ABSTRACT
There exists a
significant relationship between a firm’s advertising spending and its
contem-poraneous financial spending. Academic studies have indicated that about
90% of Small Medi-um Enterprises’ (SME`s) development is hampered by their
limited financial resources, which, in relation to this study extends to
failure to engage in the rather expensive and sometimes overlooked practice of
advertising. This study focused precisely on the role that advertising has on
financially constrained SMEs and how much its sales volume is affected when
advertis-ing is adopted. The academic literature on the organization and
structure of SMEs in general and particularly in Kenya plus an extensive
revision of when, why and how advertising works was used as a theoretical framework
for this thesis. The purpose of the study was to thus examine the overall
nature of advertising and the ef-fects it has on the growth and development of
SMEs and in particular its sales volume. Objec-tively, the study investigated
the functions of East African Packaging Industries (EAPI) market-ing
department. It sought to inquire as to the different strategies the company
employs to market its products, and identify the economic impacts that
advertising generates as a whole.The research design that was used in the study
was cross-sectional design. The sampling techniques were both cluster and
simple random sampling. The population was of 180 re-spondents and having a
sample size of 60 respondents. The sample frame was of 3 clusters targeting the
major department at EAPI. The study used mainly primary data assembled from
interviews, questionnaires and surveys. Secondary data was derived from
previous researched literatures and books.The findings of the research were
analyzed and presented in form of discussion tables. Over-all, the findings of
the research were that advertising is an expensive venture for any SME and the
repetitive nature of it makes it more and more inconsistent to adopt.
CHAPTER
ONE
INTRODUCTION
This chapter will
provide a brief introduction to the entire study. It will discuss the
back-ground to this research and the research objectives.
1.1 BACKGROUND TO THE STUDY
Small and medium
enterprises (SMEs) are generally thought to play a crucial role in driving
economic growth in both developing and developed countries (Beck, Kunt and
Ross, 2013). Thus, it remains unequivocally crucial to understand the
categories of contribution of small businesses at a local level and its impact
on overall economic growth. Kenya a developing na-tion for instance, still has
a poor statistical base of the small businesses but there can be lit-tle doubt
about the relative significance these small enterprises have towards its
economy. SMEs in Kenya have been described as efficient and prolific job creators
and the seeds of big businesses; their increased development accelerates the
achievement of wider economic and socio-economic objectives such as poverty
alleviation.
Notwithstanding the
recognition of the potential roles the SMEs play, there exist a number of
bottlenecks that affect their ability to realize their full potential.
Observations have shown that there is a rapid turn-over of enterprises in Kenya
to an extent that for every 100 new enterprises starting in a year; 60 close
down within the year and that of those that survive (40%) are more than two
years old and 66% less than six years old (Kenya 1998, 1999). Lack of
managerial skills, equipment and technology, regulatory issues, access to
international mar-kets, unfair competitiveness, etc are all factors that hamper
their development but most dis-tinctively financial constraints (Anheier and
Seibel, 1987). The role of finance has been viewed as a critical element for
the development of SMEs. This issue stems from the initial capital which in
most likely cases is sourced from informal savings and loan associations which
are unpredictable; to broader financial obstacles that extend to efficient and
effective mar-keting. As will be evident in this study, SMEs require marketing
initiatives for their sustaina-bility and growth in the ever-growing and
competitive business environment. In particular, the question and relevance of
advertising, an element of promotion will garner more exami-nation.
1.2 PROBLEM STATEMENT
Advertising, as is
evident from research- is an expensive endeavor in any SME. Be it internal or
via external freelance contracting agencies. The advertising budget of any SME
is as less as 2% of their quarterly turnover (Steve McKee, 2010: Bloomberg
Business week). The question that begs answers is, so how can these enterprises
embrace these financial constraints and in particular, East African Packaging
Industries (EAPI) and rise through into development? This study seeks to define
and answer similar questions and more precisely how much the perfor-mance and
survival of SMEs is affected by advertising or lack of it.
1.3 RESEARCH QUESTIONS
I. How does
advertising impact the growth and development of SMEs in Kenya?
II. If advertising
has any impacts on the development of SMEs, does it influence the
sales volume of the
enterprises and their entry into new markets?
III. What advertising
strategy has EAPI adopted in promoting its products, and how ef-fective has it
been?
1.4 OBJECTIVES OF THE STUDY
The main objective of
this study is to examine the effects that advertising has on the growth and
development of Small medium enterprises. The study will also seek to study the
nature of advertising and the pre-assumed relationship between advertising and
sales volume that render growth of an enterprise and additionally, the effects
that advertising has on new SMEs entrants.
1.5 LIMITATIONS AND SCOPE OF THE STUDY
As the study proves,
placing cause and effect of Advertising on the development and growth of an
enterprise is very difficult because it is not always easy to control the
various factors that are regarded as ‘contributors’ in an advertising
environment. In other words, an enter-prise’s increased sales cannot solely be
attributed to a particular advertising campaign be-cause other unrecognizable
factors such as higher income for the enterprises target custom-ers and
improved customer relations all form contributory effects. The study thus
focused only on the recognizable issues that were attributed to advertising and
were of clear rele-vance in either the development or hindrance of the
development and growth of SMEs. In ret-rospect, these were: financial
constraints and competition. 2East African Packaging Industries in Brief
East African
Packaging Industries (EAPI) is one of the successful medium enterprises in
Kenya, having an annual turnover of $28.1 million. It has, and remains a market
leader in the supply of innovative, high quality packaging solutions principally
for the tea, horticulture and tobac-co industries. EAPI has embraced the
philosophy of providing complete customer satisfaction as central to the
culture of its business and this has led the company to being one of the
larg-est corrugating industries in east Africa.