The main purpose of this chapter is to lay down the ground for the study area as well as to elaborate on the research a problem that is examined by this study. This study will look the key determinants of internationalization of selected Kenyan pharmaceutical and medical equipment firms. This chapter contains the background of the study, statement of the problem, research objectives, research question, significance, limitations and assumptions of the study.
1.0 Background of the study
Globalisation is the shift from self-contained or independent national economies towards an interdependent and integrated global economic system. Globalization is a platform that enables firms to operate beyond their national borders thus making them able to achieve their objectives and goals. Globalization has pushed firms to expand their operations outside their home country, this expansion is done in stages where the firm at first focuses only on its local market with no export, then will later start exporting via an agent, followed by the establishment of a sales subsidiary then ultimately establish a production or manufacturing unit. When internationalizing the question of when and how to access the host country is critical to the MNC`s success.
According to Matusitz and Minei (2013), globalisation has allowed MNCs to set a wide range of strategies, enabling them to effectively and efficiently conduct their cross border operations. Global markets players are referred to as multinational corporations (MNCs). A multinational corporation (MNC) is an organization characterized by ownership of production facilities and other assets in more than one country excluding its home country and a centralized head office that helps in the overall coordination of all management activities of its branches or subsidiaries (Leonard, Pulignano, Lamare, & Edwards, 2014). A multinational corporation (MNC) can further be defined an organization whose cross border operations are characterized by a common strategy formulation and implementation.
The MNCs are also characterized by their ownership of productive assets in host countries. Nisar, Boateng, Junjie, and Leung (2012) assert that levels of control, ownership and different resource commitment factors have the ability to influence the MNCs market entry mode decision. Market entry mode choices are a mixture of commitment of single factors; external factors and internal factors. These factors are further explained through various theories and surveys. The decision to internationalize requires a thorough and meticulous evaluation of all market entry modes, the potential political, economic, cultural and other risks to ascertain the business environment conduciveness in a host country
According to Hajela and Akbar (2011), the MNCs mode market access, information, position, and the ease of acquisition of resources are dependent on the choice of market entry mode. Market entry mode is vital and associated to control. Control is a key to the success of MNCs because it ensures that risks are minimized, returns on investment are maximized thus increasing performance through reduction of lead time by supplying quality products and services to right clients at the right time. This will increase the organization goodwill. The MNC expansion strategy is a key determinant of market entry decision, it ensures that the firm through its core competencies is able to exploit the host country`s opportunities, resources and capabilities to remain competitive in international markets. Andrew (2011) asserts that MNCs are sensitive to the host country`s size , availability of resources , industry development, market competition, a partnering firms availability, requirements and regulations when deciding on the appropriate market entry strategy because the MNC`s decision of how to access a international markets has a significant impact on its financial performance.
According to Gathirua (2013), the MNCs market operations are conditioned by their foreign entry mode choice, the choice of market entry strategy has a huge impact on the firm`s future decisions and performance in foreign markets due to complex, continual change and dynamic business environment. Most firms choose market entry strategies that allow them to take advantage of the chances in the economy in a manner that is bearable (Lau & Hurly, 2012). A company can access internationalize via investment or non-investment modes (Hajela et al., 2011).The multinational firm can expand through: mergers and acquisitions, joint ventures, contractual entry modes and wholly owned subsidiaries investment.
1.1.1 Manufacturing firms in Kenya
The manufacturing sector in Kenya is one of the fastest-growing sectors and a major source of employment in Kenya. According to Nyori and Ogola (2015), the firms in the Kenyan manufacturing sector manufacture a wide range of items generally designed to meet the domestic needs of low-income households although some are exported to neighboring countries. KAM is the representative organization for manufacturing value-add industries in Kenya. Established in 1959 as a private sector body, KAM provides links for cooperation, dialogue members to the relevant authorities. KAM promotes trade and investment and standards and encourages the formulation, enactment and administration of sound policies that facilitate a competitive business environment and reduce the cost of doing business.
1.1.2 Pharmaceutical and medical equipment sector in Kenya
In Kenya the pharmaceutical industry plays a major role in supporting maintaining the health sector. According to Weru (2018), Kenya is currently the largest producer of pharmaceutical products in the Common Market for Eastern and Southern Africa (COMESA) region, supplying about 50 per cent of the regions’ market. The Pharmaceutical manufacturing in Kenya can be traced back to the 1940s. Wamae and Kariuki (2014) have observed that Local production is now predominately undertaken by locally owned firms and that the vast majority of pharmaceutical manufacturing companies in Kenya are engaged solely in formulation activities i.e. converting manufactured bulk substances into final usable forms and packaging. The pharmaceutical industry in Kenya is growing at a rapid pace and offers excellent opportunities for exporters and manufacturers to establish their products and services in the lucrative market for pharmaceuticals in East Africa. Kenya is currently the largest producer of pharmaceutical products in the Common Market for Eastern and Southern Africa (COMESA) region, supplying about 50% of the regions’ market.