Paralyzed by the dashboard light: Environmental characteristics and firm’s scanning capabilities in East Africa

Abstract

Firms in East Africa face highly uncertain environments, fueling environmental dynamism, changes in industry structures, and enhanced competitive dynamics. In order to understand the opportunities and challenges within such an environment, extant theory argues that firms need to develop scanning capabilities. However, since the effect of environmental characteristics on the development of firm capabilities in lower income countries is unclear, we analyze how different environmental characteristics drive or hamper such capabilities. We focus specifically on scanning capabilities that allow firms to respond swiftly to changing needs by monitoring their environment. We include four environmental characteristics: environmental dynamism, heterogeneity, formal and informal competition. We investigate this in Kenya, Tanzania, and Uganda, from which we mustered a sample of 440 manufacturing firms. Our main results indicate that environmental dynamism and informal competition have a paralyzing effect on the development of firms’ scanning capabilities in East Africa, which implies that environmental characteristics may hamper rather than help the development of firm capabilities.