Developing SMEs through large firm-small firm linkages

Abstract

This thesis aims to explore the prospects for small and medium enterprise (SME) development using inter-finn linkages between large and small finns in Kenya A wide range of strategies has been adopted already for the development of small enterprises globally, but limited use appears to have been made, outside Japan, of inter-finn linkages as a specific strategy. Despite the recent global movement towards inter-finn relationships as a strategy for achieving efficiency through the down-sizing of large finns, externalisation of activities, and adoption of lean production techniques, no attempt appears to have been made to use the strategy for SME development, possibly because little is known about how inter-finn linkages between large and small .finns are fonned. This thesis aims to con1ribute to the development of this understanding by using an inductive, qualitative research approach to explore the fuctors influencing the sourcing strategies of large finns in Kenya, to detennine whether these have some potential for SME development both in the country and more generally. The study focuses on the Kenyan vehicle assembly industry and examines, through in-depth case studies, the sourcing activities of three vehicle assembly plants and four franchise holders. Overnll, the research lends support to the argument that for various reasons largely related to m.arlcet failure, and a non-conducive business environment, large firms in Kenya's motor vehicle industIy are reluctant to outsource voluntarily from local small finns, and that when they do, relations appear to be arms-length and adversarial. The research also reveals that in the Kenyan environment, contrary to the arguments of transaction cost theory, outsourcing decisions are predicated on the need to comply with compulsory regulations in order to gain access to resources and m.arlcets, rather -than primarily on cost minimisation. Consequently, strategies which assure access to resources such as foreign exchange and impo.rt licenses were found to override purely efficiency considerations. The findings imply that although there are some prospects for SME development using this approach, the selection of small enterprises as suppliers by managers of large firms is limited by large firms' perceptions of the suitability of such suppliers, and that if SME development is to take place through such linkages, strategies which either change the image of small suppliers, or improve the attitudes oflarge buyers have to be adopted.