The Moderating Effect of SMEs Size on Competitive Advantage and the Performance of Small and Medium Enterprises in Mombasa Island

Small and Medium Enterprises (SMEs) adopt different strategies to compete and survive. However, their failure rate is still unacceptably high. This study sought to examine the moderating effect of SMEs size on the relationship between competitive advantage and the performance of SMEs in Mombasa Island. The specific objectives of the study were; to determine the effect of cost-based competitive advantage, product differentiation and operation-based competitive advantage and the moderating effect of SME size on the relationship between competitive advantage and the performance of SMEs in Mombasa Island. The theory of competitive advantage, Resource-Based View Theory and Theory of performance were used. The study adopted an explanatory research design and the target population was 373 SMEs. Using Yamen’s sample size determination formulae, a sample size of 193 SMEs was derived. Data was collected using a structured questionnaire from SME managers. The results showed that cost-based competitive advantage, product differentiation-based competitive advantage, production-based competitive advantage and SME size affect SME performance. Further, SME size moderates the relationship between cost-based competitive advantage, product differentiation-based advantage, operation-based competitive advantage and performance of SMEs. The study concluded that cost-based competitive advantage, product differentiation-based advantage, operation-based competitive advantage and firm size are critical factors in enhancing performance of SMEs in Mombasa. The study recommended that managers should employ cost-based competitive advantage, product differentiation-based advantage, operation-based competitive advantage and increase SMEs size so as to increase the performance of SMEs.