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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
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
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,
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
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
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
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
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
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
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.