Internationalization of business operations by Equity bank Kenya limited

Abstract

Internationalization of business operations refers to the expansion of a firm’s business activities beyond the borders of its home country. Economies are becoming increasingly interconnected and countries around the world have become more financially integrated, driven by the potential advantages arising from financial internationalization. Kenya has reduced its barriers to trade and investment translating to increased foreign competition for local players. Liberalization and technological advances are forcing banks to rethink how to operate their business. As at June 2015 the Kenyan banking industry comprised of 43 licensed commercial banks and 1 mortgage finance company, (out of the 44 institutions, 31 are locally owned and 13 are foreign owned. The locally owned financial institutions comprise 3 banks with significant shareholding by the Government and State Corporations, 27 commercial banks and 1 mortgage finance institution) 12 deposit taking microfinance institutions, 8 representative offices of foreign banks, 86 foreign exchange bureaus and 3 credit reference bureaus. Of the 31 indigenous banks only five have recently established fully-fledged operations in the regional foreign markets. These markets include Uganda, Tanzania, Rwanda, Burundi and Southern Sudan. This study sets out to determine the process of internationalization of indigenous commercial banks of Kenya with specific focus on Equity Bank Kenya Limited. The objective was to determine the internationalization strategies adopted by Equity Bank Kenya Limited in the internationalization of its operations. Internalization comes with an array of challenges ranging from political, legal, social, cultural and even economic as well as shortage of skilled man power in the new market ventured in to. This study also sought to determine the measures put in place by Equity Bank Kenya Limited to mitigate these challenges so as to ensure continued profitable growth. Primary data was collected through interviews using a structured questionnaire and secondary data was collected by way of desk reviews of relevant literature. In total 4 senior managers at Equity Bank Kenya Limited were interviewed. Content analysis was used to analyze the qualitative data. The study finds that internationalization by Equity Bank Kenya Limited was proactively driven by the desire to reach the international market within Africa where a gap in the banking sector’s Financial Inclusion. Internationalization was also pursued with the intent of benefiting from economies of scale which are not easily enjoyed in the already saturated Kenyan banking sector given the cut throat competition from the other big players in the industry. Some of the benefits that Equity Bank Kenya Limited is currently enjoying as a result of internationalization include growth in asset base, market share, capital base and profitability as well as diversification of financial and political risks. The study revealed that for internationalization to be successful, organizations must have in place a strong strategy to guide its expansion plans. Secondly, it concludes that the mode of entry selected in internationalization is crucial, must be aligned to the firm’s overall strategy and can easily determine the firm’s success or failure in the foreign markets. Organizations seeking to grow through internationalization must therefore carry out a detailed feasibility study to the best fit for their organization.