Related diversification as a strategic orientation among mid-tier audit firms in Kenya
The effects of globalization have opened up markets all over the world. As a result, competition has increased a notch higher virtually in all sectors of the economy. The auditing sector has not been left behind. Small and medium sized audit firms are now encroaching into lucrative sectors that were previously dominated by the big multinational auditing firms by diversifying into related and unrelated markets. In addition, some of the medium firms have sought affiliation with big global audit firms while others have merged. As a result, they have started to build a brand name in the market and at the same time, developing the human capital required to compete in the market. The objectives of this study were: to determine the extent of related diversification in mid-tier audit firms in Kenya and to determine the effect of diversification on the growth of the aforementioned firms. A descriptive survey design was used in this study. The population was all the 700 audit firms registered by the ICPAK. A sample of 70 firms was selected for the study using convenience sampling method. Primary data was collected using semi-structured questionnaires which were administered to the managing partners through drop and pick later method. Data was analysed using descriptive statistics with the aid of SPSS. The study found that all the firms had adopted related diversification strategy. Other than the audit business, all the firms had diversified into taxation services. The firms had diversified into offering company secretarial services, consulting services and accounting services. The results also showed that most of the respondents agreed that related diversification lead to firm growth. The study concludes that all the audit firms had adopted related diversification strategy where related non-audit services such as taxation services, company secretarial services, consulting services and accounting services were provided as an SBU or as a non-strategic business unit. The study also concludes that related diversification led to growth of audit firms as majority of respondents agreed. The study recommends that there is need for mid-tier audit firms to diversify more into business advisory services to complement the audit business as this is important in stabilising the earnings from these firms. The study also recommends that mid-tier audit firms should rigorously exploit their potential in offering these non-audit services in order to improve their contribution to overall revenues of these firms.