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EFFECTS OF
BACKWARD INTEGRATION STRATEGY ON ORGANIZATIONAL PERFORMANCE IN MANUFACTURING
INDUSTRY
ABSTRACT
The study
focused on the effect of backward integration strategy on organization
performance. Nestle Nigeria Plc was used as case study. Fifty copies of
questionnaires were administered using convenience sampling techniques for the
purpose of data collection and interviews were conducted to authenticate the
information derived. The data obtained was analysed using frequency
distribution and chi-square. The findings revealed that Backward Integration
increases organization profitability. This is to say that Backward Integration
strategy streamline the organization to provide better cost control by
eliminating the middleman and lower cost of production for the firm to became
more competitive in the market place. It was recommend among others that to
justify the funds expended on this strategy, the strategy should be well
validated and evaluated. While it is proper that research and development
programme should be embanked upon.
TABLE OF
CONTENT
Pages
Title
page
i
Certification
ii
Dedication iii
Acknowledgement
iv
Abstract
vi
Table of
content vii
CHAPTER ONE
INTRODUCTION
1.1 Historical Background of Nestle Nigeira Plc
1
1.2 Statement of
research problems 4
1.3 Objectives of the study 5
1.4 Statement of Research questions 6
1.5 Statements of research hypotheses 6
1.6 Significance of the study 7
1.7 Scope and Limitations of the study 7
1.8 Operational
Definition of terms 8
CHAPTER TWO
LITERATURE
REVIEW
2.1 Introduction 9
2.2 Historical background of strategy 14
2.3 Theoretical frame work 15
2.3.1 The
classical theory of strategy
16
2.3.2 The
evolution theory of strategy 16
2.3.3 The
proccessual theory of strategy 17
2.3.4
Systemic theory of strategy 18
2.4 Backward integration strategy 19
2.5 Problems of benefits of backward integration
strategy23
CHAPTER
THREE
RESEARCH
METHODS
3.1 Introduction
48
3.2 Research design
48
3.3 Characteristics of population of the
study 49
3.4 Sample size and sampling design 49
3.5 Re statement of research questions 50
3.5 Re-statement of research hypotheses 50
3.6 Analytical tools
51
3.7 Test of validity and reliability of research instrument52
CHAPTER FOUR
DATA
ANALYSIS AND PRESENTATION
4.1 Introduction
53
4.2 Frequency table 53
4.3 Chi-square
67
CHAPTER FIVE
SUMMARY OF
FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of findings 74
5.2 Conclusion
75
5.3 Recommendations 75
5.4 Limitations 76
Bibliography
77
Appendix
81
CHAPTER ONE
1.1 HISTORICAL BACKGROUND OF NESTLE NIGERIA
PLC
Nestle
Nigeria plc is associated with the nestle group, the single largest food
company in the world and it is known worldwide for its top quality products.
Nestle
Nigeria plc began simple trading in 1961 and has today grown into a leading
manufacturing and marketing company. It is a public quoted company listed since
1978 on the Nigeria stock exchange with about 20,500 shareholders
participating.
Nestle
Nigeria Plc of Switzerland owns about 43% of the company’s equity. Nestle
Nigeria plc manufacturing complex is located at Agbara Industrial Estate in
Ogun State.
The main
products were designed in line with modern manufacturing methods which ensure
efficient production of the following:
v Infant
cereals – nestle golden morn.
v Instant
family cereals, nestle milo – beverage drink.
v Chocomilo
– chocolate sweets, maggi cubes, maggi chicken, maggi crayfish, maggi super
onion spices.
Nestle
Nigeria plc obtains most of its agricultural raw materials locally from
contract farmers and out growers in partnering agreement that enables the
benefits from the technical advice and assistance of the company’s agricultural
services department and at the same time, guarantee to the company continuous supply
of raw materials that meet their high quality standards.
The company
pursue the use of backward integration strategy by pursuing its sustainable
agricultural initiative(SAI) where she involve herself with collaborative
research with the university of agriculture, Abeokuta(UAAB) of popularisation
of soya beans which brought into being the a selection of soya beans varieties
with improved seed colour, seed size, and seed yield.
The
company’s objective is to satisfy the requirements of the consumers with high
quality food products with long shelf life adapted to the taste and food habits
of the consumers and as a result, she has continuously invested in Nigeria by
building and commissioning in 1991 at agbara, ogun state a fully integrated
plant producing concentrated sorghum malt extract from locally malted sorghum,
and in June 1995, Nestle Nigeria plc commissioned another plant at agbara which
produces enzymatic hydrolyzed plant protein mix.(EHPPM).
The
investments represent successful and significant effort at replacing imported
raw materials in the manufacture of milo food drink and the maggi range
seasonings.
The company
being conscious of her social responsibility is committed to environmental
policies, programmes, and practices into each business as an element of
management in all functions. She always thrives to minimize the impact of her
environment through the utilization of packaging and manufacturing process that
are internationally recognized to have a minimum impact on the environment.
With her
historical root in nutrition, wide product portfolio, strong brands, research
and development competence, skilled and motivated professionals, and efficient
management, the company is positioned to committed to the progress, prosperity,
economic development, and industrial growth of Nigeria.
Through the
use of vertical integration strategy, the company seeks to achieve a clear cut
competitive advantage over competitive products by ensuring that their products
are available wherever, whenever, and however the consumers want their
continuous attention is also given to developing the professional leadership
skills of staffs at all levels so that they can directly contribute to growth
and a higher level of performance.
To stimulate
industrial growth, the company has a policy of long term sustainability
business practice. Over 75% of their raw materials are sourced locally by their
selves through the use of employed farmers and suppliers and also support an
ever increasing standard of living through employment generation, increased
income, infrastructure improvements, and a growing concern for the interest of
the community here in Nigeria through the application of the nestle
environmental management (NEM) and complies with applicable environmental
legislation.
1.2 STATEMENT OF RESEARCH PROBLEMS
In this
twenty first century, the world is a global market (Diacon, 2003) characterized
by competitiveness where a firm has to compete against another firm all over
the world. Backward integration strategy has helped to identify the things that
need to be done, gives idea, redefined by experience, as to how they should be
done and achieve competitive advantage for the organization.
Backward
integration strategy is known and accepted as the process by which a firm takes
ownership or increased control of its supply system. It serves to streamline
the organization to provide better cost controls, and to eliminate the
middleman, because of efficiency and lowered cost of production as it is
possible for the firm to become more competitive in the market place.
Although
backward integration strategy improves organizations performance, but there are
still doubts on the assertions that backward integration strategy is more
applicable to manufacturing firms as compare to service companies. Therefore,
the assertions can be made to the followings:
v Managing
employees’ performance as an integral part of the work.
v Quality
metrics that were not focused on customers.
v The effect
of contraction in output that slackening global demand is generating.
v Lack of
availability of skilled workforce.
1.3 OBJECTIVE OF THE STUDY
The
objective of this research study includes the following:
v To compose
manufacturing industry to the usefulness of Backward integration strategy as
designing a management policy that documents the expectations of individual and
organizational which provides a meaningful process by which employees can be
rewarded for noteworthy contributions to the organization and also provide a
mechanism to improve individual/organizational performance as necessary.
v To ensure
that industries, especially the manufacturing ones sees the usefulness of
Backward integration strategy and how it can help in maximizing the net profit
of the organization which is achievable by strategizing very simple strategies
for both product lines and production processes as per making difficult
decisions to cutting costs quickly and cheaply to avoid repeated morale sapping
cuts.
v To make
sure that manufacturers are alerts to opportunities for expansions as valuation
drops when owners look for quick exits. Research and marketing may also be the
key, enabling strong positioning to take advantage of the future upturn.
v To provide
suggestions and recommendations on the effect of backward integration strategy
on organizational performance and also make appropriate recommendations for
future researches on the area of its specialization.
1.4 STATEMENT OF RESEACH QUESTIONS
v What
effect does backward integration has on organizational performance in
manufacturing industries?
v How do
manufacturers key into the need of the growing market through integration
strategy?
v Is
backward integration strategy and organizational performance related to growth
and profitability?
v Does
backward integration strategy focuses on customers’ satisfaction?
1.5 STATEMENT OF RESEARCH HYPOTHESES
H0 :
Backward integration strategy does
not have
significant effect on organization’s performance.
H1 :
Backward integration strategy have significant
effect
organization’s performance.
H0 :
Backward integration strategy is the same as organization’s
growth and expansion.
H1 :
Backward integration strategy is not the same as organization’s growth and expansion.
H0 :
Backward integration strategy increases an
Organization’s profitability.
H1 :
Backward integration strategy does not increases
an
organization’s profitability.
1.6 SIGNIFICANCE OF STUDY
A study of
this kind is expected to make theoretical and practical contributions to the
manufacturing industries. This study provides a basis for closer scrutinizing
of the formulations and application of backward integration strategy in use.
The study is
likely useful for department of interior rating officials to assist with the
management performance that is aligned with and in support of the
organizational goals.
Manufacturing
industries, services and professional industries that are constantly looking
for competitive strategies and individuals can benefit from the study as it
enhances organizational performance.
1.7 SCOPE AND LIMITATION OF STUDY
This study wants
to look at the effect of backward integration strategy and organizational
performance.
However, it
shall be limited to manufacturing firms in ogun state alone (nestle Nigeria
plc). The reason for the limiting this study to manufacturing firms is because
their actions have tremendous effect on the national economy.
The study
will therefore be restricted to manufacturing sector and whose ownership
structure is strictly Nigerian.
1.8 OPERATIONAL DEFINITION OF TERMS
Various
terms are expected to be constantly used in this study. Some of them are
briefly defined below:
v
INTEGRATION STRATEGY: This is the acceptance of a plan or a course of action
which is of vital pervasive or continuing importance to the organization as a
whole.
v
COMPETITIVE ADVANTAGE: This is the getting ahead of others by outsmarting them
in the course of rivalry.
v GROWTH:
This is an expansion of the organization in one or more dimensions without
changes in its structures and development as an innovative process leading to the
structural transformation of the social system.
v
ORGANIZATION: This is a group of people working together to achieve a special
purpose which cannot be achieved by an individual working alone.
v
PERFORMANCE: The action of carrying out or complete an action or function.
v
DEVELOPMENT: The quantity of changes in the process of production which shall
be slow at the initial, but will later increased over a long period of time.
v
IMPLEMENTATION: The process of putting a plan into action.
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