CHAPTER ONE INTRODUCTION

Background Organizations exist as open systems and hence they are in continuous interaction with the environment in which they operate. The environment in which the organizations operate is never static. All organizations lend themselves to this environment which is highly dynamic, chaotic, and turbulent that it is not possible to predict what will happen and/or when it will happen. Consequently, the ever-changing environment continually presents opportunities and challenges. To ensure survival and success, firms need to develop capability to manage threats and exploit emerging opportunities promptly. This requires formulation of strategies that constantly match capabilities to environmental requirements. Success therefore calls for proactive approach to business (Pearce and Robinson, 2003). One of the challenges presented by a dynamic environment is increased competition. Competition is indeed a very complex phenomenon that is manifested not only in other industry players but also in form of customers, suppliers, potential entrants, and substitute products. It is therefore necessary for a firm to understand the underlying sources of competitive pressure in its industry in order to formulate appropriate strategies to respond to competitive forces (Porter, 1989). Porter (1989) further notes that the essence of formulating competitive strategy is relating a company to its environment. He observes that the intensity of competition in an industry is neither a matter of coincidence nor bad luck. Rather, competition in an industry is rooted in its underlying economic structure and goes well beyond the behaviour of current competitors. Due to the changing environment that is fraught with increased competition for the limited resources, market share, and new competitive challenges; implementation of competitive strategies within organizations is very important. This is essentially due to the firms quest to

finding less threatening ways to do business, keeping their customers loyal to the firms products and services and keeping them off those competitors. Firms are in competition with each other when they try to sell identical products and services to the same group of customers or try to employ factors from the same group of suppliers. Porter (1985) observes that for firms to be able to retain competitive advantage, they need to examine their environment both internal and external and respond accordingly. Ansoff and McDonnel (1990) also point out that the success of every organization is determined by the match between its strategic responsiveness and strategic aggressiveness and how these are matched to level environmental turbulence. This is because each level of environmental turbulence has different characteristics, requires different strategy(ies), and requires different firm capabilities. Therefore, each level of environmental turbulence requires a matching strategy, and the strategy has to be matched by appropriate organizational capability for survival, growth and development. Fundamental forces of change have been experienced in the global business environment resulting in unprecedented competition. Organizations responding to these changes have realized that their existing strategies and configurations may no longer serve them well (Ansoff and McDonnell, 1990). The Kenyan environment is not exempted from what the global scenes are experiencing. Organizations being environment dependent, they have to constantly adapt their activities and internal configurations to reflect the new external realities and failure to do this may put the future of an organization in jeopardy (Aosa, 1998).

1.1.1 Expansion Strategies Expansion strategies are game plans to grow and position a firm in a competitive manner. Firms usually apply expansion strategies to grow bigger in size in order to gain from economies of scale for instance in risk reduction through diversification, increase their market share and profitability, improve their financial strength and improve technological capacity. As a crucial driver of success and sustainability, growth allows firms to expand their portfolio by providing their products and services to a larger number of clients while at the same time fulfilling other missions. Organizations can use a variety of organizational structures to facilitate expansion,
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including:

Growing existing operations, legal restructuring, franchising, strategic alliances,

mergers and Acquisitions (Robert, 2000) There are two models that help answer this question. These are: Customer-centric approach and firm-centric approach. In the customer-centric approach, the organizations first seek to understand customer needs and demands. This includes current and future trends in the marketplace. Once the organization determines the types of products and services customers are demanding it must then consider whether it can meet these needs given its internal capabilities and resources. The organization must also consider how offering these products and services fits into its overall strategy. If it determines that its internal capabilities cannot meet these customer needs, yet offering these particular products and services fits into its overall strategy, it should begin considering various expansion strategies. Furthermore, the organization should consider which other organizations offer the products and services the customer is demanding then it can consider opportunities to partner or potentially acquire. (Markusen et al 1995) In the firm-centric approach, an organization evaluates its internal capabilities (core competencies, current product offering, legal structure, and available resources). If these internal capabilities cannot meet external market factors (such as increased competition, increased commoditization, increased customer demand, etc.), the organization should consider various expansion strategies (Doyle, Gillian, 2002). 1.1.2 Equity Bank Group Equity Bank commenced business on registration in 1984. It has evolved from a Building Society, a Microfinance Institution, to now the all inclusive Nairobi Stock Exchange and Uganda Securities Exchange public listed Commercial Bank. With over 6.3 million accounts, accounting for over 57% of all bank accounts in Kenya, Equity Bank is the largest bank in the region in terms of customer base and operates in Uganda and South Sudan. Equity Bank continues to receive both local and global accolades for its unique and transformational business model. The Bank is credited for taking banking services to the people through its accessible, affordable and flexible service provision.
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Equity Bank Group is a financial services organization in East Africa. The Group's headquarters are located in Nairobi, Kenya, with subsidiaries in Kenya, Uganda, and South Sudan. The Group plans to open subsidiaries in Rwanda and Tanzania. The bank had an asset base valued at over US$1.7 billion (KES:143 billion), as of December 2010, with shareholder's equity valued at about US$323.5 million (KES:27.2 billion. individuals. The companies that comprise of the Equity Bank Group include but are not limited to the following: 1. 2. 3. 4. 5. 6. 7. 8. 9. Equity Bank - Nairobi, Kenya Equity Bank (South Sudan) - Juba, South Sudan Equity Bank (Uganda) - Kampala, Uganda Equity Consulting Group Limited - Nairobi, Kenya Equity Insurance Agency Limited - Nairobi, Kenya Equity Nominees Limited - Nairobi, Kenya Equity Investment Services Limited - Nairobi, Kenya Finserve Africa Limited - Nairobi, Kenya Equity Group Foundation - Nairobi, Kenya The group's customer base in the region it serves is estimated at over 5.9 million companies and

The stock of Equity Bank Group is traded on the Nairobi Stock Exchange, under the symbol: EQTY. On Thursday 18 June 2009, the Group's stock cross listed on the Uganda Securities Exchange and started trading that day, under the symbol: EBL

Equity offers financial services through its wide network of Branches in Kenya, Uganda and South Sudan supported by Alternate Delivery Channels which include:

Visa branded ATM's in Kenya Points of Sale (POS) where customers shop; pay and withdraw cash in leading retail outlets. Internet and mobile banking channels The Bank runs on a Global Robust State of the Art Information Technology Computer System supported by Infosys, HP, Oracle and Microsoft.

Agency Outlets

As a Bank, Equity is guided by the following Core Values which they uphold in all the activities they undertake. These are: Professionalism Integrity Creativity and Innovation Teamwork Unity of purpose Respect and dedication to customer care Effective Corporate Governance

Equity Bank's performance has been improving year from year at a time when the bank has been feted and recognized globally for its interventions at the bottom of the pyramid, SMEs and in agriculture. Africa Investor in September 2011 in Washington recognized Equity Bank as the Best Initiative in Support of SMEs and the Millennium Development Goals while Dr. James Mwangi the CEO, was named as the African Banker of the Year for the second year running at the 2011 African Banker Awards during IMF/World Bank annual meetings. The World Economic Forum recognized Equity Bank as the only financial service provider in the Emerging markets which meets the threshold of sustainability based on a criteria covering, innovation, growth and corporate sustainability.

1.1

The Statement of the problem

Organisations are guided by their vision and mission in order to attain both their short term and long term objectives. Senior managers have the sole responsibility of formulating and supervising the implementation of strategies for their organizations through their subordinates. The vision of a given organisation underlines the strategic direction that the company wants to take or put in another way, where it wants to be in a given period of time. A mission statement is a statement of the overriding direction and purpose of an organisation while objectives are statements of specific outcomes that are to be achieved. (Johnson G. et al, 2006). When an organisation adopts a strategy to expand its operations beyond its existing boundaries, it is prudent for managers in charge of corporate strategy to scan the environment with a view to identifying the expected or potential changes in the environment as the changing variables will give rise to opportunities and threats for the organisation. Since these variables are likely to pause great challenges to the strategic capability of the organisation i.e. resources and competences must be analysed with the sole purpose of the internal influences and constraints on strategic choices for the future. The study by Kieti John (2006) addressed the determinants of foreign entry strategies a case of Kenyan firms venturing into Southern Sudan. Vincent (2005) looked at challenges to strategy implementation at CMC Motors group limited and successfully enumerated the challenges experienced across all levels within the organisation. It is highly likely that the authors of these studies have assumed a similar success story in its subsidiaries (Uganda and Tanzania). Equity bank Group had an uphill task when it entered Uganda and Southern Sudan less than three years ago. Besides the huge initial investments in the subsidiaries, the impact of the new branches on the groups profitability must have been a difficult pill for the banks management and shareholders to swallow. The venture forced Equity bank into unfamiliar territory where its profit before tax (PBT) for the year 2009 grew by a single digit (five per cent) compared to a growth of 111 per cent in the previous period (2008).

It all began when the bank acquired Ugandas biggest microfinance bank Uganda Microfinance Limited (UML) in June 2008 and converted it into a fully-fledged bank Equity Bank Uganda Limited in December 2008. The bank paid out Ksh1.66 billion ($25.3 million) in the deal that saw it take up 100 per cent of the banks share capital in 2008. Equity inherited 28 branches and 14 contact offices from the deal. Although Equity Uganda posted a loss of Ksh600 million ($7.414 million) for the first half of 2010, the banks CEO Dr James Mwangi said it is its learning centre, whose experiences will inform future expansion to complete its plans to venture into at least 10 countries in Africa in the next five years, and roll out into the COMESA region in ten years. In the same year the bank opened subsidiaries in Southern Sudan and acquired an investmentbanking license from Juanco investment Bank Limited. The acquisition helped Equity Bank dispose off excess liquidity, which stood at 77 per cent by the close of 2007, and rose 25 per cent following the buy-in by Helios EB. The new entities pulled a combined loss of Sh1 billion in 2009, eroding Equitys bottom-line and eating into shareholders earnings. The groups total Non Performing Loans (NPLs) increased 91.1 per cent to Sh4.8 billion on a year-on-year basis, while the level of net NPLs as a proportion of gross loans and advances surged from 3.9 per cent to 4.7 per cent. The bank adopted a cautious approach in lending and scaled up provisions for bad debts to stay afloat, while hoping that the investment banking division, and all of its newly opened branches in Kenya, Uganda and Southern Sudan would break- even before June last year. The banks regional expansion strategy has not been a smooth road to success. A lot of challenges have been encountered and the management have had to re-think some of the strategies for sustainable growth. This research aims at investigating the strategies that Equity group has implemented in its growth and expansion and also identify key challenges encountered.

1.3 Objectives of the study 1. To identify the strategies Equity bank group has used in its regional expansion 2. To identify the challenges the bank has encountered in its expansion 3. To recommend ways of overcoming the challenges faced

1.4 Importance of the study The study will be useful to the Senior managers in charge of strategy formulation in the at the Equity bank group as they will understand the challenges that threaten to blur the organisations vision and therefore enable them to do adequate environmental scanning before investing in foreign markets and also come up with practicable solutions to counter the challenges. The study will also be useful to other companies that have presence in the East African Market or have plans to pursue regional expansion especially with the first tracking of the East African community common market. Other banks that would want to venture into the East African Market will learn the pitfalls and the successes of Equity bank group and ensure that they have a successful take off and maintain a steady cruise level. It is also expected that the study will provide policy makers in the East African Countries with an insight into the problems faced by investors in their respective countries that are likely to discourage foreign investment. For instance Kenya is the second largest investor in Tanzania after Britain and it is only logical that investment policies in such an environment should be more conducive than repulsive. For the researchers and scholars this project will be useful as a reference material especially in researching other industries and expansion strategies in other regions.

CHAPTER TWO LITERATURE REVIEW

2.1 International Market Entry Modes International Market Entry Mode is a widely used concept in international management, strategy and marketing literature, where it has been applied to explain the degree of internationalization, risk, and the performance of the firm. The present paper explains the inappropriate use of this concept within current international marketing literature. The comprehensive framework for looking at the international market entry modes will be presented in order to correctly use the concept. For explanatory purposes I will divide the concept of International Market Entry Mode (IMEM) into three parts: international, market and entry mode. International: The term international has several meanings and is used differently; generally, it is concerning or belonging to all (or at least two) nations, and is used as an adjective (examples: international company, international product, and international affairs). This adjective by nature explains incidents both moveable and immovable. In their discussion of the international management domain, Boddewyn (1999) and Boyacigiller and Adler (1997) argued that by definition, international is contextual. It specifically includes the environment external to the domestic in which firms conduct business. As Boddewyn stated (1997, 1999) international means the crossing of national borders.

Market: In marketing, the term market refers to a group of consumers or organizations interested in a product, have the resources to purchase the product, and are permitted by law and other regulations to acquire the product (Kotler & Armstrong 1993, 2010), (McCarthy & Perreault, 1990). Consumer market and business markets are two different types of markets generally discussed within marketing literature. Consumer markets are the end-users of the product or service, and include individuals and households that are potential or actual buyers of products and services.

Business markets include individuals and organizations that are potential or actual buyers of goods and services that are used in, or in support of, the production of other products or services that are supplied to others. The term market by definition covers both buyers and end users. In essence, a market is a set of actual and potential buyers of a product (Kotler & Armstrong, 2010, Levens, 2010). Since a market is a collection of human elements, market by definition is a moveable element.

Entry Modes: In a broad and general sense, entry modes or operation methods refer to the way of operating in the foreign market (Welch, Benito, and Petersen, 2007). In reaching strategic objectives, firms may choose from various entry modes. Typical modes of entry include exporting, licensing, joint ventures, acquisitions, and green-field investments (Davis, Desai and Francis, 2000). Examining different types of entry modes, Welch, Benito, and Petersen (2007) classify entry modes into contractual, exporting and investment modes. Figure 1: Foreign market entry modes

Contractual Modes

Exporting

Investment Modes

Franchising Licensing Management contracts Subcontracting Project operations Alliances

Indirect Direct Own sales office/subsidiary

Minority Share 50/50 Majority Share 100% owned

Source: Welch, Benito, and Petersen, (2007)

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Each mode involves different resource deployment patterns (Agarwal & Ramaswamy, 1992), levels of control and risk (Kim & Hwang, 1992), and political and cultural awareness (Dalli, 1995). International market entry mode research has long neglected the meaning of market. Most of the literature on international markets does not indicate the real meaning of the concept. They treat the adjective (international), blindly ignoring the real meaning of the concept market. The literature on international market entry modes or the foreign market operation modes have adversely hinged on the non-marketing based definition of market; sadly, marketing literature also borrows this definition. From initiation of foreign market operation methods by Stephen Hymer (1972), studies on entry modes discuss two different types of moves, namely capital and product. By international capital movements Hymer (1972) refers to the direct investment of corporations in their overseas branches and subsidiaries. In Hymers definition of international capital movements, the author does not discuss anything related to the market (buyers). It truly depends on what type of market we are discussing. Marketing meaning of market refers to a market made up of buyers of products and services. In finance, there is capital market for money flow. However, while Hymers definition of market is correct for finance, it is incorrect for marketing. Anderson and Gatignon (1986) developed a model of market entry choice mode based on transaction cost theory. Focusing mainly on control considerations, they suggested that the degree of control inherent in a given operation method is a function of ownership structure. Thus, licensing and various other contractual arrangements are low-control modes, while a fully- owned subsidiary would allow the internationalizing firm to enjoy a high degree of control over a foreign operation. When the firms focus on the entry modes in a binomial choice (full control and shared control), transaction cost theory is appropriate for explaining why the firms prefer full ownership vs. shared ownership (Azofra, Bobillo and Martinez, 1999). Nonetheless, although it is an important view of looking at foreign operation methods, it does not take the customer into account; thus, it is more of an economic view with less focus on marketing. Product movement in entry mode

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discussion is quite hidden. By definition exporting is this kind of market entry mode, but it is not the only one. Franchising and licensing also have some similar characteristics, but movement is only a part of the product, and it is most likely either one or a very few parts of the core, tangible and augmented product. As discussed earlier, one of the properties of the market is its active and alive nature. Since it is a collection of buyers, a market can be moved, just as humans move one place to another. Moreover, adjectives such as international or foreign intend to express ownership of the noun to another country. Thus international market seen from an appropriate marketing view means buys from another country. International buyers (market) can be served in many ways. The main property of the prevailing entry mode discussion or the hidden assumption is that market is a country; this logic goes largely unnoticed but is supported by marketing textbooks and journals. There are certain situations where this assumption is explicit in certain texts; for example, Bradley and Gannon (2000) write Foreign market entry (FME) is a complex decision for a firm, which first involves whether to enter foreign markets. A positive decision leads to the question of which country or countries to enter and in what sequence. Illusion of this assumption can be found within the services marketing literature. Although they do not change the holistic way of looking at prevailing market entry modes, services marketers such as Lovelock, Yip (2007, 1996, 1999), Ball, Lindsay, Rose (2008), McLaughlin and Fitzsimmons (1996) treat market based on its real marketing definition. As Lovelock and Yip (2007) point out, the nature of interaction between the customer and service organization determines the available options for service delivery. Part of the reason why they detail actual service delivery options is due to the perishability, variability, inseparability, and intangibility characteristics of services. The various modes of delivery are as follows: customers visit the service site, service providers go to their customers and service transactions are conducted remotely (at arms length). Discussing the differences among the services, Lovelock and Yip recognise alternative distribution methods for services. People-processing services firms that require direct contact with the customer have several options: (1) export the service concept (2) import customers and (3) transport customer to new locations (e.g., new airline routes).

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Possession-processing services involve services to physical possessions such as maintenance, and require an ongoing local presence. Crew or equipment may need to be flown in to enable service completion. Information-based services can be distributed in several ways: (1) export the service to a local service factory (2) import customers and (3) export the service via telecommunications and transform it locally. Electronic channels such as virtual stores (e.g., Amazon.com) and online banking offer an alternative to traditional physical entry modes for reaching buyers of the information-based services. Although Lovelock and Yip (2005, 2007) consider these to be international distribution methods, in the tangible goods business we talk about wholesalers and retailers as well as various logistics/distribution related functions. As implied earlier, entry mode research usually does not look into downstream wholesaling/retailing issues. In other words, we should do more research on wholesaling and retailing. Regarded from a marketing viewpoint, they are methods of reaching international market and thus international market entry modes. Based on the existing literature, alternative ways of looking at the market entry modes can be found. The simplified idea of this paper can be presented as in Figure 2. The two- by- two classifications of entry modes in Figure 2 recognises four different types of market entry modes. Figure 2: Market Entry Mode Matrix Mode Matrix Firm or Product Move to Foreign Country Customer Move to Dual Move Foreign (Market) Country target imported customers in a third country Stay Type B: Single Move Domestic target customers of host country Stay Domestic Type A: Single Move Importing Customers International Market entry through channels and employees

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Dual Move: In order to support reaching customers of third country/ies, multi- national company or its` product might want to move from a home country to a second country (so, foreign). In this kind of move, the original firm (through direct investment modes) or its products (market modes) is sent into the second country, and an emerging type of market entry is known as the dual move. The market and the product/firm (later firm) from the original destination are moved to the new, foreign environment. In order to successfully perform this kind of move, a firm may face more strategic challenges than any other type of moves. There are few supported market entry modes that qualify as a dual move type. The most common type is the FDI-based move, where a new investment is made in the second country to serve third country customers. This type of market entry mode can be found in international hotel chains, whose main target market is customers from a third country. Club Med has combined dual move strategies by creating a network of varied vacation sites around the world. A more simple type is the franchising-based move, where a domestic business concept is moved to a second country to serve buyers of a third country. Type A Single Move: A firm that decides to retain its location and attract customers from around the world or selected third country/ies will be considered as Type A, single move e.g., specialized hospital care to foreign customers. It is single since only one element (market) of the matrix moves. Prevailing classifications may consider these types of firms as domestic since they operate domestically, but they should be considered as international since they target international customers. Type B: Single Move: A firm that decides to move its location and/or products to a second country in order to serve the host country customers will be considered as Type B, single move. Almost all past literature on classification of entry modes discusses the entry modes related to Type B: Single Move. Movement of capital through foreign direct investment modes and movement of the companys final offer fall under this classification. All market to hierarchical modes discussed within the transaction cost literature can be considered as Type B Single move, since its hidden assumption is reaching the host country buyers.

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International Market entry through technology and employees: Electronic channels such as virtual stores (e.g., Amazon.com) and online banking offer an alternative to traditional physical entry modes without movement of either firm or customer for entering the international market. Increasing international transportation infrastructure with fast and low cost allows more and more firms to use traditional door- to- door marketing strategies in which company representatives visit the host country and perform the selling function. Movement in this case happens with the employees. This type of market entry strategy can be found within services organizations such as engineering and construction. 2.2 The International Market Entry Evaluation Process The International Marketing Entry Evaluation Process is a five stage process, and its purpose is to gauge which international market or markets offer the best opportunities for our products or services to succeed. The five steps are Country Identification, Preliminary Screening, In-Depth Screening, Final Selection and Direct Experience. Figure 3: The international market entry evaluation process Country Identification Preliminary Screening In-depth Screening Final Selection Direct Experience

Adapted from J.K Johansson (2000)

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Step One - Country Identification The World is your oyster. You can choose any country to go into. So you conduct country identification - which means that you undertake a general overview of potential new markets. There might be a simple match - for example two countries might share a similar heritage e.g. the United Kingdom and Australia, a similar language e.g. the United States and Australia, or even a similar culture, political ideology or religion e.g. China and Cuba. Often selection at this stage is more straightforward. For example a country is nearby e.g. Canada and the United States. Alternatively your export market is in the same trading zone e.g. the European Union. Again at this point it is very early days and potential export markets could be included or discarded for any number of reasons. Step Two - Preliminary Screening At this second stage one takes a more serious look at those countries remaining after undergoing preliminary screening. Now you begin to score, weight and rank nations based upon macroeconomic factors such as currency stability, exchange rates, level of domestic consumption and so on. Now you have the basis to start calculating the nature of market entry costs. Some countries such as China require that some fraction of the company entering the market is owned domestically - this would need to be taken into account. There are some nations that are experiencing political instability and any company entering such a market would need to be rewarded for the risk that they would take. At this point the marketing manager could decide upon a shorter list of countries that he or she would wish to enter. Now in-depth screening can begin. Step Three - In-Depth Screening The countries that make it to stage three would all be considered feasible for market entry. So it is vital that detailed information on the target market is obtained so that marketing decisionmaking can be accurate. One can deal with not only micro-economic factors but also local conditions such as marketing research in relation to the marketing mix i.e. what prices can be charged in the nation? - How does one distribute a product or service such as ours in the nation? How should we communicate with are target segments in the nation? How does our product or service need to be adapted for the nation?
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All of this will information will for the basis of segmentation, targeting and positioning. One could also take into account the value of the nation's market, any tariffs or quotas in operation, and similar opportunities or threats to new entrants. Step Four - Final Selection Now a final shortlist of potential nations is decided upon. Managers would reflect upon strategic goals and look for a match in the nations at hand. The company could look at close competitors or similar domestic companies that have already entered the market to get firmer costs in relation to market entry. Managers could also look at other nations that it has entered to see if there are any similarities, or learning that can be used to assist with decision-making in this instance. A final scoring, ranking and weighting can be undertaken based upon more focused criteria. After this exercise the marketing manager should probably try to visit the final handful of nations remaining on the short, shortlist. Step Five - Direct Experience Personal experience is important. Marketing manager or their representatives should travel to a particular nation to experience firsthand the nation's culture and business practices. On a first impressions basis at least one can ascertain in what ways the nation is similar or dissimilar to your own domestic market or the others in which your company already trades. Now you will need to be careful in respect of self-referencing. Remember that your experience to date is based upon your life mainly in your own nation and your expectations will be based upon what your already know. Try to be flexible and experimental in new nations, and don't be judgemental - it's about what's best for your company - happy hunting.

2.3 Factors influencing choice of Expansion strategy By watering down cross-border barriers, globalisation has led to the increased expansion of firms to foreign markets. Such expansion could benefit the firm in ways such as reducing its susceptibility to country specific macroeconomic shocks, allowing it to achieve economies of scale, and presenting new opportunities for value-enhancing growth.

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In the banking sector, an opinion attributed to banks expansion to foreign market is that of offering service to customers who have expanded to these foreign locations, to avoid losing them to home-country institutions (Aliber 1984). Since foreign banks are also noted to provide credit facilities to domestic customers in their host countries, the motivation behind a banks expansion to a foreign market may exceed the follow-your-customer explanation (Berger et al. 2003). Cultural factors and Language Cultural distance determines success of foreign entities in host countries. Various aspects of culture (e.g. whether cultures are individualistic or not) differ from one country to another (Nardon & Steers 2009). Such cultural differences between nations are argued to affect organisational aspects such as management practices e.g. whether to staff top positions in foreign subsidiaries with home country or host country nationals (Bird & Fang 2009). Although globalisation tools such as the Internet have weakened traditional nation-based cultural differences, political cultures remain entrenched within boundaries, making cultural distance a relevant consideration for foreign-market-entry decisions (Chevrier 2009). Banks, just like any other corporation, would thus favour expansion to areas that have cultural similarities with the home countries (Focarelli & Pozzolo 2005). For instance, Banco Santanders (a Spanish bank) successful expansion into a leading global bank is attributed to a strategy that followed an incremental plan in a sequence informed by closeness of the host and home country cultures (Parada, Alemany & Planellas 2009). Secondly, culture may influence bank expansion via the language similarity or lack thereof (Focarelli & Pozzolo 2005). Sharing a common language betters communication and interaction of the people, hence could influence decisionmaking processes within the organisation.

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Regulatory framework The degree of regulations on foreign firms operations in a particular country is also a critical determinant of a banks choice of expansion location. A general observation is that foreign banks would favour expansion to host countries where restrictions on entry and bank activity are minimal (Clarke, Cull, Peria & Sanchez 2003; Lehner 2009). Developing the CAGE Cultural, Administrative, Geographical, and Economic distance framework to guide firms appraisal of international expansion opportunities, Ghemawat (2007) notes that having common aspects such as membership to a common regional trading block and a common currency lowers the administrative distance between two countries, thus increasing firms expansion to such trade partners (Ghemawat 2007). Direct effect of regulation on banks foreign entry may for instance apply where governments put restrictions on cross-border mergers and acquisition, to protect domestic firms from foreign competition or foreign ownership (Focarelli & Pozzolo 2005). For instance, relative low government barriers to entry of foreign banks in the transition nations of Eastern Europe, is recognised as the driving factor to the higher foreign bank density in such countries, when compared to developed nations of continental Europe (Berger 2007). A host country whose legal and institutional frameworks are similar to those of the home country of a foreign bank is also could also attract entry of such a bank (Hryckiewicz & Kowalewski 2010). Further, incentives offered to foreign investments (e.g. on taxation) may influence both the banks entry mode choice and extent of engagement in the market (Cerutti, DellAriccia & Peria 2007; Petrou 2009). Economic and Geographical factors Home and host country economic aspects such as the size of the economy and extent of overseas trade also drive banks expansion to foreign market (Brealey & Kaplanis 1996). For instance, integration in economic variables such as the degree of bilateral trade between the host and home countries, may favour expansion to foreign markets (Focarelli & Pozzolo 2005).In this respect, Banco Standers expansion-strategy strength was noted to be in its expansion first to regions with greater economic proximity to the home country (Parada, et al. 2009). The CAGE distance framework supports such a strategy with a note that rich countries [generally] engage in more cross-border economic activity...than do their poorer cousins (Ghemawat 2007, p. 45).

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Economic factors however may have an opposite effect to that hypothesized under the CAGE framework. In times of expansion, banks could enter into more risky economies to increase their profitability, such entry-motivation decreasing with the advent of adverse economic environment (Hryckiewicz & Kowalewski 2010). When banks enter more risky economies during periods of expansion in global economy, they could acquire host country institutions at comparatively cheaper prices, thus increasing their profitability (Hryckiewicz & Kowalewski 2010). The economic risk attached to a country at a particular period, may thus affect the mode of entry chosen, where high risk discourages intensive foreign direct investment activities at times of contraction in global economy (Cerutti et al. 2007). Closely related to economic distance is geographic distance. Sometimes geographic distance is considered a subset of economic factors (e.g. Focarelli and Pozzolo 2009), but could imply further aspects such as differences in time zones and lack of a common border, rather than the physical distance per se (Ghemawat 2007). Hryckiewicz and Kowalewski (2010) demonstrate that geographic distance between the host and home countries determine foreign banks performance thus influence the choice of expansion location. Distance for instance may affect effectiveness of internal control procedures, with suggestions that it dissipates parent organizations control over its subsidiaries (Berger & DeYoung 2006). Where retaining a high level of control in the headquarters is a critical business policy, geographic distance could have a pronounced effect on foreign entry decisions. 2.4 Expansion strategies models H.I. Ansoff (1957) created a simple model to look at expansion strategies regardless of which industry the company operates in. Ansoffs product/market growth matrix suggests that a business attempts to grow depend on whether it markets new or existing products in new or existing markets. According to (Lynch, 2003) the output from the Ansoffs product/market matrix is a series of suggested growth strategies that set the direction for the business strategy.

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Figure 4: Ansoffs Product - Market Matrix Products Existing Existing Markets New Market development Expansion/Diversification New

Market penetration

Product development

Source : Kevan Scholes et.al, Exploring Corporate Strategy, (2002, p. 362) Market penetration is a growth strategy where the business focuses on selling existing products into existing markets. A market penetration marketing strategy is very much about business as usual. The business is focusing on markets and products it knows well. It is likely to have good information on competitors and on customer needs. It is therefore unlikely, that this strategy will require much investment in new market research (Ansoff, 1989) Market development is a growth strategy where the business seeks to sell its existing products into new markets. There are many possible ways of approaching this strategy, including: New geographical markets; for instance exporting the product to a new country; new product dimensions or packaging: for example; new distribution channels and different pricing policies to attract different customers or create new market segments (Ansoff, 1989) Product development is a growth strategy where a business aims to introduce new products into existing markets. This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets (Ansoff, 1989) Expansion/diversification is the growth strategy where a business markets new products in new markets. This is an inherently more risky strategy because the business is moving into markets in which it has little or no experience.

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For a business to adopt a diversification strategy, therefore, it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks (Scholes, 2002) Ansoffs market expansion is same as the extension strategy in the Product Life Cycle because it is an existing product in a new market. This can also be linked with Bostons question mark or star because the product being re-launched must be a product that is successful and either in the introduction or growth stage in the product life cycle. At the growth stage in the Product Life Cycle, a company should expand market share by trying to get new people to try the product and existing customers to buy more. The company should therefore use market expansion. In the decline stage, the company should try to re-launch the product, which would be using product or market expansion (Stanton, 1994) Market penetration could be used if a successful product was being re-launched to increase the companys market share. The marketing models can be influenced by other factors and research. The model is used to analyze the strategic direction of a product, and if a product was placed in the market expansion, which has medium risk strategy, and competitors also released a similar product in this section, there will be a higher risk strategy, which will affect the products performance and position in both the Boston matrix and the product life cycle. 2.5 Reasons for International Expansion According to Calori and Harvatopoulos (1988), there are two dimensions of rationale for expansion. The first one relates to strategic objective of the organization. The expansion may be defensive or offensive. Defensive reasons may be spreading the risk of market contraction, or being forced to expand when current product or current market orientation seems to provide no further opportunities for growth. Offensive reasons may be conquering new positions, taking opportunities that promise greater profitability than expansion opportunities, or using retained cash that exceeds total expansion needs.

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The second dimension involves the expected outcomes of expansion. Management may expect great economic value (growth, profitability) or first and foremost great coherence and complementarities with their current activities (exploitation of know-how, more efficient use of available resources and capacities). In addition, companies may also explore diversification just to get a valuable comparison between this strategy and expansion. Expansion strategies are used to expand firms' operations by adding markets, products, services, or stages of production to the existing business. The purpose of expansion is to allow the company to enter lines of business that are different from current operations. When the new venture is strategically related to the existing lines of business, it is called concentric diversification. Conglomerate expansion occurs when there is no common thread of strategic fit or relationship between the new and old lines of business; the new and old businesses are unrelated (Thompson & Strickland, 1993).

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CHAPTER THREE RESEARCH METHODOLOGY 3.1 Research Design This study adopted a case study research design where the unit of study was the Equity bank Group. The design is most appropriate when detailed, in-depth analysis for a single unit of study is desired. Case study research design provides very focused and valuable insights to phenomena that may otherwise be vaguely known or understood. This research design was successfully used by Thuo (2002) in a similar study. 3.2 Population Sampling and Sample Size The study targeted the two countries that the bank has already ventured into; Uganda and South Sudan. The respondents were top executives in the company specifically the regional expansion director. 3.3 Data Collection Methods The study involved the collection of both primary and secondary data. The focus of the study was on carrying out an intensive study of the international market entry strategies adopted by the Equity Bank Group and challenges they have faced in the two countries. To achieve this, a questionnaire was used to collect the data from the target group (see appendix 2). The questionnaire was divided into three sections; General information, Reasons for expansion and strategies adopted and Challenges faced in the international expansion. A five-point Likert scale was used to determine the extent and importance of variables. Secondary data was obtained from Equity Bank Groups policy and strategy documentation and from the Groups website. 3.4 Data Analysis Given the fact that both the primary and secondary data were qualitative in nature, content analysis was the best suited method of analysis. This is a technique for making inferences by systematically and objectively identifying specified characteristics of messages and using the same to relate trends.

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It is further argued that the method is scientific as the data collected can be developed and be verified through systematic analysis (Nachmias and Nachmias, 1996; Strauss and Corbin, 1990). This approach has been used previously in similar research papers like the one by Thuo (2002). The findings were represented in tables and analysed through percentages, mean scores and standard deviations. The Five Point Likert Scale was used to determine the various international market entry strategies and extent of their usage. Mean scores, standard deviation, frequencies and percentages were used to analyse the data in order to assess the reasons for expansion and factors that were considered important in the choice of the strategy. Challenges faced by the bank in expanding into the new regions were also assessed by use of the mean scores and standard deviation.

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CHAPTER FOUR DATA ANLYSIS AND PRESENTATION

4.1 Introduction The objectives of this study were to identify the strategies Equity bank group has used in its regional expansion and the challenges the bank has encountered in its expansion mission. Only two countries were studied as these were the areas the bank had expanded into so far. These were Uganda and South Sudan. This was considered adequate for the objectives of this study. In this chapter, the analyzed data is presented together with the relevant interpretations. Findings have been presented in three parts: General information on the countries, information relating to the international entry strategies adopted and information relating to the challenges faced by the bank. 4.2 General Information 4.2.1 Years of operation in each country Table 1: Years of operation in each country
Years 1-5 6 - 10 More than 10 Total Frequency 2 0 0 2 Percentage 100 0 0 100

From the table it is evident that in all the two countries the bank has been operating for less than five years. In Uganda the bank made its first entry in 2008 while in South Sudan it opened its first branch later the same year.

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4.2.2 Number of branches in each country Table 2: Number of branches in each country Number of branches 2 10 11 20 More than 20 Total Frequency 1 0 1 2 % 50 0 50 100

Table 2 shows that in one country the bank has a branch network of between 2 to 10 while in the other country it has more than 20 branches. Equity Bank (Uganda) has a total of fifty-five (55) branches located in the central, eastern, northern and western parts of Uganda. In South Sudan the bank has eight (8) branches. This information is also represented on the chart below: Chart 1: Number of branches in each country

4.2.3 Categories of customers served

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Table 3: Categories of customers served Categories of customers Corporate Retail Retail and Corporate TOTAL Frequency 0 0 2 2 % 0 0 100 100

From the table above it is clear that the bank serves both retail and corporate clients in both countries. 4.2.4 Geographical Spread of the bank in each country Table 4: Geographical Spread of the bank in each country Geographical Spread of the bank Only in major cities In major cities & towns In every province TOTAL FREQUENCY 0 1 1 2 % 0 50 50 100

The table indicates that the bank operates in major cities and towns only in one country whereas in the other country it operates in every province. Equity Bank (Uganda) has its headquarters in Uganda's capital city, Kampala. The bank has a total of fifty-five (55) branches located in the central, eastern, northern and western parts of Uganda. Its branch network is the third-largest in Uganda, after Stanbic Bank (Uganda) Limited and Barclays Bank. The bank has twenty-two automated teller machines in Uganda, with twelve more planned. It serves a client base of close to 400,000. Equity Bank (South Sudan) has its headquarters in South Sudan's capital city, Juba. The bank maintains branches in many of the country's major urban centres.

4.3 Reasons for international expansion

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Reasons for international expansion that were assessed include; spreading the risk of market contraction, local market does not provide opportunities for growth, conquering new positions, taking opportunities that promise greater profitability and using retained cash that exceeds total expansion needs. Data was analyzed using mean scores and standard deviations. A mean score of <1.5 implies that the reason for expansion was rated as not important. A mean score of 1.5 2.5 implies least important, 2.5 3.5 important and 3.5 4.5 quite important while a mean score of > 4.5 implies most important. Standard deviation of <1 means that there were no significant variations in response while that >1 implies that there were significant variations in responses. Table 5: Reasons for international expansion
Based on strategic objectives Defensive reasons Spreading the risk of market contraction Local market does not provide opportunities for growth Offensive reasons Conquering new positions Taking opportunities that promise greater profitability Using retained cash that exceeds total expansion needs
Average Mean/Standard Mean Std. Deviation

5.00 3.50 5.00 5.00 2.00 4.10 5.00 4.00 5.00 2.00 4.00 4.00

0.00 0.71 0.00 0.00 0.00 1.29 0.00 0.00 0.00 0.00 0.00 1.15

Based on expected outcomes of expansion Growth & Profitability More efficient use of available resources and capacities Explore diversification Enter lines of business that are different from current operations. To seek lower production factor costs
Average Mean/Standard

Reasons based on strategic objectives had the following mean scores; spreading risk of market contraction (5), local market does not provide opportunities for growth (3.5), conquering new positions (5), taking opportunities that promise greater profitability (5) and using retained cash that exceeds total
expansion needs (2).

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The findings imply that most of the reasons were rated as most important except local market does not provide opportunities for growth rated as quite important and using retained cash that exceeds total expansion needs which was rated as least important. The standard deviation was > 1 implying that there were significant variations in the responses. Reasons based on expected outcomes of expansion were assessed as follows; growth &
profitability (5), more efficient use of available resources and capacities (4), explore diversification (5), enter lines of business that are different from current operations (2) and to seek lower production factor costs (4). This indicates that the bank did not consider entering into new lines of business in its expansion strategy. The standard deviation was > 1 showing that there were significant variations in the responses.

4.4 International market entry strategies adopted Strategies for international expansion that were assessed include; Licensing , Franchising, Direct
Exporting, Indirect Exporting, Complementary exporting Piggybacking, Consortia, Foreign Direct investment, Wholly owned foreign subsidiaries, Providing offshore services Business process outsourcing and Strategic international alliances (mergers, acquisitions, joint venture).

Data was analyzed using mean scores and standard deviations. A mean score of <1.5 implies that the strategy was rated as no extent. A mean score of 1.5 2.5 implies low extent, 2.5 3.5 neutral and 3.5 4.5 moderate extent while a mean score of > 4.5 implies greater extent. Standard deviation of <1 means that there were no significant variations in response while that >1 implies that there were significant variations in responses.

Table 6: International market entry strategies adopted

Strategy Licensing Franchising Direct Exporting Indirect Exporting Complementary exporting Piggybacking
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Mean

Std Dev

3.00 3.00 2.00 2.00 2.00

0.00 0.00 0.00 0.00 0.00

Consortia Foreign Direct investment Wholly owned foreign subsidiaries Providing offshore services Business process outsourcing Strategic international alliances (mergers, acquisitions, joint venture) Average Mean/Standard

2.00 5.00 5.00 3.00 5.00 3.20

0.00 0.00 0.00 0.00 0.00 1.28

International market entry strategies adopted were rated as follows: Licensing (3), Franchising (3),
Direct Exporting (2), Indirect Exporting (2), Complementary exporting Piggybacking (2), Consortia (2), Foreign Direct investment (5), Wholly owned foreign subsidiaries (5), Providing offshore services Business process outsourcing (3) and Strategic international alliances (mergers, acquisitions, joint venture) (5).

Strategies that were rated great extent (5) were foreign direct investment, wholly owned subsidiaries and strategic international alliances. The other strategies were rated as low extent (2) and neutral (3). The standard deviation was > 1 indicating there were significant variations in the responses.

4.5 Factors considered in the choice of international expansion strategy The factors considered in the choice of international expansion strategy were assessed in two categories; external and internal.
operational) and operational costs.

The external factors include; market size, market growth,

Internal factors included; company objectives, availability of

government regulations, level of competition, physical infrastructure, level of risk (political, economic & company resources, level of commitment, international experience and degree of control.

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Data was analyzed using mean scores and standard deviations. A mean score of <1.5 implies that the factors were rated as not important. A mean score of 1.5 2.5 implies least important, 2.5 3.5 important and 3.5 4.5 quite important while a mean score of > 4.5 implies most important. Standard deviation of <1 means that there were no significant variations in response while that >1 implies that there were significant variations in responses. Table 7: Factors considered in the choice of strategy
Factors External Factors Market size Market growth Government regulations Level of competition Physical infrastructure Level of Risk Political, Economic & Operational Operational costs Average Mean/Standard Internal Factors Company objectives Availability of Company resources Level of commitment International Experience Degree of control Average Mean/Standard
Mean Std Dev

5.00 5.00 4.50 4.00 4.50 4.50 4.00 4.50 5 5 5 4.5 4.5 4.8

0.00 0.00 0.71 0.00 0.71 0.71 0.00 0.52 0 0 0 0.71 0.71 0.42

Factors considered in the choice of strategy assessed were rated as follows; the external factors:
market size (5), market growth (5), government regulations (4.5), level of competition (4), physical infrastructure (4.5), level of risk (political, economic & operational) (4.5) and operational costs (4). Internal factors were rated as follows; company objectives (5), availability of company resources (5), level of commitment (5), international experience (4.5) and degree of control (4.5).

This implies that both external and internal factors were considered most important except level of competition and operational costs which were rated quite important. significant variations in the responses as the standard deviation was < 1. 4.6 Challenges faced by the bank in International Expansion Strategy Challenges faced by the bank that were assessed include; competition with other local banks and
exposure to more volatile external environment, regulatory uncertainties, protective policies in foreign
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There were no

countries, high investment outlay, less than successful ventures of recent times, finding the right fit and pricing, lack of management expertise with international experience, loss of focus on local market needs and lack of understanding of foreign customer preferences.

Data was analyzed using mean scores and standard deviations. A mean score of <1.5 implies that the challenge was rated as no extent. A mean score of 1.5 2.5 implies low extent, 2.5 3.5 neutral and 3.5 4.5 moderate extent while a mean score of > 4.5 implies greater extent. Standard deviation of <1 means that there were no significant variations in response while that >1 implies that there were significant variations in responses.

Table 8: Challenges faced by the bank in International Expansion Strategy

Statement Competition with other local banks and exposure to more volatile external environment Regulatory uncertainties Protective policies in foreign countries High investment outlay Less than successful ventures of recent times Finding the right fit and pricing Lack of management expertise with international experience Loss of focus on local market needs Lack of understanding of foreign customer preferences Average Mean/Standard
Mean Std Dev

5.00 5.00 4.50 5.00 4.50 3.50 4.00 3.00 3.50 4.22

0.00 0.00 0.71 0.00 0.71 0.71 0.00 0.00 0.71 0.81

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The challenges were rated as follows: competition with other local banks and exposure to more
volatile external environment (5), regulatory uncertainties (5), protective policies in foreign countries (4.5), high investment outlay (5), less than successful ventures of recent times (4.5), finding the right fit and pricing (3.5), lack of management expertise with international experience (4), loss of focus on local market needs (3) and lack of understanding of foreign customer preferences (3.5). The findings indicate that the first four factors were rated as great extent hence considered having a greater impact. Loss of focus on local market needs was rated as neutral. There were no significant variations in the responses as the standard deviation was <1.

CHAPTER FIVE DISCUSSIONS, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction The banking industry in Kenya is characterized by foreign owned multinationals, large, medium sized and small local banks all operating in a very competitive environment. The foreign owned multinationals enjoy exclusive public confidence acquired through a sustained competitive advantage, positive corporate image and financial stability demonstrated over the years. The big indigenous banks have adopted various strategies to motivate customers to use their range of services in order to remain competitive. This has set a stage for cut-throat competition among the multinational banks of various sizes employing multiple strategies to enhance their competitiveness in the market. This has forced the Kenyan-based banks to re-think their growth strategies in their quest to continue to generate wealth to their shareholders.

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The regional market has also created opportunities for the local banks with a large number of unbanked citizens in the East African market. Equity bank group has been on the leading front to pursue its mission to be the leading African bank in the region by opening up branches in Uganda and South Sudan. They also plan to open more branches in these countries and venture into Rwanda and Tanzania. The choice of an international market entry strategy is critical for the survival and success of any company. However, in order to gain competitive advantage, firms need to build and adopt the right strategy especially in a competitive environment where every bank tries as much as possible to push their services through the many, more informed customers. The objectives of this study were to identify the international market entry strategies adopted by Equity bank group in the region and identify the challenges that they have faced. This chapter gives a summary of the discussions, conclusions and recommendations drawn after analyzing data.

5.2 Discussions The first objective of the study was to identify the international market entry strategies used by Equity bank group in the region. Strategies that were rated great extent (5) were foreign direct investment, wholly owned subsidiaries and strategic international alliances. The other strategies were rated as low extent (2) and neutral (3). The standard deviation was > 1 indicating there were significant variations in the responses. Results on the reasons for international expansion indicated that reasons based on strategic objectives which were rated most important (4.5 5) spreading risk of market contraction,
conquering new positions and taking opportunities that promise greater profitability. The respondents did rated local market does not provide opportunities for growth as quite important (3.5). Using retained

cash that exceeds total expansion needs was rated as least important. The standard deviation was > 1 implying that there were significant variations in the responses.
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Reasons based on expected outcomes of expansion that were rated as most important (4.5 5) included growth & profitability and explore diversification. More efficient use of available resources
and capacities and seeking lower production factor costs were considered quite important (3.5 4.5) whereas entering lines of business that are different from current operations was rated as least important (1.5 2.5). The standard deviation was > 1 showing that there were significant variations in the responses.

Findings on the factors considered important in the choice of an international market entry strategy indicated that most of the external factors assessed were considered most important (4.5 5). These included market size, market growth, government regulations, physical infrastructure
and level of risk (political, economic & operational). Operational costs and level of competition were rated as quite important (3.5 4.5). All Internal factors were rated as most important (4.5 5). Factors assessed include company objectives, availability of company resources, level of commitment, international experience and degree of control.

This implies that both external and internal factors were considered most important except level of competition and operational costs which were rated quite important. significant variations in the responses as the standard deviation was < 1. The second objective was to identify the challenges faced by the bank in its international expansion strategy. The challenges that were rated as great extent (4.5 5) include competition
with other local banks and exposure to more volatile external environment, regulatory uncertainties, protective policies in foreign countries, high investment outlay and less than successful ventures of recent times. Factors that were rated as moderate extent (3.5 4.5) were finding the right fit and pricing, lack of management expertise with international experience and lack of understanding of foreign customer preferences. Loss of focus on local market needs was rated as neutral (2.5 3.5). There were no significant variations in the responses as the standard deviation was <1.

There were no

5.3 Conclusions

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Based on the findings, it can be concluded that Equity bank group has great extent usage of foreign direct investments, wholly-owned subsidiaries and strategic alliances (mergers, acquisitions and joint venture). From their policy documents and website the bank has indicated that Equity bank South Sudan is a wholly-owned subsidiary (100%) of the Equity bank group. In Equity bank Uganda the group also owns 100% of the shareholding which was through the acquisition of 100% share capital in Uganda Micro finance limited (UML) in 2008. This is in line with the findings of this research. It is also evident that the major reasons for the banks international expansion are spreading risk of market contraction, conquering new positions and taking opportunities that promise greater
profitability, growth & profitability and exploring diversification.

Through the acquisition of UML, Equity bank targeted a lucrative trade base in Uganda, which sources 56 per cent of its imports from Kenya. Uganda is in fact the single largest destination of Kenyas commodity exports in Africa, accounting for a total of Ksh108 billion ($1.7 billion).

Results on the factors considered in the choice of the international market entry strategy indicated that both external and internal factors were important. Most important of them all were market size, market growth, government regulations, physical infrastructure and level of risk (political, economic & operational). Operational costs and level of competition were considered as quite important.

According to recent data, Kenya provides the highest percentage of foreign students in high schools and universities in Uganda. There are at least 21,000 Kenyans studying in Uganda. Uganda also offers a natural fit for the banks microfinance business model. As in Kenya, many Ugandans still cannot afford or have no access to banking services. Other factors considered important were company objectives, availability of company resources, level of commitment, international experience and degree of control. The fact that the group prefers wholly-owned subsidiaries in its expansion is a clear indication that it desires a high degree of control over its overseas operations. It is also clear that the markets it is venturing into are virgin markets with a high growth potential such as the new Republic of South Sudan. In
37

Uganda some of the factors that were considered included favourable regulations and operational costs. With regard to the challenges faced by the bank a lot of factors emerged to have greater impact on its expansion mission. Key challenges were competition with other local banks, exposure to more volatile external environment, regulatory uncertainties, and protective policies in foreign countries, high investment outlay and less than successful ventures of recent times. Kenya Commercial Bank which is also a local bank has made its entry in Uganda and South Sudan and is a key competitor to Equity bank in these areas. Regulatory uncertainties have also been a drawback in the region as the EAC is yet to be fully operational.

According to a report published in The Consultative Group to Assist the Poor (CGAP) website by Kate McKee dated June 2, 2010 the Companys CEO Dr. James Mwangi highlighted the following challenges: Culture: The soft factors are hard to replicate. It was difficult to instil the Equity way when the people who were still there in the institution had their own way already. One of Equitys striking strengths is its brand but Equity found it hard to capitalize on this in a pre-existing player in a market new to them. Leadership and management: If key people stay on, any key adjustments can seem like personal critiques of the previous regime, especially if were talking about owner-managers. Capacity: In Uganda, Equity was trying to build their savings-based model on a credit-only organization. This was a very different and more demanding business model and the capacity just wasnt there for rapid change. And adjustments cant be accomplished in a week and they take longer for a savings- than credit-led provider.

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Talent: Mwangi described having to pay with your shirt for key staff by buying experienced bankers; good people demanded a premium to leave an institution with an established international brand in that market and for the uncertainty of a start-up. The business environment: This is a euphemism for the real problem noted by the Acting CEO for Equity-Uganda fraud. Because levels of customer fraud were so high, Equity couldnt use one of its key success factors in Kenya: decentralization of authority and decision-making to the branches. Some of the key operational assumptions didnt hold water. The business model needed major adjustments in the form of centralization and controls. Needless to say, this didnt come cheap, with both one-off and ongoing expenses being higher than planned. Financial identity: Equity discovered the big advantage offered by national identity systems in Kenya which had to be worked around in Uganda with higher-cost methods like biometrics. What you promise to get the license: The biggest challenge was expectations, said Mwangi. Those responsible for granting the license did their homework on Equity and found that they were offering credit at 18% in Kenya. So thats what they asked for in Uganda. While the acquired institution was profitable with an interest rate of 48%, it was pretty challenging to keep it so with an 18% interest rate and a whole lot of new costs. Legal and regulatory framework: We all know that issues like minimum capital requirements clearly affect the viability of the business model. But its not just the licensing requirements. Mwangi pointed out that the rules around specific products were quite different. Executive management was expected to have four eyes (e.g., a managing director and an executive director) for adequate controls, making it necessary to identify and prepare a second individual for this role. Tax regimes were really different . . . and unpredictable.

Mwangi stressed that these challenges can and must be overcome. We can and will make many business models including greenfielding and South-South replication work. Africa is rich in
39

resources. What it needs to enhance wealth and pride is entrepreneurship, ownership, capacity and true empowerment. 5.4 Recommendations The study revealed that Equity bank group has used the wholly-owned subsidiaries entry mode in both Uganda and South Sudan. This was a preferred mode as the bank aimed at maintaining a high degree of control over its operations in these countries. Their branch network is also growing in these two countries and the bank intends to open new subsidiaries in Rwanda and Tanzania. From the challenges highlighted it is clear that their expansion mission has not been a smooth road all the way. In fact in the first two years of operation in these countries its profits fell quite significantly citing the heavy initial investment outlay. From the lessons learnt in Uganda and South Sudan the bank endeavours to pursue the same entry strategy in both Rwanda and Tanzania and also extend its operations even further within the COMESA region. The acquisition of local banks and microfinance companies seems to be working well for the company as it has ensured that the bank gets hold of the existing client base and branch network to start them off. Their target market is mainly the small and medium sized businesses which have high volume but with low margins. The bank may however consider using a hybrid of strategies to minimise the heavy capital investment required to acquire new subsidiaries if it needs to achieve its vision of expanding in at least 10 countries in Africa in the next five years. These may include licensing, joint venture and mergers in addition to subsidiaries. The management needs to tackle the key challenges faced by the bank at the moment in order to foster profitable growth in the other regions. 5.5 Limitations of the study The study was limited to the international expansion strategies adopted by Equity bank group in Uganda and South Sudan. The data collected was from the senior mangers perspectives although it was complimented with secondary data from the companys website, reports and
40

policy documents. Time available to conduct the research was also not enough as this was done within one week. 5.6 Suggestions for further research The study was conducted on Equity bank group only. The findings can be verified by conducting the same study on other major local banks as well such as Kenya Commercial Bank which has pursued regional expansion. The study can also be done on foreign companies that have expanded into Kenya in order to compare the strategies. Other similar studies could focus on other industries other than banking such as manufacturing.

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Appendix 1 LETTER OF INTRODUCTION

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Appendix 2

QUESTIONNAIRE
REGIONAL EXPANSION STRATEGIES AND CHALLENGES FACED BY EQUITY BANK GROUP PART A: GENERAL INFORMATION 1. Country of expansion: ..................................................................................................... 2. How long have you operated in this country? 1 to 5 years 6 to 10 years More than 10 years

3. How many branches do you currently have in this country? 2 - 10 11 - 20 More than 20

4. Do you intend to open more branches in future? Yes No

5. What are the categories of customers served? Corporate Retail

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Retail and Corporate

6. What is the geographical spread of your Bank? Only in major cities In major cities & towns In every province

Others (please specify)................................................................................................... ........................................................................................................................................ ........................................................................................................................................

Turn overleaf

PART B: REASONS FOR REGIONAL EXPANSION AND STRATEGIES ADOPTED 7. The table below represents the various reasons that force firms to expand internationally. Kindly indicate your rating on the importance of each reason to the company by applying the following key: 5- Most important 4- Quite important 3- Important 2- Least important 1- Not important Reasons for International Expansion Based on strategic objectives Defensive reasons Spreading the risk of market contraction Local market does not provide opportunities for growth Offensive reasons Conquering new positions Taking opportunities that promise greater profitability Using retained cash that exceeds total expansion needs. 5 4 3 2 1

Reasons for international expansion Based on expected outcomes of expansion Growth & Profitability 5 4 3 2 1

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More efficient use of available resources and capacities Explore diversification Enter lines of business that are different from current operations. To seek lower production factor costs

Turn overleaf

8. The table below represents the various international market entry strategies that firms might use. Kindly indicate your rating on the extent of use in each strategy by the company in this country by applying the following key: 5- Greater extent 4- Moderate extent 3-Neutral 2-Low extent 1- No extent

International market entry strategies adopted Strategy Licensing Franchising Direct Exporting Indirect Exporting Complementary exporting - Piggybacking Consortia Foreign Direct investment Wholly owned foreign subsidiaries Providing offshore services Business process outsourcing Strategic international alliances (mergers, acquisitions, joint venture) 5 4 3 2 1

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Turn overleaf

9. The table below represents the various factors that are considered in the choice of a suitable strategy to expand abroad. Kindly indicate your rating on the importance of each factor to the company by applying the following key: 5- Most important 4- Quite important 3- Important 2- Least important 1- Not important Factors considered in the choice of strategy Factors
External Factors Market size Market growth Government regulations Level of competition Physical infrastructure Level of Risk Political, Economic & Operational Operational costs

5
Internal Factors Company objectives Availability of Company resources Level of commitment International Experience Degree of control

Turn overleaf

PART C: CHALLENGES FACED IN INTERNATIONAL EXPANSION STRATEGY

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11. To what extent do you agree that the following are the challenges of international market expansion faced by your company? Kindly indicate your rating on the statement by applying the following key: 5- Greater extent 4- Moderate extent 3-Neutral 2-Low extent 1-No extent 5 4 3 2 1 Challenges faced by the bank in international expansion strategy Statement Competition with other local banks and exposure to more volatile external environment Regulatory uncertainties Protective policies in foreign countries High investment outlay Less than successful ventures of recent times Finding the right fit and pricing
Lack of management expertise with international experience Loss of focus on local market needs

Lack of understanding of foreign customer preferences

Thank you for your response

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Appendix 3 LIST OF FOREIGN BRANCHES LIST OF BRANCHES IN UGANDA

No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 Location Adjumani - Adjumani Arua Park Branch - Arua Park, Kampala Arua Arua Bombo Luweero District Busia Busia Busiika Gavaza-Ziroobwe Road Bwera Kasese District Hoima Hoima Jinja Jinja Town Jinja Road Branch Jinja Road Kampala Kabalagala Kampala Kajjansi Wakiso District Kampala Central - Nakasero, Kampala Kamwookya 49-51 Bukoto street, Kamwookya Kampala Kasangati Kasangati, Wakiso District Katwe Katwe, Kampala (Main Branch) Kawempe - Kawempe, Kampala Kayunga Kayunga Kiboga Branch - Kiboga Kisiizi Kisiizi, Rukungiri, District Kisoro Kisoro Kyengera Wakiso District Lira Soroti Road Lira Luweero Gulu Highway, Luweero Lyantonde Lyantonde Market Street Branch Market street Kampala Masindi Town Street Masindi Mbale Mbale Town Mbarara Mbara Town Mityana - Mityana Town Mukono Mukono Town Mubende Mubende Town Nakawa branch Nakawa Market, Kampala Ndeeba branch Ndeeba, Kampala Owino Market Nakivubo Place, Kampala Kisiizi branch Rukungiri District Kisoro Branch - Bunagana Road, Kisoro Rushere Branch - Rushere, Kiruhura District Soroti Branch - Soroti Tororo Branch - Tororo Oasis Mall Branch - Oasis Mall, Kampala
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Wandegeya Branch - Wandegeya, Kampala Ziroobwe Branch - Kikyusa Road, Ziroobwe

LIST OF BRANCHES IN SOUTH SUDAN No. Location

1 2 3 4 5 6 7 8 Juba Branch - Juba (Main Branch) Second Juba Branch - Juba Malakal Branch - Malakal Yei Branch - Yei Yambio Branch - Yambio Wau Branch - Wau Kaya Branch - Kaya Nimule Branch - Nimule

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