Precast Concrete Company Ltd.
Precast Concrete Company is a privately owned proprietorship that designs and manufactures three major precast concrete products: blocks, culverts, and kerbstones of various sizes and shapes. The company is located in the Nigerian capital of Abuja and it will operate as a small and medium enterprise (SME). The idea behind the business was advised by a dream that started some ten years back when the proprietor still worked as a top manager in one of the leading construction countries in the country. Banking on the experience he has gathered in the span of ten years he has been working with various construction companies, the proprietor chose the three precast concrete products due to the low costs involved in manufacturing them and most importantly, their relatively high returns.
The company will engage experienced and talented management team that will work closely with the proprietor in smoothly running key company operations. Other low level employees will also be required for the company to achieve its goals of becoming a prime precast concrete products manufacturer in Nigeria.
The largest chunk of the start-up capital will be contributed by the proprietor, with loans from a friend and a bank topping up the remaining chunk. For a start, the company will serve the small scale construction companies, residential estates developers, states agencies, as well as individual home developers within the city of Abuja. Then it will expand to serve large scale clients within and beyond the city of Abuja.
Precast Concrete Company Ltd is an Abuja based small and medium enterprise (SME) that produces a range of precast concrete products. These products include: blocks of various sizes (9inches and 6 inches), ring (pipe) culverts of various sizes (900mm and 600mm diameter), and kerbstones of different shapes and sizes. The main idea behind the decision to venture into this type of business was advised by the fact that there is a large and ready market for precast products courtesy of the bulging construction industry in Nigeria as a whole and Abuja in particular. Again, there are very few precast concrete industries operating in the country, a thing that has occasioned some of the big construction companies to consider manufacturing the critical precast products on their own hence spending a lot of their time and money than it would have been if they outsourced the whole process.
The company envisions a smooth growth within the first two years of operation. To begin with, the company will undergo a six-month launching period after which business will run on a full capacity operation mode. During the launch period products will be sold at subsidized prices in a bid to woe potential customers as well as to test the target market level of preparedness. Specifically, the company envisions a rapid growth in the demand of its range of block products from the third quarter of the first year in operation. This prediction is based on the current precast concrete products business trends in areas around Abuja, where the demand of blocks is very high compared to that of culverts and kerbstones.
Precast Concrete draws its driving force from its sole owner who has over ten years hands-on-experience working for different precast concrete and construction industries in Nigeria as a top manager. As a matter of fact, the company is a realization of a dream that started long time ago when the proprietor was still an engineering student and continued through the years when he was in active employment. Ideally, the proprietor is a perfectionist who upholds the virtues of hard work, transparency, and accountability. Apparently, these core virtues will form the basis of the Precast Concrete employee handbook that will be used as a reference material in all the company’s operations. The company acknowledges that hard work, transparency and accountability beget high productivity – a sure ingredient for the company’s quest to become a prime precast concrete industry in Nigeria within two years of operation.
The precast concrete industry is one of the fastest growing sectors of the Nigerian investment economy. This growth is directly associated with the bulging construction industry in the country. As the country’s population continues to increase at a relatively fast rate, the demand for more homes, offices, schools, hospitals, and roads continue to increase. A balanced local construction industry observation is that precast concrete products are now the most used in construction purposes after water due to their ability to interact amicably with the envionment without incurring damage even over a long period of time. In fact, well manufactured and cured precast conrete products are not damaged easily even when exposed to the extreme hot and cold weather sometimes experienced in some sections of the country during summer and winter seasons.
An intensive research carried out on the target market by the proprietor reveals that many construction companies are spending huge sums of money to acquire precast concrete products for no good reasons. Partly, this has been attributed to the fact that such companies partake of making such precast products on their own as opposed to outsourcing them from specialist companies. Again, it has been noted that due to lack of specialty among such construction companies the quality of the precast concrete products made thereof is greatly compromised.
This occasions an urgent need to safe the companies from incurring more costs as well as giving them ample time to specialize on those activities they are more experienced in. This should take the form of concreted efforts made to ensure that the quality of such precast products is never compromised.
The area around the city of Abuja does not have very many companies specializing in the manufacture of precast concrete products. Again, it has been noted that there are no clear leaders in the Nigerian precast concrete industry, particularly in the areas around the city of Abuja. The local market is still unsaturated and unexploited. This presents an absolute opportunity for Precast Concrete to venture. As such, it is envisaged that the company can achieve a pole position after around two years in operation.
Precast Concrete company product range is made up of three main products that come in different shapes and sizes. These include precast concrete blocks that come either in 9inches or 6 inches, ring (pipe) culverts that come in both 900mm and 600mm diameters, and kerbstones that come in an assortment of shapes and sizes. Each of these products will be manufactured according the specificities of the Nigerian civil engineering authorities’ on precast concrete products. Precisely, great care will be given to the process of mixing the components when making concrete, the process of molding, as well as the curing and storage processes.
Our products will be produced in closely controlled envionment that will ensure high levels of adherence to the specified production procedures. Preciesely, a closely controlled envionment will ensure that production factors such as craftmanship, temperatures, humidity, as well as raw materails are utlized in the required amounts so as to reduce chances for variability. Precisely, the structural strength of the blocks shall be 15KN/m2 while that of the culverts and kerbstones shall be 25KN/m2.
The company will undertake to manufacture precast concrete products in advance and store them in the warehouses so as to cartter for short-notice orders as well as to ensure continuity of business especially in the event of unforeseable production snags. This will accord the company an upper-hand particualrly on the company’s product pricing and placement strategies.
The blocks and kerbstones will be manufactured in different colors depending on customer preferences. Again, depedning on the customers prefences the precast concrete products will be manufactured into dirrent finishes ranging from smooth, sandblasted, acid-etched, exposed agregates among other finishes. This high level of flexibility in production will accord our customers a wide range of features to choose from, hence value for their money.
Precast Concrete is a privately owned company run under a proprietorship by its sole owner with assistance from a barrage of top, middle, and junior level employees. The proprietor is a graduate from one of the top notch universities in Nigeria and he has got ten-year experience working for different small and middle level companies in the local construction industry. In the company management board will sit the owner of the proprietorship in his capacity as the managing director flagged by a team of five experienced and academically qualified managers, each holding dockets in the realms of financial, marketing, production, procurement, and human resource.
These line managers are expected to provide the necessary input in their respective dockets, initiate positive work-specific relations between low level employees and the top management team, as well as coordinating with the managing director in making critical decisions pertaining to the overall operations in the company. Moreover, being a start-up company, Precast Concrete, Inc., will rely heavily on the input of every employee particularly during the six-month launching period as well as during the post-launch period to cutout its niche in the market.
Essentially, the company employs a mixture of young and old, experienced, motivated, and talented persons capable of employing modern technology for productive gains in the construction industry. Basically, these are people who graduated with honors from leading engineering graduate schools in the world and who have substantial hands-on-experience in advancing production and developmental agendas as well as handling industry-specific challenges.
The company will sell its products through contracted sales agents who will carry out both physical and telephone visits to various construction companies, offices, homes, and all potential customers’ places around the city of Abuja. These sales executives will be responsible for identifying potential clients and distributing company catalogues describing the nature of products the company manufactures. Precisely, the catalogues will include detailed information about the technological methods used to make the products, the products usability, prices, company ethos, important people, company targets, as well as other pertinent details about the products and the company as a whole.
It has been noted through online research conducted by the proprietor on the dynamics of the Nigerian construction industry that many construction companies rely on the internet for advertising and selling. Again, based on the fact that a substantial chunk of the Nigerian population is slowly embracing internet technology it is acknowledged that online advertising and selling can reach a huge section of the target clientele. As such, the company plans to launch a home page which will encompass an order form. Ideally, such home page will be highly interactive so as to enable our clients to access the range of our products online, access the company’s philosophy (mission, vision, and commitments), place their comments concerning product specification, and most importantly, make procurement orders. So as to make the home page as well as the order form more interactive and informative, various colors, shapes, and animations of the products will be posted therein. It is estimated that the whole process (launching of the home page) will cost around N50, 000.
Again, basing on the findings of an analysis done on the local newspapers and magazines readership trends by the proprietor, it has been noted that quite a number of construction companies utilize newspaper and magazine advertising services. As such, this also will present a true opportunity for Precast Concrete to expand its business tentacles across the confines of Abuja. In this regard, the company plans to place weekly adverts describing its range of products, their usability, company philosophy, as well as the envisaged growth for the company in the major local newspapers and magazines. This will cost around N30, 000 per month, a relatively small figure given the amount of returns it will bring to the company.
For a start, the company will target the small scale construction companies, government agencies, as well as individual property developers within the city of Abuja. Being a SME company, Precast Concrete is better positioned to serve the small scale construction companies particularly during the launch. Even so, it is anticipated that the company will later move on to dealing with larger clients such as large construction companies and state agencies. It is also anticipated that the company will expand its production capacity in the second year of operation and spread its services to clients located beyond the confines of city of Abuja.
As part of its corporate social obligations, the company will also partake of community services such as environmental days, sponsoring local events, and partnering with the city of Abuja department of civil engineering to construct street pavements and other public utility structures within the city. In doing so it is anticipated that the activities will contribute to building a good name and generating exposure for the company. Consequently, the company will ride on such exposure and popularity to source for tender from the city council of Abuja as well as other large organizations within and beyond the city.
In regard to matters of products delivery to the customer premises, the company will utilize both its trucks and customers vehicles. Customers willing to use their vehicles to carry their purchases will be given a small discount as a sign of goodwill and also to encourage them to make future precast concrete shopping at Precast Concrete. To this end two seven-ton tucks will be used during the launch period. However, two other similar trucks will be acquired once sales start going up probably during the post-launch period.
Strengths: The strengths that Precast Concrete brings into the Nigerian precast concrete industry fold are immeasurable. While it may seem a continuation of the status quo to skeptics, this is not the case. The company seeks to rejuvenate the industry with new efficient and cheap precast concrete technologies courtesy of the able minds and hands from proprietor and his management team composed of experienced and qualified professionals. This is based on the quality of information that the proprietor has on the industry. Being in the industry for more than ten years makes him aware of the most effective precast concrete production procedures. This also makes him better positioned in identifying what fits Precast Concrete goals and objectives vis-à-vis the market demands. For instance, basing on this experience the proprietor has customized such procedures to suit Precast Concrete production capabilities: The choice of blocks, culverts, and kerbstones as the main products is an indicator that the company is only keen on delving on the most rewarding activities.
Again being a relatively smaller company, Precast Concrete does not need to incur huge time wastages in trimming redundancy through switching to the most efficient production modalities as it only have to consider opinions from six brains (the proprietor and five managers) compared to a situation involving more than twenty brains. This is a real-time upper hand when looking at the company from the lenses of large industry players with large management boards and engineering departments. Again, the relatively small range of precast concrete products is an entry-level strategic undertaking that will act as a barometer for the target market response to the company’s production potential. The three products provide a practical competitive edge to the company given that they can be produced at a very low cost and still fetch good returns for both short and long term basis.
Again, being a relatively smaller company, Precast Concrete will endeavor to work on customer orders in a short time. In this regard, it is envisaged that products will be delivered to the customers premises the same day they are ordered. This will enhance a good reputation for the company while at the same time creating enough room for the stocking of newly manufatcured blocks, culverts, and kerbstones in the company warehouses. The two seven-ton trucks supplimeneted by customers vehicles will ensure this goal is achieved in real-time.
Weaknesses: Precast Concrete Company is relatively a small establishment. The available capital though capable of cushioning most of the anticipated operational costs, it is not enough to kick start the company on a high note. As such, it will take time for it to win the confidence of bigger construction companies. If the company had a large capital base to engage more employees, to acquire a larger land for erecting more warehouses, to acquire the most sophisticated equipments, as well as to manufacture a wide range of precast concrete products it would be a big booster for its ambitions of being a prime precast concrete manufacturer in Nigeria. For instance, sophisticated equipments would mean that the company can manufacture precast concrete products with great ease while still upholding high quality standards. An increment in production will mean the company can at the long run enjoy the benefits of economies of scale.
Again, the company has got the huge task in cutting a niche for itself in a market that though not saturated, has seasonal precast concrete manufactures some of which have become synonymous with the trade. Though there is a large prospect for hitting the market with a big impact, this is not an obvious task given it will be determined by how the company position itself and how it works toward building a strong brand.
Opportunities: The opportunities in the Nigerian precast concrete industry seem abundant. More residential, commercial, and recreational facilities are being built to accommodate the bulging population that continues to move from the rural locations to urban centers. More and more people are beginning to learn the benefits of using precast concrete products in their construction purposes. The residential home developers are among the latest entrants into the precast concrete technology, with more meters of estate walling in newly constructed residential estates being made by concrete blocks and slabs and more pavements and drainage systems built. This is an additional market option to the existing conventional heavy building and construction needs such as bridges, warehouses, stadiums, and roads.
If Precast Concrete can amass the necessary tools to tap in these opportunities then it can achieve its ambitions of being the prime precast concrete manufacturer in Nigeria. Even so, the proprietorship has made substantial start-up plans that can be relied upon to make this dream a reality. For instance, the choice of a variety of shapes and sizes of the three main precast concrete products was based on his knowledge on the industry trends particularly on the interplay between the demand and supply forces in regard to such products.
Moreover, the Nigerian precast concrete market is now giving significant attention to residential homes construction than it was before. This is advised by the fact that more large residential areas have sprouted in major towns over the years due to the increased rural to urban migration. More residential areas means more blocks for erecting both the internal and external walls, more blocks for carpeting pavements, more culverts for channeling runoff and dirty water away to the drainage systems, and more kerbstones for laying pavement edges, and more business for Precast Concrete.
Threats: Due to its large capital outlay the construction is greatly affected by economic crunches. Again, the unpredictable political crises which has engulfed Nigeria in the recent years due to the spillovers from the friction between Muslims and Christians and between the government forces and Niger Delta guerilla fighters negatively impacts on a wide range of economic activity in the country. These threats pose real challenges to otherwise not so strong business enterprises. For instance, they may occasion an increase in operation costs due to prolonged timeframes in completing projects; they may also occasion a complete disruption of ongoing on-site activities among other severe consequences.
During such times the demand for precast concrete products may go down forcing companies to opt for mergers of even quitting business altogether. Though new into the market, Precast Concrete banks on the industry-specific experience from its proprietor in drawing out workable plans to mitigate such unforeseeable threats. Moreover, the company engages at least five line managers who are tasked with the responsibilities of closely monitoring the performance of their departments and to identify any signs of inefficiency and address such before matters get out of hand. Furthermore, given that the company’s overall operations does not involve and complicated processes it is very easy to identify the weak areas and take the necessary adjustments within the shortest timeframe.
A moderately large start-up capital will be required for the acquisition of key equipments to enhance a smooth flow of the envisaged business operations. These costs include:
- A plot for building the company premises measuring 100 meters by 80 meters costing at N8, 000,000.
- Costs of erecting warehouses and offices N10, 000,000.
- A drilled and fully equipped borehole with pumping system and water storage facilities costing at N800, 000.
- One loader/forklift costing at N1, 000,000.
- One concrete mixer costing at N500, 000.
- One dumber costing at N500, 000.
- An assortment of molds costing at N100, 000.
- Two seven-ton delivery trucks each costing at N1, 000,000 each.
- Online selling and advertising costs at N50, 000.
- Weekly newspaper and magazine advertising costs at N30, 000 per month.
- Cement which costs at N1, 700 per 50 kg bag – it is estimated that 3,000 bags will be used in a month.
- Sharp sand which goes at N12, 000 per 20-tons vehicle – it is envisaged that around 20 such trucks will be used per month.
- Aggregates which costs at N40,000 per 20-ton vehicle – with a rough estimation of about 15 such vehicles in a month.
- Diesel for running machines and delivery trucks which will cost N120 per liter – it is envisaged that about 3, 000 liters will be consumed per month.
- Cost of electricity and water at N10, 000 per month.
- Salaries and wages for junior employees costing at N300, 000 per month.
- Managers’ salary totaling to N45, 000 per month per manager.
Total Fixed Costs: 22,880, 000.
Total Variable Costs: 3,835, 000.
Total Costs: N26, 715, 000.
7.2. Sources of Capital
The proprietor will contribute 40 percent of the projected costs (N10, 686,000). Another 20 percent (N5, 343, 000) from a friend in form of a loan that will be paid back at the interest rate of 12 percent per year, with the remaining expenditure (N10,686, 000) being cushioned by a bank loan sourced from OCIENIC BANK PLC to be paid back at an interest rate of 18 percent per annum.
A market survey conducted by the proprietor among precast concrete industries in Nigeria shows that blocks of 15kn/mm2 strength cost at N250, while culverts of the same strength costs at N7, 000, and kerbstones with 25kn/mm2 strength cost at N200 per unit. However, these are prices offered by large multinational companies operating in the country meaning that those offered by SMEs are relatively lower.
Precast Concrete products will be priced at a relatively low price during the launch period: blocks will be sold at N230, culverts at N6, 800, and kerbstones at N180 so as to attract potential customers. However, after the end of the launch period the prices will be fixed at a level allowing a 25% profit margin. Ideally, this means that the post-launch returns will surpass the launch returns by 25 % and hence the company will be able to carter for all the operational costs and still realize profits.
Break even point = Fixed costs/ [units selling price – variable costs]
- Break even point [for launch period]
22,880, 000/ [(230 + 6, 800 + 180) – 3,835, 000] =
22,880, 000/ [7, 210 – 3, 835, 000] =
22,880, 000/-3, 827, 790 = 5.977
7.5. Prices at 25 % Profit Margin
The launch period prices shown above were fixed to cover production costs and a small profit hence no profit will be expected during this period. However, by allowing a profit margin of 25 % they will be sold at:
Blocks = 230 x125/100 = N287.50
Culverts = 6,800 x 125/100 = N8, 500.00
Kerbstones = 180 x 125/100 = N225.00
- Break even point [for post-launch period – 25 %profit margin]
22,880, 000/ [(287.50 + 8, 500 + 225) – 3,835, 000] =
22,880, 000/ [8, 012.50 – 3, 835, 000] =
22,880, 000/-3, 827, 550 = 5.979
NB: Currency conversion rate: 1$ = N150.