Diversification Strategy on the Performance of South Nyanza Sugar Company Limited, Kenya

Abstract

Diversification is the strategy of introduction of new product line or services to the market or reaching out to new markets with the same product with the aim of increasing revenue base and reducing the risks of over reliance on one product. After years of losses, the South Nyanza sugar company limited started a diversification strategy to jumpstart it into increased revenue and profits realization. The company diversified into ethanol production from molasses, selling molasses to distilleries and farmers, electricity generation to power the factory plant, supply energy to the company owned staff residential estates and the national grid; production of briquettes from bagasse, fueling power boilers from remnant of cane fiber after juice extraction and filter press mud. This study therefore explored whether this diversification process of Sony Sugar realized improved performance or not. The research collected both primary and secondary data. Primary data was in the form of interviews, which were administered to the departmental and divisional heads while the secondary data was collected from the revised annual plans of Sony Sugar. The study established that the diversification strategy of Sony Sugar had improved the performance of Sony Sugar as well as increasing the operating cost of the company. The study established that the diversification strategy had increased the profits and revenue of the company by 30%. The study also established that the diversification strategy had improved the value of the firm by increasing sales of the main product of the company through smart pricing as a result of lower electricity cost due to local production of electricity, addition of assets to the company, improved revenue streams, created new partnerships with other organizations and development of new products for new markets. The study recommends that that the company adopts a policy of outsourcing or franchising the diversified operations to other organizations but retaining the infrastructure. This will see to it that the company reduces the increasing operation cost as a result of diversification but still make profits. The study recommends that the company should adopt a policy of staff optimization whereby some duties of the diversified operations and the main operation which is sugar production are merged and assigned to the same employees. The study suggests that future researchers should do the same study but involve the views of managing director and staff this is because they may have more strategic and technical information on diversification in Sony Sugar.