Why Zambian Premier Companies Need Core Competences to Survive
Strategy, Zambia Sugar Plc

There are companies on the Lusaka Stock Exchange that continue to generate increased revenue year on year. Of those companies, the manufacturing and vertically integrated companies have been the most impressive. Few have speculated that size does matter hence why these companies continue to produce increasing revenue records amidst challenging macro conditions that have been experienced in the last 3-4 years. However,although indications are that this is now abating through signals such as an evolving tax system (pursued by ZRA with gifts such as amnesty on tax debt recently extended to August 31 2017), a tumbling monitory policy rate (BOZ continuing its quarter by quarter easing on rates to free up liquidity), an exchange rate that has been boxed in levels speculators thought were not possible (influenced by external inflows from off shore investors who fancy fixed income from Zambia), we at Financial Insight Zambia believe that part of these companies success is their core competences. Core competences are the company’s collective knowledge of how they coordinate diverse production skills and adopted technology. It is one of the sources of achieving competitive advantage.

We have previously underscored the importance of resources and capabilities in earlier publications. The identification of a premier company’s core competences are at the center of this. However, management teams must be wary to not make a laundry list of competences so long that it exposes their bounded rationality of what their companies are really competent in.

Evidence of companies with clear competences can be found in listed companies such ZAMEFA and ZAMSUGAR. The former is a producer of electrical cabling that is so desired by many Zambians that electricians far and wide swear by their cables. Almost a love mark, their product is widely considered the best cable to use for wiring a house. The latter has sweetened the cups of many Zambians for many years and continues to have growing revenue even when threatened by El Nino and tumbling demand from the European Union (Until recently its largest export market). These two companies are exemplary because they have proven themselves adept at inventing new markets and quickly entering emerging markets (ZAMEFA entering East Africa and ZAMSUGAR entering neighboring countries).

But what makes these companies so good at what they do? What competences do they possess? We are not part of the management teams of these companies. However, decoding the signals from their CEOs statements (Rosetta Chabala at ZAMEFA and Rebecca Katowa at ZAMSUGAR) in their recent annual reports does give an indication.

At the ‘Copper wire’ company, Rosetta’s team has perfected the art of manufacturing electrical cabling of the highest standard. In order to achieve this, they have invested in property, plant and equipment backed by industry years’ experience(personnel trained in international standards) that has enabled them to pursue strategies of economies of scale and scope. Rosetta herself sits as at the helm of Zambian manufacturers association where her passion can be seen in her attempt to protect value in her industry (watch out for coming legislation for manufacturers in Zambia).

On the sugar plantation, Rebecca has recently taken on one of the most ambitious projects that cost her bottom line in 2017 (2017 AR reported negative earnings due to high finance costs however value was clearly created) albeit was able to increase revenue even before real return on investment in the project can be realized. With the experience her team has in producing sugar,we believe that her investment in PPE will begin to pay dividends next year (literally).

Both companies have consolidated their distribution chain. Although we have identified areas where they will need to improve (Rosetta needs to consolidate her position at retail while Rebecca needs to pursue product diversification that will give consumers more options),competing with both companies over the long term requires a substantial investment in competences. Being extant players in their respective industries,they both possess the edge. In addition, as Prahalad and Hamel wrote in their famous Havard Business Review article, these companies do not just consider themselves a collection of strategic business units, but a portfolio of core competences.

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