Table of Contents
Cross sectional examination or study is an observation of all population or a representative of the same at a certain time. Cross sectional examination ensures expounding the study to cover all aspects of the population instead of just having specific data of a particular specific attribute or subject. It is due to this broad nature that the diversity with case control studies is realized. A broader understanding of all the circumstances surrounding the population under investigation is achieved.
This paper give an over view of American investment in Kenya. The company that has been focused on is the British American Tobacco Kenya Ltd. in it is contained the situation analysis of the business itself and the business environment. It outline how the study is intended to be completed giving factors in which importance will be attached.
British American Tobacco plc. is a multinational company that is headquartered in London, UK. It is the world's second largest quoted tobacco company by global market share with a leading position in more than 50 countries and a presence in more than 180 countries. The company was formed in 1902 when the British's' imperial Tobacco Company and the American Tobacco Company of the united formed a joint venture with an agreement of each not to trade in the other partners home ground. Since then British-American Tobacco Company Ltd. Which was formed has expanded its business all over the world. Some of the early countries of investment were Canada, China, Germany, South Africa, New Zealand, Australia and Kenya. The major brands manufactured by the company that are enjoyed all over the world are Jockey club from Argentina, Stand broke from Australia, du Maurier form Canada, North state from Finland HB from Germany, Courtleigh from south Africa, Yava Gold from Russia, GPC from the US, Embassy from Kenya and Wills from India.
My major focus in this paper is the company's' subsidiary branch British American Tobacco Kenya, Ltd. that is by itself autonomous in its operations. The company engages in manufacturing and selling of cigarettes in Kenya East Africa. The company's headquarters is in Nairobi the capital city of Kenya.
The reason for choosing Kenya as a study has been led by the need to understand why the American investment in Africa is very low as compared to its investment in other countries. Could be that the political, cultural or social environment in Africa unfavorable for this venture? The Chinese investment in Africa has grown in the recent past to worrying extents to the western countries. Their mode of investment cuts across various sectors from infrastructure, finance, to physical product manufacturing. The American investment however is limited to financial services in these countries.
Located in East Africa Kenya lies on the equator bordered by Tanzania to the south, Uganda to the west, Sudan and Ethiopia to the North and the unstable Somalia and Indian ocean to the east (World Bank, 2004). It covers an estimated area of 592 909 sq km and according to the results of the recent 2009 census the country's population stands at approximately forty million people. Though it is the largest economy in east Africa providing a business hub for all the east African countries and beyond much of the land is arid and semi arid. In the past it has been in the fore front in search for peace in the war torn Darfur region of southern Sudan and the Somalia government. Kenya has enjoyed peace since independence in 1963. No major conflict has occurred except the attempted 1982 coup and the 2007 post election violence where at least one thousand five hundred people killed and more that three hundred thousands displaced form their homes. The out going US ambassador to Kenya Mr. Michael Renneberger has been in the fore front condemning Corruption that has caused of stagnation of development in the country.
Corporate & SWOT analysis
BAT Kenya more than twenty brands, in Kenya. It is the only cigarette and tobacco related substances manufacturing plant in Kenya giving it a local market monopoly. It has a strong market position which is enhanced by the familiarity and identification with its parent company. However this strong market position is likely to change due to rising health concerns by the public and the many anti smoking campaign currently carried out the National council of Drug and substance abuse (NACADA) in Kenya.
Strong market position
Control of tobacco leaf production and use
Adequate experts as a result of experience
Well established structures and market
Government restrictions on the product
Market potential in newly formed republic of southern Sudan
Increasing demand for light cigarettes
Increasing health concerns
BAT Kenya Ltd. has a strong market position in Kenya which is driven by the lack of legitimate competition since the company is the only one manufacturing cigarettes and cigarette products in the country. The monopolistic market that is enjoyed by the company is unmatched. Due to the addictive nature of Tobacco products, there is a built in high level of demand, and the company's' vast array of popular brands mean that it is in position to take in this demand consistently. The poor population, which is the majority in Kenya ensure constant intake of the product at high levels.
The company's' good reputation and the frequent contribution to the community has improved the company's image amongst the locals. Its reputation is not in question. By virtue that it is associated with the larger company foreigners and other visitors who visit the country are comfortable with the company's brands.
There is an assured supply of tobacco leaf to the company and the risk of the supply running out is low. It contracts farmers to grow the leaf while offering them with the technical expertise necessary. In some cases the company has gone as far as leasing farms and growing the plants themselves.
The company has been in the recent past subjected to rough conditions by the government and the general public. Restrictions introduced by the government saw the decline in profits. In a first major blow, taxes on cigarettes were increased were increased by more than two hundred percent. This was aimed at reducing the smoking rate in the country. as if that was not enough, a new policy was introduced that required cigarettes to be sold in dozens. Previously cigarettes were sold in both packets and single form. With the majority of the population in Kenya living below a dollar a day, affording a packet of cigarette which costs more than a dollar proved and still has proved to be a night mare to many smoking Kenyans. As a result there has been a decline in total sale by the company.
The drug and substance abuse body (NACADA) has also been a major source of a problem to the profitability of the company. New restrictions were enforced banning smoking in public places requiring smokers to travel in some cases more that a mile finding a smoking zone. This has discouraged many smokers leading some to even quit. BATA Kenya Ltd. is forced to de advertised their products in clear signs warning of the dangers of smoking. Also large sums of money are contributed by the company to sensitize people on drug abuse. While alcohol is allowed to be advertised on TV and Radio, advertising of Tobacco is banned. As the population increasingly become learned, anti smoking campaign is increasing and the number of smokers is decreasing.
There has been an increasing demand for light cigarettes with less nicotine due to increasing health concerns. The elite class is beginning to shift from the strong cigarettes to the light ones, while the poor mass is shifting from the traditional unprocessed tobacco to the manufactured ones. As a result of this the company is starting to shift its focus from manufacturing strong cigarettes to manufacturing light ones. The market is also favorable to the light cigarettes with the customers willing to pay more for the light cigarettes than the strong ones thus leveraging them to increase volumes of production. The US accounts for 65% of the smokeless tobacco which is worth more than $2billion. This could be, not only the best opportunity for the company but also for the home country US.
With the recently formed republic of Southern Sudan, and the absence of a strong competitor in the country, the company has a ready market that can be tapped to increase sales and profits. The peace that is beginning to be enjoyed in the Southern Sudan due to the end of Darfur war gives it a favorable market.
The market is being threatened by introduction of counterfeit products from outside small companies. Kenya has no proper and efficient mechanism to ensure the control of the counterfeits. Most of these counterfeit cigarettes, especially from China, enter the country illegally and therefore are not subject to the heavy taxation that is faced by the genuine products. As a result the prices of this counterfeits are too low offering an unfair competition to the genuine products. The population does not have efficient means of identifying them since they use the same brand names and logos just like the genuine cigarettes.
increasing health concerns can be the major factor that can cause the decrease of company's revenues eventually. Research has shown that even passive smoking can cause health problems, hence every trying to avoid smoking as much as possible.
Kenya has been politically stable since independence from the British in 1963. The introduction of multi party democracy has boosted the democracy standards in the country with investors flocking in due to this favorable political climate. Being a member of the East African Community common market, it enjoys a range of tariff waivers from the member countries which include Uganda, Tanzania, Rwanda and Burundi. The Common market for East and southern Africa (COMESA) makes it attractive to foreigners who want to access the larger east and southern market from the country. The country and the three eastern African countries recently signed a custom union creating a common tariff for good circulating within the region. This is seen by many as a move towards eventual political union in the future. The government has taken various steps to encourage and promote investors expansion through democracy and empowerment.
The countries economy is majorly driven by agriculture which accounts for the 24% of the country's' GDP (World Bank, 2004). It continues to largely dominate in the market as the government relies on it for foreign exchange. The wide range of ecological zones experienced in the country enables the growing of a variety of plants and the rearing of different animals. Traditionally Tea and coffee were the biggest export but consequently horticultural products have mainly taken over with the same being flown out of the country on daily basis (World Bank, 2004).
The Kenya manufacturing sector is composed mainly of medium companies. Though not well developed in many areas of manufacturing some multinational companies have found base in the country to carry out their businesses. These multinational companies mainly come from Europe, Asia, China and the US.
Tourism has grown tremendously overtaking other sectors of economy. Though the threat of Al Shabab from the neighboring Somalia is feared especially by the US, many tourism have ignored the warning given by the US and are increasingly finding holiday havens in the country.
Kenya's' gross domestic product is has been growing comparatively well with other African countries with the World Bank expecting a growth of 5.3% next year. The GDP growth stagnated from early 1970s' until 2003 when there was a change in leadership and political landscape of the country. The country's' recurrent expenditure is much higher than the development expenditure thus the slow growth rate that is being realized (World Bank, 2004).
Physical and other infrastructure
The physical infrastructure in the country include well developed international airports, sea ports, roads, rail way, telecommunications, Electricity, adequate water provision, free media and well developed educational system. The country has three international airports in Nairobi, Mombasa and Eldoret and more than 150 air strips. These airports have played a major role in linking the country to other parts of the world. The railway line links many different part of the country with the neoghbouring countries. It provides a cheap form of luggage and other bulk products transportation to various parts of the region. Though not well developed the railway sector is undergoing improvement with the government planning to put up electrical railway lines to link up major cities in the country by the year 2015.
Roads receives a bigger share of the budget annually. The road network handles most of the freight in Kenya, estimated at 70%. Eastern Africa countries have signed an agreement with the country for the establishment of the Northern corridor road network that will see easy transportation of good from the port of Mombasa to other parts of the region. The port of Mombasa handles large cargo since it is the largest in the region and the most developed in Africa. It provides a gateway to landlocked countries like Uganda and Rwanda with the res of the world.
The telecommunication system in Kenya is well set with over one hundred internet service providers and more that six mobile phone service providers. Electricity is the major source of energy for home and industrial use; however oil is imported from the Arab countries to provide transportation energy.
The education system is structured in to eight years of primary education, four of secondary and four for university education. It has a highly trained labor force ready to assimilate into the market. The country has more than ten public universities and more that fifteen university colleges. Technical institutions and middle level colleges also contribute to the training of the labor force (World Bank, 2004).
Cultural and social aspects of the country
To understand the implications of culture it is important to understand culture itself.
"...the core of culture is composed of explicit and tacit assumptions or understandings commonly held by a group of people; a particular configurations of assumptions/understandings is distinctive to the group; these assumptions/understandings serve as a guide to acceptable and unacceptable perceptions, thoughts, feelings and behaviors; they are learnt and passed to new members of the group through social interactions; culture is dynamic-it changes over time" (Milliken and Martins, 1989).
The cultural background of Kenya is diverse built along different tribal lines totaling to 42 in number. For a business to find penetration into these cultures a proper understanding of all of them must be achieved (Adler, 1991). This becomes an impasse to business community as an acceptable practice in one of the culture might not be acceptable in the other.
For an organization to survive it as to understand the employees culture in relation to their values, believes and national attachment to some practices. Developing an organizational culture will encompass assimilating into the employees and market culture.
Goals & Objectives
Cultural practices determine the success or failure of and any particular society. Multinational companies have to develop an elaborate plan of how to integrate their business plans into different cultures they face in different countries. To succeed in this venture a deep research has to be done. Some of the objectives that will be the guiding factor in the study are:
1. To establish and understand the different culture of the people of Kenya
2. To access how cultural practices affect the functioning of British American Tobacco Kenya Limited.
3. To find out the positive outcomes of culture that contribute to the success of the company
4. To find out the relationship between the company's' cultural practices and the overall country's practices and determine how they interact together.
I intend to find out how culture affects the managerial practices in the company. The recruitment, staff appraisal, remuneration and work arrangement is affected by the company's culture. The African culture views women as inferior and cannot be in leadership position. This assumption by most cultures will form one of the bases of my study to determine if the same is reflected in the company and if not, find out how the employees who ascribe to that believe view women in managerial positions. Some company's have created their own culture and let employees adapt to them. In this case a new set of believes and practices are acquired by the employees and the old believes are done away with. If this is the case with BAT Kenya, what could be the effects of the new culture on the position of the company or the reputation associated with it.
Strategies & Tactics
During the study several factors will be considered. These include collectivism, gender and feminism, uncertainty avoidance and power distance. Employees in collectivism countries like Kenya expect the company to look after the like family, by provision of many facilities that could have otherwise bee catered by different sectors (Adler, 1991).. They expect all their interests to be looked into and promotion decisions are expected to be based on seniority. The aspects that collectivism looks into include aspects such as job security, hiring practices, community relationships, promotion and appraisals.
In hiring practices a study will be done to establish how the same is done. It is believed that in collectivism practices, employers usually hire their close relatives or people they know. The relationship between employees and employers will be studied though it is expected that the same will apply just like in a family situation where each one has an obligation towards the other in exchange for loyalty. In performance appraisal the main aim is to study the how the mode of promotion works and to determine how data is collected for the management staff. Managerial staff will be included in the study to give an insight of the same is done.
Items to be considered & included from the International Management Perspective
Controls & Evaluations
Strategic human resource management practices accept human resource as an important factor in the formulation of companies strategies as well as implementation of those strategies. Fields et al (2000) and Nyamberega et al (2000) argue that contextual variables, particularly national culture have an influence on choice of Human resource strategies. The major factor that will be use in the evaluation is the human resource factor. Gender and feminism is one of the control elements which will be used to determine the power distance and the influence of culture in the organization. A feministic culture is associated with low stress levels in the organization as compared to a masculine system (Schuler, et al 1993). Uncertainty avoidance culture seeks to structure social systems where order and predictability are paramount and rules and regulations dominate (Adler, 1991).
There would be a likely hood of conflict of interest between employees and the company since importance is attached to cultural practices like marriage ceremonies, circumcision ceremonies and funerals whereas the MNC might not comprehend the importance of the same. In power equality there is a belief that some people are destined to be in particular class of life and that is acceptable in Kenya. The belief that some are dependant on the might for ever is deep rooted. How therefore the MNC has embraced and tackled this problem. To what extent do cultural values affect flexible work arrangement which do not take into account employees interests?
The cross sectional study will provide a deeper understanding of the American investment abroad and also answer the question as to why America is reluctant to invest in African countries while China is finding a haven in them.