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SPATIAL PATTERN OF INDUSTRIAL PRODUCTION SUBCONTRACTING IN ONITSHA METROPOLIS, ANAMBRA STATE NIGERIA
BY
NWOKOCHA VICTOR CHUKWUNWEIKE B.Sc (Nig) (PG/M.Sc/12/62362)
A Project submitted to the School of Postgraduate Studies and the Department of Geography, University of Nigeria, Nsukka in partial fulfilment of the requirement for the degree of Master of Science
Department of Geography, University of Nigeria, Nsukka
June, 2014
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CERTIFICATION
Mr. Nwokocha, Victor Chukwunweike, a postgraduate student in the Department of
Geography, specializing in Industrial Geography, has satisfactorily completed the requirements for the course and research work for the degree of Master of Science (M.Sc) in
Geography. The work embodied in this project is original and has not been submitted in part or full for any other diploma or degree of this or any other University.
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PROF 1.A MADU PROF O.C. AKPOGHOMEH (SUPERVISOR) (EXTERNAL EXAMINER)
------PROF. P.C. ONOKALA (HEAD, DEPARTMENT OF GEOGRAPHY)
------PROF. I.A. MADU (DEAN, FACULTY OF SOCIAL SCIENCES)
------DATE
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DEDICATION
To God Almighty the source of all wisdom and my mother Mrs Nwokocha, V.N.
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ACKNOWLEDGEMENT
My profound and sincere gratitude goes to the Almighty God for giving me the grace to finish this study.
I am particularly thankful to my supervisor and the Dean of Social Sciences,
University of Nigeria Nsukka, Prof. I.A. Madu, a distinguished academic for his constructive valuable and helpful guidance in the course of this work. My profound gratitude goes to the
PG coordinator, Dr. T.C. Nzeadibe, for facilitating and putting in place all the process leading to the completion of this work. I am equally grateful without any form of primordial and parochial sentiments to Prof. P.C. Onokala, Prof. P.O. Phil-Eze, Dr. N.C. Obeta, Dr. C.K.
Ajaero, Dr. H.C Nnamchi, Mr. C.A. Onyekwelu, Mr A.T. Mozie, Mr. A.N. Ali, Mr. R.U.
Ayadiuno, Mrs U.I Ayaogu, Miss T.C Akukwe, Mr C.U. Eze, and specially Mrs. I.G. Nwosu, for their insightful and valuable assistance in the course of this work.
Although am unable to mention each person individually, I thank all the industrialists and parastatals who supported me in the course of this study. My immeasurable gratitude goes to Dr. S.I. Ifelumini, Dr C.A. Eze, Mr G.G Obinyeluaku, Mr .C. Ogbodo,and all my colleagues for their assistance and useful suggestions.
I remain highly grateful to my Mother, Mrs Nwokocha, V.N. and siblings for their prayers, financial and moral support. I also express my heart-felt thanks to my course mates, friends and families for their wonderful encouragement at all stages of this work. To all those who supported me in one way or the other including my detractors, the mercies of God will never depart from your door steps.
Nwokocha, Victor Chukwunweike June, 2014
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TABLE OF CONTENTS
Title page...... i Certification...... ii Dedication...... iii Acknowledgement...... iv Table of Content...... v List of figures...... vii List of Tables...... viii List of Appendices ………………………………………………………………………. xi Abstract...... xii
CHAPTER ONE: INTRODUCTION 1 1.1 Statement of the research problem...... 3 1.2 Aim and Objectives of the research...... 5 1.3 The study area...... 6 1.3.1 Location...... 6 1.3.2 Geology...... 9 1.3.3 Relief...... 9 1.3.4 Climate...... 10 1.3.5 Vegetation...... 10 1.3.6 Population...... 12 1.3.7 Economic Activities...... 12 1.4 Literature review...... 14 1.5 Theoretical framework...... 25 1.6 Research Methodology...... 28 1.7 Plan of the project...... 32
CHAPTER TWO: CLASSIFICATION OF INDUSTRIES AND THEIR STRUCTURAL CHARACTERISTICS IN ONITSHA METROPOLIS
2.1 Introduction …………………………………...... 34 2.2 Classification of industries involved in production subcontracting in Onitsha Metropolis...... 34 2.3Factors of industrial location in Onitsha Metropolis...... 37 2.4 Structural characteristics production subcontracting industries...... 39 2.4.1 No of employees...... 39 2.4.2 Asset base of the industries...... 41 vi
2.5 Production subcontracting decisions by firm size...... 42 2.6 Production subcontracting decisions by industrial groups...... 44 2.7 Structure of industrial production subcontracting...... 45
SPATIAL DISTRIBUTION OF INDUSTRIES AND TYPES OF PRODUCTION SUBCONTRACTING IN ONITSHA METROPOLIS
3.1 Spatial distribution of industries in Onitsha Metropolis...... 47 3.2 Pattern of industrial distribution in Onitsha Metropolis …………………………….. 50 3.3 Types of Production subcontracting …………………………………………………. 52
3.3.1 Competence subcontracting...... 52 3.3.2 Outsourcing subcontracting...... 53 3.3.3 Capacity subcontracting...... 55 3.4 Industrial activities subcontracted by industries in the study area...... 57 3.5 Industrial activities subcontracted by industrial groups...... 58
CHAPTER FOUR: FACTORS INFLUENCING THE USE OF PRODUCTION SUBCONTRACTING BY INDUSRIES IN THE STUDY AREA
4.1 Introduction...... 61 4.1.1 Factors influencing the use of production subcontracting by industries in the study area …………………………………………………………………………. 61 4.1.2 Factors influencing the selection of production subcontractors by industrialists in the study area...... 64
CHAPTER FIVE: BENEFITS AND PROBLEMS LIMITING PRODUCTION SUBCONTRACTING IN ONITSHA METROPOLIS 5.1 Introduction...... 67 5.1.1 Benefits of production subcontracting in the study area...... 67 5.1.2 Problems limiting production subcontracting in the study area...... 69 CHAPTER SIX: SUMMARY, RECOMMENDATIONS AND CONCLUSION 6.1 Summary of research findings...... 72 6.2 Recommendations...... 80 6.3 Conclusion...... 84 References...... 86
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LIST OF FIGURES FIGURE PAGE Fig 1:Map of Anambra State Showing Onitsha Metropolis…………………………… 7 Fig 2: Map of Onitsha Metropolis Anambra State Nigeria...... 8 Fig 3: Percentage distribution of industries by firm size (number of employees) in
Onitsha Metropolis ………………………………………………………………. 41 Fig 4: Percentage distribution of industries by firm size (Asset base) in Onitsha Metropolis …………………………………………………………………….. 42 Fig 5: Percentage distribution of production subcontracting by firm size Onitsha Metropolis ………………………………………………………………….. 43 Fig 6: Percentage distribution of subcontracting decision by industrial groups...... 44 Fig 7:Spatial distribution of production subcontracting in Onitsha metropolis
Anambra state, Nigeria...... 48 Fig 8:Percentage distribution of competence subcontracting by industrial groups ……… 53 Fig 9:Percentage distribution of outsourcing subcontracting by industrial groups ………. 54 Fig 10:Percentage distribution of capacity subcontracting by industrial groups...... 55 Fig 11:Types of production subcontracting found in the study area...... 56 Fig 12:Percentage distribution of industrial activities subcontracted byindustries in the
study area ………………………………………………………………………….. 57 Fig 13:Percentage distribution of industrial groups that subcontracted manufacturing activities to other industries ……………………………………………………….. 58 Fig 14:Percentage distribution of industrial groups that subcontractmaintenance activities to other industries in the study area...... 59
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LIST OF TABLES TABLE PAGE TABLE 1:Population distribution in Onitsha Metropolis Anambra State ……………… 12 TABLE 2: Stratified sampling of industries in Onitsha Metropolis …………………….. 28 TABLE 3:A rotated PCA of the variables influencing the location of industries in Onitsha
Metropolis ……………………………………………………………………. 37 TABLE 4:Size of industries in Onitsha Metropolis (number of employees) ………….. 40 TABLE 5:Asset base of subcontracting industries in Onitsha Metropolis Anambra State …………………………………………………………………………. 41 TABLE 6:Production subcontracting decision by firm size ……………………………. 43
TABLE 7:Structure of Industrial Production Subcontracting in Onitsha Metropolis …………………………………………………………………. 46
TABLE 8:Percentage distribution of some aspect of subcontracted industrial activities by industrial groups ……………………………………………… 51
TABLE 9:Nearest neighbour analysis results of industries in Onitsha Metropolis ...... 60
TABLE 10:Descriptive statistics showing factors influencing the use of production subcontracting by industries in Onitsha Metropolis Anambra State ...... 62 TABLE 11:A rotated PCA of the variables influencing the use of production subcontracting by industries in Onitsha Metropolis ...... 62
TABLE 12:Table 18: Factors influencing the Selection of production subcontractors by industrialists in Onitsha Metropolis Anambra State ...... 65
TABLE 13:Descriptive Statistics showing the benefits of production Subcontracting...... 68
TABLE 14:Descriptive Statistics showing the problems limiting effective production subcontracting in Onitsha metropolis...... 69
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LIST OF APPENDICES
APPENDIX
APPENDIX A:Production subcontracting industries and their industrial group in Onitsha Metropolis Anambra State Nigeria
APPENDIX B: Location of industries in Onitsha Metropolis Anambra State – Food Beverage and Tobacco Industrial Group.
APPENDIX C: Location of industries in Onitsha Metropolis Anambra State – Aluminium and Metal Industrial Group
APPENDIX D: Location of industries in Onitsha Metropolis Anambra State – Plastic, Foam and Rubber Industrial Group
APPENDIX E:Location of industries in Onitsha Metropolis Anambra State – Printing Paper and Publishing Industrial Group
APPENDIX F: Location of industries in Onitsha Metropolis Anambra Sta Chemical Paint and Allied Industrial Group APPENDIX G: Production subcontracting industries: Food, Beverage and Tobacco industrial group (Group one)......
APPENDIX H:Production subcontracting industries: Chemical, Paint and Allied industrial group (Group two) APPENDIX I: Production subcontracting industries: Plastic products, Foam and Rubber Industrial group (Group three)
APPENDIX J: Production subcontracting industries: Aluminium and Metal Industrial group (Group four)
APPENDIX K: Production subcontracting industries: Printing, Paper and Publishing Industrial group(Group five)
APPENDIX L: Questionnaire sample
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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 behaviour encompassing a body of laws and principles guiding this production process be established in the study area. This will help the firms to makerational decisions or to seek redress once there is a bridge of contract. 1
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 2 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). 3
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 4 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 5 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. 6
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 06044.591I 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).
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Figure 1: Map of Anambra State showing the study area
Source: Anambra State Ministry of Land and Survey
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FIGURE 2: Map of Onitsha Metropolis
Source: Ministry of Urban Planning Anambra State
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The area is believed to have been founded between 1630 and 1680 (0koye.1975). Though the founding fathers have been said to claim their origin from the famous Benin Kingdom, ethnographic studies by Onwujiogwu provide a body of incontrovertible and overwhelmingly strong evidence that proves the Onitsha people to be of true Igbo origin (Okoye, 1975). The area is about 3,063 square kilometer. It serves as the gate way between the south-eastern and south-western part of Nigeria (Igbokwe, Ezeomedo, and Ejikeme, 2013).
1.3.2. Geology
The main geologic units of the area are the recent deposits of the Holocene (Quaternary) occupying the active floodplains of the River Niger and Anambra and the sandstone formation of the Upper-Middle Eocene (Tertiary) occupying the sandstone plains lying above and adjacent to the Niger-Anambra floodplains (Mozie, 1992). The sandstone formations are subdivided into the Bende-Ameke sandsone and Nanka sand formations. The stratigraphic succession of the study area appears to be that the Bende-Ameke formation and the
Cretaceous beds beneath them. Above the sandstones, are the lignities of the Asaba-Ogwashi formations and on them are the recent deposits of the Holocene. In the vicinity of Niger vally proper, the Asaba –Ogwashi and recent deposits pinch off and the sandstone resets on the
Imo Clay Shales in locations further inland (Igbozurike, 1975). The Bende-Ameke formation consist of clayey sandstones, grey green in colour, green clays, clay-shales and sands contain a lot of fossils belonging to the Eocene.
1.3.3 Relief
The land scape of Onitsha metropolis is a high land. The eastern part of the area is on upland while the rest is claimed by the river Niger which lies on the western part of the area.
(Mozie and Ayadiuno, 2008) The inland town ison high grounds while more recently developed areas such as Woliwo, Odoakpu Awada/ Obosi, Nkporand Otuare are on lower 10 grounds. Others areas such as Ogbaru, Fegge, Niger bridge head and Okpoko are situated within the flood plains (Elekwa, 1999). The development of Onitsha owes much to her advantage of site and location. According to Ofomata (1975), “Onitsha town is sited where a high ground is underlain by the sand stones of the Bende-Amekiformation, and comes very close to the River Niger providing astretch of well drained healthy site in the flood plains of the River Niger.” Such favourable site at the meeting point of two contrasting regions (east and west of the Niger), and the Niger itself, providing a link with the Savannah zone to the north and the forest and Delta region to the south, enabled Onitsha to develop as an important commercial centre. This has also aided in the level of industrial development observed in the area. This is because the relief structure of the area posed no major challenges to infrastructural development viz-viz industrial development except occasional flooding in the flood plains.
1.3.4 Climate
Anyadike (1992) asserts that the climate of the study area is located in the transitional zones between the sub-equatorial south and subtropical hinterland of Nigeria. The area has an annual rainfall of between 1500mm to 2000mm and a mean annual temperature of between
22̊c to 27.5c̊ (Igbokwe etal, 2013). The wet months are from April to October and the dry period lasts from November to March. About 90% of the rains fall between the months of
April, August and September, while the remaining 10% fall in the months of October and early November. South west monsoon harmattan winds are experienced around January, May and September respectively. (Meteorological office, Onitsha).
1.3.5 Vegetation and Soil
The study area belongs to rainforest-savannah ecotone.Although annual rainfall is high in
Onitsha, ranging from 1,400mm in the north to 2,500mm in the south, it is concentrated in 11 one season, with about four months of dryness, November to February. Consequently, the natural vegetation in the greater part of the region is tropical dry or deciduous forest, which, in its original form, comprised tall trees with thick under growth and numerous climbers
(Okoye, 1975).The typical trees (silk cotton, Iroko and oil bean) are deciduous, shedding their leaves in the dry season. Only in the southern parts of the region, where the annual rain fall is higher and the dry season shorter, is the natural vegetation marginally the tropical rainforest type. The vegetation of the study area currently is a sub-climax of the original rainforest, having been virtually cleared due to development. This can be seen in the areas of real estate development, commercial and industrial development which can be seen all over the study area.What exists now is secondary re-growth, or a forestsavannah mosaic, where the oil palm is predominant, together with selectively preserved economic trees.
Three soil types can be recognised in the study area. They are: (i) alluvial soils, (ii) hydromorphic soils, and (iii) ferallitic soils. The alluvial soils are palebrown loamy soils.
They are found in the low plains south of Onitsha in Ogbaru and in the Niger, Anambra low plain north of Onitsha. They differ from the hydromorphic soil which is relatively immature and having no welldeveloped horizons (Mozie, 1992).They, however, sustain continuous cropping longer than the other two types. Hydromorphic soils are developed on the Mamu plain east of the cuesta, extending northward into the eastern part of Anambra River floodplain, where the underlying impervious clayey shales cause waterlogging of the soils during the rainy season (Mozie, 1992). The soils are fine loamy, with lower layersfaintly mottled; while the subsoil layers are strongly mottled and spotted, containing stiff grey clay.
The soils are good for yam, cassava and maize, and for rice in the more heavily waterlogged areas. The cuestas and other elevated areas under lain by sandstones and shales of the Ameke
Formation and the Nanka Sands are regions of ferrallictic soils (Igbokwe and Emengini, 12
2004). The soils are deep, red to reddish brown loamy sands, often referred to as "redearth" or acid sands because of low fertility. They are easily eroded into gullies.
1.3.6. Population
The population trend of the study area has been that of a continuous increase. Just like other modern cities of the world the population of the study area have been on a steady increase right from the inception of the area. The earliest estimate of the population of the study area was given by Adolphe Burdo in the year 1800 where he estimated the population of to be 15,000 persons (Okoye, 1975). Due to rapid commercialisation and industrialization the population of the study area stands at 726,850 persons (see Table 1).
TABLE 1: The population distribution in Onitsha Metropolis in Anambra State (2006)
Local Government Areas 1991 2006 Onitsha North LGA 121,063 124,942 Onitsha South LGA 135,290 136,662 Idemili North LGA 278,642 423,491 Ogbaru LGA 191,761 291,446 Total 726,756 974,541 Source: Nigeria Population Commission (2006)
1.3.7. Economic Activities
Economically, Onitsha metropolis is predominantly a commercial city. Its greatest landmark in commerce is the Onitsha Main Market which is known to be the largest in the
West Africa sub-region (Manufacturers Association of Anambra and Enugu State Branch,
2000). The Main Market reputed to have in its merchandise diverse goods comparable to any international market in Europe, Asia, and America. The Main Market is located at the bank of the River Niger in the western end of the town. Precisely speaking, there is nothing one finds in cities like London, Paris, New York, Pyongyang, etc that is not available at all times in the
Main Market (Akus, 1994). Other commercial markets in the city include the Ose Okwodu
Market, Ochanja Market, and Bridge Head Market. The Ose Okwodu Market which is 13 adjacent to the Main Market is known formally for the sales of agricultural products (food stuffs mainly) but recently due to the rapid growth which has taken place in the market, other items such as shoes, plates, electronicsof all types among others are currently been sold in the market, while the Bridge Head Market is known for the sales of all kinds of building materials and allied products as well as pharmaceutical products.
Estate development is not left out in the ongoing distribution of commerce and industry in Onitsha. Before Nigeria’s independence, and within the 60’s, there were few estate concentrations known in Onitsha. But immediately after the civil war, the speed with which vast areas were developed remains unprecedented. The old and known areas include the inland towns where the indigene mostly live, Fegge, American Quarters, Odoakpu, Ogbe
Umu- Onitsha and GRA. Other areas that developed include Omagba phase 1 and 11, MCC,
Obosi and most recently ‘33’ residential area to mention but a few. Most of these layouts were remarkable for their window shopping or street business. The gross profit accruing from different commercial activities to businessmen and women in Onitsha metropolis attracted many banks to the study area. The earliest arrivals include the British Bank of West Africa
(BBWA) in 1894 (Akus, 1994). The success of the bank attracted other banks like the former
Barclays Bank (now Union Bank), former Standard Bank now (First Bank) etc.
The city is currently attracting extensive industrial activities. These industrial activities can be seen in the establishment of various small, medium and large scale industries in the various areas within and around the city. For instance, the area has recently given home to a number of industries in various specialities ranging from beer brewing, soap making, chemical and foam manufacturing etc. Some of the industries associated with these specialities include Intafact brewey limited, Dossy power oil, Krisoral and company limited among others. These industries are located in areas such as Fegge, Harbour/ Ogbaru industrial layout, Awada industrial Layout, Nkpor, Onitsha/Enugu expressway etc. 14
Generally,the specialities of industries in the study area include brewing, manufacturing of plastic packages, paper converting, Vegetable Oil production, paint and form production etc
(Manufacturers Association of Nigeria Anambra and Enugu Branch, 2000). These industries provide employment for the teaming population of the study area as well as revenues for the local authorities.
In addition to commerce and industries, Onitsha metroplois also grew to become major transportation, educational, religious and administrative centre. As a major religious centre, it has the largest cathedrals for both the Anglican and Roman Catholic churches, east of the Niger, while as an educational centre; it has a number of educational institutions with
National Metrologicalcentretopping the chart.
1.4LITERATURE REVIEW
Industrial production subcontracting is not a recent topic. For the past 30years, industrial subcontracting market has grown at a greater rate than the industrial sector in its entirety (Marcos, 2003). There are many reasons that explain why this has happened. First, in the 1960s and 1970s, the main medium of competition was that of price where companies simply sought to reach economics of scale, manage growth and acquire greater market shares
(Yasar and Morrison, 2008). In such a system, quantity prevails over quality and therefore there is no need to subcontract parts, components or sub-assemble to meet specific product characteristics (Yasar and Morrison, 2007). Over time, companies started focusing on upstream activities such as Research and Development (R&D), Marketing and Product
Design etc making the importance attached to the later task to be switched away from the means of production resulting in them being assigned to specialist partners in the supply chain (Cabinet Verley, Press Kit Midest, 2002). With the fierce competition in the global market, many firms have been increasingly turning to production subcontracting 15 arrangements in order to improve their competitiveness. For example, Boeing outsources a large portion of the Boeing 767 to a consortium of Japanese manufacturers including Fuji,
Kawasaki, and Mitsubishi (Gilley, 2000).
Studies on production subcontracting are abound in regional sciences, management sciences, economics and geographical literature. Following Coase’s(1937) seminal work, activities would be subcontracted where the perceived costs of using the market were less than that of undertaking the activity in house. From this point of view, the decision to subcontract constitutes primarily a trade off between the cost and benefits associated with each alternative (Coase, 1937; Williamson, 1975; 1979; 1984; Scott, 1988; Storper and Scott,
1990). The factors that influence the trade off can be grouped into production cost factors and transaction cost factors (Ono, 2007)
Production cost factors- subcontracting can imply production cost savings relative to in -house production in three principal ways (Abraham and Taylor, 1996). At first, higher wage firms may try to cut labour cost by contracting out part of their activities to lower wage producers. This is a way to segment the labour force and higher wage firms that are unable to pursue different wage strategies internally. Secondly, fluctuation in the firm’s production market may favour the development of subcontracting (Ono, 2007). Firms may try to smooth the work load of their core work force by contracting out tasks during peaks of demand. This type of production subcontracting relates to what is known as capacity subcontracting.
Thirdly, production cost savings can be achieved where outside supplier benefit from economies of scale or specialised knowledge leading to what is known as specialisation subcontracting (Girma and Gorg, 2004)
Transaction cost factors building on the seminal work of Willianson (1975; 1985) argue that the choice between in-house production and subcontracting is not only a matter of production cost differences. The subcontracting decision is also determined by the cost of 16 setting up and manufacturing relationships. In view of this, Chrisman, Chua, Chang and
Kellermanns, (2007) revealed that based on the precepts of transaction cost theory, familyfirms tend to rely less on subcontractors than non-family firms. UsingAnalysis of
Covariance statistics, they suggested a number of economic and non economic reasons why such reliance may be justified. The result suggests thatfamily firms will increase the use of subcontractors when cost concerns dominate decision making. On the other hand, family firms will avoid using subcontractors when the firm's activities are considered of primary importance to the nature of the business. Thus, family firms appear cognizant of the idiosyncratic combination of family and business resources they possess and take measures to preserve the advantages that those resources provide. This recognition may be one of the key factors in determining the ability of family firms to attain competitive advantages over nonfamily firms (Habbershon and Williams, 1999andCarney, 2005). Importantly, both of the results are consistent with the principles of transaction cost theory, suggesting that the use of this theory in future research on family firms may yield important insights.
Grossman and Helpman (2002 and 2005) further emphases that firms choosing to subcontract components have to first search for suitable partners. They show in a general equilibrium model that with costly search, subcontracting is more likely to be viable where firms find more potential subcontracting partners. Firms’ propensity to subcontract thus can depend on the characteristics of the local economy. Along this line, it could be said that production subcontracting promotes locational agglomeration. This is because external transaction cost between firms in the market, including transportation and communication cost, increase with distance.
The effectiveness of production subcontracting has also been attributed to location. In the works of Grossman and Helpman (2002) and (2005), they opined that the size and structure of the local economy determines firm’s opportunities for subcontracting through the 17 cost for searching for suitable subcontracting partners, locating close to downstream industries provides a larger market (demand linkage) and being close to upstream industries saves transport costs on intermediate input (cost linkage). The literature on the spatial dynamics of flexible specialized production networks identifies subcontracting as a key characteristic of industrial districts and emphasises the importance of geographical proximity in establishing inter-firm linkages such as subcontracting relations (Scott, 1987; 1988; 1993).
Abraham and Taylor (1996) studied the determinants of subcontracting of business services in U.S. industrial establishments. Including a dummy variables for metropolitan locations, they found a positive effect for accounting and computer services subcontracting, but not for other business service. Merino and Rodriquez (2005) using econometrics also found mixed results for the effect of city location and the number of service providers in the same region for service subcontracting in Spanish manufacturing industry. Using an annual survey of manufacturing industry in Turkey and a tobit model, Taymaz and Kilicastan (2005) found a strong positive effect of geographical same sector concentration in their analysis of subcontracting intensity among firms in the Turkish textile and engineering industries.
In line with this, Holl (2007) examined the factors that explain firm’s production subcontracting decisions, testing whether there is any evidence that production subcontracting is facilitated in areas typically associated with higher agglomeration economies. Using data from a panel of Spanish manufacturing firms and a probit model, he was able to show in his results that location matters; firms in industrial agglomeration are more likely to subcontract production activities and subcontracting activities are made more attractive for smaller and low wage firms allowing firms to respond to a greater degree to demand fluctuation. 18
The factors that influence an industry into production subcontracting have equally received an increased attention in empirical research. In view of this, Harrigan and Newman
(1990) have argued that this decision is largely predicted on the benefits of the linkage to the firms, whether the resources or the market offered by the partner is critical to its activities; the cost or opportunity cost. Baily, Masson and Raeside (2002) researched the subcontracting arrangement in Edinburg and Lothians and suggested that improving the quality of services, focusing on the core business functions, reducing operating cost and accessing advanced technology and management experience were some of the major reasons for production subcontracting. Relatively speaking, the factors such as sharing risks and formatting strategic alliance were not as important as the formers. What’s more, production subcontracting also helps the firm to gain professional technical capacities from the suppliers during the process of corporation, and it is particularly useful in the field of information technology, manufacturing and logistics (Qunin and Hartley 1996; Marshalled, Mcivorb and
Lamming, 2007).
Apart from the contentions above, Kumar and Subrahmanya (2004) were of the view that industries or firms participate in subcontracting activities for two basic reasons: because it is good business and out of a sense of responsibility for community service. To say it is good business, it means that linkage contracts provide the corporate buyer with needed inputs of the required quality and quantity at competitive prices, delivered in a timely manner thereby reducing costs and enabling the corporation to concentrate its capital and management skills on a more limited range of activities ie its core business (Kumar and
Subrahmanya, 2004).
In line with this, Jenkin, Alkhalkatshi, Roberts and Gardiners (2007), indicated that the factors that influences an industry to engage in subcontracting are: to reduce and control operation cost in manufacturing, to improve company’s focus, and to access world class 19 capabilities, to free resources for other purposes, to access resources not available internally etc. Similarly, the study on production subcontracting conducted in Thailand by Thongpadke,
Puppahavesa, and Pussarangsri (2002) pointed out that industries usually subcontract for several reasons. In his views, finished products usually consist of various parts and components. The cost of establishing several manufacturing capabilities for some of these components do not always justify themselves. Thus it is sometimes more desired for firms to establish subcontracting agreement where the least savingexceeds the transaction cost of such arrangement. Cost reduction is usually viewed as the internal motivation for subcontracting, which means using external resources to provide the same level of services at lower price than operating it inside (Thongpadke et.al, 2002)
Production subcontracting has also being attributed to improved firm’s performance.
The studies of Girma and Gorg, (2004); Morrison and Yasar, (2008); Lopez, (2009);
Razzolini and Vannoni, (2010) have all suggested that production subcontracting is related to improved firm performance. Using Premia regression analysis of productivity and productivity of growth gap between subcontracting and outsourcing “Starter” and non
“Starter” and estimation of a translogy production function model by procedures that accommodate simultaneity and selection issues- to measure the productivity and input composition implication of domestic and foreign subcontracting, Morrison and Yasar (2008), showed that both domestic and foreign subcontracting improves firm’s performance. This is because firms not only concentrate on their core competencies, it also allow them to gain access to state of the art technology using external sources thereby increasing the performances of the industry. Furthermore, Morrison and Yasar (2008), show that higher shares of imported materials and subcontracted inputs are associated with significantly greater performance, including higher labour and total factor productivity. According to
Lopez (2009), there is a positive effect subcontracting intensity on productivity, showing an 20 elasticity with respect to output around 0.15 and this is mainly for firms belonging to light industries (labour intensive industries). Again in the analysis of Kongmanila and Takahashi
(2009) on the factors that determine subcontracting behaviour and their impact on firm performance, they were able to obtain six factors using the analysis of principal component analysis: firm size, wage, female worker ratio, capital labour ratio, technology and foreign- owned firms which according to them were the important determinants of subcontracting behaviour in different subcontracting approaches including firm performance.
The review of empirical studies on the determinants of industrial production subcontracting revealed that traditional subcontracting relation that is simplified as a relationship between high wage/large firms employing male workers and low wage/small firms employing female workers can vary regionally as well as in industrial sector, in other words, production subcontracting as a specific form of cooperation between firms, should not necessarily be conceived as an unequal relationship between small and large firms in all the industrial sector (Taymaz and Kilicaslan, 2004).
Using the random effects tobit model, Taymaz and Kilicasla (2004), revealed that short-term/ unequal relationship exist between client and subcontractors in the textile industry whereas subcontracting relationships in the engineering industry are established between similar relatively advanced firms that have complementary assets and technologies.
Moreover, subcontracting flourishes in region densely populated by firms.
In the works of Kongmamla and Takahashi (2009), the determinants of subcontracting behaviour in the garment industry include firm size, wage, female worker ratio, capital labour ratio technology and foreign owned firms. While this study makes a valuable contribution, it never the less contain a number of limitations one of which is that it restricted its investigation to only garment industry. The research on determinants of subcontracting 21 should be pursued by investigating other industries or manufacturing sectors as a whole, to determine whether the result can generalize. Other empirical works on this topic include
Kimura(2001), Tomiura (2005, 2006) for Japanese manufacturing industry, Germa and Gorg,
(2004) for the United Kingdom manufacturing industries and Holl (2004 and 2007) and Diaz-
Mora, (2007) for Spanish manufacturing industry.
Similarly, review of empirical studies of production subcontracting strategies according to Lacity, et.al (1996) and Earl (1996) suggest that there are three modes of subcontracting. They include: Total subcontracting, In -subcontracting and Selective subcontracting. If subcontracting or outsourcing is of the total variety we refer to it as simply traditional subcontracting (Earl, 1996; Dekkers, 2000), and if it is “selective”, it is termed selective subcontracting or outsourcing (Lacity et.al, 1996, Dibbern, Goles , Hirschheim, and Jayatilaka, 2004). Statistics Denmark (1996)also classified subcontracting into three types.
They include Capacity subcontracting, Competence subcontracting and outsourcing subcontracting.
Capacity subcontractingis structured to meet fluctuations in demand, which usually create excess capacity, unfilled orders and long delivery times. In this case, a network of subcontractors can act as a buffer in order to smoothen out the cycles. Industries where orders or demands fluctuates or over loads the capacity of the receiving firms, some of the production can be transferred to local rivals, which then act as horizontal subcontractor
(Ragnarson, 2000). This type of relationship is common in the metal and textile industries.
Competence subcontracting on the other hand is structured to enable industries gain access to processes, machineries, skills, technical-know-howwhich are not easily available within the firm or available in the open market. In such cases, the industries may engage in competence subcontracting relationship with some specialists in order to produce the needed output. 22
Outsourcing subcontracting is a type of subcontracting relationship were industries subcontract or outsources in order to concentrate on its core activities. When an industry chooses to focus on the core activity, it outsources the other activities that previously were conducted in-house in order to minimise risks and to build long-term trust relations with future supplier or customer either financially, legally or proprietary (Ragnarson, 2000).
Taymaz and Kilicaslan (2000) following Watanebe (1971), Chaillou (1977) and Holmes
(1986) identified three major types of production subcontracting: capacity subcontracting specialized subcontracting, and supplier subcontracting (Taymaz and Kilicaslan, 2000). In the case of capacity subcontracting, only the fabrication of the subcontracted part is carried out by the subcontractor with respect to a detailed set of plans and specifications set down by the parent firm, and usually the parent firm will also be manufacturing the same parts. In specialization subcontracting, decision about the method of production is usually taken by the subcontractor and the parent firm produces none of the parts. Supplier subcontracting is similar to specialization subcontracting, but the subcontractor is an independent supplier with full control over the development, design and the method of production but is willing to enter a subcontracting arrangement to supply a dedicated or licensed part to the parent firm.
To maximize the potential benefits and minimize the risk of subcontracting, there is a need for subcontracting strategies to select suitable subcontracting partners (Choi and Hartley
1996; Bailley et.al 2002) the most critical step in selection of vendors or partners is to establish selection criteria. Kennedy (1997) argued that the most common selection factors are market position of the potential subcontractor, the quality of service offered, the product and technical leadership, the contending company’s image and reputation. Baily,et.al(2002) shows that the criteria used for selecting subcontracting partner or contractors were mainly reputation, cost, previous contacts and technical capability. 23
In Africa and indeed Nigeria, similar investigations have been carried out. Manning
(1993) revealed that production subcontracting exist in the clothing industry in South Africa.
Using a mini telephonic survey of ten (10) formal small and medium scale manufacturers, his results revealed that subcontracting relationship proved highly beneficial to the manufacturing activities of these clothing industries in terms of cost reduction, service efficiency and risk sharing. Similarly, the work of Okatch, Mukulu and Oyugi, (2011) revealed the factors influencing the reluctance of large scale industries to engage in subcontracting relationship with local small and medium enterprises. Using a content analysis approach and conceptual content analysis, their studies showed that the unwillingness to engage in this relationship was as a result of the inability of the SMIs to supply quality products to schedule, lack of local suppliers for certain parts, the proliferation of makes and models among others. Similarly, the works of Gakure, Kimemia and Waititu (2014) held the views which supported the premise that intensity of participation in subcontracting positively influences the performance of manufacturing micro and small enterprises in Kenya and keeping in view the findings of the study, they recommended that micro and small manufacturing enterprises should engage in subcontracting more intensely; adopt firm- specific tactics to build up superior capabilities to be more competitive.
Other works on this topic in Africa have focused on subsectors. These include the pharmaceutical sector (Owno, 1991); the garment sector (Ongile and McCormick, 1996), the metal fabrication sector (Oketch, Mitullah and Atieno, 2002); the food processing sector
(McCormick and Atieno, 2002). Others include (Rogerson 1991; 1994 and 2013; Cruch,
1991; Meyn, 2004; Edwards, 2004 and Luiz, 2011)
In Nigeria, the few studies on production subcontracting are the works of Ajayi (1998,
2000, 2001, 2003 and 2007), Arimah (2002), Oyeyinka (2004), Alarape (2007) and Makinde,
Abdulganiyu and Dikko (2011). Using the method of stepwise regression and analysis of 24 variance, Ajayi (1998, 2000, 2001, 2003 and 2007), revealed an increase in volume, pattern and nature of production subcontracting linkages in Nigeria. The study suggests that production subcontracting can increase industrial development. Similarly, Arimah (2002) attempted a quantitative analysis of the nature of informal sector’s linkages with formal sector in Nigeria. The result showed that there are two types of forward linkages: subcontracting agreements with large domestic companies, government agencies and foreign companies and the supply of consumer goods from informal sector enterprises to the formal sector. The empirical analysis based on a logit regression model reveals that key variables accounting for the extent of backward linkages with the formal sector pertain to registration of the informal sector enterprise, level of investment, annual income of the entrepreneur, number of employees, entrepreneur’s previous work experience and the education of employees.
Alarape (2007) critically analyzed the development of effective subcontracting and the network relations among small medium and large industries in Nigeria. The findings of the study showed that there is neither a clear framework nor model of subcontracting and networking in the Nigeria industrial sector, the industrial annual growth, particularly in the manufacturing sub-sector, is very low, and the contribution to GDP is at an average of 6%.
The result of the study clearly indicates that a well developed subcontracting and networking strategies will improve the productivity of the small and medium industries, enhancing growth and development in the Nigerian industrial sector.
From the foregoing, it is evident that most studies on subcontracting in Nigeria,
Africa and the World as a whole have been analysed on regional scales and on a sectoral bases. The implication according to Kongmanila and Takahashi (2009) is that it will be difficult to make a generalised assessment on subcontracting that will also capture its local aspect. Thus this work has been oriented to cover this intellectual gap by investigating 25 production subcontracting in a local scale using industriesin Onitsha metropolis, as a case study.
1.5THEORETICAL FRAMEWORK
Subcontracting is usually defined as a situation where the firm offering the subcontract requests another independent enterprise to undertake the production or carry out the processing of a material, component, part or subassembly for it according to specifications or plans provided by the firm offering the subcontract (Holmes, 1986; Taymaz and Kilicaslan,
2005). Subcontracting has its foundations in the mechanism of linkages and economies of scale in industrial location theory.In the context of industrial sector,“linkage” refers to the flows of supplies, whether they are materials, semi-finished goods and components, orfinished products, between two commercial concerns (Keeble, 1976).Linkages are best understood in term of the theory Externality economies and in particular, in term of thedistinction between pecuniary and technological externalities. Schitovisky (1954) declares that a pecuniaryexternality is generated where the action of one firm affects profitability of others through market mechanism. Atechnological or unprized externality is generated where the profitability of a firm is affected through non-marketinterdependence. In a fully developed economy, as one industry expands, prices of its inputs (as well as quantity)will rise and so, there would be a rise in the investment in the output producing industry (Fatusin,
2014). There are differenttypes of linkages - backward linkage, forward linkage, service linkage, sales or marketing linkage, vertical anddiagonal linkage.In other words, subcontracting (vertical linkage) is a specific form of outsourcing that involves intimate relations and information exchangebetween firms (Heshmati, 2003).
The theoretical framework for analyzing production subcontracting is hinged on three theories. These theories are the dualistic approach, development approach and networking and clustering approach. 26
Dualistic approach
This type of approach considers subcontracting as an unequal power relationship. Originally, this theory is based on the concept of “dualistic economy”, which includes two different sets of enterprises, the large firms (multinational corporations), and small firms (Berger and Piore,
1984). The basic understanding of this theory is that large contractors realize benefit at the expense of small contractors. There are two main reasons why a large firm prefers to outsource production process through subcontractors. One of the main benefits is to enjoy flexibility by utilizing production capacity of subcontractors (Holmes, 1986; Watanabe,
1971). The second main benefit of subcontracting for large firms is related to cost reduction.
The large firms may seek to subcontract production, particularly for unskilled-labor intensive production and to take advantage of lower wages in small firms.
Development approach
The Development approach was formulated mainly by development economists (Holl, 2007).
It considers subcontracting as a relationship between large and small firms, but emphasizes a positive role of it: subcontracting is regarded asa tool for modernization and employment generation. Watanabe (1971) claimed that subcontracting could smooth the path of small firms to grow and make them a suitable tool for mass employment generation in developing countries that are committed to industrialization.
Networking and Clustering
Thenetworking and clustering approach, largely regarded as the modern theoretical foundation of subcontracting, supports networking initiatives and the development of industrial cluster (Pyke, 1992; UNCTAD, 1994).In the case of the cluster approach, subcontracting itself is one of the main types of networking on which clusters could be established. This approach, looks at a group of firms cooperating (and competing) within a complex web of supportive institutions. Externalities, linkages and economics of 27 scalegenerated by this form of cooperation and competition are internalized by the network so that the collective efficiency and flexibility of the industry is enhanced. Ceglie and Dini
(1999) suggest that on the account of the common problems firms all share, small and medium scale firms are inthe best position to help each other. They can do this through horizontal cooperation (they can collectively achieve economies of scale), vertical cooperation (they can specialize in their core activities and develop the external division of labour) and networking among enterprises, providers of business development services, and local policy makers. Rama and Calatrava (2002) posited the cluster approach as the important factor for establishing subcontracting relationships. They argued that clustering accrues significant benefits to subcontractors, particularly small or local firms. Moreover, patterns of subcontracting as a specific form of networking are associated with specific types
(subcontracting relationships) of industrial clusters (Rama et al., 2003). These studies have shown that the dichotomy between large scale industries and small and medium scale industries is not valid and non-market mediated interaction between firms should also be taken into account in designing and implementing economic policies. Instead of creating hierarchies of industries, a new model based on continuum theory of gradual scaling becomes a better and more natural mode of viewing industries because their internal growth and external development is rarely done in large visible quanta but in discrete acquisition of capital and capabilities. Thus their growth is progressive from one station to another in terms of the areas and subcontractors that line within the ambits of their patronages. This view point is supported by the manifestations of the increases in the number of development establishments and increase in welfare, earnings, standard of living and overall development of the locale of the industries and the large urban- industrial space. We therefore are of the view that whichever theory of subcontracting that is applied, the end product is the overall 28 development of the industrial units and their contribution to the industrial and socioeconomic landscape of the study area.
This research therefore was hinged on the conceptual framework of the networking and clustering theory. This is because cluster approach according to Rama andCalatrava
(2002) is not only an important factor for establishing subcontracting relationships in any region it is equally important in the overall development of industries most especially in the area of capacity building
1.6RESEARCH METHODOLOGY 1.6.1 Sample Selection
A total of 165 industrieswas identified from five (5) industrial groups in the study area after a preliminary field work was carried out to update the existing industrial directory obtained from Onitsha Chamber of Commerce and industries and Ministry of Commerce and
Industries Awka, Anambra State (Table 2).
Table 2: The total number of industries identified in Onitsha Metropolis
Industrial Group/ Sectors Number of industries Food, Beverage and Tobacco 40 Chemical, Paint and Allied products 29 Domestic and Industrial Plastics, Rubber and Form 36 Basic Metal, Iron and Steel and Fabricated Metal 30 Products Printing,Paper products, and Publishing 30 Total 165 Source: Manufacturers Association of Anambra and Enugu Branch, 2000 andFieldwork 2013/2014 In order to have a limited margin of error in the selection of sample size, Yamane’ formula of
1967 was used. Yamane’s (1967) is thus given as:
……………………………(1) 29
Where n=sample size, N=population size, e=the error of sampling/error of 5% points
(.05)2.By using Yamane’s formula of sample size with an error of 5% and with a confidence coefficient of 95% (Yamane, 1967), the calculation from a population of 165 industries came up with 116 industries from five industrial group (See Appendix A). To account for possible attrition, the number of sampled industries was reduced to 100. Because every industrial group has approximately 30 industries, this study selected 20 industries from each industrial group.
This number was selected because it represents approximately 60% of the industries found in the study area as well as a balance representation of all the industries that engage in similar manufacturing activities in the study area. Furthermore, this number of industries wasselected so as to effectively manage the cost and time allotted to this study.The questionnaire was administered using the direct delivery technique where the researcher asked the respondents to tick the appropriate option.
1.6.2 Sample Size
The data used were from the survey of manufacturing industries in the study area.
From the research, a total of 100 copies of the questionnaire were administered to 100 industries. Out of the 100 questionnaires administered, 80 were returned while the remaining
20 were left unattended by the respondents (industrialists) for fear of been sabotaged. This figure represented 80% of the sampled size. Industrial production subcontracting processes were however identified in 60 industries out of the 80 respondents (see appendix A1).
1.6.3 Data Collection
The data for this study were collected from primary and secondary sources. Primary data were collected through the use of questionnaire, oral interviews and field observationswhile documentary materials such as journal articles, textbooks and the internet formed the 30 secondary sources on which the theoretical framework of this study was based. The questionnaire contained both open and close ended questions and was administered through direct delivery techniques. The direct delivery technique was used in order to minimise clarity and language problems which may arise from the questionnaire as well as to enhanceparticipation and response rate. The questionnaire was designed to ascertain from the industrialists the following among other data
1. Whether or not they are involved in production subcontracting;
2. Type of production subcontracting taking place in the industries;
3. The major factors that influences their decision to use production subcontracting;
4. The factors that constitute the criteria for selecting subcontracting partners;
5. The factors that influenced the location of their industries;
6. The benefits and problems of production subcontracting; and
7. The size and structural characteristics of the firms among others.
The questions in the questionnaire were opened and closed-ended and the participants were instructed to elaborate as much as possible.
Instrument/Questionnaire validation
The questionnaire/instrument was reviewed and validated by three experts from the
University of Nigeria Nsukka in the persons of Professor.I.A. Madu, of the Department of –
Geography, Dr. I. Ifelumni, of the Department of Economics and Mrs. I.G. Nwosu, of the
Department of Geography.After eliminating and reclassifying some of the questions based on the review, they were subjected to a formal pre-test/reliability test.To establish the degree of reliability of the questions in the questionnaire, 10 business owners from the pure water industries and printing press industries in Nsukka Enugu state, Nigeria were made to rate each question in the questionnaire on a 5-point scale. During pre-test interviews, some of the 31 business owners critiqued the questions and provided suggestions to improve their wordings and the type of information they intend to generate. Their responses were subjected to a spear man rank correlation analysis in order to obtain their reliability. From the analysis, a correlation coefficient of 0.82 was obtained. The score obtained showed that the questions in the questionnaire are relevant to the subject they were built to investigate. The questionnaire was complimented with an in-depth interview. The interviews were conducted with the industrialists or any other designated officer who could act in that capacity. About 35 managers were interviewed, while othersrestricted our contacts to the questionnaire. The population of this study is therefore comprised of the managers/manager designates of the 60 industries identified to be involved in production subcontracting in the study area. Hence, on the whole 60 managers formed the population of this study.
1.6.4 Data Analysis
Relevant statistical techniques were used to analyze the data. Accordingly,percentages were used to define the structural characteristics of industries in order to show the nature of industries in the study area. It was also used to define the use of production subcontracting by firm size, as well as the location factors and how they influenced the location of the industries. Similarly, statistical measure such as the mean and standard deviation were used to analyze the factors influencing the decisions to engage in production subcontracting as well as the factors influencing the selection of subcontracting partners. It was also used to analyse the benefits and problems of production subcontracting in the study area. This statistics were used to ascertain the responses of the industrialist as well as the relative importance of these factors to production subcontracting processes in the study area.
Nearest neighbour analysis was used to explore the pattern of distribution of the industries in the study area. This was employed to ascertain the degree of spatial dispersion in 32 the distribution based on the minimum of inter-feature distances. The data for Nearest neighbour analysis were derived from the geographical coordinates of the industries. These coordinates which were rendered in degrees, minutes and seconds (DMS) were converted to decimal degrees with the aid of Tatuk GIS software in order to make them compatible with
Quantum GIS tool which was used in the nearest neighbour analysis. The data were analysed using Quantum GIS software.
The analytical tool of Principal Component Analysis was applied with the aid of
Statistical Package for Social Sciences (SPSS) to further analyse the factors influencing the decisions to engage in production subcontracting in Onitsha Metropolis, Anambra State
Nigeria. This was applied to nine (9) variables in order to bring out the underlying dimensions defining this production process. Similarly this method was used in analysing the factors industrial locations (The choice of these factors of location was informed by the work of Badri (2007) which used an instrument consisting of 14 dimensions which passed through a stringent empirical validation test based on extensive literature search and psychometric principles to produce a list of general and critical factors of industrial location).in the study area. It was applied to Fifteen (15) variables in order to bring out the underlying dimensions defining the factors. The data used for these statistical analyses (mean, standard deviation and
PCA) were derived using a five- Likert scale of; 5- very important, 4- important, 3-quite important, 2- not very important, 1- not at all important. All analyses (excluding Nearest
Neighbour Analysis) were carried out with the aid of Statistical Packages for Social Sciences version 17 (SPSS 17).
1.7PLAN OF THE PROJECT
The research was divided into six chapters starting from introduction to summary of findings, recommendations and conclusion. 33
Chapter one is the introduction and featured the statement of the research problem, aim and objectives of the research, a description of the study area, review of relevant literature, research methodology, and the plan of the project.
Chapter two examined the location of industries involved in production subcontracting and their size characteristics. This chapter also examined production subcontracting by firm size, production subcontracting by industrial groups, structure of production subcontracting and the factors of industrial location in the study area
Chapter threeexamined the types of production subcontracting, spatialand pattern of industrial distribution in OnitshaMetropolis. The types of production subcontracting examined in the study area were competence subcontracting, outsourcing subcontracting andcapacity subcontracting. This chapter also examined the industrial operations/activities subcontracted by the surveyed industries and the pattern of industrial distribution in the study area
Chapter Four analysed the factors influencing the decision to engage in production subcontracting andselection of partners in the study area.
Chapter five analysed the benefits and problems limiting an effective production subcontracting in the study area.
Chaptersixfeatured the summary of findings, recommendations, and conclusion of the research work.
34
CHAPTER TWO CLASSIFICATION OF INDUSTRIES AND THEIR STRUCTURAL CHARACTERISTICS INONITSHAMETROPOLIS 2.1 Introduction
This chapter examined the classes of industries identified to be involved in production subcontracting and their structural characteristics. The structural characteristics of an industry are the intrinsic characteristics of an industrial plant but not including locational attributes ().
Structural characteristics of an industry can be measure by the firm size, age of the industry, inputs, capacity utilization, ownership and control etc (Teriba, Fozien and Kayode, 1981). In this study however, age of the industry, inputs, capacity utilization ownership and control were not considered. This is because they did not fall within the scope of this study. The use of firm size however was based on the works of (Kimura, 2001; Holl, 2004; Tomiura, 2005 and 2006; Diaz-Mora and Triguero-Cano, 2007) where firm size was found to be positively related to production subcontracting. Structural characteristics of industries in this study thereforewere measured based on firm size ie number of employees and the financial assets of the industries. This section was divided into three- classification of industries involved in production subcontracting,factors of industrial location and structural characteristics of the industries
2.2.Classification of industriesinvolved in production subcontracting in Onitsha Metropolis Industry classification or industry taxonomy is the organization of companies into industrial groupings based on similar production processes, similar products, or similar behaviour in financial markets (United Nations, 2008).Following the industrial directory of the study area
(Manufacturers Association of Anambra and Enugu State Branch, 2000) and the field observations made in this work, industrial activities in the study area were grouped/classify into five sectors. These groups are food, beverage and tobacco industrial group, chemical, 35 paint and allied products industrial group, plastic, foam and rubber industrial group, aluminium and metal industrial group and printing, paper and publishing industrial group. A brief description of these groups is done below.
Food, Beverage and Tobacco industries (Group One)
The industries under this group produce food, beverage and Tobacco products. As at the time of our field work, all industries under this group were producing at full capacity aside from Premier Breweries Limited which has been reduced to a pure water producing industry. From our investigations, it was observed that Premier breweries suffered a serious management crisis and embezzlement of funds by it stake holders. This lead to the crisis it suffered in 1994 and its subsequent closure in 1998. It was also observed that Coca-Cola breweries industry no longer manufacture drinks but serve as distribution points/service points for places like Onitsha, Awka, Imo and Abia state. Most of these industries are located in and around Woliwo, Niger Bridge Head, and Harbour industrial layout etc.
Chemical, Paint and Allied Product (Group Two)
The industries in this group are basically chemical, paint and allied product industries.
They produce finished items such as industrial chemicals, soap and detergents, engine oil etc.
Some of the prominent industries in this group are Dossy Oil and Gas Limited, Markson
Chemicals, Ezlux paint among others. These industries are located in and around Niger
Bridge head, Harbour Industrial layout, Nkpor etc.
Plastics, Foams and Rubber Products (Group 3)
The industries in this group engage in the production of foams, plastic and rubber products. They include such Industries as Zeto Foam and Chemical Industries Limited,
Ezenwa Plastics industry limited and Nyendu Plastic Limited. These industries are regarded 36 as the largest industries in this group in terms of scale and capacity utilization. Most of the industries in this group are located in Onitsha/Owerri Road, Awada, Obosi etc.
Aluminium and Metal industries (Group 4)
Industries in this group primarily engage in the production ofitems ranging from aluminium curtain walls, almaco roofing sheets, doors and windows etc. These products from our investigations and observations are products of restructuring and redesigning of metal and aluminium sheets. This group also include establishments engaged in fabricating ferrous and nonferrous metal products, such as metal cans, tin wares, hand tools, general hardware, nonelectric heating apparatus, fabricated structural metal products, metal forgings, metal stampings, and a variety of metal and wire products The industries in this group include Best
Aluminium Manufacturing Limited, Pandle Aluminium Ventures, Lyke best Aluminium and
Metal industry Nigeria Limited and they are located in and around Woliwo layout, Habour industrial layout, Nkpor etc
Printing, Paper and Publishing (Group 5)
Industries in this group primarily engaged in the manufacture of pulps from wood and other cellulose fibres, and from rags; the manufacture of paper and paperboard; and the manufacture of paper and paperboard into converted products. They are also engaged in printing or printing trade, such as bookbinding and plate making. This also includes establishments engaged in publishing newspapers, books, and periodicals, regardless of whether they do their own printing(See Appendix B- F for the location of industrial groups and Appendix G-K for the classification of industries involved in production subcontracting)
37
2.3. Factors of industrial location in Onitsha Metropolis Prior to the 1970s, the conventional views were that access to markets, labour, raw
materials and transportation wasthe dominant location factors. More recent studies indicate
that the traditional factors are still most important, but their dominance has been reduced as
productivity, education, taxes, community attitudes towards business and other factors have
been recognised as equally influential in the location of industries (Badri, 2007).
In the course of this work, a number of factors were observed to have influenced the
location of industries in Onitsha Metropolis. These factors are listed in table 3.
Table 3: A rotated PCA of the variables influencing the location of industries in Onitsha Metropolis
Variables I II III 1V V X1 Availability of raw material 0.83* 0.18 -0.31 0.11 0.01 X2 Accessibility of market 0.91* 0.04 0.06 0.03 -0.07 X3 Accessibility of transportation 0.80* -0.25 0.30 0.13 0.08 X4 Accessibility offunds 0.89* 0.00 0.13 0.03 0.07 X5 Potential for linkage 0.08 0.05 -0.01 0.78* -0.07 X6 Government policies 0.12 -0.23 0.27 -0.08 -0.77* X7 Location of other firms 0.03 -0.05 0.08 0.70* 0.08 X8 Availability of land space 0.12 0.28 0.61* 0.30 -0.24 X9 Cost of living 0.04 -0.56 0.27 0.03 0.56 X10 Availability of power supply -0.08 0.95* 0.13 -0.01 0.04 X11 Presence of social amenities - 0.08 0.95* 0.13 -0.01 0.04 X12 Personal likeness of an area 0.49 -0.28 0.25 -0.17 0.47 X13 Family support/finance 0.01 0.06 0.72* -0.07 0.03 X14 Birth place of the industrialist 0.40 -0.28 -0.70* -0.12 0.00 X15 Accessibilityof communication facilities -0.18 0.84* 0.39 0.04 -0.22 Eigen value 3.45 3.20 1.99 1.28 1.21 Percentage of explained variance 22.97 21.32 13.38 8.50 8.06 Cumulative % of explained variance 22.971 44.23 57.56 66.07 74.12 Source Fieldwork, 2014
With reference to table 4the Principle Component Analysis produced 5 components
out of 14 variables that together explained 74.12% of the total variance leaving 25.88% of the
total variance unexplained. Component 1 has significant loading on four variables namely
X1-availability of raw materials, X2-accessibility of market, X3- Accessibility 38 oftransportation, X4- availability of funds. Component 1 has an Eigen value of 3.45 and explained 22.97% of the total variance. Component 1 highlights the availability of economic factors of industrial location such as raw materials, funds, market and transportation as significant to the decision to locate their industrial plants in an area. Furthermore it explains the economic rationality and profit maximization nature of industrialists in the study area in their decision to locate their firms. The underlying dimension identified by component 1 is availability of economic cost elements as a factor of industrial distribution and location in the study area.
Component II has significant loading on three variables namely; X10-Availability of power supply, X11-Presence of local amenities, and X15- Accessibility of communication facilities. This component has an Eigen value of 3.20 and explains 21.32% of the total variance in the data input. This component explains the effect of infrastructural facilities and social amenities such as power, road, educational facilities etc on the location of industries.
The underlying dimension as represented by these variables is influence of infrastructure as a factor of industrial location and distribution.
Component III with an Eigen value of 1.99 explains 13.38% of the total variation in the data input. It has significant loading on three variables. These variables are X8
Availability of land space, X13-Family support/finance, and X14- birth place of the industrialist. The component highlights the influence of family support/finance, place of origin and close proximity to home of the industrialist as influential location. The underlying dimension is influence of family ties as factor of industrial location and distribution in the area.
Component IV has significant on two variables X5-potential for linkage, X7- location of other firms in the area. The component has an Eigen value of 1.28 and explains
8.50% of the total variance of the PCA. This component signifies the attraction of industrial 39 units to a place as a result of the gains it will obtain from other industrial units both small and medium scale industries and large industries already in existence in the region through linkages and externalities of scale which usually take the form of production subcontracting.
The underlying dimension is clustering/agglomeration economies effect as a factor of industrial location.
Finally, component V has an Eigen value of 1.21 and explains 8.06% of the total variance. It loads significantly on one variable namely X6- Government policies. This component highlights the influence of Government policy as a factor of industrial location and distribution. One of the policies initiated by the government in the study area to encourage industrial development was the establishment of industrial estates/layouts. From our observations, industries established in these areas have access to good infrastructural facilities such as roads, power and communication facilities. They equally enjoy some level of protections from the government as these areas are exempted from the multiple taxations and other economic vices which Onitsha Metropolis is known for. The findings in this section corroborates the findings of Badri (2007) which posited that thegeneral and critical factors of industrial location are transportation, labour, raw materials, markets, industrial sites, utilities, government attitude, tax structure, climate, and community. These critical factors were identified with an instrument, consisting of 14 dimensions which passed through a stringent empirical validation test based on extensive literature search and psychometric principles.
2.4Structural characteristics ofIndustries in Onitsha Metropolis
The structuralcharacteristics of industries in this study were measured using the number of employees of the industries and their asset base (CBN, 2003).
2.4.1 Number of employees
The size of firms entails measuring the average number of employees in each of the industries as well as their asset base. With reference to CBN (2003) classification of 40 industries in Nigeria, industries with a maximum asset base less than N 200 million
(equivalent of about $ 1.43 million) excluding land and working capital and with the number of staff employed not less than 10 and not more than 300 can be referred to as small and medium scale industries while industries with an asset base of over N 200 million including working capital but excluding cost of land and with a labour size of over 300 workers can be regarded as large scale manufacturing industries. This study adopted the definition of CBN, but with a slight variation in the employee number. Consequently, industries in the study area were classified into three (3) groups. These groups include small, medium and large scale manufacturing industries. Small scale manufacturing industries are those industries that have less than eleven (11) employees, Medium scale industries are those industries that have between eleven ( 11) and fifty(50) employees while Large scale manufacturing industries are those that have morethan fifty (50) employees. This classification was made in order to accommodate the structure of industries observed on groundand to facilitate our investigation. Based on this classification, it was revealed that 53.3% of the industries employed between 11-50 workers, a further 36.7% employed less than 11 workers while 10% of the industries employed more than 50 workers. (See Table 4and fig 3).
Table 4: Size of industries in Onitsha Metropolis (number of employees).
Size of Frequency Percentages (%) Employees/Workforce < 11 22 36.7 11-50 32 53.3 >50 6 10.0 Total 60 100 Source Fieldwork, 2014 41
less than 11 employees 11-50 employees More than 50 employees
Figure 3: Percentage distribution of industries by firm size (number of employees) in Onitsha Metropolis 2.4.2 Asset Base of the industries. The asset base of the industries was divided into three groups based on the Central
Bank of Nigeria definition of assets base of industries. These groups are small scale industries with an asset base of less than N 50 million, medium scale industries with an asset base of between N51-200 million and large scale industries with an asset base of 201 million and above. This classification was made to accommodate the industries observed on ground.
The results of the research revealed that 36.7% of the industries have an asset base of less than N50 million, 53.3% of the industries have an asset base of between N 51-200 million while a further 10% have an asset base of N 201 million and above (See Table 5 and fig 4)
Table 5: Asset base of industries in Onitsha Metropolis Anambra State
Asset Base (Million N-Naira) Frequency Percentages (%) Less than N50 22 36.7 N 51-200 33 53.3 N 201 and above 6 10 Total 60 100 Source: Fieldwork 2014 42
less than 11 employees 11-50 employees More than 50 employees
Figure 4: Percentage distribution of industries by firm size (Asset base) in Onitsha Metropolis The results in tables 4 and 5 shows that industrial activities in the study area was dominated by small and medium scale industries with 36.7% and 53.3% respectively while large scale industries have a percentage share of 10% in the area. This means that small and medium scale industries are the fulcrum of industrial activities in the study area. This goes to show that the area is at the centre of entrepreneurship development driven by individual creativity and innovation and forms the vanguard of the modern enterprise sector which is the propelling force foreconomic modernization.
2.5Production subcontracting decisions by Firm size Production subcontracting decisions by firm size revealed that small scale industries employing less than 11 employees have a subcontracting percentage of 36.7 % while medium and large scale industries have 53.3% and 10% respectively. (See Table 6 and fig 5).
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Table 6: Production subcontracting decision by firm size
Size of Frequency Percentage of subcontracting Employees/Workforce decisions (%) < 11 21 36.7 11-50 33 53.3 > 51 6 10.0 Total 60 100 Source: Fieldwork 2014
less than 11 employees 11-50 employees More than 50 employees
Figure 5: Percentage distribution of production subcontracting decision by firm size in Onitsha Metropolis The result in Table 6 and figure 5 revealed that small and medium scale industries are more likely to offer subcontracting processes than large scale industries. This from our observation was because most of the small scale industries going by their capital base were unable to fund all the processes leading to the production of a finish goods in their industries and therefore outsourced those parts and components that were not within their core competencies to other independent industries while the large scale industries with enormous financial capacity to accommodate every production process either imported their parts and component requirements from abroad or accommodated them in-house. This result however, differs from the findings of (Kimura, 2001; Holl, 2004; Tomiura, 2005 and 2006; Diaz-Mora and
Triguero-Cano, 2007) which posited that subcontracting processes by firm size is more relevant in larger scale firms (large scale industries) to small and medium scale industries. 44
Inview of this, it could be said that production subcontracting is not limited to any size of industry rather it is a method used by different industries to maximise their production activities.
2.6Production subcontracting decision by industrial groups From a sectoral perspective, it was observed that the decision to subcontract or get into subcontracting arrangement varies across industries. From the results in figure 3, 25% of the industries in food, beverage and tobacco have subcontracted out production activities while industries in chemical, paint and allied products industrial group, plastic, foam, and rubber products industrial group, aluminium and metal industrial group and printing, paper and publishing industrial group have 21.7%, 23.3% 16.7% and 13.3% of their industries engaged in production subcontracting respectively (see fig 6).
30.00%
25.00%
20.00%
15.00% Series1 10.00%
5.00%
0.00% Food, BeverageChemical, and Paint TobaccoPlastic, and FoamAllied andproducts RubberAluminium productsPrinting, and Metal Paper and Publication
Figure 6: Percentage distribution of subcontracting decision by industrial groups
The industrial sectors with the average percentage of subcontracting are related to the works of (Diaz-Mora and Triguero-Cano, 2007). The similarities in industries more active in subcontracting between countries emphasize the influence of sectoral specific characteristics in the extent of subcontracting. 45
2.7 Structure of production subcontracting
The manufacturing activities of industries found in the study area as regards to production subcontracting showed that production subcontracting in the study area is multi layered. This means that there is no particular structure or pattern for engaging in production subcontracting. From our investigation, there are some industries that work as subcontractors and equally make use of subcontractors while there are others who make use of subcontractors but do not work as subcontractors. In other words, there are some industries that offer and receive subcontracting and others who offer but does not receive subcontracting. From our observation 56.7% of the respondents (industrialists) offer and receive subcontracting while a further 43.3% offer but does not receive production subcontracting. A further break down of the result shows that 8.3%, 6.7%, 13.3%, 16.7% and
13.3% of responding industries in food, beverage and tobacco industrial group, chemical, paint and allied products industrial group, plastic, foam, and rubber products industrial group, aluminium and metal industrial group and printing, paper and publishing industrial group respectively offer and receive production subcontracting while 18.3%, 15.0% and 10% of the responding industries in food, beverage and tobacco industrial group, chemical, paint and allied products industrial group and plastic, foam, and rubber products industrial group respectively offer but does not receive production subcontracting (See Table 7).
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Table 7:Structure of Industrial Production Subcontracting in Onitsha Metropolis.
Industrial Frequency WSMS % MSWS % Frequency Group All Groups 34 56.7 43.3 26 Food, Beverage 4 6.7 18.3 11 and Tobacco Chemical, Paint 4 6.7 15.0 9 and Allied products Plastic, Foam 8 13.3 10.0 6 and Rubber products Aluminium and 10 16.7 NIL NIL Metal Printing, Paper 8 13.3 NIL NIL and Publication Total 34 56.7 43.3 26 Source: Fieldwork 2014
NB The total obtained above is for the number of industries examined in the table WSMS- Working as subcontractor and making use of subcontractor MSWS- Making use of subcontractor but not working as subcontractor
About 56.7% of the industries engaged in contract offering and receiving does so because of a number of reasons. These include having the capacity to do so, to break even, and to remain flexible. There is also no definite pattern to this structure as no industrial group can be identified with a particular structure. 47
CHAPTER THREE SPATIAL DISTRIBUTION OF INDUSTRIES AND TYPES OF PRODUCTION SUBCONTRACTING IN ONITSHA METROPOLIS
In this chapter, we looked at the spatial distribution of industries and the types of production subcontractingidentified in the study area. For this purpose, this chapter is divided into two- spatial distribution of industries and types of production subcontracting. The first section examined the spatial pattern of industrial distribution in the study area. The second sections looked at the different types of production subcontracting, the industrial sectors associated with them and the industrial activities subcontracted or outsourced by the industries
3.1 Spatial distribution of industries in Onitsha Metropolis
The spatial distribution of industries engaged in production subcontracting found in various locations within the study area and how they are distributed across space is discussed here. Earlier studies have shown that manufacturing activities in Nigeria are concentrated in few states and primarily in a few cities which are mainly state capitals, ports and major commercial and administrative centers (Schatz, 1973; Mabogunje, 1973; Onyemelukwe,
1978; Ayemi, 1981 and Adegbola, 1983).
Onitsha metropolis as a commercial hub in south eastern Nigeria has her own share of industries but these industries are not evenly distributed. From our observation, most of the production subcontracting industries in the study area are located along the roads (express roads such as Onitsh/Enugu expressway, Onitsha/Owerri expressway and Portharcourt road), and within the industrial layouts such as Bridge head, Awada, and Harbour industrial layout. In this section, an attempt has been made to show the spatial distribution of subcontracting industries and their activities within the study area with the aid of a map in figure 4. Nearest neighbour analysis was also used in this section to describe the distribution pattern of industries.The disparity in distribution was shown or represented with dots but the shades of colours of each dot differentiate one industrial group from another. (See figure 7). 48
Figure 7: Spatial patternof Industrial distribution in Onitsha Metropolis Anambra State Nigeria
Source: Goggle Map Library, 2014
49
Looking at figure 7, it is evident that the industries are not evenly distributed. The industries form a cluster within the areas covering Woliwo, Port Harcourt road, and Bridge head. The most important reason for this high concentration is because these areas have been mapped out for industrial development by the government more especially in areas such as
Bridge head, and Port Harcourt road. Other reasons that were attributed to this cluster include land ownership: availability including land rents and tax payment. An area like Woliwo which from our observation is a large residential area houses a good number of these industries. Some of the industries were located in this area because of family ties (ie where the owner has land or where the business started and is receiving family support). The main industrial group that are prominent in this cluster include Chemical, Paint and Allied products, Food, Beverages and Tobacco and Aluminium and metal industrial group. Some of the industries are namely, Hybrid publishers, Macmillan publishers, Eastern metal and aluminium industry etc. Other areas with relative high concentration of industries are
Harbour industrial layout and Awada industrial layout. This industrial layouts/estate was created by a deliberate policy of the Anambra State Government which was aimed at industrializing Onitsha and Anambra State as a whole. In terms of transportation, power supply and communication, an area such as Harbour industrial layout has good and accessible road networks, adequate power supply and good communication networks. This area is the home to the largest industrial establishments in Onitsha metropolis and Anambra state as a whole. The prominent industrial groups in this area are Food, Beverage and Tobacco;
Chemical, Paint and Allied products and Aluminium and Metal industrial group. The industries found in the area are Intafact Beverage limited, Golden Vegetable Oil, Dossy power oil (Dossy powerflo), Orange drugs, Krisoral and company limited etc. Awada industrial layout on like the former has a good number of industries with some pockets of residential areas surrounding it. Some the prominent industries found in this area include
Ezenwa plastic, Plastic Packaging industries etc. 50
Figure 7 also showed that there are other locations within the study area with industrial presence. Some of these areas include Nkpor, Onisha/ Enugu express road Obosi,
Odokpu, Onisha /Owerri express road Enugu /Onitsha express, Fegge and Enu Onitsha.
Prominent industrial groups found in these areas include Chemical, Piant and Allied products and Plastic, Form and Rubber products. These industries are found in scattered isolations and this from our observations can be attributed to availability of land space and access to infrastructure such as road networks. Industries prominent within these areas are Zeto foam and chemical industries limited, Jasi foam and chemical industries limited, Ben Guaranty industry limited among others. The findings in this section corroborate our results on the factors of industrial location. This is because most of the factors attributed to spatial distribution of the industries in the study area were the same with those of industrial location.
3.2Pattern of industrial distribution in Onitsha Metropolis. Nearest neighbour analysis is a method of exploring pattern in location data by comparing graphically the observed distribution functions of event-to-event or random point- to-event nearest neighbour distances, either with each other or with those that may be theoreticallyexpected from various hypothesized models, in particular that of spatial randomness i.e. it describe distribution of points according to their spacing (Mitchell, 2005).
The Nearest neighbour index (R) according to Decey (1963) and Anyadike (2009) was developed to represent the distribution of point pattern in space in quantitative terms. It has been used to analyse settlement distributions and the distribution of populations on the earth surface (Sada, 1978; Mozie 2011). The index is interpreted as thus 0.1-0.90 as having a clustering process at work while 0.91-1.0 and above 1.0 shows regular and dispersal process at work The results of the analysis done in this section shows that the observed mean distance of the industries, expected mean distance of the industries, and nearest neighbour index were
0.01km, 0.02km, and 0.34 respectively (See Table 8)
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Table 8: Nearest neighbour analysis results of industries in Onitsha Metropolis
Nearest Neighbour Indices Values Observed mean distances 0.01m Expected mean distance 0.02m Nearest neighbour index 0.34m Total points 60 Source: Author’s computation, 2014
The result in Table 8 shows that the pattern of distribution of industries in the study area is relatively clustered. This from our observation this allowed for cooperation and networking among the industrial units in the study area in terms of manufacturing, distribution, maintenance services etc which were the forms in which different industries in the study area engage production subcontracting. This pattern of distribution also allowed for industrial specialization as industries specialised in one form of industrial activity or the other and source for other peripheral production activities, including parts and components from other industries. This assertion can also be corroborated in fig 4 above. This also means that industries in the study area were located at various points where they could gain technological and managerial know-how through emulation, tacit knowledge transfer and lower transaction costs as trust builds up and/or through the ease of transaction that comes from ‘geographical proximity. Similarly industries tend to locate where there will be need for their output (both services and product) and this usually takes place among industries with complementing production characteristics. This was observed among industries such as the chemical, paints and plastic industries which depend on each other for these processes. It is also important to note that these industries need each other for their markets.
This result however supports the new approach to production subcontracting which laid emphasis on networking initiatives and the development of industrial cluster. This approach suggested that on the account of thecommon problems firms all share, small and medium scale industries are in the best position to help each other. Theycan do this through horizontal cooperation (they can collectively achieve economies of scale),vertical cooperation 52
(they can specialize in their core activities and develop the externaldivision of labour) and networking among enterprises. (Pyke, 1992 and UNCTAD, 1994).
This again underscores our earlier finding on the use of production subcontracting processes by firm size of which small and medium scale industries were found to be more actively involved in the use of production subcontracting processes than large scale industries.
Furthermore, this theory can also be affirmed by our findings on the types of subcontracting used by industries in the study area. Our result revealed that approximately
50% of the industries make use of outsourcing subcontracting which involves outsourcing the peripheral activities leading to the production of an item to other industries while concentrating on their core competencies. This agrees with the spirit of vertical cooperation as was suggested by Pyke (1992) andUNCTAD (1994) which state that small and medium scale industries can specialize in their core activities and develop the externaldivision of labour.
3.3 Types of Production subcontracting
Subcontracting is usually defined as a form of relationship between firms mostly depending upon complete or partial production of goods and services (Taymaz and
Kilicaslan, 2000). Following the studies of Watanebe (1971); Chaillou (1977); Holmes
(1986); Statistics Denmark (1996), Taymaz and Kilicaslan (2000) production subcontracting relationships are of three types. They are Competence/Specialised subcontracting, Capacity subcontracting and Outsourcing/Supplier subcontracting.
3.3.1 Competence subcontracting: Competence subcontracting is a type of production subcontracting used by industrialists to gain access to processes, machinery, skills, technical- know-how, which are not easily available in the open market. From our analysis, 33.4% of the respondents (industrialists) make use of competence subcontracting.
53
This from our observation resulted from inadequate capacity to carry out production activities in-house and therefore subcontract them to independent industries in order to have access to them. A breakdown of the above figureequally showed that industries in printing, paper and publishing industrial group, aluminium and metal industrial group, plastic, foam and rubber products industrial group, chemical, paint and allied products industrial group and food, beverage and tobacco industrial group have a percentage share of 10%, 15%, 5%, 1.7%, 1.7% respectively (see figure 8).
Food, Beverage and Tobacco Chemical, Paint and Allied products Plastic, Foam and Rubber products Aluminium and Metal
Printing, Paper and Publication
Figure 8: Percentage distribution of competence subcontracting by industrial group
Furthermore figure 8 equally showed that industries in aluminium and metal industrial group have the highest number of industries that make use of this production subcontracting type. The industries in this group (aluminium and metal industrial group) from our observation subcontract activities in order to gain access to skills, technical-no-how, machines and equipments which are not readily available in their industries.
3.3.2 Outsourcing subcontracting: This type of production subcontracting is used by industrialist in order to concentrate on their core activities.
When an industry chooses to focus on its core activity, it subcontracts other activities that were done in-house to other independent industries in order to minimise risks, save cost and 54 to build long term trust relations with future suppliers. From our analysis, 49.9% of the respondents (industrialists) make use of outsourcing subcontracting. A further break down of this figure shows that industries in printing, paper and publication industrial group, plastic, foam and rubber products industrial group, chemical, paint and allied products industrial group and food, beverage and tobacco industrial group have a percentage share of 3.3%, 5%,
23.3%, 18.3% respectively while industries in aluminium and metal industries had non (see figure 9)
Food, Beverage and Tobacco Chemical, Paint and Allied products Plastic, Foam and Rubber products Aluminium and Metal
Printing, Paper and Publication
Figure 9: Percentage distribution of outsourcing subcontracting by industrial group
Figure 9 also showed that industries in chemical, paint and allied products industrial groups and food, beverage and tobacco industrial group make more use of this type of production subcontracting than other industrial groups. This is because unlike competence production subcontracting where industries subcontract in order to gain access to a particular production process, industries that make use of this type of production subcontracting subcontract all the activities outside their core competencies. For instance the paint industries from our observation outsource all other activities leading to the production of paint products to an independent industry except the paint formulation and production.
55
Other activities subcontracted to other industries ranges from container manufacturing, printing and distribution of products in some cases. This is also applicable to most of the table water industries as they limit their production capacities to water treating and maintenance while subcontracting out blowing and printing of table water sachets and the manufacture of plastic bottles and pep caps to other industries.
3.3.3 Capacity subcontracting:This type of production subcontracting is used by industries or industrialists in order to meet fluctuation in demand which create excess capacity, unfilled orders and long delivery times in an industry. With respect to our investigation, it was observed that 16.7% of the respondents make use of capacity subcontracting. A breakdown of this value showed that industries in plastic, foam and rubber products industrial group have about 15% of the industries in this type of subcontracting while food, beverage and tobacco industrial group have a further 1.7% share. Other industrial groups are not represented (See fig 10)
Food, Beverage and Tobacco industrial group Plastic, Foam and Rubber products industrial group
Figure 10: Percentage distribution of capacity subcontracting by industrial group
The industries that make use of this subcontracting type lack the capacity to meet up with their clients’ demands and most times they subcontract some of these excess demands to other industries in order to meet up with their demands. 56
According to some of the industrialists, these demands are seasonal and unpredictable and they will prefer to subcontract the demand which cannot be handled in-house rather than increasing their capacity in order to handle them in-house. This is done in a bid to save cost and spread the risk burden incurred in the process. This was observed mostly in the plastic industries where a majority of them lack the needed machineries and manpower to meet up with their market demands. This study also observed that all the plastic industries located in the study area worked as subcontractors.This is because the industries service other industries such as table water, chemical and paint industries with packaging and distribution materials.
This in other words means that these industries subcontract this aspect of production to the plastic industries.
Finally, it could be said that the three types of production subcontracting that exists in the study area were competence subcontracting, outsourcing subcontracting, and capacity subcontracting with a percentage share of 33.4%, 49.9% and 16.7% respectively (see fig 11)
Outsourcing subcontracting Competence subcontracting Capacity subcontracting16.7%
Figure 11: Major types of production subcontracting found in Onitsha Metropolis
The above figure equally showed that about half of the industries surveyed make use of outsourcing subcontracting. This is because it is cheaper and saves time but largely depend on how reliable the subcontracting partners / client(s) are.
57
3.4 Industrial activitiessubcontracted by industries in the study area
Industrial activities or operations that can be subcontracted or outsourced by an industry range from manufacturing, maintenance, information systems management, finance/accounting, marketing/distribution, technical development and logistics. From the study, 49.9% of therespondents subcontracted manufacturing activities, while 26.7% subcontracted maintenance activities. Other activities subcontracted by industries include technical development and distribution with 1.7% and 5% respectively. Further breakdowns equally showed that a number of industries subcontracted more than one activity. From our investigations, we observed that about 11.6% of the industries subcontracted both manufacturing and maintenance activities, 3.3% subcontracted both manufacturing and distribution and 1.7% subcontracted manufacturing and technical development (see fig 12)
Manufacturing
Maintenance
Distribution
Technical development
Manufacturing and Maintenance Manfacturing and Distribution Manufacturing and Technical development
Figure 12: Percentage distribution of industrial activities subcontracted by surveyed industries in the study area
Industries that subcontract more than one industrial activity do this because they do not have the capacity to carry them out in their industries and considering that most of this 58 production processes are highly standardized and possessesgreat differences in the labour, capital, and skill-intensiveness of the different stages that make up these processes.
3.5 Industrial activities subcontractedby industrial groups
From industrial groups perceptive, it was observed that industries in food, beverage and tobacco industrial group, chemical, paint and allied products industrial group, plastic, foam, and rubber products industrial group, Aluminium and Metal industrial group and printing, paper and publishing industrial group have a percentages share of 13.3%, 10.0%,
23.3%, 1.7% and 1.7% respectively of industries that subcontracted or outsource manufacturing activities (see fig 13)
Food, Beverage and Tobacco Chemical, Paint and Allied products Plastic, Foam and Rubber products Aluminium and Metal
Printing, Paper and Publication
Figure 13: Percentage distribution of industrial groups that subcontracted manufacturing activities to other industries Furthermore, a breakdown of industries that subcontract maintenance activities to other independent industries show that about 11.7% of industries in plastic, foam and rubber industrial group subcontract maintenance activities to other independent industries.
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Other industrial groups such as printing, paper and publishing industrial group, aluminium and metal industrial group and food, beverage and tobacco industrial group have a percentage share of 8.3%, 5.0% and 1.7% respectively (see fig 14)
Food, Beverage and Tobacco Plastic, Foam and Rubber products Aluminium and Metal
Printing, Paper and Publication
Figure 14: Percentage distribution of industrial groups that subcontract maintenance activities to other industries Industries that subcontracted distribution activities to other independent industries are dominated by industries in food, beverage and tobacco industrial group with 5.0% while those that subcontract or outsource technical development are dominated by industries in printing, paper and publishing industrial group with 1.7%. Our investigation also revealed that there were industries that subcontracted or outsourced more than one activity to other industries. Industries that subcontract both manufacturing and maintenance activities to other industries were dominated by industries in plastics, form and rubber products industrial group with a percentage share of 11.7% while those that outsourced manufacturing and distribution and manufacturing and technical development are dominated by industries in food, beverage and tobacco industrial group with 3.3% and printing, paper and publishing with a percentage share of 1.7% respectively (See Table 9)
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Table 9: Percentage distribution of some aspect of subcontracted or outsourced industrial activities by industrial sectors/groups
Industrial Industrial Frequency Percentage share Activity(ies) Sectors/Group (%) Distribution Food, Beverage and 3 5.0 Tobacco Technical Printing, Paper and 1 1.7 Development Publishing Manufacturing and Plastic, Foam and 7 11.7 Maintenance Rubber products Manufacturing and Food, Beverage and 2 3.3 Distribution Tobacco Manufacturing and Printing, Paper and 1 1.7 Technical Publishing development Total 14 23.4 Source: Fieldwork, 2014 NB. The total obtained above is for the number of industries examined in the table The results shown in this chapter have indicated that there is no definite pattern of production subcontracting both in terms of types of production subcontracting engaged in by the industries and in terms of the activities to be subcontracted. This in other words means that what to subcontract or outsource as well as the type of subcontracting to engage in entirely depend on the management decisions of the individual industries. This further confirm or lay credence to the work of Alarape (2007) who after critically analysing the development of effective subcontracting and network relations among small, medium and large scale industries in Nigeria asserted that there is neither a clear framework nor model for subcontracting and networking in the Nigerian industrial sector.
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CHAPTER FOUR FACTORS INFLUENCING THE CHOICE/THE USE OF PRODUCTION SUBCONTRACTING BY INDUSTRIES 4.1 Introduction This chapter examines the factors influencing the use of production subcontracting strategies by industries and the selection of subcontracting partners. We divided this section into two. The first section analyses a range of factors influencing the use of production subcontracting by the surveyed industries in the study area while the second section analysed the factors of production subcontracting strategies.
4.1.1Factors influencing the use of production subcontracting by industries In this section, we analysed a range of factors influencing the use of production subcontracting by the surveyed industries in the study area in order to ascertain or bring out the factors with the highest appeal on the industries. Based on the field observation, the questionnaire synthesized 9 common factors influencing the use of production subcontracting which we asked the respondents to rank on a five point likert - type scale ranging from 1 =
“not at all important” and 5 = “very important” based on how they affect their decisions.
From the analysis, the average mean value of each factor is greater than 2. This indicates that the investigated industries overall have a positive attitude towards these factors.
However, the average mean and standard deviation value of reducing costs, concentrating on core business, improve quality of service and increase flexibility within the industries with average mean and standard deviation values of 4.75 (SD =0.60), 4.12 (SD =0.83), 4.32 (SD =
0.77), and 4.08 (SD = 0.77) respectively have the highest influence among the industries.
These factors are greater than 4 and this reveals that they are accepted as the most significant factorsinfluencing production subcontracting in the area. This can also be corroborated by the general knowledge which states that a low standard deviation values indicates that the data points tend to be very close to the expected value (mean).
Establishing strategic partnership between the industries with high standard deviation value of 4.02, showed a high variability within the factors. This means that the industries 62 could have other reasons for forming or establishing strategic partnership between them.(See table 10).
Table 10: Descriptive statistics showing factors influencing the use of production subcontracting by industries in Onitsha Metropolis Anambra State
Std N Range Minimum Maximum Mean Deviation Increase flexibility 60 3.00 2.00 5.00 4.08 0.77 Improve quality of service 60 2.00 3.00 5.00 4.12 0.83 Concentrating on core business 0.77 60 4.00 1.00 5.00 4.32 function Sharing and reducing of risk 60 4.00 1.00 5.00 3.13 1.36 Establish strategic partnership 4.02 60 3.00 1.00 3.00 2.85 between the industries Acquisition of specialized expertise 60 2.00 3.00 5.00 3.98 0.60 Access to professional resources 60 2.00 2.00 4.00 2.75 0.60 Gaining recognition around the 0.49 60 1.00 1.00 2.00 1.37 industry Reduce cost operation 60 2.00 3.00 5.00 4.75 0.60 Valid Number 60 Source: Author’s computation, 2014
Furthermore, the nine (9) variables were equally subjected to a Principle Component
Analysis. This is to help extract the major underlying components influencing the general degree of importance and influence of these factors. (See Table 11)
Table 11: A rotated PCA of the variables influencing the use of production subcontracting by industries in Onitsha Metropolis Components Variables I II III 1V X1 Reduce cost of operation 0.28 0.74* -0.38 0.07 X2 Increase flexibility 0.79* 0.17 0.05 -0.16 X3 Improve quality 0.93* 0.14 -0.08 -0.04 X4 Concentrate on Core business function -0.12 0.89* 0.19 0.08 X5 Sharing and reducing risk 0.70* -0.47 0.20 0.33 X6 Establish strategic partnership 0.00 0.10 0.03 0.97* X7 Acquisition of specialized expertise 0.27 0.07 0.77* -0.00 X8 Access to professional resources 0.30 0.11 -0.76* -0.06 X9 Gaining recognition around the industry - 0. 89* 0.13 0.10 -0.15 Eigen value 3.07 1.65 1.41 1.11 Percentage of explained variance 33.72 18.29 15.65 12.33 Cumulative % of explained variance 33.72 52.02 67.67 80.00 Source: Field work and author’s computation, 2014 NB (*) Significant loading exceeding +/- 0.50 63
The PCA shown in Table 11 produced 4 components out of the 9 variables that together explained 80.00% of the total variance leaving 20.00% of the total variance unexplained.
Component 1 has significant loadings on four variables namely X2 – increase flexibility, X 3- Improve quality of service, X5- Shearing and reducing of risks, and X9-
Gaining recognition around the industry. Component 1 has an Eigen value of 3.04 and explained 33.72% of the total variance. Component 1 highlights the need for efficiency in production by increase in flexibility. The underlying dimension identified by component 1 is enhancing the operational efficiency in the industries.
Component II has significant loading on Variables namely; X1 Reduce cost of operation and X4 – Concentrating on core business function. This component has an Eigen value of 1.65 and explained 18.29% of the total variance in the data input. This component explains the effect of cost on production. This in other words means that industries concentrating on their core competencies will help reduce the cost of production. The underlying dimension as represented by these variables is reducing cost by concentrating on core functions.
Component III with an Eigen value of 1.41 explains 15.65% of the total variation in the data input. It has significant loadings on two variables. These variables are X7 –
Acquisition of specialized expertise and X8 – Access to professional resources. The underlying dimension as represented by these variables is specialisation in industrial production in order to gain professional resources.
Finally, component IV has an Eigen value of 1.11 and explains 12.33% of the total variation in the data input. It has significant loading on one variable. This variable is X6 –
Establishing strategic partnership. The undying dimension as represented by this variable is strengthening cooperation between subcontracting partners. 64
The results of the PCA showed that there exist links and mutual influence among the nine (factors). This is because some of the factors such as gaining recognition around the industry, establishing strategic partnership and access to professional resources which played little or no role in the decision to engage in production subcontracting by the industries (see table 14 above), were identified as important in the PCA analyses. The implication of this is that these factors even though they appear not to be recognised by the respondents, they are all subsumed into the much recognised factors. They all combine together to achieve a particular result. For instance, there will be no subcontracting if all the industries in the study area have the capacity to provide all they needed including professional resources; neither will there be flexibility nor sharing of risks if there were no strategic partnership.
The results in Tables 10 and 11 shows that this work does not supportthe findings of
(Coase’s 1937, Abraham, 1990; Abraham and Taylor, 1996; Holmes, 1986; McMillan,1995 and López, 2007) which posited that minimization of costs is themain explanation or factor influencing production subcontracting processes for subcontracting. This work also differs with the findings of Bailey, Masson and Raeside (2002) which posited that the main reason behind the use of production subcontracting strategies is for better services. In view of this, the decision to subcontract or outsource any task goes beyond minimising cost and for better services as it also includes enhancing the operational efficiency in the industries, reducing cost by concentrating on core functions, specialisation in industrial production in order to gain professional resources and strengthening cooperation between subcontracting partners.
4.1.2 Factors influencing the selection of production subcontractors by Industrialists in Onitsha Metropolis
In this section, we analysed a range of factors influencing the selection of production subcontractors by the surveyed industries in the study area in order to ascertain or bring out the factors that appear most significant to the industrialist. Based on our observations in the field, the questionnaire synthesized nine (9) common factors influencing the selection of production subcontractors which we asked the industrialists to rank on a five point likert - 65 type scale ranging from 1= “not at all important” to 5 = “very important” in relation to their operational experience. From the analysis, high quality of service, high degree of mutual trust with subcontractors, good reputation in the industry, location and lower cost played the highest role in the decisions to select subcontractors as the average mean value of each factor was greater than 3. These variables gotaverage mean and standard deviationvalues of 4.18
(SD = 0.52), 4.22 (SD = 0.52), 4.08 (SD = 0.81),3.68 (SD = 0.57) and3.72 (SD = 1.04) respectively. This can also be corroborated by the general knowledge which states that a low standard deviation values indicates that the data points tend to be very close to the expected value. Furthermore, the industrialist however valued less the cultural compatibility and management experience of the subcontractors than others. These factors have mean and standard deviation values of 1.73 (SD = 0.69) and 1.67 (SD = 0.57) meaning that most industrialists pay little attention to culture and management experience of their subcontractors. (See Table 12)
Table 12: Factors influencing the selection of production subcontractors by industrialists in Onitsha Metropolis
Variables Std N Range Minimum Maximum Mean Deviation Previously cooperated 0.80 60 4.00 1.00 5.00 2.03
Lower cost 60 3.00 2.00 5.00 3.72 1.04 Good reputation 60 3.00 2.00 5.00 4.08 0.81 High quality of service 0.87 60 3.00 2.00 5.00 4.18 Advanced technology 0.49 60 1.00 2.00 3.00 2.62 Management 0.57 experience 60 2.00 1.00 3.00 1.67 Similar culture 60 2.00 1.00 3.00 1.73 0.69 Location advantages 60 3.00 2.00 5.00 3.68 0.78 High mutual trust 60 2.00 3.00 5.00 4.22 0.52 Valid Number 60 Source: Author’s computation, 2014 66
The cultural compatibility of the subcontractors or suppliers will be important when firms tend to form a long term strategic cooperation with the subcontractor. Long term strategic cooperation with subcontractors from our observation does not currently exist between the subcontracting partners. This from our observation can be attributed to the nature of contracts utilized by the contracting partners. It was observed that most production contracts or subcontracting relationships were utilised on short terms basis. This according to the industrialists was to ensure quality service and efficiency on the part of the subcontractors.
Management experience like the former was less significant because the industrialists were more inclined to selecting subcontracting partners who can offer the best services at any given time. This also affirms our earlier assertion about long term strategic cooperation which was found lacking in among the industries as a result of short term contracts utilization 67
CHAPTER FIVE
BENEFITS AND PROBLEMS LIMITING PRODUCTION SUBCCONTRACTING IN ONITSHA METROPOLIS
5.1 Introduction
This chapter examines the benefits and problems of production subcontracting in
Onitsha Metropolis. This chapter is divided into two sections. The first section examines the benefits of production subcontracting and the second section examines the problems limiting production subcontracting in the study area.
5.1.1 Benefits of production subcontracting
The benefits of production subcontracting are immeasurable. In a broad sense subcontracting can satisfy the need of traders and producers to reap the gains of specialization and low cost of production. In particular subcontracting may offer an improvement over the original situation of small, medium and large scale producers. Furthermore, not only does this arrangement enables greater flexibility of production and adjusting easily to changing demand patterns, subcontractors have got the assurance of a secure market for their products.
This enables them to sale the products without difficult marketing efforts and to concentrate on other aspects of production and management process.
In view of this, seven (7) common factors were synthesized from the field observations as the common benefits of production subcontracting in the study area. These benefits were synthesized based on the responses of the industrialist who were asked to rank these benefits on a five point likert - type scale ranging from 1 = “not at all important” to 5 =
“very important” in relation to their operational experience and according to how they apply to their industries. The result is presented in table 13.
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Table 13: Descriptive Statistics showing the benefits of production subcontracting Variables N Range Minimum Maximum Mean Std Statistic Statistic Statistic Statistic Statistic Deviation Enhance core business capacity 60 2.00 3.00 5.00 4.12 0.61
Improves service 0.50 60 1.00 4.00 5.00 4.52 quality Access advance technology 60 1.00 3.00 4.00 3.65 0.48
Decrease and sharing 0.65 60 2.00 3.00 5.00 3.55 of risk Expands market and enhance competition 0.69 60 3.00 2.00 5.00 3.38
Release key internal 0.72 resources 60 3.00 2.00 5.00 4.18
Reduce Operation 0.77 60 3.00 2.00 5.00 4.23 cost Valid N 60 Source: Author’s computation, 2014
From the analysis in table 13, there is a positive overall view regarding the benefits of
production subcontracting. Reducing cost of operation, improving service quality, enhancing
core business capacity and releasing key internal resources with average mean and standard
deviation values of 4.23 (SD = 0.77), 4.52 (SD = 0.50), 4.12 (SD= 0.61), and 4.18 (SD =
0.72) respectively are the most commonly accepted benefits of production subcontracting by
the respondents (Industrialists). This is because most of these small and medium scale
industries have highly standardized production processes and withgreat differences in the
labour, capital, and skill-intensiveness of the different stages that make up these processes,
they subcontract manyof these stages in order to enjoy the benefits of production
subcontracting as was mentioned above. Compared with the previous analyses, these factors
were also significant in the decisions to engage in production subcontracting by the industries
in the study area. Furthermore, these results also support the existing findings of Pagnocelli, 69
(1994) and Quinn and Hilmer, (1994) which state that industries that make strategic use of
subcontracting arrangements can become focalized, streamlined and agile in their operations
and subcontracting peripheral activities can allow the organization to concentrate on its core
businesses, thereby enabling the organization to maximize their return on internal resources.It
also supports the findings of Tijun etal (2009) which states that reducing costs, focusing on
core business functions, improving the quality of service and releasing key internal resources
effectively are the common accepted advantages of outsourcing in East China.
5.1.2Problems Limiting Production subcontracting in the study area
Despite the benefits of production subcontracting, there are some other problems
limiting an effective production subcontracting in the study area. These problems based on
our observation in the field have been synthesized into seven factors, and how they appeal to
the industries were analysed using a five point likert - type scale ranging from 1 = “not at all
important” to 5 = “very important” in relation to how they affect the industrialist(table 14).
Table 14: Descriptive Statistics showing the problems limiting effective production subcontracting in Onitsha metropolis
Variables N Range Minimum Maximum Mean Std Statistic Statistic Statistic Statistic Statistic Deviation Lose control of the business 60 0.00 2.00 2.00 2.00 0.00 Legal disputes 60 0.00 2.00 2.00 2.00 0.00 Weaken culture 60 2.00 1.00 3.00 1.82 0.72 Decrease compatibility of innovation 60 1.00 3.00 4.00 3.52 0.50
Disclosure of commercial 0.77 60 3.00 2.00 5.00 4.23 secrets Interest conflicts with 0.72 subcontracting partners 60 3.00 2.00 5.00 4.18
Unfulfilled orders from 0.50 60 1.00 3.00 4.00 3.52 subcontractors Valid Number 60 Source: Field work and author’s computation, 2014 70
The analysis showed in table 14 revealed that the majority of the industries believed that engaging in production subcontracting has a number of risks associated with it. From the analysis in table 14, most of the industries identified: disclosure of commercial secrets, interest conflicts, decrease compatibility of innovation and Unfulfilled orders from subcontractors with mean and standard deviation values of 4.23 ( STD = 0.77), 4.18(STD =
0.72), 3.52 (STD = 0.50) and 3.52 (STD = 0.50) respectively as the major problems encountered in the process of engaging in production subcontracting while legal disputes, lose control of the business and weaken culture with mean and standard deviation values of
2.00 (STD = 0.00), 2.00 (STD = 0.00 )and 1.82 (STD = 0.72) respectively were seen by the respondents as posing little or no problems to them. Disclosure of commercial secret and interest conflict with subcontractors with mean values of 4.23 (STD = 0.77) and 4.18 (STD =
0.72) appear to be the greatest limitations facing this process. Most of the industrialists interviewed have experienced one of these problems at one time or the other making them either to change their subcontracting partner or acquire the capacity to handle the activity
(ies) in house. This was observed mostly in aluminium and metal industries as well as food industries. For instance the industrialist in aluminium and metal industries complained that their subcontracting partners steal their designs, styles and ideas. These designs according to them are either sold to their business rivals or they are used by the subcontractors to manufacture their own products causing them serious losses in business. Other problems disclosed by the industrialist in the course of the field work include: lack of mutual trust between industries and the absence of anestablished institution in subcontracting which is able to link these industries in such a way that industries can easily find subcontracting partners within or outside their localities. About 50% of the industrialist disclosed that lack of mutual trust between industries hinders their willingness to engage in this process. This according to them is caused by disclose of commercial secrets by their subcontracting 71
partners and constant cases of unfulfilled order. But however, they were quick to reiterate that despite these short comings, the practice have come to stay as most of them do not have enough resources to handle all their production process in-house
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CHAPTER SIX
SUMMARY, RECOMMENDATION AND CONCLUSION
6.1 Summary of Research Findings
The investigation into the industrial production subcontracting in Onitsha metropolis
Anambra State, Nigeria yielded some interesting results. The study has clearly identified production subcontracting as one of the major linkage process existing in the industrial sector in the study area. The summary of findings is discussed as follows.
6.1.0 Factors of industrial location
Principle Component Analysis performed on 15 variables/ factors influencing the location of industries in the study area compressed the variables and reduced them to 5 components which influenced the decision of the industrialist to locate their industries. These components are availability of economic cost elements, influence of infrastructural facilities, family ties, influence of cluster/agglomeration economies, and influence of government policy. These factors together explained 74.12% of the total variance leaving 25.88% of the total variance unexplained.
6.1.1 Structuralcharacteristics of industries in Onitsha Metropoliss
Results of the structural characteristics of industries (number of employees) indicated that 53.3% of the industries employed between 11 and 50 employees, a further 36.7% employed less than 11 employees while 10% of the industries employed more than 50 employees.
The results of asset base of subcontracting industries as part of the structural characteristics of the industries revealed that 36.7% of the industries have an asset base of less than N 30 million, 53.3% of the industries have an asset base of between N 51-200 million while a further 10% have an asset base of well over N 201 million. The results above 73
generally indicates that industrial activities in Onitsha Metropolis is dominated by small and medium scale industries with 36.7% and 53.3% respectively while large scale industries with
10% are gradually springing up in the area. This means that the study area is at the centre of entrepreneurship development which is driven by individual creativity and innovation.
Furthermore, the results of the study also indicated that production subcontracting decisions by firm size is dominated by medium scale industries employing between 11 and 50 workers with subcontracting percentage of 53.3% while small scale industries employing less than 11 employees and large scale industries employing more than 50employees have a subcontracting percentage of 36.7% and 10% respectively. This means that small and medium scale industries are more likely to offer subcontracting processes than large scale industries. This is because most of the small scale industries may not be able to fund all the processes leading to the production of a finish goods in their industries and therefore outsources those parts and components that are not within their core competencies to other independent industries unlike the large scale industries with enormous financial capacity to accommodate every production process in-house. This result have a negative relationship with the works of (Kimura, 2001, Holl, 2004, Tomiura, 2005 and 2006 and Diaz-Mora and
Triguero-Cano 2007) which posited that as industries get bigger in scale and capacity, they are more likely to use subcontractors more than small and medium scale industries. This also means that the empirical results from this area of research cannot be generalized as they can differ sectorally, geographically or in scale (internationally, nationally or locally).
Similarly, the study indicated that sectorally, the decision to subcontract or get into subcontracting arrangement varies across industries. The results indicated that 25% of the industries in food, beverage and tobacco industrial group have subcontracted out production activities while industries in chemical, paint and allied products industrial group, plastic, foam, and rubber products industrial group, aluminium and metal industrial group and 74
printing, paper and publishing industrial group have 21.7%, 23.3% 16.7% and 13.3% of their industries engaged in production subcontracting respectively.
The study also indicated that the structure of production subcontracting in the study area is multi layered. This means that there is no particular structure or pattern for engaging in production subcontracting. The results indicated that 56.7% of the respondents/surveyed industries offer and receive subcontracting while a further 43.3% offer but does not receive production subcontracting. A further break down of the result shows that 8.3%, 6.7%,
13.3%, 16.7% and 13.3% of industries in food, beverage and tobacco industrial group, chemical, paint and allied products industrial group, plastic, foam, and rubber products industrial group, aluminium and metal industrial group and printing, paper and publishing industrial group respectively offer and receive production subcontracting while 18.3%, 15.0% and 10% of the industries in food, beverage and tobacco industrial group, chemical, paint and allied products industrial group and plastic, foam, and rubber products industrial group respectively offer but does not receive production subcontracting
6.1.2Types of production subcontracting and spatial pattern of Industrial distributionin
Onitsha Metropolis
In the course of this research, three types of industrial production subcontracting were identified in the study area. These include competence, outsourcing and capacity subcontracting. The result indicates that 33.4% of the respondents/ responding industries make use of competence subcontracting. A further break down of this value shows that industries in printing, paper and publishing industrial group, Aluminium and metal industrial sector, Plastic, foam and rubber products industrial sector, chemical, paint and allied products industrial group and food, beverage and tobacco industrial group have a percentage share of
10%, 15%, 5%, 1.7%, 1.7% respectively. Industries in aluminium and metal industrial group have the highest number of industries that make use of this production subcontracting type. 75
The industries in this group from our observation subcontract activities in order to gain access to skills and technical-no-how especially in the area of machine repairs and maintenance.
Most of the industries that engage in this type of production subcontracting lack the capacity to carry out these activities in-house and therefore subcontract them in order to have access to them. While 49.9% of the surveyed industries make use of outsourcing subcontracting and a breakdown of this figure shows that industries in printing, paper and publication industrial sector, Plastic, foam and rubber products industrial sector, chemical, paint and allied products industrial group and food, beverage and tobacco industrial group have a percentage share of
3.3%, 5%, 23.3%, 18.3% respectively, 16.7% of the industries in the study area make use of both capacity subcontracting. A breakdown of this value showed that industries in plastic, foam and rubber products industrial group have about 15% of their industries in this type of subcontracting while food, beverage and tobacco industrial group have a further 1.7% share.
Another major finding in this work is that industrial activities or operations subcontracted or outsourced by industries do not follow a definite pattern. From the studies, about 83.3% of the industries outsourced one industrial activity such as manufacturing, maintenance, marketing/distribution, technical development while about 16.6% of the industries outsourced more than one industrial activities such as manufacturing and maintenance, manufacturing and distribution and manufacturing and technical development.
The results equally showed that among the surveyed industries, 49.9% of the industries subcontracted manufacturing activities, while a further 26.7% of the industries subcontract maintenance activities. Other activities subcontracted by industries include technical development and distribution with 1.7% and 5% respectively. Further breakdowns equally showed that a number of industries subcontracted or outsourced more than one activity. From the results, about 11.6% of the industries subcontracted both manufacturing and maintenance activities, 3.3% subcontracted both manufacturing and distribution and 76
1.7% subcontracted manufacturing and technical development. These results generally shows that, there is no definite pattern to production subcontracting both in terms of types of production subcontracting engaged in by the industries and in terms of the activities to be subcontracted. This in other words means that what to subcontract or outsource as well as the type of subcontracting to engage in entirely depend on the management decisions of the individual industries. This further confirm or lay credence to the work of Alarape (2007) who after critically analyzing the development of effective subcontracting and network relations among small, medium and large scale industries in Nigeria asserted that there is neither a clear framework nor model for subcontracting and networking in the Nigerian industrial sector.
The results of the spatial distribution of production subcontracting industries in
Onitsha metropolis indicated that the industries are not evenly distributed. The result showed that the industries form a cluster within the areas covering Woliwo, Port Harcourt road, and
Bridge head. The main industrial group that are prominent in this cluster include Chemical,
Paint and Allied products, Food, Beverages and Tobacco and Aluminium and metal industrial group. Other areas with relative high concentration of industries are Harbour industrial layout and Awada industrial layout.These areas are the home to the largest industrial establishments in Onitsha metropolis and Anambra state as a whole. Some of these industries are Intafact
Beverage limited, Golden Oil, Dossy power oil (Dossy powerflo), Orange drugs, Krisoral and company limited. The result also showed that there are other locations within the study area with isolated industrial presence. Some of these areas include Nkpor, Onisha/ Enugu express road Obosi, Odokpu, Onisha /Owerri express road Enugu /Onitsha express, Fegge and Enu
Onitsha. Prominent industrial groups found in these areas include Chemical, Piant and Allied products and Plastic, Form and Rubber products. These industries are found in scattered 77
isolations and this from our observations can be attributed to availability of space and access to infrastructure such as road networks.
Similarly, the result of the nearest neighbour analysisrevealed that the pattern of distribution of industries in the study area generally is relatively clustered while it is relatively dispersed within the industrial groups. This from our observation have allowed for cooperation and networking among the industrial units in the study area in form of manufacturing, distribution, maintenance services etc leading to the establishment of production subcontracting processes among the industries. This also supported the new approach to production subcontracting which laid emphasis on networking initiatives and the development of industrial cluster.
6.1.3Factors influencing the choice/the use of production subcontracting by Industries in Onitsha metropolis
The study using a five point likert - type scale ranging from 1 = “not at all important” and 5 = “very important” point scale, synthesised nine (9) common factors that influence the choice or decision to use production subcontracting processes in industries in the study area.
From the analysis, factors such as reducing operational costs, concentrating on core business function, improve quality of service and increasing flexibility within the industry with average mean and standard deviation values of 4.75 (SD = 0.60), 4.12 (SD = 0.83), 4.32(SD
= 0.77), and 4.08 (SD = 0.77) respectively had the highest influence on the choice to use production subcontracting processes in the study area. This result differs withthe findings of
(Abraham and Taylor, 1996; Holmes, 1986; McMillan,1995 and López, 2007) which sees minimization of costs as the main explanation for subcontracting relationships.
Principle Component Analysis performed on 9 variables/ factors determining the choice or use of production subcontracting in the study area compressed the variables and reduced them to 4 components that influence the decision of the industrialist on production 78
subcontracting. These components are enhancing the operational efficiency in the industries, reducing cost by concentrating on core functions, specialisation in industrial production in order to gain professional resources and strengthening cooperation between subcontracting partners. These factors together explained 80.00% of the total variance leaving 20.00% of the total variance unexplained.
The results of factors influencing the selection of production subcontractors by industries also analysed from a five point likert - type scale ranging from 1 = “not at all important” and 5 = “very important” were the industrialist were asked to rank the factors according to how they affect their decisions showed that subcontracting factors such as; high quality of service, high degree of mutual trust with subcontractors, excellent reputation in the industry, location and lower cost with average mean and standard deviation values of 4.18
(SD = 0.87), 4.08 (SD = 0.81), 4.22 (SD = 0.52) 3.68 (SD = 0.78) and 3.72 (SD = 1.04) respectively appears to play major roles in the decisions to select subcontractors by industries with similar culture and management experience playing less significant roles with average mean values of 1.73 (SD = 0.69) and 1.67 (SD = 0.57) respectively. This result however has a slight difference with the existing research by Baily and Meason (2002), which suggest that high service level, low cost of service and high technical services of suppliers
(subcontractors) are the most important factors determining the selection of subcontractors in
Western society.This also lays credence to our earlier assertion that results from this type of study cannot be generalized as they can differ sectorally, or geographically. Cultural compatibility was less important because the industries are not forming long term strategic cooperation with subcontractor whilemanagement experience like the former was less significant because the industrialists were more inclined to selecting subcontracting partners who can offer the best services at any given time.
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6.1.4Benefits and problems limiting production subcontracting In Onitsha Metropolis Anambra State The result of the seven (7) common factors synthesized from the questionnaire and as the common benefits of production subcontracting in the study area, analyzed from a five point likert - type scale ranging from 1 = “not at all important” and 5 = “very important” indicates that there is a positive overall view regarding the benefits of production subcontracting. From the analysis, reducing cost of operation, improving service quality, enhancing core business capacity and releasing key internal resources with average mean and standard deviation values of 4.23 (SD = 0.77), 4.52 (SD = 0.50), 4.12 (SD = 0.61), and 4.18
(SD= 0.72) respectively were the most commonly accepted advantages of production subcontracting by the respondents (Industrialists). Although production subcontracting has many potential advantages, it also has problems limiting its effectiveness.
The problems limiting production subcontracting in the study area showed that out of the seven problems synthesized from the questionnaire as the common problems of production subcontracting in the study area using a five point likert - type scale ranging from
1 = “not at all important” and 5 = “very important”,showed that limitations such as disclosure of commercial secrets, interest conflicts, decrease compatibility of innovation and Unfulfilled orders from subcontractors were the major problems encountered in the process of engaging in production subcontracting while legal disputes, lose control of the business and weaken culture were seen by the respondents as posing little or no problems to them.The other problems identified by the industrialists include lack of trust by some firms to give subcontracts to local industries because of fears that there would be no guarantee in quality of the items produced, lack of information on the capacities and capabilities of some of the subcontractors, lack of mutual trust between industries and absence of an institution in subcontracting which is able to link these industries.
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6.2 Recommendation Based on the findings of this study, the following measures have been identified as ways of improving production subcontracting in Onitsha Metropolis.
6.2.1 Institutional Arrangement:
From the previous discussions it has become clear that production subcontracting besides creating market for small and medium scale industries is also a key element in promoting economic efficiency and specialization of skills. Therefore there is the need for the formation of a subcontracting agency that has the support and confidence of small, medium and large scale industries. This could be through government industrial agencies such as the
Chambers of commerce, Ministry of commerce and industries or Cooperate affairs commission but will also involve the private sector organizations. In principle, these organisations will be charged with the responsibilities of providing direct information to these industries in terms of the availability of industries that can service their needs and the potential and actual businesspersons to undertaking the investment within a particular area.
This will not only further reduce the cost of operation of these industries but it will also reduce importation of material and equipment from these industries. For instance, some of the paint industries import their chemical formations from abroad while there are some chemical industries in and around them that can service this need. The same goes for both the plastic and foam industries which import some certain percentage of their input without knowing that these needs can be serviced by an industry within the study area or the country as a whole. The institutions mentioned earlier such as Anambra state chamber of commerce,
Anambra state ministry of commerce and industry and Anambra state cooperate affairs commission, have a lot of role to play with regards to the success of this process. They should be made to be alive to their duties which include conducting periodic industrial census monitoring and evaluating industrial activities in the study area. This will help them to be 81
fully aware of the industrial activities taking place in the study area as well as giving them access to information about the industries which is key to the success of production subcontracting in any economy. A situation where a government agency armed by law either to collect revenue, register industries or monitor the activities of the industries operating in a geographical area, finds it difficult to account for the number of industries operating in a place is economic suicide and unhealthy for economic growth.
6.2.2 Legal Framework:
Although trust, quality, continuity and relationship play an important role in production subcontracting, as experience around the world suggests, the existence of legal framework to reinforce the arrangement is of paramount importance in the study area. In view of this, it is of paramount importance that a subcontracting agreement model that will encompass, among others things, the duties and responsibilities of both the contractor and subcontractor should be worked out taking into consideration the existing laws and existing practices in the world.
As seen in the previous sections, some of the problems of sustaining subcontracting relationships such as the failure of subcontractors to full fill the required quantity and quality of supply of product, interest conflict, disclosure of commercial secret, lack of trust in the study area are caused by lack of guiding principles or laws governing production subcontracting arrangements. Therefore there is the need to institutionalize and evolve a respectable and acceptable code of business behaviour on both sides to guide this arrangement. This code of business behaviour will encompass a body of laws and principle which will be helpful for firms tomake the rational decision or to seek redress once there is bridge of contract. In addition to the legal conditions, those related to contracts governing the operation of such linkages have to be in place. The non-existence of such standardized contracts that fairly treat both the contractor and the subcontractors; there would be little 82
chance for achieving success in inter-linkage mechanisms. This is because contractors would come up with contracts that totally suit their interest at the expense of subcontractors.
This will equally help both the subcontractors and the contractors to know their individual responsibilities to each other whenever an arrangement is taking place as well as avoid wasteful competition and unethical economic practices by industries.
6.2.3 Government Policies:
There should be an effective government policies which can help accelerate the activities of production subcontracting in the study area. This can be achieved by the government formulating a policy that will make industries wishing to establish in the study area to have subcontracting tendencies as a condition for entering into the industrial sector of the study area. Industries should equally be made to sough for their industrial inputs locally as it will not only make them to seek assistance from their fellow local industries, it will also force them to support this process. This type of policy can be seen in countries like South
Africa, Kenya, Korea, Japan, and Slovakia among others and they are made to protect, strengthen and sustain small and medium scale industries in any economy. In the study area for instance, Krisoral and company limited produces all forms of pharmaceutical drug dispensing cups and containers, pet performs and bottles. They are the largest producers of these products in the south-east and they have the capacity to service any type of pharmaceutical industry as well as food, beverage and tobacco industry in Nigeria and beyond but they may not be able to attain their full potentials if the enabling laws and policies that will make their operations thrive are not initiated by the government. Also like any investment that warrants incentive and encouragement, subcontracting industries particularly those who offer to subcontract the processing of a product need to be given certain privileges in terms of tax exemptions in order to induce others to follow suit. This will not only make 83
others to follow in this direction but will also make people to set up service industries that will in turn generate employment for the army of unemployed youth in the study area and
Nigeria as a whole.
Similarly the policies should also include giving access to investment finances to the industries in order to strengthen their capacity. This will make them compete favourably in the subcontracting market as well as gaining trust from the contractors. Furthermore, the governments should encourage future investments, both local and foreign, that offer the possibility of subsidiaries. This is advantageous to the industries engaged in subcontracting more especially in the study area because it will be easier to change parts of the industry, in response to current fast changes in technology and demand patterns, than the whole.
In conclusion any policy/policies initiated in order to effectively manage production subcontracting in the study area should be geared towards promoting specialization and efficiency.
6.2.4 Awareness creation
Creating awareness can further improve the state of production subcontracting in the study area. The business operators should be informed as to the advantages and benefits of subcontracting as well as with whom they could establish such mechanism. Awareness creation on benefits of subcontracting to both parties-contractor and subcontractor should be given special consideration. Particularly, the medium and large scale enterprises should be convinced to outsource certain part of their activities to smaller enterprises, since their benefits would outweigh their losses. This can be achieved through various mechanisms such as seminars, workshops and fairs. Fairs and exhibitions can be used to expose the items which contractors wish subcontractors to manufacture. This can be done with cooperation of the government and the private sector organizations. This will equally help the industries to 84
obtain appropriate equipment and technology for their operations making them ready for any modification in technology. Research institutes can assist greatly in this respect.
6.3 Conclusion.
From the outcome of this study, we established that industrial activities in Onitsha
Metropolis is dominated by small and medium scale industries with large scale industries gradually springing up in the area. Again we established that production subcontracting decisions by firm size is dominated by small and medium scale industries and as a result are more likely to offer subcontracting processes than large scale industries. This means that thesector (small and medium scale sector) needs to beadequately protected with viable and proactive policies which will guarantee their survival in the industrial market. This can be achieved through the establishment of production subcontracting processes within the sector.
This will not only create an already made markets for these industries, it will also help them to hedge the risks ofproduction bottlenecks or over-capacity as well as maintain low overheads while achievinghigh flexibility in both internal and external operations,and hence makes them more resilient tocrisis. Also we were able to establish that the structure of subcontracting in the study area is multi layered meaning that the industries offer contracts and work as subcontractors. This implies that with favourable government policies and funding the subcontracting industries in the study area can service any industry within and outside the confines of Nigeria. Again we established in this study that four underlying dimension influence the decisions of the industrialist to engage in production subcontracting the four underlying dimension are enhancing the operational efficiency in the industries, reducing cost by concentrating on core functions, specialisation in industrial production in order to gain professional resources and strengthening cooperation between subcontracting 85
partners. This means that the combination of these factors determines whether or not an industry will engage in production subcontracting.
Furthermore there is a positive overall view regarding the benefits of production subcontracting despite some problems limiting its effectiveness in the study area. Reducing cost of operation, improving service quality, enhancing core business capacity and releasing key internal resources are the common benefits generally accepted by the industrialist. This means that if the problems faced by the subcontracting industries are successfully managed by the adoption of the recommendation mentioned earlier in this chapter, this type of interrelationship will contribute not only to the growth and livelihood of the industrialists in the study area but also leads to the development of the overall economy of the country.
Similarly, we have been able to discover the modus operand of industrial production subcontracting in Onitsha metropolis, Anambra State. The outcome of this study will help many potential industries in the study area to systematically interrelate in carrying out their business for more effectiveness. The outcome of this study will equally help in the planning of the new industrial revolution programme earmarked by the federal government of Nigeria to take off in Lagos and Nnewi as the establishment of service industries or subcontracting industries will not only help in keeping the already established industries upstream, they will equally attract businesses from foreign industries and multinationals as no industry wants to be monotonous and bear the burden and risk of production alone.
Finally, this study has been able to show thatthe industrial configuration of Nigeria has gone beyond the traditional: Lagos-Ibadan-Benin axis; Jos-Kano-Kaduna triangle and
Port Harcourt-Enugu (Ajayi, 2007) axis to include the Nnewi district (Oyeyinka 2003) and the Onitsha nucleuswith a significant upsurge in manufacturing activities.
86
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