INFLUENCE OF INNOVATION CAPABILITY ON PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN KENYA
Abstract
Background: The importance of small and medium businesses in driving economic growth in Kenya and around the world cannot be overstated. However, large international firms compete fiercely with the majority of these businesses, particularly in emerging countries. The majority of these small enterprises have closed due to their inability to cope with the quickly changing competitive climate. This study sought to examine the influence of innovation capability on the performance of small and medium enterprises in Kenya.
Methodology: Descriptive cross-sectional research design was employed. The target population included small and medium enterprises in Thika town’s light industrial area. The entire target population comprised approximately 2400 licensed small and medium enterprises majorly in manufacturing, trade, and service sub-sectors. The study sampled 331 small and medium enterprises owners using stratified random sampling.
Results of the Study: The findings indicated that innovation capability had a positive and significant influence on the performance of small and medium enterprises.
Conclusions and Recommendations: The study concluded that innovation capability contributes positively to small and medium enterprises’ performance. The study recommended that small business owners should strengthen their innovation capabilities. They should specifically focus on the following aspects: appropriate allocation of resources, learning culture, managing employees’ expectations, and creation of new opportunities. Improving these aspects will result in enhanced business performance.
Keywords: Innovation capability, Business performance, Small and Medium Enterprises
References
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Lilly, L., & Juma, D. (2014). Influence of strategic innovation on the performance of Commercial Banks in Kenya: The Case of Kenya Commercial Bank in Nairobi County. European Journal of Business Management, 2 (1), 336-341
Ma, H., Zhang, Y. C., Butler, A., Guo, P., & Bozward, D. (2021). Entrepreneurial performance of new-generation rural migrant entrepreneurs in China. International Journal of Entrepreneurial Behavior & Research. https://doi.org/10.1108/IJEBR-07-2020-0456
Musambayi, N. J. (2018). Leadership and firm entrepreneurial performance in county governments in Kenya. Journal of Global Entrepreneurship Research, 8(1), 31. https://doi.org/10.1186/s40497-018-0117-3
Mutula, B. M. (2018). The Effect of Working Capital Management on Financial Performance of Small and Medium Enterprises in Nairobi City County (Doctoral dissertation, University of Nairobi).
Nason, R. S., & Wiklund, J. (2018). An assessment of resource-based theorizing on firm growth and suggestions for the future. Journal of Management, 44(1), 32-60. https://doi.org/10.1177/0149206315610635
Nduati, P. M. (2020). Influence of strategic innovation on the performance of manufacturing firms in Kenya: A Literature-Based Review. African Journal of Emerging Issues, 2(6), 55-66.
Ngumi, P. M. (2014). Effect of bank innovations on the financial performance of commercial banks in Kenya (Doctoral dissertation).
Rajapathirana, R. J., & Hui, Y. (2018). Relationship between innovation capability, innovation type, and firm performance. Journal of Innovation & Knowledge, 3(1), 44-55. https://doi.org/10.1016/j.jik.2017.06.002
Rogers, E. M. (1995). Diffusion of Innovations. (4thEd.). New York: The Free Press.
Shamsuddin, J., Ismail, N. A., Sarkawi, M. N., Jaafar, A. R., & Rahim, N. F. A. (2017). Government business support service (GBSS) and SMEs performance: Observations from Malaysian manufacturing. International Journal of Economic Research, 14(22), 1-11.
Singh, L. B., Mondal, S. R., & Das, S. (2020). Human resource practices & their observed significance for Indian SMEs. Revista ESPACIOS, 41(07).
Tsai, K. H., & Liao, Y. C. (2017). Innovation capacity and the implementation of eco‐innovation: Toward a contingency perspective. Business Strategy and the Environment, 26(7), 1000-1013. https://doi.org/10.1002/bse.1963
Waithaka, E. (2017). A Study of critical success factors affecting small and medium enterprises in Nairobi County: A Case Study of Small and Medium-Sized Enterprises in Nairobi City Central Business District (Doctoral dissertation, United States International University-Africa).
Zhu, M., Guo, C. Y., Hou, A. Y. C., & Chiu, M. S. (2021). Graduate employment in higher education: applying bibliometrics to world-system theory. Journal of Education and Work, 34(3), 356-372. https://doi.org/10.1080/13639080.2021.1922621
Akbar, F., Omar, A., Wadood, F., & Al-Subari, S. N. A. (2017). The importance of SMEs, and furniture manufacturing SMEs in Malaysia: A review of the literature.
Alam, S. S., Arumugam, V., Nor, N. G. M., Kaliappan, P., & Fang, L. S. (2017). Relationships between innovation capabilities, business performance, marketing performance and financial performance: A literature review. Business and Management Horizons, 1(1), 59-73. https://doi.org/10.5296/bmh.v1i1.3415
Amini, Z., Arasti, Z., & Bagheri, A. (2018). Identifying social entrepreneurship competencies of managers in social entrepreneurship organizations in the healthcare sector. Journal of Global Entrepreneurship Research, 8(1), 1-14. https://doi.org/10.1186/s40497-018-0102-x
Bagudu, H. D., Khan, S. J. M., & Roslan, A. H. (2016). The impact of microfinance institution on development of small and medium enterprises: a case study of Lagos state. International research journal of management, IT and social sciences, 3(9), 95-106. https://doi.org/10.21744/irjmis.v3i9.245
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99-120. https://doi.org/10.1177/014920639101700108
Bennett, B., Bettis, J. C., Gopalan, R., & Milbourn, T. (2017). Compensation goals and firm performance. Journal of Financial Economics, 124(2), 307-330. https://doi.org/10.1016/j.jfineco.2017.01.010
Berlyne, D.E. (1962). Uncertainty and epistemic curiosity. British Journal of Psychology, 53, 27-34. https://doi.org/10.1111/j.2044-8295.1962.tb00811.x
Clarke, G., Li, Y., & Xu, L. C. (2016). Business environment, economic agglomeration, and job creation around the world. Applied Economics, 48(33), 3088-3103. https://doi.org/10.1080/00036846.2015.1136392
Dalvand, V., Moshabaki, A., & Karampour, A. (2015). The impact of innovation capabilities on export performance of firms applied mathematics in engineering. Management and Technology, 3(2), 295-308.
Dijkhuizen, J., Gorgievski, M., van Veldhoven, M., & Schalk, R. (2016). Well-being, personal success and business performance among entrepreneurs: A two-wave study. Journal of Happiness Studies, 19(8), 2187-2204. https://doi.org/10.1007/s10902-017-9914-6
Falahat, M., Tehseen, S., & Van Horne, C. (2018). entrepreneurial innovativeness and its impact on SMEs' performances. International Journal of Entrepreneurship, 22(3), 1-9.
Gwadabe, U. M., & Amirah, N. A. (2017). Entrepreneurial Competencies: SMEs Performance Factor in the Challenging Nigerian Economy. Academic Journal of Economic Studies, 3(4), 55-61.
Gyimah, P., Appiah, K. O., & Lussier, R. N. (2020). Success versus failure prediction model for small businesses in Ghana. Journal of African Business, 21(2), 215-234. https://doi.org/10.1080/15228916.2019.1625017
Jonas, Y.D. (2017). Role of Entrepreneurial Capability in the Performance of Private Universities in Kenya, International Journal of Economics, Commerce and Management, 5(9)
Kangala, F.N. (2018). Factors that Affect Financial Performance of Small and Medium Enterprises in Kenya (Unpublished Project), United States International University Africa, Kenya
Karabulut, A. T. (2015). Effects of innovation strategy on firm performance: a study conducted on manufacturing firms in Turkey. Procedia-Social and Behavioral Sciences, 195, 1338-1347. https://doi.org/10.1016/j.sbspro.2015.06.314
Kenya National Bureau of Statistics. (2016). Economic Survey Report.
Koech, B.C (2016). A Survey of the Financial Constraints Hindering Growth of SMEs in Kenya: The Case of Kamukunji District in Nairobi County
Lianto, B., Dachyar, M., & Soemardi, T. P. (2018). Continuous innovation: a literature review and future perspective. International Journal on Advanced Science Engineering Information Technology, 8(3), 771-779. https://doi.org/10.18517/ijaseit.8.3.4359
Lilly, L., & Juma, D. (2014). Influence of strategic innovation on the performance of Commercial Banks in Kenya: The Case of Kenya Commercial Bank in Nairobi County. European Journal of Business Management, 2 (1), 336-341
Ma, H., Zhang, Y. C., Butler, A., Guo, P., & Bozward, D. (2021). Entrepreneurial performance of new-generation rural migrant entrepreneurs in China. International Journal of Entrepreneurial Behavior & Research. https://doi.org/10.1108/IJEBR-07-2020-0456
Musambayi, N. J. (2018). Leadership and firm entrepreneurial performance in county governments in Kenya. Journal of Global Entrepreneurship Research, 8(1), 31. https://doi.org/10.1186/s40497-018-0117-3
Mutula, B. M. (2018). The Effect of Working Capital Management on Financial Performance of Small and Medium Enterprises in Nairobi City County (Doctoral dissertation, University of Nairobi).
Nason, R. S., & Wiklund, J. (2018). An assessment of resource-based theorizing on firm growth and suggestions for the future. Journal of Management, 44(1), 32-60. https://doi.org/10.1177/0149206315610635
Nduati, P. M. (2020). Influence of strategic innovation on the performance of manufacturing firms in Kenya: A Literature-Based Review. African Journal of Emerging Issues, 2(6), 55-66.
Ngumi, P. M. (2014). Effect of bank innovations on the financial performance of commercial banks in Kenya (Doctoral dissertation).
Rajapathirana, R. J., & Hui, Y. (2018). Relationship between innovation capability, innovation type, and firm performance. Journal of Innovation & Knowledge, 3(1), 44-55. https://doi.org/10.1016/j.jik.2017.06.002
Rogers, E. M. (1995). Diffusion of Innovations. (4thEd.). New York: The Free Press.
Shamsuddin, J., Ismail, N. A., Sarkawi, M. N., Jaafar, A. R., & Rahim, N. F. A. (2017). Government business support service (GBSS) and SMEs performance: Observations from Malaysian manufacturing. International Journal of Economic Research, 14(22), 1-11.
Singh, L. B., Mondal, S. R., & Das, S. (2020). Human resource practices & their observed significance for Indian SMEs. Revista ESPACIOS, 41(07).
Tsai, K. H., & Liao, Y. C. (2017). Innovation capacity and the implementation of eco‐innovation: Toward a contingency perspective. Business Strategy and the Environment, 26(7), 1000-1013. https://doi.org/10.1002/bse.1963
Waithaka, E. (2017). A Study of critical success factors affecting small and medium enterprises in Nairobi County: A Case Study of Small and Medium-Sized Enterprises in Nairobi City Central Business District (Doctoral dissertation, United States International University-Africa).
Zhu, M., Guo, C. Y., Hou, A. Y. C., & Chiu, M. S. (2021). Graduate employment in higher education: applying bibliometrics to world-system theory. Journal of Education and Work, 34(3), 356-372. https://doi.org/10.1080/13639080.2021.1922621
Published
2022-05-11
How to Cite
Wachira, P., Ngugi , P., & Nyang’au, S. (2022). INFLUENCE OF INNOVATION CAPABILITY ON PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN KENYA. African Journal of Emerging Issues, 4(4), 53 - 66. Retrieved from https://ajoeijournals.org/sys/index.php/ajoei/article/view/280
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