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Business systems do not operate in a vacuum, they operate in an environment of institutions. A theory of business system is derived from this, which acknowledges that business systems differ from country to country because of different historical development of institutions. Four elements are important within an institutional environment: Financial institutions Social structure Market structure Technological and innovation systems. FRAGMENTED BUSINESS SYSTEMS IN KENYA PUBLIC SECTOR In general there are three sorts of business sectors in Kenya. Firstly the parastatals, characterized by their monopolistic production. Their management is highly indigenised, appointments of top managers however are often politically motivated.
Parastatals is a term applied, especially in Africa, to an organization established by a government but which, through its constitution and budgetary arrangements, enjoys a great degree of operational freedom and insulation from direct political interference. The memorandum and articles of association are the founding documents of the company. The articles of association define the powers and functions of the different organs. A fairly standard provision in every company's articles is that the business of the firm be managed by the directors and gives the directors the right to exercise all powers.
The exceptions are those that are required by the Companies Act or articles to be exercised by the company in a general meeting. Shareholders in a general meeting can therefore not deprive directors of such powers. The finance management act prohibits the board of a parastatal from taking certain decisions that directors ordinarily are empowered to take. For instance, a public entity and its accounting authority (the board) is prohibited from participating in a "significant" partnership, trust, unincorporated joint venture or a similar arrangement. It cannot acquire or dispose of a significant asset or, more problematically, make a significant change in the nature or extent of any interest in a partnership, trust or unincorporated joint venture unless it has the prior approval of the minister concerned. The shareholders' compact also seeks to give shareholders more rights than they would usually have in a private sector firm.
While the framework admits boards should have total accountability for all corporate activities, it still states functions such as making decisions on acquisitions, disposals and so on and appointing senior management are functions that are "best performed by the shareholders." The role of the board is reduced to being a participant in such processes. PRIVATE SECTOR Secondly the private sector, which is dominated by non-indigenous traders, such as multinationals. The non-indigenous traders often occupy a certain sub-system of the economy and form a closed system. The multinationals depend on transfer of knowledge from their corporate headquarters in the west. They are highly dependent on state support for access to the country. In the post independence period the government has tried to break this non-indigenous monopoly, but fears about gaining influence of competing indigenous groups for power prevented it from pursuing it seriously.
Firms and industries that are dominated by multinationals have the following characteristics: Multinationals are associated with high ratios of research and development budgets relative to sales Multinationals employ large numbers of scientific, technical, and other white collar workers Multinationals have high-value intangible assets Multinationals are associated with new and / or technically complex products. Multinationals are associated with product-differentiation variables, like high advertising to sales ratios A minimum level of firm size seems to be important for a firm to be a multinational Multinationals tend to be older, more established firms INFORMAL SECTOR Thirdly the informal sector which compromises of small and medium sized indigenous and family owned businesses. They hardly have access to protection and the state often sees them as a threat to the formal sector and harasses them. The informal sector is not organized in large networks and investments are done largely from private savings. Size and diversity of the sector Although the statistical base of the small businesses in Kenya is still poor, there can be little doubt about their relative significance. There are more than 800, 000 small, medium and micro-enterprises in the country, absorbing about a quarter of the labor force of 30 million people.
This is in addition to about 3, 5 million people involved in some or other type of survivalist enterprise activities. The small business sector is highly diverse, with structures, problems, growth potential and access to support differing widely between segments. These differences relate as much to the economic sectors retailing, manufacturing, mining, etc which relate to the stages of growth of enterprises, that is start-up, expanding or stagnating. From a broad strategy perspective the most important distinction is between survivalist activities, micro-enterprises, small enterprises and medium-sized enterprises, with the general term "small business" and the abbreviation "SMEs", widely used to contrast this sector with big (ger) business.
Due to the similarity of some of the obstacles facing them, survivalist and micro-enterprises are often lumped together, whereas many support agencies feel that medium- sized enterprises need not be viewed as a category warranting particular attention. TYPES AND FEATURES OF SMALL SCALE BUSINESSES IN KENYA Survivalist enterprises are activities by people unable to find a paid job or get into an economic sector of their choice. Income generated from these activities usually falls far short of even a minimum income standard, with little capital invested, virtually no skills training in the particular field and only limited opportunities for growth into a viable business. Poverty and the attempt to survive are the main characteristics of this category of enterprises. Given the large number of people involved in survivalist activities, this constitutes a vast challenge, which has to be tackled within the broader context. Micro-enterprises are very small businesses, often involving only the owner, some family member (s) and at the most one or two paid employees.
They usually lack 'formality' in terms of business licenses, value-added tax (VAT) registration, formal business premises, operating permits and accounting procedures. Most of them have a limited capital base and only rudimentary technical or business skills among their operators. However, many micro-enterprises advance into viable small businesses. Earning levels of micro-enterprises differ widely, depending on the particular sector, the growth phase of the business and access to relevant support. Small enterprises constitute the bulk of the established businesses, with employment ranging between five and about 50. The enterprises will usually be owner-managed or directly controlled by the owner-community and are mostly family owned.
They are likely to operate from business or industrial premises, be tax-registered and meet other formal registration requirements. Classification in terms of assets and turnover is difficult, given the wide differences in various business sectors like retailing, manufacturing, professional services and construction. Medium enterprises constitute a category difficult to demarcate vis -- vis the "small" and "big" business categories. It is still viewed as basically owner / manager -controlled, though the shareholding or community control base could be more complex. It is characterized by the employment of more than 200 employees and capital assets of a substantial amount of about 2 million ksh (excluding property). FEATURES AND PROSPECTS OF SMES IN KENYA Characteristics of SMEs SMEs are generally distinguished by the nature of their production and management arrangements, trading relations, financial practices, internal competence, etc.
Typically the following features in varying degrees characterize them: Small units, often rural-based and family-owned Small independent enterprises, standing alone and producing for a well-defined market Specialized firm, producing specialized products, selling to the international and / or local markets Rely on low cost raw materials, low energy costs, low labor costs, low division of labor Flexible and often small production runs Low capital formation Largely labor intensive units with low-level technologies; but note the emergence of high skill and technology-intensive SMEs, especially in high technology industries. Advantages of SMEs The peculiar character of the SMEs endow them some special advantages, amongst which are: Generation of employment Poverty alleviation Breeding ground for entrepreneurs Driving force behind interrelated flow of trade, investment and technology Contribution to substantial local capital formation High levels of productivity and capability Mechanism for technological and managerial growth Increase in competitiveness and export capability Channel for ensuring industrial diversification and dispersal Active instruments for rural and social development Development of specialized product niches Quick response to market changes and opportunities Rapid absorption of technological innovation Immediate end-users of indigenous research findings
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Research essay sample on Business Systems In Kenya
