Teko's_Strategic_Management

ABSTRACT To set out a strategic planning model for Teko Company Ltd (researcher’s family company), a Nigeria based company in the motorcycle industry with a mission to become the leading supplier of high quality motorcycles in Nigeria in the next 5 years. As the demand for motorcycles increases in Nigeria and the economy opens up for new investments opportunities it is the right time for Teko to expand the business by forming a strategic alliance with Yamaha Motor Co., Ltd. By looking deeper into the company’s internal and external situation by means of a SWOT, a PESTEL and Porter’s Five Forces analysis, we are able to establish the way forward in order to achieve the mission and the strategic objectives. Contents ABSTRACT 2 1.1 - HISTORY OF TEKO COMPANY LTD 4 1.2 STRATEGIC PLANNING MODEL FOR TEKO COMPANY LTD 4 2.1 MISSION STATEMENT 4 2.2 INTERNAL ANALYSIS – SWOT 5 • Strengths 5 • Weakness 5 • Opportunity 5 • Treats 6 2.3 EXTERNAL ANALYSIS – PESTEL 6 • Political 6 • Economical 7 • Social 7 • Technological 8 • Environmental 8 • Legal 9 3.0 STRATEGIC OBJECTIVES 9 4.0 CONCLUSION 9 BIBLIOGRAPHY 11 APPENDIX I 13 1.1 - HISTORY OF TEKO COMPANY LTD The late Aaron Etonye established Teko Company Ltd in 1990. After his death, in 1997, his firstborn Timothy Etonye took over the company. The company originally only operated in Anambra State, Nigeria, selling motorcycle parts and import/distribute high quality motorcycle parts in Nigeria. However after, Timothy Etonye expanded the business into assembling motorcycles for sales and found motorcycle parts with a special quality associated with the Teko brand. The business was expanded to other states in Nigeria. Within ten years he had expanded the company from one branch to five branches in Nigeria. Over the same ten years period due to diversification into assembling motorcycles and developing a brand name, the company saw a 50 percent increase per annum. 1.2 STRATEGIC PLANNING MODEL FOR TEKO COMPANY LTD A strategic alliance between Teko Company Ltd and Yamaha Motor Co., Ltd will be an appropriate, efficient and effective way to meet the growing demand for motorcycles in Nigeria. By forming an alliance with Yamaha Teko will make use of the Yamaha brand and well known quality to increase their sales of motorcycles, providing Teko with the opportunity to become a leading motorcycle distributor in Nigeria. The alliance with Teko will give Yamaha an entry into an upcoming market in Nigeria giving them a needed business opportunity as the recession has affected the Japanese manufacturing industry badly (Harding and Soble, 2009). 2.1 MISSION STATEMENT To make Teko the leading supplier of high quality motorcycles in Nigeria within 5 years. 2.2 INTERNAL ANALYSIS – SWOT We will look at the strengths, weakness, opportunities and threats of Teko, and how Teko can develop a strategy to emphasis their strengths and opportunities, as well as minimise the weaknesses and threats to become a market leading company. • Strengths Teko has over 12 years been developing the high quality brand and their level of expertise in the motorcycle market increasing their customer base and the company’s capital in order to make more investments. Yamaha will bring their high quality brand, well known to the customers, providing a motorcycle with a high quality for a reasonable and competitive price thus increasing the sales. Additionally, Yamaha will bring their technical expertise into collaboration with Teko existing knowledge basis. Yamaha will also be able to provide needed capital or financial solution to support the strategic alliance. • Weakness There will be a great potential of conflict of interest, as both Teko and Yamaha will be interested in achieving a profit margin that is as high as possible. If Yamaha increases the price for the parts they supply it will decrease Teko’s profit margin and potentially force Teko to increase the motorcycle prices to meet indirect and direct costs of assembling the motorcycles, which in turn may affect Teko’s competitive advantage. • Opportunity According to TradeInvestNigeria.com (2009), the road network in Nigeria “is in a poor state, although many projects across the country aim to address the issue” there are still certain areas unsuitable for cars, such as villages, rural areas and urban slums (Wikipedia, 2009). Nigeria is also experiencing hyper-congestion and seasonal fuel scarcity making motorcycles “a popular mode of transport in Nigeria” (Trade Invest Nigeria, 2009), especially as motorcycles are fuel efficient and low cost of purchase (Wikipedia, 2009). With an anticipated annual demand of 1 million units there is a great business opportunity (Trade Invest Nigeria, 2009). • Threats Importing goods from Japan to Nigeria would incur importation taxes. Therefore, if Yamaha export the goods they supply to Teko, Teko would have to pay tax and other duties on the imported goods, thereby decreasing their profit margin. The popularity of the motorcycle and the industry’s scope for investment introduces many competitors for Teko (Trade Invest Nigeria, 2009). This means people would see the opportunity to invest in the motorcycle industry and “steal” customers from Teko. 2.3 EXTERNAL ANALYSIS – PESTEL We will analyse the political, economical, social, technological, environmental and legal factors affecting the macro environment surrounding Teko (In depth analysis using Porter’s Five Forces, see Appendix I). • Political As the rulership of Nigeria changed to democracy in 1999, investors have been eager to exploit the multitude of investment opportunities in Nigeria. The Federal Government of Nigeria has taken steps to transform the economic situation encouraging international investors and “Nigerians at home to invest in the economy” (Armstrong, 2008). An anticipated annual demand of 1 million units and a wish by the federal government in Nigeria to manufacture and assemble motorcycles locally shows a high demand market yet to be filled (Trade Invest Nigeria, 2009). • Economical The federal government of Nigeria has arranged a range of incentives encouraging the economic reform of Nigeria including various forms of tax relief, like Pioneer Status. Pioneer Status involves a five-year taxation holiday meaning they don’t have to pay Companies Income Tax and VAT (value added tax) for five years (Armstrong, 2008). Teko can take advantage of this tax relief increasing their profit, enabling them to make greater investments into future growth. The current situation in Japan after the economical recession has left the manufacturing industry in crisis as they have seen a decrease in the export of manufactured goods (Harding and Soble, 2009). In addition Honda is also looking into the Nigerian motorcycle market for potential business (Kim, 2008).These two situations reduces Yamaha’s bargaining power as in accordance with Porter’s five forces giving Teko a competitive advantage. • Social According to Ogbe Armstrong(2008), Nigeria was until 1999 “subject to a 15-year military rule having assumed notoriety for massive corruption; a near-total collapse of infrastructure, breakdown of law and order; and arbitrariness in conduct of public affairs”. But when Nigeria returned to a democratic rule, they faced an economic transformation of the nation, delivering dividends to the population (Armstrong, 2008). President Obasanjo introduced the Anti-Corruption and other Offences Act of 2000 introducing ICPC (Independent Corrupt Practices and Other Related Offence Commission) with the power to investigate and prosecute those suspected of corrupt practices, and a number of cases has been addressed (Dr.Bala, 2003).This improvement in the standard of life has enabled people to invest in low cost transportation such as motorcycles, improving their cultural way of life, socialising, visiting family and friends as well as commuting. • Technological Dr. Bala(2003) explained that,” In Africa, Nigeria probably has the highest pool of skilled and highly educated manpower. A survey carried out by the African Competitive Report 2000/2001, ranked Nigeria second in terms of availability of local labour market that satisfy business/hiring needs of investors”. To sustain this trend the government has initialised the Universal Basic Education Program encouraging private sector investments at all levels of the educational structure, aiming to making the educational sector more competitive and develop an entrepreneurial class that is innovative, competitive and technology driven (Dr. Bala, 2003). This will enable Teko to hire more skilled and educated staffs with more technological knowledge than previous generations, facilitating Teko to move forward. • Environmental Using an already existing manufacturer in Japan, by means of Yamaha, has a minimal impact on the environmental in Nigeria and therefore acceptable to the macro-environment of Teko. • Legal The Business relationship between Japan and Nigeria has seen great improvements. During Official meeting between the countries representatives there has been signed major bi-lateral agreements, and the Special Partnership was established, providing investors and business alliances with a specific framework and platform to build business relationship on (Dr. Bala, 2003). This enables Teko and Yamaha to entrust the legal systems in both countries as both government have created a mutual platform for such business deals. 3.0 STRATEGIC OBJECTIVES To form a strategic alliance with Yamaha Motor Co., Ltd, with the objective that Yamaha supplies Teko with High Quality motorcycle parts. For Teko to assemble the parts provided by Yamaha with their own brand parts in order to make a high quality motorcycle that will give them a competitive advantage in the market and thereby increase their sales by 30 percent per annum. To make Teko the leading supplier/distributor of high quality motorcycles and spare parts in Nigeria by 2015. 4.0 CONCLUSION From the above analysis the way forward for Teko would be as follows: 1. Make use of the provisions already instated by the governments in Japan and Nigeria to promote the Nigeria/Japan relationship in order to prevent any legal issues and make the alliance a lasting one. 2. Use the current state in Japan’s manufacturing industry and the Japanese companies wish to enter the African motorcycle market (in particular Nigeria) and to create a deal with Yamaha that is beneficial to both companies. Teko being provided high quality parts for a reasonable and competitive price. Yamaha getting needed business as there is an increase in the competition ( i.e : Honda) as well as a decrease in exportation. 3. Teko will make use of the Pioneer Status, involving five year tax holiday, enabling them to use the income on expanding the business further to become a market leader. BIBLIOGRAPHY • Armstrong, O., (2008), Overview of Nigeria’s investment environment, [online] available at: http://www.tradeinvestnigeria.com/news/787564.htm, accessed on: 13/11/2009 • Dr. Bala, J.J., (2003),The challenges and opportunities of the investment environment in Nigeria, available at: http://www.mofa.go.jp/region/Africa/conf0302/nigeria.pdf, accessed on: 13/11/2009 • Harding,R., and Soble, J., (2009), Not made in Japan, [online] available at: http://www.ft.com/cms/s/0/c501f85e-7555-11de-9ed5-00144feabdc0.html'nclick_check=1, accessed on: 13/11/2009 • Kim, C., (2008), Honda looks beyond BRICs for motorbike biz, [online] available at: http://uk.reuters.com/articlePrint'articleId=UKT36911620080829, accessed on: 13/11/2009 • Lynch, R., (2006), Corporate Stratergy, 4th edition, Prentice Hall Financial Times, Harlow, England • Thompson, A.A.jr., Strickland III, A.J., and Gamble, J.E., (2010), Crafting and Executing Strategy,The Quest for Competitive Advantage: Concept and Cases, 17th edition, McGraw-Hill/Irwin, New York • Trade Invest Nigeria, Transportation, (2009), [online] available at: http://www.tradeinvestnigeria.com/pls/cms/TI_SECOUT.secout_dev'p_sid=438&p_site_id=126, accessed on: 13/11/2009 • Trade Invest Nigeria, (2009), High Demand for motorcycles offers business opportunities, [online] available at: http://www.tradeinvestnigeria.com/investment_opportunities/911158.htm, accessed on: 13/11/2009 • Wikipedia, (2009), Okada (commercial motorcycle), [online] available at: http://en.wikipedia.org/wiki/Okada_(commercial_motorcycle), accessed on: 13/11/2009 APPENDIX I Porter’s Five Forces Model of Competition: 1.Identifying the particular competitive pressures (see model below): 1.a) Suppliers – The Japanese have several companies seeking to do business or make investments in Nigeria (Dr.Bala, 2008). In the motorcycle industry we can mention Honda, Mitsui, Suzuki and Yamaha. However the Japanese manufacturing industry has due to recent recession faced a crisis as their export has decreased by 14 percent (Harding and Soble, 2009), and a need for new business is great for this industry causing many of them to look to the african market (Kim, 2008). With several japanese companies as well as the companies in Nigeria, Teko will have a potential of switching between these suppliers reducing Yamaha’s ability to exert power (Lynch, 2006, Thompson et.al., 2010) 1.b) Potential Entrants – As the Nigerian motorcycle market offers business opportunities in Nigeria due to high demand for motorcycles (Trade Invest Nigeria, 2009)several companies are being set up in Nigeria, and many foreign companies are showing interest in the industry (Harding and Soble, 2009). However, as motorcycles are highly popular the TradeInvestNigeria.com (2009) expressed that the industry proves a large scope for investments and further opportunities. In addition did the federal government of Nigeria encourage Nigerians to invest in the country’s economy (Trade Invest Nigeria, 2008). This gives Teko alot of business opportunities and as the company is already established in the industry, an advantage, as their brand is already well known. Additionally Teko will have an opportunity to make a powerful alliance with Yamaha giving them an edge with both their brands, which in turn are known for their quality. 1.c) Buyers – The Nigerian population has seen a change in the countries economy over the last decade giving the population better moneytary situation (Armstrong, 2008). Due to the current state of the roads and the hyper-congestion in Nigeria many result to the motorcycles as a low cost type of transport, either to own themselves or as paid transportation (Wikipedia, 2009). An estimated demand of motorcycles in Nigeria lay at 1 million units per annum (Trade Invest Nigeria, 2009). The buyers are many giving Teko a great opportunity to negotiate the price with the buyer. In addition, the high quality and brand name of Teko and the strategic alliance with Yamaha will provide Teko with an outstanding product that differenciate from the other competitors product making the buyers less able to switch between the companies in the industry. 1.d) Substitutes – The motorcycle is very important to the culture and lifestyle in Nigeria, and a subtitute is very unlikely due to the current situation of the roads and the traffic congestion in Nigeria (Wikipedia, 2009; Trade Invest Nigeria, 2009). 1.e) Industry Competitors – Teko Company Ltd has been in the industry over 19 years and has over the last 12 years increased in size showing a great potential to increase further. Teko has an outstanding quality on their products they have developed within the company giving them a slight edge over the competitors product. The knowledge of the products and it’s quality enables Teko to ensure the same quality, but at a lower cost through importation from a country with lower manufacturing costs. Additionally, Teko has got staffs with good technical knowledge and experience in the industry. With these advantages Teko could gain dominance and increase the share by increasing the production capacity (Lynch, 2006). (Adopted from Lynch, 2006 and Thompson et.al.,2010