EXTERNAL
ENVIRONMENTAL
FACTORS
AFFECTING
THE
PERFORMANCE OF THE EXPORT OF SERVICES SECTOR IN KENYA
BY
WETENDE ERNEST CHITECHI
A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE AWARD OF THE DEGREE OF MASTER OF
BUSINESS ADMINISTRATION, SCHOOL OF BUSINESS, UNIVERSITY OF
NAIROBI.
NOVEMBER 2014
DECLARATION
I declare that this research project is my original work and has not been submitted for
examination before for the award of other degree or qualification in any other University.
Sign…………………………………
Date…………………………………..
Wetende Ernest Chitechi
D61/70458/2007
This Project has been submitted for examination with my approval as the university
supervisor.
Sign…………………………………
Date…………………………………….
Prof. Evans Aosa.
School of Business,
The University of Nairobi.
ii
DEDICATION
This study is dedicated to my dear loving wife Chao Nyambu and my two lovely
daughters Zena Oranga and Eve Kambe, you have always been my pillar. To my parents
for making me understand the power of education. You have all been a source of
inspiration and great encouragement to me during this programme.
iii
ACKNOWLEDGEMENTS
My sincere thanks to my supervisor Prof. Aosa whose encouragement; tireless and
relentless guidance has been a source of great inspiration to me as I worked on this study.
I also wish to thank other lecturer in the department of Business Administration for the
knowledge imparted to me during the entire programme.
To my fellow students, I thank you for your great support and encouragement. Special
thanks go to Association of Professional Societies of East Africa and its members for
their support during data collection. This research would not have been possible without
their support and assistance.
Special recognition to my wife you were a source of inspiration, and my entire family for
your support cannot be underestimated. Thank you and God bless all of you.
iv
TABLE OF CONTENTS
DECLARATION............................................................................................................... ii
DEDICATION.................................................................................................................. iii
ACKNOWLEDGEMENTS ............................................................................................ iv
LIST OF TABLES ......................................................................................................... viii
ABSTRACT ...................................................................................................................... ix
CHAPTER ONE: INTRODUCTION ............................................................................. 1
1.1 Background of the Study ........................................................................................... 1
1.1.1 Environment Dependence .................................................................................. 2
1.1.2 Organizational Performance .............................................................................. 4
1.1.3 Services Export Industry .................................................................................... 5
1.2 Research Problem ...................................................................................................... 8
1.3 Research Objectives ................................................................................................ 11
1.4 Value of the Study ................................................................................................... 11
CHAPTER TWO: LITERATURE REVIEW .............................................................. 12
2.1 Introduction ............................................................................................................. 12
2.2 Theoretical Foundation of the Study ....................................................................... 12
2.3 External Environment and Organization ................................................................. 14
2.4 External Environmental Characteristics and Organizational Performance ............. 16
v
CHAPTER THREE: RESEARCH METHODOLOGY ............................................. 18
3.1 Introduction ............................................................................................................. 18
3.2 Research Design ...................................................................................................... 18
3.3 Population................................................................................................................ 18
3.4 Data Collection ........................................................................................................ 19
3.5 Data Analysis .......................................................................................................... 20
CHAPTER FOUR: DATA ANALYSIS, RESULTS AND DISCUSSION ................ 21
4.1 Introduction ............................................................................................................. 21
4.2 Response Rate ......................................................................................................... 21
4.3 General Information of the Respondents ................................................................ 22
4.4 External Environment Factors in Exporting Services ............................................. 23
4.4.1 Environmental Complexity in Exporting Services .......................................... 23
4.4.2 Environmental Dynamism in Exporting of Services ....................................... 26
4.4.3 External Environmental Factors Favorability .................................................. 30
4.4.5 External Environment and Market Factors ...................................................... 31
4.4.6 External Environment and Export of Services Performance ........................... 32
4.4.7 External Environment and Strategic Decision Making in Export of Service .. 33
4.5 Discussion ............................................................................................................... 35
4.5.1 Comparison with Theory ................................................................................. 35
vi
4.5.2 Comparison with other Studies ........................................................................ 37
CHAPTER FIVE: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS 39
5.1 Introduction ............................................................................................................. 39
5.2 Summary ................................................................................................................. 39
5.3 Conclusion............................................................................................................... 41
5.4 Recommendations ................................................................................................... 44
5.5 Limitations of the Study .......................................................................................... 45
5.6 Suggestions for further Study.................................................................................. 46
REFERENCES ................................................................................................................ 47
APPENDICES ................................................................................................................. 51
Appendix 1: Corporate Members of APSEA ............................................................... 51
Appendix II: Questionnaire ........................................................................................... 52
vii
LIST OF TABLES
Table 4.1:
Response Rate .............................................................................................. 22
Table 4.2
Environmental Complexity in Exporting Services ...................................... 25
Table 4.3:
Environmental Predictability in Exporting Services.................................... 28
Table 4.4
Environmental Changeability in Exporting Services ................................... 29
Table 4.5
Favorability of External Environmental Factors.......................................... 31
Table 4.6
External Environment and Export of Services Performance ....................... 33
Table 4.7
External Environment and Strategic Decision Making ............................... 34
viii
ABSTRACT
Organizations without exception are environment serving and environment dependent. A
business is influenced by the environment in which it operates and the success of any
business is dependent on its ability to adapt to its environment. The changes in external
environment have a significant impact on the survival and success of the organization.
Kenya is in a unique position to export services throughout East Africa and to the rest of
the world. The service export sector in Kenya has faced a lot of challenges in the external
environment. This study focused on external environmental factors affecting the
performance of the export of services sector in Kenya. The objective of the study was to
establish the external environmental factors affecting the performance of the services
export sector in Kenya. The study adopted a cross sectional design in order to obtain
comparative data from a cross section of service exporters registered under various
professional bodies in Kenya with particular focus on those registered under Association
of Professional Societies of East Africa (APSEA). The population of the study was the
28 professional bodies registered under APSEA. All the professional bodies were
included in the study hence a census. The study relied on primary data collected using
semi structured questionnaire to standardize the responses. Data collected was analyzed
using descriptive analysis. Measures of central tendency like percentage, mean and
standard deviation were used. Environmental dimensions of complexity, dynamism and
favoritism were used to describe Kenya‟s export of services environment. The study
established that, varying degrees of external environmental complexity, dynamism, and
favorability exist which tend to be mostly shown in economic factors, competitive
rivalry, market factors, technological factors, regulatory factors as well as threat of new
entrants. The study further concluded that these factors appeared to have great influence
on the organizations performance and strategic decision making. The study recommends
that business and professional association should be more active in capacity building and
awareness creation of opportunities for export of services. It recommended that the
government need to get involved as an enabler through provision of adequate technology,
marketing of services in international forum and work on legislative aspects that affects
the sector. It also recommends that academic institutions to develop appropriate course to
bridge the skills gap in the sector. There were some limitations in the study limited time
frame considering those professionals targeted are busy with other work schedules. The
sample size from the professional association registered under APSEA may not have
represented the view of all service exporters. The study recommends further study on
external environmental barriers in the export of service to the East African Community
since its Kenya large market for professional service. It also recommends further study on
other service sectors outside APSEA members to provide broad guidelines for the entire
service sector.
ix
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study
Organizations today are facing unprecedented challenges in maintaining commercial
being and success. Due to the rapid changes happening in today‟s marketplace and
emerging business practices, it is more likely for an organization, to fall behind by not
keeping up with trends of their external environments (Albright, 2004). Organizations are
open systems which interact with their environment and the environment helps to shape
the organization. The environment is perceived as key determinant of organization‟s
performance (Porter, 1981).
The strategic choice approach offers a starting point for linking the firm's external
environment to its activities. This approach suggests that a firm's capacity to cope with
environmental uncertainty is critical to its continued viability (Grant, 2002). Uncertainty
arises when the organization is unable to predict or control its external environment, a
condition that can profoundly influence the organization's operations. It is essential that
organizations are able to quickly and strategically place themselves to minimize the
effects of negative events and take advantage of opportunities (Vinzant and Vinzant,
1996). As Rogers (1999) put it, international managers need to take an interest in both
the economic structures of the countries in which they wish to do business and in the
international economy as a whole in order to; establish the sizes and characteristics of
various markets, assess the degree of risk attached to operating in specific nations,
identify high growth sectors, make investment decisions and deploy company resources
in the most effective way.
1
Services exporters in Kenya exist and trade within national economic systems that
possess unique characteristics, prospects and difficulties, and within a global environment
with features that transcend national frontiers. Most service providers are constraint from
exporting due to a widespread lack of knowledge about exporting opportunities, markets, and
processes, and a lack of awareness as to how to acquire such knowledge. While Kenyan services
firms may be innovative and successful domestically, many do not engage in any systematic
attempt to export their services. Very often Kenyan service providers - especially smaller ones lack international networks and find it very difficult to obtain market intelligence on foreign
markets. Obtaining information on the largest firms in each sector and key contacts in foreign
markets is crucial to identify export opportunities.
The services sector has continued to show remarkable growth with a positive balance of
payments for the past five years contributing over 60% of the Gross Domestic Product.
The services sector in Kenya is dominated by tourism and travel related services. Other
key services traded include transport and logistics services, telecommunications, banking
and insurance services. Kenya‟s export basket is dominated by merchandise trade, with
services trade accounting for 30% of total exports (www.epckenya.org).
1.1.1 Environment Dependence
Organizations are environment serving and dependent (Jemison, 1981). An organization
does not operate in a vacuum but within an external environment. Organizations are
environment dependent (Ansoff and McDonnel, 1990). There are many different
environments that each business operates within. Business organizations are ultimately
involved in the same basic activity, namely, the transformation of inputs (resources) into
2
outputs (goods and services). Businesses are entities made up of interrelated parts which
are intertwined with the outside world the „external environment. This environment
comprises a wide range of influences; economic, demographic, social, political, legal,
technological among others which affect business activity in a variety of ways and which
can impinge not only on the transformation process itself but also on the process of
resource acquisition and on the creation and consumption of output (Worthington and
Britton, 2003).
Management theorists in the late 1970s generally adopted the open systems perspective
of organization and agreed on the importance of the external environment management
(Anderson and Paine 1975, Emery and Trist, 1965). According to Thompson (1967), the
environment is independently given to the organization. The latter benefits from
resources provided by the environment (Pfeffer and Salancik, 1978). The Industrial
organizational paradigm of the 1950s and 1960s was based on principal that the
environment is a deterministic influence to which an organization adopts its strategy,
structure and processes.
According to Hunger and Wheelen (1996) the environment consists of variables that form
the context within which the firm exists. As Pearce and Robinson (2002) noted, an
environment can be divided into two main subsets; internal and external environments.
They point out that the internal environment comprises factors such as the organization‟s
competitive capabilities and both tangible and intangible resources that affect the firm‟s
3
abilities to meet its objectives. These include the organization‟s culture, structure and
resources (Hunger and Wheelen, 1996).
External environment has played a significant role in formulation, implementation and
controlling of the business strategy (Hiriyappa, 2009). The external environment for a
company covers many aspects (Vrontis and Pavlou, 2008). The external environment of
the company is made up of several economic, social, demographical, management and
ecologic factors. It can directly or indirectly influence the activity and the performance of
an organization. Survival or success of an organization occurs when an organization
creates and maintains a match between its strategy and environment and also between its
internal capability and its strategy (Grant, 2002).
1.1.2 Organizational Performance
The external environment can provide both facilitating and inhibiting influences on
organizational performance. Organizational performance refers to the extent to which an
organization meets its strategic objectives and other results as disaggregated in the
organization result hierarchy including input, output, outcome and impact. It is actual
result measured against intended goals and objectives.
Organizational performance is an outcome achieved when an organization successfully
formulates and implements a value creating strategy which enables customers receive a
service or product of value greater than what they are willing to pay for (Barney, 2007).
Therefore, organizations that have a better understanding of its external environment
4
would be more likely to cope with threats and grasp opportunities, and hence obtain
sustainable competitive advantages. The fit between organizations and their environments
is proposed to be the most significant predictor of organizational survival and
performance (Boyd and Fulk, 1996).
1.1.3 Services Export Industry
Although service exports can be understood as service activities that are internationally
traded between residents of different countries, the term services covers a heterogeneous
range of intangible products and activities that is more difficult to summarize within a
simple explanation. According to World Trade Organization (WTO), Services includes
any service in any sector except services supplied in the exercise of governmental
authority. A service supplied in the exercise of governmental authority, means any
service which is supplied neither on a commercial basis, nor in competition with one or
more service supplier.
Put in the simplest terms, services are deeds, processes and performances. Services
include all economic activities whose output are not a physical product or construction,
are generally consumed at the time it is produced, and provides added value informs such
as convenience, amusement, timeliness, comfort or health that are essentially intangible
concerns of the first purchaser (Zeithaml and Bitner, 2003). Services encompass a wide
range of industries: telecommunication, transportation, financial services, information
technology, consulting services among others.
5
Historically economic reports identify activities as “service producing” that are not
“goods producing” which include manufacturing and construction, and are not
“extraction” such as agriculture, forestry, fishing and mining. By this definition service
producing encompasses a wide variety of industries, including retailing, wholesaling,
transportation, financial services, lodging, education government, entertainment and
many others (Metterset al, 2006).
There exists no unique classification list of services. Different studies and organizations
classify services differently. According to the International Monetary Fund (IMF),
services include distributive services (e.g. transportation), producer services (e.g. banking
and finance), social services (e.g. education) and personal services (e.g. catering).The
WTO, on the other hand, classifies services on the basis of the UN Central Product
Classification: business services; communication services; construction and related
engineering services; distribution services; educational services; environmental services;
financial services; health related and social services; tourism and travel related services;
recreational, cultural and sporting services; transport services; and other services not
included elsewhere.
Notwithstanding the type of classification used, all services share common characteristics
(Sáez, 2010). First of all, contrary to goods, services are intangible and invisible. These
two characteristics have important implications for negotiations because they make it
difficult to measure the real value of services and to assess their contribution to
production. Moreover, services are perishable and non-storable. Unlike goods, services
6
require simultaneous production and consumption that is personal contact between
customers and suppliers. Also, services are very diverse and complex. Many stakeholders
are involved, from trade ministries to regulatory agencies. In certain sectors, the
provision of one service requires the joint provision of other services.
All the above-mentioned characteristic make it impossible for services to be defined
solely based on their crossing of borders, as for trade in goods. Thus, services are defined
under the General Agreement on Trade in Services (GATS) according to four modes of
supply: cross border supply, consumption abroad, commercial presence and presence of
natural persons (Cattaneo, 2010). GATS developed by WTO provide a multilateral
framework of principles and rules for trade in services with a view to the expansion of
such trade under conditions of transparency and progressive liberalization. The services
sector is defined as those services which are provided by skilled professionals who have
qualifications to deliver certain expertise and are usually accredited. Services play major
roles in all modern economies. An efficient services sector is considered to be crucial for
trade and economic growth and for dynamic and resilient economies.
Cross border trade in services such as advertising, banking, consultancy, communication,
transportation, insurance among others, has been the major growth area of world trade in
recent decades. Data on the extent of international trade in services are harder to come by
than merchandise trade, although it is known to account for nearly 30 per cent of all cross
border transaction. This is hardly surprising considering how important the service sector
has become in all developed and developing countries. Services might be exported via
7
direct sale in foreign markets, or through licensing, franchising or joint ventures with
local companies, service performance (Rogers, 1999)
Kenyan service exporters come in all sizes, but the majority employs less than 100
workers. Most of these workers are permanent, the exception being the Business Process
Outsourcing (BPO) firms which tend to keep a reserve of 20% of non-permanent staff to
enable them to respond quickly to sudden increases in export orders. The majority of
service exporters are 100% Kenyan owned. Services in Kenya are those that are produced
by the private sector and that requires a high level of skills, usually certified and include
accounting, architectural, engineering, business process out sourcing and legal services
(Dihel et al, 2011). According to Export Promotion Council‟s (EPC), Strategy for
Promotion of Professional Service in Kenya 2008, the services sector in Kenya is
dominated by tourism and travel related services. Other key services traded include
transport and logistics services, telecommunications, banking and insurance services.
Kenya‟s export basket is dominated by merchandise trade, with services trade accounting
for 30% of total exports.
1.2 Research Problem
Stoffels (1994) in his model of the firm and its environment suggested that management‟s
enlightenment begins with the recognition that a firm is not isolated from the
environment but interactive with it. External environment plays a significant role in the
growth and profitability of firms. A better understanding of the external environment
would enable organizations obtain more accurate market and industry insights, and hence
8
more likely to satisfy current customers and explore new market segments, successfully
develop and market new products/services based on trend analysis (Ahituv et al, 1998;
Kohn, 2005), establish better brand images, all of which would ultimately contribute to
the financial performance. With sufficient environmental intelligence, organizations
would be able to manage strategic surprise and response quickly even to weak signals
(Ansoff, 1965). The environmental conditions currently facing firms are different from
those of past decades. Many companies now compete in global, rather than domestic
markets. Firms must be aware of and understand the implication of these environmental
realities to compete effectively in the global economy (Hitt, Ireland and Hoskisson,
1997).
Kenya is in a unique position to export business services throughout East Africa and to
the rest of the world. While most developing countries tend to export basic business
services such as back office tasks, Kenya has several world class firms that provide and
export higher value offshoring services such as product development, research and
development business ventures and transformational sourcing. However the biggest
challenge for promoting services is in changing the perception of international buyers to
accept Kenya as an exporter of quality goods and quality services as well. The services
export sector is facing tariff and non-tariff barriers in destination market, competition
from developed markets, legal restriction and skills gap among other challenges which is
making the way of exporting services relatively unfavourable (www.epckenya.org). This
has consequently meant that Kenya‟s service export increases in sale and profits, and its
market share are eroded by forces in its external environment. Kenya‟s service sector
9
needs to adopt new technologies in order to facilitate online trade in services. There is
still a great potential and opportunity for Kenya which has highly skilled labour at
reasonable cost and relatively good telecommunication infrastructure to benefit from this
sector.
Previous studies on external environment and performance have not focused on the
external environment and performance in the services export sector. Machuki and Aosa,
(2011) carried out a study on the influence of external environment on the performance of
publicly quoted companies in Kenya. Muthama, (2006) carried out a study on responses
of NAS airport services to environmental challenges in the catering industry while
Ongaga, (2006) carried out a study on response of Kenol to changes in external
environment. Mulema, (2004) study established that Teachers Service Commission
(TSC) had been severely affected by the changes in its external environment defined by
the political, socio-cultural, economic, technological and legal factors.
The findings of these studies revealed that organization‟s effective and efficient growth
depends on the kind of environment in which it operates either directly or indirectly.
They also revealed that broader understanding of the environments in which
organizations operate is vital for the development of appropriate and successful
strategies, with equally positive implications for performance. The overall results
suggested that external environment is a key factor that aide organizations develop
environmental management strategies and choose appropriate strategies that focus on
pertinent element of the environment.
10
From the above listed studies, it is clear there has been no study focusing on the external
environmental factors affecting the performance of the export of services sector in
Kenya. This study sought to bridge this knowledge gap and provide information to
answer the question. What external environmental factors affect the performance of the
export of services sector in Kenya?
1.3 Research Objectives
The objective of this study was to establish external environmental factors affecting the
performance of the services export sector in Kenya.
1.4 Value of the Study
The study is also expected to give the owners and managers of services export industry
an understanding of the various external environment factors influencing the performance
of the export of services and aid in development of appropriate strategies that will ensure
they stay competitive. This will help in improving their performance in form of market
penetration and returns.
The study will aid Government and government institutions dealing with services
exports, in policy formulation to improve the Kenya‟s export of service. To researchers
and academicians, this research will provide an understanding of the external
environment and performance services exports in Kenya. This will be vital for future
reference and will contribute to the available body of knowledge.
11
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction
This chapter provides a review of literature that is relevant to this study. It includes
different arguments and comments from various scholarly authors about external
environment. It reviews literature on external environment and service exports, external
environment and organizational performance and competitive strategies and services
exports.
2.2 Theoretical Foundation of the Study
For an organization to survive and proper it needs to address the challenges of the
environment it faces. Porter, (1980, 1985), argued that the central tenets of a firm‟s
competitive advantage rest on the ability of the firm to position and differentiate itself in
a given context. This requires strategic capabilities that its competitors find difficult to
imitate or obtain. In addition the organization must be capable to deliver against the
critical success factors that arise from the demand and needs of its customer. This is
dependent on the resources and competencies it has. Wilensky, (1967) argues that when
the environment is seen as hostile or threatening, or when the organization depends
heavily on the environment, more resources are allocated to the environmental scanning
function.
Pfeffer and Salancik, (1978) in their resource dependency theory, the environment is seen
as a source of resources upon which the organization is dependent. Resource dependence
is affected by munificence, or the abundance of resources; concentration, the extent to
which power and authority in the environment is dispersed; and interconnectedness, the
12
number and pattern of linkages among organizations in the environment. The degree of
dependence would be great when resources are scarce, and when entities in the
environment are highly concentrated or interconnected. An organization can manage
increasing dependence by adapting to or avoiding external demands; changing the
patterns of interdependence through growth, merger, and diversification; establishing
collective structures to form a negotiated environment; and using legal, political or social
action to form a 'created environment.
Powell and DiMaggio, (1991) in their institutional theory generally regard organizations
as being forced to respond to, adapt to, or imitate the ebb and flow of normative and
regulatory currents in their environments. Porter, (1980, 1985) observed that competitive
forces in an organization‟s environment drive its business strategy. It‟s further
emphasized that the attributes of the environment determine the most appropriate type of
strategy for a firm (Campbel and Garnett, 1989 as cited in Poister et al, 2010). External
environment is extremely dynamic, globalisation and incredible technological advances
has created a new chapter that has reshaped the organization‟s external environment.
Both business and service organizations are experiencing turbulence. Local, national and
global issues and groups are having far reaching impacts on organizations. Gone are the
“good old days” of absolute advantage and comparative advantage. In response new
models of business are emerging aimed at aligning organizations with the changing
environment.
13
2.3 External Environment and Organization
Duncan, (1972) viewed external business environment as the totality of factors outside an
organization that are taken into consideration by an organization in its decision making.
These factors depend largely on the complexity and dynamism of the environment. The
external environment refers to the relevant social and physical factors outside the typical
boundaries of an organization which affect managerial decision-making. Broadly, the
external environment can be divided into two categories: the task or domain environment
which has a direct impact on company tasks and outcomes and the remote environment
with indirect and long-term impacts.
Pearson II, Robinson and Mital, (2008) viewed the firm‟s external environment as factors
beyond the control of the firm that influences its choice of direction and action,
organizational structure and internal processes. These factors which constitute the
external environment can be divided into three interrelated subcategories: factors in the
remote environment, factors in the industry environment, and factors in the operating
environment.
The remote environment comprises of factors that originate beyond and usually
irrespective of any single firm‟s operating situation and include, economic, social,
political, technological and ecological factors. That environment presents firms with
opportunities, threats, and constraints, but rarely does a single firm exert any meaningful
reciprocal influence. Thus, external business environment has been classified as being
stable when it does show any changes, unstable when it shows relative changes, and
14
dynamic when it shows changes continuously (Aguilar, 1967).However, perceptions of
the organizations about the type of the external business environment to a large extent
depend on their size and industry in which it operates.
Worthington and Britton, (2003) posits that in examining the business environment, a
useful distinction can be made between those external factors which tend to have a more
immediate effect on the day to day operations of a firm and those which tend to have a
more general influence. The immediate or operational environment for most firms
includes suppliers, competitors, labour market, financial institutions and customers, and
may also include trading organization, trade unions and possibly a parent company. In the
contrast the general or contextual environment comprises more macro environmental
factors such as economic, political, socio-cultural, technological and legal influences on
business which affect a wide variety of businesses and which can emanate not only from
local and national sources but also from international and supranational developments.
Careful and accurate analysis of the external environment benefits organization by
providing overall greater understanding and an appreciation of the context in which the
organization operates. Organizations require an effective competitive strategy to operate
successfully in a market where there is established and potential competition. Export
Promotion Council in its study on the make-up of the services sector, the enabling
environment within Kenya, identified a close link between external environmental factors
and key drivers of growth in the sector (www.epckenya.org). In order to survive in this
competitive environment, it becomes necessary for the services exporters to design
15
business strategies based on the conviction that a firm able to anticipate future business
conditions will improve its performance and profitability. Despite the uncertainty and
dynamic nature of the business environment, an assessment of external environment even
if it does not precisely define, future expectations is of substantial value to business
services exporter.
2.4 External Environmental Characteristics and Organizational
Performance
Given environmental attributes of uncertainty and complexity (Emery and Trist, 1965),
the organization‟s ability to meet its objectives in the environment will be pegged on how
effectively it will predict the magnitude and course of environmental change. Ansoff and
McDonnel, (1990) observe that for optimization of a firm‟s profitability (performance), it
has to ensure alignment between the organization and its environment.
Organizational theorists have emphasized that organizations must adapt to their
environment if they are to remain viable (Duncan, 1972). This is mostly emphasized by
the strategic success formula put forth by Ansoff and McDonnell, (1990) and Ansoff and
Sullivan‟s, (1993) as cited in Machuki and Aosa, (2011), which advocates that great firm
performance is assured when the responsiveness of an organization‟s strategy matches
the turbulence in the environment but also the organization‟s capabilities should match
the aggressiveness of its strategy.
16
The external environment also stimulates managerial attention to the threats and
opportunities, which influences the organization's strategic choices. Attention, therefore,
should be given to the role of executives' perceptions of their venture's external
environment in determining export performance (Calof, 1994; Naidu and Prasad, 1994;
Samiee and Walters, 1990 as cited in O‟Cass and Julia, (2002). The performance of an
export venture is determined by the export marketing mix strategy adopted, firm
characteristics
and
environmental
characteristics.
Key
export
environmental
characteristics include competitive intensity, legal-political environment of the export
market, channel accessibility and customer exposure to the product/service (O‟Cass and
Julian, 2002).
Therefore, export performance tends to be conditioned by environmental characteristics
(Cavusgil and Zou, 1994, as cited in O‟Cass and Julian, (2002) such as the extent of
competition, the legal and regulatory policies of host country governments, the
availability of suitable distribution and communication channels and customer familiarity
with the product. Machuki and Aosa, (2011) pointed to the relationship between
performance and environment, and theorize that, dictates of the environment call for
alignment to achieve desired outcomes.
17
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction
This chapter sets out various steps that were followed in completing the research. It
involves a blue print for collection, measurement and analysis of data. The sections
covered include research design, population, sample design, data collection and data
analysis.
3.2 Research Design
In order to establish the influence of the external environment on the export performance
of the Kenya‟s business service exports, a cross-sectional design is preferred in this study
to obtain comparative data from a cross section of services exporters registered under
various professional bodies in Kenya with particular focus on those registered under
Association of Professional Societies of East Africa (APSEA).
This method was chosen since it is more precise and accurate since it involves description
of events in a carefully planned way (Babbie, 2011). This research design also portrays
the characteristic of a population fully (Chandran, 2004). In this type of research design,
either the entire population or a subset thereof is selected, and from these individuals,
data are collected to help answer research questions of interest.
3.3 Population
The population of the study was the professional bodies registered under Association of
Professional Societies in East Africa in Kenya. For purposes of this study, the
18
Association of Professional Societies in East Africa (APSEA) is an Association that
brings together professional bodies of diverse disciplines. Currently, the Association has
twenty eight (28) corporate members in Kenya constituting all major professions in the
country including medicine, law, accounting, engineering, geology, architecture, food
science, public and corporate administration, veterinary science, planning, procurement,
and
marketing
among
many
others
involved
in
export
of
services
(http://www.apsea.or.ke).
For purposes of this study, all the 28 corporate members bodies registered under APSEA
in Kenya were considered and targeted thus making it a census survey. A census is where
data is collected from all members of the population (Hair et al, 2011). The respondents
were chairpersons of the 28 corporate members of professional bodies registered under
APSEA.
3.4 Data Collection
The study employed primary data collection. Primary data is data that is collected by the
researcher to answer the research question. Primary data was collected by use of a semi
structured questionnaire designed by the researcher. The semi structured questionnaire is
an efficient data collection mechanism since each respondent is asked to respond to the
same set of questions. The questionnaire were administered electronically using email or
a drop and pick later method. Some of the advantages of the mail questionnaire include
the fact that it provides a high degree of anonymity keeps the costs low and reduces the
19
biasing error because the respondents are not influenced by the interviewer‟s
characteristics or techniques.
The major disadvantage of the mail is that they require simple and easily understood
given instructions, and that they do not offer researchers the opportunity to probe for
additional information or to clarify answers. Furthermore, there is no control over who
fills out the questionnaire, and normally, record low response rate, and suffer from
sequence bias (Kothari, 2004,). The respondents were chairpersons of the 28 corporate
members of professional bodies registered under APSEA. The chairpersons are
themselves practitioners and are more informed on the trends within their respective
professions.
3.5 Data Analysis
The researcher upon receiving questionnaires from respondents processed and analyzed
the data in accordance with the research plan. Data processing implies editing, coding,
classification and tabulation of collected data (Kothari, 2004). Data analysis involves
reducing accumulated data to manageable size, developing summaries, looking for
patterns and applying statistical analysis techniques. The process involved data
preparation and carrying out descriptive analysis.
The researcher analyzed quantitative data using descriptive statistics and presented the
data using percentages, means, standard deviation s and frequencies. The qualitative data
was coded thematically and then analyzed statistically. The analyzed data was interpreted
in line with the research questions and objectives, and conclusions drawn.
20
CHAPTER FOUR: DATA ANALYSIS, RESULTS AND DISCUSSION
4.1 Introduction
This chapter presents analysis of the data on external environmental factors affecting the
performance of the export of services sector in Kenya. This chapter presents the findings
of the study and discussions on the findings from 24 respondents. The finding was
intended to answer the study‟s research question. Data collected was collated and reports
were produced in form of tables and figures and qualitative analysis done in prose.
4.2 Response Rate
Table 4.1 illustrates the response rate of the respondents that participated in the survey.
The study targeted 28 respondents from corporate members of professional bodies
registered under APSEA. However, out of 28 questionnaires distributed 24 respondents
completely filled in and returned the questionnaires contributing to 86%. This response
rate was reached due to the data collection procedure, where the researcher personally
administered questionnaires and waited for respondents to fill in, kept reminding the
respondents to fill in the questionnaires through frequent phone call and picked the
questionnaires once fully filled. The 14% questionnaires that were not returned were due
to reasons like, the respondent were not available to fill them in at that time and with
persistence follow-ups there were no positive responses from them.
21
Table 4.1: Response Rate
Response
Frequency
Percentage (%)
Filled in questionnaires
24
86
Un returned questionnaires
4
14
Total
28
100
Source: Field Data, 2014
4.3 General Information of the Respondents
The respondents comprised of the chairperson of the respective professional where the
chairperson was not available an executive committee member filled the questionnaire. In
total the researcher interviewed 24 respondents out of the 28 that had been intended to be
interviewed as in the research design. All the respondent interviewed were actively
exporting their services. From the findings, 54% of the respondents indicated that there
are over 30 professional members registered under the specific professional body while
46% had between 20-30 professional members. All the respondents had attained
university degrees with majority 63% of the respondents being master‟s degree holders
while the rest 38% were undergraduate degree holders. This depicts that most of the
professional service providers had adequate qualification in their line of duties that met
international standards.
In terms of working experience most 46% of the respondents had worked for a period of
15 - 20 years, 29% had worked for a period of 11-15years, 13% had worked for a period
of 5-10 years, 8% had been offering the service for over 20 years while the rest 4% had
22
been offering the service for a period of less than 5 years. Thus most of the respondents
of this study had worked for an ample time thus they were conversant with the
information that the study sought pertaining to the organization.
In addition the research sought to find out both the number of employees employed by
the professional firms and whether the employees were professionals. From the findings,
most 46% of the respondent pointed out that they have employed less than 5 employees,
38% had employed 5-10 employees while the rest (17%) had over 10 employees. As
regards to the number of professional employees employed by the professional bodies,
the findings showed that, majority 50% of the respondent indicated that they have
employed 5-10 professional employees, 38% have employees less than 5 professional
employees while the rest 13% have employed over 10 professional employees. To this
extent, the respondents were found to be knowledgeable on the subject matter of research
and thus helpful to realization of the research objective.
4.4 External Environment Factors in Exporting Services
4.4.1 Environmental Complexity in Exporting Services
Environmental complexity was assessed through the number of issues the organizations
need to deal with in the various environmental aspects. The results on the number of
issues that organizations need to deal with are presented in Table 4.2 below. The results
show that the various environmental aspects were ranked differently by different
professional bodies on the number of issues organizations need to deal with. Most of the
respondents indicated that market factors and technological factors received the highest
23
rating (mean score of 4.15 and 4.01 respectively) meaning they present the many issues
that organizations need to deal with. Other environmental aspects received moderate
rating meaning they present moderate issues that organizations need to deal with threat of
substitute, economic factors, rivalry and industry competition, bargaining power of
suppliers, labour market factors, and socio cultural environmental factors with (a mean
score of 3.88, 3.77, 3.76, 3.74, 3.73, 3.7, and 3.64 respectively). Legal factors and threat
of new entrants in the service sector received low ranking (mean score of 3.47 and 3.44
respectively) and therefore presents a few issues that organizations have to deal with.
However from the statistical analysis there is a significant variation among the
respondents on the number of issues that they have to deal with in some of the
environmental aspects. From the standard deviation statistical significance differences
were reported in political factors (standard deviation
(standard deviation
=1.168), economic factors
= 1.297), socio-cultural factors (standard deviation
technological factors (standard deviation
=1.198),
=1.1.196), environmental factors (standard
deviation =1.284). These demonstrates that whether the aspects were rank low or high
there is still disparity among organizations on the number of issues they need to deal with
in these environmental aspects.
24
Table 4.2 Environmental Complexity in Exporting Services
Aspects of External Environment
Mean
Standard
deviation
Political factors such as political climate, tax policy, labour law,
3.52
1.168
3.77
1.297
3.7
1.198
4.01
1.196
3.64
1.284
3.47
0.899
4.15
1.009
Labour market factor including ability to attract capable employees
3.73
0.87
Threat of new entrants in the same service sector
3.44
0.943
Bargaining powers of suppliers to service providers
3.74
1.041
Threat of substitute services from other countries
3.88
0.338
Rivalry and industry competition
3.76
1.062
Competitive intensity including the extent of industry price
3.54
0.509
environmental law, trade restrictions, tariffs, and political stability
Economic factors such as economic growth, interest rates, exchange
rates and the inflation rate.
Socio-Cultural factors including lifestyle and preferences of people,
population growth rate, age distribution, career attitudes and social
norms that impact the decision making
Technological factors include ecological and environmental aspects,
such as research and design activity, automation, technology
incentives and the rate of technological change and development.
Environmental factors include physical conditions and infrastructure,
geographical location and climate
Legal factors include discrimination law, consumer law, antitrust law,
employment law, and health and safety law.
Market factors including customer behavior,
composition of
customers
competition, the extent of foreign competitors and the degree of
marketplace price competitiveness.
Source: Field Data, 2014
25
4.4.2 Environmental Dynamism in Exporting of Services
Environmental dynamism was assessed through predictability and changeability in the
various environmental aspects. Respondents were asked to indicate on a 5-point likert
scale the extent to which developments in each of the environmental aspects have
become more predictable in various markets where they export their service. They were
also asked to indicate how much change they have observed in each environmental aspect
for the last two years (2012 -2013) in the various markets where they export their
services.
Table 4.3 summarizes the extent to which the developments in each of the environmental
aspects have become more predictable to members in various markets where they export
their services. Threat of substitute services from other countries, bargaining powers of
suppliers to service providers, threat of new entrants in the same service sector and
political factors received the highest ranking (mean score of 4.04, 3.92, 3.72 and 3.71
respectively) This means that development in these environmental aspects had become
more predictable. Rivalry and industry competition, market factors and economic factor
received the lowest ranking (mean score of 3.06, 3.03 and 2.93) meaning it was the least
predictable.
Respondent moderately ranked environmental factors, socio-cultural factors; legal
factors, competitive intensity and labour market factor mean score of 3.66, 3.62, 3.54,
3.18, and 3.14 respectively). These show that these environmental aspects were
predictable to a moderate extent. The finding have also shown that there is so significant
26
difference across the service exporter on the extent to which the developments in some of
the highly ranked environmental aspects had become more predictable (threat of
substitutes, Bargaining power of suppliers, and threat of new entrants (standard deviation
score of 0.808, 0.675 and 0.11 respectively).
The researcher also requested respondents to indicate the extent of environment changes
observed in each environmental aspect for the last two year (2012 – 2013) in the various
markets where they export their services. From the findings as shown in Table 4.4 below,
indicate that, majority of the respondents ranked highly technological factors, rivalry and
industry competition, economic factors competitive intensity, threat of substitutes,
environmental factors, and threat of new entrants and political factor with a mean score
of 4.47, 4.25, 4.21, 4.19, 4.13, 4.11, 4.03 and 4.02 respectively. However there was not
much statistical difference among the highly ranked environmental aspects as the
standard deviation
ranged from 0.32 – 0.897. This implied that there was no great
disparity across organizations on how much change they have observed in the
environmental aspects for the last two years
27
Table 4.3: Environmental Predictability in Exporting Services
Aspects of External Environment
Mean
Standard
deviation
Political factors such as political climate, tax policy, labour law,
3.71
1.067
2.93
1.305
3.62
1.133
3.25
0.91
and
3.66
1.027
Legal factors include discrimination law, consumer law, antitrust
3.54
1.121
3.03
0.942
Labour market factor including ability to attract capable employees
3.14
0.947
Threat of new entrants in the same service sector
3.72
0.11
Bargaining powers of suppliers to service providers
3.92
0.675
Threat of substitute services from other countries
4.04
0.808
Rivalry and industry competition
3.06
1.144
Competitive intensity including the extent of industry price
3.18
0.846
environmental law, trade restrictions, tariffs, and political stability
Economic factors such as economic growth, interest rates, exchange
rates and the inflation rate.
Socio-Cultural factors including lifestyle and preferences of people,
population growth rate, age distribution, career attitudes and social
norms that impact the decision making
Technological factors include ecological and environmental aspects,
such as research and design activity, automation, technology
incentives and the rate of technological change and development.
Environmental
factors
include
physical
conditions
infrastructure, geographical location and climate
law, employment law, and health and safety law.
Market factors including customer behavior,
composition of
customers
competition, the extent of foreign competitors and the degree of
marketplace price competitiveness.
Source: Field Data, 2014
28
Table 4.4 Environmental Changeability in Exporting Services
Aspects of External Environment
Mean
Standard
deviation
Political factors such as political climate, tax policy, labour law, 4.02
0.843
environmental law, trade restrictions, tariffs, and political stability
Economic factors such as economic growth, interest rates, 4.21
0.631
exchange rates and the inflation rate.
Socio-Cultural factors including lifestyle and preferences of 3.04
1.066
people, population growth rate, age distribution, career attitudes
and social norms that impact the decision making
Technological factors include ecological and environmental 4.47
0.868
aspects, such as research and design activity, automation,
technology incentives and the rate of technological change and
development.
Environmental
factors
include
physical
conditions
and 4.11
0.32
infrastructure, geographical location and climate
Legal factors include discrimination law, consumer law, antitrust 3.83
0.781
law, employment law, and health and safety law.
Market factors including customer behavior,
composition of 3.15
1.503
customers
Labour market factor including ability to attract capable employees
3.88
1.746
Threat of new entrants in the same service sector
4.03
0.287
Bargaining powers of suppliers to service providers
3.69
1.046
Threat of substitute services from other countries
4.13
0.336
Rivalry and industry competition
4.25
0.897
Competitive intensity including the extent of industry price 4.19
0.483
competition, the extent of foreign competitors and the degree of
marketplace price competitiveness.
Source: Field Data, 2014
29
4.4.3 External Environmental Factors Favorability
From the findings of Table 4.5 below, majority of the respondents agreed to a very large
extent that political factors; economic factors; socio-Cultural factors; technological
factors; environmental factors; legal factors; market; labour market factor and threat of
new entrants in the same service sector were environmental aspect which were favorable
to members‟ organizations during the last two years (2012 -2013) in the various markets
where they exported their services as shown by the mean scores of (4.66, 4.65, 4.53, 4.48,
4.45, 4.44 and 4.11 respectively).
On the other hand, most of the respondents agreed to a moderate extent that bargaining
powers of suppliers to service providers; threat of substitute services from other countries
and rivalry and industry competition were environmental aspect which were favorable to
members‟ organizations during the last two years (2012 -2013) in the various markets
where they exported their services as shown by the mean scores of (3.89, 3.53 and 3.40
respectively). Competitive intensity was ranked lowly at mean score of 2.89 mean it was
the most unfavorable in the last two year 2012 – 2013.
Statistically there was less variation among the highest ranked environmental aspects
with Standard deviation ranging from 0.057 – 0.626 amongst the organizations meaning
there was unanimity across organizations that most environmental aspects were
favorable.
30
Table 4.5 Favorability of External Environmental Factors
Aspects of External Environment
Mean
Political factors such as political climate, tax policy, labour law,
environmental law, trade restrictions, tariffs, and political stability
Economic factors such as economic growth, interest rates, exchange
rates and the inflation rate.
Socio-Cultural factors including lifestyle and preferences of people,
population growth rate, age distribution, career attitudes and social
norms that impact the decision making
Technological factors include ecological and environmental aspects,
such as research and design activity, automation, technology
incentives and the rate of technological change and development.
Environmental factors include physical conditions and infrastructure,
geographical location and climate
Legal factors include discrimination law, consumer law, antitrust law,
employment law, and health and safety law.
Market factors including customer behavior,
composition of
customers
Labour market factor including ability to attract capable employees
Threat of new entrants in the same service sector
Bargaining powers of suppliers to service providers
Threat of substitute services from other countries
Rivalry and industry competition
Competitive intensity including the extent of industry price
competition, the extent of foreign competitors and the degree of
marketplace price competitiveness.
Source: Field Data, 2014
4.66
Standard
deviation
0.482
4.65
0.524
4.53
0.621
4.48
0.542
4.45
0.057
4.45
0.626
4.45
0.162
4.44
4.11
3.89
3.53
3.40
2.89
1.015
0.223
1.498
1.321
0.971
0.162
4.4.5 External Environment and Market Factors
The study wanted to establish whether understanding external environmental factors is of
nay value and which markets do most of the professional export their service. It was clear
from the finding that external environment play a key role in deciding which market to
enter, the pricing mechanism and competition. Majority of the respondent indicated that
31
they export their service to the regional market of the East Africa. Some export to United
Kingdom, India, and United States of America
4.4.6 External Environment and Export of Services Performance
This study was based on the premise that external environment influences the
organization performance. From the findings of Table 4.6 below, majority of the
respondents agreed to a very great extent that profitability, market share, the operational
efficiency and sales revenue were greatly affected by the environmental factors as shown
by the mean scores of 4.63, 4.45, 4.44 and 4.16 respectively.
On the other hand, most of the respondents agreed to a moderate extent that the quality of
the services offered, introduction of new service lines and customer retention were
moderately affected by the environmental factors amongst the members firms exporting
services as shown by the mean scores of 3.89, 3.40 and 3.19 respectively.
This finding implies that profitability of the service exporting firms, market share of the
service exporting firms, the operational efficiency of the firms and sales revenue of the
exporting firms were the affected variables amongst the members firms exporting
services by external environmental factors.
Statistically there was less variation among the highest ranked performance indicators
affected by environmental aspects with Standard deviation ranging from 0.162 – 0.971
amongst the organizations meaning there was unanimity across organizations that most
32
environmental aspects had an effect on profitability, market share, sale revenue and
operation efficiency. However there was variation among the moderately ranked
performance aspects with standard deviation ranging from 1.321 – 1.498.
Table 4.6 External Environment and Export of Services Performance
Performance Aspects
Mean
Standard
deviation
Profitability of the service exporting firms
4.63
0.162
Market share of the service exporting firms
4.45
1.011
Sales revenue of the exporting firms
4.16
0.223
The quality of the services offered
3.89
1.498
Introduction of new service lines
3.40
1.321
The operational efficiency of the firms
4.44
0.524
Customer retention
3.19
0.971
Source: Field Data, 2014
4.4.7 External Environment and Strategic Decision Making in Export of
Service
From the findings in Table 4.7, majority of the respondents strongly agreed extent that
service uniqueness is driven by external environment; strategy is guided by the
environment variables; the industry has a dynamic environment that is hard to deal with;
international experience enhances a firm ability to deal with environmental variables and
resource commitment is guided by environmental variable as shown by the mean scores
of 4.75, 4.66, 4.53, 4.48 and 4.45 respectively.
33
On the other hand, most of the respondents agreed to moderate extent that the
competition makes part of environment; choice and support to distributors is influenced
by external environment and marketplace price competitiveness is determined by external
environment as shown by the mean scores of 3.65, 3.45 and 3.44 respectively.
There was less variation among the strategic decision making indicators affected by
environmental aspects with standard deviation ranging from 0.057 – 0.621 amongst the
organizations meaning there was unanimity across organizations that most environmental
aspects had an effect on strategic decision made by organizations.
Table 4.7 External Environment and Strategic Decision Making
Strategic Decision Aspects
Mean
Standard
deviation
Strategy is guided by the environment variables
4.66
0.482
The competition makes part of environment
3.65
0.524
The industry has a dynamic environment that is hard to deal with
4.53
0.621
International experience enhances a firm ability to deal with
4.48
0.542
Resource commitment is guided by environmental variable
4.45
0.057
Choice and support to distributors is influenced by external
3.45
0.626
Service uniqueness is driven by external environment
4.75
0.162
Marketplace price competitiveness is determined by external
3.44
1.015
environmental variables
environment
environment.
Source: Field Data 2014
34
4.5 Discussion
He study sought to establish what external environment factors affects the performance of
the export sector. It‟s evident from the study that external environment has a great
influence on the performance of the export of service in Kenya. The observed results are
discussed under the objective of the study through comparison for similarities and
difference with theory, existing literature and studies.
4.5.1 Comparison with Theory
Porter, (1980, 1985) observed that competitive forces in an organization‟s environment
drive its business strategy. The result of the study indicates that market forces and
technological factor were ranked highly and presented many issues that organization had
to deal with. The results demonstrates that whether the environmental aspects were rank
low , medium or high there is still disparity among organizations on the number of issues
they need to deal with in these environmental aspects. This demonstrates that
environmental complexity has a bearing on the performance of the organization. The
drivers of environmental complexity appear to be well distributed across political-legal,
socio-economic, technological and socio cultural environments. External environment is
extremely dynamic, globalization and incredible technological advances has created a
new chapter that has reshaped the organization‟s external environment. Both business and
service organizations are experiencing turbulence.
The finding on extent of environment changes observed in each environmental aspect for
the last two year (2012 – 2013) in the various markets where they export their services,
35
indicated that, majority of the respondents ranked highly technological factors, rivalry
and industry competition, economic factors competitive intensity, threat of substitutes,
environmental factors, and threat of new entrants and political factor as factors that
experience greatest change.
The external environment changes are inevitable and
organizations that survive the dynamic external environment are those that create fit
between themselves and the external environment.
Pfeffer and Salancik, (1978) in their resource dependency theory, the environment is seen
as a source of resources upon which the organization is dependent. Resource dependence
is affected by munificence, or the abundance of resources; concentration, the extent to
which power and authority in the environment is dispersed; and interconnectedness, the
number and pattern of linkages among organizations in the environment. This is
consistent with the findings of this study which indicate that services exporters are
dependent of environmental factors such as market factor, technological factors, legal
factors and threat of new entrants in the market they operate and present key issues that
they need to deal with.
Comparing with Powell and DiMaggio, (1991) institutional theory which generally
regards organizations as being forced to respond to, adapt to, or imitate the ebb and flow
of normative and regulatory currents in their environment. The findings show that most
respondents have to respond to, adapt to and flow with the changes in technological
factors, rivalry and industry competition, economic factors, competitive intensity, threat
of substitutes, threat of new entrants and political factors.
36
4.5.2 Comparison with other Studies
The results of this study are fairly comparable to other empirical studies that have
considered external environment as part of the study variables in relation to organization
performance. The environmental conditions currently facing firms are different from
those of past decades. Many companies now compete in global, rather than domestic
markets. Technological changes and the explosion in information gathering and
processing demand more timely and effective competitive actions and responses. In
addition organizations do not operate in isolation they are integrated and interlinked.
Key export environmental characteristics include competitive intensity, legal-political
environment of the export market, channel accessibility and customer exposure to the
product/service (O‟Cass and Julian, 2002). Therefore, export performance tends to be
conditioned by environmental characteristics (Cavusgil and Zou, 1994, as cited in O‟Cass
and Julian, (2002) such as the extent of competition, the legal and regulatory policies of
host country governments, the availability of suitable distribution and communication
channels and customer familiarity with the product. This is consistent with the result that
showed that there was unanimity across organizations that most environmental aspects
had an effect on performance of export of services. Majority of the respondent agreed to a
very great extent that profitability, market share, the operational efficiency and sales
revenue were greatly affected by the environmental factors.
The empirical study by Mulema, (2004) for Teachers Service Commission (TSC)
established that the organization had been severely affected by the changes in its external
37
environment defined by the political, socio-cultural, economic, technological and legal
factors. Similarly, Machuki and Aosa, (2011) in there study on the influence of external
environment on the performance of publicly quoted companies in Kenya, reveal that
external environment appears to be among the factors that affect organization
performance albeit not statistically significant. Changes in the external environment in
which organizations operate can either bring forth opportunities and/or threats. Therefore,
a thorough understanding of the implications of these changes is important for strategic
decision making. The result are consistent with the above finding which showed that in
the last two year (2012 – 2013) technological factors, rivalry and industry competition,
economic factors, competitive intensity, threats of substitutes, environmental factors and
threat of new entrant had become very dynamic and have influence the performance of
the service export to a great extent.
The findings on environmental aspects predictability showed that while some aspects
have become predictable, there is some significant difference across the service exporter
on the extent to which the developments in environmental aspects had become more
predictable. These imply that external environment has remained unpredictable even
when some aspects are predictable. This is consistent with (Emery and Trist, 1965),
assertion that given environmental attributes of uncertainty and complexity, the
organization‟s ability to meet its objectives in the environment will be pegged on how
effectively it will predict the magnitude and course of environmental change.
38
CHAPTER FIVE: SUMMARY, CONCLUSIONS AND
RECOMMENDATIONS
5.1 Introduction
This chapter presents the summary of the data findings on the analysis on the external
environmental factors affecting the performance of the export of services sector in
Kenya, the conclusions and recommendations are drawn there to. The chapter is
structured into summary of findings, conclusions, recommendations and area for further
research.
5.2 Summary
The objective of this study was external environmental factors affecting the performance
of the services export sector in Kenya. From the study findings it was clear that market
factors such as customer behavior, composition of customers are observed to a great
extent as having an effect of export of services. Technological factors include ecological
and environmental aspects, such as research and design activity, automation, technology
incentives and the rate of technological change and development and that threat of
substitute services from other countries, economic factors such as economic growth,
rivalry and industry competition, interest rates, exchange rates and the inflation rate,
bargaining powers of suppliers to service providers and that labour market factor
including ability to attract capable employees were considered to a great extent.
On observation of environmental factors in market, the study found that threat of
substitute services from other countries is observed to a great extent as shown by mean
score of 4.04, also respondent pointed that bargaining powers of suppliers to service
39
providers, threat of new entrants in the same service sector and that political factors such
as political climate, tax policy, labour law, environmental law, trade restrictions, tariffs
and political stability were observed to a great extent when exporting services.
To environmental changes observed by members in exporting services, the study revealed
that technological factors include ecological and environmental aspects, such as research
and design activity, automation, technology incentives and the rate of technological
change and development and economic factors such as economic growth, interest rates,
exchange rates and the inflation rate and that competitive intensity including the extent of
industry price competition, the extent of foreign competitors and the degree of
marketplace price competitiveness were observed to a great extent.
The study further found out that political factors such as political climate, tax policy,
labour law, environmental law, trade restrictions, tariffs, and political stability; economic
factors such as economic growth, interest rates, exchange rates and the inflation rate;
socio-Cultural factors including lifestyle and preferences of people, population growth
rate, age distribution, career attitudes and social norms that impact the decision making;
technological factors include ecological and environmental aspects, such as research and
design activity, automation, technology incentives and the rate of technological change
and development; environmental factors include physical conditions and infrastructure,
geographical location and climate; legal factors include discrimination law, consumer
law, antitrust law, employment law, and health and safety law; market factors including
customer behavior, composition of customers; labour market factor including ability to
40
attract capable employees and threat of new entrants in the same service sector were
environmental aspect which were favorable to members‟ organizations during the last
two years (2012 -2013) in the various markets where they exported their services.
The study also found out that profitability of the service exporting firms, market share of
the service exporting firms, the operational efficiency of the firms and sales revenue of
the exporting firms were the environmental factors that had affected the variables
amongst the members firms exporting services. On the other hand, the study established
that service uniqueness is driven by external environment; strategy is guided by the
environment variables; the industry has a dynamic environment that is hard to deal with;
international experience enhances a firm ability to deal with environmental variables and
resource commitment is guided by environmental variable.
5.3 Conclusion
Based on the study finding the study concluded external environmental factors have a
great influence on the organizations performance. This was exemplified in market factors
such as customer behavior, composition of customers that were observed to a great extent
to have influence on the organization. Technological factors include ecological and
environmental aspects, such as research and design activity, automation, technology
incentives and the rate of technological change and development and that threat of
substitute services from other countries, economic factors such as economic growth,
rivalry and industry competition, interest rates, exchange rates and the inflation rate,
41
bargaining powers of suppliers to service providers and that labour market factor
including ability to attract capable employees were also considered to a great extent.
On observation of environmental factors in market, the study concluded that threat of
substitute services from other countries is observed to a great extent, also respondent
pointed that bargaining powers of suppliers to service providers, threat of new entrants in
the same service sector and that political factors such as political climate, tax policy,
labour law, environmental law, trade restrictions, tariffs and political stability were
observed to a great extent when exporting services.
To environmental changes observed by members in exporting services, the study
concluded that technological factors include ecological and environmental aspects, such
as research and design activity, automation, technology incentives and the rate of
technological change and development and economic factors such as economic growth,
interest rates, exchange rates and the inflation rate and that competitive intensity
including the extent of industry price competition, the extent of foreign competitors and
the degree of marketplace price competitiveness were observed to a great extent.
The study concludes that political factors such as political climate, tax policy, labour law,
environmental law, trade restrictions, tariffs, and political stability; economic factors such
as economic growth, interest rates, exchange rates and the inflation rate were
environmental aspects which were favorable to members‟ organizations during the last
two years in the various markets where they exported their services. Further, socio42
cultural factors including lifestyle and preferences of people, population growth rate, age
distribution, career attitudes and social norms that impact the decision making;
technological factors include ecological and environmental aspects, such as research and
design activity, automation were environmental aspect which were favorable to
members‟ organizations during the last two years (2012 -2013) in the various markets
where they exported their services.
The study also concluded that technology incentives and the rate of technological change
and development; environmental factors include physical conditions and infrastructure,
geographical location and climate; legal factors include discrimination law, consumer
law, antitrust law, employment law, and health and safety law; market factors including
customer behavior, composition of customers; labour market factor including ability to
attract capable employees and threat of new entrants in the same service sector were
environmental aspect which were favorable to members‟ organizations during the last
two years (2012 -2013) in the various markets where they exported their services.
The study also concludes that profitability of the service exporting firms, market share of
the service exporting firms, the operational efficiency of the firms and sales revenue of
the exporting firms were the environmental factors that had affected the variables
amongst the members firms exporting services. The study also concluded that service
uniqueness is driven by external environment; strategy is guided by the environment
variables; the industry has a dynamic environment that is hard to deal with; international
43
experience enhances a firm ability to deal with environmental variables and resource
commitment is guided by environmental variable.
5.4 Recommendations
The study recommended that due to global competitiveness and the volatile market,
export services sectors should take aggressive action to retain and attract new customers.
Business and professional associations should be more active in hosting international
seminars to educate the industry and increase networking opportunities for local experts.
For this purpose, some capacity building for associations is necessary - possibly through
a private public partnership supported program - so that they can prepare marketing
materials, organize conventions and forums, or participate in international events to
create awareness of the available skills in Kenya. Finally organizations should
continuously scan the environment for any opportunities or threat and be prepared to deal
with such eventualities
Information is a crucial resource in the knowledge economy and global market whereas
technology and innovation in production and marketing fastening or shortening a product
or service life cycle. The government should put in place adequate technological
infrastructure in partnership with the private in order to facilitate export of service since it
was noted technology is a key driver in service export. The Government of Kenya should
lead the positioning and marketing of the country brand and key services globally
showcasing professional services next to tourism, sports, horticulture, and other Kenyan
products. Most Kenyan service exporters feel that direct incentives to exports, such as tax
44
incentives for example are unnecessary. Rather, what they consider to be crucial is that
the government facilitates the access to foreign markets. Such facilitation would lead to
an increase in employment, upgrades in the technology used and improvements in the
quality of services delivered to meet high international standards. The government to
work on the legal factors in order to create and enabling environment since there are both
tariff and non-tariff barriers, particularly with the key market which hinder the growth of
the sector.
The professional service companies are urgently in need of better skilled personnel and this
presents a challenge to be overcome. The study recommends the need to enhance the skill
for the sector. The skills base within the sector is still low and academic institution should
develop courses in partnership with professional societies to address the skill gap that
will enable them attract the right employees with requisite skills. The availability of
scholarships or partial funding for professional service agents to be able to access formal
training in courses not readily available in Kenyan universities and colleges would
improve the skills and thus the marketability of Kenya‟s services sector. The provision of
rebates or the development of incentives for firms to conduct training especially
specialized training would help increase the quality and degree of specialization of the
services offered by Kenyan firms.
5.5 Limitations of the Study
The research interviewed 24 respondents from the professional societies; hence their
observations might not be representative of the views of all service exporters. Time was
45
also limited since the respondents were chairpersons who were involved in busy work
schedules and getting all of them within the provided time was also a challenge.
Four of the respondent kept postponing their appointment with the researcher hence could
not fill the questionnaire. A number of respondents were also in a hurry to answer the
questions. However the researcher was patient and pleasant enough to persuade them to
spare time and answer the questions more comprehensively.
5.6 Suggestions for further Study
The findings of this study suggest that further research to be done on the other service
sector outside of APSEA members. This will help establish general guideline for the
entire services export sector on how to improve the performance in the wake of the
external environmental factors.
Another suggestion for further research is on the identification of drivers and constraints
of strategic choice for service exporters in Kenya. The East African Community remains
a major market for Kenyan exporters of professional services. A study of the external
environment barriers to export of services to the East Africa Community is recommended.
46
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APPENDICES
Appendix 1: Corporate Members of APSEA
1. Chartered Institute of Arbitrators (CIArb)
2. Institute of Certified Public Accountants of Kenya (ICPAK)
3. Institute of Certified Public Secretaries (ICPSK)
4. Insurance Institute of Kenya (IIK)
5. Kenya Institute of Bankers (KIB)
6. Kenya Institute of Management (KIM)
7. Kenya Institute of Planners (KIP)
8. Kenya Institute of Supplies Management (KISM)
9. Law Society of Kenya (LSK)
10. Marketing Society of Kenya (MSK)
11. Architectural Association of Kenya (AAK)
12. Association of Consulting Engineers of Kenya (ACEK)
13. Geological Society of Kenya (GSK)
14. Institute of Engineers of Kenya (IEK)
15. Institute of Quantity Surveyors of Kenya (IQSK)
16. Institution of Surveyors of Kenya (ISK)
17. Kenya Meteorological Society (KMS)
18. Kenya Association of Radiologists
19. Kenya Dental Association
20. Kenya Institute of Food Science and Technology
21. Kenya Medical Association
22. Kenya Society of Physiotherapists
23. Kenya Veterinary Association
24. National Nurses Association of Kenya
25. Pharmaceutical Society of Kenya
26. Society of Radiography in Kenya
27. Institute of Certified Securities and Investment Analysts (ICSIA)
28. Kenya Chemical Society (KCS)
51
Appendix II: Questionnaire
SECTION A: GENERAL DATA
1. Your Name :………………………………………………………(optional)
2. Job Title:…………………………………………………………(optional)
3. Name of the professional body you represent: ……………………………………
4. Using the categories below indicate the number of professional members are
registered under the professional body you represent.
Less than 10 [ ] between 10 – 20 [
] between 20 – 30 [
]
over 30 [
]
5. State your highest level of education
PhD [ ] Master degree [ ] Undergraduate [ ]
Diploma [ ] Certificate [ ]
6. How many year have you practiced in your profession……………………………
7. Please indicate the following;
Average number of employees your members‟ firms have employed ……………
How many of these are professionals……………………………………………
SECTION B: EXTERNAL ENVIRONMENT
8. Indicate the extent to which your members have to deal with the following
environmental aspects while exporting their services on a scale of 1 to 5
5: To great extent
4: To a very large extent
3: To a large extent
2: To small extent
1: Not at all
No
External environmental factors
5
1
Political factors such as political climate, tax policy, labour
law, environmental law, trade restrictions, tariffs, and political
stability
2
Economic factors such as economic growth, interest rates,
exchange rates and the inflation rate.
3
Socio-Cultural factors including lifestyle and preferences of
52
4
3
2
1
people, population growth rate, age distribution, career attitudes
and social norms that impact the decision making
4
Technological factors include ecological and environmental
aspects, such as research and design activity, automation,
technology incentives and the rate of technological change and
development.
5
Environmental factors include physical conditions and
infrastructure, geographical location and climate
6
Legal factors include discrimination law, consumer law,
antitrust law, employment law, and health and safety law.
7
Market factors including customer behavior, composition of
customers
8
Labour market factor including ability to attract capable
employees
9
Threat of new entrants in the same service sector
10
Bargaining powers of suppliers to service providers
11
Threat of substitute services from other countries
12
Rivalry and industry competition
13
Competitive intensity including the extent of industry price
competition, the extent of foreign competitors and the degree of
marketplace price competitiveness.
9. Indicate on a scale of 1 to 5 the extent to which the developments in each of the
environmental aspects have become more predictable to your members in various
markets where they export their services.
5: Very large extent
4: Large extent
3: Moderate extent
2: Less extent
1: Not at all
53
No
External environmental factors
5
1
Political factors such as political climate, tax policy, labour
law, environmental law, trade restrictions, tariffs, and political
stability
2
Economic factors such as economic growth, interest rates,
exchange rates and the inflation rate.
3
Socio-Cultural factors including lifestyle and preferences of
people, population growth rate, age distribution, career attitudes
and social norms that impact the decision making
4
Technological factors include ecological and environmental
aspects, such as research and design activity, automation,
technology incentives and the rate of technological change and
development.
5
Environmental factors include physical conditions and
infrastructure, geographical location and climate
6
Legal factors include discrimination law, consumer law,
antitrust law, employment law, and health and safety law.
7
Market factors including customer behavior, composition of
customers
8
Labour market factor including ability to attract capable
employees
9
Threat of new entrants in the same service sector
10
Bargaining powers of suppliers to service providers
11
Threat of substitute services from other countries
12
Rivalry and industry competition
13
Competitive intensity including the extent of industry price
competition, the extent of foreign competitors and the degree of
marketplace price competitiveness.
54
4
3
2
1
10. Indicate on a scale of 1 to 5 how much change your members have observed in
each environmental aspect for the last two year in the various markets where they
export their services (2012 – 2013)
5: Great change
4: Large change
3: Moderate change
2: Little change
1: No change
No
External environmental factors
5
1
Political factors such as political climate, tax policy, labour
law, environmental law, trade restrictions, tariffs, and political
stability
2
Economic factors such as economic growth, interest rates,
exchange rates and the inflation rate.
3
Socio-Cultural factors including lifestyle and preferences of
people, population growth rate, age distribution, career attitudes
and social norms that impact the decision making
4
Technological factors include ecological and environmental
aspects, such as research and design activity, automation,
technology incentives and the rate of technological change and
development.
5
Environmental factors include physical conditions and
infrastructure, geographical location and climate
6
Legal factors include discrimination law, consumer law,
antitrust law, employment law, and health and safety law.
7
Market factors including customer behavior, composition of
customers
8
Labour market factor including ability to attract capable
employees
9
Threat of new entrants in the same service sector
55
4
3
2
1
10
Bargaining powers of suppliers to service providers
11
Threat of substitute services from other countries
12
Rivalry and industry competition
13
Competitive intensity including the extent of industry price
competition, the extent of foreign competitors and the degree of
marketplace price competitiveness.
11. Indicate on a scale of 1 to 5 the extent to which developments in each
environmental aspect have been favorable to your members‟ organizations during
the last two years (2012 -2013) in the various markets where they export their
services
5: Very large extent
4: Large extent
3: Moderate extent
2: Less extent
1: Not at all
No
External environmental factors
5
1
Political factors such as political climate, tax policy, labour
law, environmental law, trade restrictions, tariffs, and political
stability
2
Economic factors such as economic growth, interest rates,
exchange rates and the inflation rate.
3
Socio-Cultural factors including lifestyle and preferences of
people, population growth rate, age distribution, career attitudes
and social norms that impact the decision making
4
Technological factors include ecological and environmental
aspects, such as research and design activity, automation,
technology incentives and the rate of technological change and
development.
5
Environmental factors include physical conditions and
56
4
3
2
1
infrastructure, geographical location and climate
6
Legal factors include discrimination law, consumer law,
antitrust law, employment law, and health and safety law.
7
Market factors including customer behavior, composition of
customers
8
Labour market factor including ability to attract capable
employees
9
Threat of new entrants in the same service sector
10
Bargaining powers of suppliers to service providers
11
Threat of substitute services from other countries
12
Rivalry and industry competition
13
Competitive intensity including the extent of industry price
competition, the extent of foreign competitors and the degree of
marketplace price competitiveness.
SECTION C:
12. In your own opinion, does understanding external environmental factors of any
value to services exporters:
………………………………………………………………………………………
………………………………………………………………………………………
………………………………………………………………………………………
………………………………………………………………………………………
………………………………………………………………………………………
…………………………………………………………………………...................
13. In which market do most of your members export their services:
………………………………………………………………………………………
………………………………………………………………………………………
………………………………………………………………………………………
14. How has the environmental factors affected the following variables amongst your
members firms exporting services?
57
Variables
1
Not
at
all
2
3
4
5
Low
Moderate Great Very
extent extent
extent great
extent
Profitability of the service exporting firms
Market share of the service exporting firms
Sales revenue of the exporting firms
The quality of the services offered
Introduction of new service lines
The operational efficiency of the firms
Customer retention
15. Indicate your level of agreement with the following statements; (tick
appropriately)
Statement
1
2
3
4
5
Strongly Disagree Neutral Agree Strongly
disagree
agree
Strategy
is
guided
by
the
environment variables
The competition makes part of
environment
The industry has a dynamic
environment that is hard to deal with
International experience enhances a
firm
ability
to
deal
with
environmental variables
Resource commitment is guided by
environmental variable
Choice and support to distributors is
influenced by external environment
Service uniqueness is driven by
external environment
Marketplace price competitiveness is
determined by external environment.
58