Effect of entrepreneurial orientation, transformational leadership and networking capability on performance of manufacturing firms in Nairobi County, Kenya

Abstract

Manufacturing firms in Kenya are bedeviled with challenges associated with doing business in an environment of increasing competition and regionalization, which, if mitigation measures are not urgently instituted, are likely to have a negative impact on their performance and competitiveness. Several studies have been done on the determinants of Entrepreneurial Orientation (EO) and the performance of manufacturing firms (FP) in Kenya, though little is known about the moderated mediation effect in the relationship. Hence, this study proposed that networking capability (NC) and transformational leadership (TL) may further explain the relationship between EO and FP. Therefore, given the aforementioned argument, this study sought to examine the effect of EO, TL, and NC on performance among the manufacturing firms in Nairobi County, Kenya. The specific objectives were to: Analyse the effect of EO on FP; Ascertain the effect of NC on FP; Examine the effect of TL on FP; Determine the effect of EO on NC; Determine the mediating effect of NC on the relationship between EO and FP; Analyse the moderating effect of TL on the relationship between EO and NC, EO and FP, NC and FP; Examine the moderating effect of TL on the indirect effect of EO on manufacturing FP via NC. The study was guided by the Resource Based View theory and supported by the Dynamic capability & relational view theory. This study employed the positivism paradigm which assesses the cause that influences the outcome of study variables. The study adopted an explanatory research design with the aid of questionnaires to collect data. The study utilized primary data which was collected from a sample of 400 manufacturing firms using structured questionnaires which was derived from the target population that comprised of 1072 manufacturing firms in Nairobi County. The sample selection techniques used were stratified random sampling. Reliability testing using Cronbach’s Alpha testing was used to test the appropriateness of the questionnaire in the study. Hierarchical Regression was used to test the study hypotheses. Results for the direct effects were as follows: EO had a significant direct effect on EP with β = .85, p <.001 with R 2 .71, and ΔR 2 .69, F (3,396) = 321.77, p <.001; EO and NC on FP equally had a significant direct effect with β = .56, p <.001 and β = .50, p <.001 with R 2 .87 and ΔR 2 .18, respectively with a statistically significant F (4,395) = 767.07, p <.001. NC and TL on FP showed significant effects with β = .31, p <.001and β = .38, p <.001 respectively, with R 2 .96 and ΔR 2 .08, with a statistically significant F (5,394) = 1929.08, p <.001. To test for mediation and moderated mediation, the study utilized Process Macro Version 4.0 model 4 and model 59 respectively. The study findings reported mediation effect of NC as positive and significant indicating M3 = (a 1 × b 1 ) =.56 × .50 = .28, SE = .05, 95% CI = [.17, .37], which was significant with the confidence interval (CI) not straddling a zero. Furthermore, results showed that TL had a moderating effect on the relationship between EO and NC, EO and EP, NC and EP with the interaction results found to be significant with β = -.13, p <.001; β = .03, p = .005; β = -.02, p = .006 respectively. Lastly, moderated mediation was evident as follows; (a 1 +d W) (b 1 +f W) = (.56 + .03) * (.50 + [-.02]) = .28. Conclusively, networking capability and transformational leadership significantly affect the relationship between Entrepreneurial orientation and Firm performance. The study recommends that manufacturing firms should instill the resource of entrepreneurial orientation through a blend of networking capability and transformational leadership so as to strategically enrich firm performance. Additionally, it calls for the extension of this research on the used theories on this topic by using other methods like longitudinal and other approaches in variety of sectors with a global view.