There are many ways by which a business organisation in Nigeria or elsewhere can cope with changes in its environment. However, these strategies may be grouped into two: “wait-and-see” strategies and “anticipatory” strategies. The “wait-and-see” approach is adopted where the company wait until environmental changes occur and then react in the most appropriate manner. The main advantage of this approach-is that the nature of the problems and or opportunities brought about by the change will be known, and the decision involves less risks, however, the danger here is that action may be too . late to make any meaningful impact.
The anticipatory approach is where the business anticipate, plan and prepare for environmental changes before they occur. The major demerit of the approach is that experience, judgement and intuition are relied upon to a significant extent. Also there is much less certainty that the changes will actually take place. However, there are specific strategies for reducing risk, exploiting opportunities and overcoming threats arising from environmental changes. Among these are strategies of prevention, postponement and modification. Also included are risk mitigation strategies, contingency strategies, acquisition and mergers strategies. Others are coalition, bargaining or negotiation, internal-regulation and diversification strategies.
For instance, where a company in Nigeria has political influence, it may prevent or, modify legislation by Nigerian-government that maybe harmful to its business interest. This it can do through intensive lobbying. Where the company fears before savage price war among its competitors, . it may propose cartel hereby preventing the war. Where a company depends upon one customer or supplier, it may reduce the price to that particular customer or allow the supplier to raise his price to an agreed level. Where the company is facing a threat from an overseas competition, it may decide to dump goods in the competitor’s market as a warning
The most popular of the risk mitigation is diversification, To mitigate something implies to make its effect less severe or painful. If a threat comes from a change in market condition, a particular company may seek new market elsewhere. If the threat is to the company’s product, it ma seek a different product especially if it has been dependent on a single product. If from supplier in one country, say Ghana, the company may seek suppliers in different other countries such as Canada, Mexico, Cameroon and Liberia. If the threat is from economic cycle, the company may seek a business that is counter-cyclical or non seasonal.
Contingency strategy is used when the occurrence of an event is thought to be probable and that it must be provided for in advance. Acquisition strategy, however involves at least two companies: one being acquiring company, the other acquired., It occurs where the acquiring company is large and the acquired is neutral to the bid. There is no obvious advantage to the acquired company in many cases. Many, acquisition occurs for many reasons, e.g. it may happens because one or both companies wish to diversify, to allow the acquirer to grow in size, to reduce the dependence of oneproduct by the acquirer or to obtain greater business stability.
Other reasons for acquisition may be to obtain needed technical expertise, to cut cost due to economies of large scale, to break into new market or to enable the owners of the acquired company to retire. It may also arise to let the acquired company get more money, to reduce competition facing the acquiring large company or to re-organise a fragmented industry.
Acquisition strategy should be adopted if the cost of buying new business area is less than that of developing into it, if the acquisition is considered urgent for the survival of the acquire, if the risk of developing into new business area is greater than that of buying it, and if the company to be acquired is not in distress. In merger strategy, the companies involved are of equalizes and there are obvious mutual advantages to both companies. Many mergers occur to strengthen the partners in their existing business areas. Other reasons are those mentioned under acquisition.
Coalition strategy involves coming together to form trade associations by companies or business organisations to provide facilities and deal with common problems and threats. An example is the manufacturing Association of Nigeria whose aim is to help in forming economic and political policies of the government especially the possibility of government making policies and legislations that can affect the performance of business organisations adversely.
Bargaining or negotiation strategy is a way of reducing competition and make . the market more stable by companies through proper negotiation among themselves. In this way, an accurate prediction of the competitors’ move or behaviour is made possible. Internal regulation strategy refers to structural adjustment or re-organisation which is aimed at producing a disciplined and unified system that can move quickly and
effectively to capture environmental threats and challenges. In essence, internal planning, establishment of programmes, standard procedures and decision rules are attempts to stabilize the internal environment of a business.
Companies diversify when their objectives can no longer be met by merely expanding within their existing product market area, because the retained cash exceeds the investment demand for a mere expansion, if there are greater profit opportunities in the new business area than in their present product market and if the information available does not permit a conclusive comparison between expansion and diversification.
Also, companies diversify to avoid dependence on one product, to make greater use of an existing distribution system, and to acquire new management and technical know-how. However, it should be noted that diversification can be attained without acquisition and merger. But acquisition and merger are impossible without leading to diversification.
There are many types of diversification. These include horizontal diversification, vertical diversification and conglomerate diversification. Horizontal diversification(or integration) is the situation where a company Widens its ranges of product to its current market. For instance, a motor vehicle manufacturer starts producing motor cycles and offering the motor cycles to its traditional customers and channels or a motor vehicle manufactureroffering electrical home appliance to its traditional
customers, although, this involves technological departure, an underwear manufacturer who acquires several firms making night wares, men clothing, etc.
The main advantages of horizontal integration are that the company continues setting into a market which is already known and familiar. It also allows greater specialisation in the area of knowledge. However, the major demerits of this integration strategy include the fact that the company will be moving deeper into an existing business area it has to be very sure of long-term fortune and prospect in the area. Again, the company’s competitors may decide upon a horizontal diversification if they are sure of that area of business, and this will nullify its gains to the original company. Finally a larger company may eventually come to dominate the entire market.
Vertical integration, on the other hand, occurs when a .ompany begins to produce its own components or its own raw materials. This is called backward integration. For instance, a vehicle producer making its own engine, tyre, etc. Another type of vertical integration is known as forward integration where a manufacturer is using his own raw material to manufacture finished goods. For instance, a synthetic fibre manufacturer who decides to be making textiles from its own synthetic fibre.
The major advantages of vertical integration include the fact that the company can obtain much better control over the flow of goods, reduction in stockholding and reduction in costs. The company can also reap the advantages of specialisation within the framework of one industry. Again, vertical integration may lead to strengthen of its position with customers. However, the demerits of the vertical diversification include placement of more ends in only one product basket. There may also be little or no similarities between making components and assembling them. The company may be unable to sell its surplus to its competitors. Again, there may be no, technical similarities between new and old business and technological; synergy may be negative while the firm maybe competing with its owncustomers.
The next strategy is the concentric or composite diversification. This occurs when a company produces a good, which involves similar technology and market. For instance, the motor manufacturer who decides to manufacture firm machineries. The new customers are only similar to the old, the new product and its technology are only similar to the car. Yet, a car and a pea harvester are not only similar, but also some commonalities are present in them, and hence some possible synergy.
Next to the concentric diversification is the conglomerate strategy. This occurs when the company gets involved in many businesses that are not related in technology and marketing. A typical example is that of the U.A.C (Nig) PLC, having investment in all facets of the economy.
However, the only requirement for success of conglomerate is the ability of the management to maintain effective central control. However, the major advantages of conglomerate diversification are better access to capital due to business and stability that comes from a wide portfolio of activities. Again, the company may move quickly usually by acquisition into any area that is seen to be profitable. More so, anti-trust legislation and their penalties of marketing dominance are avoided or postponed. On the other hand, the demerits of conglomerate strategy include the fact that the company will be more severely affected by economic recession than other integrated specialised companies. For instance, conglomerates are hit in all fronts. In a recession, the
conglomerates earnings multiplier may fall. This severely limits their abilities to acquire new companies As this is the main plan on which their growth is built, the consequences may be disastrous.
Business Social Involvement.
An impertant topic that should not be forgotten in any discussion of business and its en vironment is the concept of corporate social responsibilities of business to the various publics within and outside its premises. This is a truism because as the business obtains its input
factors (manpower, materials, machines, money, and methods) from the Society, it also discharges certain products (finished goods, services and waste products) into the society from which it earns or gains its success, growth and survival.
To reciprocate or compensate the society, certain responsibilities are expected of every business within the environment. In the early 20th century, the mission of business organisations was exclusively economic. However, as the 2lst century approaches, partly because of the interdependencies of the various groups in Nigeria, the social involvement of Nigerian business organisations has increased. Consequently, there is a need for greater awareness of the concepts of social responsibilities and social responsiveness of business to societal situations. However, opinions differ on the application or applicability of the concept of social responsibilities and social responsiveness of business in the Nigerian society.
While one school of thought advocates for these concepts to be practiced, the other argues to the contrary. Yet another set of people are calling for a negotiated balance of the two sides Weihrich and Kooniz (1993) suggest a list of argument for and against social involvement of business. Among the reasons in favour of the concept in business include:
(A) Public needs, requirement or aspirations have changed over the year. Most business units received their formation from the society Hence they have to reciprocate the gesture.
(B) The availability of a better or conducive social environment is of advantage to both the society and business The society benefits through better neighbourhoods and employment opportunities while business gains from a better community since the community provide the required army of workers as well as market for the business.
(C) Social involvement in terms of social responsibilities and social responsiveness discourages additional government regulation and intervention. Consequently, there is greater freedom and more flexibility in business decision making
(D) Every business, whether in Nigeria or elsewhere, possesses a great deal of power and influence Hence, there should be concomitant commensurate amount of responsibilities
(E) Contemporary Nigerian society is an integrated, interconnected and interdependent system, and the internal activities of business organisations have significant implications on the external environment
(F) Social involvement in the forms of social responsibilities and social responsi veness of business to business environment may be in the interest of stakeholders,
(G) Problems and challenges at one time may later on become profit and achievement for the business For instance, items that may once have been considered waste can be profitably used again, e.g., empty milk cans.
(H) Social responsibilities and social responsiveness of business may create favourable public image or goodwill for the business thereby attracting investors; customers and new employees.
(I) Business may use its knowledge or record of social invol vement and those of its competitors to solve the problems, which other organisations have not been able to solve.
(J) As most business possess resources, they should use their talented managers, administrators, specialists as well as capital resources to solve some of the societal problems.
(K) As it is better to prevent social problems through business involvement than to cure them, it would be easier to help the hard-core unemployed than to cope with social unrest.
Despite these aforementioned points in support of business involvement in social responsibilities, the following points have also been raised against such involvements
(a) The supreme task of business is to maximise profit as contained in memorandum and articles of association by focusing strictly on economic gains. There is no complete or generally agreed support for social involvement of business by the stakeholders. Therefore, disagreements among the various different interest groups may cause friction and disaffection in the organisations activities. These can be alffected by social involvement, which could reduce economic efficiency.
(b) In the final analysis, society has to pay for the social involvement of business in forms of higher prices. Consequently, social involvement would lead to excessive costs for business, and hence the high prices of the various products in the society.
(C) Social involvement by business organisation in an economy can create intermational balance of payment problem for the economy. This is premised on the fact that the costs of social programmes would be included in the final price of the products. For instance, Nigerian companies selling in international markets would be at a disadvantages when competing with their counterparts in other countries that do not have the social costs to account for.
(d) Already, main Nigerian business organisations have enough power and additional social involvement would further increase their power and influence in the society. A typical example is that of Dangote, a business man who donated NI20 million alone to People Democratic Party of Nigeria during Obasanjo campaign for Presidency in 1999.
However, whichever way the ball rolls, it seems that (he support tor corporate social responsibilities and responsiveness of business is becoming more popular day-in-day-out For instance, the British Institute of Management has specified certain areas of business social responsibilities.
These areas are legal responsibilities, responsibilities to shareholders, responsibilities to employees and responsibilities to suppliers. Others are responsibilities to customers, environmental responsibilities, responsibilities to the local community as well as responsibilities to competitors. All these different and diverse interest need to he catered for if the business must succeed in these days of turbulent industrial society.
In a nutsheli, this covers the various aspects of business enterprises. The discussion started by first presenting the discussion of business environment using a broad perspective For instance, a business environment has been defined as all groups and institution that have actual or potential influence on the business ability to achieve its planned objectives.
This business environment has been divided into internal (or micro) environment and external (or macro) environment of business The chapter makes us to understand that the modern business manager has an appreciable degree of direct control over most of the components of his internal environment. However, macro-environment is a little different, cumbersome or problematic. This is because the manager has no direct control over its elements. From this chapter, we have seen that the various components of the Nigerian business environment.
The various external forces which constitute the macro environment of a business need further clarifications. For instance, the technological environment consists of the general technological advancement and innovation in the society. This dictates what machinery is available for purchase and use in the organisation. The social environment pertains to the various social relations including cultural identity tastes, fashion and preferences of the people, etc. The economic environment consists of forces such as the banking institutions, Supplier, competitors, customers, marketing process, fiscal and monetary policy of the government etc. The political environment involves the stability of the government itself, its activity and policies, he legal structure/mechanism in the forms of legislation, etc. Finally, the ecological force in the business environment consists of the natural vegetation, climatic conditions and the nature or type of soil. All the individually and collectively dictate what can be produced, where and when it can produced, as well as what quantity and quality.
Consequently, business polices, strategic, decision procedures and program must give them adequate consideration if success are to be achieved.