Transcript Biz_N_Economic_Imper..

Business and Economic Imperatives
in 2008 and Beyond: Perspectives of
a Consumer Business Operator
Larry E. Ettah, Group MD/CEO
October 14, 2008
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Outline
Introduction
Broad Environmental Challenges
The Changing Market Context
Internal Organizational Dynamics
Implications for Consumer Market
Businesses
 The Management Imperatives
 Conclusion
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Introduction
 It is trite to say that the business environment is
becoming more complex and fast-changing (A
week is now a decade in Global Economy).
 Globalisation is creating global rather than local
markets, with suppliers and competitors liable to be
at the other end of the world. Business these days is
all about “competing with everyone from
everywhere for everything”. (Globality; BCG)
 Increasingly, no longer is competition company vs.
company, product or service vs. product or service,
but supply-chain vs. supply-chain.
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Introduction
 The local market is itself characterised by rapid
change-intensifying
competition,
more
sophisticated
consumers,
a
dynamic
communication industry with a deluge of
advertising offering buyers greater choice.
 Meanwhile businesses in Nigeria must compete in
this dynamic and evolving market with our hands
tied behind our backs, almost literally 
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A power crisis that increases production costs, by
some estimates, by more than 30%
Decrepit
and
lamentable
transportation
infrastructure, freight services that are constrained by
frequent stops at police checkpoints and illegal toll
gates.
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Introduction (contd.)
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Capricious, prickly & predatory government agencies
which impose unfair regulations and costs on
businesses often without statutory backing.
a multiplicity of taxes, rates and charges all of which
combine to raise the bar of corporate success so high
that only the very agile can survive (not thrive). While
growth is possible, it is lower than the potential of our
peers in more clement climes.
 In this presentation, I review some of these
environmental,
market
and
management
challenges we all face, and offer my views and
perspectives on them and suggest some broad
imperatives for managerial action
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Environmental Challenges: Global
 The global energy crisis caused by rising oil prices has
raised the cost of doing business for producers and
suppliers, and raised the cost of living (particularly
transportation) for households and consumers all over
the world.
 For retail industry and producers, this has meant
declining sales as buyers re-allocate their spending
and re-evaluate purchase decisions.
 This has been reinforced by the global food crisis
resulting in the virtual doubling of food prices in the
last two years, and a global credit crunch caused by
the still-unfolding sub-prime mortgage crisis which is
now developing into a full-blown financial crisis in the
US and other markets.
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Global Challenges (contd.)
 In this increasingly interconnected world of ours, it
would be naïve to think we are immune from these
global pressures. The Theory of decoupled market
has been decoupled.
 Already the looming threat of US recession (which
some say is already here) threatens to drive the
world economy into a slowdown
 One side-effect for instance has been the decline in
oil prices over the last two months to around $77 per
barrel as global demand falls
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Global Challenges (contd.)
 Another is the rise in domestic food prices, driven by
partly by higher transportation costs, and by global
food scarcity as the search for alternative energy
sources means that increasing amounts of food
production and resources are diverted to bio-fuel
production
 And as managers who also have to manage
investor returns, we all have seen share values
decline (in some cases, such as I would argue UAC
Plc) below their intrinsic value, partly at least due to
the activities of offshore portfolio investors reallocating their portfolios away from the Nigerian
market in the wake of turmoil in their home markets
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Environmental Challenges:
Economic
 I have already alluded to the critical
infrastructural
challenges
that
Nigerian
businesses must contend with-power and
transportation, as well as governance issues
such as multiplicity of taxes and capricious
municipal governance
 Nigeria must also deal with the risk of contagion
from the adverse global financial and
economic crisis and looming US and European
recession.
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Environmental Challenges:
Economic (contd.)
 Fortunately Nigerian Macro-economic conditions
provide some relative insulation due to
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Large FX Reserves
Low Foreign Debt
Much as we “vilify and malign” OBJ we
have him to thank for this.
 Nevertheless negatives remain such as
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Declining Oil Price and Higher Spending
Declining Capital Market
Financial Sector exposure to margin lending
Slowed Economic Reforms/Weak Policy Posture
Weak Infrastructure
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Economic Challenges (contd.)
 But there are other economic challenges as well
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Our middle class, even though has grown in the last few
years is still not large enough to sustain the growth
aspirations of a growing consumer sector in Nigeria.
(Goldman Sachs middle class $6,000 - $30,000 annual
income. Beyond $6,000 consumption of energy starts to
rise; at $8,000 - $9,000 higher value durable takes off.
Nigerian middle class starts more at approx. $10, 000 ??)
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Interest rates in Nigeria remain high, in spite of banking
consolidation and economic reform
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Businesses still contend with severe logistic challenges,
especially in relation to import and export of inputs and
output through our ports and borders; and local products
distribution within Nigeria (Entry and exit taxes? Lagos new
container tariff)
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Economic Challenges (contd.)

Domestic service providers continue to labour under
serious skill and capacity constraints which affect ultimate
service delivery standards and product quality (Internal
Brain Drain?)
 Related to the point about the size of our middle
class, purchasing power is still limited, with the result
that businesses in unrelated businesses are all
competing for scarce “share of wallet”-especially
with the consumer market.
 Food,
Beverage,
Entertainment,
Household
Electronics,
Telecommunications,
Cable
etc
expenditure are competing with education,
transportation and other critical household needs in
an inflationary environment in which unemployment
is high and new jobs are not being created rapidly.
(More workless class than working class.)
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Environmental Challenges: Social
 In this challenging global and domestic economic
environment, our businesses must still:
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Find the right employees, in terms of both aptitudes and
attitudes
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Increase productivity in a workforce labouring in traffic for
approximately 3-4 hours a day, and lacking electricity and
other basic amenities at home
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Cope with labour and employee agitation for increased
wages and benefits, (Sometimes what we gain as
employees, we lose as consumers) as well as regulatory
requirements such as pensions, group life assurance, health
insurance etc
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Social Challenges (contd.)
 We must still deal with the challenge of creating a
professional and ethical culture in our firms, in an
environment where people are accustomed to
corruption (of greed & need) and nepotism.
Climate of cynicism about Institutions. Erosion of
trust, failure of the gatekeeper system. Business
scandals and overall decline in social morality.
 We must deal with the challenges of insecurity and
crime which increase our cost of doing business,
and endanger the lives of our work force. (Ask
Banks, Restaurants and Hotels; Protection Tax?)
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Social Challenges (contd.)
 It is clear from all the above that business leaders
and CEOs in this environment have our work cut out
for us. Can’t help but wonder whether I am not
underpaid when one looks at what some of our US
counterparts are paid for running down their firms.
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The Changing Market Context
 Industry and Market Convergence
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Telecommunications/Broadcasting/Photography/Music &
Entertainment/Computing
Retailing/Entertainment/Food
&
Beverage/Consumer
Goods/ Electronics
Financial Services/Payment Systems/Telecommunications
 Global Lifestyles
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Facebook; Google; MTV; Channel O; CNN; TBN
 Information Revolution
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Internet; CNN; BBC; Al-Jazeera; Harvard Business Review
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Changing Context (contd.)
 Changing Demographics
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Youthful Population
Female Power (Evelution)
Educated Consumers
Urban Concentration
Health Consciousness
 The rise of China, India and other new economies
 Zone of legal risk; product liability, employment
laws, SHE etc
 Outsourcing and Global Logistics
 Global Advertising
 Quick Service Delivery-Restaurants etc
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Changing Context (contd.)
 Sports and Entertainment
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English Premier League
Global Sports Brands-Arsenal/Chelsea/Man U etc
Nollywood and Naija Music
 Alternative Channels
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Internet and E-Commerce
ATMs and POS
Credit and Debit Cards
Loyalty Schemes
 Overall- Significant Constraints! Incredible
Potential!!! Challenges; Opportunities; Challenging
opportunities!
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Internal Organisational Dynamics
 Younger Management Teams
 Greater female ratio in workforce (Retention,
Recruitment)
 Greater Governance Requirements (Leading lights
of Corporate Nigeria not practising what they
preach)
 Greater Job Mobility
 Declining Workforce Commitment (Low career
premium)
 Global Competition for Labour (Refugee/Diaspora
talent)
 Management / Talent deficit.
 Upward pressure on Compensation
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Implications for Consumer Market
Businesses
 Stronger Competition (Barbarians at the Gate:
Chinese?)
 Rising Costs; Narrowing Margins
 More diverse, younger and more demanding
customer base
 Heavy Brand Investment (Media clutter, alternative
channels)
 Threats of faster product obsolescence
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Implications for Consumer Market
Businesses
 Multiple
models)
Distribution
Channels
(new
business
 Trade concentration (Increased power of Buyer)
 Overall More Complex Market: Consumers demand
products at far lower prices and more basic forms
or smaller sizes (single serve) than currently do.
Business models that allow goods and services to be
delivered in fundamentally new ways to consumers.
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Managerial
Imperatives:
Anticipate
a
demanding and tough market in the near term
 Need to re-examine business models and assumptions
 Need to re-think distribution channels and strategies (Key
Accounts Management)
uac Restaurants Food Triangle/pyramid
Customer Spend
Aspirational
Value
Mass Market
Customer Count
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Managerial Imperatives (contd.)
 Need to constantly re-design product configuration
and offering
 Restructuring human capital strategies to create
organisational flexibility (Work-life balance, flexible
work hours).
 Strong cost management focus to minimise
downsides. (Outsourcing and risk sharing partnership.
Move from labour productivity to resource
productivity given high cost of fuel, raw material etc
(using such more efficiently)). Asset lite Strategy / Off
Balance Sheet financing
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Managerial Imperatives (contd.)
 Need for constant innovation and creativity to
match demands of changing market. Is Health a
threat or opportunity? Calorie Counters and Menu
labelling
 Alternative solutions for power and logistics
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Managerial Imperatives (contd.)
 Need to engage with policy makers to improve
business environment. How to seek and encourage
social change in an age where public faith in
politics is low. Despite best efforts, politicians are not
making much progress as we will like in tackling
problems. Business should be a powerful force for
good. Play a role of leadership in shaping debate
on socio-political issues. Business leaders need
comprehensive understanding of public issues and
a network of peers of similar interest that makes it
possible to exercise such leadership role. More so
we need companies that have supportive values
and culture to enable exercise of such leadership.
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Conclusion
 Forget double-digit GDP Growth. The economy will
still grow but certainly the 13% target will not be
attained. This may reflect in restrained industrial
output and consumption (Don’t worship False gods)
 Evaluate your credit risk, suppliers & distributors etc
 Economy may tighten in 2009, cost curtailment, and
containment, product innovation and redesign
must intensify.
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Conclusion
 As money supply and fiscal expansion contracts in
2009, expect inflationary pressures to reduce
headroom for price review; but positive implication
may be lower cost pressures but watch for possible
softening of consumer demands.
 Competitive offshore input sourcing possibilities as
falling Global economic demand could lower cost.
 Diaspora talent pool may become more available
as the wounded head home.
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Conclusion
 The market is undoubtedly more complex and the
pace of change faster. If you are not facing global
competitors, you will be facing global standards.
 The constraints, locally and globally are significant
and rising, but the upside potential is also huge.
 The imperative is for greater managerial flexibility
and strategic action to ensure that our businesses
keep up with the demands of the business
environment and a more complex market
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愿你生活在有趣的时期中
- ancient Chinese proverb
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