Sourcing And Financing Local Raw Materials In The Nigerian Beverage Industry

Project and Seminar Material for Business Administration and Management BAM

Sourcing And Financing Local Raw Materials In The Nigerian Beverage Industry


This study major task was to examine the impact of sourcing and financing of local raw materials on two growth variables capacity utilization rate and annual profit/turnover of the small-scale manufacturing enterprises. The study determined the various stages of development cycle of the enterprises sampled and the important parameters for measuring the growth of an enterprise. It further determined the relative impact of backward integration in sourcing of raw materials on these growth parameters. The study investigated if any relationship existed between the level of growth variables and the stages of growth on the one hand and the backward integration/local content of the raw material input on the other.

Chapter One


1.1 Historical Background of the Study

The history of raw materials can be traced back to the rise of industrialization from the Middle Ages to the eighteenth century when the feudal system was still in existence in England.

Farming was the principal occupation of the thirteenth century in England and was destined to remain so for another 500 years. Baronial power was strong and increased with the enclosure movements for sheep rearing in the late middle age, especially after the Black Death of 1348-49 had killed at least one third of the laboring population. This gave a fillip to the principal manufacturing industry of the age the cottage wearing of wool especially in eastern England. At first the raw product only was exported, mainly to the wearing centers in flankers. By the mid thirteenth century the domestic course weaving industry had become sufficiently established in rural areas to facilitate an important cloth exporting trade as well. Near the end of the century Edward III induced the skilled Flemish weavers to settle in England, safe from religious persecution and fine quality cloth manufacture arose.

Metal working was perhaps the only other not worthy industry of these times, primarily for weapons of war rather than implements of peace reflecting the unsettled nature of the times. Iron smelting using wood as fuel was located mainly in forested areas such as the weald and Gloucester shire. Other industries, of less importance included the product ion of glass and salt, ship building and the mining of lead and coal.

In late mediaeval England, the location of wool manufactured moved from the plains of the east to the higher lands in the rural west and north, with its domestic and part time nature emphasized. In home industry the women and children carded and spun, and the men wove the yarn. Merchant capitalists, using pack horse transport delivered the raw materials and collected the finished product. Production was cheaper and less restricted than in the old gild dominated towns and facilitate the use of local water supplies for power and for filling, but by the nature of production the work could not be closely supervised and losses of cloth and time had to be tolerated by travelling merchants.

At this, time, export of raw wool hides, leather and tin from England were controlled by the merchant staplers and woolen cloth primarily by the merchant adventures. The country had been a late starter in international trading owing to her position on the fringe of the old world. The Mediterranean has maintained its Northern Europe involved continental merchants such as the handcars of German and Scandinavian, who largely provided the initial impetus and enterprise which brought English traders wide markets.

The tempo of economic change accelerated in the mid eighteenth century and was associated with the beginning of modern industrialization. Only since that time has a general expansion of goods and service been a regular occurrence. In the last two centuries the population has become seven times dense and the average real income has become unrecognizably greater and more valid. In that time unit of economic activity has become the company in an urbanized society, involving complex and impersonal relationships.

Personal freedom permitted mobility from the land to the industrializing coal field based towns and led to the national spirit of laissez-fire, later succeeded by the safe guarding of markets and raw materials by colonial expansion. The application of steam to land and sea transport further increased the mobility of labour, bulky and perishable materials and industrial location. It vitalized the developments in the iron founding engineering, coal, textiles and chemicals industries.

Though the start of the industrial revolution was probably in the middle late eighteenth century and economic change was accelerated by the pressure of the Napoleonic wars, the most marked period of industrialization was between 1815 and 1875. The rate of expansion was 3- 4% per year, or twice the average of the previous century and by 1860 Britain supplied half of the world’s coal and manufactured goods.

Up to 1850, industrial growth was mainly associated with cottons in Lancashire, a prolonged depressing in farming and harsh conditions in the newer factory towns. During the third quarter of the century the relative importance of the still expanding textile industries declined owing to the rapid of the metallurgical trades, associated with the development of railways steamships, free trade and the limited liability Acts of 1855 and 1862. 4

The general importance of the railway can hardly be over emphasized. The new form of cheap, rapid, bulk transport rapidly supersede the much slower canals and meant that industrials location was no longer dominated by the need for immediate proximity to producing or importing areas of raw materials. Perishable foods could be transported further and more quickly rapidly expanding town populations. Socially, the railways enabled associations of employees to be formed more easily and workers to spend weekends and holidays away from the industrial towns. In association with the steamship, the new world now was opened up both as a market and as a source of food and raw materials for Britain and later Europe. Business concerns with worldwide interest arose and the concept of world economic and commercial interdependence became a reality.

1.2 Statement of the Problem

The social and economic justification of the existence of any company ability to satisfy its ultimate consumers. It is necessary therefore, for a company to establish a standard way of making the raw materials necessary for production of the products available in the right quantity and quality at the lowest possible cost.

However, lack of proper research for the optimal sources of raw materials and also the lack of proper selection of the method of financing the materials sometimes makes production fail to meet the specification and satisfaction needed. This is due to the in ability of the purchasing department to source and finance local raw materials thereby making the organization to rely solely on imported raw materials. The purpose of this project therefore is to investigate how local raw materials can be sourced easily and financed effectively.

International beer and beverage industry plc has been chosen by the researchers for a case study as it is one of the largest industries in Nigeria.

Thus, it is well known for proper sourcing and financing of local raw materials. It has also attained a point of high recognition for its proper sourcing and financing of raw materials as well as its utilization for the maximization of profit at the lowest possible cost.

I.B.B.I is also known to be producing of high quality which is as a result of the industry’s ability to source for quality local raw materials at a cheaper rate and finance such raw materials. This has definitely helped us in writing this project.

1.3 Aims and Objectives of the Study

The aims and objectives of this project is to examine how sourcing and financing of local raw materials in the beverage industry is more convenient for the production of quality products and, if well carried out, will lend to the successful operation of the industry.

Many writers and authors have conducted research to discover how local raw materials can be sourced and financed and they have also tried to evaluate the problems that may be encountered when sourcing and financing local raw materials in terms of effective operation of the beverage industry. We also tried to analyze how sourcing and financing of local raw materials can be done effectively in order to minimize the cost of procurement and the time of production, less fatigue on the sourcing process and production activities, and reduce dependence on foreign raw materials. This research will suggest the moves that can be made towards effective sourcing of local raw materials and its finance of which if properly handled will lead to the achievements of the industry’s overall goals.

Summarily, the objectives of this project are:

  1. To see how local raw materials are sourced and financed in the Nigerian Beverage industries
  2. To see how the Beverage industries embark on generating their raw materials locally.
  3. To see how government programme influence the sourcing and financing of local raw materials to the beverage industries.
  4. To find out how beverage producers association encourage the farmers to produce their raw materials.
  5. To provide effective background for the executives who are concerned with financing and sourcing local raw materials in the beverage industries.
  • What can raw materials be taken to mean?
  • What are the various ways through which these raw materials are sourced? What are the types of raw materials and their needs?
  • What is the implication of these raw materials in the production system and the company?
  • What is the prospect of raw materials in the future beverage industry?

The answers to all these questions shall be revealed in subsequent chapters.

1.4 Significance of the Study

It will be of immense guide to future researchers who intends to exploit and understand the sourcing and financing of local raw materials in the Nigerian Beverage industry and will also be a guide to determining how these sources and finances can be reached.

1.5 Scope and Limitation

The topic of this project looks very broad in no doubt. This study however, intends to concentrate on the sourcing and financing of local raw materials from the inception of the structural programme up to date. The study intends to further look at the sourcing and financing implication of the new orientation on the operational effectiveness of indigenous industries taking the international Beer and Beverage industry Kaduna (I.B.B.I) for a case study.

In order to put the main subject of this project into concept into context. The study will at first try to identify the programmes that were set by the company to generate internal source of raw materials.

The area of coverage of this project shall be limited to I.B.B.I plc due to the problems that are encountered by the researchers during the course of writing the project.

Among the problems are: Uneasy access to information coupled with inadequate finance as the authors are mostly unemployed. Inadequate time and attitude of respondents towards the questionnaire also acts as a constraint on the project work.

However, in spite of all these hindrances, we tried our best possible to see that this project work becomes a reality. This was possible because of the hard work and dedication of the researchers and our supervisor.

Notwithstanding, references will be made to other organizations when and where necessary.

1.6 Research Hypothesis

The hypothetical statements to be used in this study are:

  • Ho obtaining raw materials locally does not necessarily ensure significantly, a steady production of goods and services as compared to total dependence of foreign raw materials.
  • H1 obtaining raw materials locally ensure significantly a steady production of goods and services as compared to total dependence of foreign raw materials.

1.7 Historical Background of I.B.B.I

The international Beer and Beverage Industries (Nig.) Ltd was established in 1978 with the sole aim of setting a brewer and soft drink plant in Kaduna. However, the factory was formerly inaugurated on 27th March, 1982 by the then Civilian Governor of Kaduna State Alhaji Abba Musa Rimi. 5

I.B.B.I begin a limited liability has its initial paid up capital of seven million Naira (N7m). Sixty percent (60%) of the shares are owned by Nigerians while the remaining forty percent (40%) are led by their French partners.

The company employs over three hundred and fifty (350) staff of whom ten (10) is expatriates provided by their French partners. The number of expatriates reduces training programme of both Nigerians and French to gather momentum.

Historical Background Of Nigeria Bottling Company

The aim and objective of every organization is geared toward survival and growth. For any organization to remain relevant or in existence it must always do what it competitor cannot do, that is in the area of: quality of product, affordability of the product, and distribution of the product. Therefore, organization will want to make sure that anything that has to do with the organization progress is well taking care off.

Organization that are large and strong today have a strong and effective management who strive and work hard to ensure that the custom, regularities and the standard of the organization are maintain. For a company like the Nigerian Bottling Company (NBC) Plc. to be where it is now is the major concern of this study. The NBC Plc. has taken three types of the strategies suggested by Fred R. David (2010), which are; Diversification, Product Development and Market Penetration. These strategies chosen by the company have actually helped them a lot and turn their fortunes for good. This is the reason why the company remain strong and vibrant despise the economic challenges.

Historical Background Of Dangote Plc.

Dangote Plc was established in May 1981 as a trading business with an initial focus on cement, the Group diversified over time into a conglomerate trading cement, sugar, flour, salt and fish. By the early 1990s the Group had grown into one of the largest trading conglomerates operating in the country.

In 1999, following the transition to civilian rule and after an inspirational visit to Brazil to study the emerging manufacturing sector, the Group made a strategic decision to transit from a trading based business into a fully fledged manufacturing operation. In a country where imports constitute the vast majority of consumer goods, a clear gap existed for a manufacturing operation that could meet the ‘basic needs’ of a vast and fast growing population.

The Group embarked on an ambitious construction programme, initially focused on the construction of flour mills, a sugar refinery and a pasta factory. In 2000 the Group acquired the Benue Cement Company Plc from the Nigerian government and in 2003 commissioned the Obajana Cement Plant; the largest cement plant in sub-Saharan Africa.

The Group is now one of the largest manufacturing conglomerates in sub-Saharan Africa and is pursuing further backward integration alongside an expansion programme in existing and new sectors.

In today’s economy, employers have gone beyond being just employers because of their interest in the management of employees productivity. Most business personnel have realized more than ever before that their organizational set goals and objectives cannot be achieved if their employee do not perform as much as expected.

Chapter Five

Summary, Conclusion and Recommendations

5.1 Summary

From the findings of this study, different authors and commentators acknowledged that economic development can best be accelerated through the encouragement of small and medium-scale enterprises because Manufacturing sector contribute immeasurably to the rapid economic development and growth (Aremu, 2010). Claims by the international community that Manufacturing sector is a catalyst to development and industrialization process is still very low in comparison to developing countries like Nigeria (Mosk, 2010). This is because there are a lot of constraints militating against Manufacturing sector in Nigeria both internal and external. But among these problems, unstable macro-economic environment to lack of an effective financial support system rank highest. Although federal government has moved to strengthen Manufacturing sector in the country by releasing the first national survey on Manufacturing sector and is poised to ameliorate these observed problems facing the sub-sector to make them viable and contribute to the country’s economic development (Akinwumi, 2012).

5.2 Conclusion

From all that has been presented in this work, we can conclude that lack of effective financial support is one of the most important problems being encountered by small and medium scale enterprises in kaduna state. The task of development involves the conversion of finance into the requisite factor inputs, and the efficient deployment of such inputs. Finance therefore, is the major underlying requirement and an important input factor in the development and industrialization effort. Plant, machinery and equipment must be procured and paid for, as well as the development and training of managerial and technical expertise.

The study also found out that financial support is the major constraining factor limiting the growth and development of the SME sub-sector. In any proposal regarding financial strategy for small and medium-scale enterprises, one must look at the totality of constraining factors and enumerate solutions to address those limitations because SME sub-sector is a system which component units must function harmoniously in order to be result oriented. In this study, we have been able to examine the nature and sources of fiancé for the SME sub-sector. We have also been able to analyze the relative importance of government, banks, other financial institutions and Manufacturing sector themselves in financing the sub-sector and highlighted the problems of making adequate financial assistance available to SMEs. The conclusion, therefore, would be the itemization of recommendations, which if put together, will form a strategy for the revitalization of the embattled SME sub-sector in kaduna State.

It should be recalled that in our earlier paragraphs, economic development of a nation can best be accelerated through the Manufacturing sector and by the evolution of effective working relationships among the many players of the economy. Industrialization cannot be achieved through emphasis on large-scale enterprises activity alone and therefore, policies and measures must be taken to promote Manufacturing sector given the long-term benefits they render in economic development.

This project work has the belief that if government, banks, other financial institutions and the private sector team together in the area of infrastructural, technical and financial support facilities to SMEs, there is no doubt that the sub-sector will occupy their place of importance in developing the economy of kaduna State and indeed the country.

This will be achieved through job creation, diversification of the country’s mono-product source of foreign earnings. They will also encourage backward integration through their roles as manufacturers of raw materials for large-scale industries and will effectively reduce regional economic imbalance through rural development which will forestall rural-urban migration and its attendant vices.

5.3 Recommendations

From the study, the researcher found out a lot of problems plaguing Manufacturing sector sub-sector and would want to make recommendations to ameliorate these problems. These recommendations will fall into three categories: for government, for banks/financial institutions and for small and medium scale enterprises (operators). This will enable each of them take appropriate steps work towards improving the lots of the sub-sector.

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