Small and Micro Enterprises ( SMEs ) play an of import economic function in many states. In Kenya. for illustration the SME sector contributed over 50percent of new occupations created in 2005 but despite their significance. SMEs are faced with the menace of failure with past statistics bespeaking that three out five fail within the first few months. This survey sought to understand how SMEs pull off the challenges they face. These challenges seem to alter ( evolve ) harmonizing to different macro and micro conditions. This survey employed graded random trying to roll up informations from 198 concerns utilizing interviews and questionnaires. The information was analysed descriptively and presented through figures. tabular arraies and per centums.
The findings indicate that SMEs face the undermentioned challenges ; competition among themselves and from big houses. deficiency of entree to recognition. inexpensive imports. insecurity and debt aggregation. Credit restraint seems to be easing up when compared to old researches. Relevant preparation or instruction is positively related to concern success. The SMEs have the undermentioned schemes to get the better of the challenges ; just pricing. price reductions and particular offers. offering a assortment of services and merchandises. superior client service and continuously bettering quality of service bringing. The research concludes that concern success is a effect of encompassing a mix of schemes.
Cardinal words: challenges. development. urban. little and micro-enterprises ( SMEs )
INTRODUCTION AND BACKGROUND
The little and micro endeavors ( SMEs ) play an of import function in the Kenyan
Economy. Harmonizing to the Economic Survey ( 2006 ) . the sector contributed over 50 per centum of new occupations created in the twelvemonth 2005. Despite their significance. past statistics indicate that three out of five concerns fail within the first few months of operation ( Kenya National Bureau of Statistics. 2007 ) . Harmonizing to Amyx ( 2005 ) . one of the most important challenges is the negative perceptual experience towards SMEs. Potential clients perceive little concerns as missing the ability to supply quality services and are unable to fulfill more than one critical undertaking at the same time. Often larger companies are selected and given concern for their clout in the industry and name acknowledgment entirely. Get downing and runing a little concern includes a possibility of success every bit good as failure.
Because of their little size. a simple direction error is likely to take to certain decease of a little endeavor hence no chance to larn from its past errors. Lack of planning. improper funding and hapless direction have been posited as the chief causes of failure of little endeavors ( Longenecker. et Al. . 2006 ) . Lack of recognition has besides been identified as one of the most serious restraints confronting SMEs and impeding their development ( Oketch. 2000 ; Tomecko & A ; Dondo. 1992 ; Kiiru. 1991 ) . Education is one of the factors that impact positively on growing of houses ( King and McGrath. 2002 ) . Those enterprisers with larger stocks of human capital. in footings of instruction and ( or ) vocational preparation. are better placed to accommodate their endeavors to invariably altering concern environments ( King and McGrath. 1998 ) . Infrastructure as it relates to proviso of entree roads. equal power. H2O. sewage and telecommunication has been a major restraint in the development of SMEs ( Bokea. Dondo & A ; Mutiso. 1999 ) .
As with many developing states. there is limited research and scholarly surveies about the SME sector in Kenya. The 1999 National Baseline Survey conducted by Central Bureau of Statistics. ICEG and K-Rep Holdings provides the most recent comprehensive image of SMEs in Kenya. Mead ( 1998 ) observes that the wellness of the economic system as a whole has a strong relationship with the wellness and nature of micro and little endeavor sector. When the province of the macro economic system is less favorable. by contrast. the chances for profitable employment enlargement in SMEs are limited. This is true particularly for those SMEs that have linkages to larger endeavors and the economic system at big. Given this scenario. an apprehension of the kineticss of SMEs is necessary non merely for the development of support programmes for SMEs. but besides for the growing of the economic system as a whole. Given the importance of little concerns to the Kenyan economic system and the exposure to put on the line owing to their location. there was demand to carry on an empirical question to look into the challenges SMEs in Nairobi face and how they manage those challenges. The survey targeted those endeavors within the Central Business District in Nairobi City.
1. What are the concern challenges confronting little and micro-enterprises runing within Nairobi City?
2. What schemes are employed by little and micro-enterprises in countering the challenges that they face?
3. What steering rules can assist little and micro endeavors to better their public presentation?
The research used a descriptive research design. The research employed graded random trying in choosing respondents. The population was segregated into several reciprocally sole subpopulations or strata herein referred to as concern classs as shown in Table 1 ( see appendix ) .
The research applied proportionate stratification that is based on the stratum’s portion of the entire population to come up with the sample in each stratum. The existent concerns interviewed were arrived at by utilizing simple random processs to pull the 17
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sample from each stratum. A sum of 200 interviews with concern proprietors and directors. distributed proportionally were carried out for this study. With a mark of 200 interviews. 250 contacts were made giving 198 interviews. This represents a response rate of 79. 2 per centum. Out of 198 respondents. 64. 6 per centum were proprietor directors and the staying 35. 4 per centum were senior directors ( employees ) with determination doing authorization. The respondents were composed of 55. 1 per centum females and 44. 9 per centum males.
Data aggregation and analysis
A questionnaire was used to roll up primary informations by manner of interviews. The respondents were concern proprietors or those involved in the start-up and twenty-four hours to twenty-four hours running of these concerns. The information gathered was analysed and presented utilizing descriptive statistics. Primary information was captured utilizing Census and Survey Processing System ( CSPro ) bundle and processed utilizing Statistical Package for Social Sciences ( SPSS ) for Windowss and Microsoft Excel.
Up to 50 per centum of the respondents in this survey considered their concerns public presentation to be deteriorating while 41. 9 per centum considered their concern successful with merely 2. 5 per centum respondents stating their concerns were really successful ( see Figure 1 ) .
FIGURE 1: Evaluation of concern public presentation
Majority of the directors and concern proprietors fell within 25-34 twelvemonth age bracket. Clearly. most micro and little endeavors are owned and chiefly run by people in their late 20s and early 30s as shown in Figure 2 below ) .
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FIGURE 2: Age distribution by concern place
Degree of instruction and concern public presentation. Majority of the respondents ( 47 per centum ) had post secondary school or vocational preparation followed by those who had completed secondary school ( 28. 8 per centum ) . Compared to proprietor directors. more employee directors ( 65. 7 per centum ) had higher makings in station secondary school or vocational preparation compared to proprietor directors ( 36. 7 per centum ) . Merely a little proportion of the respondents ( 4. 5 per centum ) . had reached university degree or above ( see Figure 3 ) . It can be inferred that little and micro concerns are dominated by people with comparatively low degrees of instruction.
FIGURE 3: Relationship between public presentation and degree of instruction
Analysis to find if there was a relationship between concern public presentation and degree of instruction did non supply conclusive consequences. Overall. more ( 75. 4 per centum ) of those respondents who had received proficient or vocational preparation said their concern public presentation was deteriorating. This may connote that that formal instruction is non a critical factor in concern success ( See Figure 3 above ) . 51 per centum of the respondents said they had received some specific preparation in the country of their concern as compared to 49 per centum who had non received concern specific preparation.
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The survey sought to find if there is a relationship between concern public presentation and degree of preparation in the line of concern. The consequences show that 49. 5 per centum of those who had received preparation in their countries of concern reported that their concerns were making good. Given that 51 per centum received preparation and about all of them ( 49. 5 per centum ) said their concerns were making good. one may reason that relevant preparation can bring forth positive consequences in the running of concerns ( See Figure 4 ) . The figure below besides shows that 60. 8 per centum of those non trained reported that their concerns were making ill every bit compared to 39. 2 per centum who reported that their concerns were making good without developing. It can be inferred that there is a negative relationship between deficiency of preparation and concern public presentation. FIGURE 4: Training versus concern public presentation
Duration of clip concern has been in operation. 35. 4 per centum of the respondents said they had operated their concerns for a period between one and three old ages and 20. 7 per centum of the respondents had merely operated for less than a twelvemonth. Between 3 and 10 old ages constituted 31. 8 per centum of the sample. while those who had been in operation for more than 10 old ages were merely 12. 1 per centum of the sample ( See Figure 5 ) . The information shows that most of the concerns ( 56. 1 per centum ) in being were less than three old ages old. FIGURE 5: Length of clip concern has been in operation 68. 3 per centum of concerns that had been in operation for a shorter period ( less than one twelvemonth ) reported that their concern public presentations were on the diminution ( Figure 6 ) . Clearly. concerns that are get downing seem to confront serious challenges that make the proprietors consider their concerns as making ill within the first twelvemonth of start up. This determination is clearly supported by the literature. It besides seems that most micro and little concerns hit their extremum at the 5th twelvemonth. After the 5th twelvemonth. most enterprisers seem to endure from what may be described as entrepreneurial burnout and the excitement diminutions. This may partially explicate why most concerns that are more than 5 old ages and above consider their concerns as being in the procedure of neglecting. This determination seems to corroborate the observation made by
Longenecker et Al. . ( 2006 ) that entrepreneurial burnout may take to entrepreneurs losing involvement in one concern venture and alternatively look out for other chances.
FIGURE 6: Business public presentation versus length of concern operation
Get downing a concern merely because one wants to do money can about spell day of reckoning for the concern. Cross tabular matters revealed that 57. 1 per centum of those who started their concerns in order to do money see themselves to be making severely while a bulk of those who wanted independency ( 69. 6 per centum ) consider themselves to be making good as indicated in Table 2 ( See appendix ) .
Beginning of markets and clients. 90. 9 per centum of respondents reported that their clients came chiefly from Nairobi while 7. 1 per centum mentioned countries outside Nairobi. Clearly most endeavors have their markets within their vicinity. This may present a challenge given that they have to vie for the same market with endeavors from other states and parts given the world of globalization. It is of import that concerns look beyond their local catchment country ( Ronge et al. . 2002 ) . Globalization presents both challenges and chances. Equally much as SMEs remain local. they need to see markets beyond their national and regional boundaries.
Main Challenges confronting Small Businesss
On the chief challenges concerns face. competition. insecurity. debt aggregation. deficiency of working capital and power breaks were reported as the top five challenges confronting micro and little concerns. 89. 4 per centum of respondents mentioned competition while 68. 2 per centum mentioned insecurity as a challenge. 54. 5 per centum. 53 per centum and 44. 9 per centum of the respondents mentioned debt aggregation. deficiency of working capital and power outages severally. Political uncertainness cost of stuffs. peddlers. low demand and restrictive by-laws completed the list of 10 chief challenges confronting these concerns. Table 3 ( See appendix ) shows a sum-up of the most urgent challenges mentioned by respondents.
Not every concern reported that they were sing concern challenges. Out of the 198 concerns that participated in the study. 177 ( 89 per centum ) reported assorted concern challenges. Competition was ranked as the most urgent ( 38 per centum ) followed by insecurity and deficiency of recognition with 18 per centum and 7 per centum of the respondents severally. However. it is of import to observe that whereas competition was acknowledged by bulk of respondents ( see Table 4 in appendix ) . merely 38 per centum of respondents ranked it as a figure one challenge. This implies that competition is non the same across the concern sectors. It is besides possible that enterprisers have accepted competition as a manner of making concern since the market is liberalised. Further analysis through cross-tabulations revealed that competition is highest in the service sectors. chiefly concerns falling in codification 115. ( See Table 1 in appendix ) . Pull offing Business Challenges
When asked how they handle the challenges faced. most respondents reported that different challenges called for different attacks. Below are some of the responses adopted to counter assorted challenges.
Competition. Out of the 177 respondents who mentioned competition as a challenge. 71 per centum mentioned it among their top three. When asked how they counter their rivals. 30. 2 per centum of the respondents mentioned good client service followed by price reduction offers ( which vary harmonizing to client ) . which was mentioned by 18. 3 per centum as the redress. 7. 9 per centum of the respondents reported that they use monetary value as a competitory border by selling more cheaply than their rivals. Selling a assortment of merchandises was mentioned by merely 6. 3 per centum of the respondents. Offering recognition installations. merchandising of quality goods and services and offering clients extra services like free preparation were mentioned by 5. 6 per centum. 4 per centum and 3. 2 per centum of the respondents severally ( See Table 5 in appendix ) . Using monetary value to vie may intend lower net incomes. even if it may interpret into higher volumes. However. this scheme can be employed by everybody hence spelling a decease knell for the concern given the ferocious competition in the little concern sector.
Poor security. Security menaces pose a great challenge to concerns and many concern proprietors and directors employ assorted agencies to assist prevent or discourage manque felons. 36 per centum of respondents graded hapless security among the top three challenges their concerns face. Out of these. 37. 5 per centum brand usage of security houses or guards to safeguard their concerns. Approximately 22. 2 per centum of them near early to avoid hoods while 6. 9 per centum opt to transport their stocks place while some sleep in their concern premises as a security step. This implies higher cost of making concern as they respond to the security challenges.
Debt aggregation. 25 per centum of respondents graded debt aggregation among the top three challenges they face in their concerns. As a response to this challenge. half of those who face this job resort to roll up their debts at the terminal of the month. 20 per centum reported that they avoid giving goods and services on recognition and 10 per centum of them demand down payments before giving a service. Other concerns reported that they have loyal clients ( 2 per centum ) whom they consider dependable while a few ( 2 per centum ) said they encourage their clients to pay in episodes so as to cut down the payment burden. Hawkers. 10 per centum of the respondents cited peddlers as a challenge to their concerns. As a response to this challenge. 15 per centum of the concerns that face this job reported that they sell cheaper than the peddlers while another 15 per centum said they sell goods of a higher quality. Competing with peddlers on monetary value is problematic since peddlers are known to sell stingily. Nevertheless. respondents mentioned they use competitory pricing scheme to counter the peddlers. There is besides a sense of security experienced by clients when they deal with a bargainer who has a physical location. Selling of a assortment of goods was besides said to be a scheme employed by little concerns ( 15 per centum ) to counter the challenge posed by peddlers.
Past Experience. On the inquiry of whether they had of all time started or owned other concerns that were no longer in operation. merely 6 per centum of the respondents responded in the affirmative. However. 90 per centum have since closed owing to assorted grounds. FIGURE 7: Relationship between public presentation and old experience
Further analysis shows that old ownership of similar concerns does non vouch success in future concern. Figure 7 shows that 72. 7 per centum of those who had owned similar concerns in the yesteryear still considered their current concerns as being in the procedure of neglecting. Sing this determination. one may deduce that future concern success is non pegged on old ownership of similar concerns.
Business Success Factors
The research categorised concerns that rated themselves as either really successful. successful and somewhat successful as successful concerns. These concerns were so asked to give grounds that had contributed to their favorable evaluation of their concerns. Out of this. 54. 5 per centum of them reported subject in finance direction followed by handiness of clients ( 53. 4 per centum ) every bit good as physical location of the concern ( 42 per centum ) as the chief grounds why their concerns have performed good. Skilled work force was mentioned by 38. 6 per centum of the respondents. The other factors reported include concern networking. competitory pricing or low cost. selling assortment of merchandises and services and handiness of capital every bit good as recognition from the Bankss as some of the cardinal grounds ( see Table 6 in appendix ) .
The consequences on the tabular array reveal that there is no charming slug and that all factors mentioned above are of import in lending to good public presentation of concerns. Equally much as Kenyan SMEs may mention deficiency of recognition or competition as the most urgent factors to concern operations and lending to a immense figure of concern closings ( National Baseline Survey. 1999 ) these factors can be considered secondary instead than primary job. This study shows that the solutions lie within the concern constructions. Disciplined finance direction. differentiating merchandises and services to fulfill client demands. holding your concern located within the range of your clients and good networking can do a difference between wining and neglecting. Professional Membership
Belonging to a professional organic structure helps derive a competitory advantage in a concern. Bing a member of an industry association implies that one is serious about the concern they do. This could besides assist in networking and obtaining of concern information. When asked if they belong to any professional society. merely 14 per centum of the respondents answered in the affirmatory. 18 per centum of those who are members of professional associations belonged to the Marketing Society of Kenya ( MSK ) . 14 per centum belong to Kenya Women Finance Trust and 11 per centum belong to Nairobi Central Business District Association ( NCBDA ) while 7 per centum belong to Kenya Association of Manufacturers ( KAM ) among others.
89 per centum of concerns that participated in this research are faced with assorted challenges. which if non managed good can take to concern failure. It is the researchers’ position that the seeds of future concern public presentation are sown in the early phases of the concern life and that understanding them has a prognostic value. It is besides clear that infant concerns need every bit much support and aid in their early old ages when their motive is high every bit good as in their adulthood stages when their degrees of inventions are low. Competition. insecurity. debt aggregation. deficiency of working capital and power breaks were the top five cited challenges confronting concerns in Nairobi. While the challenges confronting little concerns do non include capacity concerns such as input handiness or labor costs. frequent reference of political uncertainness. unfavorable Torahs. in add-on to high revenue enhancements indicates that authorities and its ordinances are a major obstruction to SMEs operations. The authorities has besides failed to keep jurisprudence and order with 68. 2 per centum of the respondents describing insecurity among top five challenges. Existing literature on SMEs indicate that deficiency of capital is a strong restraint to growing ( National Baseline Surveys. 1993 ; 1995 ; 1999 ; Stone. Levy and Paredes. 1992 ) .
Harmonizing to these surveies. most SMEs rely chiefly on ain nest eggs and reinvested net incomes to finance their concern. Comparison of consequences of the three baseline surveies of 1993. 1995 and 1999 show minor betterments in the situation-from 9 per centum of SMEs accessing recognition in 1993 to 10. 8 per centum in 1999. This research suggests that handiness of recognition is no longer every bit bad as it used to be judging from the old findings on recognition and little graduated table concerns.
Different SMEs run into the above mentioned challenges in different ways. Schemes used included just pricing. price reductions and particular offers. offering a assortment of services and merchandises. superior client service and continuously bettering quality of service bringing. Clearly there is no charming slug in accomplishing success. Business success is a effect of encompassing the whole bundle of schemes in order to win. Selling a assortment of merchandises or offering a assortment of services is merely every bit of import as encompassing prudent fiscal direction systems.
Most of concerns sampled in this study were less than three old ages old. Sing that a simple random attack was used in the choice. the consequences of this research suggest a high failure rate. Looking at the public presentation evaluation by length of clip the concerns had been in operation ; one may reason that as concerns mature their returns seem to worsen. This may signal a deficiency of invention on their portion. Lack of invention and hunt for altering client demands reduces the endurance of concerns. It is hence imperative that concerns proactively innovate to run into client demands. Alternatively. this consequence may be interpreted utilizing the merchandise life rhythm. This could be particularly true if the concern trades merely with one merchandise. As the merchandise reaches the diminution phase. the concern may worsen and the concern is likely to neglect. The research besides indicates that 90. 9 per centum of SMEs interviewed function the clients who live and work in the same town or metropolis. With globalization. concerns need to look beyond their local catchment countries ( Ronge et al. . 2003 ) . Globalisation is a world and a challenge that little concerns have to postulate with. Globalization presents both challenges and chances. Equally much as SMEs remain local. they need to believe planetary and mark markets beyond their regional boundaries.
The mentioning of competition as a top challenge is expected as most SMEs. particularly little Sellerss and manufacturers tend to congregate in dense markets and overcrowded metropoliss ( National Baseline Survey. 1999 ) . It besides suggests a deficiency of market information and invention as most new concerns are a duplicate of already bing 1s. Slightly more than half of the respondents ( 50. 5 per centum ) said holding good communicating accomplishments is necessary in any concern. This is chiefly because of the individualized services that most clients anticipate when covering with little concern proprietors or directors. Financial direction cognition is besides considered as cardinal with 47 per centum of the respondents adverting it.
Finally. based on the study findings and available literature. we propose the undermentioned guidelines and schemes that SMEs can utilize to hike their public presentation. It is appreciated that each concern has its ain alone combination of critical success factors. but some are of import for all concerns. First little concerns should hold a ‘global outlook’ . Businesss of all sizes across the Earth can interact and portion information. engineering and merchandises. Small concerns should see what planetary tendencies are impacting handiness of resources. increasing or diminishing demand for merchandises or service and where there is an unfilled demand one might be able to run into. This may turn out a challenge to SMEs but the authorities can step in here to supply information on concern tendencies.
There is besides need to acquire trained in an country that is relevant to the concern carried. This study has clearly shown directors with relevant preparation run successful concerns compared to their untrained opposite numbers. Further. there is demand to better ways of garnering client information for the intent of individualized selling and service. The more a concern proprietor knows about its clients. the better they can run into their demands.
Past researches seem to propose that entree to recognition has been a challenge to SMEs. This research nevertheless relegates entree to recognition to 4th topographic point with competition and hapless security ranking first and 2nd severally. Further surveies are required to set up if this is the instance in rural countries or if the rural countries present alone challenges that are non shared by their urban opposite numbers.
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