THE
PROBLEMS OF ACQUISITION AND REPLACEMENT OF PLANT AND EQUIPMENT IN A
MANUFACTURING INDUSTRY
A CASE
STUDY OF
ANAMBRA
MOTOR MANUFACTURING COMPANY LIMITED ENUGU.
ABSTRACT
This research is a study of the
problems of acquisition and replacement of plant and equipment in a
manufacturing industry. It is aimed at
examining the activities involved in the production process with a view to using
it in determining whether or not resources were fully utilized. It is also aimed at discovering the
bottlenecks and weakness in the operations of manufacturing firms using Anambra
motor manufacturing company limited as a case study.
This study has five chapters, which
were combined to bring out all the ideals for a comprehensive work.
Chapters one contains general ideas of
the study. It introduced the study and
laid the foundation for the other chapters that appear in the other parts of
the study. It contains three hypothesis
which were tested in chapter four for statistical significance.
Chapter two reviewed related
literature on the evolution of capital goods and investment appraisal
techniques to be used in capital budgeting.
However, chapter three is on the research
methodology, population size, sample size and measuring instrument used in the
study. To make the study possible,
survey research method was used based on the sample size of fifty two
respondents.
Questionnaires were used as the
research instruments administered, data collected, analyzed and interpreted in
chapter four.
Chapter five deals specifically with
summary, conclusion and recommendation
TABLE
OF CONTENT
Title Page i
Approval Page ii
Dedication iii
Acknowledgement iv
Abstract vi
Table of Content viii
CHAPTER ONE
1. O Introduction 1
1.1
Background
of the Study 1
1.2
Statement
of Problem 5
1.3
Objectives
of the Study 6
1.4
Significance
of the Study 8
1.5
Scope
of the Study 9
1.6
Research
Hypothesis 10
1.7
Definition
of Terms 12
CHAPTER TWO
2.0
Review
of Related Literature 13
2.1 Evolution of capital Goods 12
2.2
Replacement 16
2.3
The
Concept of Capital Budgeting 19
2.4
Financing
of Capital Assets 24
2.5
Foreign
Exchange 27
2.6
Capacity
Utilization of Machinery and Equipment 30
CHAPTER THREE
3.0
Research
Design and Methodology 37
3.1 Sources of Data 37
3.2
Determination
of Sample Size 39
CHAPTER FOUR
4.0
Presentation,
Analysis and Interpretation of Data 45
4.1 Presentation and Analysis 45
CHAPTER FIVE
5.0
Summary
of Findings Conclusion
and Recommendation 74
5.1 Summary of Findings 74
5.2
Conclusion 74
5.3
Recommendation 75
5.4
Limitation
of the Study. 78
References 79
Appendix 81
CHAPTER
ONE
1.0 INTRODUCTION
1.1 Background of the Study
The establishment of a consistent
industrial system in which technology is fully understood is the primary
objective of many developing countries.
According to Omorodion (1986) an industrial system is a body of capital
goods industries (Metallurgy, engineering, building and public works) of
intermediate goods and consumer goods which are linked together by buying and
selling relationship.
There are many obstacles to the
emergence of an industrial system. In
this study, they will be grouped into two, namely external and internal
obstacles. External obstacles are
likened to the world economic crisis.
The fragile nature of the economy has resulted in industrialized
countries altering their production system, thus, modifying the production
system or methods and the distribution of industrial products. These are noticed in monetary imbalance, the
drop in exports of manufactured products and the reduction of outlets. The bad economic situations experienced by
the industrialized countries bounce back to the developing countries.
The situation is worsened by the
continuous deterioration in he terms of trade, increasing indebtedness and the
difficulties in the payment of debts. It
is clear that inordinate increases in
interest rtes are causing considerable problem in the debt management. Some of them have instituted austerity
measures in order to avoid bankruptcy.
In Nigeria,
the structural Adjustment progrmme measure was introduced by the Babangida
administration.
The internal obstacles are linked with
the production system in any developing economy. It could be as a result of the scarce
agricultural goods and services to satisfy the needs of the ever growing
population of a country like Nigeria. The difficulties of achieving mastery of
technology in relation to capital goods are undoubtedly one of the most serious
hindrances to the birth of an industrial system in Nigeria. For the past three and a half decades, Nigeria has
invested heartily though unequally in the acquisition of capital goods.
Omorodion (1988) defined capital gods,
as those manufactured goods use in the production of all sorts of consumer
goods capital goods can be used to produce some other capital goods like plant
and equipment. He further classified
capital goods by their uses such as:
a.
Capital goods for producing capital goods
b.
Capital goods for producing intermediate
goods
c.
Capital goods for producing consumer
goods
These capital goods constitute the base for the industrialization process
because each category of the capital goods can help in the development of
another.
A close analysis of works on the problems of industrialization in Nigeria
has shown that planned objectives do not always achieve the desired results,
but they rather result in opposite results due to lack of relationship
between industries, lack of
technological expertise to handle the imported capital or inadequate personnel etc.
These difficulties resulted in the Nigerian Government modifying her
trade relationship with the industrialized countries.
The federal government had the vision to more Nigeria forward and this lead to
the establishment of six progressive automotive manufacturing plants in the
mind seventies and eighties. These
plants include Peugeot Antomobile of Nigeria located in Kaduna, Volkswagen of Nigeria Limited located
in Lagos, Leyland motors company located in Bauchi. There are other private assembling lines like
the federated motors which assembles Bedford
buses amongst others. These plants have
a total fixed capital investment of about four hundred million American dollars
and can provide employment for not less than one million persons. The combined installed capacity of these
commercial and private industries is over one hundred and twenty units
annually.
However, the advent of structural Adjustment programme in 1986 initiated
the actualization of the vision of the founding fathers of these entities. This programme helped the industries up to
the early nineties. However, since the
middle nineties, these industries have been plundering and oscillating between
life and death. Some have already caved
in while the few surviving ones scrap on marginally. With the exceptions of Anambra Motor manufacturing
company, Peugeot Assembly of Nigeria
and some other private assembling lines, the other manufacturers have stopped
production entirely or are producing far below installed capacities.
1.2
STATEMENT
OF THE PROBLEM
Plant and equipment items form the
largest group of total fixed assets employed in an industrial enterprise. Its percentage to total fixed assets varies
from industry depending upon the degree of mechanization, manufacturing
processes and technology adopted.
It has
a higher percentage of the total fixed assets employed by a production oriented
enterprise.
The acquisition and replacement of
plants and equipment have always been a major problem with indigenous
industries especially those enterprises that are not multinationals. On account of the above This study addresses
itself to the following problems.
a.
To find out f Anambra motor manufacturing
company limited is under capacity utilization is due to the problem of
acquisition and replacement of plant and
equipment.
b.
To identify what plant and equipment
problems it is experiencing.
c.
To find out the extent to which scarce
financial resources in the economy affect the acquisition and replacement of
plant and equipment.
d.
To find out if there are external
barriers militating against acquisition and replacement of plants and
equipment.
e.
To identify the internal barriers (if
any) militating against the acquisition and replacement of plants and
equipment.
1.3
OBJECTIVE OF THE STUDY
The shortage of products, the high
prices of available products and the production of different types of products
to satisfy consumers in Nigeria
have been of growing concern among
manufacturing firms. Manufacturing
industries have not been able to meet their primary objectives because of the factors affecting their production systems.
The
major factors affecting manufacturing firms in this country today is the
problem associated with their productive system. These problems could be divided into internal
and external.
The internal problems that a firm faces
in its environment could be the lack of financial resources for the acquisition
of plants and equipment, the maintenance of these plants and equipment, the
replacement of plant and equipment to the capacity required to meet customers
demand ad how to generate the funds.
The external problems are not normally
under the control of the firm, these problems include low infrastructures,
government policies and the technology of industrialized countries.
Therefore,
the purpose of this study are as follows:-
1.
To find out if there is under utilization
of resources.
2.
To find out the bottlenecks and
weaknesses in the operation of Anambra motor manufacturing company as re-paid
plants and equipment acquisition and replacement.
3.
To make recommendations on the best method
to improve in the resources utilization.
4.
To determine the rate of acquisition and
replacement of equipment.
5.
To identify the factors influencing the
rapidity of replacement.
6.
To examine the contribution of
acquisition and replacement of replace to organizational performance.
1.4 SIGNIFICANCE OF THE STUDY
This research work would be of immense
relevance to a lot of people in different ways, it will be very helpful to the
economy at large because plant and equipment have the highest percentage of the
total fixed assets employment by any production oriented enterprise and it is
therefore expected to yield maximum production to satisfy the economic needs of
the people.
This study will also be of
significance help to investors since they will like to know how fund are being
utilized in the acquisition and replacement of plants and equipment as this
takes the largest portion of funds invested by the investors.
Also, this study will be of help to
different financial institutions like insurance companies, banks, financial
houses etc. In order to avail
themselves of the opportunity of knowing the plants and equipment needed by
manufacturing firms and the way such plants and equipment will be acquired and
replaced (ie the funding and the sources of fund).
Other
researchers on any similar topic will find this research work helpful as it
will form a base for the review of
related literature and also will be a stepping-stone for future researchers.
1.5
SCOPE
OF THE STUDY
This research
will find out the problems of acquisition of plant and equipment in Nigeria
industries (A case study of Anambra Motor Manufacturing Company Limited). Therefore, other materials places, items
activities or periods are just for the purpose of clarity and vivid
understanding of the subject matter and not within the scope.
A research of this nature cannot be carried out without difficulties in
the process. There is no doubt that it
was an up hill task for me to carry out this research work.
1.6
RESEARCH
HYPOTHESIS
According to Oyi, hypothesis is a “proposition put forward
as a basis for reasoning on a supposition formulated from provided date and
presented as a temporary explanation of occurrence as a science in order to
establish a basis for future research”.
Also, Chinelo G.O Nzelibe and Guy C. Ilofu defined hypothesis as a guess
on a statement of conjunctive showing the relationship between two or more
variable in the population under certain condition. The relationship can be general on specific
the impact of one or the other i.e cause-effect”. In other to analyse the problems o
acquisition and replacement of plant and equipment in a manufacturing industry,
the following hypothesis will be made.
Ho: There is no
direct relationship between the rate of acquisition and replacement of plant
and equipment and organizational performance.
Hi: There is a
direct relationship between the rate of acquisition and replacement of plant
and equipment and organizational performance.
Ho: Under
utilization of capacity in manufacturing industry does not hinder the
acquisition and replacement of plant and equipment.
Ho: Under
utilization of capacity in manufacturing industry hinders the acquisition and
replacement of plant and equipment.
Ho: Availability
of financial resources does not greatly influence the acquisition and
replacement of plant and equipment.
Ho: Availability
of financial resources greatly influences the acquisition and replacement of
plant and equipment.
1.7 DEFINITION OF TERMS
ACQUISITION: This is the act of possessing property.
However, properties that has never belonged to anyone or that has been abandoned may be acquired.
PLANT AND EQUIPMENT: These are those tangible properties of a relatively character that are
used in the normal conduction of business.
MANUFACTURE: To make or produce
something especially by machinery or other industrial processes and usually in
large quantities