The document summarizes a research paper that analyzes barriers to the growth of small and medium-sized enterprises in Kenya. It discusses the concept of a "missing middle" in small business development and explores how some indigenous Kenyan companies have successfully grown into the medium size range despite challenges. The research involved case studies of four medium companies. It finds that business owners manage the hostile political environment through strategies like choosing markets carefully, maintaining low visibility, and developing a family culture. This suggests the issue is better described as an "invisible middle" rather than a missing one.

1. 25th ISBA National Small Firms Conference: Competing Perspectives of Small Business and
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THE ‘INVISIBLE MIDDLE’: A CRITICAL REVIEW OF SMALL BUSINESS
DEVELOPMENT AND THE POLITICAL-INSTITUTIONAL ENVIRONMENT IN
KENYA
Judith Esuha and Denise Fletcher
Nottingham Business School
The Nottingham Trent University
Burton Street
Nottingham, NG1 4BU
Telephone + 44 (0)115 848 6028
Fax: +44(0) 115 848 6512
E-mail: Judykadenge@yahoo.com and Denise.Fletcher@ntu.ac.uk
Paper presented at the
25th ISBA National Small Firms Conference:
Competing Perspectives of Small Business and Entrepreneurship
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Abstract
Research in the less developed countries has clearly shown that small enterprises both in the
formal and informal sectors have failed to evolve into medium-sized firms (Ferrand, 1999;
GEMINI, 1991). Studies conducted in Kenya (Baseline, 1999, McCormick, 1988; Marris and
Somerset, 1971) suggest inaccessibility to markets, capital, and management skills as some of
the major constraints to the growth of small-scale enterprises in Kenya. The inability of small-
size enterprises to grow and graduate to medium- size has created a sectoral vacuum
commonly referred to as the “missing middle”. The existence of this phenomenon across
Africa underscores the need for further research in this area. Since small enterprises dominate
the industrial scene in Africa, a better understanding of this sector can help in facilitating
Africa’s industrialisation. There is also need for a better understanding of the adaptive
strategies and transformation process of the successful medium-sized enterprises. This paper
analyses four medium sized indigenous businesses in Kenya and highlights that the notion of
the ‘missing middle’ in terms of small business development and growth is a misnomer.
Indeed, business owners ‘manage’ the hostile political and institutional environment in order
to successfully grow their businesses but they do this by adopting a mix of four
approaches/strategies. These are ‘choosing markets carefully’, ‘keeping clean’, developing a
‘family culture’ and maintaining ‘low visibility’. This leads to the conclusion that the issue
for small business development and growth in Kenya be more appropriately understood as the
‘invisible middle’.
Key words: Political-institutional environment, missing middle small and medium- size
enterprises, Kenya;
Introduction: Business Development in Kenya
One of the issues uppermost in the minds of Kenyans is whether the long-awaited economic
recovery will be realised and whether the country will meet its target to industrialise by the
year 2020. Statistics from the Central Bank of Kenya indicated that the country’s economic
growth has been low, recording only 1.1 per cent GDP growth between October 2001 and
February, 2002. The decline in economic growth coupled with a population of growth of over
two percent has aggravated the poverty situation in the country. Besides, unemployment,
dilapidated infrastructure, corruption, insecurity, declining donor resources and the high cost
of production have exacerbated the country’s economic problems. Today over fifty per cent
of Kenya’s population live below the poverty while a large number of Kenyan professionals
are seeking better opportunities in other countries. Although, the Kenyan Government has
tried to put in place measures aimed at increasing productivity and speeding up the
industrialisation process, indigenous capital appears to be underdeveloped.
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This paper seeks to contribute to the understanding the ‘indigenous missing middle’
phenomenon by exploring the effect of the political environment on four indigenous medium-
sized companies in Kenya who have successfully achieved growth. In the first section, the
debate about the ‘missing middle’ is elaborated. The second section of the paper discusses the
role of the political-institutional environment for business growth and development in Kenya.
The third section presents the research design. In the fourth section the field work based on
four medium sized companies is presented and analysed. The analysis highlights how
business owners successfully ‘manage’ the hostile political and institutional environment by
adopting a mix of four approaches/strategies. These are ‘choosing markets carefully’,
‘keeping clean’, developing a ‘family culture’ and maintaining ‘low visibility. This leads to
the conclusion in the fifth section that the issue for small business development and growth in
Kenya be more appropriately understood as the ‘invisible middle’.
1. Barriers to growth of African -owned Enterprises: The ‘Missing Middle’ Debate
Although the small business sector in Kenya has been growing rapidly over the past few
decades, it is widely commented on that individual enterprises have not experienced much
growth. The number of these organisations stands at over 1.3 million while private formal
medium and large firms in Kenya are estimated to be 42,000 (Baseline, 1999). Despite the
fact that Kenya has been independent since 1964, it is frequently cited that the indigenous
formal business sector remains significantly underdeveloped. This underdevelopment is often
been attributed to small- scale enterprises’ inability to grow and graduate to medium –size
enterprises and strong barriers to direct entry in to the medium-scale private formal sector (the
middle) – referred to as the ‘missing middle’. Researchers have come up with several
explanations to the seemingly persistent existence of the missing middle in most African
countries. In Kenya, for instance, the absence of the indigenous middle scale enterprises has
been strongly linked to an essentially dysfunctional political economy. For example,
Hiambara (1994: 160) argues that corruption and patrimonialism are “the leading obstacles to
further wealth accumulation in the post-colonial Kenyan state”. A typical but sombre political
problem in many countries in Africa has been the nexus between centralized political power
and wealth. Thus, the weak yet autocratic state is often thought to undermine the development
of private property and to convert key economic roles into political appointments, thereby
distorting development and channelling the political priority into a quest for control of state
patronage. This political autocracy has entrenched patronage politics rather than addressing
these countries’ developmental needs. For instance, in many African countries, an indigenous
firm can only grow up to a certain ceiling before top government officials or senior politicians
demand a share in the enterprise. In essence, many of these countries the politicians are
terrified of autonomous indigenous economic power centres. The fear is that those with
economic power might use their economic power to oust them from office. Ironically, the
large foreign and resident alien -owned enterprises are often exempted from this containment
as they are perceived as “harmless”. Thus, they either lack political ambition or can be easily
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expelled from the country if they behaved contrary to this expectation. Accordingly, those
with material ambition do not go directly into business but instead seek to control the state in
order to gain from the privileges associated with influential government/ political offices.
Another area of concern is the fragmentation of the economic class into an ethnically
based identity. Cowen and MacWilliam (1996: 136-137), contend that both the Kenyatta1 and
Moi2 regimes created conditions which encouraged wealth accumulation on the basis of
ethnicity. Such conditions would seem inimical to the development indigenous middle-scale
entrepreneurs who depend critically on the effective performance of the state’s enabling role
in the economy. An illustration of this line of reasoning can be found in the argument
sometimes made, that the emergent Kikuyu business class was stifled3 more or less
intentionally as a result of the consolidation of the Moi regime. Accordingly, Kalenjin
political power could only be maintained by establishing corresponding economic strength
both absolutely and in relative terms to the Kikuyu supremacy it sought to displace. Another
dimension of the complexity of Kenya’s ethnic- based indigenous capital is the presence of a
dominant Asian formal sector. Hiambara (1993, 1994) points out that through much of the
Kenyan debate the question of indigenous Asian capital has been largely ignored. Similarly,
most studies on Kenyan capital have often left out Kenyans of European origin despite the
fact that they play a vital role in the country’s foreign trade. However, since the focus of this
paper is on barriers to growth of indigenous capital, the minority capital dimension will not be
explored further.
Investigations into the constraints to micro-enterprises’ growth and graduation into the
middle-scale have revealed a number of constraints. These include access to capital (Baseline,
1999; Ferrand, 1999: 84, Marsden, 1990: 18); the cost of associated with formalisation
(McCormick, 1999); risks associated with capital accumulation within a single enterprise
(McCormick, 1988, 1999) poor technology (Coughlin 1988). Others include managerial
bottlenecks (Marsden, 1990; Marris and Somerset, 1971, McCormick, 1999: 153) weak
linkages between different sectors (Ferrand, 1999:88; Coughlin, 1991; weak institutional
environment (McCormick, 1999: 1536) and lack of competitiveness, (Marsden1990: 17).
Despite what appears to be pro-indigenous policies by various African governments,
the development of an indigenous African private sector - especially in the manufacturing
sector- seems to be lower than expected. Thus, in addition to the general problems
encountered by both indigenous and non-indigenous business owners- inaccessibility to
capital, markets, good infra structure and security-the indigenous business owners face certain
unique problems. Some of these problems are linked to their historical path, social structures
and the political environment. In Kenya, the political-institutional environment is often cited
as a major impediment to indigenous capital formation.
In summary, the literature on Kenya contains no complete convincing explanation for
the lack of the middle-scale enterprises. In this regard two major difficulties can be
identified: First, the apparent lack of a theoretical framework which is able to draw together
the various strands of evidence into a cohesive explanation. The second problem lies in the
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scantiness of in-depth empirical studies into the middle-scale enterprises in Kenya. This paper
seeks to contribute to this understanding by exploring the effect of the political environment
on the emergence and growth of four medium-sized companies in Kenya.
2. Socio- political barriers to business development in Kenya
A survey of sixty third and fourth students at an international university in Kenya in February
2002 revealed the following as the major socio- political factors hindering economic/ business
development in both Kenya and the other African countries (see table below). Each student
was asked to identify and explain at least five major socio- political barriers.
Table: Socio- political barriers to business growth in Africa (Kenya)
Socio- problems identified by the students Response (%)4
1. Political risk, civil unrest and insecurity 73
2.Corruption and weak legal frame work 63
3. Dependency syndrome 52
4.Poor leadership, governance and general mismanagement 38
5. Illiteracy and lack of technical skills (education system) 33
6. Poor policies and lack of policy implementation 23
7. Diseases and ‘epidemics’ 22
8. Negative impact of the colonial rule 17
9. Rapid population increase 17
10. Cultural beliefs, practices, values and taboos 12
11. Brain drain 12
12. Ethnic/ tribal diversity and division 8
Source: Esuha, J. K. 2002- Unpublished.
According to this survey, political correctness and connection is crucial to a
businessman’s success. Business owners with political links enjoy privileges that are not
easily available to an ordinary citizen. For instance, some of the respondents cited a situation
where ‘politically- connected businessmen are able to acquire huge loans from banks even
without collateral securities. Corruption was cited as the second major barrier. The
respondents felt that these were a product of the weak legal framework, which could not
assure people of fair judgement and justice. Kenya was ranked the fourth most corrupt
country by transparency international last year. A further survey by the same organisation
this year in Kenya ranked three government departments as the most corrupt5. The judiciary
was ranked sixth among the most bribery-prone institutions. The survey concludes that, if
corruption is eliminated, the overall salaries of Kenyans would increase by thirty percent.
Corruption in Kenya had raised the cost of living by fifteen percent on households and up to
1.4 percent of turnover for companies. Corruption also was cited as the biggest barrier to
business development at a regional conference in Kenya. During the conference, East Africa's
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most respected Chief Executive Officer (Manu Chandria) said “ it used to be Toa Kitu Kidogo
(give me something small), then it became Toa Kitu Kikubwa (give me something big) but
today is Toa Kila Kitu (give me everything).
Also studies by Marris and Somerset (1971, 1988) emphasised the sense of a gap
between the traditional society of the indigenous entrepreneur and that of the modern
capitalist. They point to such features as the perceived need to escape from the tradition
obligations of kinship. Other social barriers have often been cited but lack empirical backing,
such as, the burden of kinship obligations and the high value placed on the ownership of land
or stock thus’ potentially diverting resources from expanding a capitalist enterprise.
In examining how some indigenous business owners have succeed in what is
perceived as a hostile environment to indigenous formal businesses, we concur with Kilby’s
observations: Kilby (1988) identifies four groups of activities, which an entrepreneur must
undertake within a small or middle-sized enterprise. These include managing exchange
relationships, political administration, management control and technology. However, in the
case of Kenya, Kilby concludes that the major source of difficulties in the enterprise was in
the area of management control and technology. He argues that these weaknesses could be
traced to social structure such as an absence of transmutable antecedent roles and inhibitory
social structures. In his conclusion, he blames the failure of the small-size enterprises on the
lack of continuity between social structure associated with traditional means of production
and those associated with capitalistic enterprises. In this paper however, managing the
political-institutional environment is emphasised.
4. Research Design
This study adopted an interpretative approach (Burr, 1995) in order to examine the meanings
and interpretations of the owners of the four focus enterprises. The study adopted an
embedded multiple-case design (Yin, 1994) focusing upon the four business units as the
primary units of analysis. As the study explored the extent to which the political environment
impedes the development of the indigenous medium-size sector, the field work focussed on
indigenous successful medium-size enterprises that started small but experienced rapid
growth over the post independence period (1963-2002). In order to explore comparative
patterns, the four businesses were selected from different trading sectors. In each of the four
selected enterprises three areas were explored: the entrepreneurs’ profiles and success
strategies; critical incidents of business success and their perception of the political
environment as an impediment to the growth of business. The case study enterprises were
selected from an initial sample of fifty successful indigenous enterprises that were used during
the pilot study. Selection of the four enterprises was based on accessibility and credibility of
the information given. The case study information was collected through in-depth interviews.
These interviews were supplemented and compared with other materials such as documentary
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evidence and real setting observation. However, access was one of the major problems
encountered in the data collection process.
As this study seeks to create an understanding as to how some indigenous businesses have
been successfully able to manage the barriers to the emergence of an indigenous formal
middle, the main research questions are as follows;
1. Do you think the current political environment in Kenya is conducive to rapid
business growth? Please explain your answer.
2. Please list (starting with the most pressing barrier) some of the socio- political barriers
to business growth in Kenya
3. Show how you successfully managed to overcome each of these barriers and managed
to grow?
4. Do you think patron client relationships exist between politicians and business interest
groups in Kenya? If yes, do think this is partly to blame for the underdevelopment of
the indigenous- formal sector? Please explain.
Background information of the four successful indigenous owner- managers
The four case- study enterprises varied in terms of annual turnover, number of employees,
major products and management style, however, they shared one common thing; they started
very small but had managed to overcome the barriers to indigenous businesses and had
grown. This part of the paper examines and analyses the factors that led to the growth of
these four enterprises in an environment that is perceived to be hostile to indigenous
businesses. In particular we examine what the owner-managers say about the Kenyan political
environment and the survival strategies. Below are statements about how these entrepreneurs
started their businesses (also refer to the appendix for more background information).
Owner- manager A
“I started business in high school. I used to buy scones at a whole sale price and resell them to
the other boys at a retail price, making a 50% profit. Later on I began lending other students
money at an interest. Real business began when, I was in the university; I used to buy options
from people intending to sell their property and would resell the property at a higher price
than what the owner wanted. When I graduated from university I was employed in the
Ministry of Trade and Industry. After working in this place for sometime, I soon realised that
I would not ascend to the top as quickly as I had desired. I opted to take up post-graduate
studies, in order to accelerate my promotion. I went back to the University of Nairobi, but
later transferred to IMEDE (now IMD) Laussane, Switzerland, and completed my MBA in
1978.
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When I came back home, I was promoted to the position of Assistant Director of Industries.
However, after obtaining the MBA, I realised I wanted to do big things, I looked at Kenya and
thought capital would be an important commodity in the market. At the age of 33 (1980), I
took early retirement from civil service and launched my own bank. I soon realised that the
market was still sceptical about Africans getting involved in banking! Even the local people
were very sceptical! In 1986, my banking career came to an abrupt end, due to the change in
capital flow in the country. The banking crisis led to a takeover and consolidation of most of
the small banks by the government. By the time of this takeover, my bank had grown from 1
to over 16 branches countrywide. To me this was the price of pioneering, the price I paid to
become a more seasoned entrepreneur. After the takeover of my bank, I moved to stock
broking business by buying off Dye and Blair Limited from Kenya Commercial Bank. At this
moment, this company was making loses, but since my long term dream was to establish a
financial services supermarket, I saw that in Dye & Blair Limited. I have been with this
company for the last 19 years. Though, I do not consider myself a successful entrepreneur,
other people think I have succeeded. Today I employ over 500 employees, with an annual
turnover of over one billion Kenyan shillings (1 US dollar - KSh. 78).
Owner-manager B
“I started by selling insurance policies on the street, then I was hired by an international
Insurance company to perform special duties- agency coordination. Later on, I was asked to
train and develop agents for the company. And then, I was asked to develop an employee
benefits division. I worked with the insurance company for five years in different positions. In
1976, I felt, what I was earning was not enough to sustain my family. I had lived in poverty as
a child and I desired to give my family a better life. I also knew that my father was poor, not
because he was lazy. My father worked very hard, and despite his hard work as a forest
worker, we continued to live in poverty. I knew I could give my children a better future if I
worked harder. My biggest role models were the Kenyan athletes who had come from very
humble homes to become world beaters: I was convinced that was possible in other fields too-
not just running. This gave me courage to confront the World. I quit the company and started
my own insurance business. My turn annually turnover is over 1.4 billion Kenyan shillings”.
Owner- manager C
“I was in the banking sector, previously with an international bank for 32 years. Then when I
retired, I went on to start a bank in partnership with three of my friends as shareholders”
Owner-manager D
“I first worked as an editor/ writer with a leading Kenyan magazine. While there I was forced
by circumstances to automate my operations and in the process discovered there was little
technology in Kenya to meet my needs. I tried importing this technology from abroad but it
was very expensive. In the process I taught myself DTP programming and then data mining/
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communication. I was later employed by PriceWaterhouse to help them do what I had done
for the magazine company and after working with them for five years. I set out to start my
own business.”
Findings: About the socio- political environment
The owner- managers were asked a number of questions that were meant to address the major
problem areas in running an indigenous business in Kenya. Due to the sensitivity of the
research topic, some questions were included so as moderate the study and make it more
acceptable to the respondents. However the main focus of this study was to explore the effect
of the political environment on the indigenous businesses.
Since political issues are often considered sensitive, the research questions included a social
dimension which though not directly related to this particular study, was intended to make the
questions more neutral and therefore acceptable to the respondents. In table below, therefore
the responses in italics are more related to the political environment, while the others are not.
Figure: A summary of the findings
Company/ Company A Company B Company C Company D
Questions
1. Do you think the No, in a system No, the answer No, there are too No, there is a lot of
current political where appointment certainly lies in many constraints; uncertainty in this
environment in to key positions is the government’s in particular country. For
Kenya is conducive not based on merit- reports on the dispute resolution example, one can
for rapid business other things such country’s is very slow. never win a
growth? Please ethnicity, sexism, economic growth. Corruption is also government bid on
explain your answer. nepotism etc. work. Kenya’s rampant. This merit. In any case,
Such a system economic growth slows down many they do not bid,
cannot boost has declined over other company they use corrupt
business growth! there last few operations. means to determine
years. This is the winner well
Besides resources because the The government before the actual
are not utilised government has does not assist bidding.
well, for instance not put in place local/ smaller
allocation of good policies investors in any The judiciary
natural resources way- we lack system too is
corrupt and one
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are not based on incentives. can not win even a
the highest return. very genuine case. I
The government lost 7.4 million
The government has compromised Kenyan Shillings to
practices the in a number of a partner who
politics of areas. For defrauded me but
exclusion, if you do example, some of up to now I have
not support them; the cabinet never found justice.
they exclude you ministers are I do not trust any
from the national actively involved in lawyer and will
resources. As a dumping cheap never ask for their
poor country we transit goods in the services ever, I will
need to practice the market, killing study law and
politics of local companies, represents myself in
inclusion- we yet he is silent court if need be!
should allocate our about this issue. This is a bandit
resources based on country!
the highest returns.
Our politicians
have no sense of
legacy, they do not
care about the
country’s future
African families
are larger hence
hard to save for
investment
2. Please list (starting Corruption, I encounter very Corruption, high Corruption, legal
the most pressing dishonesty few such taxation, political framework, low
barrier) some of the indiscipline, lack of problems because scenario, poverty employee
socio- political self motivation, I have put in productivity
barriers to business place measures to
growth in Kenya counter them.
However, I
encounter some
difficulties when
dealing with
Indians and
Pakistanis- they
are so closely knit
and is very hard
to penetrate them.
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3. Show how you It is very difficult- I understand my I have remained I’m in a high- tech
successfully managed one has to put in industry very clean thus stifling industry and my
to overcome each of place extensive well. I have been the growth of my choice is a
these barriers and measures- because in this business company. It is deliberate one. This
managed to grow, one cannot afford for a very long hard to get industry is complex
to trust even some time and I and it would not be
anything moving
managing understand the attractive to
directors. This is market well. without getting corrupt people who
very expensive and involved in a want quick easy
consumes a lot of Over time I have corrupt deal, so if money. This keeps
the CEO’s time. put in place you choose them off and we are
control otherwise you happy because this
mechanism that have a price to is what has made
counter many of pay- slower us succeed in
the problems growth. business
business people
encounter in their Poverty is We also deal with
day to day another major few but large
business corporate clients
problem - it is
operations. For and therefore we
instance to stop very strenuous to do not advertise.
theft of company make it in a We prefer the low
property- I have country where profile because it
ensured that my most of the keeps us invisible
workers are people are poor. to the predictors. If
treated well. I There will always you advertise in
have given them be pressure on this country you
one of the best you to help or open up your
working bail out someone! company to all
environments one sorts of predators-
can find in this the politicians,
country. government
officials, beggars
I have also and many other
embraced malicious people.
technology and
use it to minimize We have a family-
fraud and other like organizational
such things. culture. We all
truly care for each
other. We work in
teams and we are
rewarded
according to
output.
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4. What traits do you This varies with the Ownership of the To lead by Visionary,
consider essential for size of your business idea you example and to flexibility,
business growth in company. Smaller have in mind. encourage staff to understand the
Kenya? Please organizations You should have work harder and industry you are in,
explain require long hours a passion for it remain loyal to the Entrepreneurial,
of hard work, and even be company. relevance and
finding a good prepared to die superior work
market niche, and for it. There culture
good control should be no
mechanisms. option called
failure. I embrace
But the large the word of the
businesses require James Baker,
political former US-
connection, mental Secretary of
flexibility, State, -
ruthlessness, Preparedness
controlling costs, prevents poor
access to good performance. But
credit and “low the underpin to
visibility”. the 4P’s is
discipline that is
consistent and
persistent; This
wholesomeness is
essential.
5. Do you think Yes, especially for Yes, most Kenyan Yes, business Yes, there are
patron- client the Kenyan Asian Asians have opportunities are bandits who will
relationships exist community. They enjoyed and passed on to ambush anyone
between politicians pay patrons to benefited from relatives of trying to succeed.
and the business secure contracts. political powerful
interest groups in patronage. politicians or on
Kenya? If yes, do However, P-C is But,success ethnic basis.
think this is partly to not a popular depends ones
blame for the strategy in our ownership of his
underdevelopment of country, because it business idea, this
the indigenous- is a very expensive success should be
formal sector? Please affair. The patrons sustainable.
explain? here are more of Political
predators and it is connections
better to keep away cannot help
from them without the
competence to
run the business.
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Analysis of the findings
There some empirical evidence that the political environment in Kenya is not conducive to the
emergence and growth of formal medium and large-size indigenous enterprises. However, as
depicted by the four cases above it is possible to run a successful business in Kenya. In this
part of this paper we examine some of the winning strategies that have been adopted by these
owner- managers. In particular, we will examine how these owner- managers have successfully
‘managed’ the political- institutional environment.
The main political barriers cited include:
! Political appointments to senior government positions: The major worry was that such
appointments, ultimately led to the mismanagement of public utilities that provide
essential services such as electricity, water, and telephone services. There are no
alternative providers since such services are under the government’s monopoly. This
monopoly is at times used as a weapon against non-conforming business owners.
! Politics of exclusion: The respondents also felt that the politicians were practicing a
system in which those who do not support them are completely excluded from national
resources, such as proper infra-structural facilities. This is meant to suppress anybody
who might want to use his wealth to gain power. Thus, any non- conformist is
intentionally stifled.
! Politically motivated allocation of the country’s resources. Thus, the respondents
observed that since the introduction of multi-party politics, politicians have often used
national resources as an enticement for attracting votes. Thus, national resources are
allocated, not on the basis of perceived return on the investment, but according to the
anticipated votes from the area.
! A weak and corrupt judiciary system: The respondents felt that the judiciary system is
corrupt weak, and lacks the power to work without political coercion. Thus genuine
contractual relations with clients are almost impossible and often business conflicts are
slow and in most cases justice is not guaranteed.
! Uncertainty emanating from the political environment. President Moi has announced he
will be retiring this year. However, there is no clear indication on whether his
succession will be peaceful, in view of an uncompleted constitution review.
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Indigenous Business Adaptation Strategies
When asked how they have managed to succeed amid the hostile political environment, the
owner-managers said they had devised a number of survival strategies. The following major
strategies emerged:
Figure: Successful Business Adaptation Strategies in Kenya
African Family- Careful selection
like organisational of markets
culture barriers to entry
Strategies for
managing the
socio-political
environment
Low visibility
Keep clean
African ‘Family-like’ Organizational Culture
This approach was evident in three of the cases the successful business. In these companies, the
business owner plays a paternal role and is directly involved general well- being of his
employees. He visits sick employees and pays for the medical needs, pays tuition fees to pursue
further education and educates the employees’ children. These business owners felt that
developing a family-like organisational culture was essential for the business’s success. Team
work was often stressed and close supervision de- emphasised. Instead the employees’
performance was accessed based on the end results or set targets. The family- like atmosphere
is evident to anyone visiting these companies. This strategy enhanced the quality of the
companies’ product/ service delivery giving them a competitive edge in the market.
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Entrepreneurship
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Choosing Markets Carefully
The respondents observed that industries that were high-technology in nature and complex
attracted very few corrupt people. The reason is that corrupt people seek for easy deals and
were reluctant to invest their money in ventures that have a long incubation period. Given the
unstable political scenario in Kenya, few politicians would want to invest in long term ventures.
To minimise risk it would seem attractive to them to go for easy entry and easy exit industries.
Moreover, it would be easier to conceal corrupt deals in such industries. Another method under
this strategy was to avoid markets where direct competition with foreign or alien resident
owned was imminent.
Keep clean
Another approach is the ‘keep clean and avoid problems strategy’, under this approach the
business owners strive to keep their operations as clean as possible. Both the company’s
physical facilities and operations are kept spotless. In doing such business owners are able to
seal loopholes that would otherwise be used by corrupt government officers against them. In
the long run this strategy improves the company’s efficiency, in that it is able to deliver
superior services/ products to its clients. Besides, since the company is perceived as a victim, it
is able to benefit from sympathetic customers.
Although this strategy helps to keep business owners away from the corrupt officers, it is said
to stifle growth. The argument here is that if you do not ‘grease’ your transactions they will
take longer to be processed. This is harmful to a company and can slow down its operations.
However, it keeps the company away from predators.
Low visibility
The idea here is that the more visible the company is to politicians and other government
officials, the more vulnerable it is. To reduce this vulnerability, indigenous business owners
prefer to keep their business invisible. A number of methods are adopted under this strategy
among them: dealing with few but large clients, not advertising in the mass media, entering an
industry that deals with intangible products, diversifying into unrelated areas of business, joint-
ventures with foreign companies or registering the company in another country.
Most of these strategies are not unique to successful businesses in Kenya; however in Kenya
they are not used competitive but survival tool. Under this approach, indigenous businesses
adopt a low profile so as to keep ‘predators’ away.
Although this approach has been used successful by a number of business owners, it has some
potential shortcomings. For instance, it is not suitable for a business that targets a large
consumer market. It may also make it difficult for purposes of tax revenue collection by the
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government. To some extend this approach explains why the indigenous middle in Kenya is
invisible.
Conclusion
In this paper the literature commenting on the role of the political-institutional environment
for indigenous business development in Kenya has been critical reviewed. Through
interpretive analysis of four medium sized indigenous businesses in Kenya, it is concluded
that the generalised notion of the ‘missing middle’ is something of a misnomer when
evaluating small business growth. Indeed, it is found that business owners ‘manage’ the
hostile political and institutional environment in order to successfully grow their businesses
but they do this by adopting a mix of four approaches/strategies. The key strategy is one of
maintaining ‘low visibility’ as a protective measure. The other successful strategies include
‘choosing markets carefully’, ‘keeping clean’ and developing a ‘family organisational culture’
This leads to the conclusion that the issue for small business development and growth in
Kenya be more appropriately understood as the ‘invisible middle’. In terms of policy
implications, perhaps a more enabling political-institutional environment might just be what
Kenya needs to achieve its industrialization target.
Appendix
Company/ Questions Company A Company B Company C Company D
Age 53 53 62 43
Marital status Married Married Married Married
Educational B.com, MBA, LLB B.Sc., MBA. LLB B.com Information
qualifications Technology
Major products Financial services Financial services Banking services Programming
and stock broking and insurance services and training
Duration in the 10 (19) years 26 years 10 years 10 years
business
Number of 1 3 8 1
employees at the
beginning.
50 Permanent
Number of current Over 500 55 38 (previously
51) 50 Casual
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Notes
1
Kenya’s first President (1964- 1978). The late President was from the Kikuyu community
2
Kenya’s current President (1978 – 2002). He is a Kalenjin
3
According to grapevine in Kenya
4
Each student was required to list five socio-political responses starting with what they perceived as the most
pressing one. The percentage of response was calculated bases on the number of students out of the total of sixty
who listed it as a problem. E.g. 44 out of 60 students cited political risk, unrest and insecurity as a problem.
5
Sunday Nation, 'Revealed: Kenya list of Corruption' January, 19, 2002, no 12908
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The ‘Invisible Middle’: A Critical Review of Small Business Development and the Political-Institutional Environment in
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