INFLUENCE OF VERTICAL INTEGRATION STRATEGY ON PERFORMANCE OF NON-FINANCIAL FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA

Videlis Njeri Njuguna

PhD. Candidate, School of Business

Jomo Kenyatta University of Agriculture and Technology, Kenya

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Josphat Kwasira

School of Business

Jomo Kenyatta University of Agriculture and Technology, Kenya

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George Orwa

School of Mathematical Sciences

Jomo Kenyatta University of Agriculture and Technology, Kenya

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CITATION: Njuguna, V., N. Kwasira, J. Orwa, G. (2018). Influence of Vertical Integration Strategy On Performance of Non-Financial Firms Listed at The Nairobi Securities Exchange, Kenya. International Journal of Strategic Management. Vol. 7 Issue (5) pp 169 – 195.

ABSTRACT

The choice of firms’ diversification strategies and their performance has been the centre of attention in the strategy and finance fields both empirically and theoretically. However in general, previous studies have analysed the integration–performance relationship without differentiating the firms into financial and non-financial sectors, but rather the samples were pooled from both sectors. The aim of this study is to investigate the influence of vertical integration strategy on performance of non-financial firms listed at the Nairobi Securities Exchange. The study used descriptive correlational survey design. Target population was all 45 listed non-financial firms. Primary and secondary data were required; primary data was collected using a semi-structured questionnaire and audited financial reports of the firms were used to collect secondary data. Through descriptive, correlation and regression analyses, the study findings revealed that there was a significant positive relationship between vertical integration and firm performance. Regression analysis revealed that 19.5% of changes in firm performance were attributed to the use of vertical integration strategy. This study concluded that vertical integration is an essential strategy for use by firms in their quest to lower transaction costs, increase market power and improve on firm’s technical efficiencies. The study recommended that management of firms that are yet to adopt this strategy should put in place an internal organizational policy and culture to encourage its adoption. Managers should also create initiative in their firms with regard to vertical integration which should consider vertical integration issues as part of their performance review.

Key Words: Vertical Integration Strategy, Backward Integration, Forward Integration, Firm Performance

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