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EFFECTS OF ADVERTISING ON THE SMALL AND MEDIUM ENTERPRISES
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.
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