WAC REPORT ON THE CASE LARSON IN NIGERIA

Su bmitted To
Submitted On Submitted By : :

: Prof. Sanjay Kumar Gupta 06 th September, 2012 Samarth Mewada-20121048

To

: David

From : Steven Date : 06.09.2012

SUB: - Detail analysis report to choose the course of action for future prospects in Nigeria Dear David, The Business situation in Nigeria has been analysed with reverence to present situation and future escalation. The report contains the options and the options are evaluated on different criteria. The analysis leads to a decision to continue operations at Nigeria with new CEO. Thanks Regards Steven

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Contents
EXECUTIVE SUMMARY ----------------------------------------------------------------------------------------------- 3 SITUATION ANALYSIS ------------------------------------------------------------------------------------------------- 4 PROBLEM STATEMENT ----------------------------------------------------------------------------------------------- 7 STATEMENT OF OPTIONS -------------------------------------------------------------------------------------------- 7 CRITERIA FOR EVALUATIONS ------------------------------------------------------------------------------------- 8 EVALUATION OF OPTIONS ------------------------------------------------------------------------------------------ 8 RECOMMENDATION---------------------------------------------------------------------------------------------------- 8 PLAN OF ACTION -------------------------------------------------------------------------------------------------------- 9 ANNEXURE 1 -------------------------------------------------------------------------------------------------------------- 10 REFERENCES-------------------------------------------------------------------------------------------------------------- 11

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EXECUTIVE SUMMARY
Larson Inc., with global presence in cable and wire industry enters into Joint Venture in 1994 with Nigerian local firm to tap the opportunistic Nigerian market. After nine years of operation and earning reasonable profits George Ridley, CEO of JV finds no future growth in the Nigerian market. Reason stated by him were instability of government, impulsive pricing policy, increasing rate of inflation, staffing and recruitment issues, unfavorable living conditions. Larson Inc. Is in

a dilemma to continue or withdraw from Nigeria. On analysing the case based on criteria like Profitability, Business sustainability and growth the suggestion is to carry on the operations
at Nigeria by appointing new CEO.

Total Words: 109

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SITUATION ANALYSIS
Larson Inc., New York based MNC is the prosperous firm with its worldwide revenue of $936 million in year 2003. Revenue mainly generated from the sale of Power, communication, construction and control cables. In 1994, joint venture with local partner in Nigeria in order to tap the opportunistic market. Company is seeking for tactical solution to continue long run business and gain the potential benefits in Nigeria but with various political, social, economical and technological constraints. At present, CEO of Nigerian JV is not in favour of future scope in business due to messy and unpredictable working conditions in Nigeria.

$45 million

Revenues $39.6 million

Profit $4.5 million

Revenues through exports $5.6 million

Revenues from govt $16 million

Govt. tax on Profit $-1.35 million

Royalties Fees $-0.22 million

Gross Profit $2.925 million

Figure 1: Financial Situation in 2003 As Shown in Figure 1. Net profit is $4.5 million and gross profit is $2.925 million, so government tax and royalties are the major factors affecting profit. As shown in Figure 2. Foreign Direct Investment is increasing from 1991 to 1999 so government has promoted import export to attract foreign investors As shown in Figure 3. Index of Industrial Production is rising which mainly driven by three industries, further showed in appendix-1.

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FDI
2500 2000 Million Dollar IIP Rate 1500 180 170 160 150 140 130 120

IIP Rate

1000
500 0

1994

1995

1991

1992

1993

1996

1997

1998

1999

2000

2001

1999200020012002200320042005 Years

Years

Figure 2:- FDI for the year 1991 to 2001

Figure 3:- IIP growth rate for year 1999 to1995

Source: the challenges and opportunities in Nigeria, Dr. Julius J. Bala

SWOT Analysis Strengths 1. 2. 3. 4. 5.

Back up of Parent Company Strategic Location Strong global Brand Name Profit and Sales Opportunistic Nigerian Market

Weakness
1. Harsh working conditions 2. Limited skilled workers 3. Restriction on reimbursement

Threats 1. Political insecurity 2. Lack of basic utilities for employees 3. High Inflation

Opportunities 1. Sector encouraging opportunities 2. Rising FDI

Porters Five Force Analysis Threat of New Entrants 1. The existence of barriers to entry
High amount of barriers like patent issue, government approvals, land acquisition, high Infrastructure cost etc.

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2. Switching Cost or Sunk Cost Looking at the type of Product Company is manufacturing (cable and wire) switching cost is moderate but customer dont usually change cables frequently. Also if the quality of the product is good then customer will not prefer to switch. 3. Capital Requirements Capital requirements for new business are extremely high. 4. Incumbent advantages Larson as a brand is established since long so this the added advantage for Larson against competitors.

Threat of Substitute Product

1. Buyer Propensity to Substitute The product is of the type such that buyer prefer less substitute as hardly any substitute for such a product is found. 2. Buyer Switching Cost Buyer Switching Cost is high. 3. Perceived level of product differentiation Customers perceived level is high as there is no or diminutive substitute to the product. 4. Number of Substitute Product There is no or very less substitute to the Product. 5. Ease of Substitution Though customer has knowledge about the substitution they cant use it as there is almost no substitution to the product.

Bargaining power of customers (buyers) Lack of differentiation among the products and its technology
Customer is price sensitive. Bargaining Power is moderate to low.

Bargaining power of Suppliers Large number of suppliers As telecommunication industry is also developing so do the wire industry is growing as it is relative, hence large number of suppliers are influencing in market. So Bargaining power of suppliers is high. Supplier switching costs relative to firm switching costs 6 WAC REPORT ON LARSON IN NIGERIA

More suppliers than buyers (firms) so company need to make compromise. So the ratio is moderate to high. Supplier concentration to firm concentration ratio Ratio is high as more suppliers are available than firms since raw material used can be utilised in other industries too so there are more suppliers than the firm.

Intensity of competitive rivalry

High Exit Barriers High Fixed Cost Very less time to gain advantage by an innovation (E.g. Quality of wire, new grade of wire) Price wars among Coleman wires, Nigerian wire and cables PLC and Larson.

PROBLEM STATEMENT
Determine the tactical plan to maintain its business to attain benefits in Nigerian market and to develop scope of future expansion.

STATEMENT OF OPTIONS
Analysis of the situation of JV with local Nigerian partner leads to following viable solutions for the problem. 1. Change the joint venture with the existing firm to some other potential firm. 2. Inter subsidiary job rotation at regular interval. 3. Transfer the CEO to some other subsidiary.

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CRITERIA FOR EVALUATIONS

1. Profitability of the firm. 2. Business sustainability and growth of the firm. 3. Employee satisfaction.

EVALUATION OF OPTIONS
1. Change the joint venture with the existing firm to some other potential firm By going for JV with potential firm will lead to solve the issues of local government laws and approvals by getting political favour which will help to run business in long run and also to increase the profitability of firm. As Nigeria is having geographical advantage for trade the potential local firm will be useful in bringing out the best out of it. New JV will also help to develop laws in the organization structure and also help in reforming political laws which will yield to employee satisfaction. 2. Inter subsidiary job rotation at regular interval By rotating job at different subsidiaries will help employees to adapt in various working conditions. This helps to increase the overall profitability as employees are satisfied the job rotation and thereby increases their productivity which eventually leads to long run business with good profitability. 3. Transfer the CEO to some other subsidiary As CEO lacks the vision in finding future growth in such a opportunistic country, transferring him to some other location may solve the problem. New CEO may bring reforms in the organization which will help in long run business and higher profitability. Also he may use his skills to influence government laws which in turn help employees and thereby increase employee satisfaction.

RECOMMENDATION
Looking at the conditions and after various analysis recommendation is to continue with the JV and hire a new CEO, as according to porters analysis exit from such a business where there are high fixed costs is difficult and have various barriers so best option is as recommended and tap the potential Nigerian market. As the person with high potential and good political contacts can bring back the situation to normal and also lead to growth.

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PLAN OF ACTION
1. Find out potential local based influencing person to get support for business initiatives and growth. 2. Implement training for local Nigerian employees. 3. Improve relationship with local government.

Total Words: 1073

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ANNEXURE 1
IIP growth rate

150 I I P 145 140 135 Manufacturing 130 125 120 115 1999 2000 2001 Years 2002 2003 Mining Electricity

R a t e

Source: NIPC February 2003 report for the investment challenges in Nigeria

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REFERENCES
http://en.wikipedia.org/wiki/Porter_five_forces_analysis#Usage http://www.scribd.com/doc/22498809/Porter%E2%80%99s-Five-Forces-Model-of-Competition http://www.google.com http://www.colemancables.com/profile/ http://www.miccomcables.com/

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