ADOPTION OF DIVERSIFICATION STRATEGIES AND THE PERFOMANCE OF STATE OWNED SUGAR FIRMS IN WESTERN REGION IN KENYA

Abstract

Diversification as strategy has been widely discussed in the strategy field, where the majority of studies have examined the performance consequences of diversification even though the nature of this relationship still remains largely unresolved. Several scholars view diversification as the strategy of adding related or similar product/service lines to existing core business, either through acquisition of competitors or through internal development of new products/services, which implies increase in available managerial competence within the firm. The main objective of this study was to examine the effect of diversification strategies on the performance of state owned sugar firms in Kenya, and considered the motives of diversification by sugar firms in Kenya, the effect of horizontal diversification, concentric diversification and conglomerate diversification on the performance of state owned sugar firms. The study employed descriptive survey study research design. The target population of the study comprised of all sugar firms, found in western Kenya; Nzoia sugar, Sony sugar, Chemelil sugar, Muhoroni and Miwani, that are state owned. From the accessible population, the unit of analysis was Heads of departments and senior sectional heads involved in strategic decision making, ten managers from each firm. Primary data was collected using structured questionnaires which were administered to the respondents. The data collected in the questionnaire was coded and analyzed using Statistical Package for the Social Sciences, version 20 and the results presented in form of tables. Pearson’s coefficient of correlation, simple regression and multiple regressions were used to ascertain the relationship between organizational performance and diversification strategies. From the results, the R coefficient of horizontal diversification and performance was 0.027 while R square was 0.001 at p=0.880. That meant the relationship between horizontal diversification and performance was insignificant. The student t test reduced from 5.981 at p=0.000 to 0.5942 at p=0.877 which was insignificant. Therefore horizontal diversification did not have any significant influence on performance of state owned firms. The hypothesis was therefore accepted. The findings showed that 13.8% (given R square was 0.138, p=0.033) of performance of state owned firms was explained by concentric diversification. That meant the relationship between concentric diversification and performance was significant. The student t test reduced from 5.981 at p=0.000 to 0.5942 at p=0.877 which was insignificant. In other words, the concentric diversification had significant influence on performance of state owned firms. The hypothesis was therefore rejected. The relationship between conglomerate diversification and performance of state owned firms had R coefficient of 0.204 while R square was 0.0311 at p=0.256. That meant conglomerate diversification had insignificant effect on performance of state owned firms. The student t test reduced from 2.1901 at p=0.000 to 0.5942 at p=0.791 which was insignificant. In other words, the conglomerate diversification did not have any significant influence on performance of state owned firms. The study concluded that horizontal diversification, concentric diversification and conglomerate diversification had a significant influence on firm performance of state owned sugar companies. The study recommends the concerned management of state owned sugar firms should be updated on matters pertaining diversification strategies and thus embrace positively strategies that will enable them make wise decisions as far as management of manufacturing companies is concerned. Also the management of state owned sugar firms need at all times evaluate and monitor the implementation of the diversified strategies employed for them to have an overview of their progress and if they are achieving their intended goals and objectives.