Relationship between Coordination Costs and Firm Growth of Edible Oil Manufacturers in Kenya

Abstract

Kenya is one of the great producers and manufacturers of edible oil, with the industryhaving capacity to meetthe country’s needs and those of her neighbours. This industry went through a very hard phase in the late 90s.Nevertheless, the industry has rejuvenated over the years. Today, estimation of production of edible oil is at 380,000 tones. This quantity constitutes about one-third of Kenya’s annual demand, the rest being imported,and meaning that there is potential market for local firms in this industry. Therefore, edible oil market in Kenya is not yet exhausted. It is evident that firms in this industry have the potential to grow as they exhaust the market. Firms in Edible oil industry have varied growth levels and yet there is market for their products. Firms can experience growth if they utilise the coordination synergies to experience efficiencies in interaction of their activities.Coordination synergies are known to reduce coordination costs that may impede a firm to experience growth. Therefore, this study sought to find the relationship between coordination costs and firm growth of edible oil manufacturers in Kenya, with an objective to determine the level of organization decomposability, complexity, inter-branch/unit interdependencies and span of control in relation to coordination costs and how they affect firm growth. The argument here is that the problem is to contribute to the knowledge about the relative and combined effects of coordination costs on firm growth among edible oil manufacturers in Kenya, limiting the study to a more homogenous empirical context and generalizing only to that context.The thesis therefore sought to find out whether coordination costs could be a contributory factor in the varied growths of these firms. The studyused a survey design with both quantitative and qualitative research approaches,based on purposive sampling for manufacturing firms and stratified sampling for the respondents. Primary data was collected by use of questionnaires and yielded dichotomous answers by use of a Likert Scale. Secondary data was collected from the firm’s annual financial statements, i.e. debt ratio, return on investment, profit retention ratio, and liquidity ratio, whichformed the measurement for growth. These measurements were selected because they backtracked the proceedings of sales as the increase in sales necessitates increase in profits, return on investment, reduce debt ratio, on the basis of sales being a universal determinant of growth. The research analysis wasmainly based on correlation analysis model, path coefficients, simple correlations, indirect effects, and total correlations for the study dataset.The study found that the departments were interdependent of each other, tasks were shared and there was a lot of interrelations among the departments within the firms. It was realized that the decomposability, complexity, inter-unit costs and span of control costs in the oil manufacturing were relatively low. The complexity and decomposability costs were insignificant in influencing the growth of the oil manufacturing companies whereas inter-unit and span of control costs were highly significant in influencing the growth of the oil manufacturing companies. The study recommends that managers should aim to minimize the coordination costs so as to increase profitability and growth. However, further study should be done in other companies other than oil manufacturers to compare the results and get more knowledge on the coordination costs and growth of companies.