Factors Affecting the Growth of Smes: a Case Study of Motor Vehicle Garages in Industrial Area, Nairobi

Abstract

Available estimates show that SMEs are a growing and vibrant stream with a lot of untapped potential and employ about 7.5 million Kenyans or 80 per cent of the country’s total employment outside small-scale agriculture and contributes 20 per cent to the country GDP. Of all the 503,000 jobs created in 2011, 440,400 or 80.6 per cent were in the SMEs. Despite their importance, over 60% of SMEs are estimated to fail each year in Kenya. The health of the economy as a whole has a strong relationship with the health and nature of SMEs. However, despite government efforts in Kenya to promote SMEs activity, not much progress seems to have been achieved, judging by the performance of the informal sector. There is very little information on how the SMEs sector is structured. Despite their major contributions to the economy, many SMEs do not grow into large scale enterprises to significantly contribute to employment creation and economic growth. There are many constraints to growth and the objective of this study was to identify the factors that affect the growth of motor vehicle garages in Industrial Area, Nairobi. A descriptive design was used to study 54 garages in Industrial Area, Nairobi. Questionnaires which included questions on background, growth and constraints to growth were used to collect the data from the 54 garages. Data was analyzed using Ms Excel and SPSS and the researcher identified eight factors that constrain the growth of SMEs. The factors, from high effect to no effect are inadequate technology, cost of machinery, low business skills, cost of energy (fuel and electricity), cost of raw materials, loan transaction cost, Interest rates and collateral for loans. Some factor had little or no effect at all on some of the garages, while some of the factors had very high effect. Transaction cost for loans had no effect on the highest number of garages, while cost of machinery had very high effect on most of the garages. The research further found out that growth in sales does not lead to a proportional growth in profits and employment.