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THE MOTIVATION BEHIND SUBCONTRACTING RELATIONSHIPS BETWEEN LARGE FIRMS AND SMALL AND MEDIUM ENTERPRISES IN THE MOTOR VEHICLE MANUFACTURING INDUSTRY IN KENYA

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Author(s): Beatrice Auko Okatch | Elegwa Mukulu | Luke Oyugi

Journal: Australian Journal of Business and Management Research
ISSN 1839-0846

Volume: 1;
Issue: 3;
Start page: 25;
Date: 2011;
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Keywords: Motor vehicle assemblers | franchise holders | subcontracting | large firms | Small and medium enterprises

ABSTRACT
The motivation behind subcontracting relationships in the motor vehicle manufacturing The purpose of this study was to determine internal and external constraints to subcontracting arrangements between large firms and small and medium enterprises (SMEs) in the motor vehicle manufacturing industry in Kenya in order to establish the reasons for the gap in those arrangements. The sector was chosen for the study because of the government’s selection of the sector to promote subcontracting arrangements between small and medium enterprises and large firms in Kenya. Secondly, the sector was chosen because of the complexity of the motor vehicle industry with one motor vehicle comprising about 10,000 component parts, all of which would be difficult for one company to manufacture in-house. The research was mainly qualitative but quantitative data was also used. Content analysis approach was used to analyze the qualitative data and descriptive statistics to analyze the quantitative data. Data was collected from two of the three motor vehicle assembles in Kenya, nine out of thirteen franchise holders and 66 of the 72 component parts suppliers who are mainly small and medium enterprises. The results indicate that the level of subcontracting that takes place in the motor vehicle manufacturing industry is minimal. This is motivated mainly by a desire to remain in the good books of the government. The big enterprises are not willing to buy component parts from local suppliers and especially not local SME suppliers mainly due to the inability of the SMEs to supply quality products to schedule, lack of local suppliers for certain parts, the proliferation of makes and models and competition from imported second hand vehicles from Japan and Europe. The proliferation of makes and models also requires frequent technological changes which both assemblers and SMEs owners find difficult to keep up with. The study recommends that the government should reduce the age of imported second hand vehicles to not more than five years, find a way of compelling the franchise holders and assemblers to buy parts locally and put in place appropriate policies regarding the sector. SMEs should also acquire up to date technology and become more competitive.
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