A Cluster-Based Approach to Small and Medium Enterprise Transformation in Nigeria

There is a growing need for financing, productive skills, infrastructure and basic amenities needed to create a supportive business environment.

[3 Minutes Read]

As global enterprises continue to leverage technology to drive innovation in their business environment, they are more compelled to support activities that include crowd-sourcing, co-operation as well as subcontracting; they are positioned to capitalize on new opportunities. Nigeria is lagging behind and as a start needs to uplift her SME space from inertia by embracing the prominent cluster-based approach.

The web of digitization, growing trend of innovative shared-service business model, has proven to be the master stroke in the pursuit of scale for promoters of Small and Medium Enterprises (SMEs) globally. Nigeria would need to follow suit in its drive to develop a sustainable base of small businesses; but it would be best to prioritize the development of internal capacity by providing holistic support for the ailing SME sub-sector. There is a growing need for financing, productive skills, infrastructure and basic amenities needed to create a supportive business environment.

India’s on-going economic resurgence was on the back of a program to boost internal capacity, free-up trade policies, bridge their infrastructural gap, eradicate corruption and grant more attractive trade conditions to partner nations. Their efforts to support the SME space has received positive sentiments from global investors. This is evidenced as the bulk of global FDI’s have begun to flow into India to help combat her stark infrastructural deficit and her laudable efforts to drive a cashless economy.

Understanding the cluster-based approach and its benefits to the broad economy

A cluster approach would simply imply the support to a collective group, working for a similar purpose, with similar resources and similar impediments. The generality of the issues faced would allow firms in a cluster forge a deeper market understanding, receive insights and attain economies of scale as experience is shared by the collective alongside other resources. According to Porter (1990), clusters are geographic concentration of interconnected companies, service providers, firms in related industries, and associated institutions in particular that compete but also co-operate.  One of the earliest documented clusters occurred in 18th century Britain where the SME clustering phenomenon was made popular during the cotton industry-led revolution for cotton and subsequently cotton factories became the dominant feature of the pennines who were then known as the “Backbone of England.” These clusters were located in “geographical confines” which meant they were deep in expertise and constantly challenged to improve. In those days, the location of textile industrial districts were dependent on the availability of Telecommunications, communications and composite material in Nantes, France. In Nigeria, we have leather clusters in Kano, Fashion and Garment clusters in Aba; Mobile phones, Computers and other accessories in computer village Ikeja; tie and dye clusters in Abeokuta and automative clusters in Nnewi.

SMEs are  deeply  affected  by  the globalization  of  markets,  due  to internationalization, all firms   are forced to act and think globally. For SMEs operating in Europe, there is a European Union (EU) cluster policy guide for the domestic SME players to govern cluster-specific affairs and this has helped to foster a supportive Business environment, interconnect their systems, create room for sub-Contracting and generally, capitalize assembles small borrowers at a reduced cost.

In our second article of this series, we shed light on how Cluster support will enable SMEs tap into the opportunity to become integrated in the world supply chain.