Entrepreneurial orientation, environmental factors, firm strategic capabilities and growth of Micro small and medium enterprises in the manufacturing sector in Nairobi County, Kenya

Abstract

Whereas entrepreneurial orientation (EO) has been found to underpin growth of Micro Small and Medium Enterprises (MSMEs) in a large number of previous growth studies, a cross-section of extant empirical research on the association between EO and growth are inconclusive. This implies that the relationship between EO and growth is not linear, pointing to other causal factors either internal or external to the business, prompting this study. This was coupled with an underlying growth challenge among MSMEs in Kenya, highlighted by the higher likelihood for MSMEs to either stagnate or fail than to grow. The main objective of the study was thus to determine the moderated mediation role of environmental factors and firm strategic capabilities on the relationship between EO and growth of MSMEs. The specific objectives included: to determine the effect of EO on growth and firm strategic capabilities among MSMEs; to examine the effect of firm strategic capabilities on the growth of MSMEs and its mediating role between EO and MSME growth; to determine the influence of environmental factors on the relationship between EO and growth, between EO and firm strategic capabilities and between firm strategic capabilities and MSME growth; and to investigate the moderating effect of environmental factors on the indirect relationship between EO and growth of MSMEs via firm strategic capabilities. The study is anchored on the contingency fit view theory and resource-based view. This study is based on the Positivism philosophy and employed explanatory survey design, of a cross-sectional nature. A stratified sample of 384 MSMEs was drawn from a target population of 103,214 registered MSMEs, with a focus on the manufacturing sector in Nairobi County. Data was collected by use of structured questionnaires and analysed by both descriptive and inferential statistics which included multiple regression modelling. Results indicate that EO has a significant effect on MSME growth (β=.139, p<.05) and on firm strategic capabilities (β=.276, p<.05). The study also found that firm strategic capabilities have a significant effect on MSME growth (β=.124, p<.05). Environmental factors were further found to significantly moderate the association between EO and MSME growth as the interaction between EO and environmental factors was found to be significant (β =.0092, p<.05; LLCI=.0004; ULCI=.0180). The study did not however find a significant moderated mediation role of environmental factors on the indirect relationship between EO and growth of MSMEs, through firm strategic capabilities as the second interaction between environmental factors and firm strategic capabilities was not significant (β=-.0021, P>.05; LLCI=-.0143; ULCI=.0102). It is concluded that among manufacturing sector MSMEs in Kenya, growth is directly, positively and significantly influenced by owner/managers’ EO and firm strategic capabilities. The relationship between EO and MSME is also non-linear, moderated by environmental factors. The study therefore validates the contingency fit view, affirming that the association between EO and growth of MSMEs is moderated by environmental factors. The study recommends that government formulates supportive policies that encourage EO and strategic capacity building among manufacturing MSMEs through trainings, access to credit, common equipment facilities, business incubation centres, technology transfer and creating local markets. It is also recommended that despite uncertainty and unfavourable environmental factors, MSME owners/managers ought to practice EO to build strategic capabilities and realize growth. Having adopted a cross-section design, it was not possible to track MSME growth in terms of possible transitions through the growth stages. It is thus suggested that future studies adopt a longitudinal approach.