How SMEs can attain longevity in an uncertain business environment
AA Kenya CEO Francis Theuri (left) exchanging signed partnership documents with Amref Flying Doctors Medical Director Dr Joseph Lelo at Wilson Airport in Nairobi on June 20, 2023.
What you need to know:
- SMEs face challenges such as high costs related to internet and ICT infrastructure that prevent them from adopting modern technologies.
- Investing in efficient and affordable technologies as well as infrastructure can help to increase productivity of firms.
Only 15 per cent of small and medium sized enterprises in Kenya participate in global value chains due to poor mechanisation and low adoption of modern technologies, data from the Kenya Institute for Public Policy Research and Analysis (KIPPRA), shows.
Failure to use modern technologies at work leads to the production of products whose quality cannot match those of more advanced economies, rendering them uncompetitive in the export market.
Low adoption of digital technologies such as artificial intelligence and the Internet of Things has also been highlighted as a reason for low participation of SMEs in global value chains.
Though willing to adopt these technologies, SMEs face challenges such as high costs related to internet and ICT infrastructure that prevent them from adopting modern technologies.
Investing in efficient and affordable technologies as well as infrastructure can help to increase productivity of firms. It can also increase their participation in global value chains, says Francis Theuri, CEO of AA Kenya.
Theuri urges SMEs to leverage the power of innovation, which he says can act as a guiding principle in a volatile, complex, and uncertain operating environment, characterised by several disruptive events, such as the Covid-19 pandemic.
“The Covid-19 pandemic brought a wave of global disruptions to organisations and individuals, leaving no one untouched. Over 90 percent of Kenyan firms saw their sales plummet, and one in five workers lost their jobs, sparing no institution, not even AA Kenya, an organisation with a 104-year legacy,” noted Mr Theuri.
He says that although the organisation had faced its share of challenges in the past, the magnitude of the disruption imposed by the pandemic was unlike anything they had ever encountered.
The organisation had to be agile in navigating new frontiers and adopting new business models.
“We embarked on the digitisation of services, beginning with the transition of the mileage rates to a digital platform. This move was perfectly aligned with the growing demand for online services as people found themselves confined to their homes,” noted Theuri.
The firm also started offering online-based driving school classes, and launched the AA driving test App, a tool for students to assess their exam readiness remotely.
“This solution boosted our revenue, provided students with a valuable resource and became a master copy for many other players.”
The Kenya National Bureau of Statistics highlights that nearly half a million SMEs close shop within the first year of operation. The reasons for this range from competition from cheap imports, lack of access to credit and production of similar products.
Theuri observes that diversification of product offerings can also help SMEs to boost their earnings and attain longevity, as most SMEs tend to sell similar products, even when they are operating in the same area.
He adds that there is potential for SMEs to generate decent earnings in the services sector, which remains largely unexploited, with concentration in two main products, currently being transport and travel.
Diversifying into other areas such as the export of financial services like mobile and banking services, which the region performs well in, will ensure increased export volumes to the continent.
Currently, exports from Kenya are dominated by primary agricultural products with a few manufacturing and re-export products. The main agricultural products exported to the rest of the continent are coffee, tea and vegetables.
“Being dominated by agricultural products, the performance of trade for Kenya remains largely susceptible to weather conditions. For the country to remain competitive, there is a need to improve the quality of produce and diversify the number of products,” noted Theuri.
He urges SMEs not to be afraid of forging partnerships with like-minded organisations when necessary, as forging strong partnerships is integral to the growth of any business. Most SMEs, especially those that are family owned, tend to shy away from partnerships for fear of diluting the brand.
“Cognisant that forging resilience in isolation is perilous, we, for instance, have been extending our business model to include B2B partnerships. These partnerships have taught us crucial lessons, including that we can achieve more by working together,” noted Theuri.
He also advises small businesses to equip their employees with the requisite skills by sharing best practices and learning from more established organisations.
The organisation, AA Kenya, partners with insurance companies for instance, where underwriters double as agents, strengthening the bonds of partnership.
The organisation has also collaborated with TotalEnergies to offer the 'Safe To Load' (STL) service, inspecting all TotalEnergies trucks before loading hazardous products for transport.
This is to enhance road safety, prevent crashes and protect businesses. Further, the company, in collaboration with major logistics firms, undertakes technical inspections on heavy commercial vehicles, especially in brake testing.
Founded more than 100 years ago by an ex-Military Officer known as Lionel Galton Fenzi, Theuri says innovation and diversification have been integral in the longevity of the firm, a leaf from which SMEs can borrow.
“The organisation started as a vehicle through which Fenzi would import automobiles with the capacity to traverse through the tough Kenyan terrain, for him to be able to accomplish his mission of mapping and measuring the roads connecting various parts of the country.”
It has since diversified from just the importation of automobiles, to the provision of several other services including driver training, motor vehicle valuation and inspection, car insurance brokerage, road rescue, tracking, fleet management among others, through its 50 outlets spread across the country.
