Entrepreneurial Capabilities and Performance of Small and Medium Enterprises in Kenya

Abstract

The role Small and Medium Enterprises play in propelling economic growth in Kenya cannot be overlooked. However, majority of these businesses experience severe competition from large international businesses. Most of these small businesses have ended up closing down since they could not cope with the rapidly growing competitive environment. This study sought to investigate the relationship between entrepreneurial capabilities and performance of small and medium enterprises in Kenya. Specific objectives were to; analyze the relationship between business owner leadership capability, innovation capability, entrepreneurial marketing capability, strategic capability and performance of small and medium enterprises in Kenya. It also assessed how information and communication technology moderates the relationship between entrepreneurial capabilities and performance of small and medium enterprises in Kenya. The study was guided by six theories: capability-based theory, resource-based theory, market-based view theory, porter's theory of competitiveness, theory of innovation diffusion, and stakeholder’s theory. This research was guided by the positivism paradigm and adopted a descriptive cross-sectional research design. The study covered licensed small and medium enterprises in Kariobangi light industrial area, Thika town’s light industrial area and Kitui Central in Kitui County, Kenya. In particular, the target population was 2400 licensed SMEs comprising of 783 enterprises in manufacturing, 901 enterprises in trade and 716 enterprises in service. The study sampled 331 small and medium enterprises using stratified random sampling. The study’s target respondents were owners of the enterprises. Primary data was collected using semi-structured questionnaires. Both quantitative and qualitative data were collected. Statistical Package for Social Sciences (SPSS) version 21.0 was used to process and analyze the data. Quantitative data were evaluated using descriptive statistics, that is, means standard deviations, frequencies, and percentages, as well as Pearson correlation and regression analysis. In addition, the values of t-statistics, F-statistics, and P were used to verify the statistical importance of the outcomes at a significant rate of 5 percent. Thematic analysis was used to analyze qualitative data. The assessment included classifying different responses into topics, driven by the objectives of the research. According to the findings, 69.1% of variations in performance of small and medium enterprises can be explained by entrepreneurial capabilities. The findings also revealed that separately and when combined, business owner leadership capability, innovation capability, entrepreneurial marketing capability, and strategic capability positively and significantly influence the performance of small and medium enterprises. Results also revealed that information and communication technology had a significantly positive moderating influence on the relationship between entrepreneurial capabilities and the performance of small and medium enterprises. The study concluded that entrepreneurial capabilities are significant contributors to small and medium enterprises’ performance. Overall, entrepreneurial marketing capability was identified as having the most significant influence on firm performance, followed by strategic capability, followed by innovation capability, and lastly business owner leadership capability. Based on the findings, the study recommended that small and medium enterprises owners should strengthen business owner leadership capability, innovation capability, entrepreneurial marketing capability, and strategic capability aspects. The study findings make a significant contribution to policy, theory, and practice in the field of entrepreneurship. Particularly, they inform extent to which entrepreneurial capabilities predict performance of small and medium enterprises.