small scale enterprises. Using regression analysis, he discovered that there is a positive significant effect of entrepreneurship characteristics on the performance of small wood working enterprises in Nigeria. The level of human capital proxy by the years of schooling of the entrepreneur and the experience of the entrepreneur are the most significant factors that affect the performance of small scale enterprises in Nigeria. On average each of the 417 small scale enterprises of the study employed 5 workers.
Also, Gunu (2003) carried out his study on 36 small scale businesses in Ilorin Metropolis. Using percentages for easy comparison found out that some businesses are created by their owners and the others are family businesses. Furthermore, he discovered that the sources of finance by these small scale businesses as personal savings, cooperatives, banks (loans), family, friends, NERFUND and money lenders, with personal savings accounting for over 52 percent. This suggests that most business owners of his study started their businesses from their personal savings. In the same study, the discovered that 58.33 percent were new businesses owned by the owners; 2.78 percent purchased businesses; 11.11 percent of the businesses were inherited from parents; 5.56 percent were restarted businesses and 22.22 percent were family businesses. He disclosed that the small businesses were made up of 58.56 percent as sole proprietorship, 33.33 percent as business partnership and 11.11 percent as company. Majority of the small scale businesses have less than ten employees.
The results also showed that there was a substantial increase (133%) in the number of SMEs owners that have grown in terms of employment generation from microenterprises to small scale and medium scale forms over the span of five years. The results showed furtherthat business registration, business size nature of business,sources of capital, were the major factors determining both income and employment generation potentials of SMEs. The study concluded that age of business, education of entrepreneurs and sources of raw materials were only significant in influencing the capacity of SMEs to generate employment.
2.8.1 Small and Medium Scale Enterprises (SMEs) in Oyo State
Ayodeji, Paul and Adeniyi (2014) conducted an investigation on the operation, problems, and prospects of Youth Employment Programme in Oyo State. They used the Skill Acquisition Scheme and the Youth Empowerment Scheme – Oyo (YES-O) as case studies. A survey methodology was adopted for the study with structured questionnaires designed for four categories of respondents. These were trainees under the Skill Acquisition Scheme, tutors under the scheme, administrators of the two employment programmes in the state, and cadets of the YES-O programme. The data were analysed through the help of the statistical software SPSS. To ensure a lucid and simple analysis, descriptive statistics measures such as tables and percentages were used in interpreting results from the study.
The results obtained showed that many factors have militated against the ability of the two schemes to achieve their objectives. The state skill acquisition scheme was characterized by problems ranging from inadequate funding, lack of an enduring exit strategy, lack of startup capital, ineffective monitoring and supervisory mechanism, absence of literacy and numeracy components and poor sensitization. The YES-O programme encountered challenges such as salary – related issues, absence of clearly defined exit strategy, duplications of duties and the inability of cadets to acquire relevant skills useful in the labour market.
The recommendation for the improvement of the skill acquisition scheme include the expansion of channels of enrolment into the scheme through collaboration with social groups, the establishment of more training centres, the creation of linkages with microfinance institutions, and the adoption of Public Private Partnership (PPP) development strategy in the scheme. With regard to the YES-O programme, components such as entrepreneurship education, vocational training, and business management skills should be incorporated into the programme to cater for cadets in the post YES-O employment period.