Institutions and Enterprise Growth in Kenya: the Case of Firm Level Institutions Among Wood Furniture Producers in Kakamega Town

Abstract

Since 1986, the Kenyan government has put special emphasis on the promotion of Micro and Small Enterprise, (MSEs), particularly in the medium sized urban centres or towns. These are incidentally the areas that are suffering some of the highest rates of unemployment and human poverty. MSEs play an important role in poverty alleviation through development of employment and income generation in the non-farm sector. This paper examines the role played by firm level institutions in the growth and development of MSEs in Kakamega, Kenya. Areas of focus include distinguishing of firm level institutions as well as the constraints to establishing firm level institutions. Establishing and strengthening firm level institutional dynamics such as management styles, strategic focus and legal framework is one way to promote the growth of MSEs. The significance of education, gender and age in determination of firm level institutions were tested using the X2 Test at 0.05 level of significance. The insight into the determining factors of firm level institutions and the factors limiting the growth of and establishment of firm level business systems were analyzed. The research found that wood furniture SMMEs in Kakamega exist with inadequately developed firm level institutions. Interviews revealed that businesses with fairly developed firm level business systems tend to do better than those with inadequate or no business systems. Constraints to firm level institutions included poor educational backgrounds of entrepreneurs, lack of inter-firm linkages including low-level participation in business and welfare associations. There is limited application of new product design and development technologies. There is also lack of incentives to promote business linkages from the government and nongovernmental organizations (NGOs). This paper makes several recommendations to address these constraints including focusing on increasing the amount of support services by the Government, NGOs, CBOs, K.I.E as well as providing continuing training, skills development and access to new technologies to micro and small, medium scale wood furniture producers.