Naboni Enterprises was established in 1991 by Mr. Nicholas Menyani following the liberalization of the Zambian economy by the government. Prior to 1991, there was little or no scope for the private sector to own and run business in the mining, agricultural and commercial sectors of the economy. All this changed in 1991 when the government decided to liberalize the economy. State owned companies were privatized and the window was opened for the private sector to invest in major sectors of the economy. In the case of the mining sector, the government further offered tax incentives to attract investment. Nicholas Menyani had worked as a technician for a mining company in Kitwe for twenty-five years before his retirement in 1985. When he retired, he did odd jobs in and around Kitwe. However, the income from doing the odd jobs was typically insufficient for him to meet his daily needs and Menyani longed for an opening that would bring him a steady income. The opportunity came when, following the decision to liberalize the economy, the mining companies started procuring supplies from local sources. Menyani seized this opportunity and established Naboni Enterprises as a supplier to the mines. Copper mining in Zambia is a bust-and-boom business. Although the extraction of raw copper takes place in Zambia, copper is bought by overseas buyers and processed outside Zambia. This has two implications; the first is that mining companies in Zambia have little control over the price at which copper is bought by overseas buyers; the second is that there are many factors, many of them external, which bear on the price of copper. All this makes the price of copper volatile. The upshot is that the fortunes of suppliers to the mining companies very much depend on the price volatility copper as determined by forces beyond the control of the mining companies. During the early nineties, there was a boom in the copper industry because copper fetched high prices on the international market. Naboni, like other suppliers, benefited from the high profits mining companies were making and the extensive growth programmes the mining companies had embarked on. Supplying to the mines was a lucrative business and Naboni Enterprises prospered. Additionally, local suppliers like Naboni benefited from the indigenization policy which required mining companies to give preference to companies owned by indigenous people in the award of contracts. Because of the seeming ease of entry into the business of supplying to the mines coupled with the lucrative nature of doing business with the mines, there was a flurry of local suppliers. This created intense rivalry among local suppliers and additionally gave bargaining power to the mines over the local suppliers. Mining companies set the price at which they bought supplies and dictated the quality of supplies. So powerful were mining companies that suppliers feared taking action against an erring mining company for fear of loss of contract. In late 2000, the appearance of substitutes to copper and the emergence of new technologies in the processing of copper led to a glut of copper on the international market. These developments resulted in a slump of copper prices. Mining companies were compelled to scale down copper production and to reduce their requirements of supplies. Required: Ansoff has defined strategy as “…the positioning and relating of the firm to its environment in a way which will assure its continued success and make it secure from surprises.” What is the significance of a company’s external environment to its strategy? Describe the strategies Naboni deployed, or should have deployed, in response to the developments that transpired in its external environment.
Naboni Enterprises was established in 1991 by Mr. Nicholas Menyani following the liberalization of the Zambian economy by the government. Prior to 1991, there was little or no scope for the private sector to own and run business in the mining, agricultural and commercial sectors of the economy. All this changed in 1991 when the government decided to liberalize the economy. State owned companies were privatized and the window was opened for the private sector to invest in major sectors of the economy. In the case of the mining sector, the government further offered tax incentives to attract investment.
Nicholas Menyani had worked as a technician for a mining company in Kitwe for twenty-five years before his retirement in 1985. When he retired, he did odd jobs in and around Kitwe. However, the income from doing the odd jobs was typically insufficient for him to meet his daily needs and Menyani longed for an opening that would bring him a steady income. The opportunity came when, following the decision to liberalize the economy, the mining companies started procuring supplies from local sources. Menyani seized this opportunity and established Naboni Enterprises as a supplier to the mines.
Copper mining in Zambia is a bust-and-boom business. Although the extraction of raw copper takes place in Zambia, copper is bought by overseas buyers and processed outside Zambia. This has two implications; the first is that mining companies in Zambia have little control over the price at which copper is bought by overseas buyers; the second is that there are many factors, many of them external, which bear on the price of copper. All this makes the price of copper volatile. The upshot is that the fortunes of suppliers to the mining companies very much depend on the price volatility copper as determined by forces beyond the control of the mining companies.
During the early nineties, there was a boom in the copper industry because copper fetched high prices on the international market. Naboni, like other suppliers, benefited from the high profits mining companies were making and the extensive growth programmes the mining companies had embarked on. Supplying to the mines was a lucrative business and Naboni Enterprises prospered. Additionally, local suppliers like Naboni benefited from the indigenization policy which required mining companies to give preference to companies owned by indigenous people in the award of contracts. Because of the seeming ease of entry into the business of supplying to the mines coupled with the lucrative nature of doing business with the mines, there was a flurry of local suppliers. This created intense rivalry among local suppliers and additionally gave bargaining power to the mines over the local suppliers. Mining companies set the price at which they bought supplies and dictated the quality of supplies. So powerful were mining companies that suppliers feared taking action against an erring mining company for fear of loss of contract.
In late 2000, the appearance of substitutes to copper and the emergence of new technologies in the processing of copper led to a glut of copper on the international market. These developments resulted in a slump of copper prices. Mining companies were compelled to scale down copper production and to reduce their requirements of supplies.
Required:
Ansoff has defined strategy as “…the positioning and relating of the firm to its environment in a way which will assure its continued success and make it secure from surprises.”
- What is the significance of a company’s external environment to its strategy?
- Describe the strategies Naboni deployed, or should have deployed, in response to the developments that transpired in its external environment.
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