INTRODUCTION

PROJECT TITLE:
Investigation into the Factors that Influence E-Commerce Adoption and its Benefits among SMEs
Engaged in Manufacturing in Kenya

Summary
Generally, the use of e-commerce positively influences firm benefits specifically firm growth, financial
gain and competitive advantage. However, the extent of realized benefits has been found to be
inconsistent across sectors, regions and organization sizes. Also minimum requirements of
infrastructure and other complementary factors are needed for ICT investment to be productive, but
there is very little baseline survey data and information on e-commerce usage and factors and its
influence in SMEs in Kenya.

The aim of the study is to investigate into the factors that influence e-commerce adoption and benefits
among SMEs (Jua Kali artisans) that are engaged manufacturing in Kenya. The specific objectives are
to determine the extent of e-commerce adoption, the factors influencing e-commerce adoption and
benefits realized by adopting e-commerce.

The research can be carried through survey with study population comprising all registered
manufacturing SMEs in clothing and textile, machinery and metal products, chemical, food-
processing, leather products, printing and publishing with Kenya Industrial Estates (KIE) and some of
the main MSE Associations in Nairobi.

A sample size of about 50 enterprises can randomly be selected using probability sampling method.
The data can then be analyzed using SPSS and STATA statistical software for descriptive statistics on
the demographic information of the respondents, SMEs, factors that influence e-commerce adoption
levels and benefits realized by adopting e-commerce.

Background to the Study (Literature Review)

Many developing countries have adopted industrialization as a process of transforming their
economies. Kenya has also recognized industry as the leading sector for addressing its development
challenges. Kenya’s broad policy objective is to achieve an industrial transformation by the year 2020
(GOK, 1997). Kenya vision 2030 is the new country’s blueprint covering the period 2008-2030. The
Vision aims at making Kenya a “middle income country providing high quality of life for all citizens
by the year 2030”. Under the economic pillar Kenya aims to become the provider for basic
manufactured goods in east and central Africa (GOK, 2007); this is likely to reduce the unemployment
rate in Kenya that is estimated to be about 2 million, or 14.6% of the labour force (GOK, 2006). This
gainful employment can be generated through the support of small manufacturing firms.

The Small and Medium Enterprise (SME) sector has an important role to play in economic
development, poverty reduction and employment creation in developing economies (Hallberg, 2000).
The SME sector is the sector in which most of the world’s poor people are working (Stern, 2002). The
sector largely exceeds the average economic growth of national economies in many countries and
contributes significantly to employment creation. Accordingly, governments and donors alike have
recognized the important role of the SME sector for overall development. As a result, many
government policies are geared towards supporting SME sector growth through a variety of
programmes that range from tax incentives to technical assistance, from regulatory provisions to policy
interventions, training and other types of business development services (O’Shea & Stevens, 1998).
SMEs cut across all the sectors of Kenya’s economy and provide one of the most prolific sources of
employment and are the breeding ground for large industries which are critical to industrialization.
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Today these enterprises are found all over the country and have a great potential to create a variety of
jobs, while generating wide spread economic benefits. The Kenya Government Baseline Survey
(1999) defined SMEs as enterprises in both formal and informal sectors employing 10-100 workers.
Small-scale enterprises are those that employ 11-50 workers. Medium enterprises employ 51 to 100
workers. The same definition will be adopted in this study. The manufacturing sector is viewed as a
leading edge of modernization and job creation. It is a source of various positive fundamental
spillovers.

Kenya currently claims only 7 per cent of the market share of the East Africa regional market for
manufactured goods. The aim of the Kenya government is to raise the Kenyan market share to 15 per
cent by 2012 through increased capacity utilization and elimination of impediments to Kenya’s
competitiveness in the region. In the Vision 2030, the government cited the challenges in the sector to
include high fuel prices, exchange rate risks and inadequate and unreliable power supply (GOK, 2007).

However, studies have shown that Information and Communication Technology (ICT) among other
factors can improve efficiency and increase productivity by different ways including, improving
efficiency in resource allocation, reducing transaction costs, and technical improvement, leading to the
outward shifting of the production function and increase in market share (Beck et al., 2005; Teo, 2007;
Teo and Pian, 2003) yet very little is mentioned about ICT in general and e-commerce specifically in
the manufacturing sector in Vision 2030. According to ICT policy of 2006 (GOK, 2006), the status of
ICT is defined in terms of the supply-side of communication service but no mention of information
services like e-commerce in the status of SME. The policy addresses ICT infrastructure issues but not
ICT enabled business environment. The problem of e-commerce may be due to inadequate policy,
legal and regulation framework which has resulted in low uptake and usage of ICT in SMEs in Kenya.

Among the studies that have focused on technology adoption, only few have been devoted to the
adoption of e-commerce in SMEs (Grandon and Pearson, 2004; Kashorda, 2009). It is generally
accepted that SMEs play an important role in the economics of their countries. Although, there are
many potential advantages, the adoption of e-commerce by SMEs remain limited since SMEs have
different characteristics from large enterprises. According to Seyal and Rehman (2003), the
characteristics of SMEs include small management teams, strong owner influence, lack of staff in
specialized areas like information technology, multi-functional management, limited control over their
business environment, limited market share, lower employee turnover, reluctance to take risks and
avoidance of sophisticated software or applications. Due to these differences SMEs have slower
technology adoption rate and more difficulties realizing technology benefit than large enterprises
(Poon and Switman, 1999).

Problem Statement (Suggested)

Generally, the use of E-commerce positively influences a firm’s performance specifically its growth
(Raymond et al., 2005), financial gain (Johnston et al., 2007), and competitive advantage (Teo, 2007).
However, the extent of realized benefits have been found to be inconsistent across sectors, regions and
sizes and is affected by a number of factors (Johnston and Wright, 2004). Studies have also shown that
the benefits from E-commerce are positively associated with the extent of E-commerce adoption levels
influenced by managerial, organizational, environmental and technological related factors in an
organization (Meroño-Cerdan and Soto-Acosta, 2007; Sam and Leng, 2006). Firms with more
advanced E-commerce applications tend to reap greater benefits in terms of efficiency than those with
limited use of such applications (Beck et al., 2005).

The use of E-commerce in SME sector in Kenya is limited to telephones (with all having mobile
phones while majority have no fixed lines), and most of them do not use computers (Essalaar et al,
2007; Matambalya and Wolf, 2001). Although many SMEs in Kenya are ready to use E-commerce
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application, the availability, reliability, affordability and access barriers are still the main challenges.
Minimum requirements of infrastructure and other complementary factors are needed for ICT
investment in general and E-commerce in particular to be productive, but there is very little baseline
survey data and information available on E-commerce usage and factors influencing it in SMEs in
Kenya (Kashorda, 2009). Hence, this research is aimed at investigating into the factors that influence
E-Commerce adoption and its benefits among SMEs engaged in manufacturing in Kenya.

Research Objectives
General Objective: The general objective for the study is to investigate into the factors influencing E-
commerce adoption and its benefits among manufacturing SMEs in Kenya. The outcome will be useful
to policy-makers in terms of effective policy reviews, implementation and support strategies for SMEs.

Specific objectives - the specific objectives for this study are:

(i) the extent of E-commerce adoption
(ii) the factors influencing E-commerce adoption, and
(iii) the benefits realized by adopting E-commerce

SAMPLE QUESTIONAIRE
INSTRUCTIONS: Please fill the questionnaire below regarding your enterprise. Your response will
be treated with confidentiality and will not be used for any other purpose than for the current research.

Section A
Survey Contact: Please indicate the name of the person completing this questionnaire so I know who
to contact should I have questions about this report.
Name of person completing questionnaire (optional) Title/ Position

Telephone number E- mail

PLEASE GIVE DETAILS ABOUT YOUR COMPANY AS INDICATED BELOW

1. Ownership Sole proprietor Partnership Private limited

2. What is your current role in the business?

Please tick where applicable Owner/ Manager

3. When did you start the business (indicate the year only) ---------------------------

4. What highest level of schooling did you complete?

Primary Secondary
Tertiary University
Other (specify)…………………………………………………………………

5. In which sector does your business fall?

Please tick where applicable
Textile & Clothing Printing & Publishing
Chemical processing Motor vehicle
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 Metal & Machinery Leather products
Carpentry and joinery
Other (Specify …………………………………………...................................................

6. How many employees does your business have now?

SECTION B
Electronic commerce Applications: Please tick or circle against the following electronic commerce
applications that are relevant to your organization.

8. Which of the following electronic devices are available in your organization?

Mobile phone
Fixed lines
Computers
Internet
Website

9. Do you use any of the following E-commerce applications in your organization?

0 – NO 1 –YES
I. Electronic marketing
(i) Research on customers preferences 0 1
(ii) Research on availability of new suppliers 0 1
(iii) Research on competitors 0 1

II. Electronic advertising

(i) Display company information and products 0 1
(ii) Advertising on third party website 0 1
(iii) Electronic catalogues 0 1

III.Customer support service

(i). Online help-frequently asked questions (FAQ) 0 1
(ii). Online help – products update 0 1
(iii). Handling customers feedback/ queries online 0 1
(iv). Personalized email communication 0 1
(v). Online application registration 0 1

IV. Orders and delivery

(i). Processing sales order form customer online 0 1
(ii). Coordinating procurement with suppliers online 0 1
(iii). Tracking incoming and outgoing goods delivery 0 1
(iv). Electronic data interchange (EDI) 0 1

V. Payment system
(i). Electronic fund transfer 0 1
(ii). Online credit card processing 0 1
(iii). Smart card processing 0 1
(iv). Prepaid cards 0 1

SECTION C
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Factors influencing electronic commerce adoption and benefits: The question in this section will
require you to rate the factors are known to have influence on E-commerce adoption and benefits
Circle in the scale of 1 to 5; 1 – Very low; 2 - Low; 3 – Average; 4 – High; 5 – Very high

10. How do you rate your manager, organization, government, IT Technology and business
environment as far as E-commerce in SMEs in concerned?
(i). Perceived benefits 1 2 3 4 5
(ii) IT experience 1 2 3 4 5
(iii) Business sector 1 2 3 4 5
(iv) IT infrastructure 1 2 3 4 5
(v) Government support 1 2 3 4 5
(vi) Customers pressure for IT adoption 1 2 3 4 5
(vii) Competition in the industry 1 2 3 4 5
(viii) Relative advantage 1 2 3 4 5
(ix) Compatibility 1 2 3 4 5

SECTION D
Benefits of Electronic commerce: The question in this section will require you to rate the benefits
derived from current E-commerce application in your organization

Please circle only ONE appropriate score on the scale of 1 to 5;

1 – Very lo; 2 – Low; 3 – Medium; 4 – High; 5 – Very High

11. How would you rate the benefits received from electronic commerce?
(i). Increasing in market share 1 2 3 4 5
(ii). Increasing in profit 1 2 3 4 5
(iii). Increase in productivity 1 2 3 4 5
(iv). Reduction in cost 1 2 3 4 5
(v). Improved customer service 1 2 3 4 5
(vi). Increase accessibility to end users 1 2 3 4 5
(xii). Enhanced company brand corporate image 1 2 3 4 5
(xiii). Increased customer loyalty and relation 1 2 3 4 5
(ix). Improve business process flow 1 2 3 4 5

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FACTORS THAT INFLUENCE THE GROWTH OF MICRO AND SMALL ENTERPRISES
(MSEs) – A CASE OF JUA KALI ARTISANS IN NAIROBI

Background Information

Micro and Small Enterprises (MSEs) cut across all the sectors of Kenya’s economy and provide one of
the most prolific sources of employment and are the breeding ground for medium and large industries
which are critical to industrialization. Today these enterprises are found in every corner of the country
and have a great potential to create a variety of jobs, while generating wide spread economic benefits.
The Kenya government baseline survey (1999) defined MSEs as enterprises in both formal and
informal sectors employing 1-50 workers. Micro-enterprises are those that employ 10 or fewer workers
and small-scale enterprises are those that employ 11-50 workers. Medium enterprises employ 51 to
100 workers and thus are not part of the MSE sector.

The manufacturing sector is viewed as a leading edge of modernization and job creation. It is a source
of various positive fundamental spillovers. Many attempts to start-up manufacturing enterprises end up
in failure in Kenya. For example, according to the Government of Kenya (2005), mortality rates among
Kenyan start-up micro and small enterprises (MSEs) are high, with most of them being unable to
survive beyond the third year. The Government of Kenya (2006) further identifies the high rate of
failure of the start-up businesses as one of the causes of the lack of industrial transformation.

Many developing countries have adopted industrialization as a process of transforming their

economies. Kenya has also recognized industry and in particular manufacturing, as the leading sector
for addressing its development challenges. Kenya’s broad policy objective was to achieve an industrial
transformation by the year 2020, as put forward in the “Sessional Paper Number 2 of 1997 on
Industrial Transformation to the Year 2020” (Government of Kenya 1997). Kenya vision 2030 is the
new country’s blue print covering the period 2008 -2030. It aims at making Kenya a newly
industrializing “middle income country providing high quality life for all citizens by the year 2030.
Under the economic pillar Kenya aims to become the provider for basic manufactured goods in Eastern
and central Africa. Unemployment rate in Kenya is estimated to be about 2 million, or 14.6% of the
labor forces (Government of Kenya 2006). It is generally believed that gainful employment can be
generated through support of micro and small manufacturing enterprises.

World over, Micro and Small manufacturing enterprises are often at the forefront of developing
innovative technologies. They are also more cost efficient in research and development, and create
more jobs than large enterprises. However, many lack capital, technology adoption capacity,
management experience and entrepreneurial skills. As a result of these problems, most of the small
manufacturing businesses fail within their first 3 years of operation (Uptown Innovation Centre 2006).
Small manufacturing firms therefore frequently need support services to assist them in becoming
viable. In some countries incubators are used provide start-ups and micro enterprises with support that
allows them to grow and survive their most vulnerable period. The resultant growth allows the
entrepreneurs to provide employment opportunities for others besides keeping the entrepreneurs
themselves employed.

The study should focus on MSEs engaged in manufacturing especially those located in the Kenya
Industrial Estates (KIE) and Jua Kali sheds in the areas of textile and clothing, metal and machinery,
chemical, building materials, printing and food processing sectors.

6
Statement of the Problem
In the last 10 years Kenya’s manufacturing sector registered slow growth. In 2007 the sector grew by 6
% and employment within the sector rose by 2.5 % amid collapse of a number of manufacturing
entities in the same year (Economic Survey, 2008). The growth was associated with the medium and
large manufacturing enterprises. The enterprises which closed cited competition from cheap imported
products and high cost of production inputs among other factors.

Low growth has particularly been observed in the micro and small manufacturing firms whose growth
rate has been very low. Mortality rates among the manufacturing MSEs are high with most of them
being unable to survive beyond the third year (Government of Kenya, 2006). Few micro manufacturing
enterprises are thus able to grow and graduate to small, medium and large-scale enterprises. This
creates the “missing middle” phenomenon, and has resulted in a weak base for industrial take-off and
sustainable development (Government of Kenya, 2006).

Micro enterprises are critical to the growth of the manufacturing sector in Kenya because they
mobilize funds which otherwise would have been idle, have been recognized as a seed-bed for
indigenous entrepreneurship, are labour intensive employing more labour per unit of capital than large
enterprises ,use mainly local resources and promote indigenous technological know-how. The collapse
or failure to grow and graduate to the next level by these enterprises has slowed the momentum for
industrial growth in Kenya. Past studies on micro enterprises have not been specific to influence of
technology adoption and entrepreneurial orientation on their growth. This gap is explained by their
lack of technology adoption capacity and the number of micro manufacturing enterprises collapsing
before the third anniversary and lack of sector specific and tailored programs to support the growth of
micro manufacturing enterprises.

The purpose of this study is to investigate the major factors that influence the growth of micro and
small manufacturing enterprises, identify the associated challenges and make appropriate
recommendations to inform policy decision makers to support of the sector. This study will examine
the case histories of existing MSEs in manufacturing businesses and further investigate the influence of
technology adoption and entrepreneurship orientation on their growth. The ultimate goal is to use the
findings of this study to inform policy makers to support the growth of these enterprises and improve
their contribution to employment creation, economic development, achievement of Millennium
Development Goal (MDG) of halving poverty by the year 2015 and making Kenya to attain the
middle-income economy by the year 2030 as envisaged in the Vision 2030.

Objectives of the Study

Overall objective: The overall objective of the research is to determine the factors influencing growth
of MSEs in the manufacturing sector in Kenya and recommend solutions to improve their growth

Specific Objectives
i) To determine the effect of technology adoption on MSEs’ businesses,
ii) To determine the effect of entrepreneurial orientation on MSEs’ businesses,

Significance and Scope of the Study

The contribution of the micro and small manufacturing enterprises to employment and wealth creation
cannot be underestimated. In Kenya today micro and small enterprises provide 80 % of employment
and contribute 18% to the GDP (Economic Survey, 2006). Majority of the investors in these
enterprises are indigenous Kenyans with preliminary observations indicating low growth and
graduation of micro manufacturing enterprises to small, medium and large enterprises. Most of the
micro enterprises stagnate or close entirely before they grow and graduate to the next level. This has
become a concern of the Kenyan government, donors and development partners.
7
SAMPLE QUESTIONAIRE
INSTRUCTIONS: Please fill the questionnaire below regarding your enterprise. Your response will
be treated with confidentiality and will not be used for any other purpose than for the current research.

Section A
Survey Contact
Please indicate the name of the person completing this questionnaire so I know who to contact should I
have questions about this report.
Name of person completing questionnaire (optional) Title

Telephone number E- mail

PLEASE GIVE DETAILS ABOUT YOUR COMPANY AS INDICATED BELOW

Name of Company ……………………………………………………………………
Address …………………………………………………………………………………
………………………………………………………………………………………………

1. What is your current role in the business?

Please tick where applicable Owner/ Manager

2. When did you start the business (indicate the year only) ---------------------------

3. What highest level of schooling did you complete?

Form four Primary
College University
Other (specify)…………………………………………………………………

4. In which sector does your business fall?

Please tick where applicable
Textile & Clothing Printing & Publishing
Chemical Building materials & Construction
Metal & Machinery Leather products
Other (Specify …………………………………………...................................................

5. How many workers does your business have now?

Full time part-time

6. When the business started how many workers did you start with?
Full time part –time

Section B
Enterprise Growth
Has your business experienced growth in the last three (3) years?
Yes No
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8. If your answer in question 7 is YES to what extent
1 0 - 25 %
2 26 – 50 %
3 51 – 75 %
4 76 - 100 %

9. In general how do you consider the growth of your business within the last three (3) years in
the elements listed in the table below?
1= high growth 2= moderate growth 3= slight growth 4 = no growth 5= decline in growth
(Please tick in the table as applicable)

Element 1 2 3 4 5
Assets
profits
Sales

Section C
Technology Adoption
Questions in this section will probe how technology is developed and adopted in your business
unit
7. How frequently is development of new technologies carried out in your business unit?
(Please tick one only)
Continuously ……………………………
Occasionally………………………………

8. When was the last time your company adopted new technology?
Year (indicate in the box)

9. How is technology sourced in your business unit?

Internally (through Research and Development)……
Externally ………………………………………….
Both internally and externally…………………

10. In general, how do you agree or disagree with the following statements relating to technology
adoption in your firm for the last three (3) years
1= strongly disagree 2= disagree 3= neutral 4= agree 5 = strongly agree
a) The firm invested substantially in research and development
1 2 3 4 5
( ) () () () ()

b) The firm invested substantially in sourcing technology externally

1 2 3 4 5
( ) () () () ()

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 c) The cost of technology development has been relatively high
1 2 3 4 5
( ) () () () ()

In general, to what extent would you consider technology adoption to have affected growth of
your business unit in the last three (3) years? (Please tick one only)
Very large extent Large extent Moderate extent Very low extent
No difference
12. Please rate the technology your business unit is using for manufacturing
(Please tick one only)
High technology
Moderate technology
Low technology
Obsolete technology

13. If your company is using obsolete or low technology please specify why
………………………………………………………………………………………………
14. What technology adoption challenges is your business unit facing (indicate up to 4 most
critical challenges)
1) ……………………………………………………………………………………………
……
2) ……………………………………………………………………………………………
……
3) ……………………………………………………………………………………………
……
4) ……………………………………………………………………………………………
……

Section D
Entrepreneurship Orientation
15. To what extend do you consider yourself a risk taker as far a business opportunities are
concerned?
High risk taker Moderate risk taker Low risk taker Never takes risk
16. How often do you introduce or develop new products in your business?
Every month
Every year
Continuously
Others (specify) ………………………………………….
17. How often do you analyze your business environment e.g. business opportunities and threats
Every month
Every year
Continuously
Others (specify) ………………………………………………

18 In general, to what extent would you consider entrepreneurial orientation to have affected
growth of your business in the last three (3) years (Please tick one only)
Very large extent Large extent Moderate extent Very low extent
No difference
19. Among the following factors which do you consider to have had the highest influence on your
business ………………………………………………………………………………………

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(Specify the factors e.g. technology, entrepreneurship, quality management, managerial competence,
access to finance and markets, product innovation, marketing and firm linkage)

PROJECT PROPOSAL: THE SURVIVAL AND GROWTH OF SMALL AND

MEDIUM SIZE ENTERPRISES IN KENYA

Project Proposal Submitted to KIM in partial fulfillment of the requirements for the
Diploma in Business Management

ABSTRACT

Small and medium enterprises SME(s) form significant sectors in most world
economies and therefore their development is regarded as an important issue for
most governments. Since Kenya’s independence in 1963, the government and
business sector development in Kenya have shown great interest in the possible
contributions of SME(s) in the social and economic development of the country.
However, as in most industrializing countries, the SME sector in Kenya has
traditionally operated under significant constraints such as financial constraints,
non-financial constraints and constraints relating to the enabling environment.
The SME business sector development in Kenya has been identified as one of the
key elements to Kenya’s engine of growth (Sessional Paper No. 2 of 2005) and has become an
issue of priority even though many SME(s) are struggling with establishment and
doing business. This acted as a motivating factor for the researcher’s interest in
investigating the case where by despite improvements in Kenya’s macro economic
performance and large injection of funds and other resources into the SME sector,
many SME(s) have either collapsed or are barely surviving. This study has
therefore sought to identify the constraints and problems to the development of
SME(s). Based on general knowledge attained from literature review and findings
from the interviews and analysis of the survey results, substantial measures
would be developed to promote the funding and growth of SME(s).

1.0 INTRODUCTION:
Despite the many constraints and problems of SME(s), some have been able to
beat the odds and turn their companies from start-ups into one of the top
performers in their various sectors. The purpose of this project is to analyze why
some SME(s) collapse and contribute to reducing the barriers to survival, growth
and access to finance that SME(s) currently face.

1.1 Definition of SME in Kenya

The most important criterion used in defining the size of enterprise is
employment (Boon, 1989). An alternate criterion used in defining the small and
medium enterprise is the value of fixed assets in the organization. SME(s) in
Kenya can be categorized into urban and rural enterprises. Generally, the
following target groups are classified as:
• Micro enterprises - Those employing up to 10 employees with fixed not
exceeding the value of $10,000
• Small enterprises - Employees between 11 and 50 with fixed assets of
$100,000

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 • Medium enterprises: Employ between 51 and 100 employees with fixed
assets of up to $ 1 million.

1.2 Evolution and impact of SME(s) in Kenya’s Economic Development

Rising inflation, deterioration of balance of payment and falling real wages drove
many modern sector workers into secondary self employment from 1970 to 1992.
According to Steel and Webster (1991) as the economy declined, large scale
manufacturing employment stagnated while small-scale employment grew by
2.9% per annum and accounted for nearly ten times as many jobs as the large
scale sector.

1.3 The role and characteristics of SME(s)

SME(s) have a dynamic role of being adaptive and flexible. They are potential
source of employment and income in many emerging economies. SME(s) are not
quoted on the stock exchange. Ownership of the business is typically restricted to a few
individuals. Often they are the means by which individuals effectively achieved self
employment according to Kayanula and Quartey (2000). They are labour
intensive and capital productivity is higher in SME(s) than is the case with large-
scale enterprise (Child, 1971, Steel, 1977).

1.4 Firm’s growth determinants and SME finance

The most recognized and empirically tested theory of firm growth is probably
Gilbert’s (1931) law of proportionate effect. A broader analysis of other factors
affecting firm’s growth empirically or theoretically has been uncommon. However,
it is important to understand the variables that grant firm’s growth. This analysis
will help fill the gap described above in emerging economies. Meanwhile, SME(s)
are largely reached by Non-Governmental Organizations (NGOs) and family based
financing. The main problem faced by SME(s) when trying to obtain funding is
that of uncertainty. A particular problem of uncertainty relates to businesses with
a low asset base.

1.5 Policies for promoting and factors restraining SME growth

To enable the sector perform its role effectively, there needs to be a coherent and
comprehensive policy framework from the government and private sector
developers to assist SME(s) development, provide equipment leasing, an
alternative and flexible source of long term financing of plants and equipments
for enterprises that can not afford their own. Nevertheless, SME(s) face a variety
of constraints owing to the difficult of absorbing fixed cost and absence of
economies of scale (Liedholm & Mead, 1987; Steel &Webster, 1990). Below is a
set of constraints identified: input, finance, labour market, equipment and
technology, domestic, managerial among others.

1.6 Theoretical and conceptual framework of SME Growth and Funding

Growth is the result of exploring opportunities (Barney, 1991). Gilbert’s (1931) law
of proportionate effect which proposes that business growth rate is independent of
firm size raise the question of the relationship between firm size and growth.
Penrose (1959) argued that there is no limit to the growth of the firms; it is the
rate of growth that is limited in the short run but there is no limit to the size of the
firm. The most prevalent explanatory device employ by most researchers for

12
explaining growth in SME(s) is Hanks et al (1993) stage model of growth where
growth is viewed as series of phases or stages.

Alternate conceptual framework includes strategic management model of growth,

stochastic model of firm growth and static equilibrium theories. Providing finance
to SME(s) in Africa is a complicated affair. Nevertheless, few innovative financing
business models such as Acumen fund model, Grofin Business and Root Capital
Business models have emerged. Alternate models of funding SME(s) from other
countries include the Indian model, Bangladesh-the Gramen model and the
Brazilian model. The concept of SME in this paper refers only to the small and
medium manufacturing enterprises.

1.7 Research questions

Given that the SME sector is a key element to Kenya’s engine of growth, why do some
SME(s) survive and grow while others simply collapse? The research questions will
focus on variables that grant or constraint firm’s growth and financial issues within the
micro, small and medium sized enterprise development, hence the research questions:
(a) Analyze variables that affect firm growth.
(b) To assess public perception about SME(s) and their products.
(c) Identify and discuss SME(s) sources of finance and financial needs.
(d) Analyze the constraints and problems of SME(s).
(e) Develop sustainable measures to support SME(s) development.

(From these research questions you can derive the main/general objective and
specific objectives)

2.0 PROPOSED METHODS

In order to trace the survival and growth of SME(s) the research will be based on
a combination of both primary and secondary data and a wide range of
quantitative and qualitative analysis.

2.1 Interviews and document search

It will involve carrying out interviews, a document search and a far reaching
literature review. This multi-method approach of carrying out research known to
as triangulation (Bell, 1999), was chosen by the researcher because it will ensure
some level of accuracy in the research findings. The research method chosen for
gathering primary data is interviewing. This is a suitable method because the
nature of the problem being investigated necessitates interviewing senior
managers in charge of SME(s). Interviews offer adaptability and the interview
guide will have a semi-structured format to include closed questions and open-
ended questions. This will allow some degree of standardization whilst maintaining
flexibility. The closed questions will be designed to uncover facts while the open
ended questions will help ensure that the salient areas are covered by exploring
ideas that may not have been considered. This will allow the researcher to
uncover facts as well as opinions (May, 2001).

2.2 Data collection process

Self-administered questionnaires and personal interviews will be used. Key
personnel of targeted existing SME support institutions will be interviewed
through simple random sampling. Questions will be asked on a wide range of
13
issues and various challenges they face at work. A sample size of 50 respondents
will be chosen through random sampling of interviewing every fourth person that
appears. The questionnaires will be administered in the Nairobi Metropolitan. The
questions will be in English.

2.3 Data Analysis

Completed questionnaires will be coded and inputted into a statistical package
e.g. SPSS, or for simpler statistical analysis displayed in flow charts. The results of
this statistical analysis will help capture people’s opinion on locally manufactured goods
and shed light on the demand for SME products. Another purpose this survey will serve is
to determine whether SME(s) have any chance of survival. A premise to this study
is that baring all other problems, SME(s) have the chance of survival if people had
favorable perception of their good. That is if people were willing to buy their
product(s) they could survive. On the other hand, no matter what they did, the
chances of surviving are indeed slim if people did not want to patronize these
products. I am also hopeful that the results of the statistical analysis will help
capture variables that decisively affect firm’s growth and describe the problems and
experiences that have been encountered by SME(s) with regards to financial
access.

2.4 REFLECTIONS
As in the case in any research, there are challenges/hurdles that will be faced in
the process of any research. Some of the potential challenges to successfully
completing this research will include; the vastness of the SME sector - this study
generalizes for example the problems of the SME sector. Where in actual fact, the different
sectors, Agro-based sector, publishing sector, manufacturing and many more
have their unique problems. The time factor - knowing the people to be interviewed, their
sense of urgency and priorities will not always coincide with mine. However, I plan to
conduct the research with them as part of their work schedule to overcome any
issues around time. Having said that, I am hoping most board of directors and
management staff of SME(s) is fully supportive of this project and the way it is
being planned. One of the main challenges with this project will be trying to
obtain clean and accurate data on SME sector in order to perform meaningful
statistical and quantitative analysis upon. There has been no comprehensive
national SME survey information and the success rate of SME sector in Kenya is
sketchy and weak. It is all based on facts that have not been empirically proven.

The other issue will be my role as a researcher and the potential bias during the
research process. As a searcher I do have pre-conceived ideas on why some
SME(s) do survive and thrive and why others do collapse and this may cloud my
judgment, but will ensure to approach the study with an open mind. It is difficult to
see how this (i.e. bias) can be avoided completely, but given awareness of the problem plus
constant self-control can help (Gavron, 1966). Access of information from any
registered limited company in the world, will not always be easy to obtain
because of the confidentiality that is expected from data protection act and some
financial services providers. However, most importantly, the private sector
developers will not be willing to release sensitive data, in case it gets in the hands
of competition. I anticipate speaking to Kenya Private Sector Alliance (KEPSA),
Micro and Small Enterprises Federation (MSE-F), Kenya Industrial Estates (KIE),
Kenya National Bureau of Statistics (KNBS), Ministry of Labour and Human
14
Resource Development (MoLHRD), Ministry of Trade and Ministry of
Industrialization in order to try and pull together the various data needed to
provide more substantial analysis on the future path of SME(s).

3.0 CONCLUTIONS
As an integral part of Kenya’s engine of growth, the SME sector has been growing at a rapid
pace to reach a competitive level, and has become a serious competitor to foreign
goods. This is mainly because small firms take decisions on new products and
processes more quickly; owner manager and entrepreneurs provide a high degree
of commitment to success. Due to different motivational factors, SME(s) do place
different priorities and investments in Kenya’s business sector development. There has
been much discussion on why some SME do collapse as well as a discussion to
promote private sector development. This research project aims at understanding
what factors have had influence on firm’s survival and growth in the past and
therefore help to forecast the present. It will discuss people’s perception about
locally manufactured goods and try to establish what the government, SME sector
and business support institutions can possibly do to help locally manufactured
goods to have a competitive edge over foreign goods. It will identify the financial
needs of SME(s) and make recommendations to enhance SME funding as well as
key strategies to raise productivity levels across sectors and size groups.

6.0 TIME SCHEDULE

The Gant chart below shows the key activities and time associated with this project

No Task July Aug. Sept. Oct. Nov.

.
1 Literature review
2 Data collection
3 Analysis of results
4 Summarizing of findings and
write ups
5 Review of study and further
actions
6 Conclusion and
Recommendation
7 Proof of reading ( Ongoing)
8 Final editing, printing and
binding
9 Project submission

APPENDIX A

QUESTIONNAIRE ON SME(s) AND THEIR PRODUCTS

SECTION ONE: GENDER, EDUCATION AND PERCEPTION OF

RESPONDENTS
15
(1) Gender: male [ ] female [ ]
2) Educational background: Primary level [ ] Secondary level [ ] Tertiary level [ ]
(3) In terms of quality, what do you think about locally manufactured goods?
High quality [ ] Good quality [ ] Low quality [ ] Poor quality [ ]

(4) Can you identify certain locally manufactured goods that you patronize?
………………………………………………………………………………………….
5) Why do you patronize these goods? …………………………………………………..

6) Are there other goods/products that you prefer it to be foreign?

If yes, identify them and give your reasons. ……………………………………………....

(7) In your view, what actually causes decline in small-medium manufacturing

enterprises in Ghana?
…………………………………………………………………………………………….

(9) What can companies do to promote the patronage of locally manufactured

goods?
……………………………………………………………………………….

SECTION TWO: SME FINANCE

(10) Can you indicate or identify any source(s) of finance for SME(s)?
………………………………………………………………..
(12) What are the financial needs of SME(s)?
……………………………………………………………………….
(13) Why do SME(s) find financing a problem?
…………………………………………………………………….
(14) What are the effects of financial crisis on SME(s)?
……………………………………………………………………..
(15) What would you suggest to increase SME(s) access to finance?
…………………………………………………………………

Section three: SME survival and growth

(16) Do firm growth duffers across sectors? Yes [ ] No [ ]
(17) Can you identify any variable(s) that affect firm growth?
…………………………………………………………………………………………..
(18) In terms of growth in number of enterprises, which of these sectors is stable?
Food [ ] wood [ ] chemical [ ] textile [ ] metal work [ ]
(19) Which of these size categories is experiencing an increase in job creation?
Micro enterprises [ ] small enterprises [ ] medium enterprises [ ] large
enterprises []
(20) In your view, which of these SME sectors is performing creditably?
food [ ] wood [ ] chemical [ ]textile [ ] metal work [ ]

(21) Are you aware of any policies that the government has made to promote
the patronage of locally manufactured goods? Yes [ ]
No [ ]
If yes, please specify? ……………………………………..

16
(22) What measures would you suggest outside those in question 9 & 15 to
support the development and growth of SMEs in Ghana?

APPENDIX B
Set of interview questions for senior managers within small-medium enterprises
SME(s).
(1) Could you give an overview of your relationship to the company - year involved and
primary responsibilities held?
………………………………………………………………………………..
(2) Could you briefly elaborate on your growth strategies?
………………………………………………………………………………………..
(3) What is your target market? …………………………………………….
(4) How competitive is the small-medium manufacturing sector
(a) Very competitive [ ] (b) competitive [ ] (c) less competitive [ ]
(5) What factors are influencing SME growth in Ghana?
……………………………………………………………………………………………..
(6) Is credit a binding constraint to your firm? How useful would a credit at 25%
interest be for a new investment and working capital?
(a) Very useful (b) moderately useful (c) not useful
(7) How would you describe your firm’s access to bank loans and other sources of finance?
(a) Very good [ ](b) good [ ](c) average [ ](d) poor [ ]

(8) What are some of the problems you are facing as a SME?
………………………………………………………………………………………
9) How has the company coped with these problems?
……………………………………………………………………………………..
(10) Comparing your company to other small-medium scale companies, what has
this company done differently from other’s to enhance sustainable growth?
……………………………………………………………………….

17
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