Vertical integration and competitive strategy of dairy processors: a case of Githunguri dairy farmers Cooperative Society Limited

Abstract

This study sought to find out the linkage between vertical integration and competitive strategy. It took the form of a case study of Githunguri Dairy Farmers Cooperative Society which is located about 50km from Nairobi in, Githunguri Division of Kiambu District in Central Province. Githunguri Dairy Farmers Cooperative Society Limited has pursued significant business growth by being involved in raw milk supply, milk transportation, milk processing and packaging as well as marketing and distribution of dairy products. By use of an interview schedule, the researcher interviewed directors, managers and the supervisors of the Society for the purpose of collecting primary data. Desk review of existing literature was also carried out to aid in understanding what has been done in relation to linkage between vertical integration and competitive strategy. The collected qualitative data was analyzed using content analysis which was deemed appropriate, since the interviews conducted were open-ended and did not limit respondents on the answers. For quantitative data, graphs and tables have been used to summarize the data to facilitate comparisons. The analysis of the data was guided by variables such as improvement in raw milk collection, milk processing, sales revenue and market share in relation to increased competition and variations in the dairy value chain. The study has established that Githunguri Dairy Farmers Cooperative Society (GDFCS) has integrated supply of raw milk with processing, transportation and distribution of dairy products. The integration has leveraged economies of scale thus providing linkage between vertical integration and the competitive strategy. The economies of scale and efficiency brought about by vertical integration translate to cost advantages which are then passed to the consumers. This forms the core around which the Society executes a cost leadership strategy. The Society's cost advantage is built on its capability to process. and distribute affordable and quality dairy products for the mass market, thus translating to growth in its market share.