ECON 444 Notes

TOPIC 4: MICRO AND MACRO ENVIRONMENTAL ASSESSMENT

Constraints to Entrepreneurship Growth and Development

Economic Constraints

The economic factors that constraint entrepreneurship growth and development in Kenya
include; poor experience in the line of business, lack of market information, and lack of start-up
capital.

1. Lack of knowledge or experience

Lack of knowledge or experience in the line of business is one of the most important constraints
faced by most entrepreneurs in Kenya. If an entrepreneur has no previous relevant knowledge
experience in a particular line of business, the management of the venture tends to diminish.
Entrepreneurs need to be experienced in areas such as production, marketing, sales, finance,
accounting etc. In fact, lack of knowledge or experience is responsible for inability of
entrepreneurs to recognize investment opportunities that abound in their business environments.

2. Lack of market information

Inadequate access to market information hinders entrepreneurs in accessing information that

could benefit their products in both domestic and international markets. This challenge stems
from the difficulties in accessing and utilizing information regarding local, regional and
international pricing of products. An entrepreneur would require adequate information
concerning the business and the business environment before starting a new venture.
Entrepreneurs in Kenya are faced with this challenge because sources of information on different
support services, the process of registering businesses, and the various types of taxes, laws
related to the businesses and their applications, etc., are not fully known to them.

3. Lack of start-up capital

Credit constraints to production and marketing activities constitute great setback to

entrepreneurship growth and development in Kenya. This constraint can be attributed to the
failure of financial institutions to finance small and medium enterprises (SMEs) due to the
inherent risks and uncertainties that characterize it. Most of the SMES in Kenya lack basic
collateral facilities, to present to the financial institutions for loans to be accessed.
Social Constraints

The main social factor that constraint entrepreneurship growth and development in Kenya is
crime, theft and social disorder.

1. Crime, theft and social disorder

Crime, theft and social disorder has contributed negatively to the growth and development of
entrepreneurship in Kenya. For instance, terrorist acts by the Al Shabab militant group and
increased crime rates in major cities in Kenya discourages entrepreneurial activities. These
negative activities will ultimately hinder the growth and development of entrepreneurship in
Kenya.

Institutional Constraints

The institutional factors that constraint entrepreneurship growth and development in Kenya
include; multiple taxation, tedious registration and licensing procedure, poor infrastructural
facilities, poor access to formal credit facilities, and corruption and bad legal system.

1. Multiple taxation

The height of taxes and the complexity of the tax system which are characterized by extortion
have a negative effect on entrepreneurship growth and development. High and multiple tax rates
erode the incomes of SMEs while complex and opaque tax systems are likely to discourage
potential entrepreneurs.

2. Tedious registration and licensing procedure

The difficulty in getting businesses registered in Kenya is one of the major institutional factors
that hinders the growth and development of entrepreneurship. The bureaucratic bottlenecks and
red tapes thus encourage corruption and other rent-seeking behaviors. The long waiting periods
before a business can be registered also scare away young entrepreneurs who tend to have little
start-up capital.

3. Poor infrastructural facilities

Poor infrastructural facilities prevent entrepreneurial growth and development in Kenya. Poor
infrastructural facilities such as inadequate power and water supply and the skewed distribution
of available infrastructure in favor of urban areas, negatively affects the performance of
agricultural enterprises. Poor infrastructural facilities can lead to more than forty percent post-
harvest losses. Limited availability and poor quality of roads in many sub-Saharan African
countries have been a major handicap to effective transportation of produce from the rural areas
to various markets, resulting in high post-harvest losses and rendering agribusiness investments
less profitable. Good infrastructural facilities include good roads, good water supply, constant
power supply, access to information and communication technology and other tools of trade. A
case where these are lacking in a country, the growth of the economy will be adversely affected.

In Kenya, good infrastructural facilities as well as the enabling environment are lacking. This
state of affairs has frustrated a lot of entrepreneurs with bright ideas and the corresponding spirit
to bring about positive change in the economy. Hence, the energy sector is a great challenge to
any aspiring entrepreneur in Kenya. Power supply is epileptic and most times businesses have to
be run on diesel and petrol generators. The cost of this alternative source of power most often
erodes whatever profit or capital an entrepreneur has put aside for his/her enterprise.

4. Corruption and bad legal system

Corruption is an institutional factor that has been identified as hindering the success
entrepreneurial development in Kenya. Just like a government that is plagued by corruption and
greed systematically ignores laws that are already in place to promote free enterprise. Corruption
does not benefit efficient producers, but instead protect incompetent entrepreneurs. Thus, the
firms that can survive under corruption especially the institutionalized corruption are those that
had become efficient at rent seeking without properly and effectively servicing their markets.
Corruption does not allow new entrepreneurs to enter the market but instead it allows the old and
more established groups to totally dominate and monopolize markets.

Corruption also crowds out private investment. Hence, when government projects are tainted by
corruption, the quality of infrastructure suffers and this discourages private investment.
Similarly, when a society is corrupt, it tends to affect the dispensation of justice. And when
justice is not properly dispensed, investors find it difficult to establish new ventures.
Summary of Constraints to Entrepreneurship Growth and Development

Financial Constraints

Poor access to debt/loans; Inadequate financing options; High collateral requirement; Lack of
availability of equity capital; Lack of availability of Venture Capital firms, banks;
Underdeveloped public markets etc.

Infrastructural Constraints

Intermittent energy, water & electricity supply; Lack of roads; Problems with technology
production; Lack of local linkages; Difficulty accessing technology provider; Inadequate
Research and Development activities; unsafe location etc.

Constraints due to unfavorable Business, Economic and Political environment

Unfair competition from bigger players, black market and other informal economy;
Underdeveloped financial markets; Frequent changes in taxation procedures, high tax levels,
cumbersome tax filing mechanisms; Corruption, bribery, bureaucracy; Complex business
registration and other regulatory mechanisms; Poor enforcement of private property rules and
other regulations; Political and economic instability; Fluctuating interest rates etc.

Constraints due to lack of entrepreneurship training and education

Lack of information/education about filing of patents; Lack of courses related to management of

business and entrepreneurship e.g., marketing skills, book keeping skills; Insufficient knowledge
of business and market economy rules.

Other Constraints

Lack of entrepreneurial culture, e.g., accepting failure, respect for entrepreneurs; easily
replicable ideas etc.
Major Variables considered in Micro and Macro Environmental Scanning

There are lot of factors that need to be considered before making a decision to start a new
venture. Organizations never exist or operate in “Vacuum.” Businesses operate in an
environment which is basically divided into two broad categories namely: the micro-
environment and the macro-environment. It is, therefore, important to learn about the business
environment so as to understand the effect of various forces or factors on business.

Micro Environmental Factors

Micro environment refers to the environment which is in direct contact with a venture and affects
the daily activities of the business straight away. It is a collection of forces or factors that are
close to the organization and can influence the performance as well as the day-to-day activities
of the firm. The various micro environmental factors are: Company, Suppliers, Marketing
Intermediaries, Competitors (COSMIC), General Public and the Customers.

1. The Company

Various groups in an organization such as the top management, finance, operations, human
resource, research and development (R&D), accounting etc. needs to be taken into account by
the marketing department when designing marketing plans. Marketing staff within an
organization need to work closely with them as that will help them to make decisions with
broader strategies and plans. With marketing team taking the lead, other departments such as
production, finance, accounting, human resource, and legal departments takes the responsibility
for understanding the customer needs as well as creating customer value.

2. Suppliers

The suppliers are an important part of an organization’s overall customer value delivery network.
They are the ones who provide inputs to business like raw materials, machinery, equipment etc.
The quality and reliability of suppliers are very essential for smooth functioning of a business. A
successful entrepreneur should ensure that he/she has a control on the suppliers’ availability and
costs. Any shortage or delays of supplies occasioned by natural disasters or other events can
cause result in decline in the volume of sales in the short run and lead to dissatisfaction of
customers in the long run.
 3. Marketing Intermediaries

The marketing intermediaries are also an important component for the overall value delivery
network of a venture. They include those individuals or firms who help the venture in promotion,
sales and distribution of its goods to the buyers. Examples includes middlemen (agents or
merchants) who help the venture find customers, physical distribution firms such as warehouses
or transportation firms that help the firm in stocking and moving goods from their origin to the
destination and marketing service agencies such as market research and advertising firms.

4. Competitors

Competitors are rivals who compete with the organization in market and resources as well.
According to the marketing concept, a business firm needs to provide greater customer value and
satisfaction that its competitors, in order to be successful. The marketers must not only try to
simply adapt to the needs and demands of target customers, but also try to attain strategic
advantage against the competitors by positioning their products strongly in the market.

5. General Public

The public refers to the group of people who have an actual or potential interest in company’s
product or who can have an impact on the ability of the organization to achieve its objectives.
There are seven types of publics identified in a company’s marketing environment which
includes financial publics, media publics, government publics, citizen-action publics, internal
publics, local publics and general public.

6. Customers

The most important actors in the company’s micro environment are its customers. The whole of
value delivery network aims to engage the target customers and create strong relationships with
them. There are five types of customer markets that companies might try to target. These include
consumer markets, business markets, government markets, reseller markets, and the international
markets.
Macro Environmental Factors

Macro environment refers to the major external and uncontrollable factors that influence the
decision making of an organization. A company does not operate alone in its business
environment, but operates in a larger context. It comprises of forces that provide opportunities,
but at the same time also pose threats to company. The major components of macro environment
are Demographic, Economic, Natural, Technological, Political and Cultural environments.

1. Demographic environment

Demography can be defined as the study of human population in context of size, density, age,
location, gender, race, occupation and other statistics. The marketers have special interest in the
demographic environment because it consists of people and people are the driving force for
development of markets. The large and diverse demographics offer both opportunities as well as
challenges for businesses.

2. Economic environment

The economic environment consists of factors that can affect consumer purchasing power as well
as the spending patterns. As an example, it is not advisable for a company to start exporting its
goods to a country before having examined the citizens spending patterns. Important economic
criteria include GDP, GNI, Import duty rate, unemployment, inflation, spending patterns as well
as the disposable personal income.

3. Natural environment

It refers to the natural resources or physical environment that are required as inputs by marketers
or which is affected by the marketing activities. The ecological conditions have become a crucial
factor to consider as the environmental concerns have grown strongly in the recent years.
Example, air and water pollution, floods, droughts, etc.

4. Technological environment

Technology has a crucial influence in the macro environment. An organization needs to perform
a thorough research on the spread and use of technology, before investing in any of marketing
activities. The company needs to have an understanding of the technology penetration as well as
user interface technology in the region and make plans accordingly for their communication and
campaigns.

5. Political environment

The developments in the political environment strongly affect the marketing decisions. This
involves laws, government agencies, as well as the pressure groups that can influence or give
constrains to various individuals or organizations in a given society.

6. Cultural environment

The cultural environment links factors which affect the basic values, preference, perceptions and
behavior of the society. Organizations needs to understand the cultural beliefs and practices
prevalent in society for marketing decision making. Failure of companies in understanding
foreign cultures can lead to many cultural blunders. For example, a symbol having a positive
meaning in one culture can have a negative meaning in some other culture.

In conclusion, success of any entrepreneurial venture is highly dependent on successful scanning

of micro and macro environmental factors. Any strategic entrepreneur should have an in-depth
consideration of these factors for any decision making. Taking into consideration these factors
can boost the success rates of entrepreneurs.