Factors Influencing the Growth of Small and Medium Enterprises in Kenya: A Case Study of Nairobi County

A Research Project Report Submitted to the Chandaria School of Business in Partial Fulfillment of the Requirement for the Degree of Masters in Business Administration (MBA)The purpose of this study was to investigate the factors influencing the growth of Small and Medium Enterprises in Nairobi County. The study was guided by three research questions which included: How does strategic positioning influence the growth of SMEs in Kenya? How does entrepreneurial competencies influence the growth of SMEs in Kenya? And lastly, how does access to finance influence the growth of SMEs in Kenya? The study adopted a descriptive correlational research design. The population comprised of one thousand five hundred and thirty nine (1539) owner managers of SMEs in different trade areas that had been operating for the last five years in Nairobi County at the time of the study. A stratified random sampling technique was used to select a sample of three hundred and eighteen (318) SMEs from the total population. The data collection instrument used in this study was a structured questionnaire. The study analyzed data using descriptive and inferential statistics. The descriptive statistical analysis included frequencies and percentage distributions, mean and standard deviation while the inferential statistical analysis included Pearson Correlation, One Way Analysis of Variance (ANOVA) and Regression analysis. Statistical Package for Social Sciences (SPSS) was used as a tool for statistical analysis and the results and were presented in figures and tables. On the first research question regarding the influence of strategic positioning on the growth of SMEs, the male respondents who felt that strategic positioning had extremely influenced the growth of SMEs accounted for 32% while female respondents accounted for 25%. Findings from Pearson Correlation test indicated that there was a statistically significant positive correlation between strategic positioning and the growth of SMEs; r(264) = .75, p < .05. One Way ANOVA results revealed that there was a statistically significant difference by gender F(1, 262) = 7.03, p < .05; nature of business F(2, 261) = 5.46, p < .05 and the years of business operation F(1, 262) = 6.59, p < .05. Linear regression analysis indicated that strategic positioning explained 81.5% of the variability in the growth of SMEs, R2 = .815 and statistically significantly predicted the the growth of SMEs, F(1, 262) = 16.18, p < .05. On the second research question concerning the influence of entrepreneurial competencies on the growth of SMEs, the proportion of female respondents who felt that entrepreneurial competencies influenced the growth of SMEs moderately accounted for 24% while male respondents were 15%. Pearson Correlation test results indicated that entrepreneurial competencies was strongly correlated to the growth of SMEs; r(264) = .84, p < .05. One Way ANOVA test showed that there was a statistically significant difference by gender F(1, 262) = 7.77, p < .05 and the nature of business F(2, 261) = 12.15, p < .05. The linear regression analysis revealed that entrepreneurial competencies explained 64.2% of the variability in the growth of SMEs, R2= 0.642 and statistically significantly predicted the growth of SMEs, F(1, 262) = 8.63, p < .05. Regarding the third research question, with respect to access to finance and its influence of the growth of SMEs, the proportion of female respondents who felt that access to finance influenced the growth of SMEs slightly accounted for 14% while male respondents was 13%. Pearson Correlation test showed that access to finance was statistically significantly correlated to the growth of SMEs; r(264) = .80, p < .05. The results from One Way ANOVA revealed that there was a significant difference by gender F(1, 262) = 15.47, p < .05; nature of business F(2, 261) = 14.62, p < .05 and years of business operation F(1, 262) = 5.16, p < .05. The linear regression analysis indicated that access to finance explained 62.6% of the variability in the growth of SMEs, R2= 0.626 and statistically significantly predicted the growth of SMEs, F(1, 262) = 3.41, p < .05. Strategic positioning based on product innovation, product promotion and market niche significantly influenced the growth of SMEs in terms of profit margin while the business was operational. Entrepreneurial competencies based on networking and marketing skills significantly influenced the growth of SMEs in terms of sales turnover. The study concluded that access to finance played a critical role and significantly influenced the growth of SMEs especially flexibility in credit access from financial institutions. The study recommends the need for government to develop policies that enhance credit guarantee services for SMEs to access financing in Kenya. The study also recommends that further studies should be conducted on the impact of access to credit information on the growth of SMEs in other areas in Kenya other than Nairobi County