The problem of the study was that the Medium Scale Manufacturing Enterprises in Kenya have continued to decline in their performance as shown by Kenya’s Economic Survey results. The purpose of this study was therefore to analyse the dimensions of competitive advantage and the performance of medium scale manufacturing enterprises in Nairobi City County. The study also sought to determine the moderating effect of environmental constraints on the relationship between the individual competitive factors that influence the performance of Mediums Scale Manufacturing Enterprises in Nairobi City County. A total of 485 enterprises were identified from the various economic activities in the manufacturing sector. However, only ninety MSMEs fell within the study’s geographical setting and the required employment level of between 51 and 200 employees as per the study’s definition of an MSME. The targeted ninety (90) Nairobi based Medium Scale Manufacturing Enterprises were all included in the study. The data was collected using a self administered questionnaire and analysed using descriptive and inferential statistics. The study revealed a competitive index at 59.42% across board. The most constrain experienced by majority, 63.6% of the firms were extent of government regulation and compliance costs and weaknesses in transportation and infrastructure development. 31.8% of the firms had limited information on possible markets and clients. In addition, about 47.0% of the respondents indicated that the current legal framework is complicated, while 45.5% proposed that the government need to remove overlapping roles of the institutions with regulatory roles. The study recommends that at the macro level, the Kenya government and international bodies such as the World Bank and International Monetary Fund, should work together in the creation of a predictable macro economic environment to include a realistic exchange rate regime, and put in place a general policy framework that can stimulate pure competition and further support the growth of Mediums Scale Manufacturing Enterprises. At the national level, the meso level Government institutions should come up with support programs and targeted policies geared towards strengthening the performance of Medium Scale Manufacturing Enterprises in terms of entrepreneurial training programmes, supportive infrastructure, appropriate technology acquisition and development. At the micro level, the Medium Scale Manufacturing Enterprises should work towards the improvement of their entrepreneurial and managerial competencies, quality of the human resources, continuous value addition to the production processes, the building of cooperation networks and alliances along the value chain. Consequently, this study is not only useful in the design of support policies, but also the related theoretical support to the programs addressing poverty alleviation through employment creation, considering the increasing unemployment rate among the young school leavers and graduates, who are now confronted with a dramatic increase in international competition in the labour market.
CHAPTER ONE: INTRODUCTION
Background of the Study
This chapter presents background information related to the problem of the study, including the state of the manufacturing sector in Kenya, Medium Scale Manufacturing Enterprises and the Dimensions of Competitive Advantage.
Performance of Medium Scale Manufacturing Enterprises
In both developing and developed countries, it is widely accepted that Medium Scale Manufacturing Enterprises (MSMEs) play a role in achieving the desired industrial and economic development objectives of an economy (Banjoko, Iwuji & Bagshaw, 2012; Tuan & Takahashi, 2009; Daveri & Lasinio, 2007). While their actual contribution to sustainable economic development differ because of their diverse nature, the MSMEs which are part of the Small and Medium Scale Enterprise (SMSE) sector have been hailed as critical in employment creation and poverty alleviation (Ayyagari, Beck & Demirguc-Kunt, 2007; Tuan & Yoshi, 2010). The MSMEs also possess foreign exchange earning potential and enhance regional economic balance through industrial dispersal (Callahan, Smith & Spencer, 2013). Due to their size, the MSMEs require a relatively small capital investment for start up, thereby offering a relatively high labour to capital ratio (Rice & Straham, 2010).
In Kenya, the manufacturing industry’s contribution to Gross Domestic Product (GDP) remained at about 10 per cent. The sector recorded a growth of 3.4 per cent in 2014 compared to a growth of 5.6 per cent in 2013. Within the manufacturing industry,
the MSME activities are prominent in sub-sectors such as food, beverages, textile, apparel and footwear, wood and wood products; pulp, paper and publishing, non-metallic products, plastic & rubber, basic metal, iron & steel (KAM, 2006). However, the MSMEs within the SME sector in Kenya have continued to decline in performance as shown by Kenya’s Economic Survey results 2015 (GoK, 2015). The MSMEs appears is going through tremendous changes and challenges and business cycles are also getting shorter.
The performance of MSMEs in many parts of the world have not grown as expected due to many factors, such as low capital injection, use of obsolete technologies, high cost of doing business and heightened competition from cheaper imports (McIvor, Humphreys, Wall & McKittrick, 2009; Tuan & Takahashi, 2009). In addition, there is perceived dominance by the large firms, and which continues to have other implications for Kenya’s development. The large firms tend to have a high level of foreign capital invested, which continues to cause concern about capital flight through transfer pricing and other activities (Tuan & Yoshi, 2010; Klapper, Amit & Guillen, 2008).
The Kenya government has therefore not only been searching for an employment generation strategy, but also for a small and medium scale enterprise development strategy to supplement the dominance of large firms in the economy (GOK, 2012b). Thus, the need and interest in developing MSMEs owned by indigenous Kenyans. However, the lack of a modern MSME sector in Kenya has not been accidental. Industrial development and macro-policies have historically been skewed towards the large firms. Hence, from the Sessional paper No. 2 of 1996 on Industrial Transformation by the Year 2020, and later vision 2030, have re-emphasized that industrialization, including the MSMEs is a prime mover of the Kenyan economic development (GOK, 2013).
Consequently, there is need to assist MSMEs gauge their performance, learn from their environments about how to survive the competitive environment and continuously seek to reposition their key factors of competitive advantage in line with environmental changes (Rahman, 2012). Models on competitive advantage need to be developed and constantly reviewed to assist enterprises strengthen their performance in terms of their behaviour towards the competitive factors that are crucial in the successful performance of an enterprise (Banjoko, Iwuji & Bagshaw, 2012; Dyer & Singh, 1998). In addition, training manuals on competitiveness need to be continuously developed and updated because they can be crucial in helping entrepreneurs formulate strategies that seek to enhance business practices that lead to organizational excellence (Tuan & Takahashi, 2009; Storey & Westhead, 2007). This way a MSME can become more competitive by producing goods and services that effectively meet the competition from firms offering similar or substitute products (OECD, 2004).