Generic competitive business strategies and performance of micro and small enterprises in Nairobi: an empirical validation of the MSE typology

Abstract

Competitive business strategy typologies classify business strategies based on common elements and provide a framework for gaining competitive advantage in the market. In Sub-Saharan Africa, it is estimated that the informal sector, mainly consisting of micro and small enterprises (MSEs) accounts for approximately 90\% of all new jobs and up to 85\% of total employment. In Kenya, the significance is evident in that the sector employs approximately 8.8 million people or 81.1\% of those employed. In Nairobi, informal manufacturing MSEs have sprung up in clusters in areas that have combinations of high vehicular and human traffic, high populations densities, as well as transport arteries. Despite the significant role informal sector MSEs play in Sub-Saharan Africa national economies, few transition to formal medium or large size enterprises due to a wide array of challenges that include lack of access to markets; information on and access to finance; low ability to acquire necessary technical and managerial skills, and limited access to technology. The MSE competitive business strategies typology posits that combining Porter's theory of competency and strategic alliance theory is better suited to MSEs than use of competency theory alone as has traditionally been the case. Using manufacturing and agro-food processing MSEs in Nairobi as the study population, the research objective of this study was to empirically determine if the use of competitive business strategies based on a combination of competency and strategic alliance theories by informal sector MSEs lead to better business performance, as compared to those who employ competency-based theories only. The results from the study established the following. First, from the study population, adoption of Broad Hybrid, Hybrid Differentiation, Hybrid Mentor and Peer differentiation strategies corresponded to better performance, providing support to the proposition that collaboration may provide MSEs with access to additional resources that they may have lacked due to their small size, allowing them to better address threats and take advantage of opportunities available to them. Adoption of Mentor Differentiation, Peer Low Cost, Mentor Low Cost, Hybrid Peer and Hybrid Low cost strategies, however did not correspond to better performance. Businesses adopting these strategies were statistically neither better nor worse than those businesses that adopted none. Lack of support for Hybrid Peer, Hybrid Low Cost and Peer Low Cost may have been due to the low numbers of business that were within these categories which may have affected the validity of the statistics tests. Third, the study compared the business performance of those adopting Porter's strategies (competency-based) with those adopting strategies in the MSE typology. From the results, MSEs adopting strategies defined within the Peer Differentiation, Hybrid Differentiation, Hybrid Mentor or Broad Hybrid ideal types performed better than those adopting low cost, differentiation or mixed strategies under Porter typology. These results suggest that strategies that incorporate collaboration both with peers and mentors, should lead to superior business performance of MSEs.