Effect of Market Entry Strategies of Foreign Retailers on Market Share of Large Local Supermarkets in Nairobi, Kenya

Abstract

Globalization and internationalization of business has opened up foreign and local markets and multinational firms all over the globe are seeking the best way forward in utilizing this opportunity. On these grounds liberalization of markets and firms competitiveness has driven retail chains across borders to effectively establish themselves in a foreign market. Firms exploit a number of strategies to penetrate into identified markets. The penetration of foreign companies into new markets has huge implications on the market share of existing local companies. The study‟s objective was to establish the effect of market entry strategies of foreign retailers on market share large local retail supermarkets in Nairobi. This study was anchored on three theories namely the porters five forces model, internationalization theory and resource based theory. The study adopted a descriptive research design. The target respondents were 11 respondents of which five were the foreign supermarkets operating in Nairobi while the other six were the large local supermarkets in Nairobi. Data was collected from the respondents using structured questionnaires through drop and pick method. The questionnaires had three sections. Section A addressed the demographic information of the retail stores. Section B addressed questions on the market entry strategies adopted while section C covered aspects on market share. The data collected was analyzed using both descriptive and inferential statistics such as means and standard deviation with the aid of Statistical Tool for Social Sciences (SPSS) version 22. The inferential statistics was undertaken by performing a regression analysis on the dependent variable (market share) and the independent variables (market entry strategies). The study found that foreign retailers have adopted a variety of strategies in penetrating into the Kenyan market with the key one being licensing. The findings reveal that despite the two other strategies used namely; joint venture and acquisitions, all the foreign retailers had penetrated into the Kenyan market as direct investors and established their businesses from the base. The study further noted that increase in the sales volume of the large local supermarkets has declined due to entry of foreign retailers into the market. The entry of foreign retailers has posed threats to the market share of the local retailers as there is limited number of consumers which the two are competing for. The study found that market entry strategies have a negative and significant effect on the market share of large local supermarkets operating in Nairobi. This was evidenced by a p value of 0.021 at 95% confidence level. This shows that the model adopted for this study was significant. The study recommends that as a strategy of survival from loss of market share, the local supermarkets should study the different approaches used by the foreign supermarkets in growing and winning the market share and evaluate them against the current strategies in use so as to develop the best strategies that result in retention and expansion of the market share. The local supermarket should also strategically situate branches and avoid impromptu and uncalculated opening of new branches which often leads to loss of market share