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Country Commercial Guides for FY 2000: Kenya Report prepared by U.S. Embassy Nairobi, released July 1999

CHAPTER IV:   MARKETING U.S. PRODUCTS AND SERVICES

A.   OVERVIEW

Kenya continues to offer excellent prospects for U.S. goods and services despite the economic slowdown. The country is the economic/commercial hub for the region with reasonably good communications network. The market is increasingly becoming sophisticated with a large expatriate community supplementing an equally large number of Kenyans who have been exposed to the Western lifestyle. U.S. exporters are advised to look into marketing here. This market normally serves the entire Eastern and Central African region and is generally considered the regional hub. Standard international marketing and distribution methods are widely used in Kenya. The country has well established marketing channels with a sizeable and experienced group of wholesalers and resalers with experience in representing international manufacturers and service providers. Local advertising agencies and affiliates of international advertising agencies and market research companies complement the marketing channels. A vibrant, competent, and expanding media provide advertising opportunities for manufacturers and international exporters.

B.   DISTRIBUTION AND SALES CHANNELS

The Kenyan market is increasingly becoming competitive and demanding. The government has opened up the market to more entrants. Product representation is crucial for effective market coverage. This representation may be achieved through one or a combination of the following methods:

• Establishing a local representative/distributor.
• Selling through an agent or distributor who can cover the entire region, including the neighboring countries of East Africa.
• Selling through established dealers.
• Establishing a dealership (especially common for big-ticket items).

Although the Kenyan market presents no particular marketing problems for U.S. suppliers, its long distance from U.S. manufacturers requires that the local dealer or distributor be positioned to stock higher than normal levels to cater for longer freight time. Price and compatible technical specifications usually are the major considerations when deciding to purchase goods. Other than setting up a manufacturing plant, U.S. manufacturers and exporters are best served by establishing a local representative as the most realistic market penetration strategy for Kenya and the region.

Effective after sales service coupled with a well-established provision for spare parts are major considerations by Kenyan businesspeople who buy from international sources. Kenya, unlike the American and European markets, lacks an effective system of back-up service and after-sales support. For one to be competitive in this market, therefore, an effective servicing, after-sales system backed by provision for spare parts is recommended. Kenyan dealers and retailers generally do a smaller volume of business than their American counterparts. U.S. exporters should, therefore, be prepared to sell in smaller lots.

Common methods of selling are through retail outlets, agents or distributors, established wholesalers or dealers, or to end-users which include government agencies and other private local organizations.

The distribution system, especially at the retail level, consists of outlets that are small by American standards. Wholesalers often also act as retailers. They purchase goods from manufacturers and then distribute them either directly, and/or through retail outlets to end-users.

C.   USE OF AGENTS/DISTRIBUTORS; FINDING A PARTNER

Kenyan laws have no requirement for the retention of a local agent or distributor by a U.S. or foreign company exporting to Kenya. However, it is advisable that a U.S. company trying to penetrate this market consider retaining a person or persons residing in Kenya. If the product to be exported requires servicing, then qualified service personnel and a reasonable supply of spare parts must be considered. Failure to address the issue of after-sales support and service is an impediment to success in this market. To locate a local agent, distributor, or partner, U.S. business representatives should contact the U.S. Department of Commerce Export Assistance Center nearest to them and request an Agent/Distributor Service (ADS) or an International Company Profile (ICP). ADS is a service intended to assist U.S. exporters find interested and competent foreign representatives and agents. An ICP is a composite trade profile of a foreign firm and contains such company details as commercial background, information on the reliability of the firm, credit standing, summary evaluation of the firm, and a recommendation as to the suitability of the firm as a trade contact. A nominal fee is usually charged for the ADS and ICP services. The Commercial Service at the U.S. Embassy in Nairobi also provides counseling services for visiting U.S. business representatives.

D.   FRANCHISING

Although franchising is one the fastest growing trading modes around, historically it has never been a main commercial feature in Kenyan trading practices. It is therefore the least understood and practiced of the channels of distribution. Other than Coca-Cola, franchising in general has not been successful in Kenya, although recently South African franchises have entered the Kenya market. The main impediments include frequent infringement of the franchise agreement, lack of commitment by the franchisees and incompetent management. The distance between the U.S. and Kenya has made franchisee supervision and training difficult. Local businesspeople lack knowledge about, and exposure to, franchising. To successfully enter the Kenyan market, U.S. franchisers will need to reassess franchising terms with a view to accommodating local conditions. Despite these shortcomings, local inquiries for such franchises as McDonald's, Burger King, Pizza Hut, etc., clearly indicate strong interest in franchising.

E.   DIRECT MARKETING

Direct marketing of U.S. products in Kenya is limited to big-ticket items. This includes major tender (bid) items, and/or single sale items. For these items, the Commercial Service in Nairobi originates "Trade Opportunities (TOPs)" which include "Foreign Government Tenders (FGTs)" and "private TOPs" which are then distributed through the electronic Economic Bulletin Board (EBB) and National Trade Data Bank (NTDB) of the Office of Business Analysis, Department of Commerce. U.S. businesses can subscribe to these sources through their nearest U.S. Department of Commerce Export Assistance Center.

F.   JOINT VENTURES/LICENSING

Unlike franchising, joint ventures and licensing are common features of the Kenyan business scene. While the U.S. Commercial Service office in Nairobi recommends joint ventures or licensing as a practical arrangement for entering the Kenyan market because it combines local marketing expertise and U.S. manufacturing competence, we caution that such arrangements should only be finalized through a local attorney. As previously indicated, infringement on intellectual property rights is a problem in Kenya. The local attorney should include a clause in the agreement stipulating infringement penalties based on Kenyan commercial law and enforceable by Kenyan courts. Joint ventures and licensing arrangements are generally recognized and protected by Kenyan commercial law.

G.   STEPS TO ESTABLISHING AN OFFICE

To establish a legal presence in Kenya, U.S. firms should register with the Kenyan Registrar of Companies as a foreign company rather than register a business name or incorporate in Kenya. Incorporation of a company in Kenya as a subsidiary of a U.S. corporation, as opposed to the registration of a U.S. firm, is more complicated and usually more expensive. The registration entails delivering, within 30 days of establishing a place of business in Kenya, to the Registrar of Companies, at the Companies Registry, Attorney General Chambers in Nairobi the following:

1. A copy of the charter, statutes or Memorandum and Articles of Association or other instrument constituting or defining the constitution of the company certified accurate by a Notary Public;
2. A list of the company directors and the secretary containing details of their full names, physical and/or postal address, nationalities, business occupation and directorships (if any) of Kenyan companies;
3. A statement of all mortgages or charges (if any) created by the company over any property situated wholly or partly in Kenya;
4. The names and postal addresses of one or more people resident in Kenya authorized to accept service of legal proceedings or notices on behalf of the company;
5. The full physical and postal address of the company's Head Office or registered office; and
6. The physical and postal address of the company's place of business in Kenya.

The Registrar of Companies issues a "Certificate of Compliance" that the requirements of the Kenyan Companies Act have been fulfilled. This allows the company to obtain trading licenses from the local authority and the Ministry of Trade.

The Commercial Service recommends U.S. firms obtain the services of a local attorney to undertake the registration. Well-established Kenyan legal firms will provide the services for a nominal fee of $500.00 plus a Government of Kenya Stamp Duty of 1% of share capital value. Interested U.S. firms should contact the Commercial Service in Nairobi for a list of attorneys, or see the list in Appendix E (12).

Kenya has, in the main cities of Nairobi and Mombasa, well-established realtors specializing in all areas of real estate management. The U.S. Commercial Service in Nairobi can assist in identifying realtors well positioned to provide office accommodation services.

H.   SELLING FACTORS/TECHNIQUES

Catalogs and product brochures are useful tools for selling in Kenya. They serve as convenient reference points for both resellers and end users. The Kenyan market is still unsophisticated and requires visual representation for most products, particularly technically detailed products. Technical details are important in product brochures since Kenyan technical personnel are poorly trained and, for complex equipment, the brochures serve as reference for maintenance details. They supply both end-users and importers with up-to-date product information, including prices and the latest technological developments. U.S. firms should, where practical, use Kiswahili as a second language on the flyers, with English being the first language.

Import licenses are no longer a requirement in Kenya. In an effort to further encourage investment, the government has harmonized and lowered import tariffs: from July 1, 1997, duty rates have been reduced to between 25 percent and zero. The Government of Kenya, however, requires exporters to obtain certificates of inspection for quality and price comparison for goods with a minimum value of $5,000 from either Cotecna Inspections, S.A., Societe Generale de Surveillance S.A. or Bureau Veritas-Bivac (See Appendix E, Section 3 for contact information). Goods with a value of less than $5,000 will be subject to a random inspection by a government import auditor. Under new Kenyan regulations, the inspection agency also establishes the customs classifications of the goods to be imported. It is important for American exporters to ensure that their shipments are classified at the lowest legal tariff rate.

I.   ADVERTISING AND TRADE PROMOTION

The most widely used advertising media in Kenya are press, radio, and television. The development and use of other media are limited and not cost-effective. Kenya has four main daily newspapers: The Daily Nation, East African Standard, Business Africa, and Kenya Times; six weekly newspapers: The People, Sunday Times, Sunday Nation, Sunday Standard, and The East African; a weekly magazine: Weekly Review; a bi-monthly: Business Chronicle; four monthlies: Finance, Presence, The Executive, and African Law Review; and a professional journal: East African Computer News; all with national distribution. The government-owned Kenya Broadcasting Corporation (KBC) operates both radio and television on a commercial basis. Government radio airtime is 5:00 p.m. to midnight, while government television airtime is limited to about 12 hours daily. KBC, in a joint venture with South African Multichoice, operates a 24-hour commercial television cable station targeted for Nairobi's up-market viewers. Kenya Television Network (KTN), run by the Standard Ltd., runs a 24-hour channel with considerable CNN programming. Cable Television Network (CTN), a pay-per-view television network, runs a cable station aimed mainly at the up-market Nairobi-based Asian clientele. Stella Vision, a Nairobi-based private television network, in June 1996 started commercially broadcasting with an initial reception limited to a 20-mile radius. The Standard Ltd., owners of the East African Standard newspaper, and KBC operate FM radio stations with reception limited to Nairobi, Mombasa and Kisumu. The Citizen and The Nation both operate television and radio stations. Although it claims to have a liberal approach towards issuing of broadcasting licenses, the GOK continues to be reluctant to license private radio and television companies.

Some of the leading international advertising agencies, including Ogilvy & Mather and Young & Rubicam, have local offices or affiliates. Although there are no restrictions on importing ready-to-use advertising materials, U.S. firms should consult closely with locally-based advertising firms to obtain leads on accepted advertising norms and help adapt the material to fit local situations, including translation services as necessary.

The U.S. Commercial Service in Nairobi will be pleased to assist individual firms in conducting solo exhibitions or technical seminars on a reimbursable basis. The CS Nairobi office can assist in arranging for hotel facilities for such exhibitions and seminars upon prior notice. The U.S. Commercial Service also periodically sponsors industry-wide, as well as industry-focused, trade shows in Nairobi. Interested parties should contact the Commercial Service in Nairobi as follows:

Senior Commercial Officer
U.S. Embassy Nairobi
Unit 64100, Box 51
APO AE 09831-4100
(U.S. postage)
Fax: + (254)-(2)-537-846
Tel: + (254)-(2)-537-800 (x3660)

The Nairobi International Trade Fair, an annual six-day, all products exhibition organized by the Agricultural Society of Kenya, is an appropriate venue for exhibition and promotion of such products as agricultural machinery, equipment and inputs; construction equipment; food processing and packaging equipment; and road construction equipment. There also are some specialized trade exhibitions organized annually in Nairobi covering computers, horticulture, medical and telecommunications equipment. U.S. firms marketing regionally should examine the possibility of participating in solo U.S. regional trade fairs and in U.S. pavilions organized in other countries in East and Central Africa.

J.   PRODUCT PRICING

Although many U.S. firms prefer to quote prices f.o.b. U.S. port, price quotations for Kenyan-destined goods should be on c.i.f. Mombasa or Nairobi basis, i.e. costs, insurance, and freight to the point of disembarkation; Mombasa for sea freight and Nairobi for air freight. The c.i.f. quote in U.S. dollars is generally acceptable and preferred by Kenyan importers as they are familiar with customs charges, including taxes, that are levied at the local ports/airports, and brokerage and handling charges.

K.   SALES SERVICE/CUSTOMER SUPPORT

Down time is always expensive. U.S. firms exporting big ticket and other durable items to Kenya should, therefore, show a willingness and ability to provide trained headquarters service personnel to train local staff, and to establish strong liaison with end-users for continuous equipment performance assessment. Manufacturers, in conjunction with the local representative, should provide detailed product information, including operating instructions. This is important because most of the operating personnel in Kenya are under-trained and the end-users' support staff are prone to mishandle equipment if they do not receive initial instructions and are not provided with comprehensive manuals. U.S.-based manufacturers are disadvantaged in terms of freight time as compared to European competitors. Therefore, ready local availability of spare parts and strong integrated back-up service is vital.

L.   SELLING TO THE GOVERNMENT

All major government and parastatal procurements are done through a tendering (bidding) system. The Commercial Service in Nairobi notifies potential U.S. suppliers of the GOK's and/or parastatal's intended procurement by preparing a "Foreign Government Tender" (FGT). The FGT is distributed by the Office of Business Analysis of Department of Commerce through an Economic Bulletin Board (EBB). It is also included in the monthly National Trade Data Bank (NTDB) database. Both EBB and NTDB are available at Department of Commerce Export Assistance Centers located in major U.S. cities. U.S. firms responding to large World Bank/Multilateral donor projects should be competitive and follow tender instructions, especially with regard to financing. Some government tenders are invited only from prequalified firms. The U.S. Commercial Service is working closely with relevant GOK ministries on acceptable procedures of determining how interested U.S. firms may prequalify. Interested U.S. firms should contact the U.S. Commercial Service in Nairobi for further information.

M.   PROTECTING YOUR PRODUCT FROM IPR INFRINGEMENT

Kenya is a member of the Paris Union International Convention for the Protection of Industrial Property (Patents and Trademarks). The country also has among its statutes legislation enacted in 1990 for protection of patents and trademarks. The 1990 legislation created the Kenya Industrial Property Office (KIPO) for receipt of IP international applications, issuance of industrial property rights, screening technology transfer agreements and licenses, and dissemination of patent information. KIPO also has the legal authority to prosecute infringements on Industrial Property Rights and registration & renewal of Trade Marks and Service Marks. Trademarks are protected for a period of seven years from the date of application.

Kenyan protection of copyrights is neither extensive nor efficient. The Copyright Act of 1989 has provisions for protection from audio copyright infringement, but not for video. Kenya has law firms with IPR-specialized attorneys who can advise U.S. firms on Kenyan IPR legislation. The U.S. Commercial Service in Nairobi will gladly assist U.S. firms wishing to contact such law firms.

N.   NEED FOR A LOCAL ATTORNEY

The Kenyan legal system is based on English law. Although not substantially unlike the U.S. legal system, Kenyan legal practices and procedures are special enough to require services of either a Kenya-based attorney or an attorney licensed to practice within the British Commonwealth. U.S. firms should seek services of such attorneys whenever legal services are required. Contravention of the Kenyan legal practices and procedures, including using the services of a non-Commonwealth attorney could result in serious repercussions such as deregistration of the company, loss of IPR protection, and nullification of any and all legal agreements, contracts, charges, etc. U.S. firms are advised to seek clarification of all legal terminologies as legal terms in Kenyan English may mean something different in American English. See Appendix E Section 12 for a list of attorneys familiar with commercial law, regulations, and practices.

O.   PERFORMING DUE DILIGENCE/CHECKING BONA FIDES

The Commercial Service Nairobi office, on request by U.S. firms, does research to verify the existence or reputation of locally based companies. The research is in the form of an International Company Profile (ICP) which provides background information on the local company based on information gathered from local banks, suppliers, customers and any other organization that has had commercial interaction with the local firm which the office has been requested to verify.