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Social Capital, Organizational Innovation and Performance of Manufacturing MSMEs in Kenya

Sustained growth and development of economies is mainly attributed to the manufacturing sector, and is often the differentiator between developed and developing countries. In Kenya, the sector has played a crucial role, with a contribution of 10% to gross domestic product for the duration 2008 to 2014. Statistics show that in 2017, 2018 and 2019, the contribution deteriorated to 8.4%, 7.7% and 7.54% respectively, which implies possible de-industrialization. The government’s goal of achieving a robust manufacturing sector through Big Four Agenda may not be fruitful if this trend continues. Informed by the trends, the study sought to establish the mediating role of organizational innovation on the connection between social capital and firm performance among the micro, small and medium manufacturing enterprises. The study is based on existing theories namely social capital theory, behavioral theory of the firm, and Schumpeter theory of innovation. The sample size was 384 licensed manufacturing businesses operating within Nairobi City County, derived from a population of 61,931. The study applied descriptive and explanatory research designs. Primary data was collected and analyzed using descriptive and inferential statistics. The findings indicated that relational and cognitive social capital positively and significantly predicted the performance of micro, small and medium manufacturing enterprises, whereas structural social capital was noted to have a significant effect. The mediating effect of organizational innovation was partial on the relationship between social capital and performance of micro, small and medium manufacturing enterprises. This study recommends that the firms’ management taps into additional and diverse networks to drive innovation and subsequently create a competitive edge for their firms.