Problems of internationalization of operations by Kenyan Insurance firms

Abstract

There is a notable absence of empirical studies locally conducted to determine the problems of internationalization of operations by Kenyan insurance firms. Globally some scholars have also lamented on the paucity of research progress in general and a lack of theoretical and empirical rigor of exciting studies in internationalization of services. Internationalization of small firms especially from a developing country’s perspective has received little attention in academic enquiry. A review of local literature shows that although there have been several research studies done on the insurance industry; none touch on the problems of internationalization. Even more numerous studies have looked at internationalization of operations in other service industries with a strong emphasis on Kenyan banks. The study established primarily that lack of knowledge and expertise to assess opportunities in foreign markets hinders the internalization of the operations of insurance firms. Study findings from chapter four indicate that 37.8% of the insurance firms have not internationalized their operations. The majority of those that have internationalized have operations in Tanzania followed by Uganda which validates the Upsalla model of internationalization on the aspect of psychic distance. The study also indicated that network of branches, joint ventures and merger and acquisitions do not form the current operations in the countries Kenyan insurance firms are operating. However, the study established subsidiaries was the preferred mode of entry for the majority of the insurance firms in foreign countries. The study findings indicated that firm’s motives in setting up operations in another country are based on search for new markets, incentives offered by the regional integration, firm’s strategy and financial and political risk diversification strategy. Client following, increasing shareholder wealth and bandwagon effect does not motivate Kenyan insurance firms to venture in other foreign markets. Host government laws, political instability, gaining client confidence and competition from local firms were also established to be major problems for the internalization of the operations in the foreign market for Kenyan insurance firms. In addition to lack of knowledge and expertise to assess opportunities in foreign markets, lack of capital to finance expansion, domestic market focus and lack of support from the Kenyan government impedes the internationalization of insurance firms. In effect the findings herein tended to support the Upsalla model of internationalization and the upper echelons theory in as far as respondents confirmed that a lack of knowledge and expertise hindered the internationalization of firms and further that so many of the firms were focusing on the local market alone to the exclusion of opportunities in the regional market. The study recommends that host countries should enact laws that enable a fair competitive environment for the operations of the foreign insurance firms. Trade restrictions should be abolished for East African Region to enhance the internationalization of operations by Kenyan insurance firms. Political stability should be embraced within East Africa region to encourage internalization of Kenyan insurance firms. Peaceful nations attract foreign investors since security and protection of investments is assured. The government of Kenya should support insurance firms who are willing to expand their market base beyond Kenya. There is therefore urgent need to relook the regional integration strategy to come up with solutions uniquely Kenyan to facilitate internationalization process. This can only be attained through engagement and deeper consultations with the stakeholders.