Efficiency Performance of Manufacturing Companies in Kenya: Evaluation and Policies

The objective of this paper is to determine the efficiency of manufacturing companies in Kenya over the period of 2009 to 2011 as well as suggesting appropriate policies to be employed by the manufacturing companies in Kenya based on the findings of the study. Three critical inputs variables (raw materials, staff expenses and plant and machinery) and two output variables (net sale and earnings after tax) are used to evaluate the relative efficiency of 30 manufacturing companies in Kenya. This study uses the two appropriate tools of analysis namely; Pearson correlation to indicate positive correlation between input and output variables and uses input approach of DEA model. Data is gathered from Kenya Association of Manufacturers database and these companies are categorized under large-sized (with assets above Kshs100 million), medium-sized (with assets between Kshs 40 million to Kshs100 million) and small-sized (with asset below Kshs 40 million). The results indicate that small-sized company has the highest relative efficiency compared to medium-sized and large size company. In addition, the study finds that 1 large-sized company, 2 medium-sized companies and 3 small-sized companies operate under the most productive scale size throughout the three-year period. These results have important policy implications for the targeting policy prescriptions to increase manufacturing competitiveness to attain sustainable efficiency performance.