The effects of depressed economy on the profitability of manufacturing companies in Nigeria
CHAPTER ONE 1.0 INTRODUCTION The manufacturing sector of any economy is no doubt important to that economy. The manufacturing industry exists in an economics atmosphere which greatly determines its existence in terms of success or failure. The topic of research work needs close examination hence for meaning of what a depressed economy is. A depressed economy is that economy which is characterized by heavy unemployment, low level of consumer demand, substantial amount of unused industrial capacity, high inflation rate, large stock of inventory, tight monetary policies regime, usually evidence in high cost of capacity lack of confidence in the future as a result of which there will be problems of investments. The situation may last for several years depending on how quality the leaders are able to initiate and actualize a sustainable economy recovery programme. According to Central Bank of Nigeria (CBN), the world economy has already recorded strong recovered evidence in improved programme by industrialized countries of Western Europe, America and developing countries of Asia and Latin?s America. This while the rest of the world as already at the recovery phase of their trade cycle, Nigeria as still neck deep in recession. In addition, the economy continues to suffer from stocks and policy reversals as government continues to dally-belly ache over what policy must contributes the best therapy for the seeming terminally ill economy. That is in this economy doom in which Nigeria found herself that the manufacturing companies have to exist that is pertinent to note here that the cumulative effects of the depression on the average consumer is that this disposable income is substantially redressed or last completely as it is the case of the unemployed in the economy. In view of the prevalent unstable, changing, uncertain and declined economic environment, how would a manufacturing company survive and succeed in the attainment of the set objectives and goals. The key to survival is in the adoption of certain strategic management approaches, it has been argued that unstable and uncertain environment of today is not susceptible to calendar direction driven planning method which theories on traditional budgets and long rang plans, instead a completely new-orientation that drawn heavily from the planning and management will be adequate. 1.1 HISTORICAL BACKGROUND OF NIGERIA BOTTLING COMPANY PLC, LAGOS The company bottling company PLC, makers of cocacola its antecedent noted in that of its precursor A.G Leventies first established the business in Ghana in 1937 and her first branch in Nigeria dated back no 1943 his collaborates in those early years were MR. G.E Karalakis and Mr. A.P.Levent who set up the Nigeria branch. Originally the main activities were produced buying imports and wholesales of textiles goods. In the first post, would world tears, the business enlarged its scope to include hardware, building materials and provision on more sophisticated retail distribution and servicing of motor vehicle and technical products. At present, Nigeria bottling company in one of the companies in A.G. Leventies group of company which are publicly quoted on the 22nd of November 1951, which was registered capital of N2,500.00k cocacola which is the trade mark one its successful numerous products was first introduce 1953 in Nigeria when the company set up its first plan in Lagos. Cocacola itself was first made on 8th May, 1886 by Mr. John Peniberton, pharmacists in his home in Atlanta Geogia. The person that gave cocacola its name was Frank M. Robinson, Dr. Nemberson?s partners and book keeper. He also designed the script that distinguishes the famous trademark. Cocacola contents remain as secret as they have been for over 100 years. The formular which is known as MERCHNDIZE 7X is kept in the United States. Nigeria Bottling Company Plc is today seven millions bottles per day, a figure which is still growing with the continuing expansion of the existing nineteen plants and with the opening of the new plants in various parts of the Federation. The best known taste in the world is Coca bottle or grass of cocacola, fanta Orange segment and sprite the most widely sold lemon lime drink 1 Nigeria. Other products bottled by NBC Plc include Fanta Ginger Ace, Fanta Tonic Soda, Fanta Chapman, Krest Butter Lemon, Diet Coke, Fanta Lemon and Eva Table water. The company?s business activities are now grouped into three divisions, the bottling division, the agricultural division and the allied industry industry division. The bottling division is responsible for the bottling of cocacola and fanta orange of soft drink. To comply with the government policy on import restriction and to maintain highly quality of products, the company development a form as a way of searching its news materials locally. With this, they have Agricultural Division, which operates mainly through Sunlite Agro Industries company, a large scale merchandize maize and rice farming organization based in weppa production are also included in its operations. Another area of operation undertaken by agricultural division is production of Hybrid seed through one of the company subsidiaries, Agriculture seeds limited based in Zaria. The Allied Division Industires Co-ordinate the activities of other companies in the group such as manufacturing of glass bottles required to keep a large bottling in operation and the crown product factories in Ibadan and Kano which manufactures the mental crowns to seal the bottle. Also, the Benin Plastic Company which makes the plastic crates that facilities packaging has its activities under this division NBC is also the largest manufacturer of Carbon-dioxide (CRO) gas used or making soft drink. The Company is providing employment for approximately one million Nigerians throughout its nineteen plants, head office and regional offices. At the moment, over 500 Nigerians are employed in management position. While most of the employees are training and developing of responsible positions is continually carried out in all aspects of company activities. Nigeria Bottling Company Plc has not only provided employment for many Nigerians but also generate considerable internal revenue for the government through the payment of taxes and duties. The company always put something back into as a reward for patronizing its products mainly through philanthropic activities. For example the company is leader in the crusade for environmental protection. That is also sponsor for sporting events. NBC is conscious of its social responsibilities for this reason, sponsors activities such as: 1. Football-Local and National Competitions 2. Table Tennis, the Nigeria (closed) Championship 3. Activities of the disable and 4. Many Communal Projects and events 1.2 STATEMENT OF THE PROBLEM The problems have been identified from research carried out with the company under the study Nigeria Bottling Company Plc the problems are: 1. The low patronage of customers to manufacturing goods in a depressed economy 2. Inability to produce the needed raw materials 3. High cost of Production 4. Low income per head 5. Low purchasing power or deposal income 6. Inflation which brings about decrease in the value of money 7. Low quality of locally made raw materials 8. Lack of initiative to exploits the economics alternative during depresses economy. 1.3 AIMS AND OBJECTIVES OF THE STUDY The aims and objectives of this research project are as follows: 1. To identify the effects of depressed economy on the profitability of manufacturing companies. 2. To identify some of those variables that can be exploited during the depressed via strategic management approach to favour manufacturing companies 3. To adequately highlight those variables in manufacturing sector if not well taken care of can cause the down of the organization 4. To evaluate the various strategies open to manufacturer in a depressed economy 5. To suggest ways that manufacturing companies can be managed for effective result in a depressed economy. 1.4 SIGNIFICANT OF THE STUDY ABSTRACT The importance of this project is in fact that the manufacturing covers a greater percentage of the economy, hence, the need for study via the economy depression presently been undergone in Nigeria. This research work would also serve as a framework of organization operation especially in the manufacturing as it will avail investors with the strategies usable during the depressed economy. 1.5 STATEMENT OF HYPOTHESIS The problems identified earlier on gives us in sight into the nature of the research hypothesis. A research hypothesis is nothing but a conjectured statement which may be accepted to reject when tested. Hence, the main hypothesis of this study is: 1. HO: Depressed economy does not lead to low patronage by consumers of manufacturing products. H1: Depressed economy lead to low percentage by consumer of manufacturing products 2. HO: Depressed do not bring about inability to procure needed materials H3: Depressed bring about inability to procure needed materials 3. HO: Low purchasing power of the consumers will not affect the aggregate demand of the consumers. H3: Low purchasing power of the consumers will affect the aggregate demand of the consumers. 4. HO: High cost of production is not as a result of depressed economy. H4: High cost of production is as a result of depressed economy. 5. HO: Low income per head is not a reflection of the depressed economy. H5: Low income per head is a reflection of the depressed economy. 1.6 SCOPE OF THE STUDY This research work has its tired of coverage limited to Nigeria Bottling company (A manufacturing company). This research work will look into the operations of the Nigeria Bottling Company as well as pattern or preparation of budget in the company. 1.7 LIMITATION OF THE STUDY This research work is limited to information that will be available to us, particularly considering the strictly competitive environment in which the company operates and time duration. The likely limitations that can jeopardize the smooth effective completion of this research study are stated as: 1. Finance is a vital tool that determine the progress of a research 2. Some respondents may have enough time to grant interview and the workload in school contributes in its own small way to the limitation of the research work. 3. Time, cost. 1.8 RESEARCH QUESTION 1. Is lack of collateral security affecting the availability of loan? 2. Is tying down of capital unnecessary as a result of lack of managerial expertise? 3. Changes in government policy affect the successful implementation of policy by profitability oriented manufacturing company? 1.9 DEFINITION OF TERMS 1. Production: is defined as the various economic activities aimed at the creation of goods and services and the distribution of these to the final consumers for satisfaction of human wants. Production can also be defined as the creation of utility. All goods and services must possess utility, which means that they must be capable of satisfying certain human wants. 2. Inflation: may be defined as a persistence rise in the general price level of goods and services. It occurs when volume of purchases is permanently running ahead of production and too much money in circulation chasing too few goods. 3. Cost: is the value of economic use in production and is the monetary value consumed or amount spent in the cost of consuming goods and services. 4. Industry: is defined as a group of firms producing similar products and under separate administration or management. It includes a collection of different firms which produce similar goods under separate management. 5. Product: It is a complex of tangible and intangible attributes including packaging, colours, price manufacture?s prestige/service which the buyer may accept as offering what buyer intends to buy and what the seller intend to sell.