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Strategies Used by Equity Bank to Compete in the Kenyan Banking Industry

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Strategies Used by Equity Bank to Compete in the Kenyan Banking Industry STRATEGIES USED BY EQUITY BANK TO COMPETE IN THE KENYAN BANKING INDUSTRY BY DEREK ARIEL ABISHUA A MANAGEMENT RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION, UNIVERSITY OF NAIROBI NOVEMBER 2010 Declaration This management research project is my original work and has not been presented for a degree in any other university. Signature.... Date.....^ DEREK ARIEL ABISHUA (D/P/61/8503/2000) This management research project has been submitted for examination with my approval as the University Supervisor. S igna t u r e ...... Dat DR. JOHN YABS n Dedication This project is dedicated to my mother Margaret Njeri Matigi to whom I owe so much. I highly cherish your love, encouragement, support, and guidance throughout all these years. Above all, thank you so much for training me to believe in myself. 111 Acknowledgement Work on this project has been a valuable intellectual and personal experience and there are many people I would like to acknowledge for their contributions and support in the process. First and foremost I would like to offer a sacrifice of thanks giving to the Lord King of heaven for his faithfulness. This is another living testimony that he will bring to pass whatever we commit to. Thanks again to you Lord Jesus Christ. My deepest appreciation goes to my Supervisor Dr. John Yabs for his unwavering support with this project and the entire MBA course. Thank you, Dr. Yabs for your encouragement, insight, counsel, time, effort and for the constructive way you challenged my thoughts on the topic of this thesis. I will forever feel highly honoured to have been raised by a great scholar like you. My appreciation also extends to the many scholars whose writings have enriched the literature on the topics of competition and strategy. They are listed in the bibliography section, and those with multiple citations deserve my special gratitude. I also benefited greatly from my fellow graduate business students at the University of Nairobi, School of Business whose writings and discussions greatly stimulated my thinking. I would like to also register my appreciation for the financial support I got from the directors of Lakestar Insurance and United Insurance may my God remember what they did and reward them bountifully. Special thanks to my cousin Livingstone Karethiu Mbaire for his precious gift of a laptop that used to write my many drafts. IV I can't forget the “wild dreams” my late Dad, James Matigi had for me nor the prophetic words of how I will be a great scholar my childhood teacher, Abigail Kiragu which still linger and have cheered me this far. Finally, I owe special thanks to my wife, Ivana and our children Adiela, Danasaher, and Joshua for their devoted interest, and support during this thesis work, and also for their patience and understanding for the long hours I have spent on this paper. v Abstract The banking industry has experienced a rapid growth in terms of profits, deposits, revenues during the Kibaki’s era. This trend has triggered a lot of competition in the banking industry. Equity Bank has managed to weather this competition to stand out as one of the most successful Kenyan businesses today. This paper analyzes the strategies that are being used by Equity Bank to compete in the Kenyan banking industry. To achieve this objective, the study intended to use structured questionnaires; the target respondents were the senior employees of Equity Bank but the target respondents were not accessible. The researcher resorted to using secondary data for the study instead. The data was analyzed using both descriptive and inferential statistical analyses. The study found that Equity Bank uses the following strategies to respond to competition in the banking industry: product offering diversification, branch and regional expansion, relationship marketing, financing, customer-care, innovation, and information technology strategies. The study found Equity Bank to be a very adaptive bank with a versatile reactionary mechanism to exploit any emerging gaps in the banking industry. The bank has been able to create new markets in uncontested areas like hair salons, millet growing (for brewing) and dairy industry, so its competition strategies are heavily bent on using “blue ocean strategies”. The study therefore concludes that Equity Bank has managed to build competitive advantages that can be exploited to sustain and further its growth. Historically Equity Bank strategy was focused on the low end market segment however the bank has created now infrastructure and organizational structures and has included SME’s and corporate banking in its evolving strategy. vi The Equity Bank case study is relevant to people studying the following topics: Business in Kenya, bank pricing, marketing, micro-finance, bank business model, and strategy. ‘ 4 1 H vii Table of Contents Declaration............... *....................................................................................................................n Dedication......................................................................................................................................iii Acknowledgement.........................................................................................................................iv Abstract.......................................................................................................................................... vi Table of Contents.........................................................................................................................viii List of Acronyms and Abbreviations............................................................................... *...........x CHAPTER I: INTRODUCTION........................................................... 1 1.1 Background.................................................................................................................1 1.1.1 Kenyan Banking Business Environment................................................................3 1.1.2 Banking Industry.......................................................................................................8 1.1.3 Equity Bank..............................................................................................................11 1.2 Statement of the Problem...........................................................................................15 1.3 Objectives of the Study.............................................................................................. 16 1.4 Significance of the Study...........................................................................................16 CHAPTER II: LITERATURE REVIEW.............................................................................18 2.1 Strategy..............................................................................................................................18 2.1.1 Industry Analysis.....................................................................................................19 2.1.2 SWOT Analysis...................................................................................................... 21 2.2 * Competitive Strategy Frameworks............................................................................... 22 2.2.1 Generic Strategies...................................................................................................22 2.2.2 Customer Intimacy Strategies..............................................................................24 2.2.3 The Delta Model.....................................................................................................25 2.2.4 Blue Ocean Strategy.............................................................................................. 27 2.3 Competitive Responses.................................................................................................. 28 2.3.1 Diversification Strategies......................................................................................29 2.3.2 Business Acquisition Strategies............................................................................31 2.3.3 Value Chain Strategies............................................................................................32 2.3.3.1 I Financing Strategies......................................................................................... 33 2.3.3.2 Marketing Strategies........................................................................................... 36 2. 3. 3.3 Information and Communication Technology Strategies..............................42 2.33.4 Customer Care and Operation Strategies........................................................44 2.33.5 Human Resource Strategies.............................................................................. 47 CHAPTER III: RESEARCH METHODOLOGY.............................................................50 3.1 Research Design..........................................................................................................50 3.2 Data Collection.............................................................................................................. 50 . 3.3 Data Analysis............................................................................................................... 50 CHAPTER IV: DATA ANALYSIS AND FINDINGS........................................................ 51 4. i Number of Respondents..............................................................................................51 4.2 General
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