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E-PROCUREMENT ADOPTION BY GOVERNMENT PARASTATALS IN KENYA:
THE SUPPLIER PERSPECTIVE
BY
JOHN THURANIRA KINOTI
A MANAGEMENT RESEARCH PROJECT SUBMITTED IN PARTIAL
FULFILLMENT OF THE REQUIREMENTS FOR AWARD OF THE DEGREE OF
MASTER BUSINESS ADMINISTRATION (MBA), THE SCHOOL OF BUSINESS, UNIVERSITY OF NAIROBI
NOVEMBER, 2013
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DECLARATION
I declare that this research project is my original research work and has not been presented to any other university for award of a degree.
Signature:
____________________
Students Name:
John Thuranira Kinoti
Reg. No.
D61/60429/2010
Date
______________________
SUPERVISOR DECLARATION
This research project has been submitted with my permission as the University Supervisor.
Signature:
______________________
Supervisors Name:
Dr. James Muranga Njihia
Lecturer, University of Nairobi, School of Business
Date
________________________
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DEDICATION
This work is especially dedicated to my fiancé Sheilah for believing in me and her relentless support and encouragement in my studies and to all my family members for their inspiration and prayers. Your support brought me this far.
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ACKNOWLEDGEMENTS
I sincerely acknowledge my supervisor, Dr. Njihia for his immense support, guidance and patience, without whose constructive criticism and advice, this work would not have been complete.
I also thank the University of Nairobi administration for providing aconducive environment in reference to infrastructure and other support that was directly or indirectly linked to the study. Thanks to the staff of the suppliers sampled who provided data and allowed me to use the information they provided as results to the study.
Thank you to all my friends who contributed to the completion of this academic document both directly and indirectly. They provided me with logistical and moral support that gave me every reason to work harder and ensure that this study becomes a success.
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ABSTRACT
Since the introduction of the internet in the 1940s, businesses have been slowly adopting to the e-commerce or e-business concepts that uses ICT to facilitate business operations. Eprocurement is one of the innovations provided for by the internet that has been widely accepted by different sectors worldwide and is therefore not a new concept. This study examined how the supplier attitudes, capacity, transparency and integrity affect their propensity to adopt it. To achieve this objective the study used primary data obtained from suppliers to Government parastatals in Kenya as at July 2013 through a questionnaire. A sample of 78 suppliers was selected but the firms that responded were 62. A regression model was determined to establish the relationship between propensity to adopt e-procurement and the other variables namely supplier attitude, supplier capacity and supply transparency and integrity. Pearson’s correlation and regression analysis were used for the analysis and the tests of significance were carried out for all variables using t-test at the 95% level of significance. The results indicate that the model examined in this study is significant with an R2 of 95% and that two of the independent variables had a significant relationship individually with propensity to adopt e-procurement. The results further show there is a strong positive relationship between capacity and propensity to adopt.
The study concluded that attitude and supplier capacity can lead to adoption or non-adoption of e-procurement. Therefore it will be important for the parastatals to understand the relationship that exist between suppliers’ propensity to adopt e-procurement and attitude, capacity and transparency and integrity as they prepare to embrace e-procurement. .
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TABLE OF CONTENTS
DECLARATION ..............................................................................................................................ii DEDICATION ................................................................................................................................. iii ACKNOWLEDGEMENTS ............................................................................................................. iv ABSTRACT...................................................................................................................................... v TABLE OF CONTENTS ................................................................................................................. vi LIST OF TABLES ......................................................................................................................... viii LIST OF FIGURES ......................................................................................................................... ix LIST OF ABBREVIATIONS ........................................................................................................... x CHAPTER ONE ...............................................................................................................................1 INTRODUCTION ............................................................................................................................1 1.1Background of the Study ..................................................................................................................... 1 1.1.1 E-Procurement ............................................................................................................................. 1 1.1.2 Suppliers and E-procurement in the Public Sector ...................................................................... 2 1.1.3Kenyan Parastatals and e-Procurement ......................................................................................... 3 1.2Statement of the Problem ..................................................................................................................... 4 1.3Objectives of the Study ........................................................................................................................ 6 1.3.1Specific Objectives: ...................................................................................................................... 6 1.4Significance of the Study ..................................................................................................................... 6 CHAPTER TWO ..............................................................................................................................8 LITERATURE REVIEW .................................................................................................................8 2.1Introduction .......................................................................................................................................... 8 2.2E-procurement Adoption ..................................................................................................................... 8 2.3Transparency and Supplier Integrity .................................................................................................. 10 2.4Supplier Capacity to Adopt E-procurement ....................................................................................... 11 2.5Supplier Attitudes towards E-procurement ........................................................................................ 14 2.6Supplier Propensity to Adopt E-procurement .................................................................................... 15 2.7Conceptual Framework ...................................................................................................................... 15 CHAPTER THREE ........................................................................................................................ 17 RESEARCH METHODOLOGY .................................................................................................... 17 3.1Introduction ........................................................................................................................................ 17
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3.2Research Design................................................................................................................................. 17 3.3Population of the Study ...................................................................................................................... 17 3.4Sample of the Study ........................................................................................................................... 17 3.4Data Collection .................................................................................................................................. 18 3.5Data Analysis ..................................................................................................................................... 18 CHAPTER FOUR .......................................................................................................................... 20 DATA ANALYSIS, PRESENTATION AND INTERPRETATION ................................................ 20 4.1 General Information .......................................................................................................................... 20 4.2Company Attitude to Adoption of E-Procurement ............................................................................ 27 4.3Transparency and Integrity ................................................................................................................ 29 4.4Company Capacity to adopt e-procurement....................................................................................... 30 4.5Company propensity to adopt e-procurement .................................................................................... 32 4.6Relationship between Variables ......................................................................................................... 33 CHAPTER FIVE ............................................................................................................................ 37 SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ...................................................... 37 5.1Summary ............................................................................................................................................ 37 5.2Key Findings ...................................................................................................................................... 37 5.3Conclusion ......................................................................................................................................... 38 5.4Recommendation ............................................................................................................................... 39 5.5Limitations of the study ..................................................................................................................... 39 REFERENCES ........................................................................................................................... 41
Appendices:
Appendix I: Sample questionnaire
Appendix II: List of Parastatals
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LIST OF TABLES
Table 1.1
A model depicting the relationships among personal ethics, business ethics and the law.
Table 4.1
Response rate
Table 4.2
Position of respondents
Table 4.3
Period worked
Table 4.4
Years of operation
Table 4.5
Company size
Table 4.6
Existence of ERM
Table 4.7
Type of suppliers
Table 4.8
Company attitude to e-procurement adoption
Table 4.9
Incentives to adopt
Table 4.10
Existent of value statements
Table 4.11
Emphasized values
Table 4.12
Capacity to adopt e-procurement
Table 4.13
Preparedness to adopt e-procurement
Table 4.14
Company propensity to adopt
Table 4.15
Coefficient table results
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LIST OF FIGURES
Figure 2.1
Conceptual framework
Figure 4.1
Response rate
Figure 4.2
Position of respondents
Figure 4.3
Period worked
Figure 4.4
Years of operation
Figure 4.5
Company size
Figure 4.6
Existence of ERM
Figure 4.7
Type of suppliers
Figure 4.8
Shared value statements
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LIST OF ABBREVIATIONS
B2C
Business to Consumers
B2E
Business to Employees
B2G
Business to Government
EDI
Electronic Data Interchange
EPS
Electronic Procurement Systems
ICT
Information Communication Technology
IFMIS
Integrated Financial Management Information System
IT
Information Technology
OECD
Organization of Economic Corporation and Development
PPOA
Public Procurement Oversight Authority
SCM
Supply Chain Management
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CHAPTER ONE
INTRODUCTION
1.1
Background of the Study
Organizations the world over and government corporations have increasingly adopted eprocurement. A significant expenditure of public funds occurs in the procurement of goods, services and works. Public entities, as buyers, have a duty of care and trust in expending those funds. Further, not all the technology is in place yet to enable the Government to take full advantage of internet commerce (PPOA, 2009). The PPOA in 2009 identified issues in identification of parties in a transaction, synchronization, confidentiality, data integrity and bandwidth as the major considerations that the government had to make before taking full advantage of the benefits of e-procurement. According to Wilson (2002), e-procurement is the amalgamation of sales and purchasing business models and calls for differentiation based on application and functions. Therefore suppliers form an integral part of the adoption process and their attitude, integrity, transparency, capacity and willingness to comply play a major role in the success of the process. These suppliers are also using e-procurement systems for management of all processes relating to purchase. Technologies have changed and redefined the way organizations and government corporations operate.
1.1.1 E-Procurement
Since the introduction of the internet in the 1940s, businesses have been slowly adopting to the e-commerce or e-business concept that uses ICT to facilitate business operations. E-commerce as one of the innovations provided for by the internet has been widely accepted by different sectors worldwide and is therefore not a new concept. Hittet al.(1999) note that the use of ICT in a business is associated with less vertical integrations meaning that a business is able to conduct more transactions without the need to increasing or invest more in physical capacity. The concept of e-procurement can therefore be used to improve transactions and reduce costs in a business. Knudson (2002) defines e-procurement as aspects of procurement supported by various forms of electronic communication and takes up forms such as electronic data interchange, enterprise resource planning, e-sourcing, e-tendering, e-informing, among others. E-procurement can also be defined as a collaborative procurement of goods, works and services using electronic methods at every stage (Kumar and Agrahari 2007). De Boer et al. (2002) 1
indicate that various cost reductions and benefits have been already identified in the use of eprocurement. The concept of e-commerce in which e-procurement has a central function has become an avenue for improving effectiveness through cost savings and productivity improvements in business transactions that involve the purchase of goods, services and works (Neef, 2001). Eprocurement solutions have widened the range of Business to Business (B2B) as well as Business to Government (B2G) transactions by introducing innovative processes in public administration based on information and communication technologies (Scupol, 2009). The move to e-procurement that is supported by internet technologies has been gradual. During the introduction stages, e-procurement took up the form of electronic data interchange (EDI) whereby messages were sent using closed networks between organizations. The introduction of fast internet has further provided tools that assist in the entire process of procurement bringing in the issue of efficiency and transparency which have been identified as hindrances to the public procurement system (Odhiambo and Kamau 2003)
1.1.2 Suppliers and E-procurement in the Public Sector
Public procurement can be defined as the purchasing, hiring or obtaining by any other contractual means of goods, construction works and services by the public sector (Odhiambo and Kamau 2003).Tonkin (2003) indicates that the public sector undertakes e-procurement initiatives because it is believed that certain cost reductions and benefits including those related to public policy imperatives will arise without the considerations of the implications. The items involved in public procurement range from simple items or services such as office clips or cleaning services to large commercial projects such as the development of infrastructure including roads, military equipment and airstrips. With government as a service provider, a basic measure of a successful or failed public e-procurement will be manifested through quality and magnitude of the services it provides
The choice of suppliers has a direct impact on the goods, services or works procured by any private or public entity Elmagharby (2000). Since the result of an effective procurement strategy is the minimizing of costs at all stages, Porter (1985) points out that procuring from more than one supplier reduces the total costs of procurement. Mukhopadhyay et al., (2002) argues that new technologies lower searching and filtering costs and by increasing the number of sourcing 2
options companies can therefore intensify the competition between suppliers and increasetheir bargaining position. E-procurement can therefore enable a company lower search and evaluation costs as well as increase the number of potential suppliers through e-informing. Supply managers on the other hand and other internal stakeholders can easily drive user adoption and system compliance through significant change management efforts and ongoing education of end users. This is because of the interactions made by suppliers and businesses who they supply to and those that manufacture or su...