COMPETITIVE ADVANTAGE IN SELECTED BREWING FIRMS IN SOUTH EAST NIGERIA

CHAPTER ONE

INTRODUCTION

Background of the Study

The commencement of the Industrial Revolution is linked to a number of innovations, beginning in the second half of the 18th century. By the 1830s the following gains had been made in important technologies: textile, steam power, iron making, machine tools, chemicals, cement, gas lighting, glass making, paper machine, agriculture, mining, others are transportation, canals, roads and railways and these increased the standard of living, nutrition, housing, clothing, consumer goods and population increase (Evans and Ryden, 2005).

There was industrial revolution because of availability of leaders with the right skill, ability, intelligence and competence to turn around the nation’s economy.

In 1911, Frederick W. Taylor published his work, The Principles of Scientific Management, in which he described how the application of the scientific method to the management of workers greatly could improve productivity. Scientific management methods called for optimizing the way that tasks were performed and simplifying the jobs enough so that workers could be trained to perform their specialized sequence of motions in the one “best” way.(Jones and George,2009)

Prior to scientific management, work was performed by skilled craftsmen who had learned their jobs in lengthy apprenticeships. They made their own decisions about how their job was to be performed. Scientific management took away much of this autonomy and converted skilled crafts into a series of simplified jobs that could be performed by unskilled workers who easily could be trained for the tasks. Taylor succeeded because he was able to train his workers, which is human capital development, an aspect of intellectual capital management.

The term knowledge industries, knowledge work and knowledge worker are nearly fifty years old, they were coined around 1960 simultaneously but independently (Drucker, 2008). Before that time knowledge was typically considered the province of training and was thought of as an individual capability. However, in the mid-90s Peter Drucker began to write about “knowledge workers” and the “knowledge economy” and proposed the idea that knowledge was a critical organizational asset that was as important as capital or property (Drucker, 2008).

The initial idea of knowledge management (explicit knowledge) was that an organization’s knowledge needed to be documented and then placed in a database where everyone could access it whenever they needed it – no longer would employees only be able to learn when attending a training class.  Given the limitations of content management, by 2000 there began to be glimmers of a new perspective on knowledge within organizations. This new perspective (experiential knowledge) held among others that:

• much of an organization’s knowledge is in the heads of employees, with only a small percentage residing in documents, still recognizing that some explicit knowledge is needed and should be maintained.
• much of an organization’s knowledge is dynamic and rapidly changing so that what is “captured” is soon out-of-date.
• knowledge is essentially social and is developed and held by groups of people who engage together in a specific practice (Nonaka, Toyama and Nagata 2000).

Intellectual capital is an offspring of the knowledge era, which is still in its formative phase (Leif, 2011).  Intellectual capital was formally recognized in 1991 when the large Swedish corporation Skandia started implementing a comprehensive set of innovative knowledge practices to account for its intangible assets (Leif, 2011).  Intellectual capital includes the skills and knowledge that a company has developed on how to make its goods and services. The pioneering initiative, championed by Ian Carendi and Bjorn Wolrath, resulted in Leif Edvinsson being appointed as the world’s first director of Intellectual Capital (Adelman, 2011). Though systems for recording intellectual capital are now proliferating (growing), the concept is still mysterious to most wage-earners.

The importance and effect of effective management of intellectual capital can be evidenced by the economic growth of United States of America and Japan Economy. The United States of America is the world’s largest single national economy. The United States’ nominal GDP was estimated to be $17.311 trillion as of Q2 2014, approximately a quarter of nominal global GDP. Its GDP at purchasing power parity is also the largest of any single country in the world, approximately a fifth of the global total figure (Bureau of Economic Analysis, 2014). The United States has a mixed economy and has maintained a stable overall GDP growth rate, a moderate unemployment rate, and high levels of research and capital investment. It had the worlds ninth-highest per capita GDP (nominal) and sixth-highest per capita GDP (PPP) as of 2013. U.S. real GDP contracted by 2.1% in the first quarter of 2014, the first decline since 2011 However in the second quarter of 2014, the U.S. real GDP grew by 4.2%, reversing the contraction seen in the first quarter and is higher than previous estimates (U.S. Economy – Basic Conditions & Resources , 2011).

Also the economy of Japan is the third largest in the world by nominal GDP  the fourth largest by purchasing power parity and is the world’s second largest developed economy. According to the International Monetary Fund, the country’s per capita GDP (PPP) was at $35,855 or the 22nd highest in 2012 (World Economic Outlook Database,  2013). Japan as the world’s third largest automobile manufacturing country, has the largest electronics goods industry, and is often ranked among the world’s most innovative countries leading several measures of global patent filings. Japan is the world’s largest creditor nation, generally running an annual trade surplus and having a considerable net international investment surplus. As of 2010, Japan possesses 13.7% of the world’s private financial assets (the 2nd largest in the world) at an estimated $14.6 trillion. As at 2013, 62 of the Fortune Global 500 companies are based in Japan (Japan OECD Library, 2013).The growth in Japanese economy is as a result of effective management of their intellectual capital assets.

Nigeria is a middle income, mixed economy and emerging market, with expanding financial, service, communications, and technology and entertainment sectors (Nigeria Rebase Economy, 2014).  It is ranked 26th in the world in terms of GDP (nominal: 30th in 2013 before rebasing, 40th in 2005, 52nd in 2000), and is the largest economy in Africa (based on rebased figures announced in April 2014). It is also on track to become one of the 20 largest economies in the world by 2020. Its re-emergent, though currently underperforming, manufacturing sector is the third-largest on the continent, and produces a large proportion of goods and services for the West African region. Nigeria recently changed its economic analysis to account for rapidly growing contributors to its GDP, such as telecommunications, banking, and its film industry. As a result of this statistical revision, Nigeria has added 89% to its GDP, making it the largest African economy (Nigeria Rebase Economy, 2014).

Correspondingly, the GDP per capita doubled from $1400 per person in 2000 to an estimated $2,800 per person in 2012 (again, with the inclusion of the informal sector, it is estimated that GDP per capita hovers around $3,900 per person). (Population increased from 120 million in 2000 to 160 million in 2010). These figures are to be revised upwards by as much as 80% when metrics are recalculated subsequent to the rebasing of its economy in April 2014 (World Petroleum Publication, 2014).

Therefore, the rapid and consistent increase in the Nigerian economy can be attributed to the recognition given to education sector of the economy which has given rise to leaders with entrepreneurial skills and ability to carry the nation forward. Nigeria has over one hundred universities and other institutions made up of federal, state, and privately owned. Through these universities expected knowledge, skills, capabilities, competences and experiences are acquired for better management of the national resources.

Intellectual capital management emerges as a result of identification and management issues of intangible assets that have not been satisfactorily addressed in traditional strategic management literature. The view that competitive advantage of firms in today’s economy does not result from market position but from difficult to replicate knowledge based assets. However the manner in which they are developed and deployed somehow represents the current dominant view of intellectual capital Management (Teece, 1998).  The components of intellectual capital are: human capital, structural capital and relational capital.

Competitive advantage on the other hand is the ability of one organization to outperform other organizations because it produces desired goods and services more efficiently and effectively than its competitors, (Jones and George, 2009). The building blocks of competitive advantage according to Jones and George (2009) are; superiority efficiency quality, speed, flexibility, innovation and responsiveness to customers. Porter (1985) identifies three strategies aimed at achieving competitive advantage; they are innovation, quality and cost leadership. Also the competitive strategic framework suggests three basic strategies that are appropriate for a wide variety of organizations in diverse industries. These strategies are differentiation, cost leadership, and focus (that is targeting a specific segment of the market (Denisi and Griffin, 2005).

One of the most important forces that an organization confronts in its task environment is competition from firms producing similar goods. Competitors are organizations that produce the same type of goods and render similar services. In other words, competitors are organizations vying for the same customers (Jones and George, 2009). Rivalry between competitors is potentially the most threatening force that managers in organizations must deal with. This is because any wrong decision taken by any organization on its internal and external environment is capable of putting such an organization into danger to its competitors.

Therefore, for most managers and organizations to attain and remain at the top in the competitive environment of their business, they must ensure that they use their organizational resources to build a competitive advantage (Jones and George, 2009). According to a resource- based view of competition, intellectual capital is considered as an important source of competitive advantage (Fragouli; 2000). The resource based view understands firms to be heterogeneous entities characterized by their unique resources bases with different distinctive competencies (Nelson and Winter, 1982, as cited in Fragouli, 2000). Firms need to strategically develop their resources in order to gain a competitive advantage and therefore increase their performance. Also firms need to identify and develop the competencies and capabilities which drive their performance (Prahalad and Hamel, 1990, cited in Fragouli, 2000).

The concept of intellectual capital management in Nigeria is still relatively under developed when compared to what obtains in the industrial countries of the world. Most organizations in the country rely so much on the concept of the aggregate production function relating input of labour, land and capital to total output thus resulting to non achievement of organizational goals and objectives.

The dynamic nature of the Nigerian environment requires that innovations be created constantly in all the intangible assets of the organization in order to sustain the existence of a company and industrialization. Furthermore, the global competitive systems are mainly driven by technology, knowledge, expertise and relations with stakeholders and customers which may collectively be described as intellectual capital (Ahangar 2011). In the new economic system, intangible or intellectual assets have been recognized as the prominent resources needed for organizational survival and growth. Bornemann (1999) states that organizations which have managed their intellectual capital better, had achieved stronger competitive advantage than others. He also affirms that organizations which had strengthened their own intellectual capital management compared to the others had a better performance. Brennan and Connell (2000) also support the above assertion by saying that intellectual capital management plays an important role on the long term business performance of an enterprise.

Therefore for Nigerian manufacturing organizations to cope with today’s competitive environment which is characterized by dynamic changing market, and fast changing customer demands, every organization must have the ability to anticipate on these changes and thus asks for a more dynamic strategic approach in engaging the collective minds of their organizations. Over the past years, some organizations have made history while others have become history in Nigeria. This is because some have been much better at changing than others. Competition is more intense than ever, as organizations fight for smaller shares of saturated markets. Fresh opportunities exist in the market, but the risk of the unknown counterbalances the potential gain. Therefore, to be a player in today’s global market, organizations must have access to workers that have the right skill, competence, talents, expertise, creativity, knowledge and experience that will enable them maintain their competitive position, of which brewery industry is not an exceptional case. They should also capture and institutionalize knowledge within the structure, processes and culture of the organization. Information about their customers/clients should also be captured for a better and lasting relationship with them.

Therefore, so many authors have done empirical studies in different aspects of intangible assets of an organization in Nigeria but little is known as to how intellectual capitalcan be used as a competitive advantage in brewing firms in south eastern Nigeria, hence there is a geographical gap and empirical work is particularly dearth and these are serious gaps. Based on the above assertion, this study intends to investigate how intellectual capital management can be used as a tool with a view to making brewing industry in Nigerian compete both locally and on the global market.

1.2       Statement of the Problem