Growth Strategies and Performance of Micro, Small and Medium Enterprises in Nairobi City County, Kenya: A Case of Somo

Abstract

Micro, Small, and Medium Enterprises (MSMEs) play a pivotal role in Kenya’s economy, contributing approximately 33.8% of the GDP and providing employment to around 14.9 million people across various sectors. Despite their significant contribution, many MSMEs struggle with sustainability challenges stemming from limited financial resources, intense competition, and irregular growth patterns. This study sought to investigate the effect of growth strategies on the performance of MSMEs in Nairobi, Kenya, with a particular focus on enterprises supported by SOMO. The specific objectives were to identify the growth strategies adopted by MSMEs within SOMO, to assess the firm performance of these enterprises, and to examine the influence of growth strategies on their overall performance. The study was guided by the Ansoff Growth Model, the Resource-Based View Theory, and Strategic Group Theory. Data was collected using structured questionnaires administered to 104 respondents, of which 96 were returned, yielding a 92% response rate. Both descriptive and inferential statistics were used, including correlation and regression analysis. Reliability and validity tests confirmed that the research instruments were robust, with Cronbach’s Alpha exceeding 0.7 across all constructs. The findings indicate that growth strategies positively influence MSME performance in SOMO. The correlation results indicated that product development and market development strategies had weak to modest positive relationships with performance. However, product diversification (r = 0.534, p < 0.01) and market penetration (r = 0.452, p < 0.01) showed strong and significant positive correlations with MSME performance. This suggests that enterprises engaging in diverse product offerings and effective market penetration strategies tend to achieve higher performance levels. The study concluded that effective growth strategies drive profitability, customer retention, competitive advantage, and sustainability, but their success is highly dependent on organizational culture. It recommends that MSMEs prioritize innovation, diversification, and market expansion while fostering a strong organizational culture. Policymakers should create enabling environments that support innovation and adoption of diverse growth strategies through training, financing, and capacity-building programs. The Kenya Revenue Authority (KRA) should simplify tax processes and provide incentives, such as tax breaks for new product development and market expansion, to encourage formalization and enhance MSME success. Researchers are encouraged to extend the discourse by employing longitudinal studies to examine the dynamic effects of product development, market expansion, diversification, and penetration strategies. Investors should deliberately fund enterprises that demonstrate well-structured growth strategies, while MSMEs should focus on sustainable practices, particularly aligning product development with eco-friendly and socially responsible initiatives that resonate with evolving consumer trends.