Friday, December 21, 2007

Corporate Restructuring in Kenya 1997 - 2007

Over the last two decades we have witnessed a lot of corporate restructuring within companies operating in Kenya. This paper seeks to isolate the generic reasons explaining the massive corporate restructuring in Kenya for the period 1997 to 2007.

Corporate restructuring in a major re- evaluation of business operations with a view of making fundamental changes in the organization structure. Whilst changes are on ongoing corporate restructuring is evident in certain periods across industries. There are several reasons to account for the changes witnessed in many firms over the last two decades.

Key terms.
Corporate restructuring - overhaul of the organization structure, at times
including abolition and creation of new levels.
COMESA - Common Market for East and Southern Africa
EAC - East African Community.
ICT - Information Communication Technologies
Mwanachi - A daily newspaper in Tanzania.
UNES - University of Nairobi Enterprises and Services Ltd.

Major changes in the Kenyan business environment
Corporate structure is shaped by the environment in which a business operates. Times of many corporate restructuring are characterized by changes in the business environment to the extent that the current structures are deemed less effective. In Kenya the last two decades (1987 – 2007) have had many landmark changes, some of which are discussed below:

Economic changes
Economic growth signifies more disposable incomes and hence increased demand for consumption. Good economic growth rates are associated with expansion by firms in order to serve the increased demand. The reverse is also true. In the last decade Kenya has witnessed the extremes of economic growth. In the early 90’s economy was on a decline mode exacerbated by withdrawal by the World Bank and other multilateral donors.
In the beginning of 2000 growth took a positive spiral recording 5.8 % in 2005. Corporations in the economy must have expanded and contracted in the same fashion with the economic prospects.

Political environment
The country moved from a single party totalitarian leadership to a multiparty democracy. The impact has been majorly the removal of restrictive condition on business there by spurring competition. In order to adapt to the changes in competition levels has made companies to adopt new company structures that are responsive to customer demands. For instance many corporations came up with or strengthened their customer care departments.

Legal environment
New legal provisions have lead to changes in corporate structures. For instance in response to the massive bank failures in the 1990’s the central bank of Kenya developed prudential guidelines that outlined among many other issues the qualifications of bank directors and their rights and roles in the banks management. Commercial banks had to restructure so as to comply with the legal provisions.

Regional cooperation and globalization
The creation of the East Africa Community and the progress towards COMESA had had far greater impacts on corporate structures. First many have expanded to take advantage of the expanded market yet others have gone into strategic alliances to gain a foothold in other countries. For Example Nation Media Group is a conglomerate that not long ago was just a newspaper publishing company.

However due to opportunities in the East African region it has expanded to Uganda by establishing a subsidiary and acquiring a controlling stake in Mwanachi in Tanzania. East African Breweries have acquired controlling stake in Nile breweries in Uganda. In order to operate as a conglomerate there has been restructuring to accommodate and manage business across boarders.

Regionalism has also posed the challenge of competition to local corporations. For instance there are worries whether the Kenyan sugar industry would survive the competition from low cost producers within the COMESA. For this reason Mumias pioneered in creating brand value for its sugar. These efforts have been supported by a new corporate structure.

Privatization and liberalization
In the last two decades there has been liberalization and privatization. Once the state divests from a company it stops providing support and the company has to survive in the market place. These companies have succeeded by adopting corporate structures that are responsive to their new status and support the key business interests.

For instance, after divesture of the government from Kenya Airways the company had to develop a mission, vision and set for itself new objectives. A new corporate culture was supported a restructured corporate structure. This us company is often cited as the example of the successful government divestuires.

Less government capitation for state corporations
Over the years the exchequer’s funding level has been dwindling in real terms. Several such actors have had to undertake corporate restructuring because of this reality.
In the education sector, the government aimed to reduce its expenditure to a mere 30% of its annual budget and universities were to contend with reduced funding. Universities had to respond in order to fill in the capacity gaps For instance the University of Nairobi engaged a staff retrenching exercise and set up a company UNES to coordinate its revenue generating activities. Other changes in the corporate structure of the university have been the use of part time staff. This is a corporate structure change in response to changes in the environment

The rise of China
China has risen to become a key player in the world market providing much competition to virtually any product. For these reasons firms have had to compete both for raw materials and market share. Apparel manufacturers have had to operate in low cost centers (EPZ) and with flatter organization structures so as to compete Chinese apparel manufacturers.

Donor conditionalities
The World Bank led pressure on the government to undertake structural adjustment program. As a component of the program was the staff retrenchment and rationalization. The government activities had a spill over effect to the private sector who also retrenched to have a leaner and more efficient staff levels.

Technology revolution
In the last two decades the country has witnessed massive strides in the use of technology especially Information Communication Technologies. This has resulted in faster, cheaper and more efficient ways of doing business.

For instance Banks have introduced ATMS, Mobile Banking, banking from any closer branch, and Internet banking. In order to support these changes there is corporate restructuring to bring in IT experts and computer proficient staff. Those unable to keep up with changes were relieved off their duties and positions that became mere cost drivers with less of value addition were removed from the organization structures.
The developments in ICT have impacted on nearly all corporations and established a new career of ICT experts who are needed by all corporations.

This paper has posits that corporate restructuring is not happenstance; it coincides with rapid environmental changes implying that it is essential for survival, profitability and growth of firms. Premised on this argument some of the key changes in the Kenyan environment have been analyzed in several sub sections. These include: Economic changes, Political environment, Legal environment, Regional cooperation and globalization, Privatization and liberalization, less government capitation for state corporations, the rise of China, Donor conditionalities and Technology revolution.

University Of Nairobi, (2000). Public Universities Reform Programme. Sensitization Manual
University Of Nairobi, (2005) Strategic Plan 2005-2010, Towards World Class Excellence.
Republic Of Kenya. Economic Management For Renewed Growth: Sessional Paper No. 1 Of 1986.
Central Bank of Kenya,(2000) Monetary policy in Kenya


kenneth said...

Nice research work,well posted. It's educative. Thanks

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