Micro, small and medium enterprises (MSMEs) in Kenya are facing multiple disruptions to macroeconomic uncertainties. In the face of this situation business leaders have to create resilient organizations to survive. They need to identify opportunities and threats created in this difficult time. In this article, we analyze disruption forces and uncertainties that are affecting micro small and medium enterprises and what opportunities can be utilized.
View of macro economy environment affecting MSMEs.
Cost of production
The cost of labor, energy, and raw materials are directly impacted by inflationary pressure and changes in consumer demand for goods and services. The Ukraine-Russia conflict has disrupted supply chain of important commodities like oil and gas which is 90% used by most companies. For instance in Kenya the war caused an upsurge in fuel prices by 37% further increasing production cost.
The Central Bank of Kenya through its role of enforcing Price Stability and Economic Growth has been continuously, adjusting interest rates. This consequently affects borrowing costs, investment levels and currency values. Many businesses are therefore not able to access credit at a lower rate hence the cost of doing business in the last couple of months has increased causing a strain in the MSES.
According to the statistics from the Central Bank of Kenya, inflation rates rose to 9.2% in September from 8.5% in August. This was caused by a decrease in aggregate supply of goods and services due to increased cost of energy prices which are attributed to the Russia-Ukraine conflict. High inflation rates in Kenya have also caused the businesses to cut down their production quantities to ensure that they operate optimally. This means that most businesses will be at the verge of retrenching some of their employees. The cost of servicing credit facilities will also increase depleting capital reserves posing threat to exit.
Climate change has been a major concern in Kenya as the seasons are greatly affected. The businesses are now considering importation of raw materials rather than getting locally due to unavailability of the materials as the climate patterns have been erratic and unreliable. This is attributed to the low quantity and quality of locally produced raw materials. The effects posed by climate change have caused the cost of production to go high due to the costly imported raw materials.
How do MSMEs practice resilience?
Companies are forced to come up with strategies to survive these resilient times, they need to take advantage of the available opportunities to gain competitive edge in the market. Business leaders and organizations who fail to take action stand to be sidelined from the market and lose investment cushion.
There is need to determine which actions to take which can include; cost transformation and revenue growth and ensure the actions will have a sustainable impact on the business.
Plan to survive and thrive
In the face of serious macroeconomic challenges, business executives must reconcile divergent agendas and understand the starting point in order to navigate the challenging economic times and uncertainty. Businesses have to re-evaluate their financial activities and measure them against possible market disruptions and turndowns.
Businesses find themselves in four different situations; Namely strong position implying those which can withstand any market situation, preparedness since they are ready for any market uncertainty, unpreparedness since they are not ready to counter any significant disruptions. Each of them needs specific methodological tactical actions for survival.
For Businesses to walkthrough disruptions they must plan adopt and seize opportunities to maintain a competitive advantage through:
- Scenario planning and drifting – MSMEs should align themselves with their operating environment and competitors so that their strategies can be appropriate and relevant.
- Cost leadership- MSMEs should analyze idle costs and resources which don’t contribute to the business revenues.
- Product differentiation- produce better products in terms of quality, design and brand and charge a more price
- Focus-concentrate on a small market niche through; withdrawal, consolidation, penetration and efficiency gains.
- Diversification- split portfolio into different markets to minimize losses.