Small Enterprise

Challenges Of Small and Medium Enterprises

Invest in Africa, Country Director- Kenya, Patricia Ithau. PHOTO | SALATON NJAU | NMG
Invest in Africa, Country Director- Kenya, Patricia Ithau. PHOTO | SALATON NJAU | NMG 

Most small and medium enterprises (SMEs) long to see their businesses grow and thrive.

However, this dream is often impeded by difficulties in securing financing from banks.

The easiest path for many of them therefore, has been to endlessly bid for big ticket tenders, convinced that these deals would see them secure the capital they require to expand their business.

However, in meritorious tendering processes, the person who walks away with the multimillion shilling local purchasing order is the one that sets their services apart from the competition, over and above offering competitive rates.

“Despite the increasing number of websites advertising tenders not every small business has access to these tenders. Some do not know what is needed to make successful bids,” Wangechi Muriuki, chief executive of non-profit firm Invest in Africa (IIA) Kenya.

Her conclusion is based on a research that her firm conducted in collaboration with the Strathmore Business School (SBS), revealing, among other things, the reasons these SMEs lose out to more established competitors.

The research titled ‘Barriers to Kenyan SMEs Growth and Investment’ also showed that SMEs in Kenya close shop in the first three years after inception mainly due to a lack of skills, good governance and limited access to finance.

Many business noted that they mostly get seed funds from family members (29 per cent), personal savings (21 per cent) bank loans (15 per cent and donations or grants (13 per cent).

The research also found that, while SMEs recognise that tenders could be a good alternative source of capital, many of them (30 per cent) simply lack the capacity to such big jobs. “The biggest impediment SMEs face while trying to do business with big organisations relates to high bidding (22 per cent) and complicated bidding processes (21 per cent),” the research showed.

Further, there exists a communication gap between what SMEs think these firms want and the reality. Small businesses believe buyers simply want proof of period of existence, financial records, customer base and uniqueness of their product or service.

The reality, however, is that while these indicators are necessary, businesses also want proof of financial and technical resources, business location, and evidence of quality standards, regulatory compliance, and competitive pricing.

“Small entrepreneurs might lack the skills to properly govern their business or consistently produce quality products which does not separate them from the pack,” Ms Muriuki told Enterprise.

Based on this research, IIA Kenya — which is an affiliate of UK-based IIA — has developed the African Partner Pool, an online based platform, which brings together SMEs and large organisations.

The platform consists of three basic sections — the Tenda-Space (a marketplace for buyers to post tenders and procure suppliers) and the Biashara-Network — an online community that allows the small businesses to interact talk of their challenges and share ideas. Ujuzi-Hub helps business owners to upgrade their skills through the training opportunities on the platform.

Interested firms pay an annual fee of Sh5,000 for the services. However, the IIA Kenya will first validate the SMEs by interrogating their details including business or company certificates as well as tax returns and then list them according to what they supply. SMEs will be receiving e-mail or text notifications when tenders matching their category are placed.

The platform will also allow companies to grade suppliers they have worked with, hence guiding future buyers. Corporates would be expected to part with Sh450,000 annually to access the pool of validated suppliers.

“It is not just about the small players, some big companies have challenges of finding the right suppliers for their tenders. We help lighten the load by doing basic validation,” says Ms Muriuki.

Tullow Oil, Equity Bank, Safaricom, Nation Media Group, EY, Shell, AMSCO, KenInvest and Strathmore Business School have committed to support the initiative.