WAC report

WAC report on Larson in Nigeria

WAC REPORT

LARSEN IN NIGERIA

Submitted to: SANJAY GUPTA Submitted by: DARSHAN SOLANKI

CONTENTS

LETTER OF TRANSMITTAL.........................................................................................................3

EXECUTIVE SUMMARY............................................................................................................. 4

SITUATIONAL ANALYSIS............................................................................................................5

PROBLEM STATEMENT.............................................................................................................7

STATEMENT OF OPTIONS.........................................................................................................7

CRITERIA FOR EVALUATION......................................................................................................7

EVALUATION OF OPTIONS........................................................................................................7

RECOMMENDATION...............................................................................................................10

PLAN OF ACTION....................................................................................................................10


To,Mr. David LarsonVice President (Larson Inc.)

From,Darshan Solanki Executive Assistant (Larson Inc.)

Date: 23 March, 2004

Subject: Analysis report on whether to continue to operate or abandon the company's Nigerian joint venture.

Sir,In term with your request to analyze your business in Nigeria keeping in mind report submitted by Ridley, I submitted report on various options of divestment, employee welfare and manpower management are evaluated and an optimal solution is chosen to tackle the issues.Thank you.

Regards,Darshan Solanki


Executive summary:

Mr. David Larson of Larson Inc. is in uncertainties regarding the operation of his company’s joint-venture in Nigeria,

post a report from that branch’s CEO Mr. George Ridley who highlights the serious problems in that country and is

doubt on continuing operations there. The rigorous government rules that are not very beneficial to business

operation, the joint-venture also faces issues of manpower management with the workers not being skillful and the

CEO who spreads negativity. While analyzing the scenarios of divesting equity stake, inspiration programs, training

facility and exit paths of the CEO, the best result is selected which takes care of the indigenization issue by divesting

26% stake to government, setting up training facility for creating quality manpower and placing Ridley in a supervisory

role to create a positive work environment.

NO. OF WORDS=132


Situation analysis:

The US based company Larson Inc.’s operations in Nigeria and the problems of doing business in a developing country. The VP for international operations David Larson had a tough decision to make if the company is to remain in Nigeria or not.

Larson, Inc has been the flourishing with its worldwide revenue of $936million in 2003.Company mainly focused on diversified market segments like Power, communication, construction and control cables. In 1994, joint venture with local government in Nigeria presented key opportunities in Nigerian Market.

In Nigeria a country with almost 134 million people, and a per capita GDP of $433 the company had a strong foothold. The country has been developing at 2%-3% per year in the last 5 years but also had an inflation of about 10%-15% because of rise of the price of the dollar.

Sales revenue and profit in 2003.

Sales Revenue $ 45 million ($ 39.4 million Nigeria sales (including revenue generated from enterprises and department of government of Nigeria.)

And $ 5.6 million from export )Profit $ 4.5 million

36%

12%

52%

In billion $

Revenue from enterprises and department of nigerian gov.

Export from nigeria

Other sales revenue


The company has expected to profit of 20% in 2004 due to GDP is increase 2%-3% annually.

The operation in Nigeria has become less attractive in 2003. The potential of Nigeria was there and there was a great demand for Larson’s products, the cost of doing business has increased lately. And the headquarters was unhappy with the local partner. They wanted a more pro-active partner not just a business man looking to invest. They did recognize that the local partner should have a crucial role.

Furthermore the CEO George Ridley, head of the Nigerian’s operations, coming from a military background in the UK was very frustrated by the lack of order and control in Nigeria. The chaotic situation for him was a great challenge.

SWOT ANALYSIS

Strengths WeaknessFinancial position Less skillful workersBrilliant expatriate technical service Inefficient local partnerRevenue generation and profitability Nigerian government policy

Opportunities ThreatsInvestment in new developing country Tribal balance in work force limit the

recruiting the best workersInvestment with local partner Pervasive practice of briberyDevelopment of employees Pilferage


Problem Statement: To plan an outline for managing the Nigerian business operation by factoring in the considerations of legislations and the regulations, holding stake, human resource constraint and operational inefficiencies.

Statement of option:

1. Implement the joint venture structure to reduce the equity stake from 75% to 49% by roping in Government as an active partner, using the cash earnings from sale for establishment of training infrastructure and motivation building through enticements. Revamp authority control position of the Nigerian plant by promoting an existing, capable person to the position of CEO and shift the job role of Ridley by placing him in Supervisory and Advisory body.

2. Transfer of employees to other branch of the company.

3. Liquefy all assets and start business in Ethiopia.

Criteria for evaluation:1. Nigerian and Ethiopian government policies and regulations.2. Profitability of company3. GDP rate and exchange rate (vs. USD)4. Effect on Human Resource


Evaluation of option:

1. Implement the joint venture structure to reduce the equity stake from 75% to 49% by roping in Government as an active partner, using the cash earnings from sale for establishment of training infrastructure and motivation building through enticements. Revamp authority control position of the Nigerian plant by promoting an existing, capable person to the position of CEO and shift the job role of Ridley by placing him in Supervisory and Advisory body.

Selling the 26% stack to other partner. From this company gets liquidity and sales on market price, it reaps profit on sale. By diluting Larson’s stake to 49% and participation by ruling Government, in role of an active player, so he can decision by himself. A training program for local players will solve manpower constraint and expatriate issue. All the investment will be given by all three parties that way it will not strain on Larson Inc. To improve employee morale entice them with incentives and perks. By changing the post of Ridley from CEO to supervisory or advisory officers and appoint a new local person who capable of run the business. As Ridley is negative thinker, absence of him will improve the company environment and this will tend to increase profit from 10 % to 20%.

2. Transfer of employees to other branch of the company.

This will help to develop their technical skill and Local Employees will also get chance to visit other subsidiaries of Parent company and may learn new practices and skills to hence enhance their productivity. From this way the company also reduces the recruitment of the skilful person. We can also outsource the skilful employees. Hence we reduce the cost and expatriate employee will help in increase the profit.

3. Liquefy all assets and start business in Ethiopia.

Ethiopia is one the largest market in South Africa its population is around 72.5266 billion. Its geographical position is also good. Hence we can also export in Asia market. The tax on the export in Ethiopia is very low compare to Nigeria. Here we can see the GDP rate is increase year by year.


GDP rate of Ethiopia

1999 2000 2001 2002 2003 2004

-4

-2

0

2

4

6

8

10

12

GDP RATE

USD vs. Ethiopian Birr

1998 1999 2000 2001 2002 2003 20040

1

2

3

4

5

6

7

8

9

10

Series 1

We can also see here the currency of the Ethiopian birr is continuously going down respect to USD (US Dollar).In Ethiopia the inflation rate is too high. In 1996 the Ethiopia government decrease the rate of income tax on foreign investor from 40% to 10%. And the government takes only 5%royalty on foreign companies.Moreover the country is majority generated revenue is from agriculture and oil sector.


Recommendation: Option 1 is recommended as company would want to maintain its majority stake and this will help them not to ruin by Nigerian government. This will help all partners. Moreover the training program will help in increase the productivity. This option is more suitable because it also deals with the Ridley issue more subtly, without creating evident displacement of Ridley.

Plan of Action:1. Organize training and developing programs for employees.2. Provide Ridley with the new job role, with colouring him his ability to sustain business and the company need

his advice for all companies.3. Approach Government or concerned public party for stake sell along with detailed action plan for the future

NO. OF WORDS=1070


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