SPATIAL PATTERN OF INDUSTRIAL PRODUCTION SUBCONTRACTING IN ONITSHA METROPOLIS, ANAMBRA STATE NIGERIA

ABSTRACT

The study was aimed at examining the spatial pattern of industrial production subcontracting in Onitsha Metropolis Anambra State Nigeria. Data were collected from documentary materials, questionnaire, in-depth interviews and field observation and were analysed using percentages, mean, standard deviation, nearest neighbour analysis and principal component analysis. The results of the study revealed that production subcontracting by firm size was more prominent in small and medium scale industries than large scale industries with 36.7%, 53.3%, and 10% respectively. The result of the nearest neighbour analysis revealed that the pattern of distribution of industries in the study area generally was relatively clustered while relatively dispersed within the industrial groups.The PCA analysis performed on 15 variables of factors influencing the location of industries  reduced them to 5 components namely availability of economic cost elements, influence of infrastructural facilities, family ties, influence of cluster/agglomeration economies, and influence of government policy. The underlying dimensions together explained 74.12% of the total variance leaving 25.88% of the total variance unexplained. The factors influencing the use of production subcontracting by industries revealed that subcontracting factors such as  reducing operational cost, concentrating on core business function, improvement in quality of service, and increased flexibility respectively were the major factors influencing production subcontracting in the study area while the factors influencing the selection of subcontracting partners revealed that high quality of service, high degree of mutual trust, good reputation, location and lower cost respectively were the major factors influencing the selection of subcontracting partners in the study area. The analysis of benefits and problems of production subcontracting revealed reducing cost of operation, improving service quality, enhancing core business capacity and releasing key internal resources respectively were the most commonly accepted benefits while subcontracting limitations such as  disclosure of commercial secrets, interest conflicts, decrease compatibility of innovation and unfulfilled orders respectively were the most commonly observed problems limiting production subcontracting in the study area. The study recommended that a code of business behavior encompassing a body of laws and principles guiding this production process be established in the study area. This will help the firms to make rational decisions or to seek redress once there is a bridge of contract.

CHAPTER ONE

INTRODUCTION

An industry is a group of businesses that produces similar products or provides similar services (Comanor, 2004). A firm on the other hand is anindustrial unit or entity carrying out a portion of business which involves the manufacturing and processing of items as well as the creation of new commodities under a single management (Beaker and Dietz, 2004). An aggregation of this unit of production called firm which produces similar products or services is known as an industry (Ikejiofor, 2012).

Manufacturing however is the production of goods for use or sale using labour, tools, machines, chemical and biological processes or formulations (Norrie, 1999). Manufacturing may also refer to a range of human activities, from handcraft to high technology but most commonly applied to industrial production in which raw materials are transformed into finished goods on a large scale (Bailey, David and Soyaung, 2009).

The success of industrial production or manufacturing largely depends on the establishment of useful linkages between industries (Khac, 2013). Industrial linkage is the interrelationship among various industrial activities through the input-output relationship or the economic value chain. Industrial linkage according to Mayhew (2009) can also be referred to as vertical disintegration, which is the various diseconomies of scale or scope which have broken a process into separate companies each performing a limited subset of activities required to create a finished product.In the views of Hussian (2004), Industrial linkages usually come in the form of alliance, clustering and networking. An industrial alliance is formed by firms coming together in some contractual arrangement. The well known types of contractual arrangements include; subcontracting, licensing, joint venture, strategic alliance and consortium (Hussian,2004).Production subcontracting which is a type of industrial linkage based on alliance is a work contract that seeks to outsource certain typesof work to other companies (Teresia, 2011). It has been observed that over the past 50-60 years, the world has seen major changes in the composition of its production process, falling transportation and composition cost, coupled with rapid technological changes, intensified competition and economic librations have facilitated the process of global economic integration (African Development Report, 1998). This has in turn enhanced international trade flows, and especially trade of intermediates products through subcontracting.

Subcontracting is a step down from general contracting, which is contract overseeing a much broader project in many cases. It is expected to create gainful employment and alleviate poverty through sustained facilitation of young industries and inter-firm linkages (Gakure, Kimemia, and Waititu, 2014). Industrial production subcontracting in the views of Holl (2007) is geared towards increasing production and employment in small and medium scale industries, upgrading the manufacturing processes, improving productivity and international competitiveness of all local produce.

In Nigeria, industrial production subcontracting; a strategic positioning of industrial activities started in the early 1960s, the post-independence period (Ajayi, 2007). The earliest stage in the adoption of production subcontracting as an industrial production technique in Nigeria was characterised by insignificant growth and rapid growth thereafter. Production subcontracting became very important after the introduction of the Structural Adjustment Programme in 1986, and it is perceived by industrialist as very important in reducing the cost of production (Ajayi, 2007). Production subcontractors are concentrated in Lagos, Ikorodu, Sagamu and Ibadan in the Southwest; Jos, Kaduna, Zaria, Kano, and Sokoto in the north; and a few other locations such as Benin, Owerri, and Port-Harcourt in the south and Ilorin in the (middle belt).

The process of production subcontracting is important in identifying the spatiality in the distribution of manufacturing industries through a network of inter-firm relationships. It is also important in identifying the industrial agglomeration that is, the development of clusters of industries in a particular geographical centre as well as an industry’s investment decisions (Grossman and Heplman, 2005). The need to study industrial production subcontracting arises because the arrangement plays different roles in different industries and in different geographical areas.

Thus, the purpose of this study is to investigateindustrial production subcontracting in Onitsha metropolis in Anambra State, Nigeria in order to understand the benefitsof production subcontracting to industrial activities in the study area.

1.1STATEMENT OF RESEARCH PROBLEM

Around the world, large companies try to become smaller in terms of employment (downsizing). Most companies now rely on others to look after some of their internal operations such as external security, transportation, distribution, logistics and operations. Manufacturing was long seen as a core activity, in a number of industries it still is but in sectors such as textiles, and clothing, rubber and plastics, metallic products, motor vehicles, leather, chemical industries etc, with highly standardised production processes and great differences in the labour-capital and skill intensiveness of the different stages that make up these processes, it is now common to subcontract parts or components of an operation to independent firms so as to enable the industry to focus on its core activities (Holl, 2007). Industries resort to subcontracting because it helps them spread risks, lower costs, gain access to key technologies reduce working capital and adjust their level of production more flexibly by passing on the burden of idle overheads to the development of industries most especially small and medium sized subcontracting firms as globalisation and new technologies challenge supply system in mature industries (Holl, 2008). For example, Chrysler and Ford subcontracted most of their minicompact and subcompact cars and only produce less than one-half of the value of all their vehicles (Gilley, 2000). Conversely, new industries maybe setup to supply established firms with certain parts, materials or components leading to the production of a product in a subcontracting arrangement or linkage. Some of the small and medium sized industries have developed in and around the larger industries leading to production cost reduction, employment generation and ensuring a certain standard regarding quality of output and delivery times.

In recognition of these facts, industrial production subcontracting has received little attention in the empirical research in Nigeria and indeed Onitsha metropolis. Most of the studies on industrialisation in the study area have focused mainly on the characteristics of industries- firm size, ownership, and firm type (Nwaocha, 1985), Industrial input- optimization of energy and manpower (Kajogbola, 1997), Industrial Management (Ekechukwu, Madu, and Nwanya, 2011) and Technological capacity of Industries (Muogbo,2013). The importance of these variables on the performance, growth, and development of industries cannot be over emphasized or ignored but in addition, there is the need to address the linkage relationship among industries in the area through industrial production subcontracting in order to establish the network of inter-firm relationship among industries in the area.

The few known studies on production subcontracting in Nigeria, however are the works of Ajayi (1998, 2000, 2001, 2002, 2003 and 2007), Arimah (2002), Oyeyinka (2004), Alarape (2007) and Makinde, Abdulganiyu and Dikko (2011). These works focused on production subcontracting in manufacturing industries in Nigeria while the work of Makinde, Abdulganiyu and Dikko (2011) focused on subcontracting in construction industries in Nigeria. Ajayi (2002 and 2003), posited that production subcontractors are concentrated in Lagos, Ikorodu, Sagamu and Ibadan in the Southwest; Jos, Kaduna, Zaria, Kano, and Sokoto in the north; and a few other locations such as Benin, Owerri, and Port-Harcourt in the south and Ilorin in the middle belt. This position is arguable. This is because his work left out oldand prominent industrial areas in Nigeria such as Aba in Abia State and Onitsha and Nnewi in Anambra State all inNigeria. Onitsha metropolis for instance is one of the fastest growing industrial and commercial cities in the South-eastern Nigeria with an appreciable number of industries and a host of emerging ones. Some of these industries are located in Harbour Industrial layout, Bridge head industrial Layout, Fegge layout, Awada industrial layout etc.The industrial configuration of Nigeria has gone beyond the traditional: Lagos-Ibadan-Benin axis; Jos-Kano-Kaduna triangle and Port Harcourt-Enugu axis (Ajayi, 2007) to include the Nnewi district (Oyeyinka 2003) and the Onitsha nucleus with a significant upsurge in manufacturing activities.

Moreover, much of the previousworks had concentrated on the country as a whole and as a result may not give detailed account of production subcontracting arrangements in a local scale hence, the need to study industrial production subcontracting inOnitsha metropolis.

1.2AIM AND OBJECTIVES

The aim of this research work is to assess the extent of industrial production subcontracting in Onitsha metropolis in Anambra State, Nigeria.

To achieve this aim, the following objectives will be vigorously pursued.

1. To classify industrial production typesand their structuralcharacteristics in Onitsha Metropolis.
2. Toexamine the spatial pattern of industries and the major types ofproductionsubcontracting in the area
3. To analyse the factors influencing the use of production subcontracting strategies and the selection of subcontractors in the area.
4. To examine the benefits and limitations of production subcontracting in Onitsha metropolis
5. To make recommendations for a more effective production subcontracting in the study area.

1.3 AREA OF STUDY

The area of study is Onitsha metropolis in Anambra State Nigeria and a brief description of the geography is given below.

1.3.1. Location

The study area is Onitsha metropolis, Anambra State Nigeria.The area is located geographically between Latitude 06⁰04.58¹¹N and Latitude 06⁰10.00¹¹N of the Equator and Longitude 06⁰44.59^1I E and longitude 06⁰ 48.52¹¹E of the Greenwich Meridian. It is approximately 240km² north of Delta coast of the Rivers and Bayelsa States (Ofomata, 1987). The area is made up of Onitsha North Local Government (Onitsha inland town or Enu Onitsha, and Odoakpu), Onitsha South Local Government Area (Fegge and Woliwo) and parts of Idemili North Local Government (Nkpor and Obosi including Awada; a suburb of Obosi) and Ogbaru Local Government Area(Iyi-Owa, Atani, and Okpoko).It is bounded in the North by Nsugbe, Nkwelle Ezunaka in the East, Obosi and Oba in the North and River Niger in the West(Figure 1 and 2).