Competitive Strategies And Performance Of Micro And Small Enterprises In Nairobi County, Kenya

ABSTRACT

Small and Medium Enterprises (SMEs) is an important sub sector for the Kenyan economy

like many other developing countries since it employs about 85% of the Kenyan workforce

(about 7.5million Kenyans of the current total employment). The current constitutional

framework and the new Micro and Small Enterprise Act 2012 provide a new window of

opportunity through which the evolution of SMEs can be realized through the devolution

framework, however, the impact of devolution on SMEs development depends on the

architecture of the regulatory and institutional framework inclined to support SMEs in an

economy. Lack of access to credit is a major constraint inhibiting the growth of SMEs sector.

The issues and problems limiting SMEs acquisition of financial services include lack of

tangible security coupled with inappropriate legal and regulatory framework that does not

recognize innovative strategies for lending to SMEs. The study sought to establish the

influence of competitive strategies on the organizational performance of SMEs in Nairobi

City County, Kenya. The specific objectives were to determine the effect of low cost

leadership strategy, differentiation strategy, focus strategy and combination strategies on

performance of SMEs in Nairobi City county.The study was anchored on the following three

theories which include Porter’s generic strategies model, resource-based view theory, and

resource dependence theory. Empirical literature reviewed scholarly studies on the porter’s

generic competitive strategies which included cost leadership strategy, differentiation

strategy,focus strategyand combination strategies and their influence on financial

performance of SMEs. The study used a descriptive research design. The population of study

were youth owned SMEes in the 17 sub-counties in Nairobi City County that are operational.

This consisted of 1115 respondents who were the proprietors of the enterprises. A Census

was carried out for all the SMEs since the population was small. The primary data was

collected by use of self-administered semi-structured questionnaire. Data analysis was done

by use of descriptive statistics such as frequencies, percentages, mean scores and standard

deviation with the aid of SPSS and presented through tables, charts, graphs, frequencies and

percentages. The study realized that the Michael Porter’s generic strategies of competitive

advantage used in the study which include low cost leadership strategy, differentiation

strategy, focus strategy and combination strategy significantly influenced the organizational

performance of SMEs in Nairobi City County, Kenya. The variables explained 85.11% of

the changes in organizational performance of the SMEs. A unit increase in low cost

leadership strategy adoption by SMEs led to a 0.655 increase in organizational performance

of the SMEs, a unit increase in differentiation strategy adoption led to a 0.876 increase in

performance of the enterprises, a unit increase in focus strategy transformed to a 0.945

increase in performance of the firms while a unit increase in application of combination

strategy by the SMEs led to a 0.860 increment in their overall performance. The study

recommended improved capacity buidlign among the SMEs and participation of stakehodlers in the growth of the small enterprises.