ABSTRACT
The intensity of competition among players in the Flour Milling industry in Nigeria necessitated the development of a business strategy to out-perform one another and achieve desired level of performance. Competitive pricing was therefore a common strategy adopted by these firms. Less attention was paid to competitive behaviour, people management practices, supply chain strategy, the external business environment and product offering which could assist in building competitive strengths and superior performance. As a result of the negative effects of competitive pricing, operations are being downsized along with attendant staff redundancy, job losses and a consistent drop in the financial results of all players in the industry. This study evaluated the competitive dynamics and corporate performance of selected flour milling companies in Nigeria.
The study adopted a survey research design. The population for the study consisted of 3,424 staff of selected Flour Milling companies in Nigeria. The staff were stratified into management and senior staff as respondents. A sample size of 500 was randomly drawn from the population. A validated questionnaire was adapted for the study. The Cronbach’s Alpha coefficient for the constructs ranged between 0.78 and 0.86.A total of 500 copies of the questionnaire were administered, with a response rate of 91.4%. The data were analyzed using descriptive and inferential (Pearson Product moment correlation and hierarchical regression) statistics.
The findings revealed that there were significant relationships between Competitive Behaviour and Corporate Performance (r=0.599; p = <0 .05="" and="" corporate="" eople="" management="" nbsp="" performance="" practice="" span="">(r = 0.697; p <0 .05="" span="">); Supply Chain Strategy and Corporate Performance (r = 0.633; p <0 .05="" span="">); External Business Environment and Corporate Performance (r = 0.647; p <0 .05="" and="" corporate="" nbsp="" offering="" performance="" product="" r="" span="">= 0.733; p <0 .05="" span="">).It also revealed significant moderating effect of Competitive Capability on the relationship between Competitive Behaviour and Corporate Performance (F = 83.635; R2 = .440; R2 Change = .087; p<0 .05="" 44.669="" and="" corporate="" management="" people="" performance="" practice="" r="" sup="">2
= 0.500; R2Change = 0.045; p = <0 .05="" 66.230="" and="" chain="" corporate="" performance="" r="" strategy="" sup="" supply="">2 = 0.474; R2 Change = 0.067; p <0 .05="" and="" business="" corporate="" environment="" external="" nbsp="" performance="" span="">48.462; R2 = 0.476; R2 Change = 0.051;p<0 .05="" capability="" competitive="" however="" span=""> did not significantly moderate the relationship between Product Offering and Corporate Performance (F = 2.296; R2 = 0.598; R2 Change = 0.002;p = 0.130>0.05).
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Competition in the flour milling subsector of the manufacturing sector in Nigeria technically began about ten years ago when most players, in a bid to gain more market share commenced stiff competition on the level of expansion in their production capacity (Kelikume, 2015). Their intention was to increase their product offerings by increasing their capacity to produce more and in effect gain more market share. Less attention was paid to growing the consumer based to accommodate the expansion and having invested so much billions of naira in capacity expansion, they are now being faced with capacity utilization challenges which are adversely affecting their corporate performance (Njokwu & Kalu, 2015).
The industry has a few number of players that can be categorized based on their capacity installation. The leading three operators have an installed capacity of 18,600mt per day and are responsible for about70% of the market share while other operators control about 30% of the market share. Based on the industry’s high fixed cost of operation, profitability is mainly dependent on the company’s capability to increase volumes (Lead Capital, 2013). Currently, there are nine (9) active flour milling companies in Nigeria providing employment opportunities for upward of 100,000 people in Nigeria. About 80% of market share is controlled by only five (5) of the nine (9) firms and as such, there is a lot of discrepancy between the ‘big players’, the ‘mid-size firms’ and the smaller flour milling companies (IBF Agusto & Co., 2012). The five (5) major players by market share are: (1) Flour Mills of Nigeria Plc, (2) Crown Flour Mills Ltd, (3) Honeywell Flour Mills Plc, (4) Dangote Flour Mills Plc, and (5) Standard Flour Mills Ltd. The remaining are: BUA Flour Mills Ltd. (recently acquired by Crown Flour Mills Ltd), Life Flour Mills Ltd, Valumbra Flour Mills Ltd. and Pure Flour Mills Ltd.
Table 1.1: A Table Showing the Production Capacity of Sampled Companies
S/N
|
Sampled Companies
|
Production Capacity in %
|
1
|
Flour Mills of Nigeria Plc
|
38
|
2
|
Dangote Flour Mills Plc
|
18
|
3
|
Honeywell Flour Mills Plc
|
14
|
4
|
Standard Flour Mills Ltd
|
7
|
5
|
Crown Flour Mills Ltd
|
8
|
Total
|
85
|
Source: Researcher’s field survey, 2015
Based on the strong grip of the total market by the ‘big 5’, there are ‘imperceptible entry barriers’ for potential and ambitious flour millers. Intense competition exists across the various levels of the market. There is however a wide gap between the top level category and the other companies in the industry (Njokwu & Kalu, 2015).The stiff competition in the industry actually reduced the number of players to 9 from the initial 17 players. Flour Mills of Nigeria acquired six (6) and merged them into Flour Mills of Nigeria while Crown Flour Mills Ltd also acquired two (2) bringing the number of active players in the market to nine (9).
The level of competition within the industry is extremely intense. With the accomplishment of each distinct player hinged on its capacity to gain market share, industry actors go through various extents and dimensions to grow capacity. Also, as an oligopolistic industry, the pricing is until recently being regulated by the Flour Millers Association of Nigeria who fixes a price which the flour manufacturers are not permitted to surpass. This fixed price is nonetheless often dishonored particularly by the players who control major share of the market. As a primary food with many alternatives within the consumer goods sector, the foodstuffs are characterized by high resistance of demand (Kelikume, 2015). Any small increase in price of these products could lead to a decrease in quantity demanded as consumers will promptly shift their favorite to other cheaper substitutes.
Because the success of each company in the industry hinges on its capacity to gain market share, industry actors in the last three years have gone through to great length to increase production capacity. Today, because there is no significant growth in the consumer base of these flour millers, they have resulted to the prevailing competitive pricing that threatens expected performance and survival of most players in the flour milling sub sector of the manufacturing industry in Nigeria. From the study, competitive pricing is the only competitive strategy and tool being deployed first by the major players and others follow suit without any consideration to the resultant effect on their profit margins. As a result of this unbridled competitive pricing, compounded by the recent devaluation of naira by the Central Bank of Nigeria, profit margins are thinning out and flour milling operations are being downsized along with its attendant staff redundancy and job losses (Kelikume, 2015).
Competitive dynamics in the sector has overtime focused mostly on pricing strategy with varied incentives and promotional tools to the trade (IBF Agusto & Co., 2012). Although, managing competitive behaviour, people management practices, supply chain strategy, external business environment and product offerings are being leveraged upon to an extent, good attention is not being paid to the capabilities of these variables in producing desired corporate performance. This study shall therefore evaluate the competitive dynamics and performance of manufacturers in the flour milling industry in Nigeria
1.2 Statement of the Problem
The overall problem that necessitates this study is the prevailing competitive pricing strategy that threatens the performance and survival of most players in the flour milling industry in Nigeria. As a result of this unbridled competitive pricing strategy (Kelikume, 2015), profit margins are thinning out and flour milling operations are being downsized along with its attendant staff redundancy and job losses. The focus on competitive pricing strategy suggests a contradiction to the business expectations of companies in the industry as this has been shown to reduce their profit margins. Findings from the annual reports and literature also revealed a consistent drop in the financial results, increase in the overhead cost and cost of sales, reduction in the staff strength, more pressure from the regulatory agencies, poor infrastructural support, and shrinking product offering of all players in the industry despite their various competitive moves and responses, mostly in competitive pricing strategy (Flour Mills of Nigeria, 2014; Dangote Flour Mills Plc, 2014; Honeywell Flour Mills Plc, 2014 & IBF Agusto & Co., 2012).
A review of the competitive behaviours of key players in the industry revealed that they are relentlessly altering the competitive landscape to the detriment of other players. In the same vein, firms contemplating imitation of a competitor’s innovation face a dilemma, imitate a new, unproven offering, or forgo imitation and perhaps miss out on the “next bigthing” (IBF Agusto & Co., 2012). In spite of the improved market statistics of Flour Mills of Nigeria, the shareholders of the company do have every reason to be concerned based on the company’s nine months results ended December 31, 2014. Its net profit went down by about 44 % in 2014 matched to corresponding period of 2013 (Egene, 2015). The question of whether reactive response to competitive moves produce value addition and sustainable competitive strength therefore come to bear in determining Flour Millers competitive behaviour and this study intend to provide anempirical answer to this question.
Manufacturing firms in the flour milling industry in Nigeria in a bid to gain a sizable market share have engaged in competitive behaviours that have generated stiff competition and have made a good number of millers to wind down their operation. A good example is the expansion projects of Flour Mills of Nigeria completed in 2012 (Flour Mills of Nigeria Plc, 2013) that has made it capable of supplying the flour requirements of the entire nation and parts of West Africa countries. This giant stride has put competitors at the disadvantaged position and they are reactive in a bid to sustain their market shares and survive. If the competitive behaviours of companies in the flour milling companies in Nigeria is not strategically managed to know when to initiate competitive action, react or respond to competitive moves and how and to what extent the action must take, there is a high probability of losing out of the targeted corporate performance. Companies such as Honeywell Flour Mills Plc, completed in 2013 (Honeywell Flour Mills Plc, 2014), Crown Flour Mills Ltd. completed in 2013 (Lead Capital, 2013) and Dangote Flour Mills Plc are at the forefront of reactive response to competitive moves (Dangote Flour Mills Plc CEO, 2013), while Bendel Flour Mills Ltd., Eagle Flour Mills Ltd, Supreme Flour Mills Ltd are gasping for survival in the heat of competition. This study therefore examined the relationship between competitive behaviour and corporate performance and the moderating effect of competitive capability on the relationship between competitive behaviour and corporate performance of selected flour milling companies in Nigeria.
To cope with the problems caused by undue attention on competitive pricing strategy, some players have begun to downsize their operations and staff strength. In February 2015, Flour Mills of Nigeria retrenched about 600 people from their employment (Flour Mills of Nigeria Plc, 2015), Standard Flour Mills Ltd also retrenched about 50 of their sales workforce, while other players are also following suit with the exemption of only Honeywell Flour Mills Plc. The adverse employment effects of acquisitions are also looming as acquisition talks are being concluded between Crown and BUA Flour. This signals great danger for the economy at large and the labour market specifically. According to Armstrong (2009), people management practices is basically about the relationship between people management and strategic management. It also affirms, that people management is the overall direction a firm intends to chart in order to accomplish its objectives using its people.
From Armstrong (2009), one may logically deduce that strategic people management practices is a strategic method to managing human resource capability of a company to achieve competitive edge and corporate performance. This agrees with various allusions to the fact that people are the most valuable assets by all players in their annual reports (Flour Mills of Nigeria Plc, 2014; Dangote Flour Mills Plc, 2015; Honeywell Flour Mills Plc, 2014, Standard Flour Mills Ltd., 2012 and Crown Flour Mills Ltd., 2013). If this affirmation is genuine and they all pay good attention to their people management practices, one may begin to wonder why most flour millers are recording decline in their performance with attendant job losses across levels in most of these companies (Flour Mills of Nigeria Plc, 2014; Dangote Flour Mills Plc, 2014 & Standard Flour Mills Ltd, 2015).
Oludayo and Omonijo (2013) also agree with these companies’ statements on the centrality of people, that organizational people are the major determining factors of competitive advantage and the need for effective workforce administration has become more significant than what it used to be. Wright and Snell (2001) also stressed that people management practices could lead to increased corporate performance and be the core of continued competitive advantages. The question of why these same most valuable assets are the first to be disposed whenever the company is under economic pressure was examined in this study by examining the relationship between people management practices and corporate performance and assessing the moderating effect of competitive capability on the relationship between people management practices and corporate performance.
The influence of effective supply chain strategy on the performance of manufacturers in the flour milling industry in Nigeria has been very visible in the face of recent competition as companies with less competence in supply chain strategy are recording consistent decrease in their performance indices (IBF Agusto & Co., 2012). Corroborating IBF Agusto’s position, Iyer, Germain and Claycomb (2009) shows that consequences of supply chain strategy on competitive performance diminishes as product instability and demand volatility mutually improved. Inbound and outbound areas of supply chain strategy was not being handled as strategic with a view to effectively managing the cost of inputs. And this has directly increased the cost of production and hinders the companies’ ability to compete favourably. There is an increasing demand from the Board of directors and shareholders to the operators of companies in the industry to increase values on their investments and at the same time the customers are requesting for lesser prices and improved quality; it therefore mean that these companies have to consistently find means of managing their operating and cost of sales in all areas with good focus on supply chain strategy (Honeywell Flour Mills Plc, 2015; Dangote Flour Mills Plc, 2013 & Flour Mills of Nigeria Plc, 2014).
In the competitive landscape of the flour milling industry in Nigeria, all players patronise the same machinery and other resources, the same raw materials and sources of raw materials. Ability of any player to leverage on strategic sourcing with a view to buying right, superior quality, right price, right place, appropriate time and the most efficient transportation system, will therefore determine the extent to which any player can go in the battle for market share and corporate performance. This is so because getting things wrongly at any of these stages will disable the competing firms from producing at the minimal cost and erode values and in effect lead to poor performance. Almost all companies in the industry have been concentrating on competitive pricing at the end point, rather than strengthening their end –to-end supply chain strategies and producing optimally (Lead Capital, 2012). The less attention being paid to end-to-end supply chain strategy has been responsible for undue attention to competitive pricing resulting in dwindling profit margins, job loses, employees’ dissatisfaction and reduced capacity utilization in the flour milling industry in Nigeria (Egene, 2015). The question of the relationship between supply chain strategy and corporate performance was answered in this study by determining the relationship between supply chain strategy and corporate performance and the moderating effect of competitive capability on the relationship between supply chain strategy and corporate performance.
In the external business environment of the industry, despite the recent 25% increase in duty on wheat importation leveled by the Federal Government, consistent devaluation of naira with its resultant effects on prices of imported raw materials as a result of increase in exchange rate (Kelikume, 2015), basic economic principle would teach that the associated increase in the cost of production will be shared or transferred to the consumers. The industry is rather not only absorbing the increased costs, players are also dropping prices of their finished goods for competitive pricing strategy. In effect, the third quarter of 2015 financial results of almost all players in the flour milling sub sector was in the negative as the biggest player, Flour Mills of Nigeria top the list of loosers. Specifically, Flour Mills of Nigeria profit before tax reduced by 55.73% to N3.70billion, from N8.35 billion in 2014 with a corresponding reduction in pre tax margin to 1.51% matched with 3.45% in the same period of financial year 2013. The effective management of the external business environment would have reduced the negative impact on the performance of flour milling companies
In addition, in spite of an 83.40 % decline in income tax provision, post tax profit contracted by 44.46 % to N3.30billion from N5.93billion in the financial year 2012. Consequently, post-tax profit margin fell to 1.35 per cent from 2.47 % recorded in the financial year 2012. (Flour Mills of Nigeria, 2014). Onuoha (2013) in his study of “Factors Militating Against the Global Competitiveness of Manufacturing Firms in Nigeria”, also highlighted the key issues and difficulties of the industry to include: failing and poor infrastructures; high production costs; unpredictable government rules on the sector; severe competition from imported goods; incomplete scope of operation; financial challenges; amongst a innumerable of other weaknesses. Onuoha posits that despite the government policies and inducements on entrepreneurship growth mostly and on the manufacturing sector specifically, they are yet to contribute meaningfully to the nation’s Gross Products or compete internationally therefore appears plausible. This study examined the relationship between external business environment and corporate performance and the moderating effect of competitive capability on the relationship between external business environment and corporate performance.
Flour millers in the industry are facing the risk of products and services substitution from direct and indirect competitors (IBF Agusto & Co., 2012). This has compelled flour millers to consistently innovate and increase their product offering in a bid to compete favourably. Unfortunately for the millers, some of their new products are cannibalizing the existing ones and this portent great danger for the effective sales of all their brands. For example, ‘whole wheat meal’ as a ball food portent to serve as a close substitute of ‘semo’ and in effect reduces the volume sales of ‘semo’. Some flour millers who have difficulty in adjusting their manufacturing equipment to suit the production of innovative food products are being edged out of the market and in effect losing their market share and have their continuous existence threatened. The major product of companies in the flour milling industry in Nigeria is bread and confectionary flour which constitute over 80% of contributions to their performance. Others products that constitute the balance of 20% are ball foods such as ‘semo’ and whole wheat meal and Strand foods such as noodles, macaroni and spaghetti (Egene, 2015). In effect, Bread and confectionary bakers constitute the major users of the industry flour products and as such, the flour millers are constantly under pressure to satisfy the bakers who are themselves very sensitive to competitive moves of millers for their own business advantage. The commoditized nature of this flour has also made the competition so stiff to the extent that bakers will insist that ‘flour is flour’ just as ‘salt is salt’ irrespective of brands or the manufacturer. The reality of the commoditized nature of flour has also compelled the flour millers to focus more on competitive pricing in their strategic moves, sometime without minding the resultant adverse effects of competitive pricing but in a bid to retain or gain market share, keep running promotions, give commissions, incentives and more often than not, outright price reduction (IBF Agusto & Co., 2012).
To cope with the competitive challenge in product offering, most manufacturers have had to imitate others without due attention to the competitive capabilities of those they are imitating. For example, Honeywell Flour Mills Plc introduced a special brand of pasta “Cavatto” into the market and this brand altered market demand for pasta in favour of Honeywell. Within the first few months of this favourable move, Flour Mills of Nigeria imitated the brand and named its own “Twist”. When the market sensed that Honeywell and Flour Mills of Nigeria are taking over the market in that brand, BUA Flour Mills also imitated the brand and named its own “Cavatto-Twist”. Today, most imitators are losing out in that brand and their market shares are being eroded in other brands where they have comparative advantage. (IBF Agusto & Co., 2014). This study therefore found out the relationship between product offering and corporate performance and evaluated the moderating effect of competitive capability on the relationship between product offering and corporate performance.
Although, managing competitive behaviour, people management practices, supply chain strategy, external business environment and product offerings are being leveraged upon to an extent, it would appears that good attention is not being paid to the capabilities of these variables in producing desired corporate performance. Inadequate attention being paid to these sub independent variable has made competition so stiff that the only focus has been on competitive pricing strategy and this has brought an unimaginable pressure on the Flour Millers’ performance, job loses, increased cost of sales, low profit margins and financial loses. Given these hydra headed and paradoxical competitive pressures occasioned mainly by competitive pricing strategy for market share, this study intends to focus on evaluating the competitive dynamics and corporate performance of selected flour milling companies in Nigeria.
1.3 Objective of the Study
The general objective of this study is to evaluate the competitive dynamics and corporate performance of selected flour milling companies in Nigeria. The specific objectives are to:
i. find out the relationship between competitive behaviour and corporate performance of flour milling companies in Nigeria;
ii. examine the moderating effect of competitive capability on the relationship between competitive behaviour and corporate performanceof flour milling companies in Nigeria;
iii. examine the relationship between people management practices and corporate performanceof flour milling companies in Nigeria;
iv. assess the moderating effect of competitive capability on the relationship between people management practices and corporate performanceof flour milling companies in Nigeria;
v. determine the relationship between supply chain strategy and corporate performanceof flour milling companies in Nigeria;
vi. determine the moderating effect of competitive capability on the relationship between supply chain strategy and corporate performanceof flour milling companies in Nigeria;
vii. evaluate the relationship between external business environment and corporate performanceof flour milling companies in Nigeria;
viii. examine the moderating effect of competitive capability on the relationship between external business environment and corporate performance of flour milling companies in Nigeria;
ix. find out the relationship between product offering and corporate performance of flour milling companies in Nigeria; and
x. evaluate the moderating effect of competitive capability on the relationship between product offering and corporate performance of flour milling companies in Nigeria.
1.4. Research Questions
The following statements reflect the research questions:
i. What is the relationship between competitive behaviour and corporate performance of flour milling companies in Nigeria?
ii. What is the moderating effect of competitive capability on the relationship between competitive behaviour and corporate performance of flour milling companies in Nigeria?
iii. How does people management practices affect corporate performance of flour milling companies in Nigeria?
iv. How does the moderating effect of competitive capability affect the relationship between people management practices and corporate performance of flour milling companies in Nigeria?
v. What is the relationship between supply chain strategy and corporate performance of flour milling companies in Nigeria?
vi. What is the moderating effect of competitive capability on the relationship between supply chain strategy and corporate performance of flour milling companies in Nigeria?
vii. How does external business environment significantly relate with corporate performance of flour milling companies in Nigeria?
viii. How does the moderating effect of competitive capability affect the relationship between external business environment and corporate performance of flour milling companies in Nigeria?
ix. What is the relationship between product offering and corporate performance of flour milling companies in Nigeria?
x. What is the moderating effect of competitive capability on the relationship between product offering and corporate performance of flour milling companies in Nigeria?
1.5 Hypotheses
The following null hypotheses were formulated for testing:
HO1 - There is no significant relationship between competitive behaviour and corporate performance of flour milling companies in Nigeria
HO2 - Competitive capability has no significant moderating effect on the relationship between competitive behaviour and corporate performance of flour milling companies in Nigeria
HO3- There is no significant relationship between people management practices and corporate performance of flour milling companies in Nigeria
HO4 - Competitive capability has no significant moderating effect on the relationship between people management practices and corporate performance of flour milling companies in Nigeria
HO5 - There is no significant relationship between supply chain strategy and corporate performance of flour milling companies in Nigeria
HO 6 - Competitive capability has no significant moderating effect on the relationship between supply chain strategy and corporate performance of flour milling companies in Nigeria,
Ho7 - There is no significant relationship between external business environment and corporate performance of flour milling companies in Nigeria
Ho8 - Competitive capability has no significant moderating effect on the relationship between external business environment and corporate performance, and
Ho9 - There is no significant relationship between product offering and corporate performance of flour milling companies in Nigeria
Ho10 - Competitive capability has no significant moderating effect on the relationship between product offering and corporate performance of flour milling companies in Nigeria.================================================================
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