Abstract:
Strategic management gurus have long been engrossed with the phenomenon of persistent superior performance demonstrated by highly successful firms. This has compelled a great deal of attention to be focused on competitive advantage as a whole. Well-conceived and successfully implemented strategies help a firm achieve such persistent superior performance. These strategies do so by providing the firm with competitive advantages over other players in the field, current or potential. This dissertation reports research on how large Multinationals within the Kenya Beverage Industry employ Porter’s Five Forces to enhance competitive advantage which in turn influence the firms’ performance.
This study sought to answer the following questions: i) To what extent do barriers to entry affect the firm’s competitive advantage? ii) How does rivalry among established firms affect competitive advantage? iii) To what extent does the bargaining power of buyers affect competitive advantage? iv) What is the degree to which the bargaining power of suppliers affects competitive advantage? v) How do substitute products affect competitive advantage? and vi) To what extent do government policies affect the industry forces in deriving competitive advantage of large multinational firms in Kenya?
A descriptive survey design was used to achieve the purpose of this study reflecting the philosophy of positivism which showed a focus on theory testing wherein theory was first adopted as the framework for developing and testing hypotheses. The target population comprised of three large multinationals in the Kenyan Beverage Industry namely: East African Breweries Limited, Coca Cola (Nairobi Bottlers Limited) and Nestlé Foods. A sample of 146 respondents (60 from EABL, 50 from Coca Cola and 36 from Nestle Foods Ltd) was selected. The analysis was based on 136 respondents who completed and returned the questionnaires forming a response rate of 93.2%. Descriptive statistics was used to generate frequencies and percentages as well as mean scores and standard deviation. The study also analyzed the data using inferential analysis which aimed to establish the relationship between the independent variables and the dependent variable using Chi-square statistics, Karl Pearson’s product moment correlation analysis and a Multi-Variate analysis.
On threat of new entrants, the study found that, the Kenyan Beverage Industry is attractive for long-term profitability the findings also indicated that the MNC’s share value exceeds that of other industry players in the same segment and thus very attractive to lure new entrants. Additionally, the study also found that the bargaining power of suppliers does certainly affect the competitive advantage of the three MNC’s. Since the Beverage Industry is an important customer to suppliers; suppliers protect it through charging reasonable costs and supplier power in terms of highly skilled employees thus bargaining away a significant fraction of potential profits which in turn affects the organizations return on investment. With regard to bargaining power of buyers, the study found that innovation through technological development impacts the quality of products sold through buyers and has a positive impact on return on assets.
What is more, the study found on intensity of rivalry that being market leaders empowers organizations to play a coordinative role in the industry of price leadership. Price competition among rivalry firms is unstable and impacts the industry negatively from the perspective of profitability. To strategies and win in this highly competitive industry, the study proved that product differentiation is a way used by the MNC’s to create value to customers and consumers. Furthermore, on threat of substitute products, the study found that the three organizations studied optimally utilize their assets to realize high returns through innovation thus taking advantage of the changing tastes and preferences of customers whilst making it expensive for a new entrants/competitors to convince consumers on trial or eventual switch. Licensing requirements can impress greatly on the prices of products within an industry. Equally, the government through regulations, subsidies, or other means affect the position of an industry and its profitability.
This study focused on three Multinational Organizations in Kenyan Beverage Industry it would be worth a study to identify if findings from this study are applicable to other Industries for instance; service or manufacturing in Kenya to identify how they sustain Competitive Advantage.
The study was a pioneer in the Kenyan Beverage Industry and provides research on competitive advantage derived from application of Porter’s Five Forces.