CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Small and Medium Enterprises (SMEs), whether new or existing, often face certain challenges when they approach providers of products and services for both fixed capital investment and market standards. The insufficient supply of microloans is a major issue, particularly where business creators are unemployed persons, women, or members of ethnic minorities with different cultural dependencies. Supporting the supply of microloans is therefore a matter not only of entrepreneurship and economic growth but also of social inclusion.

Nigeria has gained political independence but still lags in economic development. SMEs are vital engines of economic growth and play a great role in the country's gross domestic product. According to the National Bureau of Statistics, Nigeria had 39,654,385 micro, small and medium enterprises (MSMEs) as of 2020, of which micro enterprises made up 96.9 per cent and SMEs 3.1 per cent, and MSMEs contributed about 46.3 per cent of national GDP (PwC Nigeria, 2024). Other recent work reports that MSMEs make up 96.9 per cent of all businesses in Nigeria, contribute almost half of GDP and account for 84 per cent of employment, although their contribution to exports remains low (Abamu, Eziashi, Sainidis & Anozie, 2026).

There are quite a number of potential reasons why firms and organizations come together to form partnerships or joint-venture businesses. A joint venture is a procedure used to respond to specific business phenomena such as access to new markets, specific government policy, business capacity, technology transfer or economies of scale. An international joint venture is a separate legal organizational entity representing the partial holdings of two or more parent firms, in which the headquarters of at least one is located outside the country of operation of the joint venture. The feasibility and desirability of a joint venture must be established by careful analysis of the economic, political, social and cultural environment in which the venture will be implemented and managed.

A joint venture (JV) is a business agreement in which the parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. There are other types of companies, such as JVs limited by guarantee, in which partners may also hold shares.

Companies typically pursue joint ventures for one of four reasons: to gain faster entry into a new market; to acquire expertise; to increase production scale, efficiency or coverage; or to expand business development by gaining access to distributor networks.

On the other side, a partnership business is an arrangement in which parties, known as partners, agree to cooperate to advance their mutual interests. The partners may be individuals, businesses, interest-based organizations, schools, governments or combinations of these. It is also an association of two or more persons carrying on a business as co-owners for profit. Partnerships are sometimes used in small retail, service or manufacturing companies. They are fairly easy to form and may be formed by a verbal agreement or, more formally, by a written one.

Setting up a joint venture or partnership business among small-scale business owners normally represents a major and far-reaching change for the business. However beneficial it may be to the growth of the business, it needs to fit the overall business strategy before the owners commit to it, because of the challenges involved in setting it up. The partners may need to decide carefully on the best ways of achieving the aims and objectives of the partnership, to compare and learn from the success of other business combinations among small-scale owners, and to identify the exceptional skills and expertise that each partner brings.

Most failures of partnership businesses formed by the merger of two or more small-scale owners can be traced to partners failing to carry out a SWOT (strengths, weaknesses, opportunities and threats) analysis to discover whether the two businesses are a good fit; failing to take into account employees' attitudes, since people can feel threatened by a joint venture; and partners having different ways of doing things in their business and personal relationships, which affects the working relationship and reduces the profits of the partners or co-venturers.

Strategic alliances, of which partnerships and joint ventures are forms, have existed in Nigeria for decades, and recent studies link them to SME performance. A study of SMEs in Enugu State assessed the influence of strategic alliance on SME performance in an emerging-market setting (Nwokocha & Madu, 2020). The motives for partnership business dealings are usually built around factors such as the desire to increase profit, access to international markets, access to bank loans and grants, and the opportunities surrounding the establishment of the business. Partnership business has nonetheless received relatively few research studies, even though it has been part of society for a long time.

It is against this backdrop that this study seeks to examine and evaluate the problems and prospects of partnership and joint-venture business among small-scale businesses in Nigeria.

1.2 Statement of the Problem

Partnering among small-scale business owners can be complex, and it takes time and effort to build the right relationship. As a result, partners are likely to encounter challenges ranging from objectives that are not completely clear or communicated to everyone involved, to partners having different objectives for the joint venture; a high level of imbalance in expertise, investment or assets contributed by the partners; different cultures and management styles, which are likely to result in poor integration and cooperation between the partners; and, finally, partners who may not be able to provide sufficient leadership and support in the early stages of coming together, because most of them are managers of their own businesses and find it hard to adapt to the rules and regulations of the partnership or joint venture.

The Nigerian small-scale business industry is one of the most dynamic, risky, challenging and rewarding sectors in the country. Like any other major sector, it is exposed to many predictable and unpredictable risks when engaging in joint-venture or partnership businesses. Among the risks faced by the small-scale sector are ownership risk, management and capital funding risk, economic risk, technology risk and social risk. Risk is inherent in every partnership business and is normally assumed by the owners unless it is transferred to, or assumed by, another party for fair compensation. It is also a challenge that poses great danger to small-scale business owners who wish to come together to form a joint-venture or partnership business, if it is not dealt with in the best possible way.

Non-access to international marketing. International marketing is a multinational process of planning and executing marketing standards for the pricing, promotion and distribution of ideas, goods and services, in order to create exchanges that satisfy individual and organizational objectives at national and international levels. Firms expand into international markets slowly and deliberately over time, starting with markets that are familiar to their home market. To participate effectively in global markets, SMEs are required to have and maintain significant capabilities in different areas along the industry value chain, including production, design, distribution, branding and marketing. Recent evidence confirms that Nigerian manufacturing SMEs face both internal barriers, such as a lack of finance and access to credit and poor product quality, and external barriers, such as a lack of market knowledge and export regulations, and recommends that they partner with export intermediaries (Abamu et al., 2026). Collaboration with foreign partners has also been found to influence the capacity of SMEs in South-West Nigeria to export (Adebayo, Alheety & Yusoff, 2024). Because of these challenges, small-scale businesses have increasingly found themselves merging or combining their personal business capital and sharing business ideas through partnerships or joint ventures, in order to gain access to international marketing and worldwide recognition.

Furthermore, despite existing policies on financial support for small businesses, very few entrepreneurs receive financial help when they need it. A survey of 270 SMEs in Abia State found that collateral remains a significant determinant of access to credit, that larger SMEs are better able to obtain credit, and that a high cost of credit impairs access (Okuwhere & Osifo, 2022). In some African countries, banks are by law required to set aside a certain percentage of their profits for small-business loans, but many banks reportedly prefer to pay a fine rather than make what they regard as high-risk loans to SMEs. This also prompts many small-scale business owners to pool capital resources in order to start a partnership business.

Lack of skills for entrepreneurship. The challenges facing entrepreneurs and small and medium enterprises in Africa are varied and many: lack of financial support, weak economic infrastructure, a lack of policy coherence, and a lack of business support. Education and training support for entrepreneurs and small-scale enterprises will help to establish a good foundation for small-business growth. In the SMEDAN survey, 20.8 per cent of surveyed businesses rated gaps in vocational and business skills as the main constraint on enterprise development (Nairametrics, 2022).

1.3 Objectives of the Study

The objectives of this study are as follows:

1. To assess the challenges facing Small and Medium Enterprises (SMEs) in the establishment of partnership and joint-venture businesses in Nigeria.
2. To ascertain the benefits and importance of setting up a partnership business for small business owners.
3. To provide useful insight into the concept of partnership business, its merits and demerits, and its importance to the growth of the business.
4. To identify the key actors and facilitators in the establishment of new partnership businesses in Nigeria.

1.4 Research Questions

The research questions provide a framework and guidelines through which the substantial knowledge of the study can be understood. The questions asked are:

1. What are the challenges facing Small and Medium Enterprises (SMEs) in the establishment of partnership and joint-venture businesses in Nigeria?
2. What are the constraints encountered by small business owners in partnership and joint-venture business in Nigeria?
3. What are the benefits and importance of setting up a partnership business for small business owners?
4. What useful insights exist on the concept of partnership business, its merits and demerits, and its importance to the growth of the business?
5. Who are the key actors and facilitators in the establishment of new partnership businesses in Nigeria?

1.5 Significance of the Study

The reasons for forming a joint venture include business expansion, the development of new products, and moving into new markets, particularly overseas, yet the negative aspects must also be considered when setting one up.

This study will be relevant to small business owners who may want to agree to set up a partnership with another business in a limited and specific way, and to small business owners who wish to come together in order to generate larger profits as a result of a desire for expansion. It will also be useful to partners who wish to set up a separate joint venture, possibly a new company, to handle a particular contract.

The study will also give small-scale owners useful insight into the benefits of engaging in a successful joint-venture business, such as access to new markets and distribution networks, increased capacity, the sharing of risks and costs with a partner, and access to greater resources, including specialized staff, technology and finance.

It will equally be of immense help to the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) in evaluating the success of its activities, with specific reference to the problems small business owners encounter in partnership and joint-venture businesses.

Finally, it will be of use to students and researchers for further research, to existing and prospective entrepreneurs, and to any interested party. It will assist students in building their knowledge and appreciation of the formation of partnership businesses among small-scale business owners.

1.6 Scope of the Study

The research focuses on SMEs because these firms account for almost all of the country's businesses (PwC Nigeria, 2024). Although many studies have been conducted on small-scale businesses, and some have examined strategic alliances among SMEs (Nwokocha & Madu, 2020), few have looked specifically at the establishment of partnerships and joint ventures among small-scale businesses in the study area. For this reason, the study seeks to assess and evaluate the effect of partnership business on small business enterprises in Osun Metropolis.

The activities of the regulating body, the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), were also taken into consideration. The research was, however, limited to small and medium-scale enterprise operators in Osun Metropolis because of the researcher's schedule.

1.7 Limitations of the Study

As with all studies, limitations exist and must be acknowledged. The outcomes were based on information solicited from respondents, and such information may be subject to human error, omissions and possible misstatements. There is also the difficulty of obtaining published data in good time from the various government and other agencies that produce such data in the country, and published data vary quite significantly because of differences in the coverage of the agencies concerned.

The study could not show the whole picture of all small-scale businesses in Nigeria. Some respondents did not understand the questionnaire, and some did not concentrate enough to grasp the significance of the analysis. The time available was also not enough to collect the data from the respondents.

1.8 Definition of Terms

Small-Scale Business: Any business undertaken, owned, managed and controlled by not more than two entrepreneurs, with no more than twenty employees and no definite organizational structure (that is, all employees report to the owners), and with a relatively small share of its market. Under the current SMEDAN National Policy on MSMEs, small enterprises employ 10 to 49 people and have total assets of at least ₦5 million but below ₦50 million, while medium enterprises employ 50 to 199 people and have total assets of at least ₦50 million but below ₦500 million (PwC Nigeria, 2020).

Joint Venture (JV): A business agreement in which the parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. There are other types of companies, such as JVs limited by guarantee, in which partners may also hold shares.

Partnership Business: An arrangement in which parties, known as partners, agree to cooperate to advance their mutual interests. The partners may be individuals, businesses, interest-based organizations, schools, governments or combinations of these.

Partnership Agreement: A written, formal document that contains basic information such as the name and principal location of the firm, the purpose of the business and the date of inception.

Limited Liability: An arrangement that limits debts and losses to the assets of the venture and protects the personal assets of the members from liability for the venture's debts. In other words, partners with limited liability can be held liable only to the extent of their capital investments.

Co-venturers: Two or more persons who come together to form a temporary partnership to carry out a particular project. Such a partnership can also be called a joint venture, and the parties are "co-venturers".

REFERENCES

Abamu, B. E., Eziashi, J., Sainidis, E., & Anozie, U. (2026). Internationalization barriers of Nigerian manufacturing SMEs. Journal of Business, Development and Innovation, 1(2). https://doi.org/10.19164/jbdi.v1i2.1754

Adebayo, T. S., Alheety, S. N. Y., & Yusoff, W. S. W. (2024). Factors affecting SMEs' internationalization process in the Southwest Nigeria. International Journal of Entrepreneurship and Management Practises, 2(5).

Nairametrics. (2022, November 2). Analysing the demands of Nigerian SMEs to achieve global competitiveness. https://nairametrics.com/2022/11/02/analysing-the-demands-of-nigerian-smes-to-achieve-global-competitiveness/

Nwokocha, V. C., & Madu, I. A. (2020). Strategic alliance and its influence on the performance of small- and medium-scale enterprises in Enugu State, Nigeria. Global Journal of Emerging Market Economies, 12(2), 199–216.

Okuwhere, M. P., & Osifo, O. (2022). Re-evaluating small and medium enterprises financial accessibility post COVID-19 pandemic in Nigeria. Journal of Enterprise and Development, 4(2), 274–291. https://doi.org/10.20414/jed.v4i2.5857

PwC Nigeria. (2020). PwC MSME survey 2020. PricewaterhouseCoopers. https://www.pwc.com/ng/en/assets/pdf/pwc-msme-survey-2020.pdf

PwC Nigeria. (2024). PwC MSME survey report 2024. PricewaterhouseCoopers. https://www.pwc.com/ng/en/assets/pdf/msme-survey-report-july-2024.pdf