Adoption Of Diversification Strategies And The Perfomance Of State Owned Sugar Firms In Western Region In Kenya

ABSTRACT

Diversification as strategy has been widely discussed in the strategy field, where the majority of

studies have examined the performance consequences of diversification even though the nature of

this relationship still remains largely unresolved. Several scholars view diversification as the

strategy of adding related or similar product/service lines to existing core business, either through

acquisition of competitors or through internal development of new products/services, which

implies increase in available managerial competence within the firm. The main objective of this

study was to examine the effect of diversification strategies on the performance of state owned

sugar firms in Kenya, and considered the motives of diversification by sugar firms in Kenya, the

effect of horizontal diversification, concentric diversification and conglomerate diversification on

the performance of state owned sugar firms. The study employed descriptive survey study research

design. The target population of the study comprised of all sugar firms, found in western Kenya;

Nzoia sugar, Sony sugar, Chemelil sugar, Muhoroni and Miwani, that are state owned. From the

accessible population, the unit of analysis was Heads of departments and senior sectional heads

involved in strategic decision making, ten managers from each firm. Primary data was collected

using structured questionnaires which were administered to the respondents. The data collected in

the questionnaire was coded and analyzed using Statistical Package for the Social Sciences, version

20 and the results presented in form of tables. Pearson’s coefficient of correlation, simple

regression and multiple regressions were used to ascertain the relationship between organizational

performance and diversification strategies. From the results, the R coefficient of horizontal

diversification and performance was 0.027 while R square was 0.001 at p=0.880. That meant the

relationship between horizontal diversification and performance was insignificant. The student t

test reduced from 5.981 at p=0.000 to 0.5942 at p=0.877 which was insignificant. Therefore

horizontal diversification did not have any significant influence on performance of state owned

firms. The hypothesis was therefore accepted. The findings showed that 13.8% (given R square

was 0.138, p=0.033) of performance of state owned firms was explained by concentric

diversification. That meant the relationship between concentric diversification and performance

was significant. The student t test reduced from 5.981 at p=0.000 to 0.5942 at p=0.877 which was

insignificant. In other words, the concentric diversification had significant influence on

performance of state owned firms. The hypothesis was therefore rejected. The relationship between

conglomerate diversification and performance of state owned firms had R coefficient of 0.204

while R square was 0.0311 at p=0.256. That meant conglomerate diversification had insignificant

effect on performance of state owned firms. The student t test reduced from 2.1901 at p=0.000 to

0.5942 at p=0.791 which was insignificant. In other words, the conglomerate diversification did not

have any significant influence on performance of state owned firms. The study concluded that

horizontal diversification, concentric diversification and conglomerate diversification had a

significant influence on firm performance of state owned sugar companies. The study recommends

the concerned management of state owned sugar firms should be updated on matters pertaining

diversification strategies and thus embrace positively strategies that will enable them make wise

decisions as far as management of manufacturing companies is concerned. Also the management of

state owned sugar firms need at all times evaluate and monitor the implementation of the

diversified strategies employed for them to have an overview of their progress and if they

are achieving their intended goals and objectives.