THE EFFECT OF EXPORTS ON THE PERFORMANCE OF LARGE SCALE INDUSTRIES IN UGANDA: A CASE STUDY OF BRITANNIA
ALLIED INDUSTRIES
SECTION ONE: INTRODUCTION
1.0 Introduction
The study is aimed at examining the effect of exports on the performance of Britannia Allied Industries Ltd. This section presents the background to the study, the statement of the problem, general and specific objective of the study, research questions, scope of the study, and significance of the study.
1.1 Background of the study
Export is vital tool for countries to achieve goals of economic growth and prosperity. Since export help to improve balance of payments, employment rates and living standards; therefore, the number of governments seeking to expand exports encourage more exports in industries (Doaei & Hassani Robat, 2010).
Export occasionally is passive method to enter the foreign market. In this method, occasionally company or according to his initiative or in response to unsolicited orders from abroad, its products are exported abroad. Actively export occurs when company is committed to export their goods to particular market. Either the company will produce the goods in their country or produced goods may or may not be applicable to foreign market. Export requires minimal changes in the production line, the investment and company’s mission (Nategh, 2009).
Many developing countries are heavily dependent on Primary products as their main source of export revenues such as agricultural exports (Mehara and Baghbanpour, 2015, Ma Fengand et al, 2014). In many developing countries, the agricultural sector plays a major role in the economy such as including food production, supply of raw materials for industries, environmental protection, development of the rural non-farm sector, maintenance of macroeconomic stability through stable food pricing and food security. Also Agriculture sector play an important role in GDP growth and the main source of employment in these countries. (Ershad Ali, Talukder Dayal, 2010).
In many large industries, primary exports are usually raw and unprocessed while manufactured goods are more technologically intensive, and more likely to create positive spillovers. Moreover, the process of primary commodities production is shorter than the process of manufacturing goods production. Therefore, if the production of industrial commodities is higher and export of such goods will lead to high performance of large scale industries (Sheridan Brandon, 2014). Ghazi and Al-Abdulrazag (2015) asserts that, the expansion exports contribute to concentrate investment in this sector that lead to enhance productivity factors of production.
According to Richard et al. (2009) organizational performance encompasses three specific areas of firm outcomes: (a) financial performance (profits, return on assets, return on investment, etc.); (b) product market performance (sales, market share, etc.); and (c) shareholder return (total shareholder return, economic value added, etc.). Organizational performance comprises the actual output or results of an organization as measured against its intended outputs (or goals and objectives).
Firms operating in the context of developing economies often attempt to improve their operations in view of their analysis of the requirements of the market place and hence “by addressing specific needs in order to cope with increasing competitive intensity in the global market place” (Hallgren and Olhager, 2009).
Uganda mostly uses the agricultural sector for exports. Revenues from exports of agricultural products can reduce restrictions on foreign exchange, and imports of capital goods. Moreover agriculture has some benefits such as including food production, supply of raw materials for industries, environmental protection, development of the rural non-farm sector, maintenance of macroeconomic stability through stable food pricing, main source of employment and food security. But one of the characteristics of Uganda is that the efficiency of agricultural production is low.
The growth rate of the agricultural sector in the world has been declining. One of the reasons for low productivity in the agricultural sector is that agriculture still in the subsistent stage. Most of the output consumed by farmer’s family, agricultural output and productivity are low due to the utilization of traditional methods and tools, farmers’ unwillingness to adopt new technology due to the lack of capital, higher energy prices (Matahir, Tuyon, 2013, Mayawala, 2008).
The Britania allied industries in Kampala, was set up in 1991 by the House of Dawda group – a group which has been in existence since 1962 in the East African region – pioneered by Dr Hasmukh Dawda. Britania Allied Industries Ltd. (BAIL) was created through the merger of 2 operating subsidiaries. It manufactures Biscuits; Confectionery; Fruit Juices and Sauces. It’s production facilities are among the most sophisticated and modern in the region and possess a level of technological excellence compared to prevailing global standards. Britania owes its success to its creative, determined, dependable and enterprising people and the co-operation of an extensive network of customers and partners.
1.2 Problem statement
Exporting goods is considered as one of the most important indexes of increased performance in large industries. Britannia allied industries has established a rational and dynamic relationship with foreign trade to develop exports and improve on its performance in terms of financial performance. Despite efforts employed by Britannia allied industries ltd to improve on its export performance, it faces several challenges which has affected its performance in the end. Therefore the study seeks to examine the effect of exports on the performance of large scale industries.
1.3 Purpose of the study
The main purpose of the study will be to examine the effect of exports on the performance of large scale industries. A case study of Britannia Allied Industries Ltd.
1.4 Specific objective of the study
- To determine the contribution of exports on the financial performance of Britannia Allied Industries Ltd.
- To assess the indicators of performance of Britannia Allied Industries
- To determine the relationship between exports and performance of Britannia Allied Industries.
1.5 Research questions
- What are the contributions of exports on the financial performance of Britannia Allied Industries Ltd?
- What are the indicators of performance of Britannia Allied Industries?
- What is the relationship between exports and performance of Britannia Allied Industries?
1.6 Scope of the study
The study will aim at determining the effect of exports on the performance of large scale industries. More emphasis will be put on determining the contributions of exports on the financial performance, indicators of performance and the relationship between exports and performance. The study will be carried out at Britannia Allied industries ltd, located in Ntinda industry area. This is because the firm exports agro-based products such as fruit juices, biscuits and many others to other countries and also easy accessibility of the area. The study will consider 2006-2016 as the period of data to be considered in the organization.
1.7 Significance of the study
The findings will aid policy makers to make appropriate policies that can promote exports in large scale industries.
The government can also use the findings to help industries improve their performance in terms of exports.
The findings will provide relevant information that Britannia Allied industries can use to realize the importance of exports and how exports improve its performance.
The results of this study will be stored in the library thus it will contribute to the stock of knowledge to act as reference for future scholars.
This section presents related literature and it is presented in themes according to the research objectives.
2.1 Overview of exports
Exports means to earn more currency for the country and the most traditional way to enter international markets and governments usually favor development strategy of export (Farhangi & Lotfi, 2009).
Companies that give a positive response to received orders are called exporter of random. But active exporter is a company that plans and orders (Farhangi & Lotfi, 2009). Export is vital tool for countries to achieve goals of economic growth and prosperity. Since export help to improve balance of payments, employment rates and living standards; therefore, the number of governments seeking to expand exports encourage more exports (Doaei & Hassani, 2010).
Export occasionally is passive method to enter the foreign market. In this method, occasionally a company or according to his initiative or in response to unsolicited orders from abroad, its products are exported abroad. Actively export occurs when company is committed to export their goods to particular market. Either the company will produce the goods in their country or produced goods may or may not be applicable to foreign market. Export requires minimal changes in the production line, the investment and company’s mission (Farhangi & Lotfi, 2009).
Export development represents trend to freedom in international trade. This policy shows how much a nation notice to foreign markets and its needs. Export development is supposed to increase employment and the skills (Hassanzadeh,Shaaban Elahi,2008). Policy of export development is meant to strengthen free foreign trade and also lead to the production and allocation of resources in a way that the country has comparative advantage compared to other foreign country. Allocation of resources is the most efficient way of generating and is meant to increase domestic production and export earnings. (Madhooshi & Tari, 2007).
Exporting is considered the most common entry mode into foreign markets. It is also a crucial business activity for nations’ economic health, as it significantly contributes to employment, trade balance, economic growth, and higher standard of living (Lee and Habte-Giorgis, 2004).
2.2 Contribution of exports on the financial performance of an organization
The importance of exporting has been attracted by many researchers and they have tried to identify the determinants of the firm’s export success and have found a great variety of antecedents. Export promotion programmes and services that are usually provided by governmental agencies, is one of the best instruments firms can utilise to improve their export performance and be successful in global market. The effect of export promotion programmes in enhancing export success is a great concern to public policy makers and are likely to be heterogeneous, varying along the distribution of export outcomes (Volpe Martincus and Carballo, 2010).
Research conducted by the International Trade Administration (ITA) of the U.S. Department of Commerce has shown that workers in export-intensive manufacturing industries earn, on average, 18 percent more than their counterparts in other manufacturing industries. Similarly, ITA research and academic research found that employees in export-intensive service industries earn 15 to 20 percent more than comparable workers in other service industries.
Riker and Brandon (2011) states there are several forces that lead to these higher levels of pay in export-intensive industries. First, industries with greater access to international markets tend to invest heavily in technology and capital. This investment increases the productivity of workers which, in turn, contributes to higher earnings. Of course, higher earnings can reflect industry factors that increase the productivity of the workers whether they export or not, but which also increase the probability that the worker’s industry will succeed in exporting. For example, if a U.S. industry produced an exceptionally high quality, relatively unique set of goods, then export success would coincide with higher earnings, even if export intensity did not increase the earnings. This effect has been described as “success begets exporting.”
With respect to the service sector, higher levels of education among workers and certain other individual characteristics partly can help explain why earnings are higher among export-intensive service sectors. Workers in export-intensive service industries earn more than those in service industries that are not export-intensive. While the cause of this premium is not entirely clear, it is important to note that this earnings premium has been stable over time (Jensen, & Kletzer, 2008).
Harris and Li, (2011) argues that perhaps not surprisingly, firms involved in exporting are found to have higher labor productivity and higher total factor productivity than firms not involved in exporting. Reasons for this can include the fact that firms may become more productive due to the pressure provided by increased competition with foreign firms. Technological spillovers that result from increased contact with firms and markets abroad can also improve productivity. However, it is also possible that there is self-selection involved in the pool of firms that are willing and able to sell abroad. That is, firms that are already more productive are the ones more likely to decide to export. Initial evidence on this point seemed to indicate that firms that are already more productive would export. However, some more recent evidence suggests that, while firms that export are more productive, it is also true that the act of exporting can make firms even more efficient.
2.3 Indicators of performance of an organization
To stay competitive, organization should manage with employees, processes, planned activities, reductions times, relations with suppliers, and other parts of the business. System for effective measuring of performances is used to understand, adjust and improve business in all department of the organization (Summers, 2005).
Measuring performances of the organization means qualitative and quantitative expression of some results by chosen indicators. Selection of appropriate indicators that will be used for measurement and appraisal of the performances is a very important activity. Among all information that can be got it is necessary to choose some critical quantity that on the best way represent the whole business.
Beside control function indicators of performances also have two next functions:
Developing and guiding function – because they present a base for formulating and implementation of the strategy of the organization (Pesalj, 2006).
Motivation function – induce management to fulfill goals and motivate all stakeholders to realize those goals and on even higher level (Stamatović & Zakić, 2010).
In all organizations, an employee knows that there are activities that are very important for the management team. In sense of defining a control package of indicators that represent success of some business conception of key performance indicators were appeared. Key performance indicators (KPI) are financial and non-financial indicators that organization uses to testify how successful they were in achievement of long lasting goals.
KPI are static and stable indicators that carry more meaning when comparing information. They help to remove the emotion away from object of the business, and get one focused on the thing that job is really about, and that is making profit (Summers, 2005).
2.4 Relationship between exports and performance of an organization
Aggarwal (2002) presented an evidence of export performance of 916 MNEs operating in 33 different Indian manufacturing industries. The study classified the manufacturing industries in India based on OECD classification of technology-intensive industries. The dependent variable in the study was export intensity and the independent variables are: firm size, technology imports, R&D expenditures, skills of employees and import of raw materials. The results indicated that R&D expenditure had a significant impact on export intensity only in medium-high technology industries but not in the other industries.
Chadha (2009) examined the export performance of 131 healthcare firms in India during the period 1989-2004. Export sales were considered to be the dependent variable and the independent variables were: technology (measured as number of foreign patent rights); sales and profitability. The results indicated that export sales were positively and significantly impacted by technology (investments in R&D), sales and profits of the pharmaceutical firms in India.
Majumdar (2010) investigated the impact of innovation (measured as R&D expenditures) on export intensities of 112 Indian information technology and software firms. Export intensity was the dependent variable and the following were the independent variables: R&D expenditure; capital intensity, size, profitability, margins, imports, capital, cash, leverage (debt-equity ratio) and foreign borrowings as a percentage of total debt. The results indicated that R&D expenditure exhibited a significant and positive impact on export performance of Indian IT firms.
Lall & Kumar (2007) analysed the export performance of the 100 largest firms belonging to Indian engineering industry. The dependent variables considered in the study are export intensity, export sales and export growth. Firm size, profitability (profit before tax), and technological activity (R&D) are the independent variables employed in this study. The study reported a negative association of export performance with profitability and technological activity but a positive association with firm size.
Ganguli (2007) analysed the export performance of 165 firms in Indian iron and steel industry. The study attempted to determine the association of export intensity of the firms with structural factors of the firm like age, size and capital intensity. The study also analysed the association of export performance of the firms with an economic performance indicator: Return on Assets (ROA). The study found no significant relationship of export performance with size and age of the firms in the iron and steel industry but found a significant relationship with capital intensity of the firms. The study also reported no significant relationship of export intensity of the firms with the economic performance indicator, ROA.
SECTION THREE
RESEARCH METHODOLOGY
3.1 Introduction
This section discusses the research design, data type and sources, simple size and selection, data collection tools/methods, data presentation and analysis, data collection procedure and limitation of the study.
3.2 Research Design
A descriptive in nature research design will be used because it is flexible in both quantitative and qualitative data collection. Descriptive research design will also be used because it is effective to analyse non-quantified topics and issues, the possibility to observe the phenomenon in a completely natural and unchanged natural environment and the opportunity to integrate the qualitative and quantitative methods of data collection which other designs do not provide.
3.3 Data type and sources
Data will be collected from both primary and secondary source.
Primary data will be collected by use of questionnaires and interview guide.
Secondary data will be collected from published journals, reports, text books, and company records.
3.4 Sample Size, Selection and Procedure
The sample size will be 40 respondents. The sample size will be determined using Krejcie and Morgan (1970) because of its simplicity in determining the sample size not forgetting the time factor.
The study will use purposive sampling method. Purposive sampling is one of the most cost-effective and time-effective sampling methods available, it may be the only appropriate method available if there are only limited number of primary data sources who can contribute to the study and this sampling technique can be effective in exploring anthropological situations where the discovery of meaning can benefit from an intuitive approach.
The study also will use simple random method to reduce on the biasness of the purposive data and will mainly be used on clients. Advantages are that it is free of classification error, and it requires minimum advance knowledge of the population other than the frame. Its simplicity also makes it relatively easy to interpret data collected in this manner. For these reasons, simple random sampling best suits situations where not much information is available about the population and data collection can be efficiently conducted on randomly distributed items, or where the cost of sampling is small enough to make efficiency less important than simplicity.
3.5 Data collection methods and procedures
The study will involve questionnaires and interview method.
This research instrument to be used includes structured questionnaires with pre-coded answers administered to the respondents. The questionnaire will be used because it is practical, also large amounts of information can be collected from a large number of people in a short period of time and in a relatively cost effective way, can be carried out by the researcher or by any number of people with limited affect to its validity and reliability, the results of the questionnaires can usually be quickly and easily quantified by either a researcher or through the use of a software package, can be analysed more ‘scientifically’ and objectively than other forms of research, when data has been quantified, it can be used to compare and contrast other research and may be used to measure change.
Interview guide is used by the study since the methods help in the collection of more data as it allows the interaction of both the researcher and the respondents. The interview method will be used because any misunderstanding and mistake can be rectified easily in an interview. Also the relationship between the interviewer and the interviewee can be developed through an interview. It increases mutual understanding and co-operation between the parties and suitable candidates can be selected through interview because the interview can know a lot about the candidate by this process. Interview can help to collect the fresh, new and primary information as needed.
3.6 Data management, presentation and analysis
After collecting and cleaning the data it will be entered in a computer using Statistical Package for Social Scientists (SPSS). The quantitative data is analyzed using descriptive statistics, which includes frequencies and percentages. The qualitative data is analyzed in the content analysis and the analyzed data is presented using tables and figures in form of a report.
To determine the relationship between exports and performance of Britannia Allied Industries, a spearman correlation will be done to establish the strength of the relationship.
3.7 Limitations of the study
The study will be faced with the problem of not finding all respondents in the study area especially the employees who go to the field as a group. The researcher however will arrange with respondents to fix for the researcher an appropriate time in order to collect reliability and valid information from them for the study.
The researcher further will be faced with a problem of some respondents not providing information for the study as information relating to the study variables, however to this, researcher will be explained to respondents that the information will only be for the academic purpose while making them to understand the study variables.
