The Effects of Globalization on Procurement

THE EFFECTS OF GLOBALIZATION ON PROCUREMENT:

A CASE OF NAKUMATT HOLDINGS KENYA LTD

VICTORIA MUMASSABBA

A Research Project Report Submitted to the Chandaria School of Business in Partial Fulfillment of the Requirement for the Degree of Master of Business Administration (MBA)

UNITED STATES INTERNATIONAL UNIVERSITY-AFRICA

SUMMER 2015

STUDENT’S DECLARATION

I, the undersigned, declare that this is my original work and has not been submitted to any other college, institution or university other than the United States International University in Nairobi for academic credit.

Signed: ______Date: ______

Victoria Mumassabba (ID: 638118)

This research project proposal has been presented for examination with my approval as the appointed supervisor.

Signed: ______Date: ______

Dr. Michael Kirubi, Ph.D.

Signed: ______Date: ______

Dean, Chandaria School of Business

COPYRIGHT All rights reserved; no part of this work may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the express written authorization from the writer.

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ABSTRACT The purpose of the study was to determine the effects of globalization on procurement. The study was guided by the following research questions. What are the drivers of global procurement at Nakumatt Holdings Limited? What are the global factors that affect the adoption of global procurement at Nakumatt Holdings Limited? What are the global procurement strategies at Nakumatt Holdings Limited? The study adopted a case study research design approach. The scope of the study was limited to the procurement department at Nakumatt headquarters in Nairobi. Since the study focused only on the procurement department, census of the 35 procurement staff was carried out. The analysis was both descriptive and inferential in nature. The descriptive analysis involved calculation of percentages, means and frequencies. Analysis of variance was employed to determine the relationship between the demographic groups and the dependent variables. Statistical significance level in form of p values was used to infer findings to the entire population. Findings were presented using tables and figures.

The study established that at Nakumatt, out of the four drivers studied, competition is the major driver of global procurement followed by Technology; Government factors and Cost factors. The competitive drivers arise in the sense that global procurement acts a source of competitive innovation; provide opportunity for attracting the best talents for competitive advantage; provide opportunity to procure products of high quality; and ensures constant supply of goods for competitive advantage. Technology drivers are through the integration of procurement systems that facilitate global procurement; availability of online payment platforms; availability of the internet; and availability of the mobile telephony system. Government drivers are through market liberalization; favorable government policies; bilateral trade agreements between Kenya and other countries; and adoption of International quality standards by the Kenya Bureau of Standards for ease of global procurement. The cost drivers are economies of scale at the global market; availability of a huge pool of quality product and qualified suppliers in the global market which offer the buyer bargaining power; and the fact that global procurement accelerate diffusion of technological innovation.

Secondly the study showed that out of the four challenges studied, currency fluctuations presents the major challenge followed by complicated logistics, tariffs and non-tariff barriers and culture and language barriers. The study indicated that the challenge of currency fluctuations is caused by high currency exchange rates; loss of purchasing power

iv of the local currency and instability of the local currency. The challenge of complicated logistics is caused by high cost of logistics; longer inventory management process and poor handling of return goods and containers. The challenge of tariffs and non-tariff barriers is caused by bureaucratic delays at the custom; Road blocks and barriers; High tariffs levied on imports.

The study also showed that out of the four strategies studied, low labor and quality of standards is the main procurement strategies used at Nakumatt followed by good transport systems and good human rights records and the rule of law. The study indicated that the firm sources its goods from countries with lowest production labor cost; least cost on forwarding services, low agency cost and from countries with reputation for quality products. Secondly, the firm looks at the transport cost; access to spots-checks of supplier’s facilities and access to the market on the ground to learn of any competitive threats or supplier knock-offs. However majority were neutral as to whether the firm considers transport networks. Third, majority indicated that the firm prefers sourcing goods form countries managed democratically; the firm considers how the employees who make the products are treated, the firm considers human rights records, considers the level of state corruption and records on the rule of law.

The study concludes that competition is the major driver of global procurement at Nakumatt followed by technology drivers; and Government drivers. The study further concludes that currency fluctuations are the major challenges followed by complicated logistics; and tariffs and non-tariff barriers. Finally, the study concludes that low labor and quality of standards is the main procurement strategy employed at Nakumatt. The company also considers availability of good infrastructure and transport systems good human rights records.

The study recommends training of key staff members on global procurement agenda; hedging to address the challenge of currency fluctuations; outsourcing of procurement service to firms with the greatest capabilities in global procurement; constant monitoring and controlling of global procurement activities; constantly forecasting demand against lead times and costs; and investing in good relation with its service providers since these relationships may in the long run adversely affect the organization’s global procurement performance. Finally, further research on the other supermarket chains in Kenya is welcome to draw sector wide conclusion.

ACKNOWLEDGEMENT

This Research proposal could not have taken its present shape without the help and ceaseless encouragements and suggestions from my Supervisor Dr. Michael Kirubi Ph.D. and Business Research Lecturer, Dr. Peter Kiriri.

I remain profoundly grateful to them. They always believed in me and never wavered in their input to the development of this work.

Further, I wish to acknowledge the support from my Statistics research tutor Miss

Jackline Sagwe who gave me valuable tuition on SPSS.

Finally, I wish to salute my family Mr. and Mrs. Mumassabba, my Son Troy Mukui,

Siblings, friends’ nephews and nieces for their friendship, love and affection beyond what

Maslow could envisage in his hierarchy of human needs.

DEDICATION

This work is dedicated to my dear family, the entire Mumassabba especially my beloved

Son Troy Mukui, Dad Mathias and Mum Grace who gave me strength to keep on fighting.

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TABLE OF CONTENTS STUDENT’S DECLARATION ...... ii COPYRIGHT ...... iii ABSTRACT ...... iv ACKNOWLEDGEMENT ...... vi DEDICATION ...... vii LIST OF ABBREVIATIONS ...... x LIST OF TABLES...... xi LIST OF FIGURES ...... xii CHAPTER ONE ...... 1 1.0 INTRODUCTION ...... 1 1.1 Background of the Problem ...... 1 1.2 Statement of the Problem ...... 3 1.3 Purpose of the Study ...... 5 1.4 Research Questions ...... 5 1.5 Importance of the Study ...... 5 1.6 Scope of the Study ...... 6 1.7 Definition of Terms ...... 6 1.8 Chapter Summary ...... 6 CHAPTER TWO ...... 8 2.0 LITERATURE REVIEW ...... 8 2.1 Introduction ...... 8 2.2 Drivers of Global Procurement ...... 8 2.3 Factors Affecting Adoption of Global Procurement ...... 12 2.4 Global Procurement Strategies ...... 17 2.5 Chapter Summary ...... 22 CHAPTER THREE...... 23 3.0 RESEARCH METHODOLOGY ...... 23 3.1 Introduction ...... 23 3.2 Research Design...... 23 3.3 Population and Sampling Design ...... 24 3.4 Data Collection Method ...... 25 3.5 Research Procedure ...... 26

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3.6 Data Analysis Method ...... 26 3.7 Chapter Summary ...... 27 CHAPTER FOUR ...... 28 4.0 RESULTS AND FINDINGS ...... 28 4.1 Introduction ...... 28 4.2 Demographic Characteristics of the Respondents ...... 28 4.3 Drivers of Global Procurement ...... 31 4.4 Global Factors That Affect Adoption of Global Procurement ...... 36 4.5 Global Procurement Strategies ...... 40 4.6 Chapter Summary ...... 44 CHAPTER FIVE ...... 45 5.0 DISCUSSIONS, CONCLUSIONS AND RECOMMENDATIONS ...... 45 5.1 Introduction ...... 45 5.2 Summary...... 45 5.3 Discussions ...... 47 5.4 Conclusions ...... 52 5.5 Recommendations ...... 54 REFERENCES ...... 55 APPENDICES ...... 70 Appendix A: Cover Letter ...... 69 Appendix B: Questionnaire ...... 70

LIST OF ABBREVIATIONS

FDI : Foreign Direct Investment

ICT : Information Communication Technology

IT : Information Technology

SPSS : Statistical Package for Social Sciences

WTO : World Trade Organization

LIST OF TABLES Table 3.1: Study Population…………………………………………………….…..……24 Table 4.1: Highest Education Level…………………………………………….………..30 Table 4.2: Cronbach’s Alpha Analysis for Drivers of Global Procurement……………..32 Table 4.3: Cost Drivers…………………………………………………………………..33 Table 4.4: Competitive Drivers…………………………………………………………..33 Table 4.5: Government Drivers…………………………………………………………..34 Table 4.6: Technological Drivers………………………………………………………...34 Table 4.7: Ranking of Drivers of Global Procurement…………………………………..35 Table 4.8: One way Analysis of Variance for Drivers for Global Procurement…………35 Table 4.9: Cronbach’s Alpha Analysis Factors affecting Global Procurement………….36 Table 4.10: Currency Fluctuations……………………………………………………….37 Table 4.11: Complicated Logistics……………………………………………………….37 Table 4.12: Tariff and Non-Tariff Barriers…..…………………………………………..38 Table 4.13: Culture and Language Barriers……………………………………………...38 Table 4.14: Ranking of Factors that Affect Global Procurement……………………...... 39 Table 4.15: One way Analysis of Variance for Factors Affecting Global Procurement………………………………………………………………………………39 Table 4.16: Cronbach’s Alpha Analysis for Global Procurement Strategies…………….40 Table 4.17: Low Labor and Quality Standards…………………………………………..41 Table 4.18: Good Transport System……………………………………………………...41 Table 4.19: Good Human Rights Records and Rule of Law……………………………..42 Table 4.20: Same Language and Culture………………………………………………...43 Table 4.21: Ranking of Strategies of Global Procurement………………………………43 Table 4.22: One way Analysis of Variance for Strategies for Global Procurement……..44

LIST OF FIGURES

Figure 4.1: Response Rate………………………………………………………………..28

Figure 4.2: Gender of the Respondents………………………….……………………….29

Figure 4.3: Age Group……………………………………………………………………29

Figure 4.4: Length of Service at Nakumatt………………………………………………30

Figure 4.5: Management Position………………………………………………….…….31

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CHAPTER ONE 1.0 INTRODUCTION

1.1 Background of the Problem Today different nations of the world have become closer than ever witnessed in the human history. This has created a platform where all manner of goods ranging from food stuff to electronics to other manufactured goods are being traded across country borders (Geiersbach, 2010). In fact the speed at which the volume of goods, services and investments are being transferred across national borders has increased rapidly over the past few decades. According to Muhammad, Faheem, Dost and Abdullah (2011) approximately $1.5 billion foreign exchange transactions are taking place daily while approximately $8.9 trillion of goods are transacted across borders and $2.10 trillion of services are provided across the borders.

Geiersbach (2010) call this globalization and attributes the rapid movement of goods and services across national borders to a number of factors. He cites the revolutionary changes in technologies which have provided the mechanisms that propel the growth of international business. Secondly, there is the intensification of competition at both domestic and international levels which has driven firms to look beyond their domestic markets for new opportunities. Geiersbach (2010) continue that there has been the progressive removal of barriers to trade and capital movements which has stimulated greater flows of exports, imports and foreign direct investment (FDI).

Nyanchoka and Namusonge (2014) contend that those who cannot adapt to the global forces sooner or later lose their relevance and struggle to survive but those who adjust and change as the globalization proceeds convert global opportunities into strategies that strengthens and makes them continuously relevant dealing with the threats from the environment more effectively. According to Mikusova (2010), globalization can be understood in two ways. First as a vision that would be called “inside -out.” She contends that from this perspective globalization offers opportunities for further growth. Secondly there is the ‘outside – inside’ a perspective, which presents much more prominent limitations, implications and risks. This has created new complex business environments and therefore companies must take

1 advantage of the opportunities presented and also learn to survive in the new complex situation which comes with globalization (Mikusova, 2010). It must also be understood that despite globalization being a universal trend, the process touches every nerve of the organization. The effects are felt from human resource management to logistics to procurement to operations to sales and marketing among others.

To understand the impact of globalization, we need to clearly understand the concept of globalization. Earlier Frank (1988) saw globalization as either conceptualized modern phenomena involving the breakdown of borders, the emergence of new technologies and a mix of different cultures or phenomena with a long history which dates back to the first known connections between countries and people in the world. This definition raises the question as whether the world has changed so fundamentally to a point where the original function of the country borders has been over taken by time (Herrmann, 2012). Later Friedman (1999) defined globalization as the inexorable integration of markets, nation states, and technologies to a degree never witnessed before- in a way that is enabling individuals, corporations and nation-states to reach around the world further, faster, deeper and cheaper than before, the spread of free-market capitalism to virtually every country in the world.

Palmer (2002) saw the concept as the diminution or elimination of state-enforced restrictions on exchanges across borders and the increasingly integrated and complex global system of production and exchange that has emerged as a result. Hamilton and Webster (2009) defined globalization as political, economic, social and technological links in different countries. According to Steger (2009) it is the shrinkage of time and space. The current study will adopt the definition by Muhammad, et. al. (2011) which saw globalization as the process of integrating different world economies. The scope encampases the integration among the people, government and companies of different countries. The primary objective of this study is to determine the effects of globalization on procurement activities within a multinational organization.

According to Musanzikwa (2013) procurement is the process of identifying and obtaining goods and services. He contends that this process includes sourcing, purchasing and covers all activities from identifying potential suppliers through to delivery from supplier to the

2 users or beneficiary. Mangan, Lalwani and Butcher (2008) assert that it is favourable that the goods/services are appropriate and that they are procured at the best possible cost to meet the needs of the purchaser in terms of quality and quantity, time, and location.

The theoretical framework for the current study draws from environmental organization literature since the study attempts to establish the link between the external environment (globalization effects) and procurement. The study focuses on the opportunities/threats which are sub dimensions of the environmental dimension. According to Thoumrungroje and Tansuhaj (2007), amid globalization, firms are affected by the changes in both market opportunities and threats. They posit that these opportunities and threats presents the dimensions of the macro environment and can be regarded as forces which affect organizational outputs.

The general assumption is that developments in information technology, removal of trade and investment barriers, privatization, and deregulation of trade and investment policies which are salient features of globalization creates business environments which enable firms not only to access new markets, lower operational costs but also to exploit cheap resources around the world i.e firms can source resources at lower costs from around the world. On the other hand, globalization also increases competition;customer awareness which faciliate switching; and resource scarcity (Thoumrungroje & Tansuhaj, 2007).The study therefore hypothesis that procurement outputs are influenced by globalization.

Nakumatt Holdings Limited is a wholly Kenyan, privately held company established in 1987 with an annual turnover of $450 million. In 2014, the company had over 40 branches spread across East Africa serving more than 200,000 customers per day and offer a range of over 75,000 products (Nakumatt, 2015). The company is built on the principle of providing a variety of affordable quality brands. This has seen the company import a number of products to meet the varying customer demands in its store chains in the region.

1.2 Statement of the Problem In the midst of changes in the global scene, the global procurement scene has experienced rapid changes over the last one or two decades (Hussein & Shale, 2014). As markets become more and more globalized through regional and international trade agreements and treaties,

3 procurement practitioners face greater challenges and opportunities (Thai, 2007). The challenges range from compliance cross border laws and regulations, communication barriers, currency exchange rates and payment, customs regulations, lead-time, transportation, foreign government regulations, trade agreements, and transportation there are also opportunities such as access new markets, lower operational costs but also to exploit cheap resources around the world i.e firms can source resources at lower costs from around the world (Thoumrungroje & Tansuhaj, 2007). Therefore it is imperative to create an understanding on the impacts of globalization on procurement functions for those firms which operate across their country borders. A number of studies have been carried out on the subject of globalization and its impact on business performance but none has focused on the impacts of globalization on procurement at Nakumatt Holdings Limited.

A study by Hussein and Shale (2014) looked at the effects of sustatinable procurement practices within the context of the global environment. The study only focused on Unilever Kenya Limited which is a manufacturing firm. Further, a study by Nyanchoka and Namusonge (2014) looked on the effects of globalization on Sourcing of materials at Kenya Tea Development Agency. The study indicated that it takes time to effectively implement a global sourcing initiative, and even longer to do it correctly to positively impact on the supply chain performance of an organization. The study was also significant in highlighting that reduced cost and competitive advantages as some of the positive impacts the Agency derived from globalization. Even though this research is instrumental in indicating the impacts of globalization on procurement, the findings were based only on the manufacturing sector. It did not have empirical evidence from the retail sector where Nakumatt operates.

In the retail industry, Magenda & Iravo (2014) studied the factors affecting the adoption of global sourcing at Tuskys Supermarkets Kenya. The study found out that the adoption of global sourcing was not effective in the organization due to varying factors, including and not limited to complicated logistics, currency fluctuations, and the tariff and non-tariff barriers in varying degrees. The study concluded that there is no universal compass to pursue global sourcing and the companies that succeed will be the ones that have learned how to leverage and coordinate their activities on a worldwide basis.These findings suggests that

4 success or failure of procurement in a global stage is firm specific and depends on the circumstances under which the firm operates.

The fact that no study had been carried out at Nakumatt holdings to empirically ascetain the impact of globalization on procurement at Nakumatt presents a knowledge gap. It would be important to have a case study based on the company due to the significant role the company has played in development of the Kenyan towns. The company also presents a unique context.

1.3 Purpose of the Study The purpose of the study was to determine the effects of globalization on procurement.

1.4 Research Questions 1.4.1 What are the drivers of global procurement at Nakumatt Holdings Limited?

1.4.2 What are the global factors that affect the adoption of global procurement at Nakumatt Holdings Limited?

1.4.3 What are the global procurement strategies at Nakumatt Holdings Limited?

1.5 Importance of the Study The findings of the study will be of significance to the following stakeholders;

1.5.1 Nakumatt Holdings Kenya Limited and Related Industry The study sought to identify the drivers and effects of global procurement. This information will be important to Nakumatt holdings and the retail industry as it gives empirical evidence which the organizations can use to design more effective strategies.

1.5.2 Policy Makers The information will offer insightful information to the Kenya Government. The information will be helpfully in developing favorable policies and regulations for local companies which intend to procure materials internationally.

1.5.3 Academicians The findings of the study will act as source of empirical data and reference point for other scholars interested in the field, particularly those who will be interested in furthering knowledge on the key factors that affect global procurement within the retail industry.

1.6 Scope of the Study The scope of the study was limited to the procurement department at the Nakumatt holdings headquarters in Nairobi. The Study sought opinion of staff in the procurement department. The study was also limited in time. Data collection was carried out in the month of June 2015. Since the data collected was linked to organizational information, it was expected that some respondents could not be willing to disclose full information. The respondents were assured of confidentiality of the information given to enhance response rate and truthfulness.

1.7 Definition of Terms 1.7.1 Globalization Globalization is the process of integrating different world economies. The scope encampases the integration among the people, government and companies of different countries (Muhammad, Faheem, Dost, & Abdullah, 2011)

1.7.2 Procurement Procurement is the process of identifying and obtaining goods and services (Musanzikwa, 2013).

1.7.3 Global Procurement A procurement strategy in which a business seeks to find the most cost efficient location for sourcing goods and services, even if the location is in a foreign country (Nyanchoka & Namusonge, 2014).

1.8 Chapter Summary Chapter one discussed the significance of the concept of the study [globalization]. It also highlighted the significance of the concept on the context [globalization on procurement]. The study then identified the theory upon which the study will be based. The chapter has also given the problem statement, research objectives, significance of the study and terminologies to be used in the study. Chapter two presents the literature review of the study. Chapter three

6 covers the methodology, Chapter four presents the study findings while Chapter five presents the study summary, discussions, conclusions and recommendations.

CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 Introduction Chapter two reviews literature on the subject of global procurement. The chapter has four sections. Section 2.2 discusses the drivers of global procurement which include cost drivers, competitive drivers, government drivers and technology drivers. Section 2.3 discusses the global factors that affect adoption of global procurement including currency fluctuations, complicated logistics, tariff and non-tariff barriers and culture/language. Section 2.4 discusses the global procurement strategies which include deliberate decisions to procure from low labour cost countries, countries with good infrastructure, good records of human rights and countries of same languages. Section 2.5 offers the chapter summary.

2.2 Drivers of Global Procurement 2.2.1 Cost Drivers According to Hultman, Hertz, Johnsen and Johnsen (2012), affordability through low cost is at the core of any company’s business idea. Hemmatfar, Salehi and Bayat (2010) posit that any organization seeks a competitive advantage in their industries. They contend that companies achieve competitive advantages by delivering products or services at a lower cost i.e. a cost related to the quality of the product or service that will be both attractive in the market place and will yield sufficient return on investment. Thus, cost of production is quite instrumental for organizations to produce competitive products and services. This concept is related to Porter's generic strategies of low-cost competitive strategy.

Cost as a driver of global procurement has been linked to comparative cost advantage theory. The theory proposes that a country must specialize in those products that it can produce relatively more efficiently than other countries (Smit, 2010). Comparative advantage thus also leads to specialization which bring more, better and cheaper goods to consumers (higher efficiency) (Kattel & Lember, 2010). Heckscher-Ohlin model, assumes that the source of comparative cost advantages is the effect of different endowments of factors of production. Hence, each nation has a comparative advantage “in the production of commodities into

8 which enter considerable amounts of factors abundant and cheap” in this nation and will specialize accordingly (Schumacher, 2013).

Therefore, under increasing pressures to reduce costs, companies have shifted, and continue to shift, sourcing from local suppliers to low cost country-based suppliers (Hultman, Hertz, Johnsen, & Johnsen, 2012). In a study to determine the drivers of global procurement at Kenya Tea Development Agency, Nyanchoka and Namusonge (2014) indicated that even though there is a continuing push for economies of scale, it is evident that in Kenya, suppliers have not yet been able to produce machinery and other agricultural inputs at economical costs which increases the cost of product development relative to market life hence the drive to source internationally where there is a huge pool of qualified suppliers.

The study therefore hypothesis that if the total sum of the cost of a product and the cost of procurement is sufficiently lower than the cost of the same product manufactured in another country, then the country with price disadvantage will tend to import or procure goods and services from the country with lower prices.

2.2.2 Competitive Drivers Literature leaves no doubt that globalization is creating increasingly competitive markets, which in turn create the need for reduced lead times in innovation and production, both of which require global companies to manage their resources more proactively on a global basis (Yeniyurt, Henke-Jr., & Cavusgil, 2012). According to Geiersbach (2010), intensification of competition at both domestic and international levels has driven firms to look beyond their domestic markets for new opportunities.

Such opportunities like higher quality and greater material availability are well aligned to achieving competitive advantage as proposed in the Porter’s competitive strategies. Jiang and Tian (2010) contend that global sourcing has been considered by more and more enterprises as positive strategic activity under the pressures from global competition. One of the specific drivers of global procurement is the product quality based competition (Mwangi, 2013).

A study by Jiang and Tian (2010) to detrmine the problems and challenges of global sourcing in Chinese manufacturing enterprises indicated that the higher demand for technical

9 quality of manufactured products is one of the factors driving more Chinese manufacturers to adopt a global sourcing strategy in order to improve their competitive advantage by helping the firms to optimize the use of global resources.

Therefore, global competition can be used to wither competion since global procurement can be used to acquire high quality products where locally produced goods do not achieve and maintain the required quality and efficiency to meet the required targets (Nyanchoka & Namusonge, 2014). Jiang and Tian (2010) gives an example of unsatisfactory quality of domestic products. They posit that the quality of products obtained from the domestic market may not meet the requirements of buyers or they may not be sufficient for the manufacturers to sell their products to international markets where higher standards may apply. Similarly, domestic supplier may not be able to provide satisfactory warranties or after-sales services to the manufacturers. Global procurement in this sense enable the firms to source for superior goods that meet customer demands, thus gains a competitive edge over ther competitors.

2.2.3 Government Drivers The role of government in facilitating or creating barriers for international trade cannot be under estimated. In acknowledgement of the positive significance of free trade, World Trade Organization has been at the fore front in fronting agreements that create a framework that aims at establishing global economic development via liberalizing global trade (Anderson & Kovacic, 2009). Kattel and Lember (2010) posit that Government procurement, which constitutes more than10% of national economy in most countries, has for a long time been used for supporting national interests and is perceived by many as one of the main barriers to free trade. They argue that in accordance to the comparative advantage theory, the so called discriminatory government procurement makes states worseoff in the long run because it leads to inefficient allocation of resources and limits the benefits stemming from free trade. Instigators of these policies fail to realise the benefits from liberalized procurement such as access to other markets, support for liberalizing countries’own markets, increased competition that leads to increased (international) competitiveness, job creation and budgetary savings (Kattel & Lember, 2010).

According to Chou (2006), Government support for global trade arises where the country abides by a set of rules for liberalizing the economy and relaxing state controlover foreign

10 trade and investment. He posits that noticing the gain through granting preferential policies to foreign investors and lowering transaction costs, bureaucratic units and localities in highly regulated context seek for liberalizing their economic activities and integrating themselves with the world economy.

According to Cottier and Oesch (2011), trade liberalization occurs where there is non- discrimination of products or service regardless of their source. They explain that it is essentially a ban on distinctions based upon the origin of products and the nationality of persons. Trade libereralization laws eliminate granting of privileges and un due protection to domestic products and nationals. The liberalization can be achieved through tariffs and taxes which are the classical field addressing non-discrimination in international economic law as import and export tariffs are inherently discriminatory as they privilege domestically produced and sold goods (Cottier & Oesch, 2011). Deliberately lowering inhibitory tariffs to cross border movement of goods can act as a facilitator for global procurement of goods and services. Economically, tariff reductions should reduce the price of imported goods which makes them more competitive.

The liberalization can also be achieved by loweing non tariff barriers. According to Mohan, Khorana and Choudhury (2012), non tariff barriers include quantitative restrictions, subsidies, anti dumping and counter vailing duties, customs valuations, product standards and technical regulations. They posit that these are measures, different from ordinary customs tariffs, that distort trade and reduce economic welfare and often such barriers are attributed to state activities and policy measures that typically have the potential to reduce quantity of imports, increase the price of imports, change elasticity of demand for imports, and increase uncertainty in the implementation of tariff preferences. The study therefore hypothesis that market liberalization enables efficient management of global procurement.

2.2.4 Technology In the words of Mose, Njihia and Magutu (2013), the use of Information Communication Technologies (ICTs) has dramatically changed services, business models and people’s expectations of the quality and efficiency of information sharing and service delivery. They contend that development in information and communication technology, especially the Internet helps organizations to become more effective through the integration of firm’s 11 information technology (IT) infrastructure. It also helps firms to manage instant communication and interactions with other people across the globe.

Technology provides the capability to generate innovations and deliver new goods and services to the market. The ability of international organization to exploit technology to enhance global operations is a depiction of the capacity of the international organizations to co-ordinate and operates efficiently across international boundaries (Geiersbach, 2010). McIntosh and Sloan (2001) earlier alluded that technology especially the internet assist in opening a company up to a global market. They indicate that this technology makes it easy for organizations to search for overseas suppliers capable of satisfying their needs. This provides several sources of information about potential suppliers. These searches may be inform of online professional contacts, trade journals, directories, social networks and other online based platform. This makes use of the efficient use of world-wide human connection to achieve efficient procurement.

Otieno, Muthoni and Simon (2013) conclude that in procurement, technology aims at creating efficiencies i.e. to make the traditional purchasing procedures more efficient and cost effective. For example internet has allowed firms to float online tenders which can be accessed anywhere globally and has greatly improved the accessibility of tenders.

2.3 Factors Affecting Adoption of Global Procurement

2.3.1 Currency Fluctuations

According to Kurihara (2013), since the introduction of the floating exchange rate system during the 1970s, many studies have been presented to show the relationship between exchange rate fluctuations and international trade. He posits that most studies have provided evidence that the increase of exchange rate volatility dampens international trade as expected. For example, a study by Kandil, Berument and Dincer (2007) indicated that a depreciation (or devaluation) of the domestic currency may stimulate economic activity within the country through the initial increase in the price of foreign goods relative to home goods. This means that exchange rate depreciation diverts spending from foreign goods to domestic goods. A fact which directly affects procuring of goods from outside the country.

Kandil, et. al. (2007) further alludes that the success of currency depreciation in promoting trade balance largely depends on switching demand in the proper direction and amount, as well as on the capacity of the home economy to meet the additional demand by supplying more goods. To put it into perspective, currency depreciation lower export prices while raising import prices. The converse is true where currency appreciation gives the domestic currency more economic power to buy more foreign goods. In summary, currency depreciation increases net exports and increases the cost of production while currency appreciation decreases net exports and the cost of production. Thus, the cyclic movement between depreciation and appreciation directly affects global procurement.

In a study to establish the effects of exchange rate varaibility on international trade, Coric and Pugh (2010) linked the increased exchange rate fluctuations to negative effects on international trade. Another empirical study to try and determine the effects of exchange rate volatility on export flows for South American countries by (Serenis, 2013) showed an adverse relationship between exports and exchange volatility.

Further, Jiranyakul (2013) in an attempt to determine the relationship between exchange rate uncertainty and import demand of Thailand indicated a negative impact of exchange rate uncertainty on Thailand’s imports. Similarly, Verheyen (2012) studied the role of exchange rate volatilty on bilateral exports from Euro Zone Countries to the US. The study confirmed that exchange rate volatility causes a negative influence on international trade between the United States and the Euro zone.

An evaluation by Nicita (2013) to determine the extent to which the exchange rate affects international trade and trade policy indicated that exchange rate misalignments do affect international tradeflows in a substantial manner. The study found out that currency under valuation is found to promote exports and restrict imports, while the converse holds in the case of over valuation. He posits that in magnitude, misalignments across currencies result in trade diversion quantifiable in about 1 per cent of world trade.

Nicita (2013) further indicated that with regard to volatility, exchange rate volatility is probably not a major policy concern. He notes that from the perspective of enhancing trade, the effects of lower volatility are indirect and originate from long-term exchange rate

13 commitments such as currency unions and pegged exchange rates rather than short-term exchange rate fluctuation. Thus, the limited importance of exchange rate volatility is possibly related to the increasing availability of financial instruments to hedge against exchange rate risks (e.g. forward contract and currency options) (Kurihara, 2013) and to the increasing share of intra-industry trade (Nicita, 2013).

Magenda and Iravo (2014) conclude that stability of currency enables the international trade to be easier while instability makes it more complex and introduces risk. They assert that if trade amounts to tens of millions of dollars, a 0.5% deviation of exchange rate could affect the effectiveness of global sourcing strategy and profitability of the whole supply chain. Moreover, 4% deviation could result in a disastrous end.

2.3.2 Complicated Logistics

Zeng and Rossetti (2003) contend that logistics processes form the critical loops of supply chains and oversee the flows of materials, information and cash, which are the essential elements of fulfilling customers’ orders. They continue that as greater distances, currencies and cultures separate markets, suppliers and manufacturers, logistics plays a more critical role in the success of the supply chains. Therefore the role played by transportation and logistics excellence in achieving a world-class supply chain cannot be ignored.

According to Magenda and Iravo (2014) logistics involves integration of information, transportation, inventory, warehousing, material handling and packaging. Thus, they contend that logistical management includes the design and administration of systems to control the flow of materials, work in process and finished inventory to support business unit strategy with the overall goal being to achieve a targeted level of customer service at the lowest possible total cost. Musanzikwa (2013) posits that procurement must be seamlessly integrated with the other aspects of logistics and functions within the organisation, such as Warehousing, Distribution, Finance, and human resources. According to Shaw (2010) a logistic system with clear communicationlines, timely flow of documentation and constant feedback facilitates the procurement process. A study on international supply chain practices in Tanzania by Msimangira and Tesha (2009) identified logistics challenges of coping with long supply chains as one of the problems affecting global procurement systems.

Msimangira and Tesha (2014) assert that different countries employ different existing transportation and logistics structural methods which creates complexity in global logistics. A fact supported by Jiang and Tian (2010) who indicated that logistics in global sourcing is prone to transportation delays, border-crossing procedures and longer inventory management. Therefore, international trade, sourcing, and global transportation need knowledge of countries’ supply chain networks in order to establish seamless and efficient transportation, and logistics performance (Msimangira & Tesha, 2014). In reference to developing countries, Jiang and Tian (2010) add that lack of holistic logistics knowledge in low-cost developing countries may trouble procurement executives when implementing global sourcing since less-developed country suppliers may be short of experience with the most advanced approaches and are usually unfamiliar with high-standard requirements, such as sequence deliveries combined with Just-In-Time; electronic data interchange communications and vendor-managed inventory solutions which are important capabilities of supply chain management in determining how much benefits a company can derive from global sourcing. Furthermore low-grade infrastructure of logistics in developing countries may influence the efficiency of global sourcing (Jiang & Tian, 2010).

2.3.3 Tariff and Non-Tariff Barriers

Goods and services do not flow completely freely among countries. In fact countries put deliberate barriers to free flow of trade due to a number of reasons. Tariffs and taxes have been touted as the classical methods for establishing discrimination in international imports and exports.Tariffs are inherently discriminatory as they privilege domestically produced and sold goods (Cottier & Oesch, 2011). Okumu and Nyankori (2010) posit that globally, tariffs have been declining as a result of multilateral, regional and bilateral trade liberalization. Despite this, many countries have instituted alternative protectionist mechanisms, non trade barriers, which are ever changing and are threatening international free flow of goods and services (Nathan Associates, 2013).

According to Love and Lattimore (2009), the alternative protectionist mechanisms may be to protect domestic companies from foreign competition; protect consumers from dangerous and undesired products; safeguard national security; safeguard revenue loss; safeguard lives and property; or the barriers may even be un-intended due to complicated custom procedures.

This may also include precautionary principle, or foresight planning has recently been proposed as a justification for government restrictions on trade in the context of environmental and health concerns (Okumu & Nyankori, 2010). Non-tariff barriers encompass a variety of government actions affecting trade. These may include quotas, health and environmental regulations, licensing requirements, and mandatory product inspections (Nathan Associates, 2013).

Rickard and Kono (2013) give an example of discrimination in public procurement as one particularly contentious issue behind-the-border barrier to trade. They posit that Governments that discriminate in procurement systematically favour domestic producers over foreign ones when buying otherwise similar goods and services e.g. ‘Buy America bill’ of 2009 required that all stimulus-funded projects use only American-made iron and steel. Similarly, Doanh and Heo (2007) cite the case of Thailand, where while procurement regulations stipulate non-discriminatory treatment and open competition to all bidders and suppliers, preference is given to Thai products, contractors, and consultants. Further, preferential treatment is provided to domestic suppliers, which receive an automatic 15- percent price advantage over foreign bidders in initial bid round evaluations. Kenyan Government on the other hand sets aside 30 percent of procurement services to youths and women.

The study therefore hypothesis that, tariff and non-tariff based barriers instituted by governments directly influences the amounts of goods and services that is imported or exported from a country, hence the more stringent the barriers, the less the quantity of goods and service that a business enterprise can import into the country from the international arena.

2.3.4 Culture and Language Differences

Kivrak, Ross, Arslan and Tuncan (2009) presents three definitions of the term culture as, ‘the collective programming of the mind which distinguishes one group from another’; or ‘what we are and what we do as a society’ or ‘varieties of common knowledge’. From these definitions, it can be pointed out that different societies have different ways of conducting themselves or simply different societies have different ways of doing things.

Jiang and Tian (2010) explain that because the suppliers under the international purchasing come from different parts of the world, they hold various models, standards, and cultures. Hence, it is very significant for businesses to develop systematic and standardized criteria and conditions in order to select a dependable supplier. This is further acknowledge by Hultman, Hertz, Johnsen and Johnsen (2012) who indicated that using the knowledge from markets with similar features in terms of, for example, language and culture facilitated expansion of sourcing markets.

Culture may not only exist at the supplier level but also at the government level. For example, Hasan and Alim (2010) cite the case of bureaucracy as a typical culture in Bangladesh. They posit that bureaucracy takes place in government, semi government and private organization where excessive bureaucracy is a custom and different organizations waste huge time that affect lead time for customer orders. They conclude that in such cases, suppliers run from one office to another to maintain a lot of complicated procedure in order to get different permission. A process which takes a long time to generate a shipment and acts as an obstacle, thus, bureaucracy affects the flow of supply chain process.

2.4 Global Procurement Strategies According to Carter, Maltz, Yan and Maltz (2008) effective sourcing of goods and services requires good processes to evaluate the many factors related to where to source from. This involves finding the supplier locations globally that align best with the organizational plans. They indicate that such processes will often include screening steps with respect to geography, infrastructure, market attractiveness, risks and cost levels which are characteristics of regions or countries rather than specific suppliers. The current study explores the global procurement strategies which include procuring goods and services from countries with low cost labour and quality products; from countries with good infrastructure; from countries with good human rights records; and from countries speaking the same language.

2.4.1 Procuring from Countries with Low Labor Cost and Quality Standards

Öztürk (2012) asserts that in today’s competitive global markets, consumers look for the highest quality products at the lowest prices, regardless of where they are produced. He

17 continues that this trend is continuously increasing the significance of global markets and forcing enterprises to analyze the available alternatives as they seek to remain competitive e.g. by managing their costs to gain competitive advantages. Further, Lanza, Weiler and Vogt (2009) observes that with the growing competition both in the domestic and global markets, competitive prices are the precondition for gaining market shares in the domestic market as well as abroad. Hence, this fierce cost competition is forcing companies to focus on their core competencies and to pay particular attention to their purchasing decisions. Lanza, Weiler and Vogt (2009) posit that in procurement, low-cost country sourcing which is linked to low labor costs plays a special role as considerable cost savings can be realized in this area.

Öztürk (2012) adds that while firms establish and execute global sourcing plans in an effort to match competitors’ attempts at sourcing; improve non-competitive cost structures; focus on core competencies; reduce capital investment and overall fixed costs; achieve cost- competitive growth within their supply base for goods, services and technologies in the value chain; they also aim to establish future procurement footprints in low-cost countries.

The challenge with low cost country sourcing as eluded by (Lanza, et. al., 2009) is that low- cost suppliers often do not meet the higher quality standards which are required by multinational companies. They contend that when promising suppliers were chosen, measures to promote development such as technical support and continuous process control at the supplier’s production site are necessary in order to guarantee a reliable product quality as well as on-time delivery.

On the other hand, some companies tend to focus on procuring products based on quality rather than cost. A study to determine factors affecting the selection of optimal suppliers in procurement management, Mwikali and Kavale (2012) identified quality of the product as a major creterion in selection of suppliers. The study was aligned to value chain quality management and measured quality in terms of management commitment, product development of suppliers, process improvement of suppliers, quality planning and quality assurance in supply chain, quality assessment in production, inspection and experimentation, quality staff of supplier and quality of the final product. From the review, a company may therefore make a deliberate effort to target countries with low labour cost or high quality standard products depending on the customer demands and economic power.

2.4.2 Procuring from Countries with Good Transport Infrastructure Without a doubt, transport is an indispensable part of international trade. It provides vital distribution for production, as well as essential personal mobility, directly interconnecting businesses to worldwide markets. In fact the global procurement would be meaningless without the ability to move goods and people around the planet (Ślusarczyk, 2010). Looking at the definition of supply logistics, it helps in understanding the significance of infrastructure in the procurement process. Council of Logistics Management (1991) defined logistics as ‘part of the supply chain process that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers’ requirements’. This means that proper efficient infrastructure is required to successfully achieve the objectives of all the indicators of effective procurement logistics.

The fundamental impact of infrastructure on international movement of goods lies on the cost factor. The nature of infrastructure directly affects the cost of moving goods across borders. While giving an example of transport, the World Trade Report of 2013 indicated that some of the factors that influence transport cost include geographical features of countries, the quantity and quality of the physical infrastructure that support transportation services, the procedures and formalities used to control the movement of goods from one country to another, the extent of competition in the transportation sector, the pace of technological innovation in the sector and the cost of fuel (World Trade Organization, 2013). These factors directly influences whether a market is accessible or not for international procurement of goods and services.

The 2013 World Trade report further indicates that the cost of transporting goods from producers to users affects the volume, direction and pattern of trade. It determines where the line between tradable and non-tradable goods is drawn and shapes which firms are able to participate in trade and how they organize their production internationally (World Trade Organization, 2013). This example shows how infrastructure be it in transport, communication, management or control of procurement process is critical as it will directly influence the cost of procurement. The study therefore assumed that a company may

19 deliberately focus on countries with good infrastructure when conducting global procurement of goods and services.

2.4.3 Procuring from Countries with Good Human Rights Records and Rule of Law Questions have arisen in the international trade with regard to promotion of human rights. Rights such as freedom of association, freedom of speech, freedom of assembly, freedom of movement, freedom from political repression, freedom from torture, freedom from slavery, freedom from exploitation among others may appear obvious in some countries but they cannot be assumed to be universal. Multinational companies and state agents have participated in human rights violations such as forced labour, child labour or even over exploitation of workforce among other human rights violations (Byrne, 2014).

Good human right records and rule of law for international business stems from the concept of corporate social responsibility or ethical dimensions in conducting a business. According to Velentzas and Broni (2010), business ethics consists of a set of moral principles and values that govern the behavior of the organization with respect to what is right and what is wrong. Therefore the manner in which some businesses conduct themselves brings up the question of ethical behavior.

Velentzas and Broni (2010) contend that business ethics should eliminate exploitation, from the sweat shop children who are making sneakers to the coffee serving staff who are being ripped off in wages beside the fact that business ethics can be applied to everything from the trees cut down to make thepaper that a business sells to the ramifications of importing coffee from certain countries. This therefore means that business enterprises should respect human rights and should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved (Lindsay, McCorquodale, Blecher, Bonnitcha, Crockett, & Sheppard, 2013).

In a nut shell, international businesses have the opportunity to control perpetuation of what could be termed as unethical behaviors. Even though international firms cannot be forced in some jurisdictions to comply with ethical behaviors, it is their moral duty to uphold and promote human rights by avoiding participation in the unethical habits and discouraging others from engaging in such habits. Hence, companies that are conscious of the significance

20 of upholding human rights can choose not to buy or sell goods to certain regions depending on the region’s human rights record as a strategy of promoting human rights.

2.4.4 Procuring from Countries with Same Language

The other strategy that can be adopted for global procurement is targeting of countries speaking the same language to facilitate faster processes. A study by Otten (2014) showed that the impact of language and cultural differences is likely to be important in transactions where individuals have to coordinate with each other. The study indicates that language boundaries, as is often the case in international factor movements, reduces the level of trust between economic agents and makes obtaining information more costly by raising hurdles in communication. According to Otten (2014), both economic theory and empirical evidence suggest that sharing an official or speaking a common language provide an important stimulus in international economic exchange and having a common language has been attributed to an increase in trade flows by about 40%.

A study by Nyanchoka and Namusonge (2014) illustrated how crucial communication is when dealing with global supply sources. The study pointed out that Kenya Tea Development Agency, doesn’t take chances especially when doing business in foreign countries where language could be a barrier. It shows that the agency not only have invested in training its staff foreign languages, but have successfully managed to employ a pool proficient in foreign languages or expatriates to enhance communication.

Therefore it reduces the level of mistrust between economic agents and the cost of communication, certain organizations may opt to trade with countries speaking the same language or alternatively trade staff on the suppliers preferred language to enhance communication and efficient coordination. This is particularly important in global procurement where information sourcing and negotiations requires proper understanding of the economic players involved in the process.

2.5 Chapter Summary

Chapter two discussed the literature review in line with the research objectives. It discussed the drivers of global procurement, challenges of global procurement and possible global procurement strategies. Chapter three will discuss the study methodology to be adopted for the foregoing study.

CHAPTER THREE

3.0 RESEARCH METHODOLOGY

3.1 Introduction

This chapter discusses the research methodology adopted for this study. It gives a systematic procedure followed to achieve the objectives of the study. It covers the research design, population and sampling plan, data collection method, research procedure and data analysis method.

3.2 Research Design

Research design is a basic set of beliefs that guide action and deals with principles, ‘ultimates’ or the researcher’s worldviews (Groenewald, 2004). It represents the researcher’s logical view on how study objectives can be realized. The current study adopted a case study research approach. According to Hyett, Kenny and Dickson-Swift (2014), a case study research is an investigation and analysis of a single or collective case, intended to capture the complexity of the object of study. The study used Nakumatt Holdings Limited as case study.

The approach was descriptive and quantitative in nature. According to (Salaria, 2012), descriptive research is devoted to gathering of information about prevailing conditions or situations for the purpose of sketch and interpretation. He posits that this type of research method is not simply amassing and tabulating facts but includes proper analysis, interpretation, comparisons, identification of trends and relationships.

Harwell (2011) notes that quantitative design attempts to maximize objectivity, replicability, and generalizability of findings, and are typically interested in prediction. This approach was appropriate for the study since the study sought to identify empirically the prevailing effects of globalization on procurement at Nakumatt Holdings Limited to act as a predictor of the situation in the retail industry in Kenya. The dependent variable of study is global procurement while the independent variables in this study are cost factors; competition; government policies; technology; currency fluctuations; complicated logistics; tariffs; culture and language globalization.

3.3 Population and Sampling Design 3.3.1 Population Salaria (2012) defines population as all the members of any well defined class of people, events or objects. Thus it represents individuals who have one or more characteristics in common that are of interest to the researcher. The population may be all the individuals of a particular type or a more restricted part of that group (Salaria, 2012). The population of the study was all the 35 procurement staff members at Nakumatt Holdings headquarters (Nakumatt, 2015). The population was classified into senior management, middle management and non management staff.

Table 3.1: Study Population Management Level Sample Frame Total Percentage

Senior level management 4 11% Middle level management 11 31% Non-management staff 20 57% Total 35 100% Source: Nakumatt (2015) 3.3.2 Sampling Design Cooper and Schindler (2008) defines sampling design as the systematic procedure by which a particular sample is drawn from a population. It explains the how of arriving at the sample size. 3.3.2.1 Sampling Frame Gallardo, Lachlan and Davis (2012) defined sampling frame as that part of the population that can be accessed during a study i.e. it can be thought of as the realistic version of the population—the ones which can be identified and accessed. In the study, the sample frame was 35 procurement staff at Nakumatt headquarters. The sample frame was identified by the staff details kept by the company’s human resources department.

3.3.2.2 Sampling Technique This is the process of taking any portion of a population or universe to serve as a representative of that population or universe. It may also simply mean the process of drawing a sample from the population (Salaria, 2012). A census was conducted on the procurement department, consisting of the senior procurement managers, middle level procurement managers and the non-management procurement staff. Considering that the procurement department consists of 35 employees, it was considered best to conduct a census.

3.3.2.3 Sample Size According to Garson (2012), a sample size is a subset (sampling units that does not comprise the complete set of sampling units that has been defined as the population) of a sampling units from a population. In other words, Salaria (2012) defines sample size as a group chosen from a larger population with the aim of yielding information about this population as a whole. He contends that a good sample not only needs to be representative, it needs also to be adequate or of sufficient size to allow confidence in the stability of its characteristics. For this study, no samples were drawn but the entire population of 35 procurement staff was involved in the survey.

3.4 Data Collection Method The study used a questionnaire to collect primary data from the respondents. According to Harris and Brown (2010), a questinnaire come in handy when gathering standardized information ove a short period of time in a short time frame.

The questionnaire was arranged according to the research objectives. It had four sections of which the first section sought to identify demographic characteristics of the population. This information was useful in comparing responses between various groups. The second section sought to identify the drivers of global procurement. The third section explored the challenges affecting the implementation of global procurement. The fourth section sought to identify the global procurement strategies used at Nakumatt Holdings Limited.

The questions had two formats. There was a set of five point Likert scale. The scale was ranked [1] is strongly disagree; [2] disagree; [3] neutral; [4] agree; and [5] strongly agree. The Likert scale offered the respondents an opportunity to rank their responses depending on

25 strength of their opinion on the test items. The study also had open ended questions which gave the respondents an opportunity to give their opinions without restriction.

3.5 Research Procedure Before the actual study, a pilot test was carried out on 5 respondents. These respondents were excluded from the finally study to eliminate introduction of bias from having had prior information about the study. The pilot assisted in the identification of mistakes and ambiguity of the test items. The pilot was also useful in determining validity and reliability of the test items. Cronbach’s alpha analysis was carried out to determine the level of reliability and validity of then test items. Furthermore expert opinions were sought from the supervisor to check for reliability.

Hard copy questionnaires were distributed to the respondents during the official working hours. The study adopted a drop and pick strategy to collect the data. This meant that the questionnaires were distributed to the respondents for filling and later picked after two days. The services of a trained research assistant were used to collect data to ensure reliable data is collected. The respondents were assured of confidentiality of the information provided in the questionnaires through a written introductory letter to ensure high response rate.

3.6 Data Analysis Method The tool for data analysis was the Statistical Package for Social Sciences [SPSS]. The data collected was first coded before entering into the tool. The analysis was both descriptive and inferential in nature. The descriptive analysis involved calculation of percentages, means and frequencies.

Calculation of one way analysis of variance was employed to determine the relationship between the demographic groups and the responses on various variables. Statistical significance level in form of p values was used to infer findings to the entire population. Findings were presented using tables and figures.

3.7 Chapter Summary

Chapter three discussed the research methodology followed in the study. It discussed the research design, population and sampling plan, data collection method, research procedure and data analysis method. Chapter four presents the study findings.

CHAPTER FOUR 4.0 RESULTS AND FINDINGS

4.1 Introduction Chapter four presents the study findings. Part one of the chapter presents the demographic characteristics of the population. Part two presents findings on the drivers of global procurement. Part three presents findings on the global factors affecting the adoption of global procurement. Part four presents findings on the global procurement strategies adopted by Nakumatt chain of supermarkets. The last part is a summary of the chapter.

4.2 Demographic Characteristics of the Respondents 4.2.1 Response Rate

Out of the 35 questionnaires which were distributed, 31 of them were duly filled and returned. This presents 89% response rate as shown in Figure 4.1.

Questionnaires not returned 11%

Questionnaires duly filled and returned 89% Figure 4.1: Response Rate

4.2.2 Gender The respondents were asked to indicate their gender. Figure 4.2 shows that majority of the respondents indicated that they were males [65%] while 35% indicated that they were females. This shows that the department was dominated by males.

Female 35% Male 65%

Figure 4.2: Gender of the Respondents

4.2.3 Age Bracket

The respondents were asked to indicate their ages. Figure 4.3 shows that majority of the respondents were below 30 years of age [63%]. Thirty five percent were aged between 31 and 40 years while those aged above 50 years were only 2%. This shows a predominantly young workforce.

Above 50 years 2%

31-40 years 35% Below 30 years 63%

Figure 4.3: Age Group

4.2.4 Length of Service at Nakumatt

The respondents were then asked to indicate how long they had worked for Nakumatt holdings Limited. Figure 4.4 shows 55% of the respondents had served in the organization for 1 to 5 years, 29% for 6 to 10 years, 10% for more than 10 years and only 6% for less than 1 year. This shows that majority had served in the organization long enough to better understand the on goings in the organization.

More than 10 Below 1 year years 6% 10% 6-10 years 29% 1-5 years 55%

Figure 4.4: Length of Service at Nakumatt

4.3.5 Highest Education Level

The study sought to find out the education level of the respondents. Table 4.1 illustrates that majority of the respondents were Bachelor’s degree holders at 42%, followed by diploma degree holders at 39%, master’s degree holders at 10% and secondary certificate holders at 10%. Since education opens ones world view, the fact that majority (90.3%) of the respondents had post-secondary education, would mean that the respondents were more likely to have better understanding on factors surrounding procurement.

Table 4.1: Highest Education Level Level Percentage [%] Secondary 9.7 Diploma 38.7 Bachelor’s degree 41.9 Masters 9.7 Total 100

4.2.6 Management Position

The study then sought to highlight the respondents’ management position. Figure 4.5 shows 45% of the respondents were non-management staff while 42% were in the middle management category and 13% in the senior management category. The distribution shows a pyramid organization structure. This was expected since managers tend to be fewer than those they manage.

Senior managers 13%

Non management 45% Middle level managers 42%

Figure 4.5: Management Position

4.3 Drivers of Global Procurement

The study analyzed four drivers of global procurement. Cost drivers, Competitive drivers, Government drivers and Technological drivers. Before the actual analysis, the test item under each variable was tested for reliability. Reliability co-efficient (Cronbach alpha) was used to determine reliability of the instrument i.e. was used to determine whether the instrument consistently measured what it was intended to measure. Cronbach alpha of 0.6 and above was considered to indicate reliability.

Table 4.2 shows that the Cronbach alpha ranging from 0.662 to 0.876 which registered acceptability of the instrument. Furthermore the Item-Total Correlation ranges from 0.358 to 0.855 with deletion of any question under each variable [cost, competitive, government, technology] resulting in a lower Cronbach's alpha. Hence, all the questions improve the reliability of each core construct and were accepted for analysis.

Table 4.2: Cronbach’s Alpha Analysis for Drivers of Global Procurement

Corrected Cronbach's Cronbach's Alpha Item-Total Alpha if Correlation Item Deleted Cost Drivers Economies of scale .407 .620 A huge pool of quality products and qualified .457 .585 suppliers for higher bargaining power 0.662 Low international prices .358 .655 Acceleration of technological innovation .571 .586 Competitive Drivers Source of competitive innovation .804 .812 Attract the best talents for competitive .646 .873 advantage 0.876 Products of the highest quality .800 .813 Constant supply of goods for competitive .689 .858 advantage Government Drivers Market liberalization .585 .813 Favorable government policies .598 .809 Bilateral trade agreements .855 .878 0.826 International quality standards for ease of .614 .806 global procurement Technology Product of integrated procurement systems .503 .721 Availability of online payment platforms .390 .780 0.753 Availability of the Internet .667 .630 Mobile technology .667 .623

The analysis then involved describing the findings and calculations of multiple correlations on the core constructs to draw inferences. In this case each variable was analyzed individually.

4.3.1 Cost Drivers Table 4.3 shows that majority agreed [35% agreed; 22% strongly agreed] that global procurement is driven by cost factors. This is because global procurement provides room for the buyer to benefit from economies of scale [45% agreed; 19% strongly agreed]; availability of a huge pool of quality product and qualified suppliers in the global market which offer the

32 buyer bargaining power [37% agreed; 37% strongly agreed]; and the fact that global procurement accelerate diffusion of technological innovation [39% agreed; 22% strongly agreed]. Majority disagreed that the global prices are necessarily cheap [29% agreed; 13% strongly agreed]

Table 4.3: Cost Drivers Variables Percentages [%] Mean SDA D N A S A A Economies of scale 7 16 13 45 19 3.55 A huge pool of quality products and qualified 3 10 13 37 37 3.93 suppliers Low international prices 13 29 29 19 10 2.84 Acceleration of technological innovation 0 19 19 39 22 3.65 Summated Scale 6 19 19 35 22 3.49

4.3.2 Competitive drives

Findings in Table 4.4 shows that majority agreed [41% agreed; 36% strongly agreed] that global procurement is driven by competitive factors. This is because global procurement acts a source of competitive innovation [36% agreed; 45% strongly agreed]; provide opportunity for attracting the best talents for competitive advantage [52% agreed; 19% strongly agreed]; provide opportunity to procure products of high quality [32% agreed; 42% strongly agreed]; and ensures constant supply of goods for competitive advantage [42% agreed; 39% strongly agreed].

Table 4.4: Competitive Drivers Variables Percentages [%] Mean SDA DA N A S A Source of competitive innovation 0 9 9 36 45 4.16 Attract the best talents 0 9 19 52 19 3.81 Products of the highest quality 0 9 16 32 42 4.06 Constant supply of goods 0 6 13 42 39 4.13 Summated Scale 0 8 14 41 36 4.04

4.3.3 Government Drivers

Findings in Table 4.5 shows that majority agreed [38% agreed; 23% strongly agreed] that global procurement is driven by government factors. This has been promoted by market liberalization [48% agreed; 23% strongly agreed]; favorable government policies [48% agreed; 13% strongly agreed]; bilateral trade agreements between countries [32% agreed; 29% strongly agreed]; and adoption of International quality standards by the Kenya for ease of global procurement [25% agreed; 26% strongly agreed].

Table 4.5: Government Drivers Variables Percentages [%] Mean SDA DA N A S A Market liberalization 0 16 13 48 23 3.77 Favorable government policies 0 16 22 48 13 3.58 Bilateral trade agreements 3 19 16 32 29 3.65 International quality standards for 3 22 13 25 26 3.58 ease of global procurement Summated Scale 1 18 16 38 23 3.65

4.3.4 Technology Drivers The other driver of global procurement is the technological factors as shown in Table 4.6. Technology has led to integration of procurement systems that facilitate global procurement [37% agreed; 28% strongly agreed]; availability of online payment platforms [33% agreed; 27% strongly agreed]; availability of the internet [40% agreed; 37% strongly agreed]; and availability of the mobile telephony system [38% agreed; 26% strongly agreed].

Table 4.6: Technological Drivers Variables Percentages [%] Mean SDA DA N A SA Product of integrated procurement systems 3 13 23 37 23 3.63 Availability of online payment platforms 0 20 20 33 27 3.67 Availability of the Internet 3 7 13 40 37 4.00 Mobile technology 9 3 27 38 26 3.68 Summated Scale 4 11 21 37 28 3.75

4.3.5 Ranking of the Drivers of Global Procurement

Out of the variable studied, Table 4.7 shows that competition is the major diver of global procurement [Mean=4.04] followed by Technology [Mean=3.75]; Government factors [Mean=3.65] and Cost factors [Mean=3.49].

Table 4.7: Ranking of Drivers of Global Procurement Core Construct Mean

Competitive Drivers 4.04 Technology Drivers 3.75 Government Drivers 3.65 Cost Drivers 3.49

4.3.6 One Way Analysis of Variance for Drivers of Global Procurement

The study then sought to find out if the findings were in any way influenced by the management position of an individual or they reflected the general opinion of the entire population. To identify this, one way analysis of variance was done with the management level as the constant factor on all the four core constructs. Table 4.8 shows lack statistically significant [p>0.05] difference in opinion across the different management levels. Therefore since the study was a census of procurement staff at Nakumatt, the findings were generalised to the entire population.

Table 4.8: One way Analysis of Variance for Drivers for Global Procurement Sum of df Mean F Sig. Squares Square Cost drivers Between Groups .943 2 .471 .578 .568 Within Groups 22.024 27 .816 Total 22.967 29 Competitive Between Groups .148 2 .074 .080 .923 drivers Within Groups 25.852 28 .923 Total 26.000 30 Government Between Groups .758 2 .379 .425 .658 drivers Within Groups 24.984 28 .892 Total 25.742 30 Technology Between Groups .043 2 .021 .022 .978 drivers Within Groups 24.064 25 .963 Total 24.107 27

Therefore the study established that at Nakumatt, out of the four variables studied, competition is the major diver of global procurement [Mean=4.04] followed by Technology [Mean=3.75]; Government factors [Mean=3.65] and Cost factors [Mean=3.49].

4.4 Global Factors That Affect Adoption of Global Procurement

Table 4.9 shows that the Cronbach alpha ranging from 0.651 to 0.866 which registered acceptability of the instrument. Furthermore the Item-Total Correlation ranges from 0.245 to 0.794 with deletion of any question under each variable except for 0.544 [adverse logical issues in port clearance] resulting in a lower Cronbach's alpha. Since the reliability of the core construct was reduced when the question on adverse logistical issues in port clearance was deleted, it was eliminated from further analysis. All the other 15 questions improved the reliability of each core construct and were accepted for analysis.

Table 4.9: Cronbach’s Alpha Analysis Factors affecting Global Procurement Corrected Cronbach's Cronbach's Item-Total Alpha if Item Alpha Correlation Deleted Currency Fluctuations High currency exchange rates .526 .523 Changes in exchange rates .245 .706 0.651 Loss of purchasing power of the local currency .457 .565 Instability of the local currency .525 .574 Complicated Logistics Adverse logistical issues in port clearance .794 .544* High cost of logistics .383 .785 0.755 Longer inventory management process .447 .751 Poor handling of return goods and containers .616 .663 Tariffs and non-Tariff Barriers Unreasonable demand on standards and quality .595 .855 of imported goods from state agents Bureaucratic delays at the custom .730 .798 0.852 Road blocks and barriers .794 .797 High tariffs levied on imports .665 .824 Culture and Language Differences Instability of the relationship between my .679 .843 organization and import suppliers Language barriers and business transactions .763 .810 0.866 Miscommunication .776 .803 Different cultures and procurement processes .654 .852

4.4.1 Currency Fluctuations Table 4.10 shows that majority agreed [31% agreed; 20% strongly agreed] that currency fluctuation is a one of the factors that affect global procurement at Nakumatt. The challenge is caused by high currency exchange rates [39% agreed; 19% strongly agreed]; loss of purchasing power of the local currency [27% agreed; 30% strongly agreed] and instability of the local currency [33% agreed; 17% strongly agreed]. However close to a third of the respondents were neutral as to the effect of changes in the exchange rate [27%]

Table 4.10: Currency Fluctuations Variables Percentages [%] Mean SDA DA N A SA High currency exchange rates 3 16 22 39 19 3.55 Changes in exchange rates 10 27 27 23 13 3.03 Loss of purchasing power of the local 7 13 23 27 30 3.60 currency Instability of the local currency 7 27 17 33 17 3.27 Summated Scale 7 21 22 31 20 3.36

4.4.2 Complicated Logistics

Table 4.11 shows that majority agreed [42% agreed; 11% strongly agreed] that complicated logistics offers a challenge to global procurement at Nakumatt. The challenge is caused by high cost of logistics [50% agreed]; longer inventory management process [40% agreed; 20% strongly agreed] and poor handling of return goods and containers [37% agreed; 13% strongly agreed].

Table 4.11: Complicated Logistics Variables Percentages [%] Mean SDA DA N A S A High cost of logistics 13 20 17 50 0 3.03 Longer inventory management process 0 23 17 40 20 3.57 Poor handling of return goods and 7 17 27 37 13 3.33 containers Summated Scale 7 20 20 42 11 3.31

4.4.3 Tariff and Non-Tariff Barriers

Table 4.12 shows that majority agreed [33% agreed; 17% strongly agreed] that tariffs and non-tariff barriers offers a challenge to global procurement at Nakumatt. The challenge is caused by bureaucratic delays at the custom [30% agreed; 17% strongly agreed]; Road blocks and barriers [37% agreed; 17% strongly agreed]; High tariffs levied on imports [40% agreed; 17% strongly agreed]. Majority were neutral as to the effect of unreasonable demand on standards and quality of imported goods from state agents [40% agreed; 40% disagreed]

Table 4.12: Tariff and Non-Tariff Barriers Variables Percentages [%] Mean SDA DA N A SA Unreasonable demand on standards and 13 27 20 23 17 3.03 quality of imported goods from state agents Bureaucratic delays at the custom 7 23 23 30 17 3.27 Road blocks and barriers 10 27 10 37 17 3.23 High tariffs levied on imports 10 13 20 40 17 3.40 Summated Scale 8 23 18 33 17 3.23

4.4.4 Culture and Language Differences Table 4.13 shows that 40% disagreed that culture and language difference presents a challenge to global procurement at Nakumatt. On the other side 42% agreed that the same offers a challenge. With 19% scoring neutral, the situation presents lack of clear position held by the respondents on the effects of different culture and languages to global procurement at Nakumatt. This is further asserted by an average mean of 3.065.

Table 4.13: Culture and Language Barriers Variables Percentages [%] Mean SDA DA N A SA Instability of the relationship between my 10 30 17 33 10 3.03 organization and import suppliers Language barriers and business transactions 17 27 17 23 17 2.97 Miscommunication 10 30 20 27 13 3.03 Different cultures and processes 0 37 20 27 17 3.23 Summated Scale 9 31 19 28 14 3.065 4.4.5 Ranking of Factors that Affect Global Procurement

Out of the variable studied, Table 4.14 shows that currency fluctuations [Mean=3.36] presents the major challenge followed by complicated logistics [Mean=3.31], tariffs and non- tariff barriers [Mean=3.23] and culture and language barriers [Mean=3.07].

Table 4.14 Ranking of Factors that Affect Global Procurement Core Construct Mean

Currency Fluctuations 3.36 Complicated Logistics 3.31 Tariffs and non-tariffs barrier 3.23 Culture and Language Differences 3.07

4.4.6 One Way Analysis of Variance for Factors Affecting Global Procurement The study then sought to find out if the findings were in any way influenced by the management position of an individual or they reflected the general opinion of the entire population. Table 4.15 shows lack statistically significant [p>0.05] difference in opinion across the different management levels. Therefore since the study was a census of procurement staff at Nakumatt, the findings were generalised to the entire population.

Table 4.15: One way Analysis of Variance for Factors Affecting Global Procurement Sum of df Mean F Sig. Squares Square Currency Between Groups 3.771 2 1.886 2.358 .114 fluctuations Within Groups 21.595 27 .800 Total 25.367 29 Complicated Between Groups 2.705 2 1.352 3.149 .059 Logistics Within Groups 11.595 27 .429 Total 14.300 29 Tariffs and non Between Groups 3.250 2 1.625 1.333 .281 tariffs Within Groups 32.917 27 1.219 Total 36.167 29 Culture and Between Groups .038 2 .019 .014 .986 language Within Groups 36.929 27 1.368 differences Total 36.967 29

Therefore the study showed that out of the four variables studied, currency fluctuations [Mean=3.36] presents the major challenge followed by complicated logistics [Mean=3.31], tariffs and non-tariff barriers [Mean=3.23] and culture and language barriers [Mean=3.07].

4.5 Global Procurement Strategies

Table 4.16 shows that the Cronbach alpha ranging from 0.826 to 0.907 which registered acceptability of the instrument. Furthermore the Item-Total Correlation ranges from 0.380 to 0.878 with deletion of any question under each variable except for [Access to several means of transport and Similar systems] resulting in a lower Cronbach's alpha. Since the reliability of the core construct was reduced by two questions, they were eliminated from further analysis. All the other 16 questions improved the reliability of each core construct and were accepted for analysis.

Table 4.16: Cronbach’s Alpha Analysis for Global Procurement Strategies Corrected Cronbach's Cronbach's Item-Total Alpha if Alpha Correlation Item Deleted Low Labor Cost and Quality Standards Lowest production labor cost .695 .762 Least cost on forwarding services .635 .788 0.826 Low Agency cost .586 .810 Reputation for quality products .704 .755 Good Transport System Transport cost .380 .864 Transport networks .566 .815 Access to several means of transport .803 .749* 0.831 Access for spot-checks of the supplier’s facility .681 .782 Access the market on the ground .764 .765 Good Human Rights Records and Rule of

Law Full of democracies .693 .902 How employees who make the products are .819 .874 treated 0.907 Human rights records .670 .907 Level of state corruption .845 .872 Records on the rule of law .824 .874 Same Language and culture Same culture .751 .776 Language .756 .774 0.847 Similar systems .878 .720* Training of employees on foreign languages .394 .917

4.5.1 Low Labor Cost and Quality Standards

Table 4.10 shows that majority agreed [28% agreed; 27% strongly agreed] that Nakumatt has adopted low cost and quality standards a global procuring strategies. The firm sources its goods from countries with lowest production labor cost [27% agreed; 33% strongly agreed]; least cost on forwarding services [23% agreed; 20% strongly agreed], low agency cost [33% agreed; 23% strongly agreed] and from countries with reputation for quality products [27% agreed; 30% strongly agreed].

Table 4.17: Low Labor and Quality Standards Variables Percentages [%] Mean SDA DA N A SA Lowest production labor cost 10 13 17 27 33 3.60 Least cost on forwarding services 3 23 30 23 20 3.33 Low Agency cost 0 17 27 33 23 3.63 Reputation for quality products 3 20 20 27 30 3.60 Summated Scale 4 18 24 28 27 3.54

4.5.2 Good Transport Systems Further, Table 4.18 in comparison to those who disagreed, majority agreed [23% agreed; 23% strongly agreed] Nakumatt consider availability of good transport system when sourcing goods from foreign countries. The firm looks at the transport cost [23% agreed; 30% strongly agreed]; access to spots-checks of supplier’s facilities [17% agreed; 31% strongly agreed] and access to the market on the ground to learn of any competitive threats or supplier knock- offs [24% agreed; 24% strongly agreed]. However majority were neutral as to whether the firms considers transport networks [43%]

Table 4.18: Good Transport System Variables Percentages [%] Mean SDA DA N A S A Transport cost 7 17 23 23 30 3.53 Transport networks 10 13 43 27 7 3.07 Access to supplier’s facility 10 24 17 17 31 3.34 Access the market on the ground 10 24 17 24 24 3.28 Summated Scale 9 20 25 23 23 3.30

4.5.3 Good Human Rights Records and Rule of Law

Table 4.19 shows that comparing those who agreed versus those who disagreed, majority agreed [26% agreed; 16% strongly agreed] Nakumatt considers good human rights records and the rule of law while sourcing goods from foreign countries. The firm prefers sourcing goods from countries managed democratically [20% agreed; 20% strongly agreed]; the firm considers how the employees who make the products are treated [24% agreed; 14% strongly agreed], the firm considers human rights records [27% agreed; 13% strongly agreed], considers the level of state corruption [30% agreed; 20% strongly agreed] and records on the rule of law [27% agreed; 13% strongly agreed].

Table 4.19: Good Human Rights Records and Rule of Law Variables Percentages [%] Mean SDA DA N A SA Full of democracies 10 17 33 20 20 3.23 How employees who make the 17 14 31 24 14 3.03 products are treated Human rights records 13 20 27 27 13 3.07 Level of state corruption 3 13 33 30 20 3.50 Records on the rule of law 7 23 30 27 13 3.17 Summated Scale 7 17 31 26 16 3.2

4.5.4 Same Language and Culture

On the contrary, the study showed that the respondents disagreed that Nakumatt only focuses on sourcing goods from countries with same language and culture [32% disagreed; 18% strongly disagreed] as indicated in Table 4.20. They disagreed that Nakumatt only focuses on countries with same culture [27% disagreed; 23% strongly disagreed]; same language [37% disagreed; 17% strongly disagreed]; and that they training of employees on foreign languages [33% disagreed; 13% strongly disagreed].

Table 4.20: Same Language and Culture Variables Percentages [%] Mean SDA DA N A SA Same culture 23 27 13 20 17 2.80 Language 17 37 10 23 13 2.80 Training of employees on foreign languages 13 33 23 13 17 2.87 Summated Scale 18 32 15 19 17 2.82

4.5.5 Ranking of Strategies of Global Procurement

Out of the four variables tested, Table 4.21 shows low labor and quality of standards is the main procurement strategies used at Nakumatt [Mean=3.54] followed by good transport systems [Mean=3.30] and good human rights records and the rule of law [Mean=3.20] while same culture and language is not used as global procurement strategy at Nakumatt [Mean=2.82].

Table 4.21: Ranking of Strategies of Global Procurement Core Construct Mean

Low labor and quality standards 3.54 Good transport system 3.30 Good human rights records and rule of law 3.20 Same language and culture 2.82

4.5.6 One Way Analysis of Variance for Strategies for Global Procurement

The study then sought to find out if the findings were in any way influenced by the management position of an individual or they reflected the general opinion of the entire population. Table 4.22 shows lack statistically significant [p>0.05] difference in opinion across the different management levels. Therefore since the study was a census of procurement staff at Nakumatt, the findings were generalised to the entire population.

Table 4.22: One way Analysis of Variance for Strategies for Global Procurement Sum of df Mean F Sig. Squares Square Low Between 3.193 2 1.596 1.336 .280 labour Groups cost Within Groups 32.274 27 1.195 Total 35.467 29 Good Between .015 2 .008 .007 .993 transport Groups system Within Groups 28.744 26 1.106 Total 28.759 28 Human Between .102 2 .051 .046 .955 rights Groups records Within Groups 28.588 26 1.100 Total 28.690 28 Same Between 2.702 2 1.351 .924 .409 Languag Groups e and culture Within Groups 39.464 27 1.462 Total 42.167 29

4.6 Chapter Summary

The chapter presented the findings of the study. Section one of the study was the introduction. Section two covered the demographic characteristics, sections three; four and five gave the findings of the three independent variables. Chapter five covers the study summary, discussions, conclusions and recommendations in line with the research questions.

CHAPTER FIVE

5.0 DISCUSSIONS, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction The purpose of the study was to determine the effects of globalization on procurement at Nakumatt chain of supermarkets. Chapter five presents the study summary, discussions, conclusions and recommendations.

5.2 Summary The purpose of the study was to determine the effects of globalization on procurement. The study adopted as case study research design approach. The study was guided by the following research questions. What are the drivers of global procurement at Nakumatt Holdings Limited? What are the global factors that affect the adoption of global procurement at Nakumatt Holdings Limited? What are the global procurement strategies at Nakumatt Holdings Limited? The study was descriptive and quantitative in nature. The scope of the study was limited to the procurement department at Nakumatt headquarters in Nairobi. The primary data collection was carried out in the month of June 2015. Since the study focused only on the procurement department, census of the 35 procurement staff at Nakumatt headquarters in Nairobi was carried out. The analysis was both descriptive and inferential in nature. The descriptive analysis involved calculation of percentages, means and frequencies. Analysis of variance was employed to determine the relationship between the demographic groups and the dependent variables. Statistical significance level in form of p values was used to infer findings to the entire population. Findings were presented using tables and figures.

The first study objective sought to identify the drivers of global procurement at Nakumatt. The study established that at Nakumatt, out of the four variables studied, competition is the major diver of global procurement [Mean=4.04] followed by Technology [Mean=3.75]; Government factors [Mean=3.65] and Cost factors [Mean=3.49]. The competitive drivers arise in the sense that global procurement acts a source of competitive innovation [81% agreed]; provide opportunity for attracting the best talents for competitive advantage [71% agreed]; provide opportunity to procure products of high quality [74% agreed]; and ensures 45 constant supply of goods for competitive advantage [81% agreed]. Technology drivers are through the integration of procurement systems that facilitate global procurement [65% agreed]; availability of online payment platforms [60% agreed]; availability of the internet [77% agreed]; and availability of the mobile telephony system [64% agreed]. Government drivers are through market liberalization [71% agreed]; favorable government policies [61% agreed]; bilateral trade agreements between Kenya and other countries [61% agreed]; and adoption of International quality standards by the Kenya for ease of global procurement [51% agreed].The cost drivers are economies of scale at the global market [64% agreed]; availability of a huge pool of quality product and qualified suppliers in the global market which offer the buyer bargaining power [74% agreed]; and the fact that global procurement accelerate diffusion of technological innovation [61% agreed].

The second study objective sought to identify the factors that influence the global procurement. The study showed that out of the four variables studied, currency fluctuations [Mean=3.36] presents the major challenge followed by complicated logistics [Mean=3.31], tariffs and non-tariff barriers [Mean=3.23] and culture and language barriers [Mean=3.07]. Majority indicated that the challenge of currency fluctuations is caused by high currency exchange rates [58% agreed]; loss of purchasing power of the local currency [57% agreed] and instability of the local currency [50% agreed]. The challenge of complicated logistics is caused by high cost of logistics [50% agreed]; longer inventory management process [60% agreed] and poor handling of return goods and containers [50% agreed]. The challenge of tariffs and non-tariff barriers is caused by bureaucratic delays at the custom [47% agreed]; Road blocks and barriers [54% agreed]; High tariffs levied on imports [57% agreed]. For culture and different languages, 40% disagreed, 42% agreed and 19% scored neutral that culture and language difference presents a challenge to global procurement at Nakumatt. This presents lack of clear position held by the respondents.

Finally the third research question sought to identify global procurement strategies employed at Nakumatt. The study showed that out of the four variables tested, low labor and quality of standards is the main procurement strategies used at Nakumatt [Mean=3.54] followed by good transport systems [Mean=3.30] and good human rights records and the rule of law [Mean=3.20]. Majority indicated that the firm sources its goods from countries with lowest

46 production labor cost [60% agreed]; least cost on forwarding services [43% agreed], low agency cost [56% agreed] and from countries with reputation for quality products [57% agreed].Secondly, the firm looks at the transport cost [53% agreed]; access to spots-checks of supplier’s facilities [48% agreed] and access to the market on the ground to learn of any competitive threats or supplier knock-offs [48% agreed]. However majority were neutral as to whether the firm considers transport networks [43%]. Third, majority indicated that the firm prefers sourcing goods from countries managed democratically [60% agreed]; the firm considers how the employees who make the products are treated [38% agreed], the firm considers human rights records [40% agreed, considers the level of state corruption [50% agreed] and records on the rule of law [40% agreed].

5.3 Discussions 5.3.1 Drivers of Global Procurement

The first study objective sought to identify the drivers of global procurement at Nakumatt. The study established that at Nakumatt, out of the four variables studied, competition is the major driver of global procurement. The competitive drivers arise in the sense that global procurement acts a source of competitive innovation; provide opportunity for attracting the best talents for competitive advantage; provide opportunity to procure products of high quality; and ensures constant supply of goods for competitive advantage. These findings are in line with arguments by Geiersbach (2010), that intensification of competition at both domestic and international levels has driven firms to look beyond their domestic markets for new opportunities. The position is further supported by Jiang and Tian (2010) who indicated that global sourcing has been considered by more and more enterprises as positive strategic activity under the pressures from global competition. Mwangi (2013) further asserts that one of the specific drivers of global procurement is the product quality based competition

47 satisfying their needs. Thus, technology helps an organization achieve efficient use of worldwide human connection to achieve efficient procurement. This further supports assertion by Otieno, Muthoni and Simon (2013) that in procurement, technology aims at creating efficiencies i.e. to make the traditional purchasing procedures more efficient and cost effective.

The third are the Government drivers. Government drivers are through market liberalization; favorable government policies; bilateral trade agreements between Kenya and other countries; and adoption of International quality standards by the Kenya for ease of global procurement. This is in line with the sentiment by Anderson and Kovacic (2009) that the role of government in facilitating or creating barriers for international trade cannot be under estimated. They indicated that the government role is critical in the positively influencing free trade through agreements that create a framework that aims at establishing global economic development via liberalizing global trade. Further, the findings support arguments that the discriminatory government procurement makes states worse of in the long run because it leads to inefficient allocation of resources and limits the benefits stemming from free trade. Instigators of these policies fail to realise the benefits from liberalized procurement such as access to other markets, support for liberalizing countries’ own markets, increased competition that leads to increased (international) competitiveness, job creation and budgetary savings (Kattel & Lember, 2010). Chou (2006), noted that Government support for global trade arises where the country abides by a set of rules for liberalizing the economy and relaxing state control over foreign trade and investment. He adds lowering of transaction costs and reduced bureaucratic units.

Fourth are the Cost drivers. The cost drivers are availability of economies of scale at the global market; availability of a huge pool of quality product and qualified suppliers in the global market which offer the buyer bargaining power; and the fact that global procurement accelerate diffusion of technological innovation. The element of cost is linked to the arguments by Hultman, Hertz, Johnsen and Johnsen (2012) that affordability through low cost is at the core of any company’s business idea. They assert that under increasing pressures to reduce costs, companies have shifted, and continue to shift, sourcing from local suppliers to low cost country-based suppliers (Hultman, Hertz, Johnsen, & Johnsen, 2012).

The findings also support earlier findings by Nyanchoka and Namusonge (2014) who indicated that even though there is a continuing push for economies of scale, it is evident that in Kenya, suppliers have not yet been able to produce machinery and other agricultural inputs at economical costs which increases the cost of product development relative to market life hence the drive to source internationally where there is a huge pool of qualified suppliers.

5.3.2 Factors Affecting Global Procurement

The second study objective sought to identify the factors that influence the global procurement. The study showed that out of the four variables studied, currency fluctuation is the major challenge. Majority indicated that the challenge of currency fluctuations is caused by high currency exchange rates; loss of purchasing power of the local currency and instability of the local currency. The findings support works by Kandil, Berument and Dincer (2007) who indicated that a depreciation (or devaluation) of the domestic currency may stimulate economic activity within the country through the initial increase in the price of foreign goods relative to home goods. This means that exchange rate depreciation diverts spending from foreign goods to domestic goods. A fact which directly affects procuring of goods from outside the country and the reverse is true. Further the findings are in line with Coric and Pugh (2010) who linked the increased exchange rate fluctuations to negative effects on international trade. Another empirical study to try and determine the effects of exchange rate volatility on export flows for South American countries by (Serenis, 2013) showed an adverse relationship between exports and exchange volatility.

Second is the complicated logistics. The challenge of complicated logistics is caused by high cost of logistics; longer inventory management process and poor handling of return goods and containers. This is in line with Zeng and Rossetti (2003) assertion that llogistics processes form the critical loops of supply chains and oversee the flows of materials, information and cash, which are the essential elements of fulfilling customers’ orders. They continue that as greater distances, currencies and cultures separate markets, suppliers and manufacturers, logistics plays a more critical role in the success of the supply chains. Therefore the role played by transportation and logistics excellence in achieving a world- class supply chain cannot be ignored. The finding also supports a study by Msimangira and Tesha (2009) which identified logistics challenges of coping with long supply chains as one

49 of the problems affecting global procurement systems. They assert that different countries employ different existing transportation and logistics structural methods which creates complexity in global logistics. A fact supported by Jiang and Tian (2010) who indicated that logistics in global sourcing is prone to transportation delays, border-crossing procedures and longer inventory management.

Third are the tariffs and non-tariff barriers. The challenge of tariffs and non-tariff barriers is caused by bureaucratic delays at the custom; Road blocks and barriers; and high tariffs levied on imports. This is in line with Okumu and Nyankori (2010) who posited that globally, tariffs have been declining as a result of multilateral, regional and bilateral trade liberalization but despite this, many countries have instituted alternative protectionist mechanisms, non trade barriers, which are ever changing and are threatening international free flow of goods and services (Nathan Associates, 2013). The findings are also in line with Cottier and Oesch (2011) assertion that tariffs and taxes have been touted as the classical methods for establishing discrimination in international imports and exports.Tariffs are inherently discriminatory as they privilege domestically produced and sold goods.

Fourth, the study showed that the respondents were neutral as to the effect of culture and language barriers on global procurement at Nakumatt. This finding fails to approve or disapprove the notion by Jiang and Tian (2010) that because the suppliers under the international purchasing come from different parts of the world, they hold various models, standards, and cultures. They assumed that this scenerio would present a problem to these firms which source good globally. They proposed standardized criteria and conditions in order to select dependable suppliers. This is further acknowledge by Hultman, Hertz, Johnsen and Johnsen (2012) who indicated that using the knowledge from markets with similar features in terms of, for example, language and culture facilitated expansion of sourcing markets.

5.3.3 Strategies for Global Procurement

50 firm sources its goods from countries with lowest production labor cost; least cost on forwarding services, low agency cost and from countries with reputation for quality products. This supports arguments by Öztürk (2012) that today’s competitive global markets, consumers look for the highest quality products at the lowest prices, regardless of where they are produced. He continues that this trend is continuously increasing the significance of global markets and forcing enterprises to analyze the available alternatives as they seek to remain competitive e.g. by managing their costs to gain competitive advantages. The study is further in line with , Lanza, Weiler and Vogt (2009) observation that, with the growing competition both in the domestic and global markets, competitive prices are the precondition for gaining market shares in the domestic market as well as abroad. The findings also support a study by Mwikali and Kavale (2012) which sought to determine factors affecting the selection of optimal suppliers in procurement management. The study identified quality of the product as a major creterion in selection of global and local suppliers.

Secondly Nakumatt also considers availability of good infrastructure and transport systems. The firm looks at the transport cost; access to spots-checks of supplier’s facilities and access to the market on the ground to learn of any competitive threats or supplier knock-offs. The finding support assertion by Ślusarczyk (2010) that without a doubt transport is an indispensable part of international trade. He notes that it provides vital distribution for production, as well as essential personal mobility, directly interconnecting businesses to worldwide markets and the global procurement would be meaningless without the ability to move goods and people around the planet. This is further support by a World Trade Organization (2013) report which indicated how factors related to transport directly influences whether a market is accessible or not for international procurement of goods and services. The report identified geographical features of countries, the quantity and quality of the physical infrastructure that support transportation services, the procedures and formalities used to control the movement of goods from one country to another, the extent of competition in the transportation sector, the pace of technological innovation in the sector and the cost of fuel as the major factors that influence transportation system and cost of transport.

Third good human rights records and the rule of law determines whether Nakumatt sources from a country or not. Majority indicated that the firm prefers sourcing goods from countries managed democratically; the firm considers how the employees who make the products are treated; the firm considers human rights records, the level of state corruption and records on the rule of law. If these elements are unfavorable, then Nakumatt won’t source goods from that particular country. The finding shows that Nakumatt appreciates the need for respecting human rights. This is in line with Lindsay, McCorquodale, Blecher, Bonnitcha, Crockett and Sheppard (2013) who indicated that business enterprises should respect human rights and should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved.

5.4 Conclusions 5.4.1 Drivers of Global Procurement

The first study objective sought to identify the drivers of global procurement at Nakumatt. The study established that at Nakumatt, out of the four variables studied, competition is the major diver of global procurement. The competitive drivers arise in the sense that global procurement acts a source of competitive innovation; provide opportunity for attracting the best talents for competitive advantage; provide opportunity to procure products of high quality; and ensures constant supply of goods for competitive advantage.

The second are the technology drivers. Technology drivers are through the integration of procurement systems that facilitate global procurement; availability of online payment platforms; availability of the internet; and availability of the mobile telephony system. The third are the Government drivers. Government drivers are through market liberalization; favorable government policies; bilateral trade agreements between Kenya and other countries; and adoption of International quality standards by the Kenya for ease of global procurement. Fourth are the Cost drivers. The cost drivers are as a result of the availability of economies of scale at the global market; availability of a huge pool of quality product and qualified suppliers in the global market which offer the buyer bargaining power; and the fact that global procurement accelerate diffusion of technological innovation.

5.4.2 Factors Affecting Global Procurement

The second study objective sought to identify the factors that influence the global procurement. The study showed that out of the four variables studied, currency fluctuations are the major challenge. Majority indicated that the challenge of currency fluctuations is caused by high currency exchange rates; loss of purchasing power of the local currency and instability of the local currency. Second is the complicated logistics. The challenge of complicated logistics is caused by high cost of logistics; longer inventory management process and poor handling of return goods and containers.

Third are the tariffs and non-tariff barriers. The challenge of tariffs and non-tariff barriers is caused by bureaucratic delays at the custom; Road blocks and barriers; and high tariffs levied on imports. Fourth, the study showed that the respondents were neutral as to the effect of culture and language barriers on global procurement at Nakumatt.

5.4.3 Strategies for Global Procurement

Finally the third research question sought to identify global procurement strategies employed at Nakumatt. The study showed that out of the four variables tested, low labor and quality of standards is the main procurement strategies used at Nakumatt. Majority indicated that the firm sources its goods from countries with lowest production labor cost; least cost on forwarding services, low agency cost and from countries with reputation for quality products. Secondly Nakumatt also considers availability of good infrastructure and transport systems. The firm looks at the transport cost; access to spots-checks of supplier’s facilities and access to the market on the ground to learn of any competitive threats or supplier knock-offs.

5.5 Recommendations 5.5.1 Recommendations for Improvement

5.5.1.1 Drivers of Global Procurement

It is in no doubt human resource plays a critical role in global procurement. As a strategic measure, the organization should ensure that in the event of global procurement, the key staff members need constant training and exposure to other global markets to expand their ability. The training should position the procurement staff to execute their roles efficiently and be the pillar to drive the organization’s global procurement agenda.

5.5.1.2 Factors Affecting Global Procurement Currency fluctuation has been identified as the major factor that affects global procurement at Nakumatt. This challenge can be addressed by putting in measures such hedging to safe guard against the fluctuation. Furthermore the issue of complicated logistics can be addressed by outsourcing of procurement service to firms with the greatest capabilities in global procurement.

5.5.1.3 Strategies for Global Procurement

Nakumatt should ensure that it is constantly monitoring and controlling its global procurement activities; constantly forecasting demand against lead times and costs; and investing in good relation with its service providers since these relationships may in the long run adversely affect the organization’s global procurement performance.

5.5.2 Recommendations for Further Studies

This study was done in relation to the effect of globalization on procurement at Nakumatt holdings limited. Therefore, there is need for further research on the other supermarket chains in Kenya to draw sector wise conclusion.

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APPENDICES Appendix A: Cover Letter

CELL: 0713603124 P.O. Box 14634, 00800

EMAIL: [email protected] NAIROBI DATE: Date: .

Respondent,

Dear Sir/Madam,

RESEARCH QUESTIONNAIRE

I am a graduate student at United States International University-Africa pursuing a Master’s degree in Business Administration. As partial fulfillment of the course, I am conducting a research to identify the effects of globalization on procurement. The study uses Nakumatt Holdings Limited as a case study.

The results from the study will be significant to the organization as the information will help in setting strategic directions. The study will also be insightful to the government in developing policies that regard international trade.

This is an academic research and confidentiality is strictly emphasized, your name will not appear anywhere in the report. Kindly spare 20 minutes to complete the questionnaire attached.

Thank you in advance,

Yours Faithfully,

Victoria Mumassabba

Appendix B: Questionnaire

The purpose of this questionnaire is to effects of globalization on procurement. Please respond by either selecting the response among choices given that best represents your views or by filling the spaces provided.

Part A: General Information

1. What is you gender? Female [ ] Male [ ]

2. What is your Age in years? Below 30 [ ] 31-40 [ ] 41-50 [ ] Above 50 [ ]

3. How long have you worked in your present organization? Below 1 year [ ] 1-5 years [ ] 5-10 years [ ] More than 10 years [ ]

4. What is your highest education level? Secondary Certificate [ ] Diploma level [ ]

Bachelor’s Degree Level [ ] Masters Level [ ]

Doctorate level [ ] Other (specify)………………………

5. What is your management position in the organization? Senior level management [ ]

Middle level management [ ]

Non-management staff [ ]

Part B: Drivers of Global Procurement

6. What is your level of agreement to the following statements relating drives of global procurement in your organization? (5- Strongly agree, 4- Agree, 3-Neutral, 2-Disagree, 1- Strongly Disagree) 1 2 3 4 5

Cost Drivers

My organization prefers sourcing goods and services from other [ ] [ ] [ ] [ ] [ ] countries so as to gain economies of scale

A huge pool of quality products and qualified suppliers at the [ ] [ ] [ ] [ ] [ ] global stage gives Nakumatt a higher bargaining power

Nakumatt sources from other countries due to low international [ ] [ ] [ ] [ ] [ ] prices

Nakumatt holdings consider global sourcing since it accelerates [ ] [ ] [ ] [ ] [ ] technological innovation Competitive Drivers

At Nakumatt, global procurement is viewed as a source of [ ] [ ] [ ] [ ] [ ] competitive innovation

Global procurement of services is used at Nakumatt to attract the [ ] [ ] [ ] [ ] [ ] best talents for competitive advantage

Nakumatt uses global procurement to get products of the highest [ ] [ ] [ ] [ ] [ ] quality

Global procurement is used at Nakumatt to ensure constant supply [ ] [ ] [ ] [ ] [ ] of goods for competitive advantage Government Drivers

Global procurement at Nakumatt was triggered by market [ ] [ ] [ ] [ ] [ ] liberalization

Favorable government policies have ensured efficient procurement [ ] [ ] [ ] [ ] [ ] at Nakumatt

Bilateral trade agreements between Kenya and other countries have [ ] [ ] [ ] [ ] [ ] enhanced ease of global procurement by Nakumatt

Kenya has adopted international quality standards that make it ease [ ] [ ] [ ] [ ] [ ] for global procurement at Nakumatt Technology

Global procurement at Nakumatt is a product of integrated [ ] [ ] [ ] [ ] [ ] procurement systems at the organization Payments for global purchases at Nakumatt is mainly online based [ ] [ ] [ ] [ ] [ ]

Internet has made global procurement at Nakumatt much easier [ ] [ ] [ ] [ ] [ ]

Mobile technology plays a significant role in global procurement at [ ] [ ] [ ] [ ] [ ] Nakumatt

7. What other factors in your opinion drive global procurement at Nakumatt holdings? ………………………………………………………………………………………………

……………………………………………………………………………………

Part C: Global Factors Affecting the Adoption of Global Procurement 8. What is your level of agreement to the following statements relating to the adoption of global procurement in your organization? (5- Strongly agree, 4- Agree, 3-Neutral, 2- Disagree, 1- Strongly Disagree) 1 2 3 4 5

Currency Fluctuations

High currency exchange rates discourage importation of goods by [ ] [ ] [ ] [ ] [ ] Nakumatt

At some points my organization replaces a preferred suppliers [ ] [ ] [ ] [ ] [ ] because of changes in exchange rates

The loss of purchasing power of the local currency against the hard [ ] [ ] [ ] [ ] [ ] currencies leads to high prices on imports

Instability of the local currency prohibits my organization from [ ] [ ] [ ] [ ] [ ] sourcing goods from other countries Complicated Logistics

My organization often suffer adverse logistical issues in port [ ] [ ] [ ] [ ] [ ] clearance and delays

Quite often, my organization fails to procure goods outside the [ ] [ ] [ ] [ ] [ ] country due to high cost of logistics

Procurement from outside Kenya has longer inventory management [ ] [ ] [ ] [ ] [ ] process

My organization often face poor handling of return goods and [ ] [ ] [ ] [ ] [ ] containers Tariffs and non-Tariff Barriers

My organization faces a problem of unreasonable demand on [ ] [ ] [ ] [ ] [ ] standards and quality of imported goods from state agents

We face bureaucratic delays at the custom whenever goods are [ ] [ ] [ ] [ ] [ ] imported from outside the country

Global sourcing of goods at my organization have been hampered [ ] [ ] [ ] [ ] [ ] by road blocks and barriers

Imported goods are less competitive in the domestic market due to [ ] [ ] [ ] [ ] [ ] tariffs levied on imports Culture and Language Differences

Cultural differences lead to instability of the relationship between [ ] [ ] [ ] [ ] [ ] my organization and import suppliers

Cultural and language differences between Nakumatt employees [ ] [ ] [ ] [ ] [ ] and the import suppliers affect business transactions

Miscommunication with a foreign suppliers lead to conflict or [ ] [ ] [ ] [ ] [ ] supply of wrong products

Different cultures and languages between different countries from [ ] [ ] [ ] [ ] [ ] where we source imports have effect on the procurement processes

9. What other factors affect global procurement at Nakumatt?

………………………………………………………………………………………………

……………………………………………………………………………………

Part D: Global Procurement Strategies

10. What is your level of agreement to the following statements relating to global procurement strategies in your organization? (5- Strongly agree, 4- Agree, 3-Neutral, 2- Disagree, 1- Strongly Disagree) 1 2 3 4 5

Low Labor Cost and Quality Standards

Nakumatt often procure from countries with the lowest production [ ] [ ] [ ] [ ] [ ] labor cost

We only order goods from countries were the company spends the [ ] [ ] [ ] [ ] [ ] least on forwarding services

Agency cost is a major deciding factor when Nakumatt sources [ ] [ ] [ ] [ ] [ ] goods outside the country

Nakumatt sources goods only from countries with a reputation for [ ] [ ] [ ] [ ] [ ] quality products Good Transport System

Transport cost is a major deciding factor when Nakumatt sources [ ] [ ] [ ] [ ] [ ] goods outside the country

Nakumatt sources products only from countries with the best [ ] [ ] [ ] [ ] [ ] transport networks

Access to several means of transport determines whether Nakumatt [ ] [ ] [ ] [ ] [ ] sources from a country Nakumatt prefers to source from countries where her staff can easily access for spot-checks of the supplier’s facility to ensure [ ] [ ] [ ] [ ] [ ] they are complying with local laws and regulations

Nakumatt prefers to source from countries where her staff can easily access the market on the ground to learn of any competitive [ ] [ ] [ ] [ ] [ ] threats or supplier knock-offs that might be in the works Good Human Rights Records and Rule of Law

Nakumatt only imports from countries with full democracies [ ] [ ] [ ] [ ] [ ]

As a precondition, Nakumatt considers how employees who make [ ] [ ] [ ] [ ] [ ] the products they import from a foreign country are treated

Nakumatt don’t import products from countries with poor human [ ] [ ] [ ] [ ] [ ] rights records

Nakumatt don’t procure goods from countries considered to be [ ] [ ] [ ] [ ] [ ] having corrupt systems

Nakumatt shies away from purchasing goods from countries with [ ] [ ] [ ] [ ] [ ] poor records of the rule of law Same Language and culture

Nakumatt prefers sourcing of goods from countries of the same [ ] [ ] [ ] [ ] [ ] culture

At Nakumatt, language is a major consideration in selecting a [ ] [ ] [ ] [ ] [ ] country to import goods

Nakumatt only sources goods mainly from those countries with [ ] [ ] [ ] [ ] [ ] similar systems

Nakumatt trains her employees on foreign languages to ease global [ ] [ ] [ ] [ ] [ ] procurement

10. What other global procurement strategies are being used by Nakumatt?

…………………………………………………………………………………………………

…………………………………………………………………………………………

Thank You