THE INFLUENCE OF PUBLIC-PRIVATE PARTNERSHIPS ON THE

RELATIONSHIP BETWEEN MARKET ACCESS AND PERFORMANCE OF

SMALL AND MEDIUM HORTICULTURAL ENTERPRISES IN KENYA

Dennis Kirenge Rangi

184/7752/2002

A Thesis submitted to the School of Business in partial fulfilment of the requirements

for the award of degree of Doctor of Philosophy in Entrepreneurship Development of

Kenyatta University.

April, 2013
DECLARATION

ii
 DEDICATION

To my family – my wife, Alice and children, Sidi and Mituka – whose everlasting support,

encouragement and patience brought me this far. To my parents, my late father whose thirst

for education and search for excellence knew no bounds and my mother who pushed me to

finish the course at every opportunity we had to discuss my work.

iii
 ACKNOWLEDGEMENT

The study would be incomplete without acknowledging the support and cooperation I got

from the people I interviewed from the private and public sectors, more importantly, the

farmers and the field technical assistants.

My sincere appreciation goes to my supervisors, Dr. Ofafa and Dr. Rukangu, for the excellent

and tireless guidance. Their encouragement during the course of my work pushed me to the

completion of this study. When I first conceived the idea of studying Public-Private

Partnerships (PPPs), the concept was relatively new in Kenya and therefore articulating it and

getting acceptance to study its contribution to the development of Small and Medium

Horticultural Enterprises was a challenge but with their support, I made it. They were always

available when I needed their help. Many thanks to Dr. Jagongo, Dr. Muathe and Prof. Kibas

for their critical reviews and push not to slacken at every stage during the long academic

walk. Dr. Obere Almadi who ensured that I remained focussed in my statistical analysis. The

Chairman of the Department, Mr. Bett always told me, “We are here to ensure you complete

and graduate” – these words were an inspiration not to give up!

My very sincere gratitude to my research assistant, Cosmas Muchina who spent several days

with me in the field, he was always patient and maintained his calm with me, accommodating

my odd working and study regime and personal circumstances. Thanks to Richard Fox,

Brenda Achieng and Dickson Kimathi of Finlays Homegrown Kenya Ltd. for allowing me

the use of their facilities, Dr. Mbithi of FPEAK, my brother, Douglas, my sister, Betty and

my colleagues, Juliette, Peace and Munala. Although this was a private and self-sponsored

study, my organisation, CABI exposed me through various interactions that provided me with

iv
the opportunity to enrich and acquire the knowledge and experience that was extremely

useful in the study.

Lastly, to my family whose support was beyond borders. The only time that was eaten into

and compromised to help me accommodate and combine my studies and work, was always

the family time. Their understanding kept me motivated at all times. And to everybody else, I

may not have mentioned but I also interacted with during the many years of my work, your

support was superb, thank you so very much. Finally and most importantly, I thank God the

Almighty for guiding me and giving me the energy and health to overcome all the challenges

and obstacles that I encountered while undertaking this assignment.

v
 TABLE OF CONTENTS

DECLARATION..................................................................................................................... II

DEDICATION....................................................................................................................... III

ACKNOWLEDGEMENT .................................................................................................... IV

TABLE OF CONTENTS ..................................................................................................... VI

LIST OF TABLES ................................................................................................................ XI

LIST OF FIGURES ........................................................................................................... XIII

OPERATIONAL DEFINITION OF TERMS ................................................................. XIV

ABBREVIATIONS AND ACRONYMS .......................................................................... XVI

ABSTRACT ........................................................................................................................ XIX

CHAPTER ONE ...................................................................................................................... 1

INTRODUCTION.................................................................................................................... 1

1.1 Background to the Study.................................................................................................. 1

1.2 Statement of the Problem ................................................................................................. 7

1.3 General Objective of the Study ........................................................................................ 8

1.3.1 General Objective ..................................................................................................... 8

1.3.2 Specific Objectives ................................................................................................... 8

1.4 Research Hypotheses of the Study................................................................................... 9

1.5 Significance of the Study ................................................................................................. 9

1.6 Assumptions................................................................................................................... 10

1.7 Delimitations and Scope of the study ............................................................................ 11

1.7.1 Delimitations ........................................................................................................... 11

vi
 1.7.2 Scope and Limitations............................................................................................. 11

1.8 Organisation of the Thesis ............................................................................................. 11

CHAPTER TWO ................................................................................................................... 13

LITERATURE REVIEW ..................................................................................................... 13

2.1 Introduction .................................................................................................................... 13

2.2 Role of SMEs in the Economic Growth of Kenya ......................................................... 13

2.2.1 SMEs and Horticulture in Kenya ............................................................................ 15

2.2.2 Factors Affecting Horticultural SME Performance ................................................ 17

2.2.3 Measuring SME Performance ................................................................................. 21

2.2.4 Markets Access Challenges for Horticultural SMEs .............................................. 23

2.2.5 Public-Private Partnerships ..................................................................................... 29

2.2.6 Mitigating SME Performance Constraints through PPP ......................................... 36

2.3 Related Empirical Research ........................................................................................... 37

2.3.1 Roles of the Different Sectors in Public-Private Partnerships ................................ 37

2.3.2 Public-Private Partnership Experiences .................................................................. 42

2.4 Theoretical Framework .................................................................................................. 44

2.4.1 Regulation of Production Activity .......................................................................... 48

2.4.2 Product Demand...................................................................................................... 49

2.4.3 Appropriate Technology ......................................................................................... 49

2.4.4 Production Inputs .................................................................................................... 50

2.4.5 Training and Skills Development ........................................................................... 50

2.4.6 Water Resource Management ................................................................................. 51

2.5 Conceptual Framework .................................................................................................. 53

2.6 Chapter Summary and Gaps Filled by the Study ........................................................... 55

vii
CHAPTER THREE ............................................................................................................... 56

RESEARCH METHODOLOGY ......................................................................................... 56

3.1 Introduction .................................................................................................................... 56

3.2 Research Design............................................................................................................. 56

3.2.1 Operationalization of the Key Variables................................................................. 57

3.2.2 Study Locale ........................................................................................................... 59

3.3 Target Population ........................................................................................................... 60

3.4 Sampling Procedures and Sample Size .......................................................................... 60

3.4.1 Sampling Procedure ................................................................................................ 60

3.4.2 Sample Size............................................................................................................. 62

3.4.3 Criteria for Inclusion ............................................................................................... 62

3.5 Research Instruments and Procedures ........................................................................... 62

3.5.1 The Questionnaire ................................................................................................... 62

3.5.2 Data Collection Procedures..................................................................................... 64

3.5.3 Data Preparation and Processing ............................................................................ 64

3.5.4 Validity and Reliability Tests ................................................................................. 65

3.6 Data Analysis ................................................................................................................. 67

3.7 Ethical Considerations ................................................................................................... 68

CHAPTER FOUR .................................................................................................................. 69

RESEARCH FINDINGS AND DISCUSSIONS ................................................................. 69

4.0 Introduction .................................................................................................................... 69

4.1 Response Rate ................................................................................................................ 69

4.2 Characteristics of the Sample......................................................................................... 69

4.2.1 Characteristics of SMEs .......................................................................................... 69

viii
 4.2.2 Characteristics of SME Managers .......................................................................... 74

4.3 The Sources of the PPP Support Provided ..................................................................... 77

4.4 The Nature of Support that Small and Medium Horticultural Enterprises Receive in

Kenya ................................................................................................................................... 80

4.5 SME Performance and Market Access .......................................................................... 83

4.5.1 Level of Market Access and SME Performance ..................................................... 84

4.5.2 Market Share and SME Performance ..................................................................... 84

4.6 SME Performance and Public-Private Partnership Support .......................................... 85

4.6.1 Regulation of Production and SME Performance Variables .................................. 85

4.6.2 Product Demand and SME Performance Variables ................................................ 86

4.6.3 Production Inputs and SME Performance Variables .............................................. 86

4.6.4 Appropriate Technology and SME Performance Variables ................................... 87

4.6.5 Training and Skills development and SME Performance Variables ...................... 88

4.6.6 Water Resource Management and SME Performance Variables ........................... 88

4.7 Public-Private Partnership Support and Market Access ................................................ 89

4.7.1 Regulation of Production and Market Access Variables ........................................ 90

4.7.2 Product Demand and Market Access Variables...................................................... 90

4.7.3 Production Inputs and Market Access Variables .................................................... 91

4.7.4 Appropriate Technology and Market Access Variables ......................................... 91

4.7.5 Training and Skills development and Market Access Variables ............................ 92

4.7.6 Water Resource Management and Market Access Variables ................................. 92

4.8 Discussion of Findings ................................................................................................... 93

4.8.1 Objective One ......................................................................................................... 93

4.8.2 Objective Two ....................................................................................................... 100

4.8.3 Objective Three ..................................................................................................... 109

ix
 4.8.4 Objective Four ...................................................................................................... 110

4.8.5 Objective Five ....................................................................................................... 116

CHAPTER FIVE ................................................................................................................. 120

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ..................................... 120

5.1 Introduction .................................................................................................................. 120

5.2 Summary of Findings ................................................................................................... 120

5.3 Conclusions .................................................................................................................. 122

5.4 Recommendations ........................................................................................................ 123

5.5 Implications and Further Research .............................................................................. 126

5.5.1 Theoretical Contributions and Implications.......................................................... 126

5.5.2 Implications for Managers .................................................................................... 126

5.5.3 Implications for Practitioners ................................................................................ 127

5.5.4 Implications for Policymakers .............................................................................. 127

5.5.5 Future Research .................................................................................................... 129

REFERENCES ..................................................................................................................... 131

APPENDICES ...................................................................................................................... 149

APPENDIX I: QUESTIONNAIRE FOR SME OWNER/ MANAGER ......................... 150

APPENDIX II: RESEARCH LOCATIONS ..................................................................... 161

APPENDIX III: HORTICULTURAL PRODUCERS IN KENYA ................................ 162

APPENDIX IV: RESEARCH PERMIT ............................................................................ 165

x
 LIST OF TABLES

Table 2.1 Typologies of Public-Private Partnerships .............................................................. 35

Table 2.2 Theoretical Framework ............................................................................................ 47

Table 2.3 Operationalization of Constructs of Agency Theory ............................................... 48

Table 2.4 Summary of the Theoretical Model ......................................................................... 52

Table 3.1 Sampling Grid .......................................................................................................... 61

Table 3.2 Description, Sources and Operationalisation of Variables ...................................... 63

Table 3.3: Reliability Test Results for the Various Measures ................................................. 67

Table 4.1 Distribution of Duration in Business of Sampled SMEs ......................................... 70

Table 4.2 Annual Production of Sampled SMEs ..................................................................... 70

Table 4.3 Distribution of Land Under Production of Sampled SMEs ..................................... 71

Table 4.4 Distribution of Gender of Respondents ................................................................... 74

Table 4.5 Distribution by Age of Respondents ........................................................................ 75

Table 4.6 Distribution of Type of Ownership and Position of Respondent in the SME ......... 77

Table 4.7 Sources of Start-up Funds ........................................................................................ 78

Table 4.8 Support by Other Companies in the Same Sector as Finlays Homegrown Kenya Ltd

......................................................................................................................................... 80

Table 4.9 Test of Independence for SME Performance and Market Access ........................... 83

Table 4.10 Test of Independence for SME Performance Variables and Level of Market

Access .............................................................................................................................. 84

Table 4.11 Test of Independence for SME Performance Variables and Market Share ........... 84

Table 4.12 Test of Independence for SME Performance and Public-Private Partnership

Support ............................................................................................................................. 85

Table 4.13 Test of Independence for SME Performance Variables and Regulation of

Production ........................................................................................................................ 86

xi
Table 4.14 Test of Independence for SME Performance Variables and Product Demand...... 86

Table 4.15 Test of Independence for SME Performance Variables and Production Inputs .... 87

Table 4.16 Test of Independence for SME Performance Variables and Appropriate

Technology ...................................................................................................................... 87

Table 4.17 Test of Independence for SME Performance Variables and Training and Skills

development ..................................................................................................................... 88

Table 4.18 Test of Independence for SME Performance Variables and Water Resource

Management ..................................................................................................................... 89

Table 4.19 Test of Independence for Market Access and Public-Private Partnership Support

......................................................................................................................................... 89

Table 4.20 Test of Independence for Regulation of Production and Market Access Variables

......................................................................................................................................... 90

Table 4.21 Test of Independence for Product Demand and Market Access Variables ........... 91

Table 4.22 Test of Independence for Production Inputs and Market Access Variables .......... 91

Table 4.23 Test of Independence for Appropriate Technology and Market Access Variables

......................................................................................................................................... 92

Table 4.24 Test of Independence for Training and Skills development and Market Access

Variables .......................................................................................................................... 92

Table 4.25 Test of Independence for Water Resource Management and Market Access

Variables .......................................................................................................................... 93

xii
 LIST OF FIGURES

Figure 1.1 Public-Private Sector Interactions ............................................................................ 6

Figure 2.1 Exports of Horticultural Products (Kshs. bn) ......................................................... 16

Figure 2.2 PPP Support to SMEs ............................................................................................. 33

Figure 2.3 Conceptual Framework .......................................................................................... 54

Figure 4.1 Start-Up Capital ...................................................................................................... 72

Figure 4.2 Working Capital ..................................................................................................... 72

Figure 4.3 Number of Employees at Start-up .......................................................................... 73

Figure 4.4 Current Number of Employees ............................................................................... 74

Figure 4.5 Level of Education ................................................................................................. 76

Figure 4.6 Sources of Support for SMEs ................................................................................. 78

Figure 4.7 Description on Duration of SMEs Partnership with Finlays Homegrown Kenya

Ltd .................................................................................................................................... 79

Figure 4.8 Nature of Support that SMEs Received.................................................................. 81

Figure 4.9 Quality and Importance of Support Received by SMEs ........................................ 82

Figure 4.10 Additional Training in Other Areas ...................................................................... 82

xiii
 OPERATIONAL DEFINITION OF TERMS

Donor: This is an agency representing either a single government or a

group of governments that give funding for development

purposes.

Globalisation: This is the transition from national and regional economies to

global economies. It is also the process of increasing

international integration in economic, cultural and social

spheres.

Growth: This is a quantitative change or expansion in a country‟s

economy, involving an increase in general functions such as

production, trade and consumption over a certain period of time.

Other indicators include increasing firm size, profitability,

capital assets, market share, and number of employees, products

or services.

Horticulture: As used in this study, refers to the production of fruits,

vegetables and flowers.

Private Sector: This refers to the business sector. It is that part of the economy

that consists of businesses, companies and professionals who

trade products and services for income and profit.

Public-Private This refers to a long-term contractual agreement between a

Partnership (PPP):
public agency and a private sector entity in which the skills and

assets of each sector (public and private), together with the

potential risks and rewards, are shared in delivering a service or

facility for the use of the general public.

xiv
Public Sector: This refers to the Government and its departments or agencies.

It is everything that is publicly owned, controlled and managed

by the government.

Sanitary and This refers to any measures applied to protect human or animal
Phytosanitary
Measures (SPS): life from risks arising from additives, contaminants, toxins, or

disease-causing organisms in food; and to prevent or limit other

damage to a country from the entry, establishment, or spread of

pests and diseases.

Small and Medium This is defined here as businesses that employ up to 100
Enterprises
(SMEs): workers, with an annual turnover of between Kshs. 500,000 to 1

billion. Small and Medium Horticultural Enterprises are

therefore those that are involved in horticultural production.

Trade This refers to opening the economy to increased international

Liberalisation:
trade, particularly by reducing protectionism.

xv
 ABBREVIATIONS AND ACRONYMS

AIDS Acquired Immune Deficiency Syndrome

ASAL Arid and Semi-Arid Lands

CABI CAB International

CBO Community-Based Organisation

CBS Central Bureau of Statistics

CIMA Composite Index of Market Access

COLEACP Europe-Africa-Caribbean-Pacific Liaison Committee

DFID Department for International Development

EAC East African Community

EPZ Export Processing Zone

EU European Union

FDI Foreign Direct Investment

FKE Federation of Kenya Employers

FPEAK Fresh Produce Exporters Association of Kenya

GAP Good Agricultural Practices

GDP Gross Domestic Product

GHI Global Horticulture Initiative

GNP Gross National Product

GoK Government of Kenya

GTZ German Technical Cooperation Agency

HCDA Horticultural Crops Development Authority

HIV Human Immunodeficiency Virus

ICRAF World Agroforestry Centre (formerly International Centre for

xvi
 Research in Agroforestry)

ICT Information and Communication Technology

ICTSD International Centre for Trade and Sustainable Development

IFPRI International Food Policy Research Institute

IIRR International Institute of Rural Reconstruction

ISHS International Society for Horticultural Science

JICA Japan International Cooperation Agency

JKIA Jomo Kenyatta International Airport

KAM Kenya Association of Manufacturers

KAPAP Kenya Agricultural Productivity Agribusiness Project

KARI Kenya Agricultural Research Institute

KBDS Kenya Business Development Services

KEPHIS Kenya Plant Health Inspectorate Services

KEPSA Kenya Private Sector Alliance

KFC Kenya Flower Council

KIT Royal Tropical Institute

LANAWRUA Lake Naivasha Water Resource Users Associations

LNGG Lake Naivasha Growers Group

MDG Millennium Development Goals

MRL Minimum Residue Levels

NEMA National Environment Management Authority

NEPAD New Partnership for Africa‟s Development

NGO Nongovernmental Organisation

NHP National Horticultural Policy

NIB National Irrigation Board

xvii
NIC Newly Industrialised Countries

PPP Public-Private Partnership

ROCE Return on Capital Employed

ROE Return on Equity

ROI Return on Investment

SACCO Savings and Credit Cooperative Societies

SAP Structural Adjustment Programme

SME Small and Medium Enterprise

SPO Small Producer Organisations

SPS Sanitary and Phytosanitary Measures

SPSS Statistical Package for Social Scientists

UK United Kingdom

UNCTAD United Nations Commission for Trade and Development

UNDESA United Nations Department of Economic and Social Affairs

UNECA United Nations Economic Commission for Africa

UNIDO United Nations Industrial Development Organisation

USAID United States Agency for International Development

USD United States Dollar

WRMA Water Resources Management Authority

WRUA Water Resource Users Associations

WSSD World Summit on Sustainable Development

xviii
 ABSTRACT

Terms of participation in international trade present SMEs with a number of performance

challenges entailing more demanding capabilities in terms of quality and quantity of
products. Alliances between the private and public sectors through Public-Private
Partnerships (PPPs) enable creative strategies that help SMEs to break out of their small and
sometimes inefficient operations to become more globally competitive. While there is
information on PPPs from around the world there is inadequate information available on
them in Kenya, and knowledge on their contribution especially in the horticultural subsector
has not been well studied and documented. The study examined the influence PPPs have on
the relationship between market access and performance of Small and Medium Horticultural
Enterprises in Kenya. This was addressed by documenting the sources and nature of Public-
Private Partnership support that SMEs in horticulture receive in Kenya, and determining the
relationship between market access and the performance of the Small and Medium
Horticultural Enterprises as well as the relationship between PPP support and the
performance of the horticultural SMEs. Lastly, the study also determined the relationship
between market access and the performance of the Small and Medium Horticultural
Enterprises when intervened with PPP support. The target population comprised of Finlay‟s
Homegrown Kenya Ltd based in Naivasha, and SMEs that work with Finlay‟s Homegrown
Kenya Ltd and are based in the Central, Rift Valley and Eastern provinces. Stratified random
sampling was used to select SMEs from those that are supported by Finlay‟s Homegrown
Kenya Ltd. This study adopted multi-method approach by combining quantitative and
qualitative methods. Primary data was collected using a questionnaire, key informant
interview guide and observations. Descriptive and inferential statistics were used in the study.
SPSS (Statistical Package for Social Scientists version 17) was used in the analysis of data
collected. Among the descriptive statistics utilised include frequency distribution and
percentages while the inferential statistics used Chi-square test of independence. Data was
presented in tables, charts, and diagrams. The study established that Small and Medium
Horticultural Enterprises receive support from the public and private sectors and NGOs.
However, evidence of the effectiveness of the support provided is mixed and not quite
encouraging because partnership between the various sectors is ad hoc and not structured.
The study concluded that the relationship between market access and SME performance is
improved when intervened by PPP support. After analysing SME support programmes the
study recommends that for PPP to be successful in supporting SMEs, a number of actions are
required focusing on the establishment of an institutional framework that will help identify,
prioritise and define engagement of different stakeholders. This will result in high
productivity and overall improvement of business performance in the horticultural subsector
and therefore contribute significantly to the realisation of Kenya‟s Vision 2030.

Key Words: Kenya, Horticultural SMEs, Private Sector, Public Sector, Public-Private
Partnerships, Market Access, Performance, Interventions, Agency relationships.

xix
 CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Small and Medium Enterprises (SMEs) are important drivers of economic growth. However,

the terms of participation in international trade are particularly daunting for SMEs as these

demand exceedingly enhanced performance capabilities especially for those involved in

export agriculture (Matambalya and Assad 2002). The constraints range from an increasingly

competitive global market to compliance with very strict sanitary and phytosanitary

regulations including coping with the high perishability of their produce. Consequently,

commodity-dependent developing countries, especially those in Africa are yet to enjoy the

full benefits of globalisation and international free trade (Mchumo, 2009).

Achieving global competitiveness can be gained by capitalising on innovation, research and

development (R&D) and linking with private and public sectors that provide vital and

necessary support in the transfer of knowledge to produce high quality products and therefore

improve SME performance. Accordingly, governments are increasingly seeking the services

of the private sector through Public-Private Partnership (PPP) arrangements to help in

addressing these concerns in a consistent and sustainable manner. These alliances, which

have become important in promoting economic growth as they create opportunities to work

with market leaders, are now being widely embraced (Shapira, 2002) in development efforts.

However, although PPPs have become a significant feature in country development strategies

(Leigland, 2006), there is inadequate information available on their impacts in supporting the

development of SMEs especially in agriculture in Kenya. Successful and widely known

models, summaries of key experiences and lessons learnt to inform policy decisions remain

undocumented.
1
In Kenya, the Government targets SMEs as a launch pad for Kenya‟s industrialisation

process. Sessional Paper No. 2 of 1992 on Small Enterprises and Jua Kali Development in

Kenya focuses on the SME sector for development. Sessional Paper No. 2 of 2005 on the

Development of Micro and Small Enterprises for Wealth and Employment Creation for

Poverty Reduction, further spells out measures to enhance the sector and create an enabling

environment through specific actions including improvement of business registration,

business licensing and tax regimes.

According to the Ministry of Trade, SMEs currently employ approximately 8 million people

– essentially 75% of the total labour force – and contributes 20% to Kenya‟s GDP (Business

Daily, 01 February 2010; EAC, 2009). Therefore, improving performance of SMEs is very

important in achieving meaningful development. More attention is being given to the sector

following the Structural Adjustment Programmes (SAPs) of the 1990s that saw the folding up

of many industries and precipitated massive job losses in the public and corporate sectors.

This concern is further strengthened by the fact that many multinational corporations (MNC)

operating locally in Africa repatriate a huge percentage of their profits to their home

countries. Indigenous SMEs on the other hand, retain their profits in their home countries

(UNCTAD, 2005).

While analysing policy options for the development of an indigenous tourism SME sector in

Kenya, Manyara and Jones (2005) emphasised the need for the Government to develop SMEs

in the sector instead of favouring and encouraging foreign ownership of tourism resources in

order to limit leakages of revenue and maximise benefits to local communities. Numerous

resources (time and money) have been spent promoting SMEs, which despite their political

popularity, have neither fostered nor achieved the desired growth (Technoserve, 2007, Nilgun

Yankaya, Daily Nation 20 July 2007).

2
According to Parker and Torres (1999) and Aryeetey and Ahene (2005), studies conducted in

other parts of the world show that a number of SMEs neither realise their full potential nor go

beyond their fifth birthdays. This situation is well demonstrated in a Gemini study of small

businesses conducted in Kenya in 1993 (there is no recent study on this), which found that

only 38% of SMEs had grown since their establishment and 47% were single person

operations. One-third of the 325,000 SMEs started in that year had failed or closed in the

same year and another 90,000 failures or closures had started in previous years. This failure

was attributed to the inconsistent product quality due to lack of skills in market research,

engineering design and marketing.

Therefore, despite their strong entrepreneurial culture and spirit, SMEs have not evolved

beyond mere survival at an individual level to contributing to economic growth and job

creation. A competitive strategy based on product variety, packaging and processing is

essential and critical but would, in itself, place greater demand and pressure on the supply

chain. Global markets also have to meet strict regulatory requirements (Dolan and Humphrey,

2001). A lot more therefore needs to be done to achieve the desired impact (Technoserve,

2006). Policy options focusing on new and innovative mechanisms such as PPPs to develop

SMEs are therefore quite important.

In 2011, the horticultural subsector – the second largest in terms of export earnings after tea –

directly employed over six million Kenyans. Current contribution to GDP stands at 36% and

continues to grow at between 15 and 20% per year (GoK, 2012; HCDA, 2010). The value of

Kenya‟s horticultural produce was estimated at Kshs. 205.1 billion in 2011; the industry

earned the country Kshs. 91.2 billion from exports, which only represents 5% of the total

production as 95% of the production is consumed locally. Currently, Kenya is the largest

exporter of vegetables to the EU (Dolan and Humphrey, 2000; Nyangweso and Odhiambo,

3
2004), and has until recently enjoyed preferential access to the EU. At the continental level,

horticultural imports from Sub-Saharan Africa to the EU rose by more than 130% between

1989 and 1997 and the demand continues to grow (IFPRI, 2004). This labour-intensive sector

has contributed to the commercialisation of rural economies, created new industries and with

it, new employment opportunities (Technoserve, 2004). The good performance is attributed

to the private sector and production is mostly from small-scale producers (The New

Agriculturist, 2009). However, the good performance cannot be guaranteed in the future if a

clear and organised roadmap to sustainability that involves all stakeholders is not established

(GoK, 2012).

Therefore, although the horticultural subsector has shown impressive growth and accounts for

a high percentage of total earnings, it is facing serious competition in the global market. The

need to develop extremely innovative ways of producing quality products to overcome this

emerging challenge is critical. A strong focus on the development of SMEs in this sector will

go a long way in ensuring the sector‟s meaningful contribution to the economy through the

exploitation and realisation of their potential.

Further, Kenya‟s horticulture has been dominated by large-scale and/or multinational

enterprises but increasingly, small-scale farmers are getting involved. Indeed, approximately

60% of the horticultural exports were from small-scale producers in 2003 but this figure

declined to 55% in 2004 due to stringent consumer demands for high quality and safe

produce. Multinational corporations are increasingly controlling the global market and

imposing high sanitary and phytosanitary (SPS) standards of quality and timeliness (Maxwell

and Salter, 2004).

This means that Kenyan products are likely to face stiffer competition from the more efficient

countries in Latin America, Asia and even Africa (e.g. South Africa) therefore increasing the

4
pressure on local SMEs involved in the sector. The business environment is also getting more

favourable in neighbouring countries (as is the case of Ethiopia) and big companies are

shifting their bases to more attractive locations (East African, 19-25 February 2007). Indeed,

according to the Kenya Horticulture Competitiveness Programme Report 2012, Kenya could

lose its top place in horticulture. The country, for example, lags behind its peers in credit and

financial access, labour costs, sea and airfreight costs. The constraints facing SMEs are

formidable, and this calls for holistic SME support, including creating an enabling

environment for SME development through effectively functioning supportive institutions

(OECD, 2004). New strategies that bring together the public and private sectors to enhance

the development of the local SMEs, in view of these challenges, are therefore needed.

Public-Private Partnerships or alliances between the public and private sectors are a

beneficial approach in supporting pro-poor economic growth, as they create opportunities to

work with market leaders (Shapira, 2002). PPP approaches are becoming increasingly

important in country development strategies. Beck et al. (2003) suggest that in a developing

economy like Kenya where the entrepreneurship culture remains fragile, direct government or

public sector support of SMEs would help in improving the performance and growth of the

sector. NEPAD has put projects involving Public-Private Partnerships at the centre of its

development plans for Africa (Leigland, 2006), and in Kenya, efforts to get the private sector

more actively involved in development are on the increase. Indeed, Vision 2030 specifically

mentions and lays a strong emphasis on PPPs as a mechanism to achieve the country‟s

development targets.

A good development strategy should be one that assists the development of SMEs (Biggs,

2003); some of the required actions suggest partnerships between the public and private

sectors. PPPs have helped SMEs in small countries overcome disadvantages of global trading

5
systems and market failures through increased exports (Nathan Associates Inc., 2004). Their

survival will depend largely on collective ability of these two sectors to stimulate and

improve performance (Spielman and Von Grebmer, 2004). A summary of this context is

presented in Figure 1.1 below.

Poor Market Access & Performance inhibiting Competiveness of SMEs

Private Sector PPP Supported Public Sector

Driven Support Strategies to
Overcome Driven Support
Strategies Strategies
Competitiveness
Challenges

Improved Performance through PPP leading to Improved Competitiveness and

Access to Global markets

Source: Author (2012)

Figure 1.1 Public-Private Sector Interactions

Rapid changes in the structure and governance of national and regional markets affect the

ability of SMEs to respond and they therefore find themselves poorly prepared for these

changes (Berdegue et al., 2008). Farmers need to be involved in the management of the value

chain by improving their access to market information, access to knowledge, their control of

contracts and even more importantly, their cooperation with other actors in the chain in the

public and private sectors (Peppelenbos, 2007). Access to capital and knowledge is essential

in encouraging the creation of microenterprise agriculture. Collaboration between farmers,

government, NGOs and the private sector can have broader impacts ensuring that

participation in global trade benefits agricultural SMEs (Oxfam, 2010). The National

6
Agricultural Policy underscores the important role of Public-Private Partnerships and the

need to continuously engage stakeholders in the horticultural industry to ensure inclusiveness

by working together to help realise sustainable growth and achieve global competitiveness.

The need and ability to respond to changing trends and requirements in the export market has

become a crucial element in determining the competitiveness in the industry. This can be

further strengthened through active involvement of private and the public sector through PPP

arrangements. As such, SME development strategies should emphasise alliances between

businesses and the Government (PPP) in order to open up more opportunities and to

overcome performance impediments. To do this, practical evidence on the impact of PPP

approaches in SME performance needs to be systematically established to help partners

initiate performance-enhancing interventions for the sector. This is the essence of this study.

1.2 Statement of the Problem

A number of studies show that most SMEs face several performance constraints and a good

number fail within the first four years of commencing operations (Parker and Torres, 1999;

Aryeetey and Ahene, 2005). Those in the horticultural subsector where competition is stiff –

due to strict compliance to global standards – are particularly vulnerable to failure (EPZ,

2005; Nyangweso and Odhiambo, 2004; Wasilwa, 2008). In Kenya, the subsector has been

the centre of focus by a number of Government efforts to encourage the private sector to be

actively involved in providing support (HCDA, 2003). Numerous resources and efforts have

been put into promoting SMEs but these have neither fostered nor achieved the desired

development (Technoserve, 2007). Presently, the intensity of the efforts is unclear especially

how they improve quality and accessibility. That many agencies are involved, could also pose

a challenge in terms of coordination, and this will further intensify the problem instead of

7
offering a lasting solution. There is therefore need to find ways to consolidate efforts between

the public and private sectors to achieve this, essentially through Public-Private Partnerships.

PPPs have helped SMEs to overcome market failures and the disadvantages of global trading

systems by enabling them to take advantage of economies of scale, expanding access to

markets, through information and technology, trade, advanced research and extension and

improved adherence to sanitary and phytosanitary (SPS) measures and other standards

(Nathan Associates Inc., 2004). However, their contribution to the development of Small and

Medium Horticultural Enterprises in Kenya is still unclear since this has not been

systematically documented. This study contends that PPPs are beneficial and therefore seeks

to establish their influence on the relationship between market access and performance of

small and medium horticultural enterprises.

1.3 General Objective of the Study

1.3.1 General Objective

The general objective of this study was to establish the influence of Public-Private

Partnership (PPP) on the relationship between market access and performance of Small and

Medium Horticultural Enterprises in Kenya.

1.3.2 Specific Objectives

The specific objectives of this study were to:

(i) Examine the sources of the PPP support provided to horticultural SMEs,

(ii) Evaluate the nature of PPP support that horticultural SMEs receive in Kenya,

(iii)Determine the relationship between market access and the performance of the

horticultural SMEs,

8
 (iv) Determine the relationship between PPP support and the performance of the

horticultural SMEs,

(v) Determine the relationship between market access and the performance of horticultural

SMEs when intervened with PPP support.

1.4 Research Hypotheses of the Study

This research set out to test the following hypotheses:

Hypothesis 1: Performance of SMEs is independent of market access.

Hypothesis 2: Performance of SMEs is independent of Public-Private Partnership

support.

Hypothesis 3: Market access is independent of Public-Private Partnership support.

1.5 Significance of the Study

The theoretical contributions of this study in terms of knowledge on the various issues that

call for PPP intervention are valuable in stimulating the growth of SMEs in the horticultural

subsector. Based on the research findings, the Small and Medium Horticultural Enterprises

owners and managers have identified the areas in which PPP intervention should focus on.

Mainly, they require PPPs to address the challenges of access to appropriate financial

support, reliable markets and capacity building including training. Based on the research

findings, it is expected that the private sector involved in the horticultural production system

will now refocus its support to address the critical process that will lead to value-addition in

the industry as a whole. In addition, the public sector or the Government will now be in a

position to realign support offered to the sector and re-emphasise the need for partnership

with the private sector since the research findings have highlighted the issues that need to be

resolved.

9
Lastly, the research findings provide a basis for scholars to further explore PPPs, and also

replicate the lessons from this study in other sectors of the economy where SME growth and

development is dependent and can be stimulated through PPPs.

1.6 Assumptions

There were five main assumptions in this study:

(i) Small and Medium Horticultural Enterprises do receive support from both the public

and private sectors.

(ii) The public and private sectors provide different nature of support to horticultural

SMEs.

(iii)The performance of Small and Medium Horticultural Enterprises is dependent on

market access. Small and Medium Horticultural Enterprises have increasingly faced

performance challenges in the global market due to strict market conditions and entry

of new players and therefore devising new strategies to improve market access and

support their development and survival is important.

(iv) There exists a relationship between the Public-Private Partnership support provided

and the performance of Small and Medium Horticultural Enterprises.

(v) Performance of Small and Medium Horticultural Enterprises is improved by improved

market access through Public-Private Partnerships. PPPs play a catalytic role in

improving performance of SMEs by bringing the private and public sector to work

together towards a common objective in a sustainable way.

10
1.7 Delimitations and Scope of the study

1.7.1 Delimitations

This study was restricted to Public-Private Partnerships as an enabler of economic activities

where SMEs are involved. It targeted Small and Medium Horticultural Enterprises because

recent statistics have indicated that the horticultural subsector is emerging as a major

contributor to Kenya‟s economic development (EPZ, 2005).

1.7.2 Scope and Limitations

The resources available for the study limited the researcher to study the Small and Medium

Horticultural Enterprises that work with Finlay‟s Homegrown Kenya Ltd in the main

horticulture-producing regions namely Naivasha, Naro Moru, Meru, Kathiani, Mwea, Narok,

Loitokitok, Ol Kalou, Makuyu, Molo, Rumuruti and Mweiga. These limitations did not

impact on the findings of the study, as the findings could be generalised to Small and

Medium Horticultural Enterprises in the country as a whole.

1.8 Organisation of the Thesis

This thesis has five chapters. Chapter 1 gives a background to the research, which highlights

the importance of SMEs and the difficulties faced in accessing export markets. The problem

statement highlights the gap in knowledge on the influence of PPPs on the relationship

between market access and performance of horticultural SMEs. The section further details the

study objectives, the hypotheses established the significance of the study to various

stakeholders and the study‟s delimitations and assumptions.

Chapter 2 addresses the empirical and theoretical review for the study which provided a

contextual background for the study. The first section provides an overview of the essence of

11
horticulture in the economic growth of Kenya while the second section reviews the

performance constraints of SMEs in horticulture. Literature on PPPs, their benefits and

various countries‟ experiences is reviewed in the last section.

Chapter 3 described the research methodology used to test the hypotheses and answer

research questions established in Chapter 1. It also includes the research design, data sources,

the procedures in data collection, data collection instruments and techniques of analysis and

presentation.

Chapter 4 gives details of the findings of the research including the descriptive and inferential

analysis which are presented and discussed under each objective.

Chapter 5 presents a summary of findings, conclusions and recommendations of the study to

the public and private sectors. This section also presents the study implications and

recommendations for further research.

12
 CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

This chapter addresses topics that provide a contextual background to the study. The first

section provides an overview of the essence of horticulture in the economic growth of Kenya

while the second section reviews the performance constraints of SMEs in horticulture.

Literature on PPPs, their benefits and the experiences of various countries is reviewed in the

last section, and the conceptual framework presented.

2.2 Role of SMEs in the Economic Growth of Kenya

The significance of SMEs in economic development cannot be overemphasised. SMEs are

the lifeblood of any economy and their development is therefore a crucial condition to the

economic competitiveness of a country (Matambalya and Assad, 2002). However, a number

of studies show that most SMEs die within the first four years of commencing operations

(Parker and Torres, 1999, Aryeetey and Ahene, 2005). Those in horticulture are particularly

vulnerable because the subsector is the most technologically and knowledge-demanding

sector of agriculture.

The importance of SMEs in economic development is now increasingly recognised and

development partners are playing a critical role in promoting the sector (White and Fortune,

2004). Bianchi and Bivona (1999) have shown that SMEs‟ challenges lie on start-up and

early stages of growth since these are critical to entrepreneurial involvement and risk of

failure. They opine that during early stages, the business idea is yet to be well developed and

elaborated, implementation of the business idea is not yet figured out, an initial team to give

support in strategic decisions is not established and minimum customer and sales base is still

13
to be established to obtain the necessary liquidity to meet initial financial needs. Best et al.

(2005) identified the major challenges in smallholder agriculture in developing countries as

being low value of goods, market pressure, oversupplied markets, decline in commodity

prices, inconsistency in policy by governments, poor organisation, declining infrastructure

and natural and civil shocks among others. Economic value is generated in a value chain in

its entirety and effective investment decisions must consider all the links in a value chain

(Mchumo, 2009).

Economic development and poverty alleviation continue to preoccupy developing countries‟

agenda. Governments and development partners have expressed concern that efforts to reduce

poverty have not generated the desired impact given that the number of those living on less

than a dollar a day is not reducing significantly. As a result, Vision 2030 strongly supports

the role of SMEs in job and wealth creation on one hand and Public-Private Partnerships on

the other as a new approach for resolving the development dilemma, by bringing the private

and public sectors to work side by side (GoK, 2010). Most multinational corporations all over

the world have traditionally enjoyed government support but as they try to survive and

become more efficient and competitive they have ended up downsizing or merging. This has

resulted in the increased emergence of local SMEs as a means of survival of the retrenched;

with time these SMEs are increasingly beginning to play a very important role in job creation,

social stability and economic welfare.

Many previously poor countries have made impressive gains in the last two decades through

SMEs. Development partners – like the UK government‟s Department for International

Development (DFID) – have recognised the importance of SMEs in economic development

and have since played a critical role in promoting the sector in developing countries like

Kenya (White and Fortune, 2004).

14
In Kenya, SMEs employ 8.3 million people and create 590 million jobs annually,

contributing 18% to the national wealth (Economic Survey, 2010). There has therefore been a

number of policy papers (sessional papers, development plans and legal notices) focusing on

the development of the SME sector. The most recent is Sessional Paper No. 2 of 2005 on

SME Development for Wealth and Employment Creation for Poverty Reduction. The

Sessional Paper specifically recognises the need to establish and maintain conducive

environment for SMEs so as to have the right capacity to produce high quality products and

thus create sustainable employment opportunities.

To this end, the Government welcomes all forms of support from development partners

channelled through appropriate mechanisms that do not cause market distortions. Facilitating

the sector to respond to the needs of the international customer is a key objective considering

that Kenya is part of the global trading system, where changing international trade regimes

and global business strategies affect the kind of opportunities available and constraints facing

the country. According to Gibbon and Ponte (2005), the terms of participation in international

trade have entailed more demanding capabilities on SME performance.

2.2.1 SMEs and Horticulture in Kenya

According to the 2004–2014 Strategy for Revitalizing Agriculture (GoK, SRA 2004) and the

EPZ Report (EPZ Report, 2005, Horticultural Policy 2012), agriculture and its related

activities account for over 50% of Kenya‟s Gross Domestic Product (GDP) and provides 62%

of national employment. The agricultural sector directly influences overall economic

performance in Kenya with periods of good economic performance being directly associated

with increased agricultural growth. Indeed, the horticultural subsector is emerging as a major

contributor to the economic development of Kenya (EPZ, 2005). The sector has shown a

15
fairly steady growth in the past five years with floriculture averaging 20% and fruits and

vegetables 10% (HCDA, 2005; Daily Nation 17 August 2006).

Exports of Horticultural Products (Kshs. bn)

100
90
80
70
60
50
40
30
20
10
0
2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: KNBS, Ministry of Agriculture and KHCP

Figure 2.1 Exports of Horticultural Products (Kshs. bn)

According to the USAID Kenya Horticulture Competitiveness Project (KHCP), Kenya‟s

horticultural export earnings rose by 18% in 2011, despite a 5% dip in volumes from 403,026

tonnes in 2010 to 382,638 tonnes in 2011 (Reuters, 20 February 2012). In 2011, the country

is said to have earned Kshs. 91.6 billion ($1.10 billion) from the sale of flower, fruit,

vegetable and nut exports, with flowers fetching the bulk of the earnings at Kshs. 44.51

billion – a 25% increase from the Kshs. 35.56 billion earned in 2010.

With the large and growing local market, future prospects look promising. Undoubtedly, the

survival of SMEs in this sector through improved performance is important and therefore

needs to be strengthened. The vibrancy of the sector‟s development through the private sector

has attracted substantial interest from development partners (Integrated Horticultural

Consultants, 2005; Bolo, 2005). In general, SMEs are an important target group for

innovation policy in many developing economies due to their distinctive characteristics

16
including a limited resource base compared to large firms and a lower ability to shape their

external environment (Nauwelaers and Wintjes, 2002).

2.2.2 Factors Affecting Horticultural SME Performance

A high proportion of newly established SMEs close down during their formative years, a

failure attributable to a number of factors including but not limited to the entrepreneurs, the

firms and the business environment in which they operate. These closures indicate that these

firms were not able to maintain alignment with their environment, or had never even

achieved it. A study conducted in 2009 by Ernst & Young on survival and growth rate of

enterprises in EAC countries highlighted seven major constraints contributing to SME failure.

These were the policy environment, access to finance, business development services, access

to markets, access to technology, infrastructural support and subcontracting. This also

strongly highlights unreliability of SMEs in terms of inconsistent supplies.

As mentioned previously, a Gemini study conducted in Kenya in 1993 established that one-

third of the 325,000 SMEs started in 1993 had failed or closed in the same year while another

90,000 failures or closures of SMEs started in previous years. A major factor behind these

poor growth and survival rates is the homogeneous nature of products manufactured and sold

by Kenyan SMEs, attributed to lack of skills in market research, engineering design and

marketing amongst entrepreneurs. Farther afield, in 2002, Finland demonstrated that half

(50.2%) of the firms that closed down had survived less than five years (Statistics Finland,

2004).

Changes in the business environment cause more uncertainty in SMEs than in large

companies. Most SMEs especially in developing countries are experiencing stiff competition

because price continues to be important, and quality, speed and flexibility matter more than

before. Due to forces of liberalisation and globalisation, SMEs have little choice but to
17
confront these pressures (UNECA, 2001). SMEs‟ ability to acquire information about the

market and change the course of the enterprise is very critical but poses a great challenge.

The response to changes in the business environment is experienced differently by SMEs

than it is in large companies (Chen and Hambrick, 1995). Large firms may abandon one of

their business areas but this may be impossible for SMEs. The options for responding and the

opportunities offered by the industry and location are limited by the firms‟ resources and

strategic choices.

To address these factors, SMEs must be supported to ensure access to necessary and

affordable inputs, delivery of business and financial services, enabling the flow of

information, facilitating improved market access including access to higher-value markets or

value-added products. Searching for innovation and effective facilitating models involving all

stakeholders in the private and the public sectors to improve performance is therefore

important. For horticultural SMEs, these performance challenges can be grouped into the

following areas:

2.2.2.1 Access to Resources

Investment climate assessment data indicates that the record of competitiveness and therefore

performance is poor for firms in Sub-Saharan Africa (World Bank, 2004). A joint report by

FKE, KAM and KEPSA (2007) acknowledged that the cost of doing business for SMEs and

the prevailing business environment are the major challenges to competitiveness of SMEs in

Kenya; the cost and unavailability of inputs such as fertilisers are also important issues.

Campayne (2006) also identifies limited resources for administration and changing business

cultures as challenges for SMEs and suggests diversification in opportunities, and practical

and information support to help counter these challenges. Glas et al. (1999) noted that SMEs

need time to establish their market presence in their own country before they can promote

18
their operations in foreign markets. They also argue that entering the international market is a

difficult task for SMEs especially those that are owned or managed by individuals who do not

have extensive export experience and have limited support in marketing, information and

other business services. Muganda (2003) also points out that the survival of SMEs depends

on their capacity to embrace the opportunities that e-business has to offer.

In many studies, firm resources and finances have been known to have a critical role; some

(Lussier, 1996; Hall and Young, 1991) underscore the fact that firms that start

undercapitalised have a greater chance of failure. Financial inadequacies such as

undercapitalisation and problems in venture capital relationship are the major factors

affecting firm failure (Bruno et al. 1987; Zacharakis et al. 1999; Boyle and Desai, 1991;

Cromie, 1991). The lower the levels of external borrowing are, the higher the probability that

the firm will survive (Reid, 1991). Thus, SMEs face financial and organisational challenges

that need to be addressed through innovative arrangements such as PPPs if growth is to be

sustained (IDA, 1996).

2.2.2.2 Access to Technology

In a knowledge-based economy, competitive advantage means the capacity to deliver fast is

critical. Innovative forms of work that raise productivity offer SMEs tremendous

opportunities such as access to world markets, low-cost entry into new markets and the

ability to gain efficiencies in business processes. However, these may be illusory for most

SMEs (Wickramansinghe and Sharma, 2005). Many consumers are now demanding that the

products they buy be produced in an environmentally-friendly way and this is expensive as it

means new innovations to produce „green‟ products with improved shelf-life or freshness.

With technology acquisition being expensive for many SMEs, PPP arrangements help to

make technologies affordable and accessible.

19
2.2.2.3 Access to Knowledge

Very often, the lack of education and inappropriate training is responsible for poor

performance and low productivity in agriculture. The success and competitiveness of any

business is dependent on a range of situational and contextual factors, which may involve

understanding the problems of such businesses and identifying potential solutions (Fielden et

al., 2000). In the case of horticulture, we are dealing with an extremely knowledge-intensive

and technologically demanding agricultural sub-sector. Therefore, acquisition of knowledge

in appropriate forms that enable decision making is important. Getz et al. (2005) assert that

businesses owned and operated by individuals and families are typically not grown for the

sake of getting bigger, nor are they managed as if profit making were the sole objective. They

are not prepared to take risks (Bridges.Org, 2002; Land, 2002; Lundeström and Steveson,

2002).

On the other hand, the strong desire of many SMEs owners to retain personal control and

business independence has long been recognised as a key factor limiting their growth (Gray,

1990). Owner-managers often perceive barriers to growth as being external in origin such as

issues related to money management being the difficulty for business start-ups. Thus, the

vulnerable phase of new SME requires the creation of a self-sustaining enterprise whose core

process is underpinned strongly with resources and capability of opportunity exploitation

(Thakur, 1995). Availability of human resources and managerial expertise that is critical for

the competitiveness of the agricultural market can only be adequately achieved by pooling

resources and expertise and sharing risks between the public and private sectors.

2.2.2.4 Training

SME failure may also be related to a number of factors including but not limited to the

entrepreneur‟s lack of higher education and experience, lack of an effective management

20
team, innovativeness in products, good customer relationships, avoidance of dependency on

only a few customers, good cooperation relationships, adequate financing, skilled personnel,

strategic planning, firm growth, firm flexibility, focusing on core business, and operation in

favourable economic conditions.

In explaining firm failures, a number of studies have concentrated on entrepreneur

characteristics like the entrepreneur‟s age, gender, lack of work experience, and family

background. However, entrepreneur‟s education has been quite consistently verified in

empirical studies to influence firm performance positively (Storey, 1994). Lussier (1996)

shows that there is considerable evidence that firms managed by people without management

experience have a greater chance of failure than firms managed by people with such

experience. Jennings and Beaver (1997) further observe failure or poor performance of small

firms is linked to lack of management attention to strategic issues be it at the national,

regional or global level. This inhibition can be linked to education and ability to acquire the

right information and making use of it to inform timely decisions.

Poor management is often associated with firm failure in several studies (Haswell and

Holmes, 1989; Gaskill et al. 1993; O‟Neill and Duker, 1986). Lack of management skills was

seen to be a major failure determinant by Zacharakis et al. (1999), and Boyle and Desai,

(1991) contend that the entrepreneur‟s inability to perform both planning and administrative

functions is associated with firm failure.

2.2.3 Measuring SME Performance

Performance measurements are designed to support management in measuring SME

performance to improve on better decision making. According to Neely et al. (2002),

performance can be assessed using different measures and perspectives. These measures can

be financial and non-financial measures and can include profit before tax and turnover while
21
the non-financial measures focus on issues pertaining to customers‟ satisfaction and

customers‟ referral rates, delivery time, waiting time and employees‟ turnover (Chong 2009).

Tatichi et al. (2008) mentioned that SMEs have used financial measurement tools such as

Return on Investment (ROI), Return on Equity (ROE), and Return on Capital Employed

(ROCE). The various measurements and perspectives are tied together and continuously

monitor the internal and external context of the organisation.

Garengo et al. (2005) outlines a number of models that have been widely used in measuring

performance. These are summarised as follows (a) Performance measurement matrix

(Keegan, et al., 1989), (b) Performance pyramid system (Lynch and Cross, 1991), (c)

Performance measurement system for service industries (Fitzgerald, et al., 1991), (d)

Balanced Scorecard (Kaplan and Norton, 1992, 1996), (e) Integrated performance

measurement system (Bititci, et al., 1997), (f) Performance Prism (Neely, et al., 2002), (g)

Organisational Performance measurement (Chennell et al., 2000), and (h) Integrated

Performance measurement for small firms (Laitinen, 1996, 2002).

Various scholars state that there are a number of challenges that SMEs face in the

implementation of these models and suggest that a possible way forward is to apply the non-

financial measures as supplements to the financial measures (Kunkel and Hofer, 1993; Covin

and Slevin, 1989; Begley and Boyd, 1987; Sandberg and Hofer, 1987; Manville, 2006). The

combinations of these two measures help SME managers to gain a wider perspective on

measuring and comparing their performance, in particular the extent of effectiveness and

efficiency in utilizing the resources, competitiveness and readiness to face the growing

external pressure including globalisation.

Frequently adopted non-financial measures used by the SMEs include number of employees

(Orseret al., 2000; Mohr and Spekman, 1994; Robinson and Sexton, 1994; Loscocco and

22
Leicht, 1993; Davidsson, 1991; O‟Farell, 1986), growth in profits (Miller, Wilson, and

Adams 1988), market share and market access (Bouchikhi, 1993; O‟Farell, 1986). There are

five distinct performance perspectives that SMEs need to address when defining a set of

performance measures: stakeholder satisfaction, strategies, processes, capabilities and

stakeholder contribution (Jamil and Mohamed, 2011).

Depending on the duration of a project that the SMEs undertake, the results and returns can

be measured based on the short or long-term measures. Short-term measures are normally

based on the financial returns, and long-term measures on non-financial returns. The short-

term financial measures, which include revenues and profitability, reflecting an

organisation‟s current state of performance may not necessarily serve as a useful guide or

prediction for the organisation‟s long-term survival (Birley and Westhead, 1994). Haber and

Reichel (2005), advance that SMEs can achieve future growth and expansion by adopting a

growth strategy that is supported through a pool of resources built through accumulating the

revenues and profits over the trading period. Phillips (1999) argues that profitability in the

short run is an important factor in the SME‟s ability to achieve its long-term goals such as

increased market share, improved capacity and competitiveness.

In summary, SMEs adopt a hybrid approach combining both the financial and non-financial

measures to evaluate performance against the predetermined goals. In effect, most SMEs use

profits, growth (revenue and number of employees), and market share and market access as

measuring indicators.

2.2.4 Markets Access Challenges for Horticultural SMEs

Participation in the global trading system means that some of the challenges that face

commodity-based SMEs especially in Africa are rapidly changing and are entirely new,

demanding new business strategies for SMEs to remain competitive. To avoid further
23
marginalisation, there is need for a better understanding and interaction between public forms

of governance involving international and domestic regulation and private forms of

governance, which involve global business strategies and the dynamics of coordination in

global value chains (Gibbon and Ponte, 2005). Without the right market strategy, some

enterprises are unlikely to succeed in the highly competitive international agricultural market.

Limitations to these interactions have an impact on the emergence and survival of local SMEs

involved in global commodity business, and therefore intervention strategies that improve

market share are important and must be fostered.

Developing and adapting to quality standards with scarce resources remains a challenge for

SMEs in horticulture. Tschirley et al. (2004) specifically cite challenges facing SMEs in

horticulture as being driven by consumer demand for quality and food safety in the export

market. Curran (1999) suggests that seeking to improve the competitiveness of SMEs is not

only about understanding problems confronting businesses in this sector but also about

understanding how to overcome these barriers. According to Narrod et al. (2008), market

access requires stringent food safety requirements and to enable SMEs to remain competitive

in such a global system, new institutional arrangements are required. In particular, Public–

Private Partnerships can play a key role in creating farm to market linkages. Already we are

beginning to see a campaign by UK supermarkets (Daily Nation, 02 March 2007) to cut

imports of African horticultural produce. The “food mile” debate as it is now known, poses a

dilemma for African small producers who are trying to trade their way out of poverty.

This affects performance and requires innovative partnerships between the public and private

sectors that help SMEs address the challenge. Weak institutional support and frameworks

also plays a major role in market access. Constraints in the areas of utilities, working capital,

strong competition, a shortage of inputs are some of the major drawbacks that have been

24
identified as barriers to the growth and ultimately better performance of SMEs (Mahemba,

2003). He argues that types of barriers and problems facing SMEs depend among other things

on the size of an SME and the sector condition.

There are pertinent internal and firm-external factors that may contribute to firm failure either

immediately or in the long-term. The external business environment of the firm, essentially

the macroeconomic situation and the changes in it, has been found to have an association

with firm failure. Poor external market conditions, including stiff competition, slow market

growth, and small market size, have been identified as major factors associated with firm

failure. Other studies have also found that stiff and increased competition and the firm‟s

inability to respond to it, are also associated with firm failure (Roure and Maidique, 1986;

Gaskill et al. 1993).

In addition, firm type is important as is the context, which plays a critical role in that, what

works in one context will not necessarily work in another. For example, in horticulture,

managing the product to market chain is complex because of the characteristic of the

products. Perishability, price variability, quality, quantity, seasonality and, bulkiness

complicate efficient organisation of this highly perishable supply chain. That the industry is

characterised by a high number of SME producers further complicates matters. This entails,

for example, high transactions costs, it increases the variability of production, and the

geographic spread increases distribution costs. These characteristics require advanced

organisation, and management to result in an efficient and seamless sustainable global supply

chain (ISHS, 2005). Many failure factors are also related to products and services, customers

and markets, and cooperation and partnerships with other stakeholders. Reid (1991) advances

that the greater the product range the higher the probability that the firm will survive.

25
An enabling policy environment is important. The change of scenario in developing countries

has been very rapid with the liberalisation of the agricultural sector. This has led to

governments withdrawing from many agricultural marketing functions, thereby affecting

supply chains. This implies a diminished market and accessibility to the ancillary services by

parastatal marketing boards for smallholder producers while farmers in developed countries

continue to get subsidies from their governments (UNCTAD, 2006).

A study conducted by Bridges.Org (2002) opines that entrepreneurship or SME support

initiatives can be used to address some of these barriers. Factors such as risk and business

owners‟ response to risk, demand, economies of scale, entrepreneurship, access to capital and

government policies could determine whether a given SME grows or not (Ongile and

McCormick, 1996). The same authors also assert that economies of scale allow big firms to

produce cheaply and charge low prices compared to SMEs. Creativity or innovation and

willingness to take risks, access to resources for buying raw materials, employment of quality

labour and effects of government policies (that directly or indirectly discourage growth) are

very crucial for the survival of SMEs. This study contends that through PPP these concerns

can be addressed.

Economies of scale or agglomeration also play an important part in performance. The

competitiveness of the agricultural sector in general and the horticultural subsector in

particular, depends to a larger extent on the individual enterprises at micro level. The

existence of small-scale production units in many developing countries also leads to poor

performance because agricultural products are collected often by many traders from many

different producers to achieve some economies of scale with a huge variance of different

qualities combined. Exporting the products is often difficult due to strict market requirements

26
in terms of production standards; postharvest handling, social and environmental issues

(Nyangweso and Odhiambo, 2004).

Formation of production groups managed by one experienced entity as opposed to individual

small-scale producers who have no brand name attached to them or certification of their own

may help to address this vulnerability concern. Partnerships provided by the big private firms

guarantee markets, as there is better coordination that will ensure consistency in standards,

production of crops at the same time and availability of modern technology among other

things. Hence, strategies and policies that enhance them are important in SME development.

2.2.4.1 Measuring Market Access

Market access covers new or improved entry for horticulture products (fresh fruit, vegetables,

nuts, cut-flowers and nursery production) into markets where terms and conditions of access

need to be negotiated on an inter-governmental basis with those authorities responsible for

the control of import, health and safety regimes. This broad definition of market access

covers phytosanitary (quarantine), sanitary (contaminants e.g. pesticides) and non-quarantine

(e.g. exclusion, duties, quotas, tariffs, licences) requirements that need to be addressed

through the established channels for authorising or improving access (Horticulture Australia,

2010).

Greater market access leads to increase in trade and from increased trade comes greater

income growth. Unfortunately, there exists no single agreed measure or commonly accepted

definition of market access. Market access has traditionally been analysed from an

international trade perspective. In the trade policy literature, market access is an umbrella

term aimed at including analysis of a number of measures that countries may use to restrict

imports and therefore limit market access (Squalli J. and Wilson K., 2007).

27
The extent to which markets are open and transparent to trade is important for SMEs

involved in global trade in accessing the markets. SMEs must pay attention to barriers to

entry and be well prepared to address them. The “Composite Index of Market Access”

(CIMA) can be used to measure market access. This approach proposes a shift of focus from

the number and complexity of measures being considered like export tariffs, technical

barriers, health and safety measures and standards to a uniform and comparable index. A

study conducted by the International Centre for Trade and Sustainable Development (ICTSD)

suggests that CIMA could become an effective tool for policy discussions. A number of

issues such as the following could be considered. Perhaps most important in the context of

this study is to (i) identify shifts in market access over time and (ii) empower exporting

farmers with useful information on which to base decisions. In the study, the data has been

captured based on some of the (i) history of market access increase over time and (ii) increase

in the level of market share over the period when the SMEs started getting PPP support.

Evidence of increased access and share is based on SME owner‟s perceptions and measured

on a Likert scale.

Romalis (2006) posits that trade expansion induced by greater market access appears to cause

a quantitatively large acceleration in the growth rates of the participating entity, be it an SME

or a country. Trade depends on all countries‟ barriers. While improved access to developed

country markets can expand developing country trade, it can do little for an economy that is

essentially closed. He further suggests that the quality of institutions is critical in this.

Kamara (2004) advances that market access is „time taken to the market‟, which is more

appropriate than physical distances due to differences in wealth and farm resources, and

hence different means of transportation. This is where PPP becomes important in ensuring the

development of institutions and infrastructural support that can cope with these challenges. A

good example is the Practical Training Centre. The Centre, which has been developed as a

28
PPP between the Fresh Produce Exporters Association of Kenya (FPEAK) and the Kenya

Agricultural Research Institute (KARI), helps to build all-round capacity including

strengthening institutions to achieve improved market access and business performance

through PPP arrangements.

2.2.5 Public-Private Partnerships

Several scholars have addressed the meaning of Public-Private Partnerships, specifically what

is meant by the public and private sectors and therefore the context in which the two terms

are used in this study. Spielman and Grebmer (2004) refer to the public sector as everything

that is publicly owned and controlled and managed by the government. It could be a State-

owned company commonly known as parastatal or corporation, or a public hospital or school,

essentially that part of the economy not in private ownership. The private sector refers to the

business sector or that part of the economy that consists of businesses, companies and

professionals who trade products and services for income and profit. The businesses are not

associated with government agencies and are strictly owned by private investors as opposed

to ownership by the government.

Most African countries today embrace the private sector to help in their economic

development efforts with national development plans increasingly focusing on the promotion

of the SME sector. Biggs (2003) argues that a good development strategy should be one that

assists the development of SMEs. Some of the required actions suggest partnerships between

the public and private sectors. In Kenya, efforts to get the private sector more actively

involved in development are on the increase. Beck et al. (2003) suggest that in a developing

economy like Kenya where entrepreneurship culture remains fragile, direct government or

public sector‟s support of SMEs would help in improving the performance and growth of the

sector.

29
In small countries, PPPs have helped SMEs overcome market failures and the disadvantages

of global trading systems but their survival will depend largely on the collective ability of

these two sectors to stimulate and improve performance (Spielman and Grebmer, 2004). In

general, SMEs provide the bulk of the entrepreneurs and employment in developing countries

and their linkages with larger enterprises is critical for successful business practices (ESCAP,

2003). For this reason, it is necessary to reflect and systematically address challenges that

face Small and Medium Horticultural Enterprises proprietors.

Spielman and Grebmer (2004) noted that in a PPP arrangement the public sector‟s

responsibility is mostly that of oversight and quality assessment while the private sector‟s is

more closely involved in the actual delivery of the service or project. They further observed

that each sector works together towards a mutual and collective goal based on the fact that the

partnership optimises the comparative advantage of both sectors and yields significant

benefits for the participants. In addition, the private sector is seen to be more efficient in the

delivery of services than the public sector.

Partnerships between the private and public sectors are important e.g. in situations where

there may be a need to stimulate small firms and where market failures may result because of

lack of or inappropriate technology transfer and innovations (Demirguc-Kunt, and Levine,

2003). The underlying issue is that in an era of globalisation and with increasing constraints

on national budgets and increasing public expectations, today‟s complex problems cannot be

fulfilled by only one sector. PPPs allow one to make use of the special strengths –

entrepreneurial, technological, and managerial – of the private sector while safeguarding

public interest and at the same time utilising public strengths in areas such as legal authority,

capital asset and procedural strength. The study identifies how the beneficial interactions

between the two sectors contribute to improved performance of horticultural SMEs.

30
2.2.5.1 Benefits of Public-Private Partnerships

It is argued that Public-Private Partnerships maximise on opportunity and provide optimal

solutions where the two sectors bring different opportunities and expertise to the table that

help in the management of complex situations and as a result improve performance. PPPs are

best suited for activities that require large investment that neither the public nor the private

sector is able to provide entirely on its own, which may be a technology or expertise. Mostly,

the private sector provides the motivation, expertise and sometimes financial resource while

the public sector ensures that public interest is addressed at all times (Nathan Associates Inc.,

2004). Small firms are generally more vulnerable than the large ones due to market pressures

and as such find it difficult investing in long-term growth strategies.

PPPs are best suitable for activities that require huge investments in terms of technology and

proficiency that neither the public nor the private sector is able to supply wholly on its own. It

is further argued that PPPs make the most of opportunity and provide most favourable

solutions where the two sectors bring all-round opportunities and expertise to the table that

play a crucial role in the administration of complex situations and as a result get better

performance.

While globalisation was expected to help less skilful farmers, overwhelming evidence

indicates the opposite; Goldberg and Pavcnik (2006) observe that the era of globalisation has

in fact been a failure for most farmers in developing countries. Although some local support

systems still exist at certain levels, most have been removed through the liberalisation

process, and as a consequence, sustaining SMEs in horticulture as an instrument or vehicle

for economic growth remains a challenge considering that maintaining strong goal

competitiveness is vital to the process.

31
The horticultural subsector is comprised of both big firms that have influence and control of

global chains and small firms that currently account for about 95% of the production and

60% of the export but are exceedingly helpless to market shocks. Poon (1993) argues that the

public and private sectors often control the business that delivers the product. Thus,

teamwork between the private and public sectors in the form of Public-Private Partnership is

important to the success of the SMEs. This study therefore establishes the contribution of

PPPs in improving SME performance in view of the existing global realities and challenges.

An SME export market prospects study in Tanzania (Ogutu, 2006) indicated that cooperation

among SME support institutions helped to leverage resources available to support the sector.

The study notes that wherever SMEs have been successful around the world, it has been as a

result of public-private cooperation or partnership. Therefore, cooperation or partnership

between support institutions to improve the SME sector is essential as shown in Figure 2.2

below.

32
 Government /multilaterals Business environment:  Government regulations
 Business/industry bodies  Market Institutions
Liberalized trade and global competition
 Political movements/NGOs  Infrastructure providers
Local infrastructure and institutions
Public policy Business
influence environment
development

 Business development
 Industry initiatives services
 Multisector initiatives Trade  Export and import promotion
 Standards bodies and
Standards SME agencies
facilitation
certification schemes  Development projects and
Buyer’s Direct NGOs
Demand marketing
Technical and
 Multinational companies other Support  National sector marketing
(supply chain customers) initiatives
 Industry initiatives  Producer cooperatives
 Multisector initiatives  Multinational companies (supply  Fairtrade organization (ATOs
 Codes of conduct chain customers) and NGOs)
 Investors
 Government and multilateral
initiatives
 NGOs and ATOs

Source: UNIDO (2006)

Figure 2.2 PPP Support to SMEs

A broad view of these approaches is presented and therefore what is needed to support the

SMEs to improve their performance. Each approach is not limited to one kind of

organisation: technical support to improve quality and consistency is provided through

multinational companies‟ supplier development processes, although such supplier

development is often limited to larger suppliers (UNIDO, 2001); fair trade organisations‟

partnerships and government and nongovernmental organisations technical assistance

programmes.

Organisations need to work through an agreed and well defined framework to achieve

synergistic impact, which would mean much higher benefits to SMEs than each could attain

on their own. Cooperation is best organised around one coordinating body (UNIDO, 2001).

33
SME development must encompass improving access to finance, skills, technology,

information, sound business practices, legal rights and markets. To achieve this, effective

partnerships and intermediaries that are capable of addressing the market failures and

institutional constraints currently hindering SMEs from accessing these public goods and

business opportunities, need to be put in place. Such partnerships are also essential in helping

small enterprises upgrade and integrate into broader production networks and value chains.

These partnerships include enhanced enterprise support services and new types of alliances

among companies, trade associations, governments, donors, academic institutions and

nongovernmental organisations, thus offering great potential for promoting enterprise

development (Bekefi, 2006).

2.2.5.2 Public-Private Partnership Approaches

In a presentation given at the World Bank Annual Meeting in Dubai in 2003, the Bank‟s Vice

President, Robert Davies attempts to classify PPP into three categories as outlined in the table

below.

34
Table 2.1 Typologies of Public-Private Partnerships

Type of PPP Example

Partnerships to  SEKEM Group in Egypt engaged in enterprise and agriculture
promote private development through which 2,000 employees and 600 farmers
sector development are engaged in organic agricultural production.
– for example in  World Bank Business Partners for Development that supplies
infrastructure such as reliable drinking water to the slums of Senegal.
water management
(irrigation), roads,
ports and power.
Bringing services to
the bottom of the
pyramid.
Partnerships to 
In Vietnam, multinational global footwear companies like Nike,
promote standards Adidas and international agencies collaborate with the
around impacts of Government and NGOs to raise health, safety and business
business – such as standards through collective action in Vietnam‟s footwear
the maximum residue industry that employs 500,000 workers.
levels (MRLs)  EU support to small-scale producers through the COLEACP
demanded by programme to manage maximum pesticide residue levels
importing countries through GAP.
for agricultural  Production of quality coffee through improved processing
products. Protecting methods. The governments of Ethiopia and Rwanda with
biodiversity, stocks support from the Common Fund for Commodities in
of fish and timber, collaboration with IllyCafé, a coffee corporate with technical
labour standards, CO2 assistance provided by CAB International.
emission (carbon  In Kenya, Finlay‟s Homegrown Kenya Ltd supports small-scale
miles). producers‟ access to global horticultural markets by assisting
them adhere to international standards and achieve economies of
scale.
Partnerships to  In South Africa, IBLF (working with the World Bank) supports
leverage the skills the Digital Partnership bringing together global IT corporations
and resources of the Oracle, SAP and Microsoft in a unique collaboration with the
private sector in the Government to provide an integrated package of affordable
development of technology, training and support for schools and community
innovative solutions projects. The use of thousands of PCs decommissioned from a
to public problems small number of companies and refurbished in country, to
and concerns that optimise job creation and a global logistics chain, offer a
have defeated solution that is scalable and sustainable.
bureaucracies – such  In Poland, the Autokreacja Programme brings together big
as delivery of corporates such as BP, Tesco and Nestle with the Ministry of
healthcare and health Labour to provide a training programme targeted at long-term
promotion, training unemployed young adults.
and access to digital  In South Africa, small-scale farmers who have planted Bollgard
technologies. insect-protected cotton use up to 6 fewer insecticide sprays per
season and have seen their crop yields increase 20 – 60%
generating significantly more income per hectare than farmers
growing conventional cotton (Kirsten and Gouse, 2002).
Source: Modified from World Bank (2006)

35
2.2.6 Mitigating SME Performance Constraints through PPP

Public-Private Partnerships have become increasingly popular in development policy and

practice as a means of addressing issues as diverse as health, education, environment,

finance, governance, and agriculture (Fiszbein and Lowden, 1999; Bennett et al., 1999; Buse

and Walt, 2000).

Finlays Homegrown Kenya Ltd is a good example of how a PPP arrangement enables Small

and Medium Horticultural Enterprises access global markets. Steve Homer of Finlays

Homegrown Kenya Ltd in a presentation to UNCTAD in December 2006 summarised their

horticultural business as follows, “Finlays Homegrown Kenya Ltd is all about getting a

product from a small farmer (i.e. SME in Kenya) to Marks & Spencer in Marble Arch in the

UK in 72 hours. Finlays Homegrown Kenya Ltd is a large business that fills a gap between

extension services, the infrastructure gap in Kenya, quite successfully over the last 20 years”

(UNCTAD, 2006).

PPPs have become popular as a way to foster the development of innovations through

collaborative R&D (Faulkner and Senker, 1994; Hagedorn and Schakenraad, 1994; Hall et

al., 2000; Spielman and Grebmer, 2004). However, many Public-Private Partnership

approaches, in a privatisation-like manner, seek to outsource public services to private

companies. In contrast, Public-Private Partnerships are understood here as arrangements that

support the autonomy of public research organisations by rendering their work more relevant,

demand-oriented and efficient.

Development theorists have argued that Public-Private Partnerships present advantages to

both public research organisations and private sector entities, and can generate social benefits

(Spielman and Grebmer, 2004). Furthermore, some have argued that Public-Private

Partnerships evolve in the interface between technological feasibility and the response to
36
market demands (Vieira and Hartwich, 2002). Viable innovation partnerships can be seen as

cooperative arrangements between two or more institutions in the private and public sectors

that involve shared ownership and responsibility, joint investment, shared risk taking and

mutual benefit. Increasing empirical evidence shows that where partnerships between firms

and public research organisations or universities are strong, benefits are derived from quicker

information diffusion and product deployment (Osborne, 2000). Public-Private Partnerships

allow private enterprises to increase the benefits of innovation. They also provide capital to

co-finance government programmes in areas where social benefits can be achieved. Public-

Private Partnerships for innovation development may be particularly useful in agricultural

chains characterised by out-dated knowledge and technology, and limited research capacities

and funding.

The incentive driving public and private agents to enter partnerships is usually the interest in

profiting from innovation. Here it is important to distinguish between benefits resulting from

the innovation itself regardless of whether it is generated through a partnership arrangement

or not. Table 2.1 above has listed some of the benefits that can result from innovation

partnerships.

2.3 Related Empirical Research

2.3.1 Roles of the Different Sectors in Public-Private Partnerships

International development approaches have become increasingly multidimensional, involving

a number of stakeholders from the public and private sectors including NGOs (Unwin, 2004).

The failure of the structural adjustment programmes has meant that different approaches to

address development are explored, reigniting the crucial role of government in economic

development (Menocal, 2004; Therien, 2002). Government is crucial to the implementation

of coordinated, cooperative and holistic development strategies that engage contextually with
37
unique country-specific institutional systems. Thus, in playing their key role of supporting

economic development, governments must work in partnership with the private sector and

NGOs (WSSD, 2002). Furthermore, economic reforms must be implemented in accordance

with national interests, priorities and strengths. A number of Asian countries including Hong

Kong, Singapore, South Korea and Taiwan have become successful by constructing specialist

economies through integrated national development strategies that simultaneously brought

together institutions within the economy to complement national strategies, leading to rapid

industrialisation and economic growth (hiiDunia, 2010).

In horticulture, international production and trade are increasingly organised by specialised

firms involved in strategic decision-making and economic network at a global level. The

buyers, mostly supermarkets from the developed countries, play a key role in governing the

chain due to their size and international market power. This enables them to dictate standards

based on quality, food safety and costs, a factor that increases SMEs vulnerability.

Fortunately, working with the private sector (big business) and the public sector helps them

to address the barriers or threats of entry into global business.

2.3.1.1 Role of the Private Sector

The private sector comprises big business or multinational corporations. They play an

important and strategic role in international trade where they create efficient linkages from

the farm to market, and among regions, to develop reliable supply chains to deliver trusted,

quality products at lower cost and to innovate. They actively manage supply from farming,

origination, primary processing and logistics, to secondary processing, marketing,

distribution and customer delivery, managing the risks present at each stage. They offer the

markets they supply reliability, consistency, trust, traceability and other value-added services.

38
They also offer storage and processing facilities including transport systems moving goods

from farms to the importing countries (Dy, 2011).

2.3.1.2 Role of the Public Sector

The role of the State in economic development is of critical importance. According to Polanyi

(2001), markets exist by design and success depends on continuous institutional control and

manipulation by a central body. Menocal (2004) further argues that the State has been the

only institution capable of providing the infrastructure, power and knowledge to promote the

exchange of goods and facilitate economic growth. The State has unparalleled geographical

centralisation, monopoly of power and administrative capacity, enabling the implementation

of cross-sector, holistic strategies based on unique national structures and assets (Brohman,

1995).

Alongside the emergence of poverty reduction paradigms in the 1990s, with the support of

international development institutions, bilateral donors began prioritising State capacity

building as a means of constructing economies and implementing pro-poor development

strategies. The Government can and will influence the determinants needed to support SME

performance for example subsidies, production factors, supporting institutional building

including research (ISHS, 2005). A range of government policy structures is thus suitable for

creating and sustaining enterprises – from taxation regimes and market-based instruments to

consumption policies and changes in the national system of innovation. Policy makers also

need to ensure that educational systems provide adequate technical training. They need to

support agribusiness and technology incubators, export processing zones and production

networks as well as sharpen the associated skills through agribusiness education (Juma,

2011).

39
2.3.1.3 Role of the NGOs

NGOs and governments have become inextricably connected within international

development. NGOs have become facilitators of bottom-up development, through micro-

programmes and technical assistance. According to Vandemoortele (2009), insufficient

capacity and resources to implement economic development at all levels of the economy

legitimises NGOs as facilitators of bottom-up development. They have both the means and

flexibility to reach remote communities to address specific issues that the Government lacks

the capacity to cover (Yannis, 2001). Consequently, NGOs are widely championed for being

facilitators of participatory economic development through their ability to concentrate efforts

on small-scale programmes, which ensure the needs of the vulnerable are addressed.

NGOs saturate grassroots development, providing services that become domestic commercial

enterprises. For example, expanding NGO micro-credit programmes supply otherwise

unobtainable capital to small-scale entrepreneurs, providing the means necessary for many to

escape extreme poverty by enabling micro-enterprises to graduate into small and medium

enterprises thereby increasing the income of the entrepreneur and creating jobs. Rogerson

(2001) advocates NGOs as fundamental providers of capital to micro-entrepreneurs but

further argues that sustainability can only come from a combination of access to markets,

capital, skills and technical knowledge, which can only be achieved through

multidimensional approaches or partnerships requiring government, NGO and private sector

cooperation (PPP arrangement).

Streeten (1997) argues that NGOs are in a strong position to provide relevant technical

support and training to already established enterprises leading to increased efficiency and

productivity, thus creating greater output at lower operation costs. In Kenya, NGOs play an

important role in the country‟s development. During the financial year 2009-2010, NGOs

40
spent approx. Kshs. 130 billion on projects in various parts of the country (NGOs

Coordination Board, 2009). Most projects implemented were in tandem with the Millennium

Development Goals and Kenya‟s Vision 2030.

The report also revealed a low level of collaboration (13 per cent) between the Government

and NGOs. This does not augur well for the attainment of MDGs and Vision 2030, especially

the social pillars that require joint efforts by government and NGOs. A report on National

Validation Survey of NGOs (2009) noted the importance of collaboration between NGOs,

Government departments and other organisations in improving livelihoods in the community.

More positively, the survey noted that Kshs. 118 million of funding for NGOs was from

government agencies. This provides a firm basis for improved partnerships and engagements

between business, government and NGOs.

From the foregoing, it can be seen that the PPPs involve government, private sector and

NGOs. The latter two groups, having become critical players in the development of SMEs,

must therefore not be seen as peripheral to these efforts. They need to be incorporated

through formal PPP arrangements embedded in the national structures and monitored and

coordinated by an agency that brings all the actors together including the contributory sectors

of government. Given the cross-sectoral nature of these issues and the Government‟s

facilitating role, the Government must provide the lead in these efforts as effective strategies

require holistic, multi-dimensional and coordinated approaches which engage with

institutions across all sectors where bottom-up and top-down approaches complement each

other in mutual pursuit to support SMEs growth through the creation of an enabling

environment UNIDO, (2006). How the public and private sectors are organised to

communicate, consult and cooperate with each other becomes the important issue and hence

the thrust of this study.

41
2.3.2 Public-Private Partnership Experiences

A global review of international models of PPPs shows their wide application with varied

experiences (Heiler, 2002; Palmer, 2009). For example, highly industrial countries have

benefited from agricultural research and development by both public and private sectors,

whereas developing countries, by and large, have relied on less than adequate funding,

principally from the public sector. In the future, it is imperative that developing countries

invest significantly more public sector funding in agricultural R&D and encourage more

private sector investments (Cliver, 2004).

In the Irish situation, skill shortages in the local public and private sectors were considered

the main reason for accessing non-local skills via the PPP model. The UK experience with

PPP is probably greater than in any other country. There is a mature PPP industry to the

extent that UK water companies and consultants have exported their experience in the form

of PPP offerings and associated consultancy services. The utilisation of PPP models in the

USA is more limited in comparison with the European activity, where the most common

funding model used for infrastructure development is by way of bond issues from stakeholder

partners (UNDESA, 2003). Australia has also followed closely both variants of the UK

model for PPP (Heiler, 2002). Malaysia‟s experience with PPPs is mixed; whereas toll roads

have been developed successfully, water supply schemes that were privatised met with

community rejection when the private sector dealt with the customers. The process has

however led to considerable innovation in competing proposals. Success seems to be

accompanied with high returns on investment, and there has been strong private sector

interest (Heiler, 2002).

In Africa, not much has been achieved. Unlike most other African countries where content on

government websites is still very little, South Africa‟s advanced ICT adoption has helped to

42
form and increase networks by enhancing access to information about the best practices of

operation, market prices at different locations and sources of supply of inputs, thereby

reducing obstacles to business (Wolf, 2001). In Tanzania, the World Agroforestry Centre has

partnered with Unilever and the Government to promote extraction of edible oil from the

seeds of the indigenous Allanblackia tree on a commercial scale (ICRAF, 2006).

In Kenya, there are few known examples of PPPs but their effects or impacts are not well

documented and information on them is not easily available. A few organisations are trying

to embrace PPPs to support agricultural development. Traditionally, PPPs have been

understood to mean large infrastructure projects in sectors such as energy and transport.

According to Eldon (in Business Daily 05 April 2012), alongside what he describes as “hard”

PPPs, there is much exciting potential for “soft” PPPs including in education and health,

agriculture and water. In agriculture, PPPs often focus on improving supply chains. The Fresh

Produce Exporters Association of Kenya (FPEAK) and the Kenya Agricultural Research

Institute (KARI) for example have developed a Practical Training Centre (PTC) through a

PPP. The Centre seeks to provide the practical skills in production, value-addition and

marketing to the entire horticultural subsector. KARI provides research backup while FPEAK

handles the practical skills and business information aspects necessary for the efficient

operation of enterprises involved in horticulture.

Other examples include SNV, which has partnered with Honey Care Africa to help deliver

West Pokot honey onto supermarket shelves, and the Kenya Business Development Services

(a USAID-funded programme), Ministry of Agriculture and the Coast Development

Authority, which focuses on improving production, processing and marketing of mangoes

(KIT, Faida MaLi and IIRR, 2006). East African Breweries through its subsidiary East

African Malting‟s has been supporting barley farmers grow sorghum in 17 districts in Kenya.

43
In collaboration with KARI, the initiative includes supplying certified of seeds to over 10,000

farmers in semi-arid areas. This approach to inclusive value chains stimulates

entrepreneurship and helps to build business competence by small-scale farmers. Kevian is

offering farmers extension services to raise production working in partnership with GTZ and

HCDA.

2.4 Theoretical Framework

From empirical literature, the study has shown that there exist cases of successful PPP

undertakings in different parts of the world at different levels of interaction pertaining to

different forms of organisations. However, PPPs exist in implicit circumstances especially

where the Government plays the facilitative role. Similarly, in theory, PPP relationships have

not benefited from direct enquiry, hence the attendant paucity. It is not lost on this study that

PPPs exist against a background of mutual trust and interdependence, where parties to the

relationships expect certain benefits to come their way on fulfilling their part of the bargain

or responsibility and obligation, as is mostly the case with the public sector.

However, the private sector is also increasingly coming under pressure to provide support as

it recoups benefit from society, given its high level of dependence on the natural

environment. The private sector needs to fully understand the world around it and the needs

of the people upon whom it relies to contribute to well-run business operations. Their actions

must pay attention to issues of natural resource depletion, climate change and population

demands.

It is also true to say that this parties rarely have an equal stake in terms of commitment and

investments. For example, in the case of Small and Medium Horticultural Enterprises and the

other parties to PPPs, the former is dispensable and at the mercy of the other partners.

Logically, this kind of relationship can be sufficiently premised along the thoughts of the
44
agency theory. It must be noted though that there is no unified theoretical basis for PPPs but

one can draw on the Principal-Agent Theory given the specific nature of risks existing in

most PPP projects (PPP Practise and Policy, 2006).

Agency theory is founded on the principle of the relation between two parties – Principal and

Agent. The Agent is expected to act in the best interest of the Principal at all times. Based on

this study we have three parties: private sector, public sector and small and medium

horticultural enterprise. Thus, there subsist two relationships namely:

(i) Public sector and private sector

Public sector provides the private sector with an enabling environment to spur the activities

of the private sector hence the public sector expects that the private sector will advance its

social agenda of supporting Small and Medium Horticultural enterprises as it would have

done. However, this is simply not the case. Varied interest within the private sector and the

profit motive hinders the honouring of the agency theory principles.

(ii) Private sector and small and medium horticultural enterprises

Similarly, the private sector engages the small and medium horticultural enterprises to

produce on their behalf, through facilitating the value chain. However varied challenges have

been evident in this arrangement that have indicated that small and medium horticultural

enterprises tend to pursue their own benefit rather than work also to achieve benefit for the

private sector.

A number of authors have attempted to explore risk sharing among individuals or groups

(Arrow, 1971; Wilson, 1968). This literature described the risk-sharing problem as one that

arises when cooperating parties have different attitudes toward risk. This problem is also

identified within the Public-Private Partnership framework. The divergent goals of the

partnership reflect the different levels of risk acceptance. Agency theory broadened this risk-

45
sharing literature to include the so-called agency problem that occurs when cooperating

parties have different goals and division of labour (Jensen and Meckling, 1976; Ross, 1973).

Specifically, agency theory is directed at the agency relationship, in which one party (the

principal) delegates work to another (the agent), who performs that work. Agency theory

attempts to describe this relationship using the metaphor of a contract (Jensen and Meckling,

1976).

The agency theory helps us understand the relationships that subsist in a Public-Private

Partnership. The theory is concerned with resolving two problems that can occur in agency

relationships. The first is the agency problem that arises when (a) the desires or goals of the

principal and agent conflict and (b) it is difficult or expensive for the principal to verify that

the agent has behaved appropriately. The second problem is the problem of risk sharing that

arises when the principal and agent have a different attitude towards risk. The problem here is

that the principal and the agent may prefer different actions because of the different risk

preferences.

The unit of analysis is the contract governing the relationship between the principal and the

agent. The focus of the theory is on determining the most efficient contract governing the

principal-agent relationship given assumptions about people (e.g. self-interest, bounded

rationality, risk aversion), organisations (e.g. goal conflict among members) and information

(information as a commodity that is purchasable). The agency structure is applicable in a

variety of settings, ranging from macro level issues such as regulatory policy to micro level

such as impression management and other expressions of self-interest. Most frequently,

agency theory has been applied to organisational phenomena such as compensation (Conlon

and Parks, 1988; Eisenhardt, 1985), acquisition and diversification strategies (Amihud and

Lev, 1981) and board relationships (Fama and Jensen, 1983; Kosnik, 1987).

46
Table 2.2 Theoretical Framework

Key Idea Principal-agent relationships should reflect efficient

organisation of information and risk-bearing costs
Unit of analysis Contract between principal and agent
Human assumptions Self-interest; bounded rationality; risk aversion
Organisational assumptions Partial goal conflict among participants; efficiency as the
effectiveness criterion; information asymmetry between
principal and agent
Information assumptions Information as purchasable commodity
Contracting problems Agency (moral hazard and adverse selection); risk sharing
Problem domain Relationships in which the principal and agent have partly
differing goals and risk preferences (e.g. compensation,
regulation, leadership and impression management)
Source: Eisenhardt, (1989)

Overall, the domain of agency theory is relationships that mirror the basic agency structure of

a principal and an agent who are engaged in cooperative behaviour but have divergent goals

and attitudes toward risk. An investigation of PPP support would therefore require a

derivation of constructs from agency theory to be modelled on the basis of the priori

relationship with the SME performance. For this purpose, the constructs are regulation,

compensation, leadership and impression management. Within the context of this study, the

operationalization of these constructs yielded the variables of regulation of production

activities, product demand, appropriate technology, provision of inputs, training and

development and water resource management. Intervention strategies may include PPP,

which are meant to address inefficiency in the SME sector and inadequate resources that are

essential for optimal performance. Success achieved is mostly attributed to support from

various stakeholders to the SMEs in terms of policy, the availability of resources such as

finance, good infrastructure, skills, appropriate technology and an enabling macro-economic

environment (Bekele and Worku, 2008).

47
Table 2.3 Operationalization of Constructs of Agency Theory

Constructs from Agency Theory Operationalization Within Context of the

Modelled Study
Regulation Regulation of production activities
Compensation Product demand
Appropriate technology
Provision of inputs
Leadership Training and development
Impression management Water resource management
Source: Adapted from Eisenhardt (1989)

2.4.1 Regulation of Production Activity

Globalisation presents SMEs with both opportunities and tremendous challenges, as SMEs

struggle to meet the higher quality standards, to get their produce to the supply chain and to

get a fair share of the profit stream. They are thus subjected to strict quality standards (Global

GAP) and legislation imposed by the export markets, presenting a costly barrier to trade. The

SMEs are incurring costs associated with accreditation schemes like Fair-trade.

The challenges of quality regulation were highlighted in a Sainsbury‟s conference (2010)

with Small and Medium Horticultural Enterprises and stakeholders in Africa. Waste and

postharvest loss was identified as a major challenge in a climate where there is a need to

increase production. Estimates suggested that as much as 60% of produce is lost through lack

of postharvest technologies and knowhow, but in addition to that there are significant „losses‟

in the supply chain into the retailer simply due to produce not meeting retailers requirements

(e.g. beans being the wrong size or shape). The reduction in the level of waste through better

breeding, crop management, harvesting and logistics would increase the SMEs (producers)

margins and contribute to the sustainability of the food supply chain. It should be noted that

regulation of production activities increases the production costs of SMEs while straining

their limited resources further hence the negative effect on SME performance.

48
2.4.2 Product Demand

There is a growing interest for SMEs to access markets and increase their income through

involvement in the supply chains of domestic and international markets with a demand for

their goods. A number of large multinational companies, mostly global supermarket chains,

have developed supply chains involving smallholder farmers. Development of local SMEs is

beginning to be recognised as important, as national and local private sector actors begin to

integrate the outputs of smallholder farmers into their supply chains. Despite this, the

outcomes of such systems are far less widely documented, thereby presenting a huge

opportunity for learning and scaling up best practice in these areas.

There are considerable obstacles to the expansion of supply chains including the challenges

of successfully aggregating smallholder farmer‟s outputs, guaranteeing the quantity and

quality of their outputs, and accessing the kind of inputs and wider finance that will mitigate

the risk and delays common to this kind of venture. Thus, PPP efforts dedicated to creating

demand for SMEs‟ produce result in compensating the SMEs efforts. Hence, the PPP

intervention that focuses on the creation of produce demand has a positive relationship to

SME performance.

2.4.3 Appropriate Technology

Technology and infrastructural support is defined as facilities, structures, associated

equipment, services and institutional arrangements that facilitate the flow of agricultural

goods and services and ideas. The ability of SMEs to continue to respond to the future

increase in demand will be highly dependent on the increased application of existing

technologies as well as exploitation of new and innovative technologies (Dennis et al., 2009).

49
This represents a foundational base for applying technical knowledge in sustainable

development by promoting agricultural trade and helps integrate economies into world

markets. Assistance with research, new technology development and infrastructure

investment, logistics and cool chain is therefore critical. This includes the need for access to

new technology and innovation in the food processing chain, innovation in packaging and

processing technologies. For example, investment in more properly equipped and structured

pack houses would make a significant contribution to reducing waste in the food chain. The

adoption of the appropriate technology by the SMEs is expected to result in better SME

performance hence a positive relationship.

2.4.4 Production Inputs

It has been well recognised that horticultural production is capital intensive and high risk thus

the need to have support for the SMEs in the sector with production inputs. Lack of it hinders

the potential for market-oriented production and affects farm income. Success depends on the

orientation of production to meet market demand and on the removal of production

constraints in form of supply of quality inputs. Quality inputs such as seed, fertilisers and

pesticides are not always available from reliable sources. In addition, production inputs

required are subject to a number of constraints such as water availability and skills to use

them on the part of the SME owners. The enforcement of supportive and conducive policies

is also not in place to encourage production. Thus the need to improve the input supply

system for the farmers and provide them with the right and sufficient quantities and when it is

actually needed is important.

2.4.5 Training and Skills Development

Building human capacity that focuses on improving farmers‟ skills and abilities to create

livelihood out of agriculture rather than simply subsistence is important to the development
50
of SMEs. Schools should include agriculture as a formal and compulsory subject from the

earliest childhood experience to university. They should consider agriculture an important

area for investment and work to develop students‟ agricultural and technical knowledge at

primary and secondary levels. Universities should also consider agriculture an important

research domain and devote staff and resources to developing new agricultural techniques

that are relevant to their populations and ecosystems. The increasing gap that is occasioned

by failure to emphasise on providing formal schooling with focus on agribusiness results in

low capacity to support skills development for the SMEs. Training programmes must focus

on social, entrepreneurial, industrial and commercial skills that are essential for the successful

management and development of SMEs. Many more SMEs will be brought into the supply

chain, which in turn requires training and skills development to ensure sustainable food

supply chains for the future. The cost associated with training, developing and overcoming

logistical issues are high, and this is the area where support is needed. There is need to work

with the private sector to bring new small-scale producers in as part of the global supply

chain. Continued support for the SMEs through training and skills development provides a

basis to improve operational efficiency and effective management. Accordingly, it is

therefore expected that training and skills development will have a positive effect on SMEs

performance.

2.4.6 Water Resource Management

Constant supply of horticultural produce to meet market demand (quality, consistency and

continuity of supply) can only be guaranteed by irrigation. Therefore, water availability is an

important factor in horticultural production. In addition, future production must focus on the

challenge of using less water than is currently being used today.

51
Given the increasing significant role that irrigation will play in the future, SMEs will need

massive public and private support to address the problems of water shortages. The Kenya

National Irrigation and Drainage Policy (2009) recognises that this is a far bigger issue that

could not be addressed by individual companies alone but would require collaborative effort,

shared research and financial support to implement programmes aimed at safeguarding

natural resources for the future. A point in case is an initiative that has been undertaken in

relation to the management of water resources around Lake Naivasha. Whilst being an

excellent and highly innovative approach to managing resources, it is clear that it is not

sustainable in the long term for one organisation to try to maintain this singlehandedly and it

therefore requires greater external support.

In water resource management, impression management occurs when the principal

(government and it agencies) acts in a manner suggesting it is driven by the interest of the

agent (SMEs) while in the real sense does not give much thought about the consequences of

its actions on the agent. The proxy for impression management is water resource management

which if purely pursued as an end to itself may lead to great losses for SMEs hence the

negative effect on SME performance.

Table 2.4 Summary of the Theoretical Model

Constructs according Variable Relation to SME

to Agency theory performance
Regulation Regulation of production activities Dependent
Compensation Produce demand Dependent
Appropriate technology Dependent
Production inputs Dependent
Leadership Training and skills development Dependent
Impression Water resource management (Irrigation) Independent
management
Source: Survey Data (2011)

52
2.5 Conceptual Framework

From the foregoing literature review, the study derives its conceptual framework based on

ideas modified from Eisenhardt, 1989; Curran, 1999; Tschirley et al., 2004; Gibbon and

Ponte, 2005; Chong, 2008 and Jamil and Mohamed, 2011. SME performance is the

dependent variable, poor market access is the independent variable while Public-Private

Partnership support was identified as the intervening variable as shown in Figure 2.3 below.

The SME performance variables were identified as profitability and growth of the SMEs. The

market access variable was identified as poor market access measured in terms of level of

access and market share. PPP intervention was identified as regulation of production activity,

product demand, production inputs, appropriate technology, training, skills development and

water resource management. The independent variable directly influences the dependent

variable and the dependent variable when intervened by the intervening variable. It can be

seen that there is a relationship between market access and SME performance intervened by

PPP (Spielman and Grebmer, 2004). The performance of Small and Medium Horticultural

Enterprises – the dependent variable for this study – can be improved through enhanced

market access with effective interactions between the public and private partnership.

The relationship between SME performance (SMEP), market access (M) and PPP

intervention (P) can be summarised as follows:

SMEP = function (Market Access)

Improved SMEP = f (Improved Market Access)

Improved Market Access = f (Market Access + PPP Intervention)

53
Figure 2.3 Conceptual Framework

Market Access PPP Interventions SME Performance

(Independent (Intervening Variable) (Dependent Variable)
Variable)

Regulation of Production
Profitability
Product Demand (revenue)
Poor Growth
Market Production Inputs (assets,
Access employees,
Appropriate Technology capital)

Training and Skills

Water Resource Management

(Modified from intensive review based on Eisenhardt, 1989; Curran, 1999; Tschirley et al.,
2004; Gibbon and Ponte, 2005; Chong 2008 and Jamil and Mohamed 2011)

54
2.6 Chapter Summary and Gaps Filled by the Study

In this chapter, a review has been carried out on both theoretical and empirical literature on

market access, the intervention by Public-Private Partnership and hence the overall influence

and contribution to SME performance. The aim was to identify a gap in terms of knowledge

of Public-Private Partnership interaction and their support on improving market access for

SME development in horticulture.

Although Public-Private Partnership has been established as a driver to economic

development, literature review reveals that PPP is yet to achieve much within the

horticultural subsector in Kenya. PPP intervention efforts are patchy and have not been

systematically documented. PPP interaction as an area of study is complex and therefore the

contribution is not clearly understood especially given the management of risk involved

between collaborating partners. In exploring the contribution of PPP, the PPP practice and

regulatory policy in Kenya (Ong‟olo, 2006) is silent on their influence and therefore

contribution to agriculture in general and horticulture in particular.

The essence of horticulture in economic development and performance their constraints in the

sector are discussed. An important theme that is emerging is the benefits arising from

improved performance with PPP support. The result of this study is information that enables

a better understanding of the contribution of PPPs by various stakeholders in the development

of Small and Medium Horticultural Enterprises by providing measures that could be used in

PPP interventions to stimulate SME growth and to determine the relevance of PPP practices.

55
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction

This chapter sets out the concise methods and courses of action that were followed in

conducting this research. This was achieved in this chapter by describing the strategy and

procedures that were employed in the data collection efforts. In addition, the population

dimensions and specific sampling techniques are described. Following this, the primary

research instruments were reviewed and the measurement of variables and analytical methods

presented.

3.2 Research Design

A descriptive survey design was used because it provides important information regarding

members of a group, including personal factors, events and situations as outlined in the

conceptual framework and in line with the objectives of the study. Specifically, by gathering

data on a large enough groups of people, a researcher can describe the average member or the

average performance of a member of the particular group being studied (Marczyk et al.,

2005). In this case, the descriptive survey when applied to SMEs who benefited from PPP,

allowed the researcher to describe the nature and form of PPP support (Sekaran, 2006).

Further, a correlational cross-sectional survey design was employed with the aim of

examining the relationship between SME performance (the dependent variable), poor market

access (the independent variable) and PPP intervention (the intervening variable). The study

sought to ascertain respondents‟ perspectives and experiences. The cross-sectional survey is

the most commonly used research method in social research (Amin, 2005) since it produces

data that permits the establishment of causal relationships (Sarantakos, 2005).

56
This research employed a mixed methodology approach using quantitative and qualitative

design (Creswell, 2003) which is highly grounded in the philosophy of social science

literature. The quantitative data was to assist in establishing the relationship between PPP

intervention or support and SME performance. The research methodology also relied on

qualitative data where the body of data consisted of texts and narration to help in examining

the sources and nature of PPP support.

This research was executed in three stages. First, key variables were identified and

operationalized then used to develop the questionnaire and tested through the pilot. Second,

the administration of questionnaire to respondents was done. The third stage involved

analysis of qualitative and quantitative data collected. Based on the theoretical review, six

measures were identified to determine the PPP intervention variable (regulation of production

activity, product demand, production inputs, appropriate technology, training and skills

development and water resource management). Similarly two measures were identified to

measure SME performance (profitability and growth) and two for poor market access (level

of access and market share). These were captured in the questionnaire as further detailed in

section 3.2.1 on the operationalization of variables. In addition, other data collection tools

such as interview guides were also used.

3.2.1 Operationalization of the Key Variables

The overall objective of this research was to establish the influence of Public-Private

Partnership on the relationship between market access and performance of small and medium

horticultural enterprises in Kenya. The study identified the PPP constructs based on

theoretical review in terms of regulation of production activities, compensation, leadership

and impression management as summarised in Table 2.3. The PPP constructs were

operationalized into PPP interventions as intervening variables namely regulation of

57
production activity, product demand, appropriate technology, production inputs, training and

skills development, and water resource management, with SME performance as the

dependent variable. The latter was identified in terms of two key measures: SME‟s

profitability and growth. The independent variable was poor market access, measured in

terms of level of access and market share as reviewed empirically in Chapter 2. These

variables have been explained further in the sections below.

3.2.1.1 Market Access

Market access was studied in two perspectives, with the first being the level of access. In the

context of the horticultural SMEs, this was referred to as the value of the product to the range

of customers who influence uptake where the SME is able to obtain a desire price. Based on

this, the level of market access was measured on a 5-point Likert scale ranging from 1 (very

high access) to 5 (very low access). The second aspect was based on the nature of

competition and the share of market that the SME controls. The market share in this case was

defined as the proportion of total volume produced and sold as compared to the other SMEs

in the production region. This was also measured on 5-point Likert scale ranging from 1 (very

large) to 5 (very small).

3.2.1.2 PPP Intervention

PPP intervention was studied from six perspectives as identified in Table 2.3. These were:

regulation of production activity, product demand, production inputs, appropriate technology,

training and skills development and water resource management. In the horticultural industry,

regulation was identified as the imposed guidelines on production. This was measured

through two ways: challenges that are faced in meeting production standards and whether

support is given to meet quality constraints.

58
The product demand was measured through the importance of the private and public sectors

helping to provide support to access export markets. Appropriate technology was measured

through support SMEs received and its relevance to their business operations. The production

input was measured in terms of adequacy and timely supply of inputs. Training and skills

development support was measured by rating the relevance and the role of private and public

sector in providing support. Lastly, water resource management was measured in terms of

level access and support to the SMEs by the private and public sectors. The measurement of

the PPP variables was on an interval scale.

3.2.1.3 SME Performance

SME performance was measured in terms of profitability and growth. The sensitivity in

disclosing financial records as mentioned in the study limitation resulted in the profitability

variable being measured in rating through a 5-point Likert scale – highly profitable (1) and

not highly profitable (5) – rather than in monetary terms. Growth was measured in terms of

rate of growth – very fast growth (1) and very slow growth (5) – in relation to the growth in

working capital at start-up and current in addition to the number of employees. The

measurement of SME performance variables was on an interval scale.

3.2.2 Study Locale

The study locale was limited to Naivasha, Naro Moru, Meru, Kathiani, Mwea, Narok,

Loitokitok, Ol Kalou, Makuyu, Molo, Rumuruti and Mweiga. These were the main areas for

horticultural production identified for the study based on regional segmentation used by

Finlays Homegrown Kenya Ltd as indicated in Appendix III. However, these limitations did

not affect the findings of the study, which would be generalised to Small and Medium

Horticultural Enterprises in Kenya.

59
3.3 Target Population

The target population comprised of 941 small and medium horticultural enterprises working

with Finlays Homegrown Kenya Ltd. These comprised the unit of analysis for the study.

3.4 Sampling Procedures and Sample Size

A multi-stage sampling procedure was applied to the appropriate study sample. The process

involved purposive sampling technique, simple random sampling and sample size

determination followed by identification and then selection as detailed below.

3.4.1 Sampling Procedure

Finlay‟s Homegrown Kenya Ltd was purposively sampled from 36 firms obtained from

FPEAK database (refer to Appendix IV) as duly registered horticultural producers and

exporters in Kenya as at December 2011. As the largest horticultural enterprise in the country

(HCDA, 2007; FPEAK, 2009), Finlay‟s Homegrown Kenya Ltd was selected because it is the

largest producer and processor of horticultural produce (flowers and vegetables) for export.

Finlay‟s Homegrown Kenya Ltd is an international company spanning Africa, Europe and

South America with a turnover of over USD 350 million and over 10,000 employees

worldwide. The company is the leading supplier of value-added cut flowers and vegetables to

UK supermarkets. The company has been in existence since 1982 and has today invested

more than USD 100 million in the production and packaging facility in Kenya. The company

produces about 600 million flowers sold annually and 40% of the 30,000 tonnes of prepared

and pre-packaged vegetables sold in the UK. With a staff of 7,000 in Kenya alone, the Group

owns companies in Kenya, four in UK, one in Holland and one in South Africa, with €500

million turnover. It produces one million packs of vegetables for UK supermarkets per week

60
and 0.5 million bunches of flowers. Due to technology and excellent logistical support,

everything moves through the business in 72 hours.

The study also purposively sampled the regions in which Finlay‟s Homegrown Kenya Ltd

has a network of SMEs to support its operations. These were in Naro Moru (1), Meru (236),

Kathiani (9), Mwea (28), Narok (23), Loitokitok (112), Ol Kalou (240), Makuyu (35), Molo

(75), Rumuruti (54) and Mweiga (128) giving a total of 941 SMEs. This distribution is

indicated in the map available in Appendix III.

For the random sample, the Kth term was used to determine the respondents for each sample;

for example in Ol Kalou with a total of 240 SMEs, every 10th was selected giving a total

sample of 24 SMEs included as respondents in this study. A sample must at least be 10% or

more in order to be credible (Emory 1985; Mugenda and Mugenda, 2003); the author

therefore felt that a sample of 10% is acceptable and chose this for the study. However, in the

regions where the population was less than 10, then one SME was sampled.

Table 3.1 Sampling Grid

Region Total Number of Farmers Sample

Naromoru 1 1
Meru 236 24
Kathiani 9 1
Mwea 28 3
Narok 23 2
Loitokitok 112 11
Ol Kalou 240 24
Makuyu 35 4
Molo 75 7
Rumuruti 54 5
Mweiga 128 13
Total for Survey 941 95

61
3.4.2 Sample Size

As shown in Table 3.1, a sample of 95 was drawn from 941 Small and Medium Horticultural

Enterprises that partner with Finlays Homegrown Kenya Ltd, with the assistance of field

managers and technical assistants. This is consistent with Gupta (2005) who says a sample

size of between 30 and 500 is appropriate for most research. According to Kothari (2001), the

optimum sample is one that fulfils the requirements of efficiency, representativeness,

reliability and flexibility.

3.4.3 Criteria for Inclusion

The criterion for inclusion was that the horticultural SME must be working with Finlays

Homegrown Kenya Ltd in regular production, and the respondent must be either the owner or

manager. This is in line with Gupta (2005) that two aspects affect the quantity of information

obtained in a sample, which causes inference to be necessary. This is the size and possible

variation contained in the data.

3.5 Research Instruments and Procedures

Qualitative and quantitative approaches to data collection were adopted and various data

collection techniques utilised. Questionnaires were used.

3.5.1 The Questionnaire

Primary data was collected from the field using questionnaires as the primary research

instrument. The questionnaire was administered to Small and Medium Horticultural

Enterprises owner/managers by the researcher and was managed personally. The

questionnaire contained both closed and open-ended questions (Appendix I). It had six

sections according to the variables of study: Section A had information on SME

62
owners/managers; Section B on SME characteristics; Section C on sources of support for the

SME s; Section D on nature of support that the SME s received; Section E on PPP

intervention variables; Section F on SME performance variables and Section G on market

access. The questionnaire was preferred as it can be interpreted in the same way by all

respondents thus achieving consistency (Saunders and Lewis, 2003), and data collection

using questions is easier to analyse (Coopers and Schindler, 2001).

The sources of data were important to identify after operationalizing each of the variables.

According to Diamantopoulos and Schlegelmilch (1997), there are different scales of

measurement such as nominal, ordinal and interval (cited by Saunders and Lewis 2003).

Nominal equates to descriptive, ordinal to ranked order data while interval is used when

responses to various items measure a variable that can be tapped on a 5-point or more scale.

The summary of the variables, their sources and the section of the questionnaire where they

are located are indicated in table below.

Table 3.2 Description, Sources and Operationalisation of Variables

Variables Source of Data Operationalisation Type of scale

in the
Questionnaire
SME Owner/Manager SME Manager Section A Nominal
characteristics
SME characteristics SME Manager Section B Nominal
Sources of support for SMEs SME Manager Section C Nominal/Ordinal
Nature of Support SMEs SME Manager Section D Ordinal/Interval
receive
Public-Private Partnership SME Manager Section E Ordinal/Interval
Interventions
SME Performance SME Manager Section F Ordinal/Interval
Market Access SME Manager Section G Ordinal/Interval
Source: Survey Data (2011)

63
3.5.2 Data Collection Procedures

The major objective of the study was to establish the influence of Public-Private Partnership

(PPP) on the relationship between market access and performance of small and medium

horticultural enterprises in Kenya. PPP intervention was identified as the intervening variable

and SME performance as the dependent variable. To do this, there was need to identify valid

and reliable measures of the variables; this was done through a literature review in Chapter 2.

Research instruments in the form of questionnaires were constructed. Prior to using the

questionnaire to collect data, it was pre-tested in order to refine it and verify that all variables

were included. The purpose of the pilot test was to refine the questionnaire to ensure

consistency and validity of data collected and to eliminate problems in coding data.

Pilot testing was conducted in Mwea where nine SMEs were selected for participation in the

pilot study. The identified subjects in the pilot were not subjected to the main study. The pilot

sought to pre-test the research instrument and ascertain whether the sampling frame and

technique were effective. The questionnaire was tested for effectiveness and the data

collected for reliability. Two research assistants were identified who had prior knowledge and

experience of the horticultural subsector in the study locale. The research assistants

participated in the pretesting exercise as part of the practical training.

3.5.3 Data Preparation and Processing

Before embarking on data analysis procedures, there was need to prepare the collected data to

enable the eventual analysis. Validation and checking was done after the questionnaires were

returned from the field. There was need to check the responses for clarity, legibility,

relevancy and appropriateness of the information contained in them. Editing was done to

identify the errors and omissions committed and to make appropriate corrections where

possible. Further analysis was done for consistency and completeness of responses and
64
incomplete responses were discarded. Coding was done by assigning numbers to

questionnaires based on locale of the respondents so that responses could be grouped into

some categories. After completing data cleaning, the questionnaires were entered into an

SPSS (version 17) data editor with their respective variable names and labels.

3.5.4 Validity and Reliability Tests

It was important to ensure that each research instrument that had been developed to measure

a particular concept was relevant. Two major groups of tests were adopted for this purpose.

3.5.4.1 Validity Test

Validity is the extent to which a test measures the accuracy and truth of the data and findings

produced in relation to the concepts that it claims to measure. It is vital for a test to be valid

in order for the results to be accurately applied and interpreted.

From the pilot test result and discussions, 35 items out of 45 items were valid. The validity

index was approximately 0.8 which compares very well with 0.7. Amin (2005) postulates that

if the content validity index is greater than 0.7, it means that the questions are relevant to the

study variables. The validity of the instrument was confirmed since similar measures have

been used by earlier research (Chen et al., 1998 and Liñán et al., 2006).

3.5.4.2 Reliability Test

The tendency toward consistency found in repeated measurements is referred to as reliability

(Saunders and Lewis, 2003). Mitchell (1996) outlines three common approaches to assessing

reliability test: internal consistency, alternative form and comparing the data collected with

other data from a variety of sources. Although the analysis for each of these is undertaken

after data collection, they need to be considered at the questionnaire design stage.

65
Internal consistency involves correlating the responses to each question in the questionnaire

with those to other questions in the questionnaire. It therefore measures the consistency of

responses across either all the questions or a sub-group of the questions from your

questionnaire. There are a variety of methods for calculating internal consistency, of which

one of the most frequently used is Cronbach‟s alpha (Mitchell, 1996 and Field, 2005).

Cronbach‟s alpha coefficient was preferred since it is widely used in social management

sciences research (Mugenda and Mugenda, 2003; Sekaran, 2006). An average of inter-

correlations among the independent and dependent variables is computed and a value of

Cronbach‟s alpha coefficient of 0.70 or closer to 1 implies that data collected is reliable.

According to George and Mallery (2003), the following rules of thumb apply on determining

the reliability of the measuring instrument: 0.9 excellent, 0.8 good, 0.7 acceptable, 0.6

questionable, 0.5 poor and less than 0.5 unacceptable. While increasing the value of alpha is

partially dependent upon the number of items in the scale, it should be noted that this has

diminishing returns (Gliem and Gleim 2003). Thus for the researcher, items beyond fourteen

resulted in diminishing returns. An alpha of 0.8 is probably a reasonable goal while a high

value for Cronbach‟s alpha indicates good internal consistency of the items in the scale; it

does not mean that the scale is unidimensional (Gliem and Gleim 2003). The Cronbach‟s

alpha coefficient was 0.8 implying good internal consistency of items.

To obtain a clearer picture, reliability tests for each study variable were tested using the same

method. Cronbach‟s alpha reliability coefficients are presented in Table 3.3 below.

66
Table 3.3: Reliability Test Results for the Various Measures

Measures Number of Items Cronbach’s alpha coefficient

SME growth 6 0.83
SME profitability 2 0.84
Level of market access 2 0.78
Market share 3 0.79
Regulation of production 2 0.76
activity
Product demand 2 0.75
Production Inputs 2 0.79
Appropriate technology 2 0.76
Training and skills development 3 0.93
Water resource management 3 0.77
Total number of items 27 0.80

3.6 Data Analysis

This section describes the techniques used in the data analysis for each objective and why

such techniques were preferred.

The first objective was to document the sources of the Public-Private Partnership support that

Small and Medium Horticultural Enterprises receive, and this entailed identifying the general

sources of support and classifying them depending on who provided support. Descriptive

statistical analysis was then used to analyse that data, which was presented using frequency

distribution, percentages, charts and tables.

The second objective was to document the nature of support that SMEs in horticulture are

given, and this involved identifying the nature, and rating the support on a 5-point Likert

scale. This data was then coded into computer software (SPSS version 17) and descriptive

statistical analysis then used to analyse the data. Data was presented using frequency

distribution, percentages, charts and tables.

67
The third objective was to determine the relationship between market access and the

performance of the horticultural SMEs. The market access variables were identified as level

of access and market share, which were measured on a 5-point Likert scale. Similarly,

horticultural performance variables were identified and measured in terms of profitability and

growth. Null hypotheses were formulated and tested using Chi-square test of independence at

5% level of significance.

The fourth objective was to determine the relationship between Public-Private Partnership

(PPP) support and the performance of the horticultural SMEs. This entailed using the SME

performance variable identified in objective three and PPP support variables including

regulation of production activity, product demand, production inputs, appropriate technology,

training and skills development and water resource management. Null hypotheses were

formulated between the horticultural SME performance variables and PPP support variable

and tested using Chi-square test of independence at 5% level of significance.

Lastly, the study sought to determine the relationship between market access and the

performance of the Small and Medium Horticultural Enterprises when intervened with

Public-Private Partnership (PPP) support. This involved formulating null hypotheses using

the market access variables and PPP support variables. These were tested using the Chi-

square test of independence at 5% level of significance.

3.7 Ethical Considerations

Informed consent was obtained from the respondents before administering questionnaires and

confidentiality maintained throughout the study, and the respondents were not discriminated

against. Permission to carry out the research was obtained from National Council for Science

and Technology, and authorisation obtained to administer the survey questionnaires to the

SMEs from Finlays Homegrown Kenya Ltd.

68
 CHAPTER FOUR

RESEARCH FINDINGS AND DISCUSSIONS

4.0 Introduction

In this chapter, empirical findings of the study are presented using descriptive and inferential

statistics. The chapter covers the response rate, characteristics of the sample, Public-Private

Partnership concepts and the relationship between PPP support and the performance of Small

and Medium Horticultural Enterprises in Kenya. The findings are then discussed based on the

objectives stated in section 1.3.1.

4.1 Response Rate

The response rate for the study was 100% based on 95 responses. The researcher gave out 95

questionnaires which was the sample size for SME managers in 11 regions and as it was face

to face, all the respondents returned their questionnaires for analysis.

4.2 Characteristics of the Sample

Sections 4.2.1 and 4.2.2 present the characteristics of the SMEs studied and SME managers

respectively.

4.2.1 Characteristics of SMEs

The characteristic of the sample SMEs under study covered, the age of SMEs, how long they

had partnered with Finlay‟s Homegrown Kenya Ltd, if they had partnered with other

companies, the size of land under production and the form of business. Frequency

distributions were obtained and are presented as tables. Table 4.1 presents results on the

duration in which SMEs have been in business; majority of the SMEs (60%) had been in

69
horticultural business for six years and above and only 1% had been operation for a year. Of

the 95 respondents, 36% had been in business for 6-10 years, 30% for 3-5 years, and 24% for

more than 10 years while 9% and 1% had been in business for 1-2 years and less than a year

respectively. Most of the SMEs had been in business for over three years, that is, close to

90% clearly surpassing the survival rate of SMEs. The success and survival of the study

SMEs can be attributed to the PPP support that is provided.

Table 4.1 Distribution of Duration in Business of Sampled SMEs

Duration in years Frequency Percentage Cumulative %

<1 year 1 1.1 1.1
1-2 years 9 9.5 10.6
3-5 years 28 29.5 40.1
6-10 years 34 35.8 75.9
>10 years 23 24.2 100
Total 95 100.0
Source: Survey Data (2011)

Table 4.2 gives results on the annual production of SMEs. It can be observed that 31.6% of

the SMEs were producing less than 5,000 tonnes; 25.3% between 5,000 and 10,000 tonnes;

32.6% above 10,000 but less than 45,000; while only 10.5% produced above 45,000 tonnes

yearly.

Table 4.2 Annual Production of Sampled SMEs

Annual Production (tonnes) Frequency Percentage Cumulative %

<5,000 30 31.6 31.6
5001 – 10,000 24 25.3 56.9
10,001 – 45,000 31 32.6 89.5
45,001 – 100,000 5 5.3 94.8
100,001 – 150,000 4 4.2 99
>200,000 1 1.1 100
Total 95 100.0
Source: Survey Data (2011)

70
From Table 4.3, it can be seen that majority (61.1%) of the SMEs had land under production

of between 1 to 5 acres, 15.8% had 5 to 10 acres, 2.1% had more than 20 acre, 10.5% had 11

to 20 acres and another 10.5% had less than 1 acre.

Table 4.3 Distribution of Land Under Production of Sampled SMEs

Land Under production (Acres) Frequency Percentage

<1 acre 10 10.5
1-5 acres 58 61.1
5-10 acres 15 15.8
11-20 acres 10 10.5
> 20 acres 2 2.1
Total 95 100.0
Source: Survey Data (2011)

These findings were not consistent with Ellis (1993), who argues that with respect to social

efficiency, small farms appear to be more efficient than larger ones. However, given the fact

that most of these farms are family-owned and rely on family labour, it can be argued that

farm size did not necessarily imply low productivity. Horticulture in itself is labour-intensive

so by utilizing labour-intensive production methods, small farms maximise social utility and

hence are socially efficient. Family management and supervision can result in more

productive inputs (e.g. labour) and increased outputs per unit of input. However, this should

reach an optimal point, which will depend on the size of the household and farm operation

(Bardhan, 1973; Feder, 1985; Williamson, 1985; Eswaran and Kotwal, 1986; Taslim, 1989).

The researcher observed that it is through family management that these SMEs are able to

overcome challenges that related to start up. They are able to pull together funds for

production as well as share facilities and services that are mandatory for production. They

share structures such as the produce shed, chemical storage and spraying facilities. This has

an overall effect of economies of scale with little or no costs incurred due to underutilised

facilities.

71
 Start up Capital
60
49
50

40
29
30

20 Start up Capital
8
10 5 3 4
0
28 47 5 8 3 4
< 10,000 10,000 - 50,001 - 100,001- 500,001 - >1,000,000
50,000 100,000 500,000 1,000,000

Figure 4.1 Start-Up Capital

Figure 4.1 presents results on start-up capital (Kshs.) for the horticultural SMEs. Most of the

SMEs (49%) had a start-up working capital of between Kshs. 10,000 and 50,000, followed by

29% at less than Kshs. 10,000. Only 3% and 4% of the SMEs had start-up capital of between

Kshs. 500,001 and 1,000,000 and above Kshs. 1,000,000 respectively.

Working Capital
60
48
50

40

30
19 17
20 Working Capital

6 8
10
1
0
6 46 18 16 1 8
< 10,000 10,000 - 50,001 - 100,001- 500,001 - >1,000,000
50,000 100,000 500,000 1,000,000

Figure 4.2 Working Capital

72
Figure 4.2 indicates the working capital of the horticultural SMEs. The study observed that

48% of the SMEs had working capital of Kshs. 10,000-50,000, 19% had between 50,001 and

100,000, 17% had between 100,001 and 500,000 and 8% had above Kshs. 1,000,000.

80 75

70

60
48
50
Number of Employess at start-up
39 - low season
40

30
20
20 Number of Employess at start-up
- high season
10 4 6 4
1 0 1 0 1
0
0-5 6-10 11-15 16-20 21-30 >30

Figure 4.3 Number of Employees at Start-up

Figure 4.3 presents the number of employees engaged by the SMEs at start-up. The study

observed that 78% and 48% small and Medium Horticultural Enterprises had 0-5 employees,

20% and 39% had 6-10 employees, 4% and 6% had 11-15 employees, and 1% and 4% had

16-20 employees during low and high seasons respectively. Only 1% and another 1% had 21-

30 employees and more than 30 employees respectively during the high season.

73
 60
53
50

40 36
31 Number of Employess at currently
30 - low season
Number of Employess at currently
19 - high season
20
12 13
11 11
10 7 6
1 2
0
0-5 6-10 11-15 16-20 21-30 >30

Figure 4.4 Current Number of Employees

Figure 4.4 shows the results on the current number of employees that are engaged by the

horticultural SMEs. The study observed 53% and 19% had 0-5 employees, 31% and 36% had

6-10 employees, 7% and 12% had 11-15 employees, 6% and 11% had 16-20 employees, 1%

and 11% had 21-30 employees and 2% and 13 % had more than 30 employees during the low

and high seasons respectively.

4.2.2 Characteristics of SME Managers

The characteristics of the sample under study covered gender, age, level of education and the

position of respondents in the SMEs (manager/owner). Frequency distributions were obtained

for all the personal data. Sample characteristics are presented as tables and graphs as follows.

Table 4.4 Distribution of Gender of Respondents

Sex No. of SMEs Percentage

Male 75 78.9
Female 20 21.1
Total 95 100.0
Source: Survey Data (2011)

74
Gender was considered important in this study because it may have an effect on the

contribution of Public-Private Partnership to small and medium horticultural enterprises, with

males being identified as a channel for disseminating knowledge and ensuring participation in

stakeholder discussion. Dolan and Sutherland, (2007) observed that gender is a strong

determinant for participating in the horticultural production alongside other determinants like

skills. This can be attributed to two factors, firstly that families tend to enrol boys (than girls)

in school, and secondly that land is owned by male-headed households. Majority of the

respondents were male (78.9%) compared with female (21.1%) as shown in Table 4.4. This

shows a high involvement of male than female in horticultural production. Coupled with the

fact that horticulture is knowledge-intensive, it will be mostly men who will be more active in

the sector, with women possibly providing the needed labour (Barrientos et al., 2005).

Table 4.5 Distribution by Age of Respondents

Age Frequency Percentage

21-30 10 10.5
31-40 28 29.5
41-50 33 34.7
>50 years 24 25.3
Total 95 100.0
Source: Survey Data (2011)

Table 4.5 provides evidence that majority (34.7%) of the respondents interviewed were aged

between 41 to 50 years. Out of the 95, 29.5% were aged between 31 to 40 years, 25.3% were

aged above 50 year, while 10.5% were aged between 21 to 30 years. These age brackets

explain the trend in horticultural farming, which is characteristically capital intensive and

thus respondents above 41 years account for 60% of the responses. It also explains that there

is uptake of horticultural farming among the youth – the 21-30 years age bracket accounts for

10.5%. This showed that most of the farmers in the horticultural business were above 41

years old, hence well experienced in horticultural production. The distribution of the age of

respondents confirms that the respondents were of a reasonable age, implying that the

75
respondents may have had high level of comprehension of the items in the questionnaires.

However, this research focused on performance of small and medium horticultural enterprises

and the influence Public-Private Partnership may have on performance. The question is

whether Public-Private Partnership contributes to the performance of small and medium

horticultural enterprises and whether the SMEs identify with the contribution.

Level of Education

2% 1%

none
19%

35% primary

secondary

technical and other tertiary

institutions
43%
univesity

Figure 4.5 Level of Education

The Figure 4.5 presents results on the SME managers‟ level of education. Most of the

managers had secondary education (43%) followed by primary education (35%), while 21%

had post-secondary qualifications, with 19% having attended technical and other tertiary

institutions and only 2% having obtained university qualifications. Kinyanjui (2011) in his

study on Micro and Small Enterprises in Rural Central Kenya, observed a strong relationship

between business knowledge and growth and competitiveness. He found out that most of

those who had changed their methods of production were those with post-secondary

76
education, suggesting that post-secondary education is crucial to technological change in

SMEs.

Table 4.6 Distribution of Type of Ownership and Position of Respondent in the SME

Form of No. of Percentage Position in Business No. of Percentage

Business SMEs SMEs
Sole 91 95.8% Both Manager and Owner 71 74.7%
Proprietor
Joint Venture 1 3.2% Manager 5 20.0%
Partnership 3 1.1% Owner 19 5.3%
Source: Survey Data (2011)

From Table 4.6 it can be seen that majority (95.8%) of the SMEs were operating as sole

proprietorships while 3.2% were partnerships and 1.1% joint ventures. In addition, 74.7%

were managed by their owners while the rest had separate management structures as either

owners or managers. They also varied in size and in most cases tended to be small and family

owned. Ownership of the SMEs and their management was used to group the SMEs such as

the owner or the manager. The findings show that 74.7% of the SMEs were managed by

owners while the rest had separate management structures as either owners or managers.

4.3 The Sources of the PPP Support Provided

This study considered Public-Private Partnership support as a question of influencing SME

performance, in explaining the contribution of Public-Private Partnership to the performance

of Small and Medium Horticultural Enterprises in Kenya. Beck et al., (2003) suggest that in a

developing economy like Kenya where entrepreneurship culture remains fragile, direct

government or public sector‟s support of SMEs would help improve the performance and

growth of the sector.

The study sought to establish the sources of support received by SMEs in the horticulture

industry. The sources that were identified are discussed in detail.

77
Table 4.7 Sources of Start-up Funds

Source of Funds Frequency Percentage

Bank Loan 7 7.4
Personal Savings 88 92.6
Total 95 100.0
Source: Survey Data (2011)

Table 4.7 summarises the findings on start-up funds that showed that 92.6% of the SMEs

were started by the owners from personal savings and only 7.4% sought loans from various

lending institutions to start their business. Although majority of the start-ups were on

personal funds, the respondents indicated that they received support from external sources.

Figure 4.6 identifies and summarises the external sources.

120.00%
97.90%
100.00%

80.00% 72.60%

60.00%

40.00%

20.00% 10.50%

0.00%
Private Sector Public Sector NGO

Figure 4.6 Sources of Support for SMEs

The private sector was identified as the major source of support (97.9%), alongside public

sector (72.6%), and NGOs at (10.5%) respectively. The findings indicate that the SME

respondents did receive external support and it represents an interaction between the public

and private sectors including NGOs and horticultural SMEs. Private sector support was

identified to be mainly from Finlay‟s Homegrown Kenya Ltd – the study sample. The study

findings are indicated in Figure 4.7.

78
 3%
11% 10%

1 year

20% 1-2 years

3-5 years
6-10 years
10 years
56%

Figure 4.7 Description on Duration of SMEs Partnership with Finlays Homegrown

Kenya Ltd

Figure 4.7 shows that SMEs mainly receive support from the horticultural companies that

subcontract them to supplement their supply. The SMEs indicated that Finlay‟s Homegrown

Kenya Ltd has been an outstanding source of support. In all, 56% of the respondents had been

in partnership with Finlay‟s Homegrown Kenya Ltd for 3-5 years, 20% had been in

partnership for 6-10 years, 11% for more than 10 years, 10% for 1-2 years and 3% for less

than 1 year.

It is important to note that other companies also provided support to some of the SMEs.

These included; East African Growers, Everest, Sunripe, KHE, Indu farm and other minor

exporters. As the horticultural subsector embraces PPP, these firms play a critical role in

promoting the growth of SMEs alongside a key player like Finlay‟s Homegrown Kenya Ltd.

79
Table 4.8 Support by Other Companies in the Same Sector as Finlay’s Homegrown
Kenya Ltd

Source of Support (n=32) Frequency Percentage

Other (SMEs in the export sector) 10 31.3
Sunripe 7 21.9
Everest 6 18.8
East African Growers 5 15.6
KHE 3 9.4
Indu farm 1 3.1
Total 32 100
Source: Survey Data (2011)

4.4 The Nature of Support that Small and Medium Horticultural Enterprises Receive in

Kenya

The second objective of the study sought to establish the nature of support offered to SMEs in

the horticultural subsector. The type of support, which is unique to the needs of various

SMEs, has the potential to improve their performance. Some key issues that emerged from

the study were the need to develop the skills and capacity of small-scale producers in order to

ensure sustainable production of supply in terms of quantity and imposed regulation of

production activity. This was the only way to meet international market demands. The costs

associated with training and developing new Small and Medium Horticultural Enterprises

(small-scale producers) included addressing their logistical challenges. It was indicated that

this was an area where support was strongly needed working with the public and private

sectors in order to bring new small-scale producers in as part of the global supply chain.

80
 Information Provision

Provision of Farm Inputs

Consultancy Services

Managerial

Infrastructural Facilities No
Yes
Technology

Legal Matters

Training

Financial

0% 20% 40% 60% 80% 100% 120%

Figure 4.8 Nature of Support that SMEs Received

As shown in figure above, 27.4% of the respondents received financial support; 71.6%

received legal support; 89.5% received technological support; 90.5% received infrastructural

and managerial support; 94.7% and 88.4%, consultancy and information services respectively

while 26.3% were provided with farm inputs.

Further, the study sought to determine the quality of support that the SMEs receive from the

horticultural firms. The quality of support was rated based on a 5-point Likert scale with 1

being very important and 5 least important. Figure 4.9 presents a summary of the importance

of the overall support.

81
 10% 7%
Financial Support
13% Technology
13% Consultancy
Training
Infrastructure Facilities
10% 14% Provision of Farm Inputs
Legal Matters

4% Market Access
Information Provision
14%
13%

Figure 4.9 Quality and Importance of Support Received by SMEs

Training and consultancy (14%) were rated the most important, while financial support and

provision of farms inputs were the least important at 7% and 4% respectively. Horticultural

subsector is knowledge-intensive, an observation made from the SME respondents who had

undertaken further training in relevant areas and obtained additional qualifications in other

areas as summarised in Figure 4.10 below.

120.00%
96.80% 97.90%
100.00% 91.60% 88.40%
80.00%

60.00%

40.00%
22.10%
20.00% 7.40%
0.00%
Hygiene Safe use of Integrated Water First Aid Fair Trade
agrichemicals Pest Management
Management

Figure 4.10 Additional Training in Other Areas

82
The findings show that 96.8% of the SME respondents interviewed were trained on other

relevant technical areas such as hygiene or phytosanitary conditions, 97.9% in safe use of

agricultural chemicals, 91.6% in integrated pest management, 88.4% in water management.

These are essential skills in the management of horticultural farms; a few were trained on

first aid (22.1%) and fair trade (7.4%).

4.5 SME Performance and Market Access

The study sought to determine the independence of performance of Small and Medium

Horticultural Enterprises from market access. The following null hypothesis was stated and

tested.

H0: Performance of Small and Medium Horticultural Enterprises is independent of Market

Access

Table 4.9 gives results for the Chi-square test of independence. The Chi-square value and p-

value statistic were 2=40.071 and p=0.003 respectively. Since p<0.05, we rejected the null

hypothesis at 5% level of significance and concluded that performance of Small and Medium

Horticultural Enterprises is dependent on market access.

Table 4.9 Test of Independence for SME Performance and Market Access

Dependent Variable Market Access (Independent Variable)

N d.f 2 P value
SME performance(Dependent 95 4 40.071 0.003
Variable)

The study further investigated the relationship between SME performance variables and

market access variables. A Chi-square test of independence was performed and results

presented in Table 4.10.

83
4.5.1 Level of Market Access and SME Performance

Table 4.10 gives results for Chi-square test of independence. The Chi-square values and p-

values statistic for growth were 2=11.556 and p=0.02, and for profitability 2=12.784 and

p=0.049 respectively. Since in both instances p<0.05, the null hypothesis was rejected at 5%

level of significance, it was concluded that growth and profitability of Small and Medium

Horticultural Enterprises are dependent on the level of market access as shown in Table 4.10

below.

Table 4.10 Test of Independence for SME Performance Variables and Level of Market
Access

Dependent Variable Level of Market Access (Independent Variable)

N d.f 2 P value
SME Growth 95 4 11.556 0.020
SME Profitability 95 4 12.784 0.049

4.5.2 Market Share and SME Performance

Table 4.11 provides results for Chi-square test of independence. The Chi-square values and

p-values for growth were 2=24.666, and p=0.00 and for profitability 2=18.112, and

p=0.009 respectively. Since in both cases p< 0.05, the null hypothesis was rejected at 5%

level of significance, it was concluded that growth and profitability of Small and Medium

Horticultural Enterprises are dependent on market share as indicated in Table 4.11 below.

Table 4.11 Test of Independence for SME Performance Variables and Market Share

Dependent Variable Market Share (Independent Variable)

N d.f 2 P value
SME Growth 95 4 24.666 0.00
SME Profitability 95 4 18.112 0.009

84
4.6 SME Performance and Public-Private Partnership Support

The study also sought to establish whether performance of Small and Medium Horticultural

Enterprises is independent of Public-Private Partnership support. The null hypothesis was

stated as follows:

H0: Performance of Small and Medium Horticultural Enterprises is independent of

Public-Private Partnership support

Table 4.12 gives the results for Chi-square test of independence. The Chi-square value and p-

value statistic were 2=52.62 and p=0.009 respectively. Since p<0.05, the null hypothesis was

rejected at 5% level of significance, it was concluded that performance of Small and Medium

Horticultural Enterprises is dependent on PPP support as shown in table 4.12 below.

Table 4.12 Test of Independence for SME Performance and Public-Private Partnership
Support

Dependent Variable PPP intervention (Intervening Variable)

N d.f 2 P value
SME Performance (Dependent 95 20 52.620 0.009
Variable)
Source: Survey Data (2011)

4.6.1 Regulation of Production and SME Performance Variables

Table 4.13 presents results on Chi-square test of independence. The Chi-square values and p-

values statistic for growth were 2=15.919 and p=0.014, and profitability 2=49.509 and

p=0.00 respectively. Since p<0.05 in both instances, the null hypothesis was rejected, it was

concluded that growth and profitability of Small and Medium Horticultural Enterprises are

dependent on regulation of production activity as shown in table 4.13. This means that those

factors that are aimed at regulating production by the SMEs influence their performance.

Profitability and growth amongst SMEs benefiting from PPP interventions focused on

addressing regulation of production activity. The respondent SMEs identified PPP

85
intervention such as efforts to encourage them to come together and form smallholder groups

that enable them to enjoy economies of scale in terms of accessing relevant resources like

pack houses, farm office and chemical stores that are necessary for product handling.

Table 4.13 Test of Independence for SME Performance Variables and Regulation of
Production

Dependent Variable Regulation of Production (Independent Variable)

N d.f 2 P value
SME Growth 95 6 15.919 0.014
SME Profitability 95 6 49.509 0.000

4.6.2 Product Demand and SME Performance Variables

Table 4.14 gives the result for Chi-square test of independence. The Chi-square values and p-

values for growth were 2=27.660 and p=0.046, and for profitability 2=28.202 and p=0.041

respectively. Since in both cases p<0.05, the null hypothesis was rejected at 5% level of

significance, it was concluded that the growth and profitability of Small and Medium

Horticultural Enterprises is dependent on product demand.

Table 4.14 Test of Independence for SME Performance Variables and Product Demand

Dependent Variable Product Demand (Independent Variable)

N d.f 2 P value
SME Growth 95 8 27.660 0.046
SME Profitability 95 8 28.202 0.041

4.6.3 Production Inputs and SME Performance Variables

Table 4.15 gives the results of Chi-square test of independence. The Chi-square values and p-

values for growth were 2=24.408, and p=0.037, and for profitability 2 =26.255 and p=0.019

respectively. Since both in instances p<0.05, the null hypothesis was rejected at 5% level of

significance, it was concluded that the growth and profitability of Small and Medium

Horticultural Enterprises are dependent on production inputs. This means that SMEs that are
86
supplied with production inputs as part of the PPP intervention arrangement are more likely

to increase their profitability. The SME respondents acknowledged that through PPP

intervention they have received certified quality seeds, which are a critical success factor in

their production systems. They further sighted that continued support in terms of research to

improve the seeds to match the changing weather patterns was on going.

Table 4.15 Test of Independence for SME Performance Variables and Production
Inputs

Dependent Variable Production Inputs (Independent Variable)

N d.f 2 P value
SME Growth 95 8 24.408 0.037
SME Profitability 95 8 26.255 0.019

4.6.4 Appropriate Technology and SME Performance Variables

Table 4.16 presents results for Chi-square test of independence. The Chi-square values and p-

values statistic for growth were 2=28.685, and p=0.00, and for profitability 2=21.148 and

p=0.007 respectively. Since in both cases p<0.05, the null hypothesis was rejected at 5%

level of significance, it was concluded that growth and profitability of Small and Medium

Horticultural Enterprises are dependent on appropriate technology as indicated in Table 4.16

below. Thus when PPP support is delivered around appropriate technology, it leads to

increased profitability and growth. The SME respondents identified PPP intervention through

dissemination of technology such as improved farming methods, more efficient irrigation

method like drip irrigation and more importantly integrated pest management programme.

Table 4.16 Test of Independence for SME Performance Variables and Appropriate
Technology

Dependent Variable Appropriate technology (Independent Variable)

N d.f 2 P value
SME Growth 95 4 28.685 0.000
SME Profitability 95 4 1.148 0.007

87
4.6.5 Training and Skills development and SME Performance Variables

Table 4.17 gives results for Chi-square test of independence. The Chi-square values and p-

values statistic for growth were 2=18.380, and p=0.005, and for profitability 2=23.158 and

p=0.009 respectively. Since in both cases p<0.05, the null hypothesis was rejected at 5%

level of significance, it was concluded that growth and profitability of Small and Medium

Horticultural Enterprises are dependent on training and skills development as shown in Table

4.17 below. All the 95 SME respondents admitted to having received extensive training.

Horticultural production is very dynamic given the changes in market requirements and the

changes in variety of crops under production. This necessitates constant training to transfer

knowledge and ensure skills development for sustainable production. The SME respondents

indicated that despite having received training to help them improve production, they at times

found it difficult to transform this knowledge into skills and therefore a tangible output due to

resource constraints.

Table 4.17 Test of Independence for SME Performance Variables and Training and
Skills development

Dependent Variable Training and Skills development (Independent Variable)

N d.f 2 P value
SME Growth 95 6 18.380 0.005
SME Profitability 95 6 23.158 0.009

4.6.6 Water Resource Management and SME Performance Variables

Table 4.18 presents the results for Chi-square test of independence. The Chi-square values

and p-values statistic for growth were 2=6.643, and p=0.759, and for profitability 2=6.768

and p=0.747 respectively. Since in both instances p>0.05, the null hypothesis was not

rejected at 5% level of significance, it was concluded that the growth and profitability of

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Small and Medium Horticultural Enterprises is independent of water resource management as

shown in Table 4.18 below.

In recent times, water resource management has become a focal point for horticultural

production as well as a concern for the natural resource management authorities. This

suggests that SME performance is currently not influenced by PPP support channelled in

water resource management.

Table 4.18 Test of Independence for SME Performance Variables and Water Resource
Management

Dependent Variable Water resource management (Independent Variable)

N d.f 2 P value
SME Growth 95 10 6.643 0.759
SME Profitability 95 10 6.768 0.747

4.7 Public-Private Partnership Support and Market Access

The study also determined whether market access is independent of Public-Private

Partnership support.

H0: Market access is independent of Public-Private Partnership support

Table 4.19 gives results for Chi-square test of independence. The Chi-square value and p-

value statistic were 2=10.87 and p=0.01 respectively. Since p<0.05, the null hypothesis was

rejected at 5% level of significance, it was concluded that market access is dependent on PPP

support.

Table 4.19 Test of Independence for Market Access and Public-Private Partnership
Support

Independent Variable PPP intervention (Intervening Variable)

N d.f 2 P value
Market 95 5 10.87 0.10

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4.7.1 Regulation of Production and Market Access Variables

Table 4.20 gives results for Chi-square test of independence. The Chi-square values and p-

values statistic for level of access were 2=25.240 and p=0.00, and for market share

2=26.449 and p=0.048 respectively. Since in both cases p<0.05, the null hypothesis was

rejected at 5% level of significance, it was concluded that the level of market access and

market share of Small and Medium Horticultural Enterprises are dependent on regulation of

production activity as shown in Table 4.20 below. The PPP intervention regulating

production activity was identified as providing the SMEs with a bridge to overcome market

challenges.

Table 4.20 Test of Independence for Regulation of Production and Market Access
Variables

Independent Variable Regulation of Production (Dependent Variable)

N d.f 2 P value
Level of market access 95 6 25.240 0.00
Market share 95 6 26.449 0.048

4.7.2 Product Demand and Market Access Variables

Table 4.21 presents result for Chi-square test of independence. The Chi-square values and p-

values statistic for level of access were 2=21.745 and p=0.038, and for market share

2=20.499, and p=0.032 respectively. Since in both cases p<0.05, the null hypothesis was

rejected at 5% level of significance, it was concluded that the level of market access and

market share are dependent on product demand as shown in Table 4.21 below. The level of

market access hence the market share commanded by the respective SME was boosted

through PPP intervention by creation of product demand through the enhanced value chain.

PPP intervention to address the market forces especially low demand through contract

purchase agreement helped boost the level of market access.

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Table 4.21 Test of Independence for Product Demand and Market Access Variables

Independent Variable Product Demand (Dependent Variable)

N d.f 2 P value
Level of market access 95 8 21.745 0.038
Market share 95 8 20.499 0.032

4.7.3 Production Inputs and Market Access Variables

Table 4.22 gives result on Chi-square test of independence. The Chi-square values and p-

values statistic for level of access were 2=16.481 and p=0.043, and for market share

2=17.764, and p=0.032 respectively. Since in both instances p<0.05, the null hypothesis was

rejected at 5% level of significance, it was concluded that level of market access and market

share are dependent on production inputs as shown in Table 4.22 below. PPP intervention

provides production inputs to SMEs which helps them to meet the quality standards.

Table 4.22 Test of Independence for Production Inputs and Market Access Variables

Independent Variable Production Inputs (Dependent Variable)

N d.f 2 P value
Level of market access 95 8 16.481 0.043
Market share 95 8 17.764 0.032

4.7.4 Appropriate Technology and Market Access Variables

Table 4.23 presents result for Chi-square test of independence. The Chi-square values and p-

values statistic for level of access were 2=32.893 and p=0.00, and for profitability 2=32.190

and p=0.001 respectively. Since in both instances p<0.05, the null hypothesis was rejected at

5% level of significance, it was concluded that the level of market access and market share

are dependent on appropriate technology as indicated in Table 4.23 when PPP intervention is

delivered through appropriate technology as a response to the need to increased market

access and market share.

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Table 4.23 Test of Independence for Appropriate Technology and Market Access
Variables

Independent Variable Appropriate Technology (Dependent Variable)

N d.f 2 P value
Level of market access 95 4 32.893 0.00
Market share 95 4 32.190 0.001

4.7.5 Training and Skills development and Market Access Variables

Table 4.24 gives result for Chi-square test of independence. The Chi-square values and p-

values statistic for level of access were 2=96.585 and p=0.00, and for market share

2=84.595 and p=0.009. Since in both cases p<0.05, the null hypothesis was rejected at 5%

level of significance it was concluded that the level of market access and market share are

dependent on training and skills development as presented in Table 4.24 below. The PPP

intervention input in terms of training and skills development helps the SME to address the

market challenges that would impede SME performance.

Table 4.24 Test of Independence for Training and Skills development and Market
Access Variables

Independent Variable Training and Skills Development (Dependent Variable)

N d.f 2 P value
Level of market access 95 6 96.585 0.00
market share 95 6 84.595 0.009

4.7.6 Water Resource Management and Market Access Variables

Table 4.25 presents result for Chi-square test of independence. The Chi-square values and p-

values statistic for level of access were 2=6.643 and p=0.759, and market share 2=6.768

and p=0.747 respectively. Since in both instances p>0.05, the null hypothesis was not

rejected at 5% level of significance, it was concluded that level of market access and market

share are independent of water resource management as indicated in Table 4.25 below.

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Table 4.25 Test of Independence for Water Resource Management and Market Access
Variables

Independent Variable Water Resource Management (Dependent Variable)

N d.f 2 P value
Level of market access 95 10 12.537 0.99
Market share 95 10 11.892 0.292

4.8 Discussion of Findings

The primary aim of this research was to establish the influence of Public-Private Partnerships

on the relationship between market access and performance of small and medium

horticultural enterprises in Kenya. To arrive at this purpose, four specific objectives were

studied. This section discusses the findings of the study based on the objectives for the

strategic interventions into the horticultural subsector proposed in Chapter 5.

4.8.1 Objective One

To describe the sources of the Public-Private Partnership support provided. The study

findings revealed that SMEs receive varied support from a variety of sources. These included

private sector (97.9%), public sector (72.6%) and NGOs (10.5%). It is also important to note

that some of the SMEs funded their activity directly.

In terms of start-up funds, the findings showed that 92.6% of the SMEs were started from

personal savings while 7.4% sought loans from various lending institutions to start their

business. This in part explains why the operations are small. The SMEs tend to be cautious

because of risks of crop failure, meaning that they would not be certain about repayment of

their loans. This is further compounded by the fact that land area under crop production by

SMEs ranges between 1-5 acres (61.1%). The strain created on land, through reliance on the

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same parcels for commercial and domestic production, is an area of concern for sustaining

SME performance.

The cooperation between the public sector, private sector and NGOs in supporting SMEs is

emphasised by Gomez (2004); partnerships that bring on board government support, joint

action among growers through cooperatives and between growers and other local agents,

such as local input suppliers influence the way SMEs participate in global value chains and

thus make them more competitive. More specifically, he argues that the public sector support

influenced the adoption of production processes by SMEs in the initial stages and that this

helps to shape the structure of production. He also notes that SMEs have managed to remain

competitive through i) involvement in public-private research partnerships, ii) cooperatives,

iii) subcontracting relations with large grower-exporters, and iv) increased interaction with

local input suppliers that have served as sources of technical assistance and innovation.

The Kenya National Horticultural Policy (2010) recognises that the good performance of the

horticultural industry has been due to the fact that it is largely private-sector driven. SMEs

still face challenges and the Government, through the NHP will: (i) enhance the research

capacity of public research institutions through increased funding, (ii) promote partnerships

with relevant public and private institutions including international organisations to increase

funding and technology development, (iii) explore innovative systems that include

international best practices of producing and bulking planting material, and promote the up-

scaling and replication of successful systems, and lastly iv) streamline certification processes

by improving the capacity of national institutions to promote use of clean material that

conforms to international standards and best practices.

According to Rahman (2010), the importance of business and NGO sectors and the

limitations of the State in realising the social ideals cannot be ignored in developing

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countries. Governments and NGOs are increasingly working together as partners to

complement each other‟s efforts. Each sector has immense benefit and potential in their

respective field: the State can provide an enabling environment and space for the other two

sectors; business can solve the financial problems for the government‟s agenda of

development; and NGOs can implement the Government‟s development agenda more

economically, efficiently and effectively at the grassroots level. The partnership for social

development can be built on both the strength and weakness of the three sectors of society. In

many cases, the other two sectors have had considerable impact on governments in offering

alternative implementation models for government programmes. The study noted that PPP

practices bring together Government, NGOs and the private sector.

The results show that the private sector, through efforts of companies like Finlay‟s

Homegrown Kenya Ltd, was increasing international support including the sharing of new

technologies, science, research collaboration, training and skills development, and most

importantly, improved access to markets and market knowledge. However, the support was

not quite structured and therefore although the SMEs have the potential to significantly

improve yields and production with the right support, they remained vulnerable.

As the competition for the export market intensifies, there is need to understand the obstacles

that the SME faced. On their own, they are faced with many challenges including quality of

production, which tends to easily decline resulting in reduced competitiveness of produce

thereby reducing SME profitability. Export markets make life difficult for Small and Medium

Horticultural Enterprises as these have to meet strict demands for quality standards and

reliability, which require substantial investments in technology and equipment such as year-

round irrigation, greenhouses, trucks, cooling sheds and packing technology. These

technologies are expensive and not many SMEs can afford them. SMEs that have succeeded

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as suppliers for the export markets have generally overcome these obstacles by forging

cooperatives or enrolling in “outgrower” schemes. Often they have benefited initially from

information, training and start-up funds provided by public and private sector development

initiatives (Humanities Education Centre, 2009).

Export growth was also constrained by lack of SPS facilities to support compliance and

certification systems. Some of the issues the SMEs raised included: strict phytosanitary

compliance, hygiene, health and safety regulations (standards and legislation) and the

associated costs to the SME are a costly barrier to trade. There was a broad acceptance of

Global GAP and other legislative standards associated with food safety and hygiene but

considerable questions over Fair trade and other schemes, and the costs associated with

accreditation borne by the SMEs. All these pose a challenge to the SMEs especially in view

of strict adherence in terms of compliance with international quality standards. Phytosanitary

regulations and restrictions also affect identification of new export markets and the expansion

of existing ones. Thus, quality and standards should be prioritised to steer the growth and

performance of horticultural SMEs.

The study observed the following interventions aimed at improving the overall performance

of the SMEs. In Ol Kalou region within the Nyandarua County, the Kenya Agricultural

Productivity Agribusiness Project (KAPAP) originally piloted as KAPP supports SMEs. The

KAPAP, financed by World Bank, aimed at improving productivity in the agricultural sector

in 20 counties within the country. In Nyandarua, the SMEs working with KAPAP were the

same ones being supported by Finlay‟s Homegrown Kenya Ltd. The project provided them

with technical expertise. Another partnership is the Small Holder Horticultural Empowerment

Project (SHEP) in Ol Kalou. The partners were Ministry of Agriculture, HCDA and JICA.

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The project focused on training farmers on production, management, planning and legal

support.

Decline in funding from mainstream government for agriculture and extension services has

changed the landscape for public sector support and it is today different to what has been the

practice in the past. This has led to new funding support mainly from other foreign public

agencies (donors). This in some cases has been in consortium with the private sector and

NGOs participation through Public-Private Partnerships. The results are cited in Loitokitok

where there is all-round representation – European Union, World Vision, Kimana Wetland

Association, and the ASAL (Arid and Semi-Arid Lands) programme. These organisations

have been involved actively in making water available for horticultural production. The

projects have focused on construction and regular maintenance of furrows, and the

conservation of the wells by constructing perimeter walls and planting trees to minimise

evaporation. Change in weather conditions and unpredictability has adversely affected the

water availability and the ability of the SMEs to plan and operate.

In Naivasha, the study observed a PPP practice centred on management of water resources

from Lake Naivasha. It is a resource for irrigated farming, which has resulted in significant

stress on the lake. Given that a range of very different stakeholders rely upon the lake‟s

waters for their livelihood – including large irrigators conducting commercial horticulture,

pastoralists, the vibrant tourism industry, water service providers supplying potable water to

local residents, and the State utility KENGEN using water to produce electricity – only a

collective approach can begin to address this problem (NEMA, 2011).

There is growing universal concern over the future of water availability. It was also

recognised that this was a far bigger issue that could not be addressed by individual

companies alone but would require collaborative effort, shared research and financial support

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through PPP to implement programmes aimed at safeguarding water resources for the future.

Industries around Lake Naivasha have taken the initiative to address water use and

environmental management by helping to implement Kenya‟s National Water policy, which

promotes decentralised governance by user groups.

The Lake Naivasha Growers‟ Group (LNGG), which includes companies such as Finlay‟s

Homegrown Kenya Ltd, have funded a Water Allocation Plan to guide the establishment of

multiple local Water Resource Users‟ Associations (WRUAs). The LNGG has supported the

WRUAs in the area, particularly those in the upper catchment (which significantly affect

water availability and quality) in adopting water conservation measures and environmentally

friendly livelihood strategies. The Lake Naivasha Water Resource Users‟ Association

(LANAWRUA), the WRUA responsible for Lake Naivasha and the immediate area around

its perimeter, is currently seeking funding, with the assistance of the Government, CARE

International and WWF, to broaden its activities and undertake components of its own Sub-

Catchment Management Plan to improve positive water management in the region (WRMA,

2011).

This case illustrates the benefits of a group of companies getting together to help implement

what is a good national water policy on paper, to help reduce shared risk around the lake.

Whilst being an excellent and highly innovative approach to managing water resources, it

was clear that continued support is greatly required. This researcher also observed that apart

from the isolated projects, government support was observed through the provision of water

and its management. In Mwea, the SMEs singled out the efforts by the National Irrigation

Board (NIB) to ensure harmonious and equitable use and access to water. In addition, efforts

are currently underway between the NIB and Japan International Corporation Agency (JICA)

to expand the water supply network in the region. In Narok, the efforts of the national

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government to conserve the Mau water catchment have proved beneficial, increasing water

volumes within the river channels. Increase in water supply has improved productivity in this

region. In Loitokitok, support has been provided by the central administrative arm of the

Government to manage the potential conflicts that may arise from competition for the water

resource. The region being predominantly inhabited by livestock keepers, the local

administration has partnered with SMEs and other stakeholders to develop acceptable

programmes for use of water.

The study results also indicated that 35.8% (6-10 years); 29.5% (3-5 years); 24.2% (more

than 10 years); 9.5% (1-2 years) and 1.1% (less than 1 year) had been in business receiving

support from Finlays Homegrown Kenya Ltd. This could be due to the fact that most SMEs

face a number of performance constraints and a good number die within the first four years of

their commencing operation (Parker and Torres, 1999; Aryeetey and Ahene, 2005). The

support from Finlays Homegrown Kenya Ltd has distinctively helped Small and Medium

Horticultural Enterprises to survive beyond their fourth birthday. In addition, the survival of

the SMEs is due to the fact that 78.9% were owned or managed by men. Bekele and Worku,

(2008) on a study on women entrepreneurship in MSMEs in Ethiopia identified that majority

of the SMEs that failed were operated by women.

Although the study focused on support provided by Finlays Homegrown Kenya Ltd – whose

support is readily available and accessible, and the partnership is voluntary – to lend further

credence to the study, it also explored if the SMEs received support from other companies.

Indeed, 33.7% of the SME respondents had received support from the other companies. For

instance, the SMEs occasionally received support from agrichemical companies; in Mweiga,

the SMEs have partnered with Twiga chemicals who supply them the agrichemical at price

lower than the retail market price. A similar arrangement was observed in Loitokitok where

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the SMEs have partnered with Syngenta to provide training on the safe use of pesticides as

well as training the farmers on observing environmental changes that favour the existence of

specific pests and diseases. To reinforce this knowledge, they provide farmers with materials

indicating the various cycles of the pests and symptoms of diseases. In Kathiani, the PPP

support provided was unique in that it focused on research and testing of fertilisers. The Athi

River Mining Company has partnered with farmers to engage in testing fertilisers. This kind

of support is of critical importance and is a major building block for the development of PPP

in research.

In summary, Small and Medium Horticultural Enterprises received support from a number of

sources mainly the private sector, public sector and NGOs. However, the support is not

structured. Evidently, the issues discussed in this study raise significant challenges to the

conduct of successful PPPs in Kenya. The complexity of such arrangements and the high

costs involved is enough cause for the Government to take a careful approach to PPPs. It

should also recognise that PPPs pose many of the same problems inherent in procurement or

privatisation and are not a panacea for development. The study recommends that the

Government must determine clear operational guidelines with respect to acceptable forms of

PPPs and their prioritisation, procedural clarity on the basic steps in establishing PPP

projects, basic approaches to risk allocation, value for money and principles around the

provision of guarantees and financial and budget evaluation criteria.

4.8.2 Objective Two

To describe the nature of support that SMEs in horticulture are given in Kenya. Having

identified the sources of support for the SMEs, the next question was to describe the nature of

this support as rated on the level of importance by the SMEs. The study results indicated that

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the SMEs received the following support: financial, training, legal, technology, infrastructure,

market demand and consultancy support, and farm inputs and information.

Financial support has been identified in many studies as the most important factor

determining the survival and growth of small and medium-sized enterprises in both

developing and developed countries. Access to financing allows SMEs to undertake

productive investments to expand their businesses and to acquire the latest technologies, thus

ensuring their competitiveness and that of the nation as a whole. The study results indicate

that financial support was low (7%) as compared to other forms of support, revealing that the

SMEs hardly receive the necessary financial support to spur their growth and development. It

was noted that these SMEs do not have access to competitive loans for enterprise

establishment. There seems to be some risk aversion amongst the financial institutions that

are expected to give financial support. Provision of effective and widespread financial

services is essential for the development of the horticultural industry. Several financial

institutions that offer support to the industry include Government parastatal, commercial

banks, microfinance institutions, bilateral and multilateral lending institutions, NGOs,

SACCOs and donor programmes.

However, such financial services are inaccessible to a large number of medium and small-

scale operators due to high interest rates. In addition, there are no appropriate crop insurance

schemes or a special fund to facilitate financing of the industry thus preventing many small-

scale producers and processors from up-scaling to commercial status. The study noted that

there were PPP practices that were bringing together the Government, NGOs and the private

sector. For example, the researcher observed the interventions in Meru where SISDO a

micro-finance NGO involved in financing local SMEs partnered with some SMEs by

providing finance in a water project.

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It should also be noted that 21.1% of the Small and Medium Enterprises were operated by

women. Among the challenges of horticulture being classified as high-risk by finance

providers, it should be noted that SMEs operated by women have lower access to financial

support. This is because women do not have collateral so they cannot access loans (Bekele

and Worku, 2008). In addition, the programmes financing the horticulture industry are

uncoordinated resulting in duplication of activities, which can partly be attributed to lack of

prioritisation in areas that need financing. Due to lack of appropriate mechanisms for

financing the industry, low-interest loans acquired by the Government are normally

channelled through commercial banks, which subsequently provide these loans to players in

the horticultural industry at market rates.

The SMEs rated training (14%) as the most received support and of great importance. The

study reported that SMEs acknowledge that training has helped them to improve their

operations in terms of efficiency and effectiveness as well as working towards the attainment

of global standards. This demonstrates the need to put emphasis on training of SME owners

on farming techniques to improve productivity levels. It is recognised that small‐scale

producers in Africa cannot compete in globalised markets with free trade and no support

(Jaeger, 2009). The author further argues that there is need to stimulate commercial

agriculture among small-scale farmers through training as this will help among other things,

improve their understanding on how a new market opportunity may be addressed or a new

technology such as drip irrigation may be introduced and applied.

Technical competence for example in crop production processes is necessary for Small and

Medium Horticultural Enterprises to be successful in business. Other than the formal school

training, the respondents were asked if they had undertaken any additional training that they

may have found useful. This is because training programmes linked to SME needs and

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integration with the performance systems is essential in improving productivity (Neild et al.,

2010). At start-ups, SMEs need training in formulating business plans, identifying markets,

hiring workers and complying with government regulations. However, at maturity stage

SMEs may be trained on marketing skills and exporting requirements, product development,

process improvement, identification and use of new technology, labour relations, networking

and generally improving adaptability and flexibility. Therefore, the study results indicate the

type of training undertaken and additional qualifications of SME owners (Hill, 2007).

The main areas of additional training that the SME respondents received were: hygiene, safe

use of agrichemicals, integrated pest management, water management, first aid and fair trade.

These points to the fact that horticultural farming not only requires farm equipment and

facilities but also requisite farming skills, which are an integral and essential component of

business competence leading to competitiveness. Horticultural SME competitiveness must be

sustained in the market in order to supply quality products on time and at competitive prices

by acquiring the flexibility to respond quickly to demand and changes in the market, and

successfully managing product differentiation by building up innovative capacity and an

effective marketing system (Altenburg et al. 1998).

Legal support was perceived by the respondents to be important; they rated it at 10%. Legal

support was found to be beneficial for most of the SMEs especially with respect to

negotiation of contracts of supply and the pricing structure for their produce. The study also

observed that in regions where the SMEs have pooled resources to address structural

marketing challenges, legal support was essential in the negotiation of the rights and

responsibility of each member SME.

Adoption of the latest technology is critical for SMEs if they are to remain competitive in the

horticultural subsector. Study results showed that technology support was rated at 13% by the

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respondents, confirming that the SMEs considered technology as critical in their operations.

This could point to the fact that technology is a key driver of productivity and competiveness

of SMEs in the horticultural subsector. Knowledgeable consumers are responsible for

demanding products that are environmentally friendly, and this requires appropriate

technology whose acquisition is an expensive venture for SMEs involved in horticultural

production. The study established that the technology required pertained to water resource

management, crop management and product harvesting and handling.

The study witnessed the structured technical support service provided by Finlay‟s

Homegrown Kenya Ltd to all SME respondents. This support package includes distribution

of certified seeds, advice on agrichemicals to be used, active monitoring of the production

process, quality assurance, harvesting and postharvest management. The SMEs were also

found to receive regular training from Finlay‟s Homegrown Kenya Ltd and agrichemical

industry especially on the usage of agrichemicals. In illustration, the Athi River Mining

Company conducted experiments for fertilisers used on SME farms in Athi River.

Technology encouraging minimal water usage such as drip irrigation was desired by

respondents but was prohibitive in cost. The HCDA is also promoting the adoption of

greenhouses to minimise the effects of evaporation but the uptake has remained very low. It

was also observed that the integration of information and communication technology (ICT) in

SME business was critical in revolutionizing relationships within organisations and business

operations, and brought about a paradigm shift in management of businesses (Ayo et al.,

2010 and Salehi, 2010). The SMEs made use of ICT mainly for obtaining market prices.

Lack of storage facilities for increased production is a constraint for postharvest management

of the produce. Infrastructure investment in logistics and cold chain facilities was identified

as crucial in the sector, where perishability of produce is high. The investment in properly

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equipped and structured pack houses would make a significant contribution to reducing waste

in the value chain. The study also revealed efforts by the public sector e.g. in Ol Kalou

through development programmes such as the Kenya Agricultural Productivity Project

(KAPAP). This particular project focuses on improving the performance of SMEs as well as

developing the enabling infrastructure such as cold storage facilities, training on farm

management and overall productivity. Availability of infrastructural facilities is crucial for

growth and performance of Small and Medium Horticultural Enterprises as is evident from

the study findings where it was rated at 13%; majority of the SMEs considered it important

for their performance. The NHP (2010) underscores the need to embrace PPP to support

infrastructural development especially water, power and energy to support the sector.

Growth and performance of SMEs relies on access to markets; it was therefore important to

establish the significance of market access to SMEs interviewed. The SMEs rated support on

access to market at 13%, emphasising the importance of market access to the SMEs. Farmers,

traders and consumers are faced with the problem of inadequate physical market

infrastructure. Where they exist, such markets are congested, disorganised, have poor sanitary

conditions, do not distinguish between the retail and wholesale sections. These are

overstretched and do not have adequate security.

According to Hill (2007), the barriers to acquiring business competence by farmers include:

(i) structure of the industry (business size and family nature of farms), (ii) information

deficiencies, (iii) costs to the individual of education and training, (iv) characteristics of

delivery mechanism of education and training amongst others. The key to improving business

competence in the longer term seems to lie in encouraging higher levels of education, as this

appears to heighten awareness of opportunities, including the use of advice, training and

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innovation. Education and training should be seen as an integral part of development of the

farmers/SMEs.

Finlay‟s Homegrown Kenya Ltd was certified to supply Fair trade flowers in 2007. Its

customers now include: Marks & Spencer, Next and Sainsbury‟s. In April 2010, Finlay‟s

Homegrown Kenya Ltd was certified to supply Fair trade fresh vegetables (fine beans, extra

fine beans, runner beans, garden peas and mange tout) grown on its own farms and sourced

from out-growers. Initially, Finlay‟s Homegrown Kenya Ltd would supply Fair trade buyers

with fine beans and extra fine beans produced exclusively by its out-grower partners. This

development comes as a result of a review of Fair trade standards for vegetables. Until

September 2009, suppliers of Fair trade vegetables had to be able to meet the Fair trade

standards for Small Producer Organisations (SPOs). This meant that most vegetables

producers from Africa were not eligible for certification as the producer models in African

supply chains did not fit with Fair trade standards.

Since export produce has to meet strict rules for freshness and quality, many vegetable

farmers in Africa either sell their produce to larger plantation companies that can invest in the

necessary equipment and certifications or sell directly to exporters. Many of these producers

are small-scale out-growers who are either not organised into groups or whose structure

doesn‟t meet the Fair trade criteria for SPOs. To overcome this, a new standard has been

developed to enable out-growers to enter the Fair trade system and access the benefits of Fair

trade. The standard allows for the certification of plantations that source additional volumes

of vegetables from SPOs and out-growers. Plantations must source a prescribed percentage of

vegetables from out-growers, starting with 10% in their first year of certification for

vegetables, 20% in the second, and thereafter increase the percentage in line with an agreed

sourcing plan.

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Therefore, although Fair trade provides an opportunity for farmers to access markets, it‟s a

new concept that has its challenges in terms of adoption and compliance, which may explain

why many SMEs have still neither embraced nor received training in it (Neild et al., 2010).

Plantations must therefore support out-growers form self-help groups if they have not already

done so. In the longer-term, plantations must provide support and training to enable out-

growers to set up the systems and structures necessary to become certified in their own right

under the Fair trade standards for SPOs. If the out-growers are not on track to meet the

standards within six years, the plantation must contract a third party to provide additional

support.

This new standard will help small-scale farmers to access social and economic benefits

through the Fair trade minimum price and premium and provide support towards

implementation of more sustainable agricultural practices that reduce pressure on the

environment and water resources. In Kenya alone, an estimated 800 SPOs produce

vegetables, of which approximately 60% could potentially supply the European market.

Finlay‟s Homegrown Kenya Ltd buys vegetables from small-scale farmers from 10 areas

located in the higher rainfall areas of Kenya. Initially, 23 groups in Mweiga and 11 in Meru

have been identified to supply Fair trade beans. Each group has a membership of between 2

and 20 farmers and represents 343 farmers. Farms are up to 5 acres (2ha) in size and use

family labour and seasonal casual labour. Finlay‟s Homegrown Kenya Ltd provides the

groups with the necessary technical support and training to ensure their produce is grown to

the high standards demanded by their customers. This includes providing seeds and

chemicals at subsidised prices.

Data gathered from this study also showed that most of the SMEs valued consultancy

services as a key driver to their performance. The SMEs rated consultancy at 14%, similar to

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training. The consultancy support provided through extension services is of critical

importance in the production process for the Small and Medium Horticultural Enterprises

considering quality produce depends on accuracy and early interventions to address

production risks that may arise. The researcher observed a case in Narok where pest outbreak

was a major risk and through consultancy support, the SMEs accessed early warnings and

were able to take necessary measures.

The level of inputs in a production process determines the output levels. However, data

collected indicated that the SMEs rated the support of provision of farm inputs at 4%. The

majority of the SMEs have not received any of this support. The SMEs that indicated

provision of farm inputs as significant are those that have the access to the subsidised farm

inputs. The rest of the SMEs have information on the availability of this form of support but

shy away because of the bureaucracies involved and also the costs of accessing the support

outweighing the benefits. The research observed that currently the provision of farm inputs

by the public sector (government agencies) does not enlist Small and Medium Horticultural

Enterprises as target recipients of this support.

The major inputs in the horticultural industry are seeds, fertilisers and pesticides; other

requirements include farm structures and equipment. The poor quality of inputs attributed to

counterfeiting and adulteration and their high cost are a hindrance to faster development of

the subsector. Inputs are distributed through a wide range of stockists, merchants and

cooperatives throughout the country. However, most of the input dealers are not trained to

offer quality advisory services to farmers. Despite the positive impact on the environment and

health, little has been done to promote technologies such as organic farming that foster use of

farm-based inputs (Horticultural Policy Kenya, 2009).

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Information on market trends demand and price variations are always important to farmers,

SMEs rated this form of support at 12%. The researcher observed that the environment in

which the SMEs operate is fraught with information asymmetry. Whilst information on

market conditions is easily accessed, information on pest and disease outbreaks is scarce and

its drawn-out retrieval means that the damage is usually already done and losses suffered

when it is finally accessed. In addition, the researcher observed that the communication

channel for feedback from the SMEs on matters regarding quality of seeds is not effective.

This provides an opportunity for PPP focusing on research to develop varieties that are

suitable. The study sought also to understand the influence of the type and quality of the

Public-Private Partnership support and the performance characteristics of the small and

medium horticultural enterprises.

4.8.3 Objective Three

To determine the relationship between market access and performance of Small and Medium

Horticultural Enterprises The third objective of the study was to determine the relationship

between market access and the performance of horticultural SMEs. The study found out that

at 5% level of significance, market access and performance of Small and Medium

Horticultural Enterprises are dependent, with the Chi-square value and p-value statistic of

2=40.071, and p=0.003 respectively.

The study further investigated the relationship between SME performance variables and

market access variables. The study found out that growth of Small and Medium Horticultural

Enterprises is dependent on the level of market access at 5% level of significance with Chi-

square value and p-value statistic of 2=11.556, and p=0.02 respectively. This conclusion

compares well with Tschirley et al. (2004) who observe that SME growth is driven by

consumer demand for quality and food safety in the export market. Similarly, the study found

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out that the profitability of Small and Medium Horticultural Enterprises is dependent on the

level of market access at 5% level of significance with Chi-square value and p-value at

2=12.784 and p=0.049 respectively. Enhanced market access results in improved

profitability, which is achieved through understanding and addressing problems confronting

the Small and Medium Horticultural Enterprises (Curran, 1999).

The study established that growth of the SMEs is dependent on market share controlled at 5%

level of significance for Chi-square value and p-value statistic of 2=24.666 and p=0.00

respectively. The same was also observed that profitability of Small and Medium

Horticultural Enterprises is dependent on market share controlled at 5% level of significance

with Chi-square value and p-value of 2=18.112 and p=0.009 respectively. This is in

agreement with Canz (2005) on SME competiveness and market access, who argues that

eliminating constraints in the areas of utilities, working capital, strong competition, shortage

of inputs results in growth and profitability.

4.8.4 Objective Four

To determine the relationship between PPP support and performance of Small and Medium

Horticultural Enterprises: This objective was achieved through the second main hypothesis

for this study that PPP support and SME performance are independent. The study findings

revealed that at 5% level of significance the performance of Small and Medium Horticultural

Enterprises is dependent on PPP support with Chi-square value and p-value statistic of

2=52.62 and p=0.009 respectively. The study further investigated the relationship between

individual PPP intervention attributes and SME performance variables. These findings are

discussed as follows:

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Firstly, the study findings revealed that the growth and profitability of Small and Medium

Horticultural Enterprises are dependent on the regulated production activities at 5% level of

significance for Chi-square values and p-values statistic for growth 2=15.919 and p=0.014

and for profitability 2=49.509 and p=0.00 respectively. The dependence between the growth

and profitability of Small and Medium Horticultural Enterprises and regulations is

emphasised by Henson (2007) who recognises the need for Public-Private Partnership to help

build sanitary and phytosanitary capacity to achieve compliance with export market SPS

standards. The sequencing of the establishment of this capacity is critical to the process of

establishing and maintaining market access. The study emphasised that building capacity is

not a one off thing, there is a need for it to be maintained and to be further enhanced as export

market standards continue to evolve. Thus, compliance must be seen as an on-going and a

„never ending‟ process of upgrading SPS management capacity in response to export market

requirements.

Secondly, the study also found out that the growth and profitability of Small and Medium

Horticultural Enterprises are dependent on product demand at 5% level of significance for

Chi-square values and p-values are for growth 2=27.660 and p=0.046 and for profitability

2=28.202 and p=0.041 respectively. This is partly explained by the fact that horticultural

production is seasonal and requires optimisation within the peak production period. The SME

respondents indicated that through PPP intervention they are able to maximise returns within

the peak periods. They further identified Finlay‟s Homegrown Kenya Ltd as being responsive

to the price changes within the market. One SME owner sighted that during the peak season

in 2010, he was able to sell a kilo of fine beans at Kshs. 90 which was a good price compared

to the then prevailing price of Kshs. 80. From the literature, product demand created through

PPP does not only influence the profitability and growth of SMEs, but also determines their

competitiveness.

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Respondents intimated that low price seasons are characterised by general market failure

since most of their produce remains uncollected by Finlay‟s Homegrown Kenya Ltd. In some

cases this failure is unpredictable, for example the 2010 Iceland volcano eruption and winter

snow storms in Europe that ground horticulture exporting business. In the event of predicting

market failure, the study observed that SMEs‟ farming practices are mainly regulated by

availability of water so “farmers will plant when they harness water for irrigation in the hope

that the market will turn out favourably.” The produce by SMEs enlisted as out-growers is

highly perishable for example fine beans have shelf life of 10 days if stored under

refrigeration yet the products cannot be said to have significant domestic demand. These

characteristics impede greatly on SME performance. Some respondents demonstrated these

by planting crops such as potatoes and carrots to cushion against market failure. It was

observed that short production cycles of 45 to 60 days are alluring to most SMEs who deem it

as a great business venture. However, this is not always the case since increases in capacity

may not be met by accompanying demand or reasonable prices. The SMEs therefore risk

losing a whole investment during that production cycle. For this reason, product demand vis-

à-vis level of market access is a major factor contributing to success of SMEs in horticulture

industry.

Thirdly, the study findings revealed that growth and profitability of Small and Medium

Horticultural Enterprises are dependent on production inputs at 5% level of significance for

Chi-square values and p-values for growth 2=24.408 and p=0.037 and for profitability

2=26.255 and p=0.019 respectively. This means that SMEs that are supplied with production

inputs as part of the PPP intervention arrangement are more likely to increase their

profitability. The SME respondents acknowledged that through PPP intervention they have

received certified quality seed, which is a critical success factor in their production systems.

They further sighted that continued support in terms of research to improve the seeds to

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match the changing weather patterns was on-going. The study noted the need for SMEs to re-

organise and agglomerate themselves into production groups that would enable them to enjoy

economies of scale. Through this agglomeration, the SMEs will be able to enjoy better

bargaining power as buyers of production inputs as well as the suppliers of the outputs. This

will result in higher profits hence better overall SME performance.

Fourthly, the study also found out that the growth and profitability of horticultural SME are

dependent on appropriate technology at 5% level of significance with Chi-square values and

p-values statistic for growth 2=28.685 and p=0.00 and for profitability 2=21.148 and

p=0.007 respectively. This indicates that when PPP intervention is delivered around

appropriate technology, it leads to increased profitability and growth. The SME respondents

identified PPP intervention through dissemination of technology such as improved farming

methods, more efficient irrigation methods like drip irrigation and also more importantly

integrated pest management programme. These findings concurs with Radam et al. (2008) in

analysing technical competence of SMEs, the number of firms considered technically

efficient is only 3.06 per cent of total firms, while total technical inefficiency varies from

0.30 to 97.10 per cent. Thus, mechanisms are needed to promote economies of scale and

develop technical skills, which will lead to higher efficiency levels among SMEs.

The challenges that SMEs face in translating technical knowledge into business practice was

observed. Technology as a driver for SME growth must be re-emphasised with the aim of

ensuring that they maintain competitiveness. Information technology (IT) development is

changing the way information flows between countries. Marketing places are quickly

substituted by „marketing spaces‟ on the Internet. Movement of orders and money

(transactions) are changing drastically and market information is becoming easily available

„just a click‟ away (VECO, 2006). Therefore, the study acknowledges the potential of

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information technology in overcoming challenges of market access and addressing the

asymmetry in bargaining power within the sector.

Fifthly, the study findings revealed that the growth and profitability of Small and Medium

Horticultural Enterprises are dependent on training and skills development at 5% level of

significance for Chi-square values and p-values statistic for growth 2=18.380 and p=0.005

and for profitability 2=23.158 and p=0.009 respectively. Training and skills development as

a PPP intervention therefore is important to SME performance. All the 95 SME respondents

acknowledge to having received extensive training. Horticultural production is very dynamic

given the changes in market requirements and the changes in variety of crops under

production. This necessitates constant training to transfer knowledge and ensure skills

development for sustainable production. The SME respondents indicated that in spite of

receiving training to help them improve production, they at times found it difficult due to

resource constraints to transform this knowledge into skills.

Lastly, the study found out that growth and profitability of Small and Medium Horticultural

Enterprises are independent of water resource management at 5% level of significance for

Chi-square values and p-values statistic for growth 2=6.643 and p=0.759 and for

profitability 2=6.768 and p=0.747 respectively. In recent times, water resource management

has become a focal point for horticultural production as well as a concern for the natural

resource management authorities. The SME respondents indicated that PPP support has not

satisfactorily addressed water management issues. One respondent in Mwea indicated that

although they access water for irrigation courtesy of the National Irrigation Board, they

merely benefited because their farms lie within the supply network for the rice irrigation

schemes. In Loitokitok, the respondent SMEs indicated that they benefited from community-

based conservation efforts of the Kimana Wetland. This did not target development of Small

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and Medium Horticultural Enterprises rather for other activities, and water supply is done on

a rotational basis.

This means that PPP support has not addressed the issue of water access adequately and

therefore access to water for irrigation was not significantly influencing the SMEs

performance. There is need for the support efforts to be more focused at developing

favourable policies by the public and private sectors to address water access for horticultural

SMEs. The respondents cited water as a critical ingredient to the success and survival of

SMEs in the sector. The SMEs dedicate a large share of their resources to procure water, and

this creates a strain on the other aspects of production. Access to water for irrigation is

essential for sustainable farming and therefore farm competitiveness (ActionAid, 2011).

Currently most of the SMEs interviewed rely solely on rain in their farming activities and

during periods of drought, they are faced with crop failure. The study acknowledged water

resource management as a key area where PPP practices were evident but it did not focus

primarily on developing horticultural SMEs. In Loitokitok region, the researcher observed

that there had been concerted efforts to address obstacles to accessing water. The community

and the SMEs had organised themselves into associations which are mandated to oversee the

management of the water resource. These associations received support from the Government

and NGOs but were characterised by competing demands for water. The Government has

recognised their legitimacy and in compliance with legal requirements issued them with

water permits. The SMEs pay a seasonal fee to the association for the use of water. Despite

having obtained permits, uncoordinated efforts by government agencies to conserve water

resources have resulted in conflicts hampering the development and performance of the

horticultural SMEs. The SMEs pointed out that the directive from NEMA ordering them to

keep off the wetland and riparian land had not been consultative.

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The NGOs have made direct contributions in addressing access-related problems through

construction and maintenance of furrows over time. The study also identified water

conservation efforts through the Kimana Wetland Association and World Wildlife Fund in

constructing a perimeter wall round the wells and advocating tree planting. The protection of

the water sources has also provided benefits that address sanitary and phytosanitary issues.

In Mweiga Region, the researcher observed that there are unitary efforts to address water

resource issues. In some cases, communities have come together to pool resources so as to

access water. As the control and usage has not been enforced, each user draws as much water

as they desire, at times at the expense of their counterparts, and this in most cases triggers

conflict. However, most of the users were noted to have appreciated the need for legal

compliance and had acquired water-use licenses from the relevant authorities. In spite of such

compliance, the researcher observed that the water regulating authority will issue directives

against water use for irrigation during dry spells. These directives are made without

consultations and prior notice, the end result being severe losses to the SMEs as a result of

crop failure. The unitary system of water management observed in Mweiga area does not

support any proactive conservation efforts neither does it ensure any interventions on sanitary

and phytosanitary measures. Homogenous observations have been made in Meru, Makuyu,

Kathiani, Rumuruti, Ol Kalou and Narok. The SMEs in Molo area were found to rely on rain-

fed agriculture.

4.8.5 Objective Five

To determine the relationship between market access and the performance of the Small and

Medium Horticultural Enterprises when intervened with Public-Private Partnership (PPP)

support. This objective was to determine the relationship between market access and the

performance of Small and Medium Horticultural Enterprises when intervened with PPP

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support. To this end, the study hypothesised that market access is independent of PPP

support. The study findings revealed that market access is dependent on PPP support at 5%

level of significance for Chi-square value and p-value statistic of 2=10.87 and p=0.01

respectively. To expand on the analysis between market access variables and PPP support

variables, Chi-square test of independence was performed and the findings are discussed

below.

Firstly, the study found out that the level of market access and market share are dependent on

regulated production activity at 5% level of significance. The Chi-square values and p-values

statistic of level of access 2=25.240 and p=0.00 and for market share 2=26.449 and

p=0.048 respectively were observed. The regulation of production activity occurs through

strict quality standards (Global GAP) and legislation imposed by the export market

destinations. The Small and Medium Horticultural Enterprises (are dependent on PPP support

that enables them to meet the higher quality standards hence market access. PPP support

delivered through regulation of production activity helps in minimising waste and postharvest

loss.

Secondly, the study findings revealed that the levels of market access and market share are

dependent on product demand at 5% level of significance. The Chi-square values and p-

values statistic of level of access 2=21.745 and p=0.038 and for market share 2=20.499 and

p=0.032 respectively were observed. The level of market access hence the market share

commanded by the respective SME was boosted through PPP intervention by creating

product demand through the enhanced value chain. PPP intervention to address the market

forces especially low demand through contract purchase agreement helped boost the level of

market access.

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Thirdly, the study found out that the level of market access and market share are dependent

on production inputs at 5% level of significance. The Chi-square values and p-values statistic

for level of access 2=16.481 and p=0.043 and for market share 2=17.764 and p=0.032 were

obtained respectively. PPP intervention provides production inputs to SMEs that meet the

dictated market quality standards. These findings were consistent with Tschirley et al. (2004)

who emphasised that access to markets remains a big challenge for SMEs in horticulture. In

assessing the nature of market access challenge, the study found out that there are two types

of market access groups; in-growers and out-growers. The in-growers‟ market is

characterised by export demand that remains available throughout the year, meaning that

these do not experience product demand challenges. In this study, in-growers refer to farms

owned by Finlay‟s Homegrown Kenya Ltd while out-growers are basically the farms that

have been contracted by Finlay‟s Homegrown Kenya Ltd to supplement its supply. The out-

growers are SMEs that were identified as the respondents to the study. The out-growers‟

market is determined essentially by Finlay‟s Homegrown Kenya Ltd. This means high

proportions of harvest and accompanying high prices will be available to the SMEs if

Finlay‟s Homegrown Kenya Ltd.‟s production requires heavy supplements. During the period

of data collection especially in the month of February 2011, the researcher observed that a

kilogram of fine beans were bought by Finlay‟s Homegrown Kenya Ltd from the SMEs at

Kshs. 70 contrary to the price range reported of between Kshs. 95 and Kshs. 35.

Fourthly, the study found out that level of market access and market share are dependent on

appropriate technology at 5% level of significance for Chi-square values and p-values

statistic are for level of access 2=32.893 and p=0.00 and for profitability 2=32.190 and

p=0.001 respectively. PPP intervention is delivered through appropriate technology as a

response to the need for increased market access and market share.

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Fifthly, the study revealed that the level of market access and market share is dependent on

training and skills development at 5% level of significance. The Chi-square values and p-

values statistic of level of access 2=96.585 and p=0.00 and of market share 2=84.595 and

p=0.009 respectively were observed. The PPP intervention input in terms of training and

skills development helps the SME to address the market challenges that would impede SME

performance.

Lastly, the study found out that level of market access and market share are independent of

water resource management at 5% level of significance. The Chi-square values and p-values

statistic of level of access 2=6.643 and p=0.759 and market share 2=6.768 and p=0.747

respectively. PPP intervention that is focused on addressing water issues helps to achieve the

level of production that meets market requirements in terms of quantity and quality. The

independence between water resource management and market access variables as indicated

shows the need for PPP support.

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 CHAPTER FIVE

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction

This chapter presents a summary of the major research findings, conclusions from the

findings and recommendations drawn from the conclusions.

5.2 Summary of Findings

The general objective of this thesis was to establish the contribution of Public-Private

Partnerships to the performance of small and medium horticultural enterprises in Kenya. The

thesis sought to understand the contribution of PPP support to the performance of

horticultural SMEs. The study was based on five objectives that were formulated and findings

discussed in detail in Chapter 4 and summary of findings presented under each objective.

In the first objective, it was found that Small and Medium Horticultural Enterprises received

their support from public and private sector and NGOs, and start-up capital was observed to

come from family savings. Private sector support was mainly from Finlay‟s Homegrown

Kenya Ltd, other horticultural export companies and agrichemical companies. Public sector

support was received from the Government and government agencies including the Ministry

of Agriculture, HCDA, KEPHIS and KARI; development partners (public, private and

NGOs) also supported SMEs.

The second objective revealed the nature of support that the SMEs receive. The SMEs

receive financial, training, legal, technology, infrastructure, market access, managerial and

consultancy support, farm inputs and information. The study indicated that provision of farm

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inputs and financial support were the least forms of PPP support that the SMEs received.

Training support together with managerial and consultancy services were the most accessed.

Findings from objective three showed that performance of Small and Medium Horticultural

Enterprises is dependent on market access at 5% level of significance (2=40.071, p=0.003).

It was also discovered that growth and profitability of the SMEs were dependent on the level

of access and market share. Further, improved market access provides the Small and Medium

Horticultural Enterprises with the opportunity for growth and profitability.

Results from objective four revealed that horticultural SME performance is dependent on PPP

support at 5% level of significance (2=52.62, and p=0.009). Support to the challenges faced

by the SMEs is participatory between the public and private sectors. The study also

discovered that horticultural SME performance is dependent on regulation of production

activity, product demand, production inputs, appropriate technology and training and skills

development. Water resource management was found to be independent of horticultural SME

performance. In most of the cases, the benefit to the Small and Medium Horticultural

Enterprises was as a result of spill over effects as seen in Mwea, Naivasha and Loitokitok.

The fifth objective focused on identifying the influence of PPP support on poor market access

and performance of horticultural SMEs. The findings indicate that market access is dependent

on PPP support at 5% level of significance (2=10.87, p=0.01). Narrod et al. (2008), argues

that market access requires stringent food safety requirements and therefore to enable SME to

remain competitive in such a global system, new institutional arrangements are required and

specifically mentioned the role that PPPs can play in creating farm to market linkages.

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5.3 Conclusions

The study was driven by the need to provide a framework upon which performance of Small

and Medium Horticultural Enterprises could be improved through Public-Private Partnership,

resulting in macro-economic benefits. This thesis generated five objectives and the main

subject underlying these objectives related to the contribution of Public-Private Partnerships

to the performance of the horticultural SMEs. Founded on these objectives and summary of

findings the following conclusions were made.

Based on the first objective to document the sources of support that Small and Medium

Horticultural Enterprises received, the study concludes that SMEs get support from the

private and public sectors and NGOs. Private sector support is dominant and is provided on

the basis of a contractual engagement. As it is clear that private sector support is mutually

beneficial to the private sector and Small and Medium Horticultural Enterprises, it was

therefore purposely targeted towards the SMEs. On the other hand, the public sector and

NGO support tends to be obligatory and does not single out Small and Medium Horticultural

Enterprises as recipients of the support.

The second objective was to document the nature of support that the horticultural SME

received. The study concludes that the Small and Medium Horticultural Enterprises receive

support such as: production inputs, training, infrastructural facilities, technology, legal and

managerial advice, information and consultancy services and financial support. Production

inputs and financial support were the least offered forms of support that are important for

Small and Medium Horticultural Enterprises performance.

The third objective was to determine the relationship between market access and the

performance of Small and Medium Horticultural Enterprises. The study concludes that the

performance of Small and Medium Horticultural Enterprises is dependent on improved

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market access. Small and Medium Horticultural Enterprises growth and profitability are

influenced by the level of market access and the market share that they are able to control.

The fourth objective was to determine the relationship between PPP support and the

performance of Small and Medium Horticultural Enterprises. The study concludes that the

performance of Small and Medium Horticultural Enterprises is dependent on PPP support.

PPP support was delivered through regulation of production activity, product demand,

production inputs, appropriate technology and training and skills development to enhance

SME performance. The current efforts in water resource management have not taken into

consideration the critical role of water as an input in horticultural SME performance.

The fifth objective was to determine the relationship between market access and the

performance of Small and Medium Horticultural Enterprises when intervened with PPP

support. The study concludes that market access is dependent on PPP support. PPP support

improves market access and therefore improved horticultural SME performance. PPP support

is critical in accessing export markets especially where meeting stringent SPS requirements is

a necessity.

On the basis of a sample of 941 SMEs, this study has explored in depth the influence of the

public and private sector partnerships on the relationship between market access and

performance of Small and Medium Horticultural Enterprises in Kenya. The findings indicate

that there are significant positive relationships between market access, SME performance and

PPP interventions. Despite the progress so far, it‟s widely recognised that stakeholders

involved need to make more effort in order to capitalise on mutual strengths based on an

agreed framework and thus accelerate the process of SME development. The study

highlighted some of the policy areas relevant for success of the SMEs.

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5.4 Recommendations

Based on the discussion, summary and conclusion of this thesis the following

recommendations were made:

Firstly, the study recommends that there is need to develop a framework that identifies and

defines the roles of the support providers based on their strengths.

Secondly, the study endorses that support providers should focus on developing a framework

to deliver financial support and production inputs. This can be achieved through involvement

of all horticultural practitioners - finance providers, government agencies, agricultural

researchers and agrichemical companies to enable the development of synergies and

economies of scale through seamless value chain systems.

Thirdly, given that support is not limited to one kind of organisation, the study proposes

institutional arrangements that take cognisant of the various technical capabilities of each

support provider. These arrangements can be achieved through collaboration between the

public and private sectors to support compliance in meeting market quality standards.

Fourthly, to continue accessing export markets, the public and private sectors and NGOs

must continue to provide appropriate expertise to the horticultural SME managers to broaden

their market knowledge.

Lastly, if the efforts on water resource management are to contribute to the performance of

horticultural SMEs, a consultative approach to formulation and implementation of policies

within water resource management must be put in place and these must go beyond mere

conservation efforts. The government agencies charged with water resource management and

conservation must forge partnerships by collaborating with the private sector, NGOs and

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Small and Medium Horticultural Enterprises in the process. This cooperation should be

similar to what is in place for rice farming in the Mwea scheme.

The study proposes a thorough review of the institutional framework that brings all the

players together so as to enhance coordination in the industry and effective implementation of

agreed activities. Successful pursuit will require greater infusion of capital, technology,

knowledge by the private sector, and in turn, for the public sector to create the requisite

policy and regulatory mechanisms to ensure beneficial outcomes for the SMEs and other

stakeholders.

Water is a major factor of production for horticulture. There is need to put in place efficient

irrigation systems similar to what is seen in the rice schemes in Mwea. In Naivasha there is a

long term water management and irrigation plan that involves conservation of all water

catchment areas through Public Private Partnership (PPP). This approach needs to be

extended to other horticultural producing regions.

In summary, both the public and private sector must strive to develop an overall conducive

environment for entrepreneurship, innovation and therefore SME growth. Government

measures to promote SME growth should be carefully focussed and aimed at making markets

work more efficiently and at providing genuine incentives for the private sector to assume a

proactive role in supporting SME. For example, in financing where necessary banking

arrangements should be reformed in line with market base principles. Government should act

to improve awareness among SMEs in terms of financing options (including other support)

available to them from various sources - be it from banks, the private sector or the

government itself. Developing an environment that enables SMEs to take advantage of the

ever increasing knowledge based economy is critical. If the public and the private sectors

work together and take these steps, both will realise significant benefits of PPPs. This will

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further improve the capacity of SMEs to solve problems that cannot be addressed singly by

individual sector acting on its own.

5.5 Implications and Further Research

The study has revealed that the PPP support positively influence SME performance. The

Government of Kenya should therefore recognise this and develop a channel to promote

Public-Private Partnership as a vehicle for enhanced SME support. Future research can be

conducted to identify solutions to these problems and more in depth studies are needed to

better understand the interaction of PPPs.

5.5.1 Theoretical Contributions and Implications

The study contributes to the theoretical disposition on Public-Private Partnerships. The

findings of this research have established that PPP support has positive influence on SME

performance. These findings agree with the theory that PPP are forged to overcome

challenges and achieve efficiencies and effectiveness. PPP support must be present for the

SMEs to overcome the challenges they face for survival. The inverse relationship between

regulation and SME performance is an indicator that the public sector (government) should

dedicate more resources to address the performance constraints that the SMEs face. These

can be achieved through improving the SMEs‟ market share, profitability, and access to

markets, resources, technology, and knowledge. The findings here therefore build on existing

theory and evidence that argues for contribution of PPP support to the performance of

horticultural SMEs.

5.5.2 Implications for Managers

Findings of this study provide preliminary ground for management strategies on provision of

PPP support. The support providers are called upon to cooperate and structure the support to

126
avoid duplication of efforts. As the recipients of the support, the SMEs being can be

motivated to agglomerate, making them more accessible and understood by support

providers. Awareness of the relative importance and advantages of PPP support will perhaps

foster a better operating environment for the SMEs.

5.5.3 Implications for Practitioners

The main practical implication for PPP support providers is that partnership must be a

conscious effort modelled to work alongside the SMEs. Whereas current efforts have

positively influenced SME performance, the gains would be enormous if the support was

structured and cooperated.

On the other hand, the need for SMEs and PPP support providers to develop trust and

transparency to overcome challenges of working together cannot be overemphasised. The

public and private sectors, donors and NGOs will benefit from a network of information on

support of SMEs in identifying the gaps.

Above all, the findings provide valuable insights for SMEs, policy makers and private sector

players. Stakeholders could use this study to make better choices in relation to projects that

focus on SME support.

5.5.4 Implications for Policymakers

Over the years, Kenya‟s development agenda has, albeit with mixed successes, aimed largely

at reducing poverty and its debilitating consequences while also building a strong economy.

Currently, the country‟s new development blueprint dubbed Vision 2030 aims at

transforming Kenya into a newly industrialised „middle income country providing high

quality of life to all its citizens by the year 2030.‟ Equally important, the Vision 2030 plan is

also expected to pay attention to the Millennium Development Goals which pay particular

127
attention to: elimination of extreme poverty, achievement of universal primary education,

gender equality, and reduction of child mortality, improvement of maternal health, lower HIV

and AIDS and major diseases, environmental sustainability and better partnerships with

international development partners.

The Vision 2030 is to be effectively achieved through consistent Medium Term Plans (MTP),

which are 5-year development plans starting with the 2008-2012 period. These plans are

anchored on the economic, social and political pillars, each of which identifies crucial

flagship projects that are expected to „set pace for vessels behind them‟.

Underpinning these pillars are the key principles of equitable social development, people

centeredness, accountability and democratic leadership, which resonate well with PPP in the

horticultural subsector that is making a meaningful contribution. As a basis for the

transformation of our society, the economic pillar is expected to sustain the economic growth

at 10% per annum for the next 25 years. To achieve this, current macro-economic stability

must be maintained and bottlenecks such as low savings to GDP ratio, poor infrastructure and

high energy costs must be dealt with among other critical problems. Sectors to be given

priority include agriculture, tourism, trade, manufacturing industry and the financial sector. A

number of poor predominantly agricultural countries have transformed into Newly

Industrialised Countries (NICs) in a space of a generation and Kenya too has that opportunity

through well-grounded and informed policies.

However, implementation of PPPs to support growth of SMEs in horticulture is currently on

an ad-hoc rather than in a structured manner. Although the Government mentions PPP in its

NHP and Vision 2030, a framework that outlines how the various stakeholders are supposed

to work together does not exist. Stakeholders have been compelled to work together when

faced with a situation that was too complex for them to handle alone. However, this has

128
mostly been driven by the private sector, as is the case of water resource use in Naivasha. It is

important to note that the study identified the emergence of NGOs and CBOs as a significant

third player in the PPPs working with the private sector especially where the Government

was absent, and therefore their support is important going forward. With issues relating to

climate change and globalisation, a change in attitude of government in the way it supports

agriculture should be encouraged i.e. playing a more facilitative role and providing the right

enabling environment is crucial. External drivers can facilitate or hinder a global trader

disadvantaging the small producers who must produce what the market wants and not what

they have in their minds or want to produce. Supporting Small and Medium Horticultural

Enterprises through PPPs is important in enhancing their development.

5.5.5 Future Research

The study suggests that research needs to be conducted to establish what regulatory

framework needs to be put in place to enable the concept of Public-Private Partnership to be

implemented effectively and how this will help to achieve Vision 2030 which is Kenya‟s blue

print to economic development. There seems to be no one best practice for PPP arrangements

and this is what needs to be studied. Best practice is dependent on SME capacity, structure of

the value chain including global trade dynamics. Exploring this would provide insights and

models of what best PPP practice to enhance sustainable SME development should be. How

the public and private sectors are organised to communicate, consult and cooperate with each

other is important and needs further investigation.

PPP helps to provide deeper collaboration between farmers and businesses helping to build

entrepreneurial skills and overcome obstacles in the value chain that would otherwise lead to

failure. PPP thus ensure that SMEs receive good returns for their produce on one hand and

businesses are assured of the quality, quantity and consistency of the produce. With the

129
government provide the enabling environment. The private sector and NGOs have become

critical players in the development of SMEs and must not be seen as peripheral to these

efforts. They must be incorporated through formal PPP arrangements embedded in the

national structures, and monitored and coordinated by an agency that brings all the actors

together including the contributory sectors of government. Given the cross-sectorial nature of

these issues and the Government‟s facilitating role, the Government must provide the lead in

these efforts as effective strategies require holistic, multi-dimensional and coordinated

approaches which engage with institutions across all sectors where bottom-up and top-down

approaches complement each other in mutual pursuit to support SMEs growth through the

creation of an enabling environment.

130
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149
 APPENDICES

APPENDIX I: QUESTIONNAIRE FOR SME OWNER/ MANAGER

KENYATTA UNIVERSITY

SCHOOL OF BUSINESS

DEPARTMENT OF BUSINESS AND ADMINISTRATION

Questionnaire for SMEs Owners/Managers in the Horticultural subsector

Dear Respondent,

By completing this questionnaire, you participate in a study for my final PhD thesis at

Kenyatta University, Nairobi. I am researching on Public Private Partnerships and

Horticultural SME performance in Kenya. It is very important that you are honest in your

response. The answers to these questions remain completely confidential.

I have obtained the necessary approval from Finlays Homegrown Kenya Ltd and been

assured your cooperation.

At this point, I would like to express my gratitude for your participation.

Kind Regards

150
SECTION A: INFORMATION ON SMEs OWNERS/MANAGERS

1. Gender

(i) Male [ ]

(ii) Female [ ]

2. Age

(i) Less than 20 years [ ]

(ii) 21-30 years [ ]

(iii)31-40 years [ ]

(iv) 41-50 years [ ]

(v) 50 years and above [ ]

3. What is your level of education?

(i) Primary [ ]

(ii) Secondary [ ]

(iii)Technical colleges and other tertiary institutions [ ]

(iv) University [ ]

4. How would you describe your business? (Tick as appropriate)

(i) Sole proprietor [ ]

(ii) Partnership [ ]

(iii)Joint Venture [ ]

(iv) Others (Please specify)_______________________________

151
 5. What is your position in this business?

(i) Owner [ ]

(ii) Manager [ ]

(iii)Both [ ]

(iv) Others (Please specify)_______________________________

SECTION B: INFORMATION ON SME‟s CHARACTERISTICS

6. What is the location? ______________________________________

7. In which year did you start this business? _____________________

8. What‟s the annual production of your farm in tonnes? __________

9. What is the area of land under crop production in your farm? ___

SECTION C: SOURCES SUPPORT FOR SMEs

10. What were the sources of funds for starting this business (Please tick the appropriate

one)?

(i) Personal savings [ ]

(ii) Bank loan [ ]

(iii)Public [ ]

(iv) Private sector [ ]

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 (v) Others (Please specify)________________________________

11. Have you received any support from any of the following?

(i) Government [ ]

(ii) Donors [ ]

(iii)NGOs [ ]

(iv) Private Sector [ ]

(v) Others (Please specify) ________________________________

12. When did Finlays Homegrown Kenya Ltd start supporting

you?_____________________

13. Have you ever been supported by another company other than Home grown?

(i) Yes [ ] (ii) No [ ]

14. If yes to Q 15 above, which company? _________________________

15. Is the support that you received from the company in Q 16 better compared with

Finlays Homegrown Kenya Ltd?

(i) Yes [ ] (ii) No [ ]

SECTION D: NATURE OF SUPPORT THAT SMEs RECEIVE

16. Finance related Support

(a) Have you received financial support?

153
 (i) Yes [ ] (ii) No [ ]

(b) How do you rate the importance of the financial support?

Very Important [ ] Important [ ] Neutral [ ] Not Important [ ] Not Very Important [ ]

17. Legal issues related Support

(a) Have you received legal related support?

(i) Yes [ ] (ii) No [ ]

(b) How do you rate the importance of the legal related support?

Very Important [ ] Important [ ] Neutral [ ] Not Important [ ] Not Very Important [ ]

18. Infrastructure related support

(a) Have you received infrastructural support?

(i) Yes [ ] (ii) No [ ]

(b) How do you rate the importance of the infrastructural support?

Very Important [ ] Important [ ] Neutral [ ] Not Important [ ] Not Very Important [ ]

19. Technology related support

(a) Have you received technological support?

(i) Yes [ ] (ii) No [ ]

(b) How do you rate the importance of the technological support?

Very Important [ ] Important [ ] Neutral [ ] Not Important [ ] Not Very Important [ ]

20. Management related support

(a) Have you received managerial support?

(i) Yes [ ] (ii) No [ ]

154
 (b) How do you rate the importance of the managerial support?

Very Important [ ] Important [ ] Neutral [ ] Not Important [ ] Not Very Important [ ]

21. Provision of Production Inputs

(a) Have you received support through provision of production inputs?

(i) Yes [ ] (ii) No [ ]

(b) How do you rate the importance of provision of production inputs?

Very Important [ ] Important [ ] Neutral [ ] Not Important [ ] Not Very Important [ ]

22. Provision of information and consultancy related support

(a) Have you received support through provision of information and consultancy

services?

(i) Yes [ ] (ii) No [ ]

(b) How do you rate the importance provision of information and consultancy

services?

Very Important [ ] Important [ ] Neutral [ ] Not Important [ ] Not Very Important [ ]

23. Training and Skills development support

(a) Have you received training and skills development support?

(i) Yes [ ] (ii) No [ ]

(b) How do you rate the importance training and skills development support?

Very Important [ ] Important [ ] Neutral [ ] Not Important [ ] Not Very Important [ ]

(c) Have you received training and skills development in any of the areas below?

(i) Hygiene (phytosanitary ) [ ]

155
 (ii) Safe use of pesticides [ ]

(iii)Integrated pest management [ ]

(iv) Water management [ ]

(v) Others (Please specify)_______________________________________

SECTION E: PUBLIC PRIVATE PARTNERSHIP INTERVENTION VARIABLE

24. Regulation of production activity

(a) Do you face challenges in meeting the imposed quality standards for your

produce?

(i) Yes [ ] (ii) No [ ]

(b) Do you receive support to overcome these quality constraints?

(i) Yes [ ] (ii) No [ ]

25. Demand for Produce

(a) How would you access the role of the private sector (Finlays Homegrown

Kenya Ltd) in helping you to access horticultural markets

Impossible [ ] Possible [ ] Neither possible nor impossible [ ] Easy [ ] Don‟t know [ ]

(b) How would you access the role of the Government (HCDA or Ministry

departments) in helping you to access horticultural markets

Impossible [ ] Possible [ ] neither possible nor impossible [ ] Easy [ ] Don‟t know [ ]

26. Technology

(a) Do you receive appropriate technological support for your business

operations?

156
 (i) Yes [ ] (ii) No [ ]

(b) How would you rate the relevance of technological support to your business

operations?

Very High [ ] High [ ] Moderate [ ] Low [ ] Very low [ ]

27. Production Inputs

(a) Do you receive adequate and timely supply of production inputs to support

your business operations?

(i) Yes [ ] (ii) No [ ]

28. Training and Skills Development

(a) How would you rate the relevance of training and skills development received

in supporting your business?

High [ ] Moderate [ ] Low [ ] Very Low [ ] None [ ]

(b) Does the Government (agencies) provide sufficient and targeted training to

address the problem you face in your business?

(i) Yes [ ] (ii) No [ ]

(c) Does Finlays Homegrown Kenya Ltd provide sufficient and targeted training to

address the problem you face in your business?

(i) Yes [ ] (ii) No [ ]

29. Water Resource Management

(d) How would you rate your level of access to water for irrigation?

High [ ] Moderate [ ] Low [ ] Very Low [ ] None [ ]

157
 (e) Have you received support from Government (agencies) in addressing water

related problems?

(i) Yes [ ] (ii) No [ ]

(f) Have you received support from Finlays Homegrown Kenya Ltd in addressing

water related problems?

(i) Yes [ ] (ii) No [ ]

SECTION F: SME PERFORMANCE VARIABLES

30. SME Profitability

(a) How would you rate the profitability of your business?

Highly profitable [ ] Profitable [ ] Medium [ ] Not profitable [ ] Not highly profitable [ ]

31. SME Growth

(a) How would you describe your rate of your business growth?

Very fast growth [ ] Fast growth [ ] Medium growth [ ] Slow growth [ ] Very slow growth [ ]

(b) What was your start-up capital (Kenya Shillings)? (Tick as appropriate)

Below 100,000 [ ] 100,000 -500,000 [ ] 500,000 -1 Million [ ] Above 1 Million [ ] Others

(indicate the amount)____________________________

(c) What is your working capital base today (Kenya Shillings)? (Tick as

appropriate)

Below 100,000 [ ] 100,000 -500,000 [ ] 500,000 -1 Million [ ] Above 1 Million [ ] Others

(indicate the amount)____________________________

158
 (d) What is the number of employees you employed at start up? (Tick as

appropriate)

Upto 10 employees [ ] Above 10 employees [ ]

(e) What is the number of employees currently? ( Tick as appropriate)

Up to 10 employees [ ] Above 10 employees [ ]

(f) How would you rate the possibility of expanding your business in the next two

years?

High [ ] Moderate [ ] Low [ ] Not possible [ ] Do not know [ ]

32. SME Market Share

(a) How would you rate/describe the market share of your business in your

locality?

Very large [ ] Large [ ] Medium [ ] Small [ ] Very small [ ]

SECTION G: SME MARKET ACCESS

33. SME Market Accessibility

(a) Have you receive support with access to market?

(i) Yes [ ] (ii) No [ ]

(b) How would you rate the level of your business‟ access to market?

Very High [ ] High [ ] Moderate [ ] Low [ ] Very low [ ]

159
You have completed the questionnaire. If you would like to receive the results of my study or

would like more information, please get in touch through email d.rangi@gmail.com.

Thanks again for your cooperation.

Dennis Rangi

(I84/7752/2002)

160
 APPENDIX II: RESEARCH LOCATIONS

Naro Moru, Meru, Kathiani, Mwea, Narok, Loitokitok, Ol Kalou, Makuyu, Molo,

Rumuruti,Mweiga,Naivasha and Nairobi.

161
 APPENDIX III: HORTICULTURAL PRODUCERS IN KENYA

AAA Growers Ltd Agrifresh Kenya Ltd Ansa Horticultural Ltd Avenue Fresh Produce Ltd Belt Cargo Services
Mr. Neville Ratemo Mr. W. Dolleman Mr. Sam Wangai Mr. C. Muchiri Export Ltd
P.O. Box 32201 – 00600 P.O. Box 63249, Nairobi P.O. Box 53579 Nairobi P.O. Box 3865 – 00506 Mr. J. Muigai
Nairobi Tel: 020-8560650/1/2 Tel: 020-2367705/821884 Nairobi P.O. Box 688, Ruaraka
Tel: 020-4453970 – 4 info@agrifreshkenya.co info@ansa- Tel: 020-825342/820015 Tel: 020-
neville@aaagrowers.co.k m horticultural.com info@avenuefresh.co.ke, 4448821/4448822
e, avenue@avenue.co.ke beltcargo@swiftkenya.co
admin@aaagrowers.co.ke m

Dominion Vegfruits Ltd East African Growers Ltd Everest Enterprises Ltd Fian Green Kenya Ltd Fresh An Juici Ltd
Mr. John Mairura Mr. P. Mahajan Mr. J. Karuga Mr. F. Thuita Ms. Maleka Akaberali
P.O. Box 55078 – 00200, P.O Box 49125 Nairobi P.O. Box 52448, Nairobi P.O. Box 60455, Nairobi P.O. Box 39833 – 00623,
Nairobi Tel: 020-822017/25 Tel: 020-824141/823333 Tel: 020-826157 Nairobi
Tel: 020-823002/3 peeush@eaga.co.ke jkaruga@everest.co.ke, info@fiangreens.com Tel: 020-826090/3
vegfruits@wananchi.com maleka@freshanjuici.co.
ke

Frigoken Ltd Global Fresh Ltd Greenlands Agro Hillside Green Growers & Finlays Homegrown
Mr. D. Karim. R. Chaudhry Producers Ltd Exporters Co. Ltd Kenya Ltd Kenya Ltd
P.O Box 30500, Nairobi P.O. Box 3970 – 00100, Mr. G. Murungi Ms. Eunice Mwongera Mr. R. Fox
Tel: 020- Nairobi P.O. Box 78025, Nairobi P.O. Box 73585 -00200, P.O. Box 10222, Nairobi
8560096/8560449 Tel: 020 – 827549/50 Tel: 020-827080/1/2 Nairobi Tel: 020-
frigoken@africaonline.co info@globalfresh.co.ke murungim@greenlands.co.ke Tel: 020- 3878134/74 3873800/3874193
.ke infoland@nbnet.co.ke Richard.Fox@f-h.biz

162
Indu farm EPZ Ltd Kakuzi Ltd Kandia Fresh Produce Keitt Ltd Kenya Horticultural
Mr. C. Bernard Mr. R. Collins Suppliers Ltd Mr. Asif Aman Exporters (1977) Ltd
P.O. Box 42564, Nairobi P.O. Box 24, Thika Ms. Lucy Mundia P.o. Box 6390- 00200, Mr. Manu Dhanani
Tel: 020-550215/6/7 Tel: (060)33012/31393 P.o. Box 42806 – 00100, Nairobi P.O. Box 11097, Nairobi
info@indu-farm.com or rcollins@kakuzi.co.ke/ Nairobi Tel: 020 – 822829 Tel: 020-650300/1/2
christian.benard@indu- mail@kakuzi.co.ke Tel: 020 – 3500866 asif@keitt.co.ke manu@khekenya.com
farm.com kandia@swiftkenya.com

Makindu Growers & Mboga Tuu Ltd Migotiyo Plantations Ltd Njambiflora Ltd Nicola Farms Ltd
Packers Ltd Mr. J. Kent Mr. B. K. Rao Ms. Marie Njambi Ms. Grace Wanjiku
Mr. O.P. Bij P.O. Box 47070, Nairobi P.O. Box 19, Mogotio P.O. Box 9728-00100, P.O. Box 64-10205,
P.O. Box 45308, Nairobi Tel: 020- Tel: 051 – 2214898/020- Nairobi Maragua
Tel: 020- 822812 3877988/3561196 4449128/9 Tel: 020-822506/7 Tel: 020-2048874/76
info@makindugrowers.c mtl@wananchi.com alphegasisal@wananchi.c njambiflora@timefast.co.ke marketing@nicola.co.ke
o.ke om

Sacco Fresh Ltd Samawati Fresh Produce Shree Ganesh Fruits & Sian Exports Kenya Ltd Sunripe (1976) Ltd
Mr. J. M. Muia (K) Ltd Vegetables Ltd Mr. S.S. Mangat Mr. Hasit Shah
P.O. Box 26211-00100, Ms. M. Nyambura Mr. Kanji Kalyan Patel P.O. Box 43042-00100, P.O. Box 41852, Nairobi
Nairobi P.O. Box 214 – 00618, P.O. Box 83745 – Nairobi Tel: 020-822518/822879
Tel: 020-824687/8 Nairobi ,Mombasa Tel: 020-822220 info@sunripe.co.ke
info@sacco-fh.com Tel:0722890030bmwangi Tel: 020-80243645 rano@sianexports.com
@samawatifresh.com meleka@freshanjuici.co.k
e

Value Pak Foods Ltd Vegpro Kenya Ltd Wamu Investments Ltd Waqash Enterprises Ltd Wilham Kenya Ltd
Mrs. J. R. Patel Mr. B. Patel Mrs. P. Muriuki Mr. S. Gulamhussein Mr. P. Mahajan
P.O. Box 42828, Nairobi P.O. Box 32931, Nairobi P.O. Box 26026, Nairobi P.O. Box 90728, Mombasa P.O. Box 52494, Nairobi
Tel: 020-823438/823439 Tel: 020-82283-4 Tel: 020-822441/824990 Tel: 041-2314596/2225512 Tel: 020-822030/827486
valuepak@wananchi.com bharat@vegpro- wamu@swiftkenya.com, waqash@swiftmombasa.co peeush@eaga.co.ke
group.com, peris@wamu- m, exports@wagash.co.ke
investments.com

163
Woni Veg-Fru Importers
and
Exporters Ltd
Mr. T. K. Mutiso
P.O. Box 52115, Nairobi
Tel: 020-532805/650350
woni@swiftkenya.com
Source: FPEAK, 2011

164
 APPENDIX IV: RESEARCH PERMIT

165