Background to the study

Nigeria’s business environment is situated in the midst of a challenging economic landscape and intense competition. Therefore, managers are increasingly seeking for strategic approaches to accomplish, improve, sustain, organizational performance and competitive advantage Porters (1989). Design and implementation of Strategy must be perceived as important components in the firm’s management process. This is because strategy gives the direction that business managers have in mind and which way they want to achieve their goals Gbolagade. A (2013). Earlier research demonstrated that firms that set out a clear strategy, for example: a quality differentiation or a cost leadership strategy, will outperform those firms that engage a mixed strategy. Amongst the many strategies implemented in firms, competitive strategy has been proven as an essential tool globally for any business to remain in the competitive market environment and gain superior performance lbidunni & Ogundana. (2014). Competitive strategy means consciously choosing to carry out activities differently or to perform different activities than competitors to convey a unique mix of value. Therefore to possess an edge over rivals firms employ innumerable competitive strategies, principally because each company’s strategic style entails custom-designed actions to fit its own circumstances and industry environment. As in most national economies Small and Medium Enterprises are an essential mechanism in achieving development and growth of Nigeria’s economy. The 2012 Enterprise Baseline Survey revealed that there are 17, 284, 671 Small and Medium Scale Enterprises in Nigeria, employing 32,414,884 persons and contributing 46.54 per cent of the nation’s Gross Domestic Product in nominal terms (CBN annual report,2017) . SMEs are considered the life blood of many economies and Nigeria is not left out. SMEs are very crucial in most economies including Nigeria in that they contribute a lot in terms of GDP and employment. A business is defined as small in the manufacturing sector if it employs fewer than 100 employees. Though there is no certified definition of what makes up a medium-sized enterprise, businesses with between 100 and 199 employees are generally considered medium sized. The SME sector of the economy cannot be overlooked because it plays a very important role in a nation’s economy and this is true for both developed and developing countries. They also form a high proportion of business activities and engender more employment opportunities than the large corporations in recent years. However due to globalization, competition amongst firms is on the rise and SMEs in Nigeria are struggling under this intense competitive environment both at the domestic and international terrain. Despite the economic significance some of the Small and medium Enterprises in Lagos, they have not played the expected vital and vibrant role in the economic growth and development of the country. These challenges may result from perceived ineffective competitive strategy which is having a negative effect on performance in terms of customer base, sales growth, returns on investment and revenue. Competitive advantage gives a firm an edge over its rivals and an ability to generate greater value for the firm and its stakeholders. Therefore to ensure survival in a highly competitive environment such as Lagos, SMEs have to learn to weather the storms of competition and beat today’s ferocious market forces and volatility by providing quality products, distinct product features and well packaged value adding products that satisfy customer need at affordable prices with effective promotional strategy. Every firm possesses certain unique capabilities and competences that distinguish it from other firms and these features greatly influence its performance in the market and determine to what extent a firm survives the pressure from global market competition. However this cannot be achieved except the right competitive strategy is developed and implemented appropriately. Therefore, this research study aims at examining how competitive strategies, such as product quality, distinct product features and value adding capacity, influence the performance of SMEs in Lagos, Nigeria.

1.2 Statement of problem

In Lagos, Nigeria the problem of many SMEs is shown by this research that SMEs has fallen out terms of market growth, due to inadequate competitive strategy as regard to utilization of their organizations’ resources, lack of implementation of specific policies, strategies and actions designed to accomplish market growth in firms are not in place. Study and explanation of business competitiveness is a recurrent theme studied by academics, consultants and practitioners. The internalization of economy, dynamic nature of the environment, greater competitive firms, the need for continuous innovation, product customization and growing use of ICT forces firms to face challenges of improving their competitiveness. These difficulties are greater for small and medium enterprises because their economy of scale and their resources are less than those of large firms. Research has documented that 70% of SMEs fail in their first three years of operations in Lagos, Nigeria. The highly competitive environment for small scale businesses in Lagos Nigeria has necessitated the need for SMEs to develop strategic means of survival. Thus it becomes imperative to find out whether generating new product features, will increase their scale of productivity and reflect also on their customer base. Ability of top management to properly analyze the market is one of the crucial aspects of marketing rules. It is when a unique selling proposition is created with the aim of increasing the scale of product. Lack of better product/service quality and delivery, inadequate product customization and poor personnel management has hindered sales volume of various SMEs and their performance. This is as a result of narrow out- look to issues regarding competitive strategy planning, formulation, implementation and evaluation, research and development on product quality and service delivery. Furthermore there is an urgent need for small scale firms (SMEs) to gear effort towards increasing profitability because of the severe competition they face from multinational companies in the market and the need to meet consumer’s requirement for quality, quantity and price. In order to achieve this entrepreneur must put in place adequate competitive strategy that would be responsive to customer satisfaction, revenue growth and increased returns on investment. Despite the fact that the products produced by small and medium enterprises are cheaper, relevant available statistics data shows marginal improvement in this area. Base on this reasons this research is been carried out to identify competitive strategies that can improve the performance of small scale enterprises in Lagos, Nigeria.

Objectives of the Study 

The General Objective


The purpose of this study was to investigate the Impact Of Innovation On Firm Sustainable Competitiveness Advantage In Nigeria

Specific objectives 

  1. To establish    the   effect   of   product   innovation   on   the    competitiveness    of manufacturing SMEs in Nigeria
  2. To analyse the effect of process innovation on the competitiveness of manufacturing SMEs in Nigeria
  3. To assess the effect of Marketing innovation on the competitiveness of manufacturing SMEs in Nigeria
  4. To determine the effect of organizational innovation on the competitiveness of manufacturing SMEs in Nigeria
  5. To examine the combined effect of product, process, marketing and organizational innovation on the competitiveness of manufacturing SMEs in,Nigeria
  6. To investigate the moderating effect of firm Size on innovation and competitiveness of Manufacturing SMEs’ in Nigeria

   Research Hypotheses

This study tested the following Research Hypotheses in line with the specific objectives; H01: Product innovation has no significant effect on the competitiveness of Manufacturing SMEs in Nigeria

H02: Process innovation has no significant effect on the competitiveness of manufacturing SMEs in Nigeria

H03:   Marketing    innovation   has   no    significant    effect on the competitiveness of manufacturing SMEs in Nigeria

H04: Organizational innovation has no significant effect on the competitiveness of manufacturing SMEs in Nigeria

H05: Combined innovation (Product, process, marketing and organizational) has no effect on the competitiveness of manufacturing SMEs in Nigeria

H06: Firm size has no moderating effect on the relationship between SME Innovation and competitiveness in Manufacturing SMEs in Nigeria

Significance of the Study 

This study contributes to a better understanding of the innovation practice in Manufacturing SMEs in Nigeria and how it affects firm competitiveness. This is important to SME practioners, Government agencies and other researchers. Specifically the study findings provide a link between innovation and competitiveness’ by validating the role of innovation in firm competitiveness. The study findings provide a basis for the use of innovation strategy to enhance firm competitiveness.

For the Nigerian government and its relevant arms that include Nigeria Intellectual Property Institute, National Commission for Science Technology and Innovation, Ministry of Industrialization and enterprise development ( MOIED),the study findings provide the knowledge necessary for the formulation of relevant and effective policies and programmes in the area of enterprise development and use of innovation as a tool to enhance development and for stimulating innovativeness.

This study’s findings also add to the existing body of knowledge in the area of SMEs innovation and firm competitiveness. Owing to the limited studies linking innovation and firm competitiveness, the study contributes to empirical knowlegde and to the framework of research in SME competitiveness and innovation.The study also attempts to validate existing theoretical knowledge in the area of innovation and firm competitiveness. Lastly, the study findings may ignite further research in these area of innovation and SME competitiveness to fill up any research gaps, or to widen the scope.

  Scope of the Study

The study sought to investigate the effect of innovation on firm competitiveness focusing on the manufacturing SMEs. A sample 284 Manufacturing SMEs was drawn from manufacturing SMEs in Lagos where majority of enterprises from all sectors are located.. Data on innovation and competitiveness was collected for a period of 3  years( 2012-2014) as recommended for innovation studies (OECD, 2015). The dependent variable firm competitiveness focused on two constructs, profitability and market share while the dependent variable innovation considered product, process, marketing and organizational innovation. Multiple Linear regression analysis was used to analyse the effect of innovation on firm competitiveneness

 Limitations of the Study

Eventhough the study was designed to enable the researcher collect accurate and aunthetic data that can be used to make some inferences, it was however not free from limitations. First, while the study targeted all manufacturing SMEs in Lagos, however data was collected from samples drawn from three main clusters from Lagos. This may introduce some biasesness. However the researcher reduced this by using multistage sampling where cluster sampling was followed by stratified random sampling to increase the representativeness of the sample and reduce biasness.

Secondly, Innovation effect on enterprises have a time lag after implementation  before they are realised. The research attempted to deal with this limitation by obtaining innovation data for a period of three years as opposed to one year. Lastly, data collection on the dependent and independent variables enterprises was self-reporting and this can lead to subjectivity. This was used because most entreprises are hesitant to share records or audit reports from where the data can be extracted while others lack the reports.

 Organization of the Study

This thesis is organized in five different chapters. Chapter one of the study introduces the research, the reseach variables and the context . The chapter contains the background information, statement of the research problem, research objectives, significance of the study, the scope and the study limitations.

Chapter two presents literature review that includes theorerical, conceptual and empirical literature of the main study variables that include competitiveness, innovation. the. Based on the literature reviewed, a conceptual framework depicting the hypothesized relationship of the variables was developed.

Chapter three presents the research methodology that include a description of the research design, the research philosophy, the target population, sampling design and sample size and Operationalisation of the variables. The chapter also contains empirical models used in the study as well as data collection methods and instrument and lastly ethical considerations of the study.


Chapter Four presents the research findings, results of data analysis and a detailed discussion of the findings. The chapter also contains the descriptive statistics, diagnostic tests, and inferential statistics. Finally, Chapter Five presents the summary of research findings, contribution of the study to knowledge, conclusions, and recommendations for policy and suggests areas for further research.