Management practices of small and medium enterprises and the challenges in socio-economic sphere: a case study of SMEs in Nairobi city
The purpose of this study was to determine the challenges that prevent the growth and development of small and medium enterprises specifically, the socio-economic factors hindering good management practices in the Small and Medium Enterprises (SMEs) as a component of the economy. The sector operates in an unsustainable fashion which prompted the researcher to interrogate the main reasons why most enterprises do not grow or survive beyond their inception stages. As much as the SMEs benefit the country economically and socially through creation of employment, entrepreneurs remain over burdened with challenges of ensuring that their businesses stay afloat. The main objectives of this study are; to find out the barriers experienced by SMEs in their effort to implement good management practices in business. Secondly, to examine the impact of owner/ managers’ managerial activities on the success and growth of SME and thirdly, to determine the effect of government policies on development of SMEs in Kenya. Throughout the literature review, this paper sought to contend with the copious documents that discuss the importance of the SME sector in developing economies while on the same vein critically outlining the shortcomings that hinder growth, development and sustainability of this sub sector. The theoretical framework in the paper focused on five theories which inform the research on how the sector exists and functions. They include the Small Enterprise Theory, the Small-and-Flexible Model, the Theory of Constraints, Capital Accumulation Theory and lastly the Functionalist Theory. In order to answer the research questions in this study, we implored a multi-methodological approach prompted by the uniqueness and very economic importance of SMEs in Kenya. The sample size used in this project was 15 enterprise owners as our key informants and 70 employees engaged in enterprises located within the CBD of Nairobi. The method used was simple structured observation, personal interviews and use of questionnaires and key informant guide as tools for data collection. The researcher also analyzed available data on SME to enrich and solidify the findings. Key findings in this study were that Entrepreneurs are faced with barriers which prevent them from effectively managing the SMEs towards growth and development. These barriers include lack of access to financial institutions for funding, incompetent workforce, limited managerial skills, high operating cost, stiff and unfair competition, unfavorable government policies especially concerning business legislation and taxation. The study recommends the following; that government policies should be geared towards facilitating the growth and development of SMEs by providing tax incentives and breaks especially for start-ups and devote state departments for promotion of the sector in the country. Secondly, large enterprises should endeavor to create business linkages with SMEs for purposes of reducing cost of doing business and ease flow of commodities to the markets. Similarly, Entrepreneurs should strive to professionalize their business especially when recruiting labor so as to optimally operate with efficiency. In addition, business owners should periodically develop themselves and staff members through business training courses that sharpen their knowledge on tackling emerging customer trends. Finally, the study recommends a more prudent and transparent way of financial management and proper record keeping for business appraisal.