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);People Management Practice and
Corporate Performance (r = 0.697; p
<0.05); Supply Chain Strategy
and Corporate Performance (r = 0.633; p
<0.05); External Business
Environment and Corporate Performance (r = 0.647; p <0.05) and Product Offering and Corporate
Performance (r = 0.733; p
<0.05).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);
People Management Practice and Corporate Performance (F = 44.669; R2 = 0.500; R2Change
= 0.045; p = <0.05); Supply Chain Strategy and Corporate Performance (F = 66.230; R2 = 0.474; R2
Change = 0.067; p <0.05) and
External Business Environment and Corporate Performance (F = 48.462; R2
= 0.476; R2 Change = 0.051;p<0.05).
However, Competitive Capability 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).
The study concluded
that competitive behaviour, people management practices, supply chain strategy,
product offering and external business environment significantly relate with
competitive capability and produces desired corporate performance. It recommended
that flour milling companies should strategically harness the opportunities in
competitive dynamics to strengthen their competitive capability and achieve
desired corporate performance.
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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