About 99% of all the enterprises in the world are small or medium enterprises characterized of start up firms at the infant stage or well established SMEs. SMEs are essential in all economies especially to the developing countries characterized by major unemployment and income distribution challenges. In Kenya, SMEs are essential to the economy for which they are considered the main drivers. There are about 7.5 million SMEs in Kenya providing employment and income generating opportunities to low income sectors of the economy. The official policy framework of SMEs in Kenya is contained in the Sessional Paper No 2 of 2005: Development of Micro and Small Enterprises for Wealth and Employment Creation for Poverty Reduction. The policy forms the basis for enacting the SME Act which institutionalizes SME policy in Kenya (Syekei & Opijah, 2012). The contribution of the SMEs sector to the Gross Domestic Product (GDP) in Kenya increased from 13.8 percent in 1993 to about 40 percent by 2008. The sector further provides approximately 80% of the total employment and contributes about 92% of the new jobs created within the economy. The sector serves as the bedrock for industrializing the country in the future (Capital Markets Authority, 2010).
In the developing countries such as Kenya, with large informal or micro enterprise sectors, SMEs constitute the middle of the size range, hence their strategic importance. SMEs are considerably more complicated in terms of the organizational structure as opposed to microenterprises but less complicated as opposed to large corporations with layers of management and high division of labor among other characteristics. In terms of technology SMEs are intermediate between high labor intensive technologies and high capital intensive technologies providing SMEs with a special role in generation of adequate or decent employment (Palma, 2005). Due to these characteristics various constraints lower SMEs resilience to risk and prevent them from growing and attaining economies of scale. The challenges faced by SMEs in Kenya are not limited to the areas of financing investments and working capital but also include human resource development, market access and access to modern technology and information. Consequently, there are various factors that have supported SMEs growth since the 1990s (Capital Markets Authority, 2010).
Table of Contents
1. Abstract
2. Introduction
3. Literature Review
4. Methodology
5. Findings and Discussion
6. Conclusion
7. References
Research Objectives and Core Themes
This study aims to identify the specific factors that influence the growth of Small and Medium Enterprises (SMEs) within the Gatundu North Sub-county in Kenya. By conducting a critical literature review, the research seeks to distinguish between the obstacles that impede business development and the catalysts that facilitate sustainable growth in this economic sector.
- Challenges related to financial access and credit availability.
- The impact of management competencies and entrepreneurial training.
- Technological integration and the role of infrastructure in business operations.
- The influence of government policies and institutional support frameworks.
- Strategic competitive measures and the role of innovation in SME success.
Excerpt from the Book
Literature Review
This chapter presents a review of existing literature on the factors inhibiting and facilitating the growth of SMEs. According to Capital Markets Authority (CMU) (2010), Kenyan SMEs lack access to financing though most SMEs tend to be located in urban and peri-urban areas and are usually registered. SMEs usually rely on the banking sector and other financial intermediaries for financial instruments for financing working capital and providing short-term liquidity management. The financial instruments are not always forthcoming in the required amounts as banks evaluate SMEs on the basis of a checklist made of audited financial statement, project proposals, financial projection, monitoring costs, credit or default risk and enforcement costs. Carrier (1999) argues that SMEs are considered a high risk activity that generates transaction costs and low returns on investment by many financial providers. Where provided, the financial products fail to meet the expectations of SMEs thus frustrating the SMEs efforts of achieving the set business efforts. Carrier (1999) argues that improving access to finance small and medium enterprises is crucial in fostering entreprenuership, competition, innovation and growth in Kenya.
Longenecker et al. (2006) attributes the failure of SMEs to poor or lack of planning, improper financing and poor management. This challenge is compounded by lack of education or vocational training in most of the SMEs managers. Lack of training creates possibilities of simple management mistakes which considerably lead to enterprise failure (Bowen, Morara & Mureithi, 2009). Managerial competencies are very significant to the continued existence and enlargement of new SMEs. Lack of education and training concentrates management aptitude in new firms leading to low level entrepreneurial formation and high collapse rates of new business enterprises (Olawale, 2010). Management at the SME level is characterized by development of own management approaches which are based on intuition and opportunistic rather than analytical and strategic. This creates problems especially in occasions which demand complex decisions.
Summary of Chapters
Abstract: Provides a high-level overview of the study, highlighting the vital role of SMEs in the Kenyan economy and the primary research findings regarding growth factors.
Introduction: Establishes the background of SMEs in Kenya, their strategic importance to the GDP, and outlines the research objectives focused on Gatundu North Sub-county.
Literature Review: Synthesizes existing research on SME challenges, specifically addressing financing, management training, infrastructure, technology, and policy environments.
Methodology: Details the qualitative research design and the reliance on secondary data collection from academic journals, books, and reports to answer the research questions.
Findings and Discussion: Analyzes the gathered information, contrasting various academic viewpoints on financial obstacles, management competencies, and competitive strategies used by SMEs.
Conclusion: Summarizes the key insights and offers recommendations for the government, financial institutions, and entrepreneurs to bolster SME growth.
References: Lists the academic sources, policy papers, and institutional reports utilized throughout the research study.
Keywords
Small and medium enterprises, SMEs, Kenya, growth factors, finance, entrepreneurship, management competencies, infrastructure, innovation, competitive strategy, government policy, business development, economic growth, technical skills, rural development.
Frequently Asked Questions
What is the primary focus of this research?
The research focuses on identifying the specific factors—both facilitative and obstructive—that affect the growth of Small and Medium Enterprises (SMEs) in the Gatundu North Sub-county of Kenya.
Which sectors of the economy are highlighted as being most dependent on SMEs?
SMEs are identified as the backbone of the Kenyan economy, essential for job creation, income generation, and poverty reduction, particularly in low-income sectors.
What is the primary research question guiding the study?
The study is guided by the objective to establish the factors that facilitate SME growth and to unearth the factors that inhibit such growth within the region.
Which scientific methodology was applied in this paper?
The study employs a qualitative research design, utilizing a critical literature review and secondary data collection from diverse sources like journals, books, and official reports.
What key aspects are analyzed in the main body of the work?
The main body examines financing difficulties, the lack of managerial and technical training, poor infrastructure, technological challenges, and the impact of government policy on SMEs.
Which keywords best describe the essence of this study?
The work is characterized by terms such as Small and medium enterprises, growth factors, Kenya, business management, and infrastructure development.
Why is financial access considered a major hurdle for SMEs in Kenya?
The study highlights that financial institutions perceive SMEs as high-risk ventures, often demanding collateral and complex documentation that many small firms cannot provide.
How do large corporations contribute to the success of smaller firms?
Large corporations contribute through "trickle-down" innovation, such as mobile money services (e.g., M-Pesa), which provide SMEs with safer, faster, and more efficient transaction methods.
What role does the government play in SME sustainability?
The government acts as a regulatory framework provider, with initiatives like the Kenya Local Government Reform Program aimed at reducing regulatory barriers and improving infrastructure.
What conclusion does the author draw regarding technological integration?
The author concludes that SMEs are disadvantaged by the "digital divide" and suggests that community-based technology support centers are necessary to help firms outsource and adopt new technologies.
- Quote paper
- Mary Jokorvic (Author), 2012, Factors Affecting Growth of SMEs in Gatundu Region North Sub-county, Munich, GRIN Verlag, https://www.grin.com/document/271815
