MICHAEL PORTER`S FIVE FORCES ON PERFORMANCE OF SAVINGS AND CREDIT COOPERATIVE SOCIETIES IN NAIROBI CITY COUNTY, KENYA
Simiyu Salima Hussein - Masters of Business Administration (Strategic Management), Kenyatta University, Kenya
Dr. Anne Muchemi - Department of Business Administration, School of Business, Kenyatta University, Kenya
ABSTRACT
Report by the World Council of Credit Unions reveals that Kenya occupies the biggest segment, in percentage points, of Gross Domestic Product related to cooperative societies worldwide. Savings and Credit Cooperative Societies continue to encounter challenges regardless of their major contribution to the economy. The main challenge being the intensified level of competition in the financial sector. SACCOs must consequently reconsider incorporating different strategies to be relevant, stay engrossed and focused to achieve their objectives. This research assessed the effect of Michael Porter`s Five Forces on the performance of SACCOs in Nairobi City County of Kenya. Specifically, the study wanted to: define the effect of bargaining power of buyers, establish the effect of the bargaining power of suppliers, evaluate the effects of threats of substitutes, investigate effects of new entrants and assess effects of industry rivalry on the performance of SACCO’s. The study was guided by Porter’s theory of competitive advantage, resource based view theory and balance score card theory. The study was guided by descriptive survey research design. The target population consisted of all the 40 deposit-taking SACCOs registered by SASRA and providing financial services in Nairobi City county of Kenya. A census of 80 respondents was carried out. Data was collected from credit control managers and business development managers using structured questionnaires and analysed using descriptive statistics and regression analysis. The study established that bargaining power of buyers, bargaining power of sellers, threats of substitutes, new entrants and industry rivalry had a positive significant effect on performance. The study concluded that strong buyers can pressure sellers to lower prices, improve product quality, and offer more and better services. All of these things represent costs to the sellers. Strong suppliers can pressure buyers by raising prices, lowering product quality, and reducing product availability. The availability of a substitution threat affects the profitability of an organization because consumers can choose to purchase the substitute instead of the Saccos product. The entry of a new competitor in a market tends to reduce the market prices. The intensity of rivalry among competitors in the Sacco sector is the extent to which Saccos within the Sacco industry put pressure on one another and limit each other’s profit potential. The study recommends that the Sacco should determine factors such as the number of buyers relative to suppliers, dependence of a buyer’s purchase on a particular supplier, switching costs, backward integration. The Sacco should ensure that the supplier power is high if the buyer is not price sensitive and uneducated regarding the product. The Sacco should start creating a list of potential substitutes that you evaluate as a threat in an external analysis so as to be better able to identify and react to any threat of substitutes. The Sacco should identify a need in the sector and satisfy it with a product or service, improve on existing products or services and focus on the needs of their customers. a Sacco should check whether there are numerous competing firms in the industry, whether the competitors are generally of an equal size in their operations, whether the competitors have similar shares in the market, whether their products are differentiated or generic and whether competitors have diverse in their operations and strategies.
