Effect of innovation on firm competitiveness: the case of manufacturing SMEs in Nairobi County, Kenya

Innovation is widely acknowledged as one of the key factors in firm competitiveness and has become prominent in SMEs' strategies and government policy. However empirical studies linking innovation to competitiveness are very limited. The aim of this study was to analyse the effect of innovation on firm competitiveness in manufacturing SMEs in Nairobi County, Kenya. Data was collected from a sample of 284 enterprises for the period 2012-2014. Multiple linear regression was used to analyse the effect of innovation on competitiveness. Findings indicate 97% of the manufacturing SMEs were innovating with majority implementing incremental innovations. Process, marketing and organisational innovations had positive significant effect on competitiveness, while product innovation had positive non-significant effect. The study recommends the implementation of innovations with high novelty by SMEs to increase their competitiveness. This can be facilitated by SMEs forming linkages and cooperating in innovation with knowledge generating institutions.