Factors influencing micro and small enterprise’s decision to innovate in Kenya

Abstract

An enterprise's propensity to innovate has been recognised to have an important bearing on its performance. In Kenya empirical work on micro and small enterprises (MSEs) propensity to innovate is still nascent in spite of the pivotal role played by these enterprises in the economy. The current paper used a Probit econometric model to analyse factors that influence MSE's decision to innovate or not. Results from the analysis show that the average number of years of education for a production worker, physical capital intensity, age of an MSE, access to finance and size of an MSE are important factors influencing MSEs innovation decisions. Higher foreign ownership and manager's experience were found to act as hindrances towards MSEs' decision to innovate. Based on the study findings it is clear that human capital skills and an MSE's resource endowment positively influences MSEs innovativeness.From a theoretical perspective, there is need for skills segmentation to isolate human capital skills that are most relevant for stimulating MSEs innovative activities. Firm level and policy level strategies are also needed to improve the technical skills of the average MSEs' production workers across the country. Subsidisation of physical capital and financial services for MSEs should also be used to promote these enterprises innovativeness.

What Determines Innovativeness of Micro and Small Enterprises (MSEs) in Ethiopia? Evidence from Debre Berhan Town, Ethiopia

“…This may be….. This result is consistent with the findings of the studies of Szczepanska-Woszczyna (2014); Talegeta (2014), Zajkowska(2015) and Njiraini et al(2018) Business location is positively and significantly affecting innovative practice of MSEs the 1% level of significance as it can be noted in the table 4.5 above. The estimated odd ratio of MSEs which were established near to the supplier/customer was 0.126..This implies that the probability of MSEs which were located near to their suppliers/customers is 0.011 times more likely be innovative controlling for the other covariates in the model.…”

“…The estimated odd ratio of MSEs which were engaged in research was 0.861.This implies that the probability of MSEs which were engaged in research is 0.0861 times more likely be innovative controlling for the other covariates in the model. This result is in line with Szczepanska-Woszczyna (2014); Talegeta (2014) and Zajkowska(2015) and Njiraini et al(2018).…”

“…Access to finance is one of the determining factor of firm's innovativeness(Szczepanska-Woszczyna (2014); Talegeta (2014), Njiraini et al(2018) and Zajkowska(2015). In addition to this, among the human capital variables vocational training is found to have a strong effect on the innovation activity (Szczepanska-Woszczyna, 2014 andAbderrezzak et al, 2016).…”

The effect of top managers’ human capital on SME productivity: the mediating role of innovation

“…They found that all the indicators of human capital in the mining industry were important in determining the outcome of innovations in the industry. However, contrary to most studies, Njiraini et al. (2018) , using data from the World Bank Enterprise Survey (ES) and the Innovation Follow-up Survey (2013), found that manager's experience acted as a hindrance towards micro, small and medium-sized enterprise (MSME)s’ decision to innovate in Kenya.…”

“…Existing literature reveal three types of relations among human capital, innovation and organisational performance. 1) the positive relation between top managers' human capital and innovation ( Azeem and Baker, 2020 ; Jegede et al., 2016 ; Njiraini et al., 2018 ; Vixathep and Phonvisay, 2019 ), 2) the positive relation between innovation and firm productivity ( Cin et al., 2017 ; Exposito and Sanchis-Llopis, 2018 ; Nyeadi et al., 2018 ; Vixathep and Phonvisay, 2019 ) and 3) the positive relation between human capital and firm productivity ( Aggrey et al., 2010 ; Blundell et al., 1999 ; Okumu and Mawejje, 2019 ; Onkelinx et al., 2016 ; Rukumnuaykit and Pholphirul, 2015 ; Tan et al., 2016 ). To the best of the author's knowledge, however, the three relations have not been examined simultaneously, especially in an African (developing country) context.…”