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

STRATEGIC MANAGEMENT

EFFECTS OF CHANGING BUSINESS ENVIRONMENT ON

CORPORATE MANAGEMENT IN KENYA

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.