During his recent trip to Swaziland, President Edgar Lungu laid down the gauntlet for aspiring premier companies in Zambia to seriously consider export markets as a means to create value. After reviewing some of the strategic tactics that enabled some of the manufacturing companies listed on LuSE from avoiding negative earnings by them seeking export markets, we agree with the president’s challenge.
Although there are certain “things” that have to be put in place such as trade agreements, it is the basic premise for what Bank of Zambia and the Finance Minister have been hoping to see come out of premier company strategies through some of the policies they are crafting. There are already indications that there are policies that are being put in place to promote companies to trading across borders.
However, before companies get ahead of themselves, TFHZPC advises that companies that aspire for greatness need to carefully look at their financials. The balance sheet will show these companies whether or not they have what it takes in terms of meeting the economies of scale that foreign markets often demand. If these companies have not invested in property plant and equipment that is fresh, they risk the danger of winning contracts that they may be able to meet in the near term but fail to honor lamentable over the long term. In addition, achieving scale often requires a northward adjustment in working capital. If the premier company does not take this into consideration, they risk not being able to meet the logistical issues that arise from exporting.
In terms of the income statement, a review of administration costs and the choice of financing options of up-scaling the business are areas premier companies will need to keep an eye on. Whether it is a decisions to take on more staff to meet the demands of up-scaling or choosing between short term or long term finance, the impact these two have can on the bottom line can either be good or bad depending on the adopted strategy.
However, we do understand that the export market is not for every-would be premier company. Before, companies commit to an export strategy, market research for their target export market must be conducted. A classic example is how ZAMEFA entered the East African Market. Market research would have told the management team that the East African although trading in the product copper cable, was not able to meet the high demand of that product. Furthermore, market research would have shown that copper was not a product that was widely mined in East Africa. Therefore, incumbent players suffered from logistical overheads to meet the demand of that market hence preventing them from achieve scale. So entering that particular market was made easier with market research. They entered that market as second mover hence it was ZAMEFA’s game not to lose.