Effect of Product Innovations on Performance of small and medium manufacturing enterprises in Nairobi County, Kenya

Abstract

To effectively contribute to economic development, the Small and Medium Enterprises (SMEs) need to establish and maintain their competitiveness. The purpose of this study is to establish the effect of product innovations on performance of small and medium manufacturing enterprises in Nairobi county, Kenya. The study was anchored in the Resource Based theory and Diffusion Innovation theory. The study used positivism research philosophy and explanatory research design. A representative sample of 254 managers or owner managers was selected from manufacturing SMEs registered under Kenya Association of Manufacturers using stratified random sampling. Structured questionnaire was used to collect the data. The study collected both qualitative and quantitative data. The questionnaire was pre-tested to ensure its validity and reliability. The data collected was tested for the assumptions of various analytical models upon which the most appropriate was selected. Descriptive statistics and inferential statistics were used in analyzing the data. Linear regressions were used to establish the effect of independent variable on dependent variable. A linear regression model was used to explore the relationship between product innovations and firm performance. From the model, the product innovations account for 26.3% (R2=.263) variation in firm performance. The study findings depicted that there was a positive significant relationship between product innovations and firm performance. The product innovations had a significant effect on firm performance. The study concluded that product innovations have a significant effect on performance of small and medium manufacturing enterprises. For every adoption of product innovation, there was a corresponding increase in performance of small and medium manufacturing enterprises in Nairobi County. The management of small-medium manufacturing enterprises should encourage product innovation within the industry. It should exercise due diligence in its mandate to protect consumers, but at the same time ensure that its policies do not stifle the growth and creativity.