Factors That Determine The Performance Of Technology – Based Firms In Kenya.

ABSTRACT

This study aimed to investigate, in a knowledge based framework, the determinants of performance of Kenyan technology-based firms focusing on the role of human capital, social capital and traditional firm-level characteristics on firm new knowledge acquisition through R&D and technology acquisition (innovation inputs) and the transformational process leading to innovation output and firm performance. The empirical analysis focused on a sub-sample of 320 high and medium-high technology firms drawn randomly from a population of 772 firms located in Nairobi. The sample population was stratified using seven technology-based industrial sectors and three employment size bands. Data collection was done using a self-administered structured questionnaire and analysis done using SPSS version 11.5. The innovative capability was analyzed by use of descriptive statistics while the relationship linking investment in new knowledge, innovation and productivity was established by separately modeling the determinants of technology acquisition, R&D, innovation output and firm productivity. The study employed logit analysis for R&D decision and innovation outcome, probit analysis for technology acquisition, Tobit for R&D intensity and augmented Cobb Douglass production function for productivity. Empirical evidence revealed that the firm‘s innovations were largely incremental and that the innovative capability of the firms was largely inadequate. The results demonstrated that size and exporting variables were significant predictors of R&D decision, technology acquisition, innovation output and firm economic performance but not R&D intensity. Of the two innovation inputs, only technology acquisition increased probability of introducing innovations. On the other, hand innovation output contributed significantly to increased firm performance as measured in terms of value-added. Human capital variables had significant positive effect on all the dimensions under study while the role of social capital was multifaceted in its effect. While general linkages with competitors and other institutions had significant influence on the firms to invest in new knowledge, only linkages with customers had significant positive effects on the likelihood of the firms to innovate. On the productivity side linkages with competitors joined linkages with customers in increasing valued added. Lastly the following conclusions can be drawn: First, it appears that R&D directly contributed to higher firm performance during the study period by increasing the ‗absorptive capacity‘ and not indirectly through innovation propagation as the main hypothesis posited, at least for Kenyan technology-based firms. Thus policies geared towards increasing the capability to transform R&D activities into commercial innovations would significantly increase the innovative performance of the firms. Second, since exporting large firms that had higher level of scientific and technical workforce and qualified managers, had cooperated with customers and competitors, had invested in R&D activities and technology acquisition and had launched new or improved products/processes to the markets performed better than those that did not, public policies meant to stimulate increased firm growth and export promotion; deepening access to qualified human resources; promotion of linkages between firms and other institutions; promotion of in-house R&D and external acquisition of technology in both embodied and disembodied form; should have positive results in terms of the overall performance of the firms.