Effects Of Speed Of Internationalization On Performance Of Listed Indigenous Financial Services Companies In Kenya

Abstract

The internationalization of firms can affect firm growth, survival and competitive position, but also influence a nation’s economic growth and development. The financial services sector in Kenya has sought opportunities internationally more than any other sector in Kenya. The Kenyan financial system comprises banks, non-bank financial institutions, insurance companies, microfinance institutions, stock brokerage firms, fund managers. The banking industry with asset base of over Kshs. 2.3 trillion as at 2013 is the largest sector in the Kenyan financial sector. There are currently 20 listed financial services companies at the Nairobi Securities Exchange (NSE) comprising of 11 banks, 6 insurance companies and 3 investment firms. Of these, 17 are indigenous companies while three are subsidiaries of international finance companies. Internationalization refers to the process through which a firm becomes a multinational enterprise. Often, this happens in a series of stages. In the first stage, the firm sells its products and services in the domestic market. In the subsequent stages, the firm may start selling its products abroad and/or establish an international sales network, and in advanced cases of internationalization an individual firm establishes a manufacturing, sales and Research & Development (R&D) operations in a number of countries, effectively becoming a multinational firm (Levitt, 1986). Incremental internationalization process theory builds on knowledge accumulation and experience while international new ventures thrive on their lean structures, lack of structural inertia and quick turnaround of ideas to thrive internationally. This study set out to determine the effects of speed internationalization on performance of listed indigenous financial services firms in Kenya. The objectives were to establish the effects of speed internationalization on performance of listed indigenous financial services firms. This study is very important in generating new knowledge and contributes to academic research and those it's supposed to serve including managers, policy makers and investors in the financial services companies. To answer the research question, a census study of nine listed financial services firms with significant international operations were studied. Secondary data was collected from the companies’ annual financial reports, CMA and NSE. Regression analysis was used to analyze the data and descriptive statistics were computed. The study finds that the speed of internationalization has a positive effect on performance of listed indigenous financial services firms. This was indicated by the ROA P value of 0.014 and the R Squared value. A Pearson coefficient measure showed a strong, significant, positive relationship between ROA and internationalization speed of listed financial services firms in Kenya. Therefore basing on these findings the study rejected the null hypothesis that speed of internationalization has no effect on the financial performance of listed indigenous financial services companies and accepted the alternative hypothesis that speed of internationalization has an effect on performance of listed indigenous financial services firms in Kenya. Speed of internationalization by the firm seems to be related to the degree of firm’s performance. The study concludes that firms should consider the speed at which they internationalize if they want to improve performance. It concludes that faster internationalizing financial firms in Kenya have benefited from higher returns for every shilling invested. The study recommends that more indigenous financial services firms in Kenya seek growth opportunities in the region since expansion internationally affects positively on their overall financial performance.