Changes In Kenyan Business Environment In The Last 2 Decades

STRATEGIC MANAGEMENT EFFECTS OF CHANGING BUSINESS ENVIRONMENT ON CORPORATE MANAGEMENT IN KENYA

Effects of changing business environment over the last two decades on corporate management in Kenya

Introduction The environment in which businesses operate in Kenya has been changing significantly over the last few years. This has mainly been impacted by political, economic, social, technological and demographic factors as well as the various developments in the more immediate environment of doing business namely, changes in the industry. Companies have had to change strategies in order to adapt to these changes. Those that have been able to change with the times have survived whereas those that have failed to recognise and adapt to these changes have fallen on the wayside. To understand how these changes have impacted on businesses, we will examine the metamorphosis that the Kenyan political and economic environment has undergone, especially since late 1980s.

Political Environment Kenya has enjoyed a largely stable political environment since independence in 1963 and being surrounded by otherwise unstable neighbours that have been in civil strife, it has largely been seen as economic hub with many multinationals and humanitarian organizations setting base here. The peaceful handover of power in 2002 was seen as a sign of political maturity and many viewed

this as an economic turnaround for country. The government of course would ride on this new wave of goodwill from economic and political partners to develop policies that would focus on economic development, building the country's infrastructure and generating employment. Most organizations took advantage of this and have been able utilize the many opportunities provided by such development strategies to make huge profits. The period saw transformation of little known companies like East Africa Cables into giant organizations. However these gains were recently eroded by the post election violence witnessed in 2007/2008 with many investors viewing the country as a high risk investment destination.

Economic Environment The move to liberalize the economy laid the groundwork for an investment friendly environment. The Economic recovery strategy as set out in the vision 2030 is targeted at industrialization and at creating over 500000 jobs annually. In addition to this Kenya is a member of East Africa Community and COMESA and is one of the signatories of the East Africa Customs Union creating a common external tariff for goods coming from outside the region. This has made it attractive to foreign investors and companies looking to access the East and Central African market. Kenya also enjoys a relatively well developed financial market, with the Nairobi stock exchange and the Capital Markets Authority opening up more listings on the stock markets by giving incentives to new companies that want to list their shares. The Capital Market Authority has also enhanced investments by foreigners by allowing them to participate in the Nairobi stock exchange which has boosted most of the share trading and has helped push share prices up. The ripple effect has been more companies issuing IPOs which also saw Governments offload most of shares held in state companies in the new wave of privatisation. This has lead to more state owned corporations being better managed, thereby delivering value to customers and giving the government the much needed revenue to build infrastructure and ease reliance on foreign aid. Examples of privatised corporations include, Kenya Power and Lighting Company Ltd, Kenya Reinsurance Company Ltd, KENGEN, National Bank, Kenya Commercial Bank and Kenya Airways.

On the international scene, Kenya enjoys preferential access to both the EU and the US Market

through such programs as AGOA (African Growth and Opportunity Act). This coupled with the establishment of the Export Processing Zones and the Investment Promotion Council has seen many companies set base in Kenya to take advantage of the incentives offered. Industries like textile and leather have benefit greatly from these incentives.

Other initiatives that have occurred in the last two decades include deregulating the foreign exchange market, liberalizing prices, giving capital allowances for new investments, tax remissions and bilateral investment and trade agreements. This has helped to attract initial investments in form of factories, infrastructure and distribution outlets.

Social Environment In the last two decades, Kenya has recorded a lot of growth in the education sector. The number of Public Universities has grown from three to more than six and more than seven private universities and many accreditations from universities outside the country. The impact on business has been enormous.

First, there is more abundant and more skilled labour available for organizations as compared to ten years ago. This has impacted on the types of employment contracts that employers are willing to give. Organizations are now moving from permanent employment to fixed term contracts and this has had a positive impact in terms of reduction of cost of employee benefits. Additionally, there are no life-time jobs which has led to high employee mobility and opening up of employment boundaries. Secondly, this development has also impacted the way the universities are run. For instance, ten years ago, University of Nairobi enjoyed monopoly of such programs as the MBA but currently they have to content with competition from hitherto little known universities like KEMU. Whereas a University like Nairobi would not have bothered with strategy two decades ago, they now have to rethink their way of doing business every so often because competition is hot on their heels.

Other developments on the social front include new requirements for companies to comply with strict health and safety standards, corporate social responsibility expectations, labour laws and

affirmative action. This has had an impact on most companies' bottom lines as their objectives have to include more than just profit maximization. Other developments include rise of more women to positions of power and this has led organizations to reconsider the amount of time given to nursing mothers, with some organizations even providing nursing lounges for their employees.

The liberalization of the airwaves has seen an increase in the number of FM and TV stations. This has had an impact on advertising costs for companies. Whereas they could only worry about advertising on one TV station and maybe one radio station, companies have to ensure their visibility on all important stations and be able to reach different market segments, as the stations are also targeting different classes of audience.

Technological Environment The last two decades have seen rapid development in technology. Such technologies as mobile telephony were unheard of two decades ago. Now we have four mobile phone companies (Safaricom, Zain, Essar and Orange) with fixed line telephony quickly fading in favour of wireless telephones. Cost of computers has also plummeted with computers becoming smaller by the day. The implications for businesses cannot be overemphasized. First this has led to drastic reduction in numbers of staff with companies right-sizing every other day. Secondly cost of travel has drastically reduced as communication has been made easier. Thirdly, staff can now chose to work in whichever location as real-time online systems have become the in thing. Improved customer service and faster service has led to reduced cost of doing business. Again it is now possible to link the whole value chain from suppliers, to customers, thereby reducing the final cost to the customer.

The laying of the fibre-optic cable which is currently ongoing has huge cost implications in terms of cost of e-commerce. The cost of bandwidth is set to fall drastically thereby enabling more companies to do business on the web.

Industry and Competitive Environment There have been changes touching on specific industries. Such changes as have been witnessed in

the Oil industry, with the liberalization of the market and mushrooming of unbranded petrol stations everywhere, has led to shrinking of margins for the oil industry. This had led to the industry players re-looking at their strategies in terms of target market and also size of organizations. Oil giants like Shell Oil have had to reduce staff, go into regional settings and market downsizing with stations in the tail-end being sold off.

In other industries, giants like Unilever have had to divest their edible oil businesses to the more aggressive new entrant – Bidco Oil, currently controlling a good chunk of the edible oil market. In the cosmetics and sanitary products markets, companies like Colgate Palmolive have resorted to regional integration, some having their products manufactured regionally and distributed to the participating countries.

The entry of Chinese products in the market has also seen cost of electronics falling drastically in order to compete effectively. The implications for electronic companies like LG, SONY and Phillips are enormous. They have to contend with lower margins on their electronics and they also have to keep introducing newer technology in a span of less than a year, to keep up. This means investment in research and development which has to be recouped within the shortest time possible.

Conclusion To conclude, we can say that the environment in which companies are doing business in Kenya is a volatile one. This is even more considering that the world has become a global village with what is happening in one country having an impact on countries thousands of miles away. This is evidenced by the recent spiral effect witnessed of the economic crunch, which began in the Europeans and US market and quickly spread to the rest of the world. Companies therefore need to arm themselves well to be able to react to these changes; otherwise they could as well be pushed to extinction.