Presidential directive can be a boon for globalization of SMEs if well implemented

President Uhuru Kenyatta, in his inauguration for the second term in office as president of the republic of Kenya, directed that all Africans wishing to visit Kenya be issued with visas at various points of entry. He stated that the visas would not be issued on a reciprocal basis and was made to enable free trade and cooperation with the various African nations. Federation of Kenya Employers (FKE) executive director Jacqueline Mugo welcomed this directive and said, “This is a positive thing and is exactly what we have been asking for in order to enable Africa present itself to the world as one market.”

Thinking beyond borders means opening the doors to new customers, new suppliers, new technologies and new cooperation ventures: possibly the best support for SME’s future continuity. According to the Kenya Economy Survey2016 report by the Kenya National Bureau of statistics, Micro, Small and Medium Enterprises are businesses that engage between 1 to 99 employees. SMEs in Kenya play a crucial role in job and wealth creation. Although majority of the micro and small enterprises are informal; they account for the majority of new jobs created. The informal sector is estimated to have created 713,600 new jobs in 2015 accounting for 84.8 per cent of all new jobs SMEs operations cut across almost all sectors of the economy and sustain the majority of households. Various full and partial surveys suggest that Kenyan SMEs are active in trade, services and manufacturing. Furthermore, SMEs plays a crucial role in furthering growth and innovation yet this sector lacks behind in cross border trade.

Other countries have taken a more proactive role in promoting greater SME engagement across their borders. For instance, the programme ‘Osterreich Service’ of the Munich Chamber of Crafts helps local SMEs comply with Austrian regulations and forms to provide their services across the borders. The Swedish Trade Council was assigned by the Swedish government to establish Marketplace Baltic Region (Estonia, Kaliningrad, Latvia, Lithuania, Poland, Russia, Sweden and Ukraine) in order to promote and facilitate trade within the region.

The other programme about cross border trade is the ‘Transnational network- skilled crafts in the Greater Region’: Saar-Lorraine-Luxembourg-Wallonia-Rhineland Palatinate, including the border regions of Luxembourg, Germany, France and Belgium. The goal of this programme is the development of cross-border activities of SMEs in the skilled craft sector through information, support, network activities accompanying skilled craft enterprises on cross-border markets. The geographical location of the Greater Region involves German, Luxembourg, Belgian and French regions, and is adjacent to two other important border regions: one comprising Maastricht in the Netherlands, North Rhine-Westphalia and the province of Liege, the other including Alsace, Baden-Württemberg and Basel (Switzerland).

The Kenya government has various institutions that can spearhead internationalization of SMEs.
Firstly, the Export Promotion Council (EPC), which is Kenya’s premier institution in the development and promotion of export trade. Established in 1992, EPC’s primary objective was to address bottlenecks that were facing exporters and producers of export goods and services with a view to increasing the performance of the export sector. The Council was therefore established for the purpose of giving an outward orientation to an economy that was hitherto inward looking. Today, EPC is the focal point for export development and promotion activities in the country.

Secondly, the Export Processing Zones Authority (EPZA) which was established in 1990, by the EPZ Act CAP 517, Laws of Kenya. The Authority’s mandate is to promote and facilitate export oriented investments and to develop an enabling environment for such investments. EPZ Authority staff operates from the Head Office at Athi River EPZ, the Athi River zone management office and the Mombasa Office located at Kipevu Zone.

Thirdly, the Micro and Small Enterprise Authority (MSEA) which is a state corporation established under the Micro and Small Enterprise Act No. 55 of 2012. The Act was developed through a stakeholder’s consultation process which took several years. The Authority is now domiciled in the Ministry of Industrialization and Enterprise Development. The Act gives the Authority the mandate to formulate and Coordinate policies that will facilitate the integration and harmonization of various public and private sector initiatives, for the promotion, development and regulation of the Micro and Small Enterprises to become key Industries of tomorrow. However, these institutions among others are yet to make a mark in the country.

Kenya can learn a lot from the international trade literature, where we find a lot of theories that approach internationalization process of firms in different ways. One such theory is the Uppsala Internationalization Process Model (U-model). According to Migwe (2006), research on the firm internationalization process, centres on the U-Model. The theory focuses on four aspects that firms should face while going abroad: market knowledge and market commitment, commitment decisions and current activities which are divided into stage and change aspects that interact with each other in what seems to be a cycle.

Figure 1: Uppsala model, state and change aspects (Johanson & Mattson, 1977)
State aspects are the resources committed to the foreign market: market knowledge and commitment decisions that would affect the firm’s opportunities and risks. Market commitment stands for those resources that will be committed as well as the degree of involvement. Market knowledge helps the managerial team to make decisions. There are two types of knowledge: objective knowledge, which can be transferred from one market to another and experiential knowledge, which is gained by experience, learning by doing or acting. Change aspects are the results of the state aspects. Once the firm knows about the market they can decide the way the firm will commit to that market, and will therefore be able to plan and execute the current activities needed to complete the cycle by committing to the market.

In conclusion, the government, through state organs, like the EPC, MSEA and the EPZA has an opportunity to drive our economy to the next level, especially by widening the SMEs market through cross border trade.
Submitted by:
Mr. Anthony Kutiri,
PhD student in Strategic Management,
Masinde Muliro University of Science and Technology

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