Effect of Product Innovation and cost leadership Strategy on the Financial Performance of Small and Medium Enterprises

Abstract

The success and sustainability of any organization in a competitive environment is determined by its choice of strategy. Most strategies are replicated by competitors and thus a company must position itself in the minds of the consumer in order to remain competitive. The significance of small and medium sized enterprises to world economies and Kenya in particul ar cannot be over emphasized. SMEs make up the largest business sector in every econom y . The lack of proactiv ity , innovativeness, risk taking and overall poor entrepreneurial orientation have negatively impacted on the SMEs. The study sought to determine w hether product innovation and cost leadership strategy were positively associated with business performance of S mall and M edium E nterpris es in Nairobi County Kenya . Explanatory research design was used in the study. The target population of the study was m ade up of 7384 SMEs and a sample of 95 SMEs was picked using systematic random. Primary data was collected using a questionnaire with both structured and unstructured questions. Descriptive statistics such as mean and frequencies and inferential statistics such as regr ession and correlation analysis was used to perform data analysis. The study found out that product innovation and cost leadership strategy were positively and significant related to and financial performance. The study concluded that that product innovation and cost leadership strategy have a positive and significant effect on the financial performance of SMEs. The study recommended that to accomplish the goals of SM Es in the light of growt h and profitability, management need to have a positive rethink towards the use of strategic management .