Social Capital and Performance of Manufacturing MSMEs in Kenya

Abstract

Sustained growth and development of economies is mainly attributed to the manufacturing sector, and is often the differentiator between developed and developing countries. In Kenya, the sector has played a crucial role, with a contribution of 10% to gross domestic product for the duration from 2008 to 2014. Statistics show that in 2017, 2018 and 2019, the contribution deteriorated to 8.4%, 7.7% and 7.54% respectively, which implies possible deindustrialization. The government’s goal of achieving a robust manufacturing sector through Big Four Agenda may not be fruitful if this trend continues. Informed by these trends, the study sought to establish the connection between social capital and firm performance among the micro, small and medium manufacturing enterprises. Keys among the existing theories applied in the study are social capital theory and behavioral theory of the firm. The sample size was 384 licensed manufacturing businesses operating within Nairobi City County, derived from a population of 61,931. The study applied descriptive and explanatory research designs. Primary data was collected, and analysis was done using descriptive and inferential statistics. The outcomes showed that relational and cognitive social capital had a positive and significant effect on performance of micro, small and medium manufacturing ventures, whereas structural social capital was noted to have a significant effect. This study recommends that the firms’ management taps into additional and diverse networks to drive innovation, and subsequently create a competitive edge for their firms.