Abstract
Firms in the East African region have been faced with highly uncertain environments, which has fueled environmental dynamism, changes in industry structures and enhanced competitive dynamics. In order to understand the opportunities and challenges within this environment, firms need to develop scanning capabilities to cope with this uncertainty. However, the effect of environmental characteristics on the development of firm capabilities in developing countries is unclear. In this paper, we analyze how different environmental characteristics drive or hamper the development of firm capabilities. We focus specifically on environmental scanning capabilities that allow firms to respond swiftly to changing needs by monitoring its environment. We include four environmental characteristics: environmental dynamism, heterogeneity, formal and informal competition. We investigate this in Kenya, Tanzania and Uganda in a sample of 473 manufacturing firms. Our main results indicate that environmental dynamism and informal competition have a paralyzing effect on the development of scanning capabilities of firms in East Africa. Thus, environmental characteristics can indeed hamper the development of firm capabilities.
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