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Federalism uneven regional Development

The pursuit to bring together both the goals of regional and national development in multinational countries gave rise to federalism. This is used to describe a system of government in which the sovereignty is constitutionally divided between a central governing authority and constituent political units like states or provinces. A federal entity is characterised by harmony, conflict, satisfaction and dissatisfaction. (Pritam)
Regional development is the provision of aid and other assistance to regions which are facilitated by the national pattern of development. It is likely to lead to a successful and strengthened federation and at the other end, will cause the federation strain in the neglect of a region or a region being sacrificed for the sake of national development. This according to pritam, is as a result of the necessity to centralise control over the utilisation of resources or because of the necessity to transfer resources from one region to the other.
(Schoenfield et al cited in Pritam
Federalism and development attracts more scholarly attention where federations fail or are in crisis than when they are successful (pritam page 1). Federations as it is, represents some of the largest national entities in the world which includes countries like india, china, Mexico, Brazil, Canada, Great Britain, France, Italy, United states, Argentina, Germany, Venezuela, Pakistanm, South Africa and Nigeria. Pre-second world war federations like USA, Australia, Canada, and Switzerland have been noted as cases of successful federal entities despite Canada having some crisis in its Quebec region. (PRITAM PAGE 2). Contrary to this, some failed federal entities include Pakistan, Yugoslavia, Czechoslovakia; Ethiopia has been split into independent nation states (pritam page 2). Other federal entities such as Nigeria and sudan in Africa, india and Sri Lanka in Asia, spain in Europe have felt a high level of tension in theor federal political arrangement(birch 1989, pritam pg 2)
Instances of lessening regional inequality and stressing regional inequality have acted as a medium for regions to feel dissatisfied with federal arrangements (pritam pg 2). A situation whereby regional inequalities are accompanied by conflicts of ethnicity and nationalism, the relationship of a region to the federal centre becomes more conflict ridden.(pritam pg2). The most likely cases of regional conflict with the federal centre are likely to be those where the regions because of its relative economic backwardness, feels dissatisfied with prevailing structure of the economic relations with the centre.(pritam pg 2)
Uneven regional development is a universal phenomenon with its presence found in almost all large countries, be it a developing or developed country. The problem of regional inequality that results from uneven development is of interest for a variety of reasons. First, the issue of regional disparity is a problem of economic growth. If all regions had grown at the same pace, there would be no income differences between regions in the first place. Even if regional gaps exist, as long as poor regions are able to grow faster than rich ones, the former would converge with the latter and the initial differences would thereby disappear in due course. To find the root causes of regional inequality, we have to trace the long term growth paths of different regions in the national economy and to understand the dynamics of regional growth.
Second, regional disparity is an ethical issue. Less the process of economic development is intrinsically even, society is always confronted with the fundamental contradiction between ethically motivated efforts to establish socio economic parity in space and the economically more advantageous strategy of letting inequality increase, as long as it makes the whole economy grow faster. No one denies the importance of attaining a high overall growth rate, but the question being posed is; who benefits from the rapid economic growth? Both economic growth and fairness in the distribution of income are desirable. Unfortunately, the two goals are often in conflict with each other. The maximisation of growth could worsen the problem of inequality, whereas the pursuit of equality may slow down national growth. A development strategy should not concern itself simply with the maximisation of one objective at the expense of the other; it has to consider the trade off between them.
On another note, regional disparity is an issue of political significance because regional economic disparities may have adverse effects on the political stability and unity of the nation. The relationship between inequality and political instability is a close one. In countless instances, real and perceived imequities give rise to political conflicts. Inter regional inequality could be a source of political conflict, just as inequalities between groups are. Residents of one region tends to care more about the welfare of other residents than about the welfare of the inhabitanrs of other regions. As a result, there tends to be a widespread sense of grievence among the people living in regions where average incomes are nocticeably lower than in other regions of the country, or the incomes are growing noticeably slower. They may regard an insufficiently sympathetic central government as partly responsible for their plight.
Meanwhile, those living in more developed regions are likely to perceive that their economies are the backbone of the nation. If the central government intervenes to corrct regional disparites in such a way that the high income regions have to subsidise the poor one, then these regions are likely to believe that such fiscal transfers to low growth regions ae just a waste of money because in their view, trying to sustain inefficient economic activity is irrational. Thus any attempt to redistribute resources across regions is likely to provoke resistance from rich regions. Thus persistence regional disparities may not only frustrate people living in impoverished regions but also alienate those living in affluent regions. History suggests that when regional disparities becomes excessive, it could lead to massive political consequences especially when ethnic, religious, language differences are combined with ethnic disparities. Examples of such include Biafra in Nigeria, Punjab in India, Wales and Northern Ireland in Great Britain.
Nigeria is the most populous African country with a population of 154 million people who account for 47% of West Africa’s population and nearly a fifth of sub-Saharan Africa’s population. Nigeria is Africa’s largest oil producing country, and it is the eleventh largest producer and the eight largest exporter of crude oil in the world. In 2006, Nigerian oil production averaged approximately 2.45 million barrels of oil per day (World Bank, 2011)
Oil has been the dominant factor in Nigeria’s economy for the past 50 years. In 2007 over 87% of government revenues, 90% of foreign exchange earnings, 96% of export revenues, and almost half of GDP was accounted for by oil (Watts 2008:43). Despite its vast resources however, Nigeria has been a disastrous development experience, and Nigeria’s performance since independence has been dismal at best. Today, out of a population of 140 million, approximately 70 million people live on less than $1/day, 54% of Nigerians live below the poverty line, over 1/3 live in extreme poverty, 1one in five children die before the age of five, 3 million people are living with HIV/AIDS, and 7 million children are not attending school (Higgins 2009). In an attempt to gain access to the allocation of oil revenues, each ethnic group in Nigeria had to seek its own state or local government council. This is why Nigeria, which originally had only 4 regions and 50 local governments, now has 36 states and 774 local governments.
According to the United Nations Development Program, Nigeria ranks in terms of the Human Development Index (HDI) a composite measure of life expectancy, income, and educational attainment number 158 out of 177 countries, below Haiti and Congo; over the last 30 years the trend line of the HDI has been upward but barely (UNDP, 2006a). Nigeria also appears close to the top of virtually everyone’s global ranking of corruption, business risk, lack of transparency, fraud, and illicit activity; Nigerian fraud even has its own FBI website.
According to former World Bank President Paul Wolfowitz, at least $100 billion of the $600 billion in oil revenues accrued since 1960 have simply gone missing. Nigerian anti-corruption chairman noted that 70% of the country’s oil wealth was stolen or wasted; by 2005 it was only 40%, and by most conservative estimates, almost 130 billion was lost between 1970 and 1996. After the discovery of oil in Mongolia, a local leader announced: We do not want to become another Nigeria (Watts 2008:43-44).
This rise in oil wealth has not translated into significant increases in living standards in Nigeria, however. In fact, the rise in poverty and inequality coincides with the discovery and export of oil in Nigeria. As Sala-i-Martin and Subramanian (2003:4) show, in 1965, when oil revenue was about US$33 per capita, GDP per capita was US$245. In 2000, when oil revenues were US$325 per capita, GDP per capita was stalled at the 1965 level. Evidence such as this has led to widespread acceptance that Nigeria has suffered from the resource curse and according to Sala-i-Martin and Subramanian (2003:24), waste and poor institutional quality stemming from oil has been primarily responsible for Nigeria’s poor long-run economic performance.
The Niger Delta region is the area covered by the natural delta of the Niger River and the areas to the east and west. The Niger Delta consists of 9 of the 36 states in Nigeria, 185 local governments (UNDP, 2006: 44)occupying about 12% of Nigeria’s territory (Figure 2).These states include Abia, Akwa Ibom, Bayelsa, Cross River, Delta, Edo, Imo, Ondo and Rivers state. The Niger Delta is a region that has been somewhat marginalized from Nigeria’s national development despite being the region that generates Nigeria’s oil wealth (Higgins 2009:1).
The oil boom in Nigeria has been driven by oil extracted from the Niger Delta region. Oil wealth, from the Niger Delta region, is largely responsible for sustaining the Nigerian Federation (UNDP, 2006: 62). Despite fuelling much of Nigeria’s economic growth, the Niger Delta is somewhat marginalised from Nigeria’s national development. Higgins writes that, Essentially there is a significant disconnect between the wealth the region generates for the Nigerian Federation and the transnational oil companies extracting oil from the region, and the region’s human development progress (Higgins 2009:3). The region’s human development index is 0.564 and while this is slightly higher than the Nigerian HDI of 0.448, the area rates far below regions or countries with similar gas or oil reserves (Venezuela is 0.772 and Indonesia is 0.697) (UNDP, 2006: 15). Table 5 shows incidence of poverty in the Niger Delta from 1980-2004, and according to Higgins, Analysis of poverty and human development indicators paints a dismal picture for the Niger Delta. Poverty incidence increased in the Niger Delta between 1980 and 2004 as Table [5] shows (Higgins 2009:3) As well, when further disaggregated to the local government level, the Niger Delta Human Development Report shows that state and regional HDI scores mask inequalities in human development among oil producing communities. Significantly, local government areas without oil facilities appear to have fewer poor people than those with oil facilities (UNDP, 2006: 15). The report also concludes that decline in the HDI has been steeper for the Niger Delta states than the rest of Nigeria (UNDP, 2006: 137). In addition, the high earnings of some oil industry workers leads to localised price distortions, driving up prices and so constraining the purchasing power of ordinary people and making it difficult for many to meet the costs of basic needs such as housing, healthcare, transportation, education and good and making poverty more pervasive than conventional measures reveal (UNDP, 2006: 57).
1. Social and political exclusion: The two post-military national elections (1999 and 2003) are widely agreed to have been extensively rigged in the Niger Delta states, with fraudulent results sustained by violence and threat and so leaving a serious democratic deficit. The political process is held in complete mistrust and considered exclusionary and corrupt. Formal institutions have failed and local customary institutions have become eroded. Youth have turned to violence and militancy to challenge the government and extort oil from oil companies (World Bank, 2007b).
2. Economic exclusion: Despite substantial resource flows to the State government, and significant natural resource endowments the people of the Niger Delta are destitute. The panel described the Niger Delta as an iconic representation of destitution amongst the possibility of wealth. The people of the Niger Delta feel excluded from the wealth generated by their resource rich region substantiated by the region having the highest rate of unemployment in Nigeria (World Bank, 2007b). Remote rural communities have very limited economic opportunities and often cannot tap directly into the employment. benefits of the oil industry because they lack capital resources or skills (UNDP, 2006:17).
3. Poor governance and corruption: Corruption, especially at the state and local level, is endemic and at the root of many of the region’s problems. Large sums are received at both the state and local level, but there is little evidence of this being applied to productive development endeavours. This situation exacerbates the sense of hopelessness, exclusion and anger of the citizenry of the Niger Delta, who have lost faith in existing governance structures (World Bank, 2007b).
4. Poor infrastructure and public service delivery: The panel (World Bank, 2007b) describes the current situation as akin to a human emergency and UNDP describes infrastructure and social services as generally deplorable (UNDP, 2006: 15). The general neglect of infrastructure, often rationalised by the difficult terrain of the region, has worsened the population’s access to fundamental services (UNDP, 2006: 16). For example, the town of Edeoha, in the state of Rivers, lacks basic services such as water, education, healthcare and electricity and jobs are hard to come by. There is no local government office in the town, the primary schools lacks chairs and desks, and the nearest hospital, which lacks medicine and equipment, is twenty kilometres away (International Crisis Group, 2006: 17). Analysis above highlights the poor human development of the region.
5. Environmental degradation: Oil exploration and production gas led to environmental damage on many levels: land, water and air pollution, depleted fishing grounds and the disappearance of wetlands (World Bank, 2007b). These environmental changes have had significant implications for local livelihoods, and the alienation of people from their resources and land has led to the inefficient use of resources that remain and poor or inequitable land use practices (UNDP, 2006: 17). Measures to counterbalance environmental damage are inadequate and this is a major focus of community disconten (World Bank, 2007b).
6. Escalating violence and disorder: The democratisation of the means of violence has emerged, as the state has lost monopoly power over the use of force. This violence has emerged in many forms, and exists between communities over host community status, resource and land claims and surveillance contracts; within communities over compensation distribution;
between communities and oil companies; and between communities and security forces. The fault lines of these conflicts often coincide with, or are justified in terms of, ethnic differences (World Bank, 2007b). Persistent conflict, while in part a response to the region’s poor human development, also serves to entrench it as it is a constant drag on the regions economic performance and opportunities for advancement (UNDP, 2006: 16).
7. A vicious cycle of violence: Conflict has become militarised, with the intensive proliferation of arms, sabotage, hostage taking and the emergence of warlords and youth cults. This process is fuelled by the illegal bunkering of oil fuels (World Bank, 2007b). Since January 2006, the Movement for the Emancipation of the Niger Delta (MEND) have been central to this violence
(International Crisis Group, 2006:i).
8. Landownership: There is much juridical ambiguity over land rights. While the Land Use Decree of 1978 formally vested all land in State governments, the expropriation of this has never been accepted by the individuals, families and communities that have made customary claims to the land. This has resulted in a double system, and combined with weak judicial systems has resulted in long running conflicts and ambiguity at many levels (World Bank, 2007b).
The marginalisation and poor human development progress of the Niger Delta has not gone unnoticed by successive Nigerian federal governments. Since the late 1950s, the Niger Delta has been recognised as a region requiring special development attention (Osuoka, 2007: 5). A number of special agencies have been created by the federal government to address development in the Niger Delta. These have included the Niger Delta Basin Development Board, established in 1965 and the Oil Minerals Producing Areas Development Commission, established in 1992 (Osuoka, 2007: 5). it established a new body called the Niger Delta Development Commission (NDDC) to offer a lasting solution to the socio-economic difficulties of the Niger Delta Region (UNDP, 2006: 31). In 2006, the NDDC launched the Niger Delta Regional Development Master Plan, which states the development goals and objectives of the Niger Delta. For the foundation phases (2006-2010), the key programmes are the economy, physical infrastructure, human and institutional resources, human and community needs and natural environment. Focusing on some key elements, these will seek to create an enabling environment for enterprise; improve the functioning of key markets and access to them; increase agricultural (and fisheries) productivity and micro-investment; protect and develop human capabilities; protect natural resources and mitigate harm. (For a summary of the NDDC Master Plan Programs and Areas of Focus, see Annex 1). The NDDC clearly aims to have a redistributory function, with nearly a quarter of the funding coming from the Federal Government
1, with additional contributions expected from oil companies operating in the Niger Delta, the Ecological Fund and States of the delta. Unfortunately, States have yet to contribute to the Commission, and oil companies are still wrangling over how much they should contribute (UNDP, 2006: 31-32).
But assessment of development in the Niger Delta since the NDDC was established shows that poverty reduction progress has been slow, particularly given the Niger Delta’s substantial natural resource endowments and additional federal government resources. And, as mentioned above, according to UNDP, the worsening of the HDI has been more acute for the Niger Delta states than for the rest of Nigeria (UNDP, 2006: 137). However, we do not really know how effective the NDDC is. We also do not know much about which programme components are more or less effective at achieving the programme’s overarching goals. This is a really important data gap, as – given the programme’s multisectoral nature – clearly attributable information about causality would go a long way to telling us which approaches might be best at reducing spatial disparities and regional inequalities. If we look at a range of indicators, we can see how significant the challenge still is. Disaggregated human development indicators paint a dismal picture. The prevalence rate of HIV/AIDS is among the highest in Nigeria (UNDP, 2006: 17). Energy availability is poor, despite the region providing the United States with one fifth of its energy needs (UNDP, 2006: 25). For example, in Bayelsa State is not linked to the national electric power grid (UNDP, 2006: 110). Similarly, while the delta region has a dense network of freshwater distributaries and vast groundwater reserves, no part of the region has a regular supply of potable water (UNDP, 2006: 110). Some health indicators are below the national average. As Table 3 indicates, the Niger Delta region (South-South) has a higher than average infant mortality rate and the highest post-neonatal mortality rate in Nigeria (UNDP, 2006: 125). The region also fares comparatively poorly in terms of accessing health treatment. For example, only 25.1% of children with acute respiratory infections and fever sought medical treatment from health providers, compared with 49.5% in the North Central region and 52.6% in the South West region (UNDP, 2006: 123). The South-South zone also had the largest proportion of births attended by traditional attendants (UNDP, 2006:123). Interestingly, in a 2003 NDHS survey, the Niger Delta had the largest proportion (34.8%) of respondents identifying the distance between their residence and health facilities as a major problem. In this same survey, nationally, 30.4% of women cited a lack of money as a barrier to accessing health care. In the Niger Delta, this was 47.1% and the highest regional figure (UNDP, 2006: 125).
Additionally, there is an intense feeling among the people of the Niger Delta that they should be doing far better: the Niger Delta has a self-assessment poverty rate of 74.8% (UNDP, 2006: 58)
Policy Recommendations
The policy recommendations address the issue of regional inequalities and overall
national developmentandmodemisation in Nigeria. As we saw during the review,
regional imbalance has been perpetuated in the country over time. The result has
been the prevailing ‘unwarranted’ uneven distribution of resources and benefits of
development ‘Warranted’ unevenness is inevitable during the incipient growth
and development of any country because of inadequate administrative machinery,
lack of clear direction of redistribution mechanisms, non-diversification of the
economy and technology and limited employment opportunities for the majority
of people. During the early stage of development income development surpluses
and even hierarchy of cities are not adequately distributed. However in a country
such as Nigeria where development aided by the petro-dollar has proceeded for
quite a long time, the perpetual existence of ‘unwarranted’ inequalities among
individuals and regions is unpardonable. Individual and regional equity based on
consensual socio-political policies, especially in the form of Acts, is still possible.
Attractive socio-political, economic and administrative consensus policy options
that are likely to be acceptable to every region and individual will be those which
74 EbenezerAka
promote a change that is desirable in its own right: for example, a multicultural
po.licy on ethnocentrism, capacity-building, and sustainable self-reliant peoplecentered
Ethnocentrism has been a major driving force which has fueled and perpetuated
regional imbalance in the country over time. For the problems of ethnicity to be
ameliorated in the country, a concerted effort by the local, regional and federal
governments is needed urgently. The effort will ensure that all references that vilify
individuals or incite unwarranted division and unnecessary competition are
removed by law from the mass media and other instruments of propaganda (Nnoli,
1978). According to Nnoli the concept of the existing “North/South” and “East!
West” that mark the social, cultural, historical and ethno-linguistic divisions and
affinities for socio-economic development planning should be applied with
caution. At times in Nigeria this creates the notion of “us” versus “them”.
A new set of references is needed which explains the country’s present socioeconomic
predicaments. For example the concept of developed and backward or
depressed regions stemming from the differences in regional distribution of natural
and mineral resources including income, employment and welfare, should replace
the “North/South” and “East/West” distinction or dichotomy. Moreover, in order
to realise a long -term solution, strategies to accommodate the major ethnic groups
in the development process should be pursued. For example, the languages and
histories of major ethnic groups should be taught in schools for the understanding
and appreciation of each other; information for important social services (public
or central services) should beprovided in major languages, and the political system
and its policy and decision-making apparatus should be representative of multiethnic
groups in the country, in order to allay the fears of the minorities. Socioeconomic
planning administration, and management based on the new concepts
are likely to enhance socio-economic and political equity if constantly pursued
over a long period of time.
A cogent remedy to regional inequality also lies in the creation of a nationally
integrated economy rather than on the creation of mushroom states based on ethnolinguistic
sentiments for sharing the national wealth. The suggestion here is a
gradual shift of emphasis from the existing centre-down, urban-biased, productioncentred
organisation to a sustainable, self-reliant, people-centred developmenL
What is actually advocated is a bi-modal or dualistic strategy of development
where both paradigms are operative. According to Korten (1984:309) ifpeoplecentred
development is to emerge it will bean offspring of the production-centred
industrial era. The new paradigm should focus on ruraVregional development
based on the community or basic needs approach.
The federal government should use its authority to improve the relative and
absolute shares of the poor regions or states because the free market mechanism
Regional Inequalities in the Process of Nigeria’s Development 75
does not operate in Nigeria to guarantee the redistribution of the benefits of socioeconomic
development. TIle Nigerian market is imperfect, corrupt and not well
developed. Distributive measures should be initiated by the government to include:
industrial decentralisation by giving priority to lagging regions; job-training
programmes as a targeted policy for the poor, the underprivileged and the
minorities; and direct income transfers. The aim is to improve on the economic base
of those regions, as well as their employment potential and income which will
eventually make the local economy richer.
The aim of the people-centred or grass-roots approach to rural and regional
development is to create a society that is secure and sustainable. Growth which has
occurred so far becauseofa production-centredapproach, has not been accompanied
by equivalent increase in employment, thereby resulting in individual and regional
poverty as well as socioeconomic inequalities. To create jobs and ensure that all
share in the benefits of economic growth, government should make markets more
‘people-friendly’ by: investing more in basic education and worker retraining;
ensuring universal access to markets; redesigning credit systems and fISCal
incentives to support small-scale 6nterprises and informal employment; and using
tax breaks to encourage labour-intensive technology and production in ruraltowns,
agro-towns, or small- and intermediate-sized cities (Collins, 1993:4). The
new concept focuses on human security based on environmental sustainability,
employment, and provision of basic needs. Perhaps, this is what Strong (1993:5)
calls, in both environmental and economic terms, “eco-industrial revolution”.
Strong goes on to say that for the government to effect economic sustainability, it
will require a fundamental reorientation of policies and budgets, redeployment of
resources, and reshaping of the system of incentives and penalties that motivate
economic behaviour.
In order for the resources to be adequately managed and for long-term
economic sustainability to be entrencbed in Nigeria, the federal government
should embark on capacity-building. This will enhance the existing management
capacity of Nigerian public institutions and private economic agents, and also help
provide the much needed top-level managers and policy-makers. Capacity-building
willachieve littleinNigeriawithoutpolitical development. TheNigeriangovemment
mustdevelopaform of governance thatpermits free expression and full participation
in the development process. Participation empowers the local people to take charge
of their lives by increasing their potency ,as theiraltemative ideas, social techniques
and technologies are released. Political development is likely to create societywide
trust and predictability, and foster a stable political order that is the sine qua
non for a long economic growth. Without creating more states in Nigeria, which
often depends on ethnocentric sentiments, a decentralised administrative structure
can be achieved which is capable of providing stability, creativity, and civic
76 EbenezerAka
commitment of every Nigerian, and more importantly, capable of reducing
regional inequalities.
Regional inequalities can bealleviatein terms of administrative decentralisation. The recently created local government
areas throughout the country could be strengthened and employed as a “seeding”
agent for local and regional growth, development, and modernisation. There exist
today 449 local government areas with their headquarterS or capitals. These
capitals Egunjobi (1990:22) calls “third-order centres”(6). Administrative
decentralisation plays an important function in the redistribution process during a
deliberate national development effort, especially by strategically locating the
headquarters or capitals for the newly created administrative areas. The local
government area capitals should be targeted as development and modernisation
diffusion agents, and also as the agro-political units for the provision of basic needs
using local materials, manpower, and small-scale enterprises. That is, these
capitals can be deliberately employed to act as innovation nodes or poles by which
growth and modernisation impulses could diffuse or trickle-down to their tributary
areas. Inother words, they should provide development stimuli and act as a change
agent to their hinterlands or catchment areas.
As a process of national urbanisation, socioeconomic and modemisation
strategy, administrativedecentralisation sho

Factors influencing the success or failure of Small Business

Small businesses have certainly started to play an important role in the growth and development of a lot of economies in the world today, and they are becoming increasing popular. The reasons for this are not particularly hard to discern. Growing firms provide significant benefits to regions, with job generation, knowledge spillovers, economic multipliers, innovation drivers and cluster developments. The exact processes of growth and an analysis of the development and transitions from small to high growth rates and size development has generated limited study from an initial review of literature. The birth of new firms and their subsequent growth or failure has captivated the interest of researchers especially during the past decade and a half. The central theme dominating this segment of research focuses on the question of why Jason Fast Foods failed in their business.
An initial review of literature on small firms reveals that many of them fail early in their lifecycles, presumably due to the many impediments and obstacles that they are unable to overcome. There is also the less than satisfactory growth rates observed among firms that survive the initial inception stage. Whereas the specific factor that led to the failure of this business was poor operational plan, a congregations of other factors was responsible for the failure of this business. This means that Jason Fast Foods failed because of a combination of poor product/service, marketing plan, operation plan and financial plan.
The dynamics of changing demographics and consumer purchasing patterns, coupled with ever stronger competition, put increased pressure on Jason Fast Foods enterprises. This impacted a lot on the small business who had to devise new avenues for driving productivity and develop distinct competencies that was aimed at ensuring their survival. Basically, Jason Fast Foods suffered from limited information, finance, management time and experience and was vulnerable to environmental changes. The scale of operations was also low which meant that this firm did not benefit from the economies of scale which limited its operations and generally inhibited its growth and ability to develop and dominate the markets. The small firm sector has been described as very turbulent, with fluctuations in profits and sales being more imminent than larger firms’, mainly because they are more likely to depend on single products or customers (Storey et al., 1987). Large firms on the other hand often exist because competitive factors within industries make the use of economies of scale in productions which are necessary for survival.
Operational factor that greatly contributed to the failure of Jason Fast Foods was the inability to attract higher quality people than its competitors. The differentiators between success and failures lie in the ability of a firm adopting strategies in the utilization of its capabilities that ensure the firm has higher quality people than its competitors, it’s able to develop and nurture its capabilities and that a culture is developed that encourages organizational learning. When competition intensified, the possession of these competencies became increasingly important for the firm’s continued success. Moreover, these were the distinctive capabilities that supported a market position that was valuable and difficult to imitate. The aim of developing and improving the resources basses and capabilities are aimed at achieving a strategic fit between resources and the opportunities that will ensure for added value from the effective deployment of resources. The overall inability to effectively deploy resources for the best operational practice was inhibited by its scarcity.
In addition to the above, the interaction between competitive advantage and distinctive competencies are well researched issues that Jason Fast Foods failed to exploit. The general concurrence is that firms that develop and exploit their distinctive capabilities and key competencies generally outperform their rivals and are able thrive in the said markets. For example, Day (1994) found that smaller firms that chose to compete with clearly defined strategies outperformed those firms with a less clearly defined focus. These believe is supported by Armstrong (2007) who found a close correlation between the entrepreneurial orientation of firms and the possession of a wide assortment of distinctive competencies. Operational inefficiency deprived Jason Fast Foods the ability to find a close correlation between its entrepreneurial orientation and the possession of a wide assortment of distinctive competencies.
The role of financial factor contribution to the failure of Jason Fast Foods was precipitated by the skyrocketing health care and energy costs, tightening credit conditions and increasing labor costs. Generally, the small businesses are facing a challenging economic environment. The major constraints that were facing Jason Fast Foods can be broadly categorized into four groups that are cost factors, credit conditions, trade competitiveness and industry metrics (HSBC, 2005).
The major cost factors associated with doing business in America for the small businesses stems from the health care, oil, natural gas, retirement and savings and total employee compensation and regulatory costs (HSBC, 2005). These costs continue to rise by day, meaning that the proprietors of Jason Fast Foods were receiving the same amounts of inputs to run their businesses but at a higher cost. These increased costs limited the ability of Jason Fast Foods to purchase new equipments, hire new employees and expand businesses. The most significant increase in these costs has been the rising oil and natural gas prices. Additionally, the employees compensation costs have also grown, coupled with increased health care and medical costs which continued to impact on the bottom line of Jason Fast Foods.
Another constraint that led to the failure of this firm was with credit conditions and access to credit. A lot of researchers agree that business financing is a key ingredient to business success through the provision of the ability for entrepreneurs to start or develop an existing business. As Child (1972) intones, capital availability ebbs and flows as business cycles evolve, essentially meaning that enough capital resources should be available at all stages of growth. The major contributing ingredients to the ease with which small business can gain access to capital encompasses such issues as budget deficits, commercial and industrial loans, interest rates and venture capital. For example, most credit that is extended to businesses either in the form of credit cards or commercial loans are tied to the prime rending rates, which are dictated by the overall operating conditions. These are basically reflected by the prevailing rending rates, which have been rising of late with severe implication on the cost of doing business. The fact that Jason Fast Foods encountered more difficulties in generating alternative financing (example through issuance of stock or commercial paper) become more resilient, meaning that they were being forced to pay high interest costs to secure a loan to finance ventures. This was compounded by the fact that interest rates are usually higher as private sources of capital compete with the public sector for investors in an economy, meaning that borrowing costs continues to rise regardless of growths in the economy. The end result is that small businesses are hugely disadvantaged. Without favorable credit conditions, entrepreneurs will either pay higher prices for capital or forgo adequate capitalization all together (HSBC, 2005).
Another constraint faced by Jason Fast Foods that led to its failure was with regards to growth and development and the competitiveness of the operative industry. The major factors as regards competitiveness usually stem from trade deficits and the trends and manufactures new order. The contentious issues are that while the increased globalization has provided business owners with the opportunity to market and sell their goods abroad, small business have continually struggled and failed to exploit the potential.
All the above factors clearly illustrate the major difficulties faced by small business in their endeavors that eventually led to the failure of Jason Fast Foods. While the same factors have been found to also impact on the larger counterparts, a clear deduction can be discerned that the impacts have greater implications on the small businesses.