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Columnists

Competitive environment driving innovation

I recently wrote in this column on financial innovation in the informal sector, which attracted great attention both locally and internationally.

In the article, I argued that the banking sector had failed to see value in micro, small and medium enterprises – the engine of economic growth in this country.

I did not imagine any bank would take the challenge seriously. However, Tuskys partnership with Diamond Trust Bank (DTB) under which suppliers will be paid upfront is a surprise and a great innovation that responds to the challenge I posed.

Competition is driving this kind of innovation. Sectors that have hitherto been ignored will emerge as beneficiaries.

According to Michael Porter, a Harvard professor, organisations use unique powers for competitive advantage.

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Retail giants have in most cases abused their suppliers by using what Porter calls buyer power to use poor people’s money for as much as one year before paying them for goods supplied.

The ground for the retail and banking industries is shifting and that is good for customers and Micro and Small enterprises (SMEs).

The Tuskys/DTB relationship is ground breaking in Kenya in that it has been precipitated by what Porter calls “competitive rivalry.”

If the Tuskys DTB deal holds, Porter would explain this as a maturing market that is likely to have far reaching implications in the economy. Using Porter’s framework, you begin to understand the retail market in Kenya.

With new entrants, Uchumi is trying to shed off its dominant past to find a competitive advantage but it won’t be easy if it does not become innovative and change its business model. If it fails to pay its suppliers on time, they will find their way to Tuskys.

The days of buyer power are gone. In comes competitive rivalry where innovative ideas are the only way to stay afloat. Supplier power too is shrinking with the entry of new and nimble entrants like Jumia.

In short, power is shifting to consumers and knowing how much abuse they have faced, it is just about time.

The market is further being stretched with the entrance of Game and Carrefour, but this will be good for the local suppliers as well as the consumers.

When competition gets tough, some of the retailers simply will become a platform where suppliers meet the consumers. This is the trend in most enterprises.

For example, Uber is the largest player in taxi services but does not own any taxi. So when Uchumi borrows Sh500 million from the Kenya Commercial Bank to stock up for Christmas, it is an archaic strategy that is bound to be abused by powerful cartels that import slow moving products and use their stores as their warehouses.

Some of the retailers are searching for competitiveness in financial services, information and communication technologies and in big data analytics.

Here they need to understand the risk of infringing on personal rights. Parliament is yet to pass the necessary data protection law that would provide guidelines on the use of personal data.

The law must give citizens control over of their personal data. There must be a regulatory mechanism especially when personal data is used for business purposes.

Ten years ago when we created the bill, we knew that the digital economy would demand such legislation. We wanted to be a head of industry but Parliament had other thoughts.

As consumers gain power, retailers in Kenya will find the going tough since they have abused the power they have. Either by design or by error, they have been making extra revenue from goods not sold especially from heavy shoppers.

A scrutiny of 85 receipts with more than 20 items from five different retailers were examined recently and the findings were startling. More than 20 per cent of the receipts contained serious errors like double counting an item on the shopping list.

For example, a customer buying six packets of milk is charged for seven packets. Conversely, there were less than one per cent of the sales where the customer is charged for less but carries more items.

In most stores, you will not take away an item that you have not paid for before the technology catches up with you. This is perhaps why there are few errors impacting the retailer.

There are no safeguards to protect the consumer from paying for goods that they did not take. Consumer groups should be conducting such research regularly in order to make retailers more accountable for their mistakes.

These mistakes, however, are not common with online sales. All these dynamics lead to a more productive economy.

The writer is an associate professor at University of Nairobi’s School of Business.

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