Firestone East Africa (1969) Limited was incorporated as a joint venture between the government of Kenya and Firestone Tyre and Rubber Company of U.S.A in Kenya in 1969. The government of Kenya held shares through Industrial Commercial and Development Company (I.C.D.C) with 30% and Development Finance Company of Kenya (D.F.C.K) with 10% equity. Firestone Tyre and Rubber Company held the remaining 60% of shares.
Firestone East Africa (1969) Limited thereafter signed a management agreement with Firestone Tyre and Rubber Company where the latter agreed to provide; management and technical services, allow use of its trade marks and allow use of brand name.
At the time of its establishment, the Kenyan Government was actively encouraging export promotion and import substitution policies. Elements of this system were:
-Licensing that limited or prohibited importation of goods competing with domestic manufacturers,
-High duties on competing imports,
-Relatively low duties on imported machinery and industrial inputs for industries that were doing production in Kenya and
-Duty draw-back incentives for exporters.
This system insulated Firestone East Africa (1969) Limited from direct competition. Very little competition was experienced from three companies which were involved in tyre retread business.
In the early 1980’s, Firestone Tyre and Rubber Company sold 40.2% of its shares in Firestone East Africa (1969) Limited to a local company, Sameer Investment limited. In 1988, Bridgestone Corporation bought all assets of Firestone Tyre and Rubber Company (19.8%) of its remaining shares. The company went public by floating 20.2% of its shares to the public. The composition of shareholding in the company was: Sameer Investment Limited-64.9%, Bridgestone Corporation-14.9% and public-20.2%.
Firestone East Africa (1969) Limited was headed by six Board of Directors appointed by shareholders. Majority of these Board members were independent, non-executive Directors including the Chairman Naushad Noorali Merali. Chairman Merali had never been known to shy away from any business challenge. He looked at any business challenge as an opportunity to learn from whether the outcome was a success or a failure. The government of Kenya announced in 1993 that it had put in place a framework for the full liberalization of the economy. After this announcement, Firestone’s own dealers and other traders started to import cheap tyres which affected Firestone’s sales volume. Full liberalization of the tyre industry was announced in mid June 1994. This saw Firestone’s profit for the year go down by 25%.
At this time (1994), the world tyre industry was both highly competitive and mature, with nine major global players. They manufactured a variety of tyres to cater for different motor vehicle designs and specifications, different road conditions, as well as differing consumer tastes and preferences.
KEY MANAGEMENT ISSUES
1. Stiff Competition
Before the liberalization of the industry, Firestone East Africa (1969) Limited had been successful in the production of tyres and tubes. By the end of 1993, the company was manufacturing over 61 different sizes and types of tyres. It made efforts in incorporating the latest appropriate technology in the production of tyres. The company however lacked certain specialized systems, machines and technology that the market demanded. This weakened competitiveness of Firestone East Africa (1969) Limited.
2. Lifting controls by the government
The full liberalization of the Kenya economy led to deregulation and removal of government control in many industries. After the liberalization of the automobile industry was implemented cheap imports of second hand vehicles flooded the market. There was an increase in the importation and demand for second hand vehicles. This greatly influenced...