




































Australian Finance & Banking Review; Vol. 2, No. 1; 2018 

ISSN 2576-1196   E-ISSN 2576-120X 

Published by Centre for Research on Islamic Banking & Finance and Business 

 
 

1 

 

MSMEs as Engine of Economic Growth in Nigeria: Challenges and 

Prospects of Scalability  

 

Emmanuel Okokondem Okon
1 

 

 

1
Department of Economics,  Kogi State University, Anyigba, Kogi State, Nigeria 

Correspondence: Department of Economics, Kogi State University, Anyigba, Kogi State, Nigeria, E-mail: 

tonydom57@yahoo.com. Tel: +2348023275716  

 

 

Received:  January 13, 2018                      Accepted: January 15, 2018                 Online Published: January 19, 2018   

 

 

Abstract 

Growing or expanding the Micro, Small and Medium Enterprises (MSMEs) sector of the economy is one key 

strategy to achieve economic growth and development. Micro, Small and Medium Enterprises (MSMEs) scalability 

(growth or expansion) have become an area of concern for economic growth in developing economies. People use 

the term in reference to computer or other technological systems, but those in business also use the word to describe 

the adaptability of a company (Thibodeaux, 2015) in today‘s fast-paced business environment where the focus on 

customer satisfaction is at an all-time high. This article discusses the concept of scalability as it relates to business 

and non-scalable components of business process as well as the importance of being scalable. It also looked at some 

of the challenges and practices that prevent effective scalability of MSMEs in Nigeria and the way forward. 

 

Keywords: MSMEs, challenges, scalability, economic growth, Nigeria 

 

1. Introduction 

Micro, Small and Medium Enterprises (MSMEs) account for a large proportion of the total employment growth in 

many countries. In such countries, MSMEs produce a significant share of their increases in Gross Domestic Product 

(GDP), while the contributions of larger enterprises tend to remain stable (ADB, 2002). For instance, in the OECD 

economies, MSMEs and micro enterprises account for over 95% of firms, 60-70% of employment, 55% of GDP and 

generate the lion‘s share of new employment. In the case of developing economies, the situation is not very 

different. For instance, in Morocco, 93% of firms are MSMEs and account for 38% of production, 33% investment, 

30% export and 46% employment. Similarly, in Bangladesh, enterprises of less than 100 employees account for 

99% of all firms and 58% employment. Also, in Ecuador, 99% of all private companies have less than 50 employees 

and account for 55% of employment (Etuk et al., 2014). 

In the case of Nigeria, well-managed and healthy MSMEs constitute significant sources of employment 

opportunities and wealth creation. While the citizens benefit in terms of employment and income, Government also 

benefits by generating revenue in form of taxes. This can be a strong factor to social stability. It is noteworthy that 

not all MSMEs and microenterprises are in the formal sector; some of them occupy the unofficial labour market, 

which varies in size from an estimated 4-6% in developed countries to over 50% in developing nations. According 

to the International Finance Corporation (IFC, 2006), there is a positive relationship between a country‘s overall 

level of income and the number of MSMEs per 1,000 people. The World Bank‘s Doing Business reports indicate 

that a healthy MSME sector corresponds with a reduced level of informal or ―black market‖ activities. Thus, 

managing MSME sector to reduce the number of informal business is essential in the Nigerian development project. 

MSMEs are regarded as the bedrock of industrialization. Because a number of them possess extensive knowledge of 

resources, as well as demand and supply trends, they constitute the chief supplier of input to larger firms. They also 

serve as the main customers to the larger firms; provide all sorts of products ranging from food, clothing, recreation, 



www.cribfb.com/journal/index.php/afbr                                       Australian Finance and Banking                                        Vol. 2, No. 1; 2018 

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entertainment, healthcare, education, and so forth. They help in economic development through industrial disposal 

and production of primary and intermediate products. They can also supply the material needs of the larger 

enterprises. In addition, they provide specialized, and many times, personal services. In summary, MSMEs 

constitute important sources of local supply and service provision to larger corporations (Etuk et al., 2014). 

Developing countries represent a huge, largely untapped market for large corporations. By working closely with 

MSMEs, large corporations can develop new customer base that may not be accessible to the traditional distribution 

networks of these corporations. MSMEs also represent important sources of innovation. They tend to occupy 

specialized market ―niches‖ and follow competitive strategies that set them apart from other companies. This might 

include re-engineering products or services to meet market demands, exploring innovative distribution or sales 

techniques, or developing new and untapped markets. This often makes them good partners for large corporations. 

In the financial sector, emerging economies represent a huge potential market for credit, particularly in sub-Saharan 

Africa, where according to the United Nations Capital Development Fund (UNCDF), only 4% of Africans have a 

bank account. Local financial institutions that have successfully served the MSMEs market in developed countries 

have found it highly profitable, according to United Nations Conference on Trade and Development (UNCTAD, 

2001). Large international banking groups are beginning to tap into these markets. For instance, today Barclays 

Bank is present in 12 African countries, employs 41,000 people – one-third of its total workforce – and has 8 million 

customers. Africa accounts for 13% of the group‘s profits. Barclays has worked to integrate MSMEs into its 

operations. In their efforts to localize value creation, many large companies in the world increasingly rely on local 

companies as a crucial component of their value chain. Furthermore, MSMEs help in the development of local 

technology and mobilization and utilization of domestic savings. Thus, increases in MSME efficiency can also 

improve the competitiveness of larger firms that depend on MSME suppliers, and therefore improve the competitive 

position of a country‘s economy. 

MSMEs tend to be more labour intensive than larger firms, and capital requirements for establishing them are low. 

This widens the chances of many individual to participate in them and by so doing contribute to industrial 

development. Moreover, the size and structure of MSMEs give them flexibility in management approaches which 

make them respond swiftly to changes and adapt to market needs much more quickly than their large enterprise 

counterparts in comparable industries. Thus in these days of increased emphasis on private-sector-driven economy, 

MSMEs act as engines of the much desired private-sector-led economic growth and diversification (Etuk et al., 

2014). 

Growing or expanding the Micro, Small and Medium Enterprises (MSMEs) sector of the economy is one key 

strategy to achieve economic growth and development. Micro, Small and Medium Enterprises (SMEs) scalability 

(growth or expansion) have become an area of concern for economic growth in developing economies(Asare, 

2017).People use the term in reference to computer or other technological systems, but those in business also use the 

word to describe the adaptability of a company (Thibodeaux, 2015) in today‘s fast-paced business environment 

where the focus on customer satisfaction is at an all-time high (Mariwala, 2017). Scalability is essential in that it 

contributes to competitiveness, efficiency, reputation and quality. Small businesses must be particularly mindful of 

scalability because they have the biggest growth potential and need to maximize the return with resources 

(Thibodeaux, 2015). This article discusses the concept of scalability as it relates to business and non-scalable 

components of business process as well as the importance of being scalable. It also looked at some of the challenges 

and practices that prevent effective scalability of MSMEs in Nigeria and the way forward. As earlier stated, MSMEs 

are perceived as the key to Nigeria‘s economic growth, poverty alleviation and employment generation. But their 

unimpressive performance in employment generation and contribution to GDP in recent years has generated a lot of 

research interests. 

2. Concept of Scalability 

All young businesses are defined by an insatiable desire for growth. But there's a right way and wrong way when it 

comes to scaling up (Albanese, 2015). According to Campbellb (2017), Scalability is about capacity and capability.  

Does a business have the capacity to grow? Will a business systems, infrastructure and team be able to 

accommodate growth? Scaling a business means setting the stage to enable and support growth in your company. It 

means having the ability to grow without being hampered. It requires planning, some funding and the right systems, 

staff, processes, technology and partners (Campbell, 2017). Scalability, in the context of buying and selling in a 

business, refers to a company's ability to add significant revenue and not be constrained by its own structure and 

resources. When a company can quickly "scale up," it usually means it has the management, documented processes, 

information systems, and standard operating procedures to manage its own growth (divestopedia, n.d.).Scalability 

refers to the ability of a business to grow without losing customers, diminishing quality, or changing the core value 

proposition of the organization. In other words, it is developing products or services that people want and figuring 

out how to produce many of them for lower costs while selling more of them (Dudnik 2010).  

https://www.score.org/author/anita-campbell
https://www.score.org/author/anita-campbell


www.cribfb.com/journal/index.php/afbr                                       Australian Finance and Banking                                        Vol. 2, No. 1; 2018 

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According to Mariwala (2017), scalability means growth which extends to your stakeholders; whether customers, 

employees or vendors. In other words, it is a positive influence that propels you further. Scalability describes how 

easy it is to expand a business model and grow its revenues significantly without equally increasing its cost base 

(Liu, n.d.).For a business, scalability means that you are prepared to handle an increasing number of customers, 

clients, and/or users (contegix, n.d.). 

2. 1. Mathematical Illustration of Scalability 

A good way to approach the meaning of scalability is through a slightly mathematical definition. This doesn‘t mean 

digging into derivatives or complex numbers, which we‘ve all long since forgotten, but applying some basic 

mathematical ideas to the concept (Shawn, 2016); 

The basic idea of scalability is this: 

A product or service X  is considered scalable, if: Delivering 20 of X is either… 

 no more costly or difficult than, or 

 only incrementally more costly or difficult than… delivering 10 of X. 

And the corollary: 

A product or service X is considered not scalable if: Delivering 20 of X is double or even more costly or difficult 

than delivering 10 of X. 

Or, it could be re-worded of this way: 

If Y is the effort required to deliver 10 X, then: 

 if delivering 20 X requires ~2Y or more, then X is not a scalable product or service. 

 if delivering 20 X requires Y or only a bit more than Y, then X is a scalable product or service. 

This is the heart of the idea of scalability. It‘s the difference between a linear and an exponential relationship 

between costs, revenue and product delivery. Naturally, these numbers are not hard and fast, and in reality business 

is generally much more complex, however the basic concept remains the same. 

Simple examples to illustrate 

Maybe some simple examples will make the concept clearer. These will be intentionally over-simplified to fit into a 

binary model; 

Example 1: Manually washing cars: not scalable 

Imagine that I wash cars for a living. Delivering the washing of a car involves a few basic variables (let‘s assume I 

already have the tools for the job): 

 Selling the car wash to a person (convincing them that they should get their car washed by me) == Y1 == 

~10 minutes 

 Actually washing the car == Y2 == 1 hour 

Y1 and Y2 are my ―costs‖, together they are the Y from the definition above. Together they take about an hour of 

my time. 

Now, it‘s easy to see that if I am manually washing cars one by one, then my business model is not scalable. 

Because, washing 20 cars is pretty much double the effort of washing 10 cars. Simple. 

Example 2: Teaching students: scalable 

Imagine I am a teacher of Chinese history. Delivering the education of Chinese history involves one basic variable; 

my time in the classroom (again, assuming I have the knowedge and expertise to teach) : 

 It takes me 1 hour to deliver a lecture on Chinese history == Y 

However, let‘s imagine that in one class I have 10 students, and in the other class I have 20. By all accounts, in the 

classroom with 20 students, I am ―delivering‖ more education, in theory, exactly double. But teaching 20  students 

was no more difficult than teaching 10 students. I delivered exactly the same lecture, however in the second case, 

twice the number of students attended. In this simple model, teaching Chinese history is a scalable exercise! 

Oversimplification 

These two examples are, of course, oversimplifications. But the essence of the idea of scalability is accurate. In 

example 1, the business model was less scalable than example 2. 

Naturally the real world involves many more variables. In the case of the car wash, I might have an advertisement 

sign outside that does my selling for me and so selling doesn‘t cost me any of my time. In the case of the teaching, 

the model breaks down as we keep adding students (we can only fit so many students into one of my lectures; the 

model scales only so much, then I have to break it out into two classes). But these variables can be plotted out and 

understood and ultimately fit into the model of scalability. 

 

 

 

https://inc42.com/author/harsh-mariwala/
http://shawnpowrie.com/author/shawn/


www.cribfb.com/journal/index.php/afbr                                       Australian Finance and Banking                                        Vol. 2, No. 1; 2018 

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Real life scalability 

In the oversimplified examples above, scalability was treated like a binary property; either something is scalable or 

not. However, real life is, naturally, a lot more involved. Let‘s play with the concept a bit more by defining some 

limits to it and talking about additional variables: 

Upper limit: nothing is infinitely scalable 

Something would be infinitely scalable if the costs Y, of delivering product X, are not at all increased no matter how 

much of X we deliver. In the real world, this is simply not possible. 

There are some products in reality that are highly scalable. One such area is something like a website. Imagine for 

instance this blog article. It‘s going to take me a certain amount of time to write it (our Y) — and if 10 people read it 

(10X) or 20 people read it (20X) the time it took me to write it is completely unaffected. Digital content is highly 

scalable. Imagine if 1000 people read this article — still, it only took me Y effort to produce it. What about 10 000? 

100 000? Still, it only took me Y effort to produce it. 

However, eventually my server can‘t handle the load. So I have to pay for a better server to host my content, and my 

Y has increased. Digital content is highly scalable, but not infinitely — nothing really is. 

Lower limit: increased efficiency as the genesis of scalability 

Let‘s return to the car example from above. Imagine I‘m the guy out there washing the cars every day. Eventually I 

wake up and realize that I‘m never going to scale my business very well. So I start thinking; how can I scale this up? 

Let‘s say I start to learn how to wash two cars in a little less than double the time it takes to wash one. For instance, I 

reclaim and re-use the water somehow, so I don‘t have to wait for the hosepipe for as much time. Or maybe I rinse 

and dry both cars at the same time side by side. Either way, I am finding ways to cut down the time usage. 

Increased efficiency lies close to the genesis of scalability, but is not entirely the same thing. Increasing efficiency 

means reducing Y for the delivery of 10 X, which ultimately does mean delivering 20 X takes less effort, however it 

is still 2 Y, even if Y itself is less. 

Scalable and non-scalable components of an overall business process 

In real life the process of delivering a product or service is not usually entirely scalable or non-scalable. Often, there 

are components or parts of the overall business process that are scalable to varying degrees (Shawn, 2016). 

This example illustrates this idea quite nicely: 

There are some guys in Dominoes pizza making some pizzas for customers. The creation of a pizza involves several 

steps. The chefs have to prepare the dough, put on the proper ingredients, and cook the pizza in the oven. 

Interestingly, preparing the pizza is a non-scalable activity. A chef, no matter how good, can‘t prepare two pizzas for 

exactly the same effort as it takes to prepare one. Yes, perhaps he can work on ways to do it quicker, but he can‘t 

scale the preparation well. 

However, two pizzas can be cooked in the oven at the same time. In fact, ten or even twenty pizzas can (assuming 

the oven to be quite big). 

So, preparing the pizza is a non-scalable activity, but cooking the pizza is a more scalable activity. 

So the delivery of the pizza to the customer involves both scalable and non-scalable parts of the process. Imagine 

further an even more nuanced scenario, also in our pizza story: 

The pizza delivery driver is going to deliver two pizzas. Luckily, both customers are on the same street. So, 

delivering two pizzas took only a little more time than delivering one would have. 

In fact, delivering 10 pizzas to the same street, assuming the distance from the pizza store to the street is way larger 

than the distance from the one house to the next on the same street, is almost the same effort as delivering 5. 

But, what if, in another scenario: 

The pizza driver is going to deliver two pizzas. Unfortunately, both customer‘s houses are equidistant from the pizza 

store, and each other. Assuming the main cost of delivering a pizza is the time to drive to a location and the petrol 

associated with the driving, delivering two pizzas literally took double the effort than delivering one did. 

And so we see that in the case of delivering pizzas, the scalability or non-scalability of an activity can depend on 

entirely random variables. Sure, we can look into optimising our pizza delivery routes, but ultimately that can only 

go so far. 

2.2. The Importance of Being Scalable 

As a business grows, its main objective is to continue to meet market demands. The trouble is, market demands are 

never static. They shift as people‘s interests and tastes change and as resources flow in and out of availability. If you 

want to stay competitive in these circumstances, you have to be able to change what you are doing to fill the needs 

and wants customers have in the moment. 

Scalability also matters because growth in business means you are working with more customers, data and 

resources. If you do not have a way to handle these increases, you can lose efficiency, or the quality of your service 

or products can suffer. That can lead to poor customer relations and a lowered business reputation. 

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www.cribfb.com/journal/index.php/afbr                                       Australian Finance and Banking                                        Vol. 2, No. 1; 2018 

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From the financial perspective, scalability is critical because it lowers what you end up paying out. For example, if 

you have 100,000 clients and buy a technology system that can support a million customers, you don‘t have to 

replace that system (assuming it‘s still functioning well mechanically) when you reach 200,000 customers, 300,000 

customers and so forth. In the same way, if you purchase state-of-the-art equipment, it won‘t become outdated as 

fast and you won‘t need to put money into new hardware for a while. If you‘re working in a scalable way, you end 

up getting more for your buck (touchsupport, n.d.). 

3. Literature Review  

The scalability of businesses is affected by the industries in which they operate. Some business models are easier to 

scale, while others can be much more challenging. As found by Sutton and Rao (2014), culture and structure are 

often more important than anything else. Businesses that produce a tangible product, such as the Clean Bottle case 

and the Greyston Bakery case, or most types of consumer purchased goods, are inherently simpler to scale. Small 

ventures of this type have many opportunities to achieve economies of scale, cost savings, and increased 

efficiencies. However, scaling up to achieve greater efficiencies and production levels exposes the entity to 

problems, such as decreased quality, lessened control over processes, and increased complexity. Another important 

aspect of scaling up for small businesses is customer value perception (CVP), where perceptions of organizations 

can change when they grow. The case of the Etsy Store Three Bird Nest illustrates CVP.  

Kumar (2010) found that growing or scaling a business can be approached from two main perspectives regarding the 

timing of expansion. The question is a paradox: whether to grow in advance of demand with the hopes of capturing 

maximum market share and minimizing foregone revenue; or, more conservatively, does the business grow when 

demand already exists? Increasing the scale of a business in advance of real demand relies on careful forecasting and 

represents a greater risk. However, waiting to grow could result in the business losing customers to competitors and 

potentially missing an entire swing in the market. While many factors go into the decision to grow a business, 

forecasts are ultimately only accurate to a certain extent, and as new ventures are formed they must decide how they 

will approach such an important part of the life of their business. Consequently, the environment of forecasting and 

planning has changed because forecast-based planning methods and/or budget-oriented planning are alone not 

sufficient for any business to be sustainable.  

Clean Bottle (2015) offers a line of water bottles that come apart at both the top and bottom for thorough cleaning 

and ease of maintenance. Clean Bottle was born of the increasingly popular ―crowd funding.‖ Crowd funding is a 

model of bringing new products to market with individuals pledging money, but their funds are only used if enough 

pledges are made to reach a specific threshold. Clean Bottle set the goal for their crowd funding campaign at 

$20,000, and nearly doubled it before their deadline. Clean Bottle is a successful example of scalability because it 

offers a product that requires little inputs beyond basic manufacturing.  

4. Micro, Small and Medium Enterprises and Scalability  

All businesses need to be scalable on one or more levels in order to hold onto and build market share. Even so, 

MSMEs have the greatest need for scalability because they are the ones with the biggest potential for growth. They 

are the organizations that have to be more careful with the limited resources they have, the ones that go through 

metamorphoses as their leaders become more familiar with the business game. Many MSMEs fold directly because 

they fail to foresee what they might need or where the market can take them, having too much of a here-and-now 

mindset. 

It is natural for MSMEs to want to make as many areas scalable as possible and business leaders should work 

toward this goal. Still, you should recognize that not everything might be scalable. A lack of scalability in one or 

more areas doesn‘t necessarily stop you from moving forward. For this reason, it‘s just as important to recognize 

where you can‘t change as to see where you can (touchsupport, n.d.). 

4.1. Challenges and Practices that Prevent Effective Scalability of MSMEs in Nigeria 

MSMEs in Nigeria achieve a much more relative high value added operations because they are propelled by basic 

economic activities that depend mostly on locally sourced raw materials; they provide feeder industry services as 

they serve as major suppliers of intermediate goods and components to large-scale industries as well as major agents 

for the distribution of final products of such industries; they provide opportunities for the development of local skills 

and technology acquisition through adaptation, etc. Despite the catalytic role of MSMEs in Nigeria, the development 

of its viability has over the years been challenged by a number of harsh economic conditions which characterize the 

Nigerian business environment. Some of these challenges have been outlined by the Institute of Development 

Administrator of Nigeria (IDAN, 2007).Here is a look at how these challenges affect the scalability of MSMEs in 

Nigeria. 

Financial Problems  
It is natural for business owners to want to expand operations and put their business on a growth path; however, this 

move requires not only a winning strategy based on market realities, but also the appropriate source of finance. This 



www.cribfb.com/journal/index.php/afbr                                       Australian Finance and Banking                                        Vol. 2, No. 1; 2018 

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could scale up or breakdown a business.  Using the correct mix of financial options is very important for scalability 

of business.  There is no question that expansion requires money, and rather than use up business‘s working capital, 

choose the right finance from the market. Today micro, small and medium enterprises have access to numerous 

sources of finance, each with its own unique features and benefits. It is important for business owners to carefully 

identify the attributes of each option and choose the ones that work best. Instead of going for funding from one 

source, mix it up. Take a business loan, accept equity investors and see if the suppliers will give credit. Doing this 

spreads the risk and is faster than just waiting for a venture capital investment, which will also dilute one‘s 

ownership (The HANS India, 2017). 

Ekpenyong (1997) and Utomi (1997) identified inadequate capital, inaccessible credit facilities as some of the 

problems bedeviling the MSMEs in Nigeria. Long term development institutional credit is known not to be available 

to MSMEs because they are generally considered high credit risks by financial institutions. The study by 

Evbuomwan, et al. (2012) indicated that 75.7% of their survey respondents relied mostly on own funds to finance 

their businesses.  

However, the MSMEs lack of access to relative cheap and effective sources of finance has been identified as the 

major factor hindering their contribution to economic growth. A widespread concern is that the banking system in 

the sub-sector (which supposed to be the major financier of MSMEs) is not providing enough support to new 

economic initiatives and in particular to the expansion of MSMEs.  

Management Problems 

Growth and scalability of business requires an expanded skill set. As such, entrepreneurs are advised to build a team 

with broad and complementary skills. Unfortunately, the lack of trained manpower and management skills also 

constitute a major challenge to the survival and scalability of MSMEs in Nigeria. According to West and Wood 

(1972), ―…90% of all these business failures result from lack of experience and competence.‖  

Poor Documentation of Business Process 

MSMEs in Nigeria are usually characterized by poor record keeping. As their business grows, so is the business 

processes, but they do not document the process let alone update the documentation.  Many owners of MSMEs  in 

the country do not build their business so that when they die someone could come in, read their business process 

manual, and know exactly how the business operates. A documented process is good for scaling of MSMEs, it is 

also good for selling a business. 

Marketing 

Growing and scaling up a business always leads back to marketing and sales. Even if a business firm has an 

inspirational vision, has a solid team behind that vision, and have an awesome process, it is nothing without revenue. 

If  it has to scale, it will need to learn how to market it product or service and create sales. However, most Nigerian 

MSMEs owners equate ‗marketing‘ to ‗selling‘ and this is reflected in their various dysfunctional business behavior 

against customer satisfaction and good business and marking orientation. They lack the knowledge and skills of 

basic marketing ingredients – marketing research, market segmentation, and marketing planning and control. The 

outcome of this is poor quality products, unawareness of competition, poor promotion, poor distribution, and poor 

pricing methods (Ayozie, 2013). 

Inadequate Basic Infrastructure 

Government has not done enough to create the best conducive environment for the striving of SMEs, the problem of 

infrastructures ranges from shortage of water supply, inadequate transport systems, lack of electricity to improper 

solid waste management. Nigeria‘s underdeveloped physical and social infrastructures create a binding constraint to 

SMEs growth, since; they heavily rely on the inefficiently provided state infrastructures and cannot afford the cost 

of developing alternatives. This increases cost and reduces efficiency as well as scalability. 

Cash flow problems 

A cash flow problem arises when a business struggles to pay its debts as they become due. Note that a cash flow 

problem is not necessarily the same as experiencing a cash outflow. A business often experiences a net cash outflow, 

for example when making a large payment for raw materials, new equipment or where there is a seasonal drop in 

demand. However, when cash flow is consistently negative and the business uses up its cash balances, then the 

problem becomes serious (Tutor2u, n.d.).The main causes of cash flow problems are: low profits or (worse) losses, 

over-investment in capacity, too much stock, high overhead expenses, and allowing customers too much credit. 

Also, fast growth can cause real cash flow problems when the large number of new customers takes time to pay 

while the growing business expenses need to be paid right away. 

Just as good cash flow keeps a business afloat, poor cash flow can sink it (FreshBooks, n.d.). In fact, poor cash flow 

is a big reason why one in every four businesses doesn‘t make it past the first year. And why more than half don‘t 

survive past the fifth. It is extremely difficult to scale a business if cash flow management processes are lacking. 

Unfortunately, many MSMEs in Nigeria do not know how to create a good cash flow stream. Most of the MSMEs 

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www.cribfb.com/journal/index.php/afbr                                       Australian Finance and Banking                                        Vol. 2, No. 1; 2018 

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encounter a cash flow problem at one time or another. Fortunately, most cash flow problems can be prevented with a 

bit of preparation and the right strategy. 

Investment Culture Problems 

Investment is the purchase of an asset with the hope that it will generate income or appreciate in the future. It 

involves committing money into an investment vehicle in the hope of making a financial gain with the possibility of 

losing it. Most Nigerian Entrepreneurs do not have the investment culture of ploughing back profits. Bala (2002) 

stressed that the attitude of a typical Nigerian entrepreneur is to invest today and reap tomorrow. Also, the socio-

political ambitions of some entrepreneurs may lead to the diversion of valuable funds and energy from business to 

social waste.  

Labor Intensive 

It is emphasized that the small scale enterprises make the possibility of the equitable distribution of national income 

more realistic of providing employment opportunities on a large scale. By creating more employment it help 

mobilizing capital and human resources that would otherwise be left idle.  

The 2012 Enterprise Baseline Survey revealed that there are 17 million Small and Medium Scale Enterprises in 

Nigeria, employing 32.41 million persons and makes a contribution of about 46.54 per cent to the nation‘s Gross 

Domestic Product in nominal terms (Elebeke, 2012). However, MSMEs that is labor intensive and staff intensive is 

not scalable. MSMEs  have start looking at production automation, proven process technologies, and minimum staff 

approaches, to begin scaling. 

ICT Issue 

Currently across the globe, there has been a paradigm shift in the mode of operations of MSMEs, to move from a 

matter based economy to a knowledge based economy. In recent years, it‘s been seen that one of the major drivers 

of MSMEs growth in developed countries has been attributed to the increasing use of Information and 

Communication Technology (ICT). ICT utilization is very important in the 21st century as they make ease business 

transactions, improve customer and consumer relationship and also panacea to combat a number of challenges 

facing MSMEs. Ashrafi and Murtaza (2008) state that organizations around the globe are utilizing ICT to cut cost, 

improve efficiency and offer greater customer service, despite the high diffusion of digital technologies from 

developed economies to developing economies in recent years, the use of ICT within MSMEs in Nigeria remains 

low (Apulu and Latham, 2009). This probably is due to employee‘s ICT illiteracy or employer‘s ICT illiteracy, cost 

of ICT equipment, entrepreneurs not seeing the competitive pressure in the market strong enough for them to 

adopting ICT, etc. 

4.2. Towards making Micro, Small and Medium Scale Enterprises Scalable in Nigeria 

Growth without a large increase in cost is tricky. Studying and crafting a scalable business model can help in both 

the short term and long term with the end result being both growth and profitability. The overall goal is to increase 

revenue without a cost growth. Here are some factors for MSMEs in Nigeria to consider in scaling up their 

businesses: 

a) Evaluating and Planning 
A firm has to take a hard look inside its business to see if it is ready for growth. This means taking stock of where a 

firm‘s business stands today. It has to strategize what needs to be done to increase sales.  Then assuming a firm‘s 

orders doubled or tripled overnight. Does the organization have the people and systems to handle those new orders, 

without failing? This is where a good plan is essential. One of the best planning starts with a detailed sales growth 

forecast, broken down by number of new customers, orders and revenue that a firm intends to generated. A 

spreadsheet should be included that breaks the numbers down by month. The more specific a firm is, the more 

realistic it sales acquisition plan can be. Then a similar expense forecast should be done based on adding technology, 

people, infrastructure and systems to handle all those new sales orders.  Some hard thinking and research needs to be 

done to come up with proper cost estimates, however, doing so will make the plan better (Campbell, 2017). 

b) Timing  
The timing of MSMEs‘ product or service must be right in the marketplace. MSMEs need to anticipate their market 

and customers‘ needs and constantly innovate to stay ahead. This requires leadership with agility, resilience, and a 

willingness to fail–and to recognize that failure quickly enough to adapt and move forward. 

c) Branding  
Today‘s economy requires business leaders to create positive memories for customers and partners, or customers 

will turn to a competitor in search of a better experience. For MSMEs  to create a scalable business, they have to 

understand just how crucial it is to build brand equity. The emotional attachment that links customers to their 

product, as opposed to any other, translates into sustainable growth (FASTCOMPANY, 2013). To achieve this, it 

will require choosing a target audience; connecting with the public to make them feel an emotional attachment to a 

firm‘s brand; inspiring and influence the audience through brand message; and  reinforceing the brand image within  



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the MSMEs (i.e., making sure employees at every level of the organization work and behave in a way that reinforces 

firm‘s brand image). 

d) Sales Scale Up 
Creating a unique product and a unique brand is not enough. MSMEs will need to develop repeatable sales processes 

to create a scalable business. It is one thing to sign up a few customers; it is another thing entirely to identify, design, 

and implement repeatable sales and customer delivery processes (FASTCOMPANY, 2013). To ensure that a 

repeatable and scalable sales model is created, MSMEs need to:  increase the sources of their customer leads on a 

consistent basis; sales conversion rate and revenue must be consistently forecasted; the cost to acquire a new 

customer must be significantly less than the amount that can be earned from that customer over time; and customers 

should get the right product in the right place at the right time. 

e) Finding and Establishing Key Relationships and Networks 

MSMEs can catalyze their businesses‘ growth by building and fostering critical relationships. Even if they are good 

in their area of core competency and have deep domain expertise at what they do and the value they bring to their 

customers. But in the end, it comes down to connections (Wagner, 2013). 

f) Evaluate Financing Options for Expansion 

There are very few big businesses that are self-funded, however, whether a firm wants to expand its employee base, 

buy a new facility or develop a new product, one of the key elements in taking a firm to the next level is knowing 

the kind of capital it needs to support that growth, hence, MSMEs must evaluate the financing options available for 

them to expand (Wagner, 2013). 

g) Technology Embracement 
MSMEs need to take better advantage of technology innovations to help manage their business. If a small business 

can identify a genuine need, technology likely exists to fulfill that need both locally and globally. The last two 

decades have marked an enormous increase in technology use in business. Through advancement in technology in 

computers and the internet, small businesses are contributing more to the economy than in the past. Technology has 

made it easy in processing daily business activities and routine tasks. Technology has tangible and intangible 

benefits in a small business that affect the culture, relationships and efficiency of an enterprise (Advance Funds 

Network, n.d.). 

h) Automate solutions 

MSMEs should appraise their business processes. There are always repeated steps and circular activities that can 

be automated. This frees time for focusing on business growth. Staff work-hours should be minimized. For example, 

instead of depending on manual data entry and appointments setting, invest in a system that simplifies work process 

for employees. Newcomers can then be trained quickly and easily and join the workflow without delay (Mightycall 

Team, 2016). In sum automation can help run a business at lower cost and more efficiently by minimizing manual 

work 

i) Establish standardized processes 
If a start-up is going to scale, managers need to implement standardized and repeatable processes, with proper 

delegation. This may require investments in purchasing support systems including IT and training personnel 

accordingly, as well as delegation from the founder and senior management (Salter, 2016). 

j) Reduction of Risks 

Risk is an inevitable part of starting and growing a business. It's impossible to control everything, but there are 

plenty of ways to limit internal and external threats to a firm and its growth. One important resource to help you 

accomplish this is a business insurance provider. Small businesses should be prepared by seeking insurance products 

that help them recover from any loss, including those that cover the cost of remediation and lawsuits. According to 

Gausepohl (2016), as small businesses grow, they may add space or equipment, create new products or services, or 

increase their operating and distribution footprint, it is wise for periodically reviewing of their insurance policy to 

ensure they have the right coverage. 

k) Team Building  
The biggest challenge in scaling any business is people.  The faster the growth, the harder it is to add enough skilled 

people to keep from tipping over. If a firm accelerates its growth but does not  have a team that supports its 

customers and maintains a high level of service, development and refinement, it will eventually collapse in on itself. 

There are two parts to this: First is hiring.  It is important to spend time to put the right people in place. The second 

is creating a fertile work environment for growth (Gerber, 2016).   

l) Marketing 

Firms should not delay an efficient marketing strategy if it wants small business to become a market leader. The 

startup needs to be noticed at once. It‘s not about local promos and advertising campaigns, which are useful 

to attract clients here and now. It is about joining a global market(Mightycall Team, 2016). It important to get access 



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to business conferences, participate in workshops. These are places to make business networking and make proper 

acquaintances in different fields. Social media is a rich platform of information, communities and events agenda. 

Marketing is a continual process. MSMEs need to keep updating their product line, so they can attract new clients. 

5. Conclusion 

All businesses need to be scalable on one or more levels in order to hold onto and build market share. Even so, 

Micro, Small and Medium Enterprises have the greatest need for scalability because they are the ones with the 

biggest potential for growth. They are the organizations that have to be more careful with the limited resources they 

have, the ones that go through metamorphoses as their leaders become more familiar with the business game. Many 

MSMEs fold directly because they fail to foresee what they might need or where the market can take them, having 

too much of a here-and-now mindset. Although many areas in a business are scalable, some are not. It‘s just as 

important to recognize where cannot be changed as to see where can be changed. 

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