The Internationalization Process of Commercial Banks in Kenya

Abstract

Internationalization of business is the expansion of a firm’s activities into foreign markets. It is a business strategy influenced by internal and external forces; proactively or reactively such as profit, growth goals, economies of scale, sale of seasonal products, opportunities in foreign markets and competitive pressures. The banking industry in Kenya has 44 commercial banks which have operations in foreign markets; some are foreign owned while a good number of the local banks have internationalized into several countries. In the process of internationalization firms adopt different models such as the Uppsala model, Network models, Vernon’s product life cycle model, Eclectic model and Born global and Born again global models. The expansion of business into foreign markets faces cultural challenges that cut across national, business environment and organizational cultures. The operating costs increase, firms may have insufficient funds to invest in the foreign markets and they face unfair competition from firms in the foreign markets. The bulk of studies on internationalization have focused on developed economies; while studies on Kenyan banks have focused on strategy. This study focuses on the internationalization of commercial banks in Kenya, with the objective of determining the processes adopted and challenges encountered. The research was done by carrying out a cross sectional survey on a population of 21 internationalized banks. The findings of the study indicate that the banks commonly applied the Uppsala, Born global and Born again global models. The main challenges are cultural differences and increased operational costs in the foreign markets. The recommendations of the study are for the banks to consider the influence of the external business environment. The recommended are for further research on the impact and management of cultural challenges.