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Business Correspondent
A few months ago reports were that only about 10 of the 74 companies listed on the local bourse were operating at full capacity. Some even predicted an ‘‘industrial Armageddon’’ which could see more company closures leading to a rise in unemployment.
The Confederation of Zimbabwe Industries, through its president Charles Msipa, said companies are heavily affected by things such as power cuts and outmoded infrastructure, meaning that their productivity is severely reduced. This was on top of increased wage demands that do not correspond with productivity.
One interesting question to ask though is whether the business models that our companies are running on are competitive enough in a globalised environment? According to Wikipedia, a business model describes the rationale of how an organisation creates, delivers and captures value (economic, social, cultural, or other forms of value). To broaden it further, the essence of a business model is that it defines the manner by which the business enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit.
In my opinion the work that businesses must do is already cut out for them. The key is to master what customers want and how they want it. No matter how many times the operating environment change enterprises must organise their structures to best meet those needs, get paid for doing so, and make a profit.
Let’s take a look at three of Zimbabwe’s blue chip companies – Delta, Innscor and Econet. These companies make it their business to find out what consumers want and how they want it.
Take Delta, for instance, the group for years struggled to get it right on how consumers wanted their Chibuku product, but seem to have got it right by introducing Chibuku Super.
The group also localised the production of Maheu, a traditional beverage for most people in Zimbabwe, and the product has done wonders recording a 50 percent increase in revenue to US$11 million in FY2013,its first year of local production.
The rapid expansion of products soon after dollarisation also played a very critical role in allowing the group to consolidate its market share.
Over the years the company has also continued to improve its product packaging as well as hold promotional activities that help highlight its products to the market.
To that effect Delta remains one of the most sought after companies on the ZSE and you will agree with me that what has been key is its ability to deliver value to the customer with the right product at the right price and quality.
Econet has also been a success as it strives to identify the needs of the customer and even going beyond its core business of providing mobile telephone services.
The so-called value add services speak to the company’s ability to create, deliver and capture value for its customers. Just recently the company introduced EcoCashSave and we believe if properly marketed it can be a real game changer in the financial services sector. Then there is Innscor. Management at the group talked of how they were disappointed by the results the company had posted at FY2013. Management pointed out that going forward it would focus on adjusting pricing and product offering in order to get the gross margin dollars to increase.
In addition, more outlets would be opened in other areas during the year and we have already seen this with Innscor brands now occupying almost every corner of the CBD (Harare) and in many other areas.
In our opinion all these measures are aimed at changing the business model in order to create and deliver value to customers.
This is, however, not the case for most manufacturing, distribution and industrials stocks listed on the ZSE. Their business models have failed to stand the test of time and there are many of them.
In my list I will include AICO, Art, CFI, Hunyani, Interfresh, Medtech, PG Industries, Phoenix, Star Africa and Zeco. Have these companies really created, delivered and captured better value for the customer than the sole trader or SME next door? Let’s take a look at PG Industries, for example. Among some of the products it sells are asbestos from Turnall and cement from Lafarge and PPC among others.
PGI needs to create and deliver value when it sells these products better than what its competitors can do. How can that be done? In my opinion value can come in form of convenience.
Customers will never cross the breadth of town just to buy cement from PG Industries when there are so many outlets selling the same product closer to home. Gone are the days when large depots were needed to sale building products.
Much smaller outlets have mushroomed across town and suburbs and are providing the convenience to customers that PGI cannot offer.
In terms of cement there are now Lafarge branded containers in new and developing residential areas making a visit to PGI the last thing a customer would do. This is just one example from PGI which shows the business model needs to be changed.
Another definition from the Investopedia says a business model is the plan implemented by a company to generate revenue and make a profit from operations. The model includes the components and functions of the business, as well as the revenues it generates and the expenses it incurs. The expenses incurred by the business is another area where most local business models have failed the test.
A common future with most companies mentioned above is the huge finance costs that they have been paying since dollarisation. AICO, for instance, has fallen from grace, from once being a blue chip company, into just another penny stock largely due to the punitive debt it has been carrying over for years.
Despite promising to restructure its debt position in 2010 when interest costs were at US$9,7 million the situation actually worsened as this ballooned to US$13,6 million in 2011, US$18,5 million in 2012 and US$16,8 million. That’s at least four years with the same burden haunting the company. The questions to answer are, does the model of borrowing to fund operations work for AICO, or for some of the companies including AICO’s Olivine, is it worth it to continue to borrow funds when you have obsolete machinery that will never produce competitive products?
Online Reporter