Monday, October 01, 2007

Consumers miss price benefits of outsourcing

Frustrated by high production costs and an uneven business environment, local manufacturers of household and personal care products are slowly abandoning their core businesses to concentrate on marketing and distribution.

Household brand makers have resorted to outsourcing manufacturing services from specialists and this is representing a significant shift in the Kenyan production landscape.

Industrialists now ponder whether this move blends well with Kenya’s projected industrial growth or is a way of concentrating production in a few hands, under the concept know as contract or toll manufacturing.

The new production shift has left big brand name owners with the easiest task of marketing and distributing the finished products, thereby avoiding exorbitant production costs, while concentrating on product innovation and research.

Industrialists say the trend is quietly catching up and is now dictating the path Kenya’s manufacturing sector will take in a few years in the face of high energy costs and poor infrastructure.

Poor enforcement of intellectual property rights, which sometimes have led to counterfeiting have also continued to affect global companies operating in Kenya.

The dilapidated infrastructure coupled with transportation costs, labour and water costs have pushed the cost of production to the roof.

“Contracting the manufacturing business to a central producer enables a company to focus only on what they do best—that is marketing and distribution of the products and this leaves the pain of production to the outsourced manufacturer,” said Mr Shabbir Walji, the Orbit Chemicals Industries managing director.
Consumers, however, are least catered for in the equation.

“The cost will not translate to lower prices for consumers because the brand name owners are looking at their bottom lines. They want to make more money,” said Mr Walji.

Local manufacturers such as Bidco, Unilever, Kenya Co0perative Creameries (KCC 2000) and Reckitt Benckiser have ceded off their manufacturing.