Commercial subcontracting linkages between small scale manufacturers and large business enterprises in Nairobi, kenya

Abstract

Small scale sector development is one of the major government strategies for combating unemployment and bringing about economic growth. The concern of this study is to look into ways that its growth could be fostered through the promotion of a beneficial commercial subcontracting linkage between Small scale manufacturing enterprises and the Large business enterprises that deal in their products. Commercial subcontracting involves bulk selling of finished products from the manufacturer to business enterprises. In the Newly Industrializing Countries (NICs) the commercial subcontracting market has rapidly become an important outlet for products from small scale enterprise (SSE) manufacturers and by extension encouraged their growth both in productive capacities and employment generation. However, since the commercial subcontracting <, market is not as developed in Kenya it's potential in the development of the SSE sector may not be appreciated which has brought about an informal linkage which is parasitic in terms of the benefits to the SSE manufacturer. What emerges therefore is the fact that the SSE manufacturer could be disadvantaged in commercial subcontracting linkages given their low capital reserves and weak bargaining position. Using a stratified random sample of sixty small scale textile and furniture manufacturers from the Eastern sector of the city of Nairobi where small manufacturing enterprises predominate, the study set out to understand their background characteristics, the commercial subcontracting linkage between them and the Large businesses and the conditions under which these relations are established. Applying both quantitative and qualitative analytical data techniques, on the collected data, it emerged that both the SSE manufacturer and the large business operators find the linkage important. The main complaint from the SSE manufacturer is that they do not get a fair deal in commercial subcontracting which was blamed on, the lack of adequate capital, cooperation, market information and stiff competition from large manufacturers. To make the relationship more beneficial, it is recommended that the SSE manufacturer be made accessible to market information and assistance to make his position stronger. Co-operation will also be important to provide a channel to set out guidelines and root out cut throat competition.