ABSTRACT
This research
study the effect of forward integration strategy on the manufacturing industry
performance, the study of Cadbury Nigeria Plc, was carried out to proffer
solution to problems facing manufacturing industry with the regard to lack of
gaining control over distributors, lack of unlimited availability of qualified
and competent distributors, lack of stable production, desire to gain
competitive relative cost advantage over rivals e.t.c.
The study was
conducted using Cadbury Nigeria Plc as a case study with the objective of
determining the forward integration strategy on manufacturing industry
performance and also proffer lasting solution to problems of distribution
channels and cost of intermediaries.
The statistical
packages for social science( SPSS) tools was used to analyzed the information
collected from the respondents, the study reveals that the practice and
adoption of forward integration strategy as a strategy tool increases
organizational sales thereby increasing profitability rate and market shares
which in turn have significant effect on the general performance of the firm.
TABLE OF CONTENTS
CHAPTER
ONE: INTRODUCTION
1.1 Background
of the Study
1.2 Statement
of Problems
1.3 Objectives
of the Study
1.4 Research
Questions
1.5 Research
Hypotheses
1.6 Significance
of the Study
1.7 Scope
and Limitations of the Study
1.8 Definition
of Terms
References
CHAPTER TWO: LITERATURE REVIEW
2.0 Introduction
2.1 Forward Integration
2.2 Vertical Integration
2.3 Model of Forward Integration (Theoretical
Review)
2.4 Porter's Five Forces Analysis
2.5 Forward Integrating and Organization
Performance a Review
2.6 Challenges Costs and Benefits of Forward
Integration
References
CHAPTER THREE: RESEARCH METHODOLOGY
3.0 Introduction
3.1 Research Design
3.2. Restatement of Research Questions and
Hypothesis
3.3 Characteristics of the Study Population
3.4 Sampling Design and Procedure
3.5 Research Instrument
3.6 Administration of Data Collection
Instrument
3.7 Analytical Tools
3.8 Reliability of Instrument
3.9 Validity of Instrument
3.10 Limitation of Methodology
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Introduction
4.2 Analysis and Interpretation of Data
4.3
Testing of Hypotheses and Interpretation
4.4 Discussion of Tested Hypotheses
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary
5.2 Conclusion
5.3 Recommendations
References
Appendix
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF
THE STUDY
Businesses used
integration strategies to increase market share and profit and thus enhance
firm's performance. Vertical integration is very common among larger businesses
interested in growing their event further. Vertical integration occur when
business expand into new areas connected with its business processes.
Various strategies
exist for each types of integration designed to increase profits for the
company. Market expansion occurs when businesses attempt to expand into area
that increase their market share but not necessarily in different areas or even
the same products.
Forward
integration is a vertical strategy where businesses either enter industries in
the supply chain ahead of them. In otherwords, vertical forward integration is
a means of guarantying distribution channels for products and services by
building relationship with or taking control of distribution.
Businesses save
money by selling products they creates and free the supplier from the threat or
influence of major buyer. Firms tend to add new product to their portfolio as
they acquire new knowledge and integrate it with their existing knowledge base
particularly in highly dynamic industries.
The new knowledge
often builds upon the existing knowledge, allowing for improvement in existing
products such as high quality and ability to safety consumer's needs. As a
result, this process of knowledge creation and integration often improves the
success of related products in the portfolio. The mix of different knowledge
stocks enriches the firm's capability to offer a greater variety of related
products. In so doing, the firm can better satisfy customers' needs in a manner
superior to competitor's product offerings. (Aluko, Odugbesan, Osuagwu et al
1997).
On the other hand,
the manufacturing industry remain one of the most critical engines for
Economics growth and its performance as a catalyst to transform slow growing
and low value activities to more productive activities that enjoy greater
margins and have higher growth prospects but its potential benefits are even
greater in present time with rapid technological change and for reaching
liberalization and bridge income gap with the industrialized world. (Mike, 2010).
However, vertical
integration implies that fortunes of a business unit are least partly tied to
the ability of its in-house supplier or customer (who might be its distribution
channel) to complete successfully. Technological changes, changes in product
design involving components strategic failures or managerial problems can
create a situation in which the in-house supplier is providing a high cost,
inferior or inappropriate products and services. Essentially, there are two
types of vertical integration strategy. Backward integration and forward
integration. (Kazmi, 2002).
Backward
integration strategy exists when firms develop its own sources of raw
materials. It occurs when a firm develops into activities which are concerned
with the inputs into its current business. (Oyedijo Ade, 2004).
Forward
integration strategy on the other hand occurs, when a firm is disposing off its
own output by gaining ownership or increase control over distributors or
retailers.
Increasing number
of manufacturers today is pursuing a forward integration by establishing web
site, distribution outlet e.t.c. to sell their products directly to consumers.
Thus, forward integration strategy is an issue that concern with the company
outputs i.e. the firm goes further forward in the value chain by creating and
providing its own distribution outlets, transportation system, repairs and
servicing.
It is argued that
increased vertical integration has resulted in lowering prices of both the
unmerged input suppliers and the vertically integrated firm (Porter, 1980).
Theoretically, literature contends that vertical integration or coordination
will create efficiencies by reducing the transaction costs associated with
market exchange. (Fernando, 1995). Other most commonly argued benefits of
vertical integration include the reduction of risk, improves supply chain,
coordination, captures upstream and downstream profit margins, the ability of
integrated firm to innovate and differentiate, it enhances steady near capacity
production operation through the creation of ones own dependable channels for
pushing product to the end -users, increased efficiency in the exchanged of
information and organizational structures and improved market positions of the
integrated firm.
Therefore, the
main purpose of this study is to empirically examine the effect of vertical
integration on the performance of integrated firms. More specifically, it seeks
to examine the impact of forward integration strategy on the performance of
Cadbury Nigeria Plc.
1.2 STATEMENT OF
PROBLEM
Since problems and
difficulties are common to all industrial sectors, manufacturing industrial
sectors have no immunity. This research work is carried out with the objective
to provide solution to problems facing manufacturing industries that failed to
adopt corporate level strategy using vertical integration approach in order to
gain competition hedge over rivals. The problems ranges from inadequacy of
vertical integration planning, lack of gaining control over distributors,
unlimited availability of qualified and competent distributors weak form of
machineries that is put in place to implement forward integration strategy,
lack of enough capital and human resources needed to manage the business as
result of high cost of market transactions and administration activities within
an organization to lack of stable production desire to gain competitive
relative cost advantage over rivals through the use of forward integration
strategy and the enhancement of selling prices to the end users in which the
organization can increase the predictability of demand for its outputs through
forward integration.
1.3 OBJECTIVES OF
THE STUDY
The objectives of
this research are:
i. To evaluate
the effect of forward integration strategy on manufacturing industry
performance.
ii. To
determine how forward integration strategy affects the attainment of
organization goals.
iii. To examine
the extent in which organization's retail outlets has increase market share.
iv. To evaluate
the effect of an organization
servicing department on productivity.
v. To know the
effect of lower selling prices to end users on the profitability of
manufacturing industry.
1.4 RESEARCH
QUESTIONS
The following
research questions will guide the study
i. Does organization's retail outlets
increases market share?
ii. To what
extent has servicing department of an organization contributed to productivity?
iii. Does the
adoption of forward integration strategy helps in the attainment of
organization goals?
iv. Does forward
integration strategy increase the profitability rate of manufacturing industry?
v. Does
organizational control of sales have any impact on organizational
profitability?
1.5 RESEARCH
HYPOTHESES
1. Ho: There is no
significant relationship between organization retail outlets and market share.
Hi: There is significant relationship
between organization retail outlet and market share.
2. Ho: There is no relationship between servicing
department of an organization and productivity.
Hi: There is relationship between
servicing department of an organization and productivity.
3. Ho: There is no correlation between forward
integration strategy and the attainment of organizational goals.
Hi: There is correlation between forward
integration strategy and the attainment of organizational goals.
1.6 SIGNIFICANCE OF THE STUDY
Forward
integration strategy as a general strategy helps to position a company to
sustain a competitive hedge over its rivals. In many industries, independent
sales agent, wholesalers and retailers handled competing brands of the same
product having no allegiance to any one company's brand they tend to push
whatever sells and earns them the biggest profits a manufacturer can be
frustrated in his attempt to win higher sales and market share or maintain
steady, near-capacity production, if it must distribute its products through
distributors and/or retailers who are only half heartedly committed to
promoting and marketing its brand as proposed to those of rivals. In such
cases, it is advantageous to a manufacturer to integrate forward into
wholesaling or retailing via company own distributorship or chain of retail
stores.
Another important
relevance of forward integration is franching, where the franchisor grants to
its franchises the right to use the franchisors name, reputation and business
skills at a particular location or area. This helps to lessen the financial
burden of swift expansion and so permit rapid growth of the company and help
reap the advantages of large scale advertising as well as economics of scale,
management and distribution. Business can expand rapidly by franchising because
costs and opportunities are spread among many individuals.
Relevance of Forward Integration
i.
It is a means of maximizing profit for organization.
ii.
It is an avenue to exploit other line of business.
iii.
It is a means of strengthening business
1.7 SCOPE AND
LIMITATIONS OF THE STUDY
The scope of this
research work shall be restricted to Cadbury Nigeria Plc. The research work
focus on forward integration strategy as a tool to achieving lower selling
prices to the end users. However, the study was limited by the following:
·
Time: This is also a
limiting factor in carrying out the study and the high cost of sourcing all the
relevant information from different location in the country.
·
Finance: One of the major
constraint that affect the effective research work in due to the high cost of
financing research work. For instance, the cost of gathering the research
instrument such as journals, administering of questions etc.
·
Information
availability:
This study is limited by the unavailability of the most current information due
to the delay in respondents response.
1.8 DEFINITION OF
TERMS
§ Strategy: This is refers to as the ideas, plans that firm employed
to compete successfully against rivals.
§ Manufacturing: This is the transformation of raw
materials into finished goods.
§ Performance: It is refers to the end result of
activity.
§ Integration: This is the process of combining two
or more things in order to work together.
§ Profitability: This is the money someone made in
business after paying the costs involved.
§ Productivity: Is the rate at which a worker or
company produces goods and amount produced, compared with how much time and
money is needed to produce them.
§ Competitor: A person or organization that compete
against others especially in business.
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