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Information and Communication Technology Applications in Small and Medium Scale Enterprises (Smes) in Nigeria
Babatunde Kujore article

Information and Communication Technology (ICT) refers to a wide range of computerized technologies. ICT is any technology that enables communication and the electronic capturing, processing and transmission of information. These technologies include products and services such as desktop computers, laptops, handheld devices, wired or wireless intranet, business productivity software such as text editor and spreadsheet, enterprise software, data storage and security, network security and so on. In Nigeria, commonly used ICTs include Personal Digital Assistants (PDAs), Automated Teller Machines (ATMs), mobile phones, and smart cards.

 

The Role of ICT in SMEs:

In the present knowledge-based economy, it is important for SMEs to adopt processes that would enable them provide services that would bring about competitive advantage. ICT has a significant positive impact on organizational performance. ICT is crucial to SMEs as it is a major catalyst and enabler of organizational change. Modern businesses are not possible without the use of ICT which is having a significant impact on the operations of SMEs and it is claimed to be essential for the survival and growth of economies in general. ICTs provide opportunities for business transformations. It also provides SMEs the opportunity to conduct business anywhere. It is commonly accepted that ICT provides many potential benefits to organizations so as to make them more efficient, effective and competitive. ICT increases richness and reach. This refers to the way companies communicate, collaborate, conduct transactions internally with their customers, suppliers and distributors via the internet and the ability for local

SMEs to participate in the digital economy. According to Erumban and de Jong, ICT has created a revolution by making the world seemingly smaller and improving potential economic growth. Pavic et al argue that SMEs have the opportunity to achieve a competitive advantage from the advances in ICT through innovation, marketing, efficiency gains, better quality and customer responsiveness. Also, Levy et al found some evidence which shows that SMEs act proactively in relation to the use of ICT.

The European Commission state that SMEs could use ICT in order to grow and to become more innovative. The use of ICT in SMEs should be encouraged as it can help to improve technical and managerial skills, making available e-business solutions for SMEs and addressing the high cost of ownership of ICT equipment. Also, Love et al ascertains that the use of ICT provides many benefits to SMEs at different levels (operational level, tactical level and strategic level).

In addition, Ongori states that the use of ICT would help change the way businesses operate in this era of globalization by changing business structures and increasing competition, creating competitive advantage for businesses and by changing business operations. Therefore, SMEs must have an ability to compete and dynamically respond to rapidly changing markets as it plays a significant role in an organization’s growth and success. According to Kapurubandara and Lawson, for survival in a competitive global economy and staying abreast, it is apparent that SMEs embrace ICT as it is becoming imperative for SMEs to gain competitive advantage and for stability in international markets. This implies that there are several benefits associated with the use of ICT.

 

Benefits of ICT in SMEs:

The benefit of ICT cuts across all sectors of the economy and all the fields of human activities. ICT can improve the standard of living and enhance business operations as well as organizational efficiency. Appropriate use of ICT can assist SMEs to gain competitive advantage by reducing costs and improving core business processes. According to Brynjolfsson and Hitt, the use of ICT can help to cut down the costs of coordination, communication, information processing and also enable efficient service provision at lower cost. ICT is a strategic tool that enables users to be efficient and effective. The diffusion of ICT in many countries by different sectors of the economy have been found to have direct positive impact on the organization’s efficiency and have led to more rapid acceleration of development in these countries. In Nigeria, preliminary investigations show that only few SMEs presently use ICT. However, there has not been a formal study to ascertain the impact of ICT in these organizations.

According to Fullanteli and Allegra, ICT offer enterprises a wide range of possibilities for improving their competitiveness. They provide mechanisms for getting access to new market opportunities and specialized information services such as distance consulting, continuous training, new advisory modes, and so on. Organizations can exchange real-time information and build closer relationships with their customers, suppliers and business partners; customer can receive immediate feedback that allows companies to react fast to changing customer demands and recognising new market niches. This means that organizations that are able to exploit the potentials offered by ICT can handle innovative processes such as Supply Chain Management (SCM), Customer Relationship Management (CRM) and Knowledge Management (KM) more effectively.

Since, ICT has been described as critical to the competitiveness and growth of SMEs, it is important for it to be applied in the relevant manner in order to reap the far-reaching payoffs of ICT. Shiels et al state that technology would not lead to business growth except it is aligned with a business strategy. This means that having the right technology in the right place and at the right time would assist to improve business performance and also aid competitiveness and sustainability. Once ICT is integrated into a business process, it becomes a useful tool in many stages of the value chain.

The use of ICT in SMEs helps to improve communication ability to exchange data, teamwork, customer relations services, market share and so on. It allows companies to obtain, process, accumulate and exchange information. Another benefit of using ICT in SMEs is the fact that high efficiency is obtained in business transactions due to a fast and accurate processing of information. Lal further states that web-enabled services increase the competitiveness of SMEs because they change the relationship with customers by creating a stronger link between firms and clients. The use of ICT in SMEs facilitates cooperation within the company, between the company and other firms.

Similarly, Swift states that SMEs benefit from the use of ICT as it increases productivity, efficiency of internal business and operation and connects SMEs more easily and cheaply to external contact. Other benefits include increasing business competitiveness; vertical integration with other related initiatives, meeting stakeholders of various institutions; networking with other parties; creating of an enabling environment and the development of an internal competence in capturing market opportunities. Hence, the investment in ICT will result in increasing SMEs rates of sales and share of market, improve their Return on Investments (ROI), reduce cost and assist them to develop new products and/or markets.

Chowdhury and Wolf argue that SMEs use ICTs both as input in the production process and in the transaction process selling their products or acquiring inputs. ICT enhances enterprise performance through indirect cost savings such as labour costs, increased labour productivity and direct cost reduction of firm’s input. On top of these short-run impacts of ICT in the production process, the use of ICTs in the transaction process can foster input and output market expansion. However, in the long run ICT may have a bigger impact as it can completely restructure the production process and transaction methods and also increase flexibility and improve outputs. In order words, it can be concluded that ICTs can influence the performance of an enterprise in multifaceted ways.

In addition, ICT has been widely perceived as major tools for kick-starting ailing economies and consequently in assisting developing societies to ‘catch up’ with the developed world. ICT can assist groups that have lost out of the mainstream of development. ICTs have valuable potentials for developing SMEs through more effective use and better integration in their business processes. This will bring about a change among SMEs and make them more competitive, innovative and also generate growth.

Nevertheless, several factors hinder SMEs from fully realizing these benefits. According to Liedholm; Ducombe and Molla, SMEs especially in Africa suffer from many constraints related to an unfriendly policy and regulatory environment, lack of finance, lack of skills, access to markets and market information, lack of infrastructure among others and Nigerian SMEs is no exception.

 

Problems of SMEs in Nigeria:

Several problems are militating against the development of SMEs in Nigeria. As a developing economy, one of the most worrying among these constraints is the issue of funding. This is because most banks are afraid of funding SMEs for the reason that they want to minimize their risk profile. Also, the Nigerian economic situation is not very attractive to investors. This forms a major constraint to SMEs growth in the country.

In Nigeria, there is the problem of inadequate and inefficient infrastructural facilities, which tend to escalate costs of operation as SMEs are forced to resort to private provisioning of utilities such as water supply, electricity, and so on. Other problems include lack of adequate credit for SMEs traceable to the reluctance of banks to extend credit as well as inadequate collateral by SME operators, weak demand for products arising from low and declining consumer purchasing power and lack of patronage of locally produced goods by those in authority. All these problems hinder the effective use of ICT in Nigerian SMEs.

Electricity constraint is a major factor that affects the use of ICT in Nigerian SMEs. In many rural areas, there are no electricity supplies; while in the towns and cities where there is electricity, its presence is limited. Electricity generation and distribution therefore negatively affect the diffusion levels of ICT in the country. Nigerian population lacks access to electricity. Therefore unless power supply is stabilized, as well as expanded to the rural areas, electricity is likely to remain a key factor hindering the development of SMEs in Nigeria.

There is also the problem of multiplicity of regulatory agencies and taxes which has always resulted in high cost of doing business, poor management practices and low entrepreneurial skill arising from inadequate educational and technical background of many SME owners.

Similarly, developmental policies weigh in favour of large firms and sometimes foreign owned firms leaving SMEs in a distressed and vulnerable position. Corruption, lack of transparency, very high bureaucratic costs and lack of government interest in supporting the roles of SMEs in national economic development and competitiveness. The most worrying of all among these challenges is funding. Most SMEs enterprises are not attractive prospects for banks as they want to minimize their risk profile. Also, In Nigeria, provision of public infrastructure is grossly inadequate and poor. Necessary telecommunication services, as public infrastructure, needed for meaningful investment are very expensive and inadequate.

 

Conclusion and Recommendations:

The use of ICT can provide a platform for future growth of SMEs however; the use of ICT in Nigerian SMEs is relatively low due to many factors militating against their growth. For Nigerian SMEs to effectively use ICT, technological infrastrucures should be put in place by the government to support ICT use. Based on the literature review and case study, it is certain that there are several benefits associated with the use of ICT. Hence, effective use of ICT in Nigeria SMEs would bring about enormous opportunities for these SMEs. Therefore, for an SME to set itself apart from its competitors and also have a sustainable competitive advantage there is a need to invest in ICT. There is also a need for the government to intensify the efforts of promoting the use of ICT in Nigerian SMEs since ICT is known to improve managerial practices in SMEs and also assist SMEs to grow and become more innovative. Finally, the Nigerian government must invest largely in the SME sector by making more funds available to SMEs and putting structures in place to ensure a successful investment. The integration of ICT in Nigerian SMEs would help integrate these SMEs into the world IT village.

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