Determinants of Competitiveness of Small and Medium Agro Processing Firms in Kenya

Abstract

The purpose of this study was to analyze the determinants of competitiveness of small and medium agro-processing firms in Kenya. Most farmers in Kenya export semi-processed low-value produce, some of which they later import as finished products. The limited ability to add value to agricultural produce coupled with high production costs could be attributed to low investment in innovation and use of outdated technology. In order to earn more from their efforts, agro-processors in Kenya must embark on production of consumer ready products that will compete regionally and globally. To attain this competitiveness, the agro-processors must adopt the determinants of competitiveness that will greatly influence their competitive success. This study’s independent variables were four important determinants of competitiveness (innovation; business networking; technology; and managerial capabilities) while the dependent variable was competitiveness. The study reviewed both theoretical and empirical literature about competitiveness of small and medium agro processing firms and determinants of competitiveness of firms. Porter’s diamond theory of competitiveness guided the study but three other relevant theories were also considered. The study adopted correlational survey research design to guide the collection, analysis and presentation of data. Questionnaires were the main instruments of collecting data from respondents sampled from 180 agro-processing firms in Murang’a County in Kenya. Quantitative data was analyzed using SPSS while the qualitative data was subjected to content analysis. The results have been presented in frequency tables, scatter diagrams, pie-charts and graphs.The study revealed that innovation; business networking; managerial capability; and technology significantly influence competitiveness of small and medium agro-processing firms in Kenya. However, the business networks that small and medium agro processing firms engaged in were found to be based on trust and not formally established. The study also revealed that although technology was important in the improvement of brands’ value; productivity; and profitability of the agro processing firms, the firms did not strategically prioritize the use of technology in production and they had not fully embraced ICT. The study recommended that SMMEs should recruit suitable managers; encourage and reward entrepreneurial spirit among the staff; engage in formal strategic business networks; invest more resources in R & D; prioritize the use of technology in production; establish functioning websites; and fully embrace technology to stimulate competitiveness of their firms. The study also recommended that both the national and county governments in Kenya should offer subsidies that would encourage small and medium agro processing firms to invest more in R & D and modern technology to spur innovation and competitiveness. The study recommended further research to investigate why small and medium agro processing firms in Kenya did not strategically prioritize the use of technology in production although it had been established as an important determinant of firm level competitiveness. The study also recommended similar studies may be carried out to analyze the influence of other determinants like for example, affordable credit; regulatory framework; supportive policies; road infrastructure; and affordable energy on the competitiveness of agro processing firms in Kenya.