Kellogg in Kenya
Kellogg in Kenya
Nancy Castillo
Florida International University
ncast096@fiu.edu
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Kellogg in Kenya
Abstract
This international business proposal examines at Kenya as a potential market for
Kellogg’s Foreign Investment candidate. Through this report both, the company and the country
will be analyzed in order to determine the strengths and weaknesses of each one of them and
how they can beneficiate one another. This proposal focuses on demonstrate that Direct Foreign
Investment through the establishment of a subsidiary can be performed by Kellogg to penetrate
the Kenyan market. Moreover, it provides a clear explanation of why to do this kind of risky but
rewarding movement in a developing nation.
Kellogg in Kenya
Industry Analysis
According to the Weiss Stock Research Reports, the global processed food industry is
growing at a slow rate. However, Globalization has helped the massive multinational food
processing companies to take advantage of the new markets and commercialize their products all
around the world under local names, local languages, and also producing them locally.
According to this report, the primary factors that affect customer choices in this industry are
taste, convenience, and health issues. In the United States the industry is highly regulated by the
Food and Drug Administration (FDA). Moreover, the industry faces an age in which consumers
worry about nutrition and ethical issues in the production of food. Additionally, according to the
same report, the prices of milk, eggs, corn, wheat, oils, and other indispensable goods for the
food industry are on the rise (Weiss Stock Research Reports, 2009); therefore, the industry needs
to seek other markets that could offer these products at a lower price.
Analysis of the Company
Kellogg Company was founded in 1906 and is incorporated in Delaware. It manufactures
and markets ready-to-eat cereal and convenience foods such as cookies, crackers, toaster
pastries, cereal bars, fruit-flavored snacks, frozen waffles and veggie foods. Kellogg has an
impressive market size; their products are manufactured in 17 countries, including Canada,
Mexico, Colombia, Venezuela, Ecuador, Brazil, Spain, Germany, Great Britain, Russia, India,
Thailand, South Korea, Japan, Australia, and South Africa, and marketed in more than 180
countries. According to the company’s annual report for the year 2011, their cereal products are
marketed under the Kellogg’s name and are sold primary through direct sales to grocery stores
for resale.
Kellogg’s vision statement is “To enrich and delight the world through foods and brands
that matter”, their mission is to “Nourishing families so they can flourish and thrive”. These
stamens identify Kellogg as a family company, deeply worried about their customers. According
to Kellogg’s responsibility statement, in 2011, Kellogg Company reported sales of over $13
billion making it the world’s leading producer of cereal, snacks and frozen foods. As a global
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Kellogg in Kenya
company, Kellogg is committed to provide the best foods while supporting the communities
where they have presence.
In the last decade, Kellogg has established presence in important markets around the
world; however, it is necessary for the company to establish a strong connection with these
relatively new markets. Kellogg has to take advantage of its economic growth to keep on
expanding its markets and obtaining long relationships with consumers around the world while
reducing its operating costs. One way to do so is by looking for new foreign markets that can
serve as providers for the primary ingredients Kellogg needs in order to produce its products.
Those commodities, according to Kellogg’s annual report for the year 2011, include grits, wheat
and wheat derivatives, oats, rice, cocoa and chocolate, soybeans and soybean derivatives, various
fruits, sweeteners, flour, vegetable oils, dairy products, eggs, and other filling ingredients.
Kellogg’s Strengths
As established before, Kellogg is already performing manufacturing activities in various
countries around the world and marketing its products in over 100 countries. Therefore, the
company has already acquired a valuable experience in different international markets dealing
with FDI, country risks, and financial risks. For instance, Kellogg established its manufacturing
activities in Venezuela in 1961and in spite of the Venezuelan political and economical recent
situation, Kellogg’s Venezuela is still the company’s second most important division in Latin
America. This demonstrates that the company has a great deal of experience dealing with these
kinds of trouble markets
The company has an extensive variety of products that can be targeted to a diverse set of
customers worldwide. According the company’s annual report for the year 2011, only in
America, Kellogg produces and markets over 40 different products including: All-Bran, Apple
Jacks, Bran Buds, Cinnamon Crunch Crispix, Choco Zucaritas, Cocoa Krispies, Complete,
Kellogg’s Corn Flakes, Corn Pops,Cracklin’ Oat Bran, Crispix, Cruncheroos, Crunchmania,
Crunchy Nut, Eggo, Kellogg’s FiberPlus, Froot Loops, Kellogg’s Frosted Flakes, Kellogg’s
Krave, Frosted Krispies, Frosted MiniWheats, Fruit Harvest, Just Right, Kellogg’s 1Low Fat
Granola, and Mueslix among others. Additionally and thanks to its international experience,
Kellogg has developed new products to meet its consumer’s needs and tastes all around the
world. According to the GlobalData analysis of the company of 2012, Kellogg has a strong focus
on innovation, investing approximately $187m in 2010 and $181m in 2009 and 2008 in its
research and development programs for the creation of new products and the improvement of
existing ones
Kellogg’s Weaknesses
According to the GlobalData analysis of the company of 2012, Kellogg’s has a
considerable amount of indebtedness in relation to the shareholder’s equity. Which could
interfere with the ability of the company to obtain financing and also, according to the report, it
could affect its flexibility in adapting to changes in the market conditions. This could greatly
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Kellogg in Kenya
affect the success of the company when doing FDI in a new market, as Kellogg will have to learn
the new market and adapt easily to the new challenges that could potentially take place.
Kellogg’s Threats
According to the company’s annual report for the year 2011, the cost of the agricultural
commodities Kellogg used in its products (corn, wheat, soy bean oil, sugar, and cocoa), as well
as the packaging materials (carton board, corrugated, and plastic bags) are very fluctuating
because of government policies and regulations, weather conditions, and climate change. On the
same way, GlobalData analysis of the company of 2012, pointed out that the prices of the
agricultural commodities used by Kellogg are increasing.
The second most important threat of the company is the strong competition it faces in
different foreign markets around the world. Before considering the possibility of entering to a
new foreign market, Kellogg has to take into account that strong food processing companies are
already in those markets; therefore, to prevent being overrun by these competitors Kellogg will
have to take advantage of all its strengths, including its distinguished products, to survive and
succeed in a new foreign market. Finally, Kellogg will have to deal with the foreign government,
learn new regulations, and conduct its finances in such a way that the entrance to a new market
do not bring about losses to the firm.
Kellogg’s Opportunities
Kellogg and all its brands and products are widely recognized. Because the company
already markets its products to more than 180 countries, it has developed a relationship with
foreign customers. Kellogg has the possibility of doing FDI to gain access to new markets
producing offerings at or near its customers while reducing its transportation costs, and therefore,
reducing the cost of the final goods. Additionally, Kellogg could also access foreign markets that
already have the presence of competitors in order to compete with them directly and forcing
them to expend resources to defend their markets.
Moreover, the increment in the price of raw materials motivates the company to reach
markets with a strong agricultural sector that could provide sufficient stability in the prices of the
crops.
Kenya as a Promising Market
Form a strategic point of view, many conditions in Kenya favor the entrance of a
company into the country. According to the U.S companies export, Kenya is the most developed
economy in Eastern Africa, with a GDP of USD 32.417 billion; it is also the economic,
commercial and logistical location of the region. The following section is dedicated to look at
some important facts about this country.
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Kellogg in Kenya
Kenya is a country located in Eastern Africa with a population over 43 million people;
according to data fount in the CIA world fact book website, the population growth rate of the
country\ is 2.444%. The official language of the country is English which facilitate business
transactions. With an area comparable of slightly more than twice the size of Nevada, Kenya
enjoys a coastline of 546km and its climate varies from tropical along coast to arid in the interior.
It counts with one of the most successful agricultural production regions in the African continent
(CIA, 2012) producing agricultural commodities such as tea, coffee, corn, wheat, sugarcane,
fruit, vegetables; dairy products, beef, pork, poultry, eggs percent (CIA, 2011). This sector,
according to the U.S Company’s exports website, is the largest employer in Kenya.
Kenya has an extensive infrastructure that, even though is unevenly distributed, is able to
promote industry. The World Bank has helped Kenya made significant contributions to the
economic sector with investing in transportation facilities, enhancing aviation safety at Kenya’s
international airports, and enabled the country to replace different infrastructures (Word Bank
Kenya Overview, 2012). The country’s strategic location in Eastern Africa, bordering the Indian
Ocean, between Somalia and Tanzania could open markets in Africa and the Middle East.
According to the U.S companies export website, the average annual inflation rate was
16.2 percent in 2008 and dropped to 9.2 percent in 2009. Currently, according to the CIA world
fact book Kenya is experiencing an inflation rate of 11 percent (CIA, 2011).Its GDP-real growth
rate for the year 2011 is 4.3 percent; however, the World Bank projects a higher growth rate of 5
percent in 2012. According to this institution, they key drivers of growth include services,
tourism, and agricultural recovery. Kenya has “extremely challenging” conditions, that have the
possibility to be the foundation for a brighter economical future (Word Bank Kenya Overview,
2012).
Finally, according to Euromoney Country Risk, Kenya is a sovereign republic. The
president is the head of state and the prime minister is the head of the government. High levels of
corruption in Kenya endanger business. However, the country is trying to attract foreign
investment and it currently has extensive international organization participation, according to
the CIA fact book, this country is currently member of the WTO and the IMF and has adopted
many measures that favor foreign investment.
What Conditions Exist in Kenya that Could Benefit from Kellogg’s Products?
As the population in Kenya is annually increasing, this country has also an increasing
demand for the food processed products. Kenya’s population is increasing by an estimate of one
million a year (World Bank, 2012) Kellogg could take advantage of this factor and increase its
sales in this African country by proving its quality and tasty products.
Considering the possibility that Kellogg could penetrate the Kenyan market through
Foreign Direct Investment and establish a subsidiary for the production of its products, the
economy of the country will be enormously beneficiated because, Kellogg will become a major
consumer of Kenyan agricultural commodities such as corn, wheat, various fruits, dairy products,
and eggs. Moreover, Kenya could become one of the exporters for Kellogg’s products to the rest
of the African continent and the Middle East helping reduce the gap between exports and imports
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Kellogg in Kenya
of the country, which, according to the World Bank website, has become larger as consequence
of an increment in the country’s imports that has not been compensated its exports
Investment Opportunities
According to Michael Camunez, assistant secretary of commerce in his publication in the
international trade administration website, in 2011, American Foreign Direct Investment in
Kenya grew a surprisingly 44 percent between 2009 and 2010, which demonstrates that the
Kenyan market is not only accessible but lucrative as well.
As previously mentioned, Kellogg, as a growing multinational, has the challenge to
continue growing and develop better its consumer relationships through the world. Investing in
Kenya offers plenty of possibilities that could help to accomplish the future economic and
market goals of the company. For instance, by choosing this strategic location, Kellogg could
access better the nearby markets reducing the transportation costs it infers in order to market its
products in the African countries. Also, the company could take advantage of the economic
relationship of Kenya with the nearby countries.
Kenya is a developing market that is adapting its policies in order to attract foreign
investment. However, this country has still to improve its corruption and poverty level, as well as
control its inflation rate. Nonetheless, the country is progressing and investing in infrastructure,
searching for advice from the WTO and adopting new measures to control corruption.
Additionally, the World Bank is helping the Kenyan government identify long term solutions to
national development problems and take advantage of new opportunities for growth in order to
reduce poverty and vulnerability (World Organization, Kenya Overview, 2012)
Kellogg has already experience dealing with such tough markets, and thanks to this
experience the company could expand its operations to this developing country taking the
necessary measures to protect its investments and fully exploit the market.
Entering the Kenyan Market
According to the international trade administration, in his website export.gov, U.S firms
are advised to maintain close communication with distributors and customers to exchange
information and ideas on the Kenyan market. Kenyan buyers take into account quality and
service and are willing to pay premium if they believe that the product being offered has
superiority and a good customer service.
Establishing a wholly owned subsidiary
The company will have to have into account important risks before attempting to
penetrate the market by establishing a subsidiary. Some of the most important factors to take into
account are the country’s inflation risk, currency risk, and political risk. Kellogg can start by
performing Greenfield Investment, this is a risky move. It is vital that Kellogg takes advantage of
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Kellogg in Kenya
the Kenyan ports as well as transportation facilities when choosing the location of the new plant.
Geographic factors, as well as the location of the raw material suppliers are important in order to
make this important decision.
It is also important that in the early stage of the investment Kellogg can gain knowledge
about its future raw material providers. As previously mentioned, Kenya has many agricultural
resources that Kellogg needs and both, the agricultural industry and the company would be
greatly beneficiated if Kellogg manages to open a subsidiary in the country.
Kellogg has to deal with the high inflation of the Kenyan economy; it can do so by
performing forward rate contracts and hedging its profits. Additionally, and in order to gain
certain privilege from the Kenyan government, Kellogg could expand its corporate social
responsibility program to this country, creating nutrition programs that could help the country
lower its malnutrition rate. This would also create a good image of the company among the
Kenyans facilitating the incorporation of the MNE in the country.
According to export.gov, the cost of skilled, educated labor in Kenya is high, and also a
large portion of the young population is relatively unskilled. Therefore, the company should take
advantage of its experience human resources in South Africa (where Kellogg has already done
FDI) and move this human capital to Kenya in order to start running the business in this new
market. These expert personnel will also be in charge of training the new Kenyan employees and
supervising the new subsidiary operations.
Establishing a factory subsidiary that could process and produce Kellogg’s food products
would give the company an important competitive advantage not only in the Kenyan market,
where Nestle, one of the majors competitors of the American company has some presence
through exports, but has not performed FDI yet, but also in the entire African market, Kellogg
markets its products in 180 countries worldwide and Kenya’s strategic location could help the
company reduce its transportation costs of its products to the nearby countries.
Conclusion
Kellogg has a profitable and risky investment opportunity in Kenya. This country offers
plenty of advantages that make it a considerable candidate to host one of Kellogg’s subsidiaries.
Kenya is emerging in the world market trying to promote foreign investment and various
American companies are already taking advantage of this market, which proves that FDI can be
successfully performed in this developing country
Even though Kenya is not the safest country to perform business activities, the wide
experience Kellogg has acquired through all its investments in different kind of markets, allows
it to consider Kenya as a possible host of one of its subsidiaries. As stayed before, Kenya offers
an extraordinary opportunity to enter to another the African markets and markets in the Middle
East. Moreover, this bold move could provide Kellogg with an extremely important advantage in
the food industry in this part of the world.
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Kellogg in Kenya
References
Camunez, Michael (2012, May 17). Market Access and Compliance, U.S East Africa
Public/Private Partnership Conference. Retrieved from
http://trade.gov/press/speeches/2012/camunez-051712.asp
Central Intelligence Agency. Kenya. (2012). The World Factbook. Retrieved From
https://www.cia.gov/library/publications/the-world-factbook/geos/ke.html
Euromoney Country Risk (2012). Kenya's Wiki. Retrieved from.
http://www.euromoneycountryrisk.com/Wiki/Kenya
Export.gov Doing Business in Kenya. Retrieved from.
http://export.gov/kenya/doingbusinessinkenya/index.asp
GlobalData - SWOT Analysis. (May 26, 2012), Retrieved from
www.lexisnexis.com/hottopics/lnacademic GlobalData - SWOT Analysis, 05/26/2012, Kellogg
Company
Kellogg’s Annual Report 2011 (2012). Retrieved from
http://files.shareholder.com/downloads/K/1877244671x0x548009/3650aec1-4f99-4cf1-9e7683052a80eb0f/KELLOGG_11AR.pdf
Kellogg’s Venezuela(2012) Kelloggs Nuestra Empresa. Retrieved from.
http://www.kelloggs.com.ve/Empresa
Weiss Stock Research Reports. (May 27, 2009) Kellogg CO. Retrieved from
www.lexisnexis.com/hottopics/lnacademic Weiss Stock Research Reports, 5/27/2009,
KELLOGG CO
World Bank (2012) Kenya Overview. Retrieved from
http://www.worldbank.org/en/country/kenya/overview
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