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INTERNATIONAL JOURNALS OF ACADEMICS & RESEARCH ISSN: 2617-4138 IJARKE Business & Management Journal DOI: 10.32898/ibmj.01/2.1article03

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23 IJARKE PEER REVIEWED JOURNAL Vol. 2, Issue 1 Aug. – Oct. 2019

Effects of Entry Strategies on the Strategic Performance of Equity Bank

in Foreign Markets

Sharon Ayiela Ekambi, Jomo Kenyatta University of Agriculture & Technology, Kenya

Dr. Fridah Simba, Jomo Kenyatta University of Agriculture & Technology, Kenya

1. Introduction

In the recent years, the world business environment has changed dramatically through the globalization of economies and

liberalization of markets, resulting in a new, furious business setting for firms (Jansson & Sandberg, 2010). Political and economic

changes since the late 1980s along with the technological revolution and advancement in communications, transportation and

information technology has resulted in the removal of trade barriers that have shaped the world as a global village (Griffin &

Pustay, 2017; Hill, 2010).

Dicken (2012) argued that globalization is the result of the behaviour and expansion strategy of multinational corporations

(MNCs). In order for MNCs to expand their operations abroad, they need to identify the most effective entry strategy. Entry

strategy is the method used by a company to start doing business in a foreign country (Shama, 2010). It is an organizational

arrangement that makes conceivable for the MNC’s product penetration, management, human skills, technology, or other

resources into a foreign country (Karkkainen, 2015).

Entry strategies in foreign markets differ in the risk level and degree of control they present and the return of investment that

will be achieved and commitment of resources. There are two major classifications of foreign market entry strategy; non-equity

mode, which includes exporting, licensing, contractual agreements and franchising; and equity mode, which includes wholly

owned subsidiaries and joint venture. The market-entry technique that offers the lowest level of risk and the least market control is

export and import which is mainly common for manufactured goods and not services like banking. The highest risk, but also the

INTERNATIONAL JOURNALS OF ACADEMICS & RESEARCH (IJARKE Business & Management Journal)

Abstract

In order for Multinational Companies (MNCs) to expand their operations abroad, they need to identify the most effective entry

strategy. The choice of market entry strategy depends on the desired degree of control by the MNC and the level of risk the

institution is prepared to face. Due to the crucial nature of entry strategy on expansion of MNCs abroad, this study sought to

establish the effect of entry strategy on the strategic performance of Equity Bank in foreign markets. The entry strategies

which were selected for the study were: licensing strategies, franchising strategies, strategic alliances and foreign direct

investment, which formed the basis of the study objectives. The researcher distributed structured questionnaires to the

employees in the top and middle level management of the various branches in the County. To provide the basis of the study,

the research used the following theories: eclectic theory, internationalization theory, new trade theory and theory of

comparative advantage. Most studies in this topic have established that there is lack of market flexibility and hence

inapplicability of these entry strategies in different markets, therefore this research seeks to address this gap. The researcher

adopted a descriptive research design where relationship between independent variable (entry strategies) and dependent

variable (strategic performance) will be established. The study targeted 160 staffs from various categories from Equity Group

Headquarter in Nairobi. The researcher used Yamane’ s formulae to determine the sample size of 114 employees from senior

and middle level management and also the operational staffs. The research used stratified random sampling to distribute

questionnaires to the employees of various branches, because the population can be grouped into various strata (category). The

researcher devised a multiple regression model which was used to establish the relationship between entry strategies and

strategic performance using SPSS as the analytical tool. The response rate for the study was 73% in which the findings and the

analysis of the study was based on. The analysis showed that 25.5% of the strategic performance of Equity Bank in the foreign

market can be explained through the entry strategies adopted by the study as the research variables. The study also indicated a

positive correlation between entry strategies and strategic performance. Hence the study concludes that licensing strategies,

franchising strategies, strategic alliances and foreign direct investment affects the strategic performance of Equity bank but

foreign direct investment through the establishment of subsidiaries contributes to more than 35% of the strategic performance.

The study recommends that management should consider factors such as political-legal factors, social factors and consumer-

investor confidence when deciding which decision to adopt.

Key words: Entry Strategies, Strategic Performance, Licensing, Franchising, Alliances, Foreign Direct Investments


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highest expected return on investment and market control are connected with direct investments that can be made as an acquisition

and also wholly owned subsidiaries (Terpstra & Sarathy, 2017).

Often, firms make significant risk-control trade-offs when deciding on entry modes that will ensure the greatest success in the

new foreign markets. Various studies having drawn a direct relation between a firm’s entry strategy and its performance: A wrong

strategy can lead to a firm’s failure both abroad and at home. Broadly, activity of Kenyan MNC’s can be categorized along the

stated strategies (Terpstra & Sarathy, 2017).

Level of market control and the risk the MNC is willing to take are the major factors which determine the entry strategy to be

adopted (Decker & Zhao, 2011). The strategy adopted normally varies over time, in a rather predictable manner; the MNC

becomes more experienced over time with the new market, so it is likely to take more risk. The “stages approach” also known as

the development approach (Solberg, 2017), describes internationalization as a learning and incremental process, in which risk

avoiding companies can reach different stages. In the first stage a company has no, or not regular, export. In the next stages the

exporting activities increase, until they reach a maximum in the last stage; a company has become a multinational.

Most companies start their internationalization according to Roots (2014) “pragmatic entry selection approach”. This approach

focuses at an entry mode that works, but may not be the most suitable entry mode (Claros et al., 2016). For that reason, other

kinds of entry modes are only assessed if the chosen entry is not suitable. It is often a cheap and easy low risk export entry mode.

Roots (2014) “strategic entry selection approach” is likely to find the most suitable foreign market entry strategy; requires a

systematic comparative analysis of various alternatives. However, many, often contradicting, internal and external factors

determine the choice of the entry strategy. Furthermore, an enterprise in the foreign markets has a wide range of objectives to be

achieved (Yin, 2014). Hence, it is often problematic to assess all relevant factors, for example because factors itself can be hard to

quantify. Different entry strategy alternatives, bounded lack of money and time and rationality, make it difficult for strategic

managers in banks to look at all possibilities. Opportunity cost and trade-offs must be calculated, and various alternatives must be

adjusted for risk (Yin, 2014).

One of the main problems regarding market entry decisions is the fact that it is ill-defined, complex and dynamic (Russow &

Okoroafo, 2016). Scholars often have different opinions about the criteria influencing the choice of entry mode. Different

samples, different time period analyzed, different methodologies or even different skills of the analysts may induce conflicting

results (Gannon, 2013). Furthermore, the same criteria can play a different role in different contexts. Hence, the relative

importance of criteria is unique for each situation, therefore difficult to determine.

1.1 Global Perspective of the Banking Industry

Irons (2011) established that, banks in the US face various challenges since the Great Depression of 1932, which involves the

complying regulatory framework imposed by the Dodd-Frank Act and dealing with the remaining repercussions of the global

financial crisis which occurs unproductively. Irons (2011) further recommended the need for more than $1 trillion of assistance

afforded the banking industry since the fall of 2008 - via programs such as the Quantitative Easing (QE1 and QE2) and Troubled

Asset Relief Program (TARP) - is indicative of a sector that may require further regulatory frameworks to avoid plunging into

financial distress (Irons, 2011). Weirgard (2013) examined how US banks were responding to regulatory mandates after 2008

financial crisis. Where it was established that, 7 banks in the US posted record-setting revenues in 2010 out of the 15 largest

commercial banks, with 3 of these also earning record profits, leading researchers to argue that banks are well on their way to

recovery from 2008 financial crisis and do not require further regulations.

Most studies indicate that commercial banks in Sub-Sahara Africa experience more profitability than the global average

(Flamini, 2009). The adage stating that high risk yields high returns comes into play here due to the fact that investments in the

region are observed to be highly risky ones. Demand of banking services in Sub-Sahara Africa is rather high when compared to

the supply and this may be another reason for the higher profitability margins in the region. High interest rates are charged in this

region and there is less competition due to there being a few numbers of banks when compared to the banking services demanded.

A perfect example is the East African region whereby the major stake of the market is taken by few governments owned banks.

Both macroeconomic variables and bank specific variables play an essential role in the strategic performance of commercial

banks. Individual bank specific variables are the internal factors which affect banking performance. The board and management of

the banks are the fundamental players influencing these factors. The external factors or macroeconomic variables affect the overall

profitability of the banks and they are beyond the management or the board controls (Al Tammin, 2010).

1.2 Kenyan Banking Industry

On the Kenyan perspective, ownership identity is seen to play an essential and fundamental role in the performance of firms

(Ongore, 2011). Ownership identity is observed as being domestic and foreign. This classification is so because of the nature of

ownership identity in Kenya. Out of 43 commercial banks registered by Central Bank of Kenya, 13 are foreign owned while the

remaining 31 are owned domestically as of 2011 (Central Bank of Kenya, 2011). As of 2011, 35% of banking assets in Kenya are

foreign held. The Kenyan financial sector is generally dominated by commercial banks. Failures that may occur in the Kenyan


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financial sector are seen to have dire repercussions on the wider economy because of the domineering Kenyan commercial banks.

This is so because any bankruptcy in the commercial bank sector has a ripple effect that could result in economic tribulations,

bringing overall financial crisis and general bank runs. There are some banks in Kenya declaring losses despite the overall good

financial performance of the banking sector (Oloo, 2011).

There are major economic factors that influence the economic growth in the banking sector in Kenya (Oloo, 2011). Corb

(2012) postulates that interest rate is macroeconomic tool used by Central Bank of Kenya to boost economic development and

growth and to control inflation. It is generally believed that changes in interest rate affect not only financial performance of

commercial banks but also its general and strategic performance. Mangeli (2012) asserts that fluctuations of market interest rates

spread exert significant influence the general and strategic performance of commercial banks. Under general conditions, bank

profits increase with rising interest rates under general conditions, since interest rate spread provides an estimate of banks’ profits.

He argued that the banking sector as a whole is immeasurably helped rather than hindered by an increase in interest rates.

The banking industry in Kenya is governed by various Acts such as the Banking Act, the Central Bank of Kenya Act, the

Companies Act and any other prudential rules and procedures that have been laid out by the Central Bank of Kenya (CBK) over

the years. In 1995, the Kenyan banking sector was liberalized, which led to the stripping of exchange controls. Formulation and

implementation of the monetary policies is normally done by the CBK, which is then adopted by the government in ensuring that

there is proper functioning, solvency and liquidity of the financial sector in the country. CBK publishes valuable information

concerning non-banking financial institutions and the banking sector, information related to interest rate prevalent of the country

are also published by this entity and other guidelines and rules (CBK, 2011).

According to Central Bank of Kenya (2012), the Kenyan Banking Sector continued to register improved performance with the

size of assets standing at KES. 2.3 trillion, loans and advances worth KES 1.32 trillion, while the deposit base was KES 1.72

trillion and profit before tax of KES 80.8 billion as at 30th September 2012. During the same period, the number of loan accounts

and bank customer deposit stood at 2,055,574 and 15,072,922 respectively (Ndome, 2012).

Issues affecting the registered commercial banks in the country are usually addressed by the Kenya Bankers Association

(KBA) which is the umbrella body for commercial banks in Kenya, the organization serve as a lobby body for members’ interest

(KBA, 2013). Performance of commercial banks in Kenya has been influenced by various factors such as ownership structure and

the prevailing macro-economic conditions in the country. These determinants have influenced the performance in negative as well

as positive ways depending on the management skills of the executives of the commercial banks (Ongore & Kusa, 2013).

This study has also been motivated by the bailouts and banking failures in the first world countries and thus the need to

evaluate effect of foreign market entry strategy on the strategic performance of commercial banks There is thus a dire need to

understand the influence of these strategies on Kenyan Commercial banks. Most studies carried out on performances of banks in

Kenya seem to lay emphasis on sector-specific factors that have an influence on overall performances of the banking sector

(Olweny & Sipho, 2011). There is thus an inherent need to also lay emphasis on market entry and strategic performance of

commercial banks in Kenya with reference to Equity Bank Limited.

2. Statement of the Problem

Kenyan banking sector has faced stiff competition since the wake of 21st century, this has been attributed by the new entrants

in the sector, currently there are 44 commercial banks in Kenya, 13 of which are foreign owned (CBK, 2018). Stiff competition in

the sector can also be reflected in the fluctuation of the profitability in the sector. The profits before tax for the banking sector

which has been below 20%, a good case being between the year 2008 and 2013. The lowest increase between the year 2008 and

2013 was a 12.9% increase in the year 2009 which was a drop from 13.4% in the year 2008. By the end of the year 2013, there

was a small increase of 16.6% which was still below the 20% figure (Onuonga, 2014). Stiff competition and profit fluctuations

have led to Kenyan banks including Equity Bank to expand their markets to other parts of Sub-Sahara Africa (Onuonga, 2014).

Interest rate capping is also one of the major factors which has attributed to the fact that locally owned commercial banks have

expanded their operations within East and Central Africa (Kiseu, 2017 & Mutindi, 2017). Currently interest rate has been capped

at 14% of all the formal loans, due to this Equity Bank announced a drop in its profits after tax in 2016, which dropped from

Kenya Shillings 17.33 billion in 2015 to Kenya Shillings 16.54 billion (Kagure, 2018).

A study carried out by Milambo (2015) on Zimbabwean Banks going multinational established that barriers to entry was a

decisive factor that influences their decisions whether or not to go multinational. Government-created barriers, such as capital

requirements and other stringent measures, were examples that acted as barriers to Zimbabwean banks in going multinational.

These barriers are created by the host country to make it hard for foreign banks to penetrate their financial markets. The findings

are supported by literature of Cerutti (2017) and, to a lesser extent, Miller and Parkhe (2009). Cerutti (2017) asserts that barriers

imposed on multinational banks, by both the home and host countries, has a negative effect on the form of organization

representation. Put differently, barriers to entry can negatively and significantly affect the form of representation that the bank

wishes to establish. Barriers can be government-created; for example, some governments can impose stringent capital


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requirements and stringent measures in issuing business licenses to foreign firms. Earlier, Miller and Parkhe (2009) proved that

countries with lower taxes and fewer bottlenecks are preferred by multinational banks.

Milambo (2015) also established that the level of technology may hinder foreign expansion. This is usually the case when the

bank’s home country is lagging behind in terms of technology as compared to that of the foreign country. The bank will be forced

to adapt to the new technology in the foreign markets which presents a major challenge since it is costly to adopt and implement

new technology. This is usually the case when a bank’s home country’s technology is undeveloped, and it intends to enter markets

in developed countries for the first time. The findings from this study are consistent with both empirical literatures of Ursacki and

Vertinsky (2012) and Guler and Guillén (2009) and economic theory. Guler and Guillén (2009) ascertain that firms with

organizational capabilities, technological capabilities, marketing know-how, and branding skills tend to be successful when

entering foreign markets. Studies have shown that multinational banks from countries with more competitive banking systems

such as Kenyan banks are most likely to successful compete abroad.

Alikutepa (2016) investigated the the strategies used by Equity Bank internationally, where it was established that financial

markets in the EAC market had some key players who were already well established and also protected their market by locking in

their customers. Multinational banks such as Stanbic, Barclays and Standard Chartered Bank had already set their foot and

captured a substantive market share. The cost of operation was identified as a key challenge in the adoption of the mode of entry

into these markets because cost of operations had risen given the difficulties brought about by technology and infrastructure costs

incurred in delivery of banking products to its customers within the larger EAC market.

According to Equity Group Website (2016), the Bank made remarkable recovery in Tanzania market following the

reorganization of its operations in terms of entry strategy to the market to enable it to remain competitive in the region. It is

apparent that the Tanzania operations were slow in picking up as earlier envisioned possibly the micro and macro-economic

factors were not favorable enough as anticipated. Despite the fact that GeoPoll Straw Poll (2013) survey indicating that Equity

Bank is the most preferred bank in East Africa, the bank is still grappling with customer convenience in its markets abroad, and

these problems can only be solved by adopting a suitable entry strategy. This study therefore sought to establish the effect of entry

strategy on the performance Equity Banks in the foreign markets.

3. Research Objectives

The main objective of this study was to investigate the effects of entry strategies on the performance of Equity Bank in foreign

markets.

4. Review of Literature

4.1 Theoretical Framework

4.1.1 Internalization Theory

Rasiah, Gammeltoft and Jiang, (2010) explains internationalization as the process in which local firms gain access to new

customers in foreign markets, to enhance their competitiveness, to capitalize on core competencies and to spread their business

risk. Rasiah, Gammeltoft and Jiang, (2010) further posits that strategic drivers for internationalizing firms are markets, labour,

natural resources, value chain control, financial incentive and technology and the attainment of this strategy can be achieved

through licensing. The model licensing has three major draw backs as a model for venturing foreign market opportunities.

First, firms using licensing may end up giving up valuable technological know-how to a potential competitor. By directly

investing in a foreign subsidiary rather than licensing, the corporation is able to send the knowledge across border while

maintaining it within the firm, where it presumably produces a better return on the capital made to produce it. Secondly, licensing

does not give a firm the adequate control over marketing, manufacturing and strategy in a host country that may be necessary to

maximize corporation’s profitability. With licensing, control over marketing, manufacturing and strategy is granted to a licensee

in exchange for a royalty fee. However, for operational and strategic reasons, corporations may want to retain control over these

crucial functions. The last drawback of licensing arises when the corporations’ competitive advantage is based not as much on its

marketing and manufacturing capabilities that produce those products and on the management. The drawback is such capabilities

are often not compliable to licensing. While a foreign licensee may be able to physically reproduce the parent’s company product

under license, it often may not be able to do so as efficiently as the licensor could itself. As a result, the company may not be able

to fully exploit maximum profit in the host country (Hill, 2011).

4.1.2 Eclectic Theory

Eclectic theory has three features that is: ownership advantage (O), location advantage (L), and internalization advantage (I),

hence the OLI Model. Multinational enterprises have to consider the above features before venturing abroad that will dominate


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transnational enterprise’s overseas direct investment. Transnational’s have to combine the three distinctive approaches into one

holistic model for it to engage in international production (Choi & Mazzaroi, 2011).

In the Ownership, location and internalization (OLI) model, ownership advantages (O) depict how companies utilize their

company-specific resources, with competitive advantages that sustain their monopoly in home markets to leverage the same

superior home competitive edge over local competitors in foreign markets. Inherent company- specific ownership advantage

alludes to organization’s assets that are intangible and tangible in nature which competitors in the foreign market may not possess

or endowed with in the same capacity (Ekeledo & Sivakumar, 2010).

The theory has been criticized on the account of being too complicated and too general. And also, location factor cannot

account for why foreign-owned banks can compete with domestic banks. Cho (2013) applied the theory in the field of

multinational bank trade, where he argued that these organizations can gain short-term advantage through the remarkable products

distinction, and the long term advantage through perceptible products distinction. However, none of critic made an attempt to

justify the model by concrete evidence. In addition, there are no sufficient examples to show the efficiency of this theory, either.

4.1.3 Theory of Comparative Advantage

Comparative advantage occurs when an organization acquires or develops an attribute or combination of attributes that allows

it to outperform its competitors. These attributes can include access to natural resources, highly skilled and trained personnel

human resources high-grade ores or inexpensive power. Comparative advantage is the ability gained through attributes and

resources to perform at a higher level than others in the same industry or market (Christensen & Fahey 2014).

A firm is said to have a comparative advantage when it is implementing a value creating strategy not simultaneously being

implemented by any current or potential player (Barney 2011) Successfully implemented strategies will lift a firm to superior

performance by facilitating the firm with competitive advantage to outperform current or potential players (Passemard &

Calantone, 2010). To gain comparative advantage a business strategy of a firm manipulates the various resources over which it

has direct control and these resources have the ability to generate competitive advantage (Reed et al,2013,). Superior performance

outcomes and superiority in production resources reflects comparative advantage (Day & Wesley 2012).

4.1.4 New Trade Theory

This collection of economic models which tries to explain empirical composition of international trade that comparative

advantage-based theories failed to clarify. Taking into account the fact that most trade activities are between nations which are

endowed with similar resources, the large amount of productivity levels and multinational production. The theory is based on the

assumptions such as monopolistic competition and increasing return to scale (Shiozawa, 2017).

One implications of this theory are the home-market effect, which states that, if an industry tends to cluster in one location

because of high transportation cost and returns to scale, the industry will be located in the country with highest demands for its

products, in order to minimize cost. Despite the fact that new trade theory can explain the growing trend of trade volumes of

intermediate products, it relies heavily on the strict assumption that all companies are symmetrical, meaning that they all have the

same production coefficients (Maina, 2018).

5. Conceptual Framework

The effects of entry strategies on the performance of Equity Bank can be examined as shown in Figure 1. Each of these

independent variables (entry strategies) causes a notable and explainable effect on the dependent variable (strategic performance

in the foreign market) as explained in the review of the variables, the next section of this chapter. Below is the diagrammatic

relationship represented by the independent and dependent variables.


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Independent Variables Dependent Variable

Figure 1: Conceptual Framework

6. Review of the Variables

6.1 Licensing Strategies

Licensing is a contractual transaction or relationship where the firm, the licensor, offers some proprietary assets, such as

manufacturing process, technical innovation, patent, trademark, trade secret and corporate image or brand, to a foreign company,

the licensee, in exchange for royalty fees (Kotler & Keller, 2016). The advantage of licensing is that it allows the licensor to enter

a new market at little risk. In addition, the licensee can gain production expertise or a well-known product or brand name. But

licensing also has its disadvantages in that some control is lost, and that a potential competitor may have appeared when the

license terminates. Profits have also been given up if the licensee is very successful (Kotler & Keller, 2016).

Some of the most common ways to use licensing include management contracts, contract manufacturing and franchising. In a

management contract, a company charges a fee to manage a foreign business; in contract manufacturing local manufacturers are

hired to produce a product; in franchising the complete brand concept and operating system is offered to the franchisee and in

return for this the franchisee invests in setting up the franchise and pays certain fees (Doole & Lowe, 2014).

The disadvantages of this strategy are: Limited form of participation - to length of agreement, specific product, process or

trademark, Potential returns from marketing and manufacturing may be lost, licensees become competitors which can be

overcome by having cross technology transfer deals and, requires considerable fact finding, planning, investigation and

interpretation (Hollensen, 2010).

Kilonzo (2018) examined the effect of entry strategy on the performance shipping companies. Where it was established that

licensing strategy as an entry strategy has a strong relationship with organizational performance. Despite the fact that export

strategy being the main strategy used by firms in this sector. The study also established that there are various environmental

factors which such legal framework and investment incentives which affect this strategy. According, to Sukulia (2014), on his

study on the international marketing strategies and performance of MNC’s in Kenya it was established that licensing strategy is a

non-equity strategy, based strategy that can be effectively used by these organizations’ in entry into new markets.

6.2 Franchising Strategies

A franchise is a continuing business strategy where one party called the franchisor promises in writing another party called the

franchisee the right to distribute products (goods and services) using the franchisor’s systems and brands in exchange of a

Licensing Strategies

Royalty Fees

Form of Participation

Tax Avoidance

Resources Required

Franchising Strategies

Level of Control

Agency Problems

Existing Market

Established Management

0

Strategic Performance

Competitiveness

Product Differentiation

Process Capabilities

Customer Satisfaction

Strategic Alliances

Level of Risk Sharing

Competition Reduction

Brand Creation

Choice of Partnership

Foreign Direct Investments

Set up Cost of Subsidiaries

Cost of Operation

Tax Incentives

Bank-Client Relationship


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franchising fee. More sophisticated franchise arrangements specify a precise business format under which the franchisee is

expected to carry on business and ensuring a common customer experience throughout the network. McDonalds is an obvious

example (Mockler, 2009).

According to Brickley and Dark (2017) Franchising is seen as a means of obtaining scarce capital as the franchisee is generally

required to make a substantial investment in the business. Franchisees share risk with the franchisor. Franchising is also identified

as a way of addressing the agency problem, specifically, the issue of monitoring managers. Franchisees with substantial

investments are more motivated to maximize revenues through administrative efficiency and protection of then franchise brand

while minimizing operational costs.

Retail franchising allows firms to achieve the expanded reach and efficiencies associated with internationalization more

rapidly and effectively than the firms could accomplish on their own. Dana, Etemad and Wright (2011) developed an

Interdependence Paradigm to explain these franchise marketing networks using examples of firms in South Korea and the

Philippines. In their paradigm, franchising involves a network of franchisees under the guidance of a parent firm, the franchisor.

Franchisors that are well established can achieve greater efficiencies by incorporating smaller franchisees from emerging markets

into international franchise networks. Importantly, the authors point out that franchising can help overcome local ownership

requirements in regulated sectors. Therefore, franchising enhances the competitiveness of franchisors, while contributing to the

development of emerging markets. Dana, Etemad and Wright (2011) view the consequences of this paradigm shift from

independence to interdependence to be far reaching and having a major impact on the way business is handled internationally.

The main advantage of franchising is it represents a quick way for a company to enter a foreign market, and similar to the case

of licensing, this option represents a relatively inexpensive mode of entry (Keegan & Schlegelmilch, 2010). However, franchising

involves a greater element of control. In franchising, there are contractual agreements in place that provides the franchisor with a

great degree of control over the franchisee's operations, thus enabling the brand image to be upheld and protected internationally.

According to Cheptegei (2012), on the foreign entry strategy applied by MNC’s. It was established that Franchising strategy

can be used to enable the company gain substantial market share within a short period of time through partnering with the local

companies referred to as channel partners. The franchisees with ability to stock fast-moving products were very necessary. This

enables MNC’s to easily stock and ensure product availability, whilst cutting warehousing expenses.

Habwe (2015), studied entry strategy in foreign market and performance of Asea Brown Boveri (ABB) in Kenya. Where it

was established that by franchising, the company would enjoy financial, operational, strategic and administrative benefits. This

strategy meant an additional source of income was obtained through franchising fees, while operational benefits were such that

ABB maintained a smaller central organization. Strategically, ABB spread its risks and managed its competition through its

engagement with its channel partners.

6.3 Strategic Alliances

Kotabe et al (2015) defined strategic alliance as partnership between businesses with the purpose of achieving common goals

while minimizing leverage and benefiting from those facets of their operations that complement each other. It comes in all shapes

and sizes and can be based on a simple licensing agreement between partners, or it may consist of a thick web of ties. They are

based on cooperation between companies. A strategic alliance is a contractual, temporary relationship between companies

remaining independent, aimed at reducing the uncertainty around the realization of the partners’ strategic objectives (for which the

partners are mutually dependent) by means of coordinating or jointly executing one or several of the companies’ activities. Each

of the partners is able to exert considerable influence upon the management or policy of the alliance. The partners are financially

involved and share the costs, profits and risks of the strategic alliance (Douma, 2017).

Bernadette and Soares (2017) identify four potential benefits that international business may realize from strategic alliances,

these are: Ease of market entry where entering into a strategic alliance with an international firm, will enable a firm achieve the

benefit of rapid entry while keeping the cost down. Choosing a strategic partnership as the entry mode may overcome the

remaining obstacles, which could include entrenched competition and hostile government regulations; Risk sharing is another

common rationale for undertaking a cooperative arrangement when a market has just opened up, or when there is much

uncertainty and instability in a particular market. Competitive nature of business makes it difficult for business entering a new

market or launching a new product, and forming a strategic alliance is one way to reduce or control a firm’s risks; Shared

knowledge and expertise whereby forming a strategic alliance can allow ready access to knowledge and expertise in an area that a

company lacks. The expertise and knowledge can range from learning to deal with government regulations, production

knowledge, or learning how to acquire resources. A learning organization is a growing organization.

Ngugi (2010) examined the implication of private vehicle hire companies in Nairobi, where it was established that these firms

are likely to have established a unique demand in other companies and poised them to fulfill it. Globalization can foster this kind

of alliances in terms of enhanced media for exchange of information and hence identification of such opportunities. It also

provides an expanded scope for seeking partnerships from across the globe.


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6.4 Foreign Direct Investment

According to UNCTAD (2017) foreign direct investment is defined as a long lasting investment strategy and control of an

entity in an economy other than that of foreign direct investor. This can happen either by buying part or full interest in a local

company or by building its own facilities. If the ownership is complete this is referred to as sole venture or wholly owned

subsidiary.

Establishing a subsidiary abroad comes along with high investments in new properties, marketing and human resources

(Bradley, 2015). Differences in language, culture taste, logistics and laws need to be analyzed in order to start and conduct

successful business on foreign market especially when FDI is chosen as an entry strategy (Verwaal & Donkers, 2012). The setup

of foreign subsidiaries demands huge investments. First, the necessary knowledge about a country, culture, national politics, law

and local customer preference has to be gained. This process of information takes time and money, the hours for a manager to

analyze potential markets represents valuable and costly working hours.

In this case external consultants are entrusted with collection of data the cost move from manager salaries to consultant fees.

Second, the gained information about the potential market has to be used when establishing sales subsidiaries and investing in

different areas like the local bureau and new employees (Lu and Beamish, 2016). However, there is limited control over

international operations as the firm is present on the market the protection proprietary assets are complicated. Not only patent

infringement but also other standard and other regulation on foreign market can develop into non-tariff trade barriers which are

hard to control for exporters (Bradley, 2015).

Amondi (2016), examined the effect of foreign direct investment on the performance of real estate in Kenya, where it was

established that, foreign direct investment had a greatest effect on the performance of the sector compared with other factors such

as inflation. The findings concurred with that of Nyaga (2013) whom using FDI and GDP data between 1982 and 2012 found that

there is a positive influence of FDI in the economy as it leads to increased investment as opposed to savings.

Kariuki & Sang (2018), researched on the relationship between foreign direct investment and bank performance where they

established that foreign direct investment in form of foreign equity capital has a significant effect on bank performance in Kenya.

They further postulated that direct foreign equity capital affect performance in terms of return on equity. Specifically, the study

found that reinvested foreign earnings significantly and positively affected the Bank performance in Kenya return on equity.

Finally, the study found that intra- company loans had a positive effect on return on equity in commercial banks in Kenya.

6.5 Strategic Performance

Strategic performance is defined as an element of organization performance which is based on the systematic definition of

mission, strategy and objectives of the organization, making these measurable through critical success factors and key

performance indicators, in order to be able to take corrective actions to keep the organization on track (Wall, 2017). The type of

entry strategy must enable the bank to position itself strageticacally in the foreign markets. The choice of entry must ensure that

there is customer bonding which includes the attraction, satisfaction and retention of customers. This enables the bank to position

itself strategically in the foreign markets. When strategically positioning itself, the bank must reflect on the choices it makes, the

kind of value it will create and how that value will be created differently from the competitors. This arguably requires proactive

mindset that concentrates on where the organization is now, where the organization wants to go and how to get there (Gitau &

Njuguna, 2017).

Study conducted by Abishua (2010) on strategies adopted by Equity Bank established that the bank uses branch and regional

expansion, product offering diversification, customer-care, financing, relationship marketing, innovation, and information

technology strategies. He further found that Equity Bank to be a very adaptive bank with a versatile reactionary mechanism to

exploit any emerging gaps in the banking industry. The bank has been able to create new markets in uncontested areas like hair

salons, millet growing (for brewing) and dairy industry, so its competition strategies are heavily bent on using “blue ocean

strategies”. For the bank to succeed in its regional expansion strategy the bank needs to adopt an appropriate entry strategy.

Nyaga (2016), conducted a study on the competitive strategies and performance of Equity Bank, where it was established that

different sources of strength have helped the bank to gain competitive advantage over rivals like low cost leadership, growth and

expansion of branches and agents both internationally that position them above other banks. Such strength may be anchored on

quality service, firm’s image, firm’s investment intense in R&D, technological advancement, and customer satisfaction level.

Study also noted that opportunities also affect banks performance in terms of competence thus bank needs to take advantage of

available opportunities abroad in order to outcompete competitors.

Onyonka (2013), researched on the expansion strategies on the performance of commercial banks where it was concluded that

banks are employing expansion strategy in attaining and sustaining competitive advantage in the local and regional market. The


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study further concluded that for banks to reach the target market more conveniently and swiftly, they have had to embrace

expansion as one of their focus in the overall strategy.

7. Research Methodology

7.1 Research Design

Research design refers to the method used to carry out a research. This research problem was studied through the use of a

descriptive research design. According to Cooper and Schindler (2013), a descriptive study is concerned with finding out the

what, where and how of a phenomenon. Descriptive research design was chosen because it enables the researcher to generalize the

findings to a larger population and it is more precise and accurate since it involves description of events in a carefully planned

way. This study therefore was able to generalize the findings to all the departments in the organization. This research design also

portrayed the characteristics of a population.

7.2 Target Population

The target population refers to the specific group relevant to a particular study. Mugenda and Mugenda (2013) explain that a

population is a group of individuals or objects that have the same form of characteristics of study interest. The target population of

this study was employees from Equity Group headquarters which were 160 employees as per Equity Bank Website (2019).

Table 1 Target Population

Category Target Population Percentage % Senior Management 13 8.13

Middle Management 24 15

Operational Staff 123 76.87

Total 160 100

Source: Equity Bank Human Resource Department, 2019

7.3 Sample and Sampling Technique

Sample is a portion of the population that is selected for a research process (Sekaran & Bougie, 2010). This study relied on the

Yamen’s formulae, as shown below to determine the sample size of 160 employees of the bank. Stratified random sampling

technique was used to select the number of employees to be involved in the research. Kothari (2012) noted that stratified sampling

is used when a population from which a sample is to be drawn does not constitute a homogeneous group, in this case the

population can be grouped into branches (strata). Saunders, Lewis and Thornhill (2009) support the categorization of

homogeneous subjects into various strata and therefore employees of the bank was categorized according to management level

and departments.

Yamen’s formulae: n = N/ ((1+ N (e)2)

Where:

N is the target population (160),

n is the sample size (114), and

e is the standard error of estimate (5%)

A percentage of the sample (114 employees) out of a population of 160 was calculated which was 71% to allow for sample

size computation in the entire three category. It was more precise, for it ensured each category within the population received

equal representation within the sample.

Table 2 Sample and Sampling Technique

Category Percentage

Proportion Sample Size

Senior Management 71 9

Middle Management 71 17

Operational Staff 71 88

Total 114

Source: Equity Bank Human Resource Department, 2019

7.4 Data Collection Instrument

Both primary and secondary data was collected for the purpose of analyzing the effects of entry strategies on the performance

of the organisation. Primary data was collected from questionnaires distributed to the employees of Equity while secondary data


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was obtained from annual reports of the company. The questionnaire designed in this study comprised of two sections. The first

part included the general information while the second one looked at the study variables. This researcher collected quantitative

data using a self-administered questionnaire. The research used drop and pick later method to administer questionnaires. The

structured questions were used in an effort to conserve time and money as well as to facilitate easier analysis as they are in

immediate usable form. The unstructured questions were used so as to encourage the respondent to give in-depth information.

7.5 Data Collection Procedure

The human resource department was briefed concerning the purpose of the study. The data collection procedures involved

getting the authority letter from JKUAT and from the human managers. The questionnaires were then administered through drop

and pick method. Where the questionnaires were left to the employees of the organization so that they can fill at their convenient

time. Follow ups were made after two weeks through phone call after which the questionnaires were then collected at the

convenient time of the respondents.

7.6 Data Analysis and Presentation

The collected data was coded and entered into SPSS to create a data sheet that was used for analysis. Data was analyzed using

quantitative techniques. Descriptive statistics such as mean and standard deviation was used to describe the characteristics of

collected data. Pearson’s Correlation, Analysis of variance (ANOVA) and Multiple Regression Analysis was used as inferential

statistics to establish the relationships among the study variables. The model that was used to test hypotheses will be multiple

linear regression models. This model was used previously in other empirical studies to establish relationships between

independent and dependent variables (Kraus, Harms, & Schwarz, 2016).

Y= β0+β1X1+ β2X2+ β3X3+ β4X4+ ε

Where:

SP = Strategic Performance

β0 = Constant or intercept (value of dependent variable when all independent variables are zero)

X1 = Licensing Strategy, X2 = Franchising Strategy, X3 = Strategic Alliances, and X4 = Foreign Direct Investment

= Regression coefficient for each Independent variable

ε = error term

8. Research Results

8.1 Descriptive Statistics

8.1.1 Descriptive Statistics of Licensing Strategies

The respondents were asked to indicate the extent in which they agree with the following statements on the licensing strategies

of Equity Bank in venturing into foreign markets. The following scale was used: 1= Strongly Disagree, 2= Disagree, 3= Neutral,

4= Agree and 5 = Strongly Agree.

Table 3 Descriptive Statistics of Licensing Strategies

Statement Mean Std Deviation

The strategy does not require a lot of resources for the bank to

implement. 3.783 1 .344

Through the use of this strategy the bank has able to avoid

taxes which is associated by other strategies. 3.843 1.375

Return on investment can easily be realized through the adoption

of this strategy. 3.795 1 .359

In some cases, the Bank has experienced lack of commitment on the

part of the licensee hence thus impacts on the success of the

institution in the foreign market. 3.530 1.408

Royalty fees charged by the licensees is manageable for the bank. 3.434 1.532

Valid N = 83

Overall 3.677 1.404

The analysis showed that the respondents agreed that through the use of this strategy the bank has able to avoid taxes which

are associated by other strategies with a mean of 3.843, followed by a mean of 3.795 who agreed that return on investment can

easily be realized through the adoption of this strategy. The respondents also agreed that the strategy does not require a lot of

resources for the bank to implement with a mean of 3.783 compared with a mean of 3.530 who agreed that in some cases, the


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Bank has experienced lack of commitment on the part of the licensee hence thus impacts on the success of the institution in the

foreign market. Finally, the respondents agreed with a mean of 3.434 agreed that royalty fees charged by the licensees are

manageable for the bank. The analysis finally showed the overall mean of 3.677 and overall standard deviation of 1.404, this

suggested that majority of the respondents agreed that licensing strategies affects the strategic performance of Equity Bank. The

above findings were supported by that of Sukulia (2014), who established that licensing is a non-equity strategy that can be

adopted by MNC’s to enter foreign markets.

8.1.2 Descriptive Statistics of Franchising Strategies

The researcher also to determine the mean and standard deviation of the various statements on the franchising strategies of

Equity Bank. The following Likert scale was used: 1= Strongly Disagree, 2= Disagree, 3= Neutral, 4= Agree and 5 = Strongly

Agree.

Table 4 Descriptive Statistics of Franchising Strategies

Statements Mean Std Deviation

The organization is able to offer its products in an already

established market. 3.892 1.288

The bank is able through the use of the strategy without the effects

of cost of equity or risk of debt. 3.976 1.388

The institution is able to benefit from the already established

management of the franchisee. 4.398 1.178

This strategy is the speedy way to be the market leader before

competitors encroach the market. 3.795 1.276

The initial cost of buying the franchise is very high for the bank. 3.446 1.373

Valid N = 83

Overall 3.901 1.301

The analysis showed that the respondents strongly agreed that the institution is able to benefit from the already established

management of the franchisee with a mean of 4.398, the also agreed that the bank is able to use the strategy without the effects on

cost of equity or risk of debt with a mean of 3.976. The respondents also agreed that the organization is able to offer its products

in an already established market with a mean of 3.892, also the strategy act as a speedy way to be the market leader before

competitors encroach the market with a mean of 3.795 and finally the respondents agreed that the initial cost of buying the

franchise is very high for the bank with a mean of 3.446. Finally, the analysis showed an overall mean of 3.901 with an overall

standard deviation of 1.301. This suggested that majority of the respondents agreed that franchising strategy affects strategic

performance of Equity Bank in foreign markets. The above findings are in line with that of Cheptegei (2012), who established that

franchising strategy is the quickest way in which MNCs can gain a substantial market share in a market before the encroachment

of competitors.

8.1.3 Descriptive Statistics of Strategic Alliances

In this section the research sought to determine the descriptive statistics on the various statements concerning strategic

alliances. The following scale was used: 1= Strongly Disagree, 2= Disagree, 3= Neutral, 4= Agree and 5 = Strongly Agree.

Table 5 Descriptive Statistics of Strategic Alliances

Statements Mean Std Deviation

Strategic alliance strategy used in entering South Sudan has

been successful. 3.108 1.616

This strategy creates a competitive advantage for the bank in

these markets. 4.217 0.870

Creation of a favorable brand has been possible through the use

of this strategy. 4.301 0.984

The organization has been faced with the challenge of choosing

the right partner when venturing into new markets. 3.795 1.488

Strategic alliance is very complex in the banking industry and

ill-conceived strategy may result in poor management of the

alliance. 3.783 1.457

Valid N=83

Overall 3.841 1.283

The analysis showed that the respondents strongly agreed that creation of a favorable brand has been possible through the use

of the strategy with a mean of 4.301; the respondents strongly agreed that strategic alliance creates a competitive advantage for the


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bank in foreign markets with a mean of 4.301. The respondents agreed that the organization has been faced with the challenge of

choosing the right partner to enter into strategic alliance with when venturing into new markets with a mean of 3.795 compared

with those who agreed that strategic alliance is very complex in the banking industry and ill-conceived strategy may result in poor

management of the alliance with a mean of 3.783. Finally, they also agreed that strategic alliance strategy used in entering South

Sudan was successful with a mean of 3.108. The analysis showed that the respondents agreed with an overall mean of 3.841 and

standard deviation of 1.283, this suggest that strategic alliance affects strategic performance of Equity Bank in foreign markets.

The above findings were supported by Nkirote (2013), who established that the strategies such as acquisition and joint ventures

have worked well for the bank in the following markets: Uganda, South Sudan, Rwanda and finally Tanzania.

8.1.4 Descriptive Statistics of Foreign Direct Investment

The study also sought to determine mean and standard deviation on various statements concerning foreign direct investment

(opening of subsidiaries in foreign markets). The following scale was used: 1= Strongly Disagree, 2= Disagree, 3= Neutral, 4=

Agree and 5 = Strongly Agree.

Table 6 Descriptive Statistics of Foreign Direct Investment

Statements Mean Std Dev

This strategy allows the parent firm to have more control compared

to other entry modes. 4.193 1.173

The bank is able to enjoy tax incentives offered by foreign governments. 4.398 1.011

Through the establishment of subsidiaries in foreign markets, the bank

has been facing the risks associated with foreign exchange. 3.928 1.407

The use of this strategy has enabled the bank to have a unique bank-client

relationship in these markets. 4.108 1.220

Foreign direct investment enables the bank to have a permanent footprint

in the foreign markets. 4.386 0.895

Valid N=83

Overall 4.206 1.141

It was evident that the respondents strongly agreed that the bank is able to enjoy tax incentives offered by foreign governments

through the establishment of the subsidiaries with the highest mean of 4.398, followed by a mean of 4.386 of the respondents who

strongly agreed that Foreign direct investment enables the bank to have a permanent footprint in the foreign markets. The

respondents strongly agreed that the strategy allows the parent firm to have more control compared to other entry modes with a

mean of 4.193 compared with a mean of 4.108 of the respondents who strongly agreed that the use of this strategy has enabled the

bank to have a unique bank-client relationship in these markets. While the lowest mean of 3.928 indicates that the respondents

agreed that through the establishment of subsidiaries in foreign markets, the bank has been facing the risks associated with foreign

exchange. Finally, the analysis showed that majority of the respondents strongly agreed with the statements with an overall mean

of 4.206 and overall standard deviation of 1.141. This indicated that foreign direct investment (opening of subsidiaries) strongly

affects strategic performance of Equity Bank in foreign markets. The above findings are also in line with that of Kariuki and

Sang (2018), who opined that foreign direct investment in terms of equity capital affects performance of commercial banks in

Kenya in terms of return on equity.

8.1.5 Descriptive Statistics on Strategic Performance

The researcher finally sought to determine descriptive statistics on the dependent variable (strategic performance of Equity

Bank). Where the respondents were asked to indicate the extent in which entry strategy impacted on the various measures of

strategic performance of the bank. The following scale was used: 5=Greatly Improved, 4=Improved, 3= Constant, 2=Decreased

and 1= Greatly Decreased.

Table 7 Descriptive Statistics on Strategic Performance

Measure Mean Std Deviation

Customer Satisfaction 4.169 1.167

Process Capabilities 3.940 1.282

Market Share 3.976 1.343

Number of Customers 4.639 0.691

Product Differentiation 3.518 1.641

Valid N=83

Overall 4.048 1.234

The analysis showed that the respondents strongly agreed that strategies have resulted into increased number of customers with

a mean of 4.639, the also strongly agreed that the strategies had resulted into increased customer satisfaction with a mean of


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4.169. The respondents agreed that the strategies had resulted into increased market, improved process capabilities and improved

product differentiation, with a mean of 3.976, 3.940 and 3.518 respectively. Finally, the analysis indicated that respondents

strongly agreed the strategies had greatly improved the strategic performance of Equity Bank with an overall mean of 4.048 and

overall standard deviation of 1.234. This suggests that entry strategies adopted by Equity Bank affects strategic performance of the

bank in foreign markets. This is supported by the findings of Onyonka (2013), who established that expansion strategies adopted

by Equity Bank resulted into the competitive advantage through market share. Abishua (2010) also established that regional

expansion and product differentiation are some of the strategies adopted by the bank in gaining competitive advantage.

8.2 Inferential Statistics

8.2.1 Correlation Coefficient

Pearson correlation analysis was determined to determine the relationship between study variables. According to Mugenda and

Mugenda (2013) correlation coefficient (r) ranges between +1 to -1, with +1 indicating a perfect positive correlation, 0 indicating

no correlation and -1 indicating a perfect negative correlation.

Table 8 Correlation Coefficient

LS FS SA DFI SP

Licensing Strategy (LS) 1

Sig (2-tailed)

Franchising Strategy (FS) 0.494** 1

Sig (2-tailed) 0.000

Strategic Alliance (SA) 0.670** 0.745** 1

Sig (2-tailed) 0.000 0.000

Foreign direct investment (DFI) 0.184 0.333** 0.107 1

Sig (2-tailed) 0.006 0.002 0.005

Strategic Performance (SP) 0.338** 0.308** 0.145 0.330** 1

Sig (2-tailed) 0.002 0.005 0.192 0.002

** Correlation is significant at 0.001 level (2-tailed)

On the relationship between the independent variables the analysis showed a strong positive correlation between strategic

alliance with franchising at 0.745 with a p-value of 0.000 which was less than 0.001 hence statistically significant, the analysis

also indicated that there exists a weak relationship between Foreign direct investment and strategic alliance at 0.107 with a p-value

of 0.335 which is greater than 0.001 which was not statistically significant. On the relationship between independent variables and

dependent variable the analysis showed that there exist a positive but weak relationship between licensing strategies, franchising

strategies, strategic alliances and Foreign direct investment at 0.338, 0.308, 0.145 and 0.330 respectively with all the variables

being statistically significant except strategic alliance with a p-value of 0.192 which greater than 0.001. The above findings were

supported by the findings of Kilonzo (2018), who established that there exists a positive relationship between market entry

strategies and the performance of shipping companies in Kenya.

8.2.2 Coefficient of Determination (R2)

To determine the strength of the relationship between independent variables and dependent variable coefficient of

determination.

Table 9 Coefficient of Determination

Model R R Square Adjusted R Square Std Error of Estimate

1 0.539a 0.291 0.255 2.1003

a, Predictors: Licensing Strategies, Franchising Strategies, Strategic Alliance and Foreign direct investment.

The analysis showed an adjusted r2

of 0.255, this means that only 25.5% of the predictor variables (licensing strategies,

franchising strategies, strategic alliance and foreign direct investment) can be used to explain strategic performance of Equity

Bank in foreign markets. The remaining 74.5% are factors or strategies which can determine the strategic performance of the bank

which were not incorporated in the study. Unai (2016) suggested that r2 of as low as 0.10 is accepted for social science while

Cooper and Schindler (2014) suggested r2 of between 0.10 to 0.20.

8.2.3 Analysis of Variance

To test the significance of the overall model (effect of entry strategies on the strategic performance of Equity Bank) multiple

analyses of variance (ANOVA) was determined through linear regression.


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Table 10 ANOVA Summary

Model Sum of Squares df Mean Square f Sig.

1 Regression 141.166 4 35.292 8.002 0.000b

Residual 343.990 78 4.410

Total 485.156 82

a. Dependent Variable: Strategic Performance

b. Predictor Variables: (Constant) Licensing Strategies, Franchising Strategies, Strategic Alliance and Foreign direct

investment.

From table 10 it was evident that the f-value was 8.002 which less than 88.33 critical values, hence the model is statistically

significant. According to Macha (2011) if the f-value is less than 88.33 the model is statistically significant. There was 0.000 p-

values (significance level) which is less than 0.05, thus the regression model is statistically significance since predictors (licensing

strategies, franchising strategies, strategic alliance and foreign direct investment) affects strategic performance of Equity Bank in

foreign markets.

8.2.4 Regression Model

To establish the contribution of each independent variable on the strategic performance of Equity Bank in foreign markets

regression model was derived.

Table 11 Regression Coefficients

Model Unstandardized

Coefficients

Standardized

Coefficients

t Sig.

B Std. Error Beta

1

(Constant) 30.203 2.904 10.402 0.000

Licensing

Strategies 0.319 0.081 0.513 3.921 0.000

Franchising

Strategies 0.050 0.085 0.108 0.588 0.558

Strategic

Alliances 0.141 0.110 0.241 1.286 0.202

Foreign direct

investment 0.361 0.124 0.363 2.906 0.005

a. Dependent Variable: Strategic Performance

The above regression coefficients were used to establish the relationship between entry strategies (independent variables) on

the strategic performance of Equity Bank (dependent variable). Therefore, the regression equation becomes:

SP = 30.203 + 0.319LS + 0.361DFI

Where:

SP = Strategic Performance

LS = Licensing Strategy

DFI = Foreign direct investment

From the regression equation above it was revealed that a unit increase in licensing strategies would result in 31.9% (0.319)

improvement on strategic performance and a unit increase in Foreign direct investment (subsidiaries establishment) would result

in 36.1% (0.361) improvement on strategic performance of Equity Bank. This suggests that foreign direct investment through

establishment of subsidiaries has the greatest effect on the strategic performance of Equity bank in foreign markets. The above

findings were in line with that of Amondi (2016), who established that foreign direct investment has the greatest effect on the

performance of real estate firms in Kenya.

8.2.5 Hypothesis Testing

The researcher conducted hypothesis testing on the various study variables using regression coefficients and p-values:

H01: There is a significant effect of licensing strategies on the strategic performance of Equity Bank in foreign markets.

The regression analysis showed that an increase in licensing strategies would result in an improvement in strategic

performance (β = 0.319), while the p-value was 0.000 which was less than 0.05, hence statistically significant. Therefore, we

accept the null hypothesis.

H02: There is a significant effect of franchising strategies on the strategic performance of Equity Bank in foreign markets.


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On the second variable the analysis showed that an increase in franchising strategies would results in an improvement strategic

performance of Equity Bank in foreign markets (β = 0.050), while the p-value was 0.558 which was greater than 0.005, hence

statistically not significant. Therefore, we reject the null hypothesis.

H03: There is a significant effect of strategic alliances on the strategic performance of Equity Bank in foreign markets.

Thirdly the regression analysis showed that an increase in strategic alliance would result in an improvement on the strategic

performance of Equity bank on the foreign markets (β =0.361), while the p-value was 0.202 which was greater than 0.05. Hence

statistically, not significant. Therefore, we reject the null hypothesis.

H04: There is a significant effect of Foreign direct investment on the strategic performance of Equity Bank in foreign markets.

Finally, the regression analysis showed that an increase in Foreign direct investment would result in an improvement on the

strategic performance of Equity Bank in foreign markets (β = 0361), while the p-value was 0.005 which less than 0.05, hence

statistically significant. Therefore, we accept the null hypothesis.

9. Summary of Data Analysis

On the general information, the analysis showed that 38.4% of the respondents who were the majority indicated that the main

reason why Equity Bank has ventured abroad was because of the need of the profit and the respondents also indicated that

Democratic Republic of Congo was the foreign subsidiary with the highest customer base with 45.8% of the respondents indicated

so. On the main factor which determines the choice of market entry strategy 43.4% of the respondents who were the majority

indicated that political-legal factor of the host determines the choice of the market entry strategy. Finally, on the general

information 42.2% of the respondents indicated that foreign direct investment (opening of subsidiaries) was the main strategy used

by the Equity Bank to enter into the foreign market.

On the study variables, the respondents agreed on the various statements on licensing strategies with an overall mean of 3.677

and overall standard deviation of 1.404, the respondents agreed with the various statements on franchising strategies with an

overall mean of 3.901 with an overall standard deviation of 1.301. On the strategic alliances, the respondents agreed with an

overall mean of 3.841 and standard deviation of 1.283 and they also strongly agreed with the various statements on the Foreign

direct investment with an overall mean of 4.206 and overall standard deviation of 1.141. On the dependent variable (strategic

performance), the strongly agreed the strategies had greatly improved the strategic performance of Equity Bank with an overall

mean of 4.048 and overall standard deviation of 1.234.

On the inferential statistics, the correlation analysis indicated a positive correlation between the study variables and also a

positive relationship between independent variables and the dependent variable, the analysis also indicated the relationship was

statistically significant except a relationship between strategic alliances and strategic performance with a p-value of 0.192 which

was greater than 0.005. The analysis also indicated that the independent variables could only explain 25.5% of the strategic

performance of Equity Bank in foreign markets. The ANOVA analysis also indicated the relationship between entry strategies and

strategic performance was statistically significant with a p-value of 0.000 which was less than 0.05. Finally, on the regression

coefficients, the analysis indicated a unit change in various entry strategies would result in a significant change in strategic

performance of the bank in foreign markets.

10. Conclusion and Recommendations

10.1 Conclusion

In a nutshell, the study concludes that other than strategic alliances, foreign direct investment, franchising strategy and

licensing strategies there are other factors that can determine strategic performance of Equity Bank in foreign markets. These

factors or strategies contributes to increased market share, increased number of customers, improved process capabilities and

product differentiation and finally, improved customer satisfaction.

On the licensing strategies the study concludes that licensing strategy significantly affects the strategic performance. Since

return of investment can easily be realized because the bank can avoid the taxes which is associated with other strategies and it

does not require a lot of resources for it to be implemented. The study also concludes that lack of commitment on the part of the

licensee on the part of the licensee can lead to failure of the strategy hence there is need for top management involvement. The

study finally concludes that for the strategy to be successful there is need to be implemented together with the others since there

was a positive correlation between them.

Based on the findings and data analysis, the study concludes that franchising strategy affects the strategic performance, but it

was not statistically significant. The strategy allowed the bank to encroach markets a head of its competitors. The researcher also

concludes that franchising strategy does not have an effect on the capital structure of the organization. The initial cost to enter into

a franchising is very high. Finally, there is need to implement the franchising strategy together with other strategies for the

successful strategic performance of Equity Bank.


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The study also concludes that strategic alliance was the second most implemented strategy in Equity Bank after Foreign direct

investment. The strategy was used in Democratic Republic of Congo and South Sudan through acquisition. It was also concluded

that despite the successful implementation of the strategy some challenges might be experienced which include choosing the right

partner when venturing into new markets and the strategy is very complex in the banking industry and if ill-conceived strategy

may result in poor management of the alliance. Finally, in conclusion, strategic alliances contribute to strategic performance, but it

does not significantly affect it.

Lastly, foreign direct investment through the opening of subsidiaries was the most commonly used market entry strategy for

the banks to enter East Africa market. The study also concludes that establishment of subsidiaries was the most expensive

strategy, but it contributed to the highest strategic performance of the bank in foreign market as indicated by the regression

equation of the study. Finally, the study concludes that foreign direct investment significantly affects the strategic performance of

Equity Bank in foreign markets.

10.2 Recommendation of the Study

10.2.1 Managerial Recommendations

Based on the findings and conclusion of the study, the study recommends that management Equity bank should conduct a

thorough market scanning and establish which strategy would be appropriate in venturing into a new market, taking into

consideration: political-legal, social and technological factors. Equity Bank should also train its employees on the customer

handling in these new markets since due to social factors customers in different markets have different taste and preferences. The

bank should also carry out a market research so that to come up with unique products that suit these new markets, this will

encourage product differentiation strategy.

10.2.2 Policy Recommendation

Finally, on policy makers and controllers of the banking sectors in foreign markets, they should come up with friendly policies

regarding strategic alliances in the financial sector. Hosting governments should also offer tax holidays for the banks that want to

establish a subsidiary in the country since this means employment opportunity for its citizens and hence a general economic

growth for the country.

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