Mediating Effect of Absorptive Capacity on the Relationship Between Entrepreneurial Competencies and Performance of Small and Medium Enterprises in Nairobi County Kenya

Abstract

Small and Medium Enterprises (SMEs) are important drivers of employment, industrialization, innovation and economic growth in Kenya, yet many SMEs continue to face low productivity, weak competitiveness and high failure rates. Although entrepreneurial competencies are widely recognized as determinants of enterprise success, the mechanisms through which they influence performance remain insufficiently understood. This study therefore examined whether absorptive capacity mediates the relationship between entrepreneurial competencies and the performance of manufacturing SMEs in Nairobi County, Kenya. Entrepreneurial competencies comprised opportunity identification, networking, leadership and organizational learning, while absorptive capacity was conceptualized as the ability to acquire, assimilate, transform and exploit external knowledge. The SMEs performance was measured using a composite index of innovation rate, sales turnover, market share and profitability. The study was anchored on the Knowledge-Based View Theory and adopted a descriptive research design. The target population comprised 590 SMEs registered with the Kenya Association of Manufacturers (KAM) in food and beverage processing, cosmetics and detergents, leather and leather goods, and metal fabrication sectors. A stratified random sample of 238 SMEs was selected and data collected using structured questionnaire administered to SMEs owners and managers and analyzed using descriptive statistics, Pearson correlation analysis, exploratory factor analysis, multiple linear regression, Hayes PROCESS Model 4 bootstrapped mediation analysis and a supplementary PLS-SEM analysis. Results showed that entrepreneurial competencies strongly predicted absorptive capacity (B = .659, β = .641, p < .001, R² = .410) and significantly predicted SMEs performance in the total-effect model (B = .444, β = .418, p < .001). However, when entrepreneurial competencies and absorptive capacity were entered simultaneously, absorptive capacity did not significantly predict performance (B = .030, β = .029, p = .726), while the direct effect of entrepreneurial competencies remained significant (B = .424, β = .399, p < .001). The bootstrapped indirect effect was small and non-significant (ab = .020; 95% bootstrap CI [-.101, .151]), indicating that absorptive capacity did not significantly mediate the relationship between entrepreneurial competencies and SMEs performance. A supplementary PLS-SEM analysis was undertaken to assess whether this conclusion remained consistent when the constructs were modelled as latent variables within an integrated structural model.  PLS-SEM corroborated this conclusion: EC → ACAP was significant (β = .668, p < .001), EC → performance remained significant (β = .407, p < .001), ACAP → performance was non-significant (β = .009, p = .947), and the indirect EC → ACAP → performance effect was non-significant (β = .006; 95% CI [-.129, .134]). The findings show that entrepreneurial competencies enhance SME performance primarily through a direct pathway. Absorptive capacity remains strategically important for knowledge processing, but additional innovation, commercialization, technology and market capabilities may be required to convert absorbed knowledge into measurable performance. The findings extend the Knowledge-Based View by distinguishing knowledge absorption from knowledge value realization and suggest that additional mechanisms, such as innovation, commercialization, digital capability and knowledge-management routines, may be necessary to convert absorbed knowledge into superior performance. The study recommends strengthening entrepreneurial competencies alongside investments in organizational learning systems, staff training, knowledge-management practices and collaborative innovation networks.

Keywords: Entrepreneurial competencies; absorptive capacity; SMEs performance; manufacturing SMEs; Kenya Association of Manufacturers; Knowledge-Based View

DOI: 10.7176/EJBM/18-8-04

Publication date: August 30^th 2026