FACTORS HINDERING SUCCESSFUL VALUE ADDITION OF KENYA TEAS

DAVID MURIUKI

BUS-3-5843-3/08

A Thesis Submitted in Partial Fulfillment of the Requirements for the Award of Masters of Business Administration (MBA) Degree of Kenya Methodist University

October 2012

DECLARATION I declare that this is my original work and has not been presented in any other university or college for examination purpose.

Sign ______________________________Date ______________________________ David Muriuki Bus-3-5843-3/08

This research thesis has been submitted for examination with our approval as university supervisors

1st supervisor Sign _____________________________Date _____________________________

2nd supervisor Sign Date

The Kenya Methodist University Nairobi Campus P.O. Box 45240 00100 Nairobi

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DEDICATION This is dedicated to my family, relatives and all well-wishers who have worked tirelessly to ensure that all requirements are met.

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ACKNOWLEDGEMENT

Planning and preparing this thesis has been a six month effort. A great number of people helped me in the development of this project on relevant information and emotional support. I discussed among my supervisor, friends, workmates and college mates. To my Supervisors, I want to say thank you for the guidance and assistance, your effort and encouragement gave me more effort towards accomplishment of this proposal. I also thank my employer for allowing me time for out of job training. To my family for their endless support and mentors, I say big thanks for the moral and emotional support. Thank you always for your encouragements and positive attitude towards academics; this has made me be positive, confident and courage to conqueror life achievements. To my mum, I thank you always for your support in every aspect, your patience and encouragement. Finally I say thanks to Almighty God for He alone knows the plans He has for you.

God bless you all.

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ABSTRACT

Since 2005 Kenya has been the world leading exporter of Black CTC in terms of quality and quantity. As such, its expected that Kenya is the world largest earner from tea exports. The research problem statement arises from the intensification of competition in the international tea business and the extensive consolidation of value addition among Kenyas competitors namely Sri Lanka and India. What is emerging from this competition is that value addition is an essential prerequisite for the achievement of a sustainable competitive advantage and, hence Kenyas tea export overall success. The purpose of this research paper was to establish the factors affecting successful value addition of Kenya teas.

The researcher used a descriptive type of research design. The target populations for this study are the primary and secondary tea industry stakeholders. A sample of 22 respondents from Top management was targeted from representative stakeholders. The primary data was collected using the questionnaires. Secondary data was collected through desk research from previous publications and websites. The quantitative responses were then coded into the SPSS version 17.0 and the data analyzed using descriptive statistics. In addition the study used Karl Pearsons product moment correlation analysis and multivariate regression was applied to determine the relative importance of each of the four variables with respect to tea value addition.

From the study findings, the study concludes that poor infrastructure affect tea value addition in Kenya since there is unreliable and costly cost for energy and congestion at the Mombasa Port affects tea exports. The study also deduced that cost/quality affect value addition since packaging

materials locally are very expensive. The study further concluded that government related levies and taxes effect value addition since V.A.T. levied on tea increases the cost of tea yet tea is food and like other foods should not attract V.A.T. Marketing related factors also affect value addition as there is a risk of overreliance on a few markets for Kenya tea. The study recommends that to enhance the infrastructure for value-addition, the study recommends that the Government should be more involved through funding/resource mobilization and provision of incentives such as credit lines/financial assistance and improve road network.

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TABLE OF CONTENTS

DECLARATION...........................................................................................................................ii DEDICATION..............................................................................................................................iii ACKNOWLEDGEMENT............................................................................................................iv ABSTRACT....................................................................................................................................v TABLE OF CONTENTS............................................................................................................vii LIST OF ABBREVIATIONS AND ACRONMS.......................................................................ix

LIST OF TABLES

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LIST OF FIGURES

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LIST OF ABBREVIATIONS AND ACRONMS APC CTC DTTC EATTA EIA EFTA EPZ FAO-IGG FAOSTAT FDI GAP GI GMP ISO KAM KEBS KEPHIS KETEPA KGS KRA KRB KSH KTDA KTGA LATF MC MoA NSE NTZDC RTD R&D TBK TD&VAF TREO TRFK VAT Agricultural Produce Cess Cut, Tear and Curl Dubai Tea Trade Centre East African Tea Trade Association Environmental Impact Assessment European Fair Trade Association Export Promotion Zone Food and Agricultural Organization- Inter Governmental Group Food and Agricultural Organization Statistics Foreign Direct Investment Good Agricultural Practice Geographical Indication Good Manufacturing Practice International Organization for Standardization Kenya Association of Manufacturers Kenya Bureau of Standards Kenya Plant Health Inspectorate Services Kenya Tea Packers Limited Kilograms Kenya Revenue Authority Kenya Roads Board Kenya Shillings Kenya Tea Development Agency Limited Kenya Tea Growers Association Local Authority Transfer Fund Manufacturing Cess Ministry of Agriculture Nairobi Stock Exchange Nyayo Tea Zones Development Corporation Ready To Drink Research and Development Tea Board of Kenya Tea Development and Value Addition Fund Tax Remission Export Office Tea Research Foundation of Kenya Value Added Tax

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