International Business Environment of Kenya - Essay Example

INTERNATIONAL BUSINESS ENVIRONMENT CASE STUDY REPORT OF KENYA By (Name) Name of Class (Course) Professor (Tutor) Name of Institution (University) City and State The Date Blundstone Footwear is an outstanding Australian manufacturer specialized in footwear. It is a very successful company, and the key to this success has been modest pricing, held even in the events of dropping price security. The prudence behind that competitiveness in Australia's expensive labor environment is the company's venture to technology and largely in robotics. Blundstone's ability to adapt new technology has enabled it to be vigilant and active in the boots market which is faced with high competition from companies which source their products from China which has cheap labor. Another reason for this high technology uptake is the influence of managers who are always hands on thus ensuring smooth flow of production to the consumer of the goods (Craik, 2012). However, the increased expense of manufacturing and production in Australia has forced the company to venture overseas specifically to India and Thailand. Despite initial hiccups, the move saw the company with great success. Bloodstone's global competitors have ventured into Africa. This move by their competitors has forced the company to carry out investigations on the possible promising investment countries namely Ethiopia, Kenya, Nigeria, and Zimbabwe. In searching for a suitable country to invest, Kenya would be the most suitable country for the footwear company to invest. Despite the fact that Ethiopia enjoys a slightly vibrant economy in Eastern Africa, Kenya's region's economic block, and its commercial integration with the other countries continue to prove its rank as an East African representative compared to Ethiopia. This is supported by Kenya's projected 6.1 per cent real Gross Domestic Product (GDP) growth in 2017 will give 1.5 percentage points of the 6.1 per cent growth forecast for East Africa in the year (Wanjau, 2013). The Kenya Institute for Public Policy Research claims that devolution has led to improvement in infrastructure by county and national governments. This is important as it improves the county's business atmosphere. The national government also gives each county funds and involve the private entities in planning and implementation as required in the Constitution as well as obtaining supplies. Further, better money drift at the county level and related activities seem to be having positive effects on buying and bargaining influence in the purchase of manufactured products (Dupas, 2013). Additionally, devolution is encouraging counties to identify its significant strengths and the manipulation of these forces in achieving maximum growth. This means that county governments can determine prospects in which the manufacturing industry can venture. The localized county attention provides opportunities for manufacturers to detect opportunities to construct new industries or scale up existing ones at rural levels. This saves on labor cost as labor is cheaper in the countryside and also brings the company closer to the raw materials (Bryan and Okoba, 2013). Counties are also trying to outsmart each other regarding service delivery and development thus there is more receptiveness to ideas and investors making the country attractive for investors. Cooperation between relevant bodies also helps in propelling the establishment of companies at the county levels. The inter-competition is an advantage of manipulation by any investor (Okoba, 2013). Productivity in manufacturing is growing at a faster rate globally. This means that the rate of growth at which consumers are purchasing products at a comprehensive standard is sluggish than that of manufacturing productivity, which most probably will lead to an overflow of manufactured goods from a worldwide perspective. Kenya thus does provide the chance and opportunity to expand the market. Kenya is a country of untapped resources with a bag of potential. The leather industry is under exploited as there are very few industries which use the production potential of the available raw materials. This is because of the sector developing as a result of the informal sector which does not have the full capacity to exploit its potential. Therefore, the entrance of a giant in the market such as The Blundstone Company will see the full exploitation of the resources including the market which is penetrated by the second-hand products. To beat the market completion which the second-hand product, the company will be in a position to lower its cost production since it will have cheap access to labor and raw materials (Abtew, 2015). This will be reflected in the low pricing of products. To expand productivity in the manufacturing sector, the Government has directed resources towards the industrial aspect of the country touching on the energy production to infrastructure and marketing which aim at advancing the economic growth of the country. This has been achieved through the budget of the country which is highly dictated by the Constitution (Dupas, 2013). Also, The Ministry of Transport and Infrastructure in 2016 claimed that it would revisit the roads targeted for construction under its annuity plan. In line with this, some road projects which have garnered interest from the private sector have been planned. A significant road development identified for commissioning in 2017 is the Outer Ring Superhighway which touches the major industries in Eastland's area Nairobi. In the 2017/18 budget, the Kenyan Government allocated a total of KES 134.9 billion which involved KES 63.6 billion for ongoing road construction, KES 44.3 billion for international funded roads and KES 27 billion for low volume roads. This will be a milestone in the development sector as it will help in developing the country and widening its economic potential. Therefore, for Blundstone Footwear, this is an opportunity to invest in the country as the roads will make the access to remote areas with cheaper land rates for the establishment of the company much efficient (Dupas, 2013). The marketing aspect of the products will also be much easier as the connectivity and efficiency of the flow of goods to the consumer will be much smoother and easier. Mombasa Port is the country's major port and is under expansion. The Mombasa Port Development Project aimed to increase the annual capacity from 250 thousand twenty foot equivalent units to 1.5 million units. Also, construction of phase one of the 29 berth Lamu Port commenced in October 2016 (Sarathy, 2017). The aim is to make the port an international port handling over 24 million tons of cargo, minimizing the pressure from the port of Mombasa and aiding Kenya retain its position as a regional transport hub. This is an eye opener for the footwear company as it is guaranteed more success in the international market. This is due to the fact of the smooth flow of products to the global market since exportation taxes will be reduced due to the increased capacities of the ports and the traffic associated with the movement. Thus this makes Kenya a suitable destination to set up an industry and more importantly a company such as Blundstone Footwear Company. In February 2017, the Jomo Kenyatta International Airport was granted by the United States of America a category one status due to its improved services and facilities. This has led to the rise in the country's status in the region as the regional hub as it enjoys direct flights to the United States of America. The phase one construction of the Malindi Airport is undergoing as a result of a fund of KES 1.5 billion. The development will enable the airport to accommodate the Boeing 737-600 aircraft which can take off from Rome to Malindi non-stop. This shows the country's potential in handling new services and expectations from the country. This means that the state can reduce traffic at the airport by improving and creating new airports (Sarathy, 2017). The United States of America is a major market for the Blundstone Footwear company as it has a substantial market in the country. Manipulation of this situation is significant as the availability of direct link with the country ensures a continuous flow of products to the country. This will be cost effective given the reasonable input levels inducted at the production level. For development to happen in any country, infrastructure development has to be a key consideration in the country. For this reason, the state has started a Standard Railway Project worth KES327 billion. This has eased road traffic and made easy transport of products. Carriage of goods to the ports through the railway system will be done very easily as the transportation only takes four hours from Nairobi to Mombasa Port. This is a business opportunity as time tracking of exportation products is kept in place and management of goods and resources is well done (Synder and Deaux, 2017). In its National ICT Policy Bill of Kenya status that Kenya is to be a prosperous nation of technology. This is to ensure a substantial amount of growth, and thus substantial growth is felt in the technology sector. One of the pillars of Blundstone footwear company is its ability to manipulate the technology aspect of production. Kenya has a strong technology sector, and she has positioned herself as the leading technology and innovation hub in Africa. The area has developed home-grown manufactured technology solutions such as Mpesa (a mobile transfer and saving platform) which has eased money transfer, and there is hope for the country to become a power in technology manufacturing on the continent. Kenya is a pioneer in the field of mobile money and has continued to show growth in this area, with a 2.8 percentage increase in mobile banking in 2012. Investments by cell phones service providers have seen the hike in productivity in the country and an increase in the market share countrywide. The competition between the service providers saw the growth of the mobile banking sector with new innovative ideas trickling in. Kenya's internet connectivity increased by 25 percent since 2012, with fiber optics with a 97 percent share of all ground internet connections. This has boosted Kenya's connectivity locally and globally (Wanjau, 2013). Risks BrExit has had with it positive side and negative side. For starters, the value of the pound will fall thus making the burden of decrease fall on the citizens thus purchasing of items will be more expensive. This will discourage sales in the British market. However, the depreciation will lead to the lowering of the inputs prices (Tayur, 2016). The Economic Intelligence Unit (EIU) forecasts real Gross Domestic Product to grow by 5.5% in 2017 down from an estimated 5.8 percent in 2016 due to domestic and international constraints. Local restrictions include corruption. International restrictions include disruptive geopolitical events such as the United Kingdom's exit from the European Union and Trump's presidency. However, growth will remain robust between 2017 and 2021, averaging 5.8 percent as a result of the sustained increase in consumer services due to devolution, urbanization, East Africa Countries cooperation and investment in infrastructure. This statement is favored by United States Department of State which claims that Kenya is favored by the recent exploration of oil and gas reservoirs. The 2017 Ease of Doing Business report released by the World Bank placed Kenya at 92 out of 189 economies (Synder, 2017). Corruption is another key risk to doing business in Kenya with misappropriation of public resources on the increase. Kenya is ranked 145 out of 176 by International Transparency regarding being corrupt in 2016. However, the EIU expects a boost in accountability particularly in the county Government level following implementation of stronger watchdogs as mandated by the Constitution (Raheem, 2016). Kenya's security is also threatened by the typical Al-Shabaab militant's group which is fueled by Islamic ideologies. Though few instances of terrorist attacks have been witnessed recently, the country is still under high alarm. However, according to the EIU, Kenya's foreign policy will be driven by economic interests and not the security status. Kenya's soldiers are, however, making progress in eliminating terrorism in their borders which has led to the increased security in the country (Roof, 2013). In 2017, the USA Government strengthened Kenya's presence in the fight against Al-Shabaab terrorists with the delivery of high tech drones which Kenya had ordered in 2015. Kenya has also invested in high surveillance command and control systems in Nairobi and Mombasa which are the major cities in the country. These systems have enabled the Government to track criminals and terrorists (Hurley, 2015). Recommendations A large market for leather goods is within the East African countries. This is demonstrated by some imports of leather goods into the countries, about total exports by Kenya globally. For the leather market, one can invest by locating the central point of collection of all the hides or investment in new tanneries to take in the hides that are lost as waste. A network of production including warehouses will be the best solution for the alternative waste solution problem. Also, Kenya is well dominated by the nomadic community thus investment in private extension services to offer advisory services to farmers on better animal husbandry practices will be a bonus for the company in producing high quality hide (Clarks, 2014). Investment in this market niche is significant as the move will be favored by the already agreed terms of manufacture in the region which encourage the venture of footwear companies. The countries have agreed to facilitate footwear businesses that will promote the economic growth of the area as job opportunities for the jobless will be created. Investment in the restoration of tanneries that were closed and construction of modern ones can be done through the investment of partnerships aimed at recovering the tanneries to ensure maximum utilization of available resources and cooperation between stakeholders (Welford, 2013). Existing tanneries require modernization in technologies, to enable finer manufacturing and improvement of the quality of the leather. In conclusion, investing in Kenya is a very important strategic move if the company wants to thrive in the market. As pointed out above, the move will see the company increase in production due to cheap labor as well as close proximity to the raw materials. The raw materials are also readily available and the presence of the untapped potential will see the company yield maximum benefits. The country interest has led to investments of a lot of resources into infrastructure and development projects which lure investors into the country. REFERENCES LIST Griffin, R.W. and Pustay, M.W., 2012. International business. London: Pearson Higher Ed. Terpstra, V., Foley, J. and Sarathy, R., 2017. International marketing. Chicago: Naper Press. Snyder, M. and Deaux, K., 2017. Personality and social psychology. In The Oxford handbook of personality and social psychology, 31(2), pp.77-91. Tayur, S., Ganeshan, R. and Magazine, M. eds., 2016. Quantitative models for supply chain management (Vol. 17). Chicago: Springer Science & Business Media. 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