Introduction
Small and Micro Enterprises (SMEs) play a significant role in the growth of the Kenyan economy. The sector created over 50% of the job opportunities that were created in 2005 (National Baseline Survey 2007, 216). However, despite the significance of the sector in the economy, statistics that have been collected in the past indicate that more than 60% of the businesses collapse during the first few months of operation (National Baseline Survey 2007, 222). Various reasons have been cited for the poor performance of SMEs; Amyx (2005, 86) cites negative perception towards SMEs as the primary reason for their poor performance. SMEs are often perceived by potential clients as being incapable of providing quality services or undertaking more than one significant project simultaneously. This has denied the SMEs business opportunities as clients prefer to transact business with a selected pool of large companies.
Starting and growing a small business is a challenge in itself; there are both chances of success and failure. Due to their small size, a simple management mistake may result in the collapse of the business and hence the business is denied the opportunity to learn from its mistakes. The absence of planning, inadequate financing, and poor management techniques have been quoted as some of the major causes of the collapse of small businesses (Longernecker, et al. 2006, 516). The inability to access credit has also been identified as one of the main reasons that hinder the growth and development of SMEs (Oketch 2000, 316). In general, small businesses encounter exclusive challenges; these challenges adversely impact their growth and profitability and blur the capability of these small businesses to contribute meaningfully to sustainable development. Major challenges that affect these businesses are discussed below:
Inadequate Managerial Skills and Experience
A significant number of SMEs managers are suffering from a lack of managerial training and expertise. The typical SME owner manages the business from their homemade managerial approaches that are implemented on a trial and error basis. Thus, the managerial approach is more likely to be intuitional than analytical; the management is often concerned with the day to day management of the business as opposed to the long term factors that impact the business; and the approach is more opportunistic than tactical in its concept (Hill 1987, 212). Though the attitude is critical during the initial stages of the company since a lot of creativity is required to keep the business running, it may pose challenges when there are more complex decisions to be undertaken. Poor planning results in small business owners being ill-prepared to effectively tackle any business environment variations and to effectively plan for the variations in technology. The majority of the small businesses are run by ordinary citizens who possess poor educational backgrounds. Thus, these people do not possess the managerial expertise to run these enterprises (King and McGrath 2002, 212).
Inadequate Education and Expertise
Education and expertise are critical for running SMEs. Research reveals that the majority of the people who conduct SME businesses are ill-equipped in terms of education and expertise. Studies that have been undertaken to examine the relationship between education and the success of SMEs reveal that people who are more skilled and possess expertise in management are more likely to succeed in the SME sector (King and McGrath 2002, 224). Thus, for SMEs to perform well in the country, people need to acquire more skills and managerial expertise. With the emergence of various colleges offering computer packages, various businesses are more successful in the integration of ICT in their operations. Further, studies reveal that the majority of people running SMEs possess at least college-level qualifications (Wanjohi and Mugwe 2008, 306).
Inadequate Access to Credit and Credit Facilities
Inadequate access to credit has been cited as a major problem for SMEs. This adversely impacts the choice of technology; these businesses are forced to employ inadequate technology due to limited resources. In some cases where the small business owners have access to credit, they may be forced by the strict lending conditions to acquire expensive machinery that may serve as collateral for the borrowed funds. There are various credit constraints in Kenya; the underdeveloped financial markets force small business owners to rely on meager family finances (Kinyanjui 2000, 146). Due to their inaccessibility to finances; business owners are forced to rely on the more expensive short-term sources of finance. Furthermore, various financial challenges face small businesses, they include high credit costs and high-interest rates. The culmination of the pyramid schemes in the country in 2008 proved the need for credit among the small business owners in Kenya. Therefore, the financial constraint has remained a significant challenge facing the Kenyan small business owner (Wanjohi and Mugwe 2008, 342).
National Policy and Regulatory Framework
The National Policy and Regulatory Framework impose a significant influence on the level of technology that is adopted by small businesses. Various African governments have implemented Structural Adjustment Programs (SAPs); these programs are implemented to eliminate the massive policy distortions which impact adversely on the development and growth of the private sector. SAPs adversely affect the vulnerable members of the society and have been linked to the deteriorating living conditions in various African countries (USAID 1991, 146). The findings by Wanjohi and Mugur 2008, 336) have indicated that the business environment is among the factors that impact small businesses. Erratic government policies together with corruption and high taxation have continued to be a threat to both the sustainability of MSEs and the growth of the Kenyan economy.
Underdeveloped Infrastructure
Underdeveloped infrastructure poses a huge challenge to the small enterprises in the country; the development of improved infrastructure has been lagging for years. The country is characterized by a poor road network and inadequate power supply (Kiiru 1991, 82). Despite the numerous pledges placed by successive governments to improve the infrastructure; very few efforts have been undertaken to develop the road network more so in the rural areas.
Inadequate Market Information
Inadequate market information is among the huge challenges that adversely impact small businesses. Despite their accessibility of huge chunks of business-related information, and their access to both local and international databases; a majority of the small business owners have continued to make their business decisions based on private and physical contacts. This has mainly resulted from the limited capability of the small business owner’s ability to interpret statistical data and the poor linkages that are available in rural areas. Since there is the availability of huge amounts of information and only a lack of statistical interpretation, measures should be implemented to support the entrepreneurs.
Conclusion and Recommendations
In conclusion, viable solutions should be developed for the problems facing Kenyan small businesses. The government should implement policies that promote the development of local technologies. Emphasis should be put to develop the local tools industry to reduce the country’s reliance on imports. The majority of the SMEs suffer from “liability of smallness,” because of their miniature sizes and resource restrictions, small businesses do not possess the financial capacity to embark on new technological developments or to take on fundamental changes to their existing technologies. However, small businesses can embark on minor technological innovations that meet their needs. However, to entirely develop and exploit this potential, the government should execute strategic measures that will guarantee the provision of technology and communications services. Further, the government should set up publicly funded Research and Development organizations that will endeavor to satisfy the technological demands of small businesses.
The challenges in ease of access to information can be accredited to the deficiency of small business support institutions. This proposes that the government should cultivate a supportive strategy to encourage the institution of documentation centers and information systems that will be liable for providing small businesses with statistical information at reasonable prices.
The government ought to also create training centers where small business owners can sign up for administrative and technological courses. Equally, the government should establish business information centers where small business owners can obtain valuable business information.
The government should develop policies that are favorable to the small businesses; the current policies are too harsh for the small businesses and act to discourage them rather than to support them.
The majority of small businesses in Kenya suffer from inadequate access to finance and credit; therefore, the government should establish an affordable loaning system. These should be characterized by low-interest rates that encourage the growth of these businesses. Small businesses can transform a declining economy; thus, the government should undertake sufficient efforts to boost their sustainability.
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