Under the right conditions, a car
dealer can sell three cars in a day; but no matter how auspicious the
conditions, three mechanics cannot assemble one car in a day. This is why the dealership
can afford to employ one salesman but the assembly plant cannot but employ
auto-mechanics in droves.
Again, under favourable
conditions, one real-estate agent can comfortably sell all the eight flats of
an apartment block in a day; but eight builders can never complete a house in
one day even under paradisiacal conditions. That is why a real-estate agency
can run efficiently with few hands but a housing construction company will
collapse without a large work-force. We will continue with this line of thought
later, but let’s digress for a bit.
We are all used to the term “value-chain”
which in simple definition, describes the usefulness added to an item, beginning
from its raw-material stage and ending with the finished product. For instance,
the value chain of milk begins with penning and grazing dairy cows, to milking
them, to transporting the milk to processing firms, to turning the milk into
cheese, yoghurt, ice cream, evaporated or condensed or powdered milk, to
packaging, to distribution, to retail and finally to the customer’s dining table.
However, I wish to introduce another
dimension to this supply chain namely, the “value-funnel”, which describes the quantity
of manpower that goes into each stage of the chain from raw-material to
finished product.
Value-funnel of the auto-industry |
Take for instance our first
analogy of the car salesman and auto-mechanics: the number of workers involved
in manufacturing the vast array of vehicle
components as well as the number involved in assembling
the car is quite much. This ensures that job is created for a large number of
people, but as we move closer to the bottom of the funnel, this number drastically
shrinks that by the penultimate stage we have a single dealer selling the cars. Don’t get me wrong, we need the
service industry comprising the transporters, distributors and salesmen etc,
but as an entrepreneur, the task of nation-building is better achieved by
manufacturing because, among other things, it employs more people.
My heart aches when I see shops
springing up everywhere while industries on the other hand are closing down.
Why? Because it simply means we sell what other countries make and no one buys
ours; it also means we want what other countries give but no one gets ours. Let’s
be honest, no economy has emerged, let alone developed, by becoming a net
consumer of what its peers produce. In my state of residence, the moment
someone makes some money and decides to go into business, he chooses one of
establishing a school, building a hotel or setting up a filling station. Personally,
I think we need more schools in my state but the other two options are no-goods
and this is because we have too many of these businesses that give too little.
Bear with my analogies a while
longer; but you need to see the cost outlay in Naira for setting up a modest
four-pump filling station (a sales business) and that of a garment making
factory (a manufacturing business) and where they stand in the value-funnel in
terms of size of workers employed.
Filling station startup costs
Canopy (roofed structure) and back office: 3,000,000 to 10,000,000 (depending on size & location)
3 Underground tanks: 2,250,000 to 2,550,000
(depending on cubic capacity)
Pump (4): 3,600,000
to 4,000,000 (not top-of-the-range)
Total: 8,850,000
to 16,550,000 (excluding
land lease & permits)
Employees: 4
to 6
Startup capital required to employ one hand: 1,475,000 to 4,137,500
Garment making factory startup costs
Shop lease 150,000
to 300,000 per annum
Industrial sewing machine (6) 300,000
Industrial button sewing machine (2) 500,000
Embroidery machine (3) 210,000
Office furniture 150,000
Total: 1,310,000
to 1,460,000
Employees: 10
to 14
Startup capital required to employ one hand: 94,000 to 146,000
This breakdown is by no means exhaustive nor does it cover all the ramifications of the comparison but it suffices for the
purpose of displaying the input cost as opposed to employee size, especially
since the remuneration of both groups of employees is comparable. This piece is not
to denigrate the importance of sales businesses but I know that there is hope that we can still rebuild our national economy and one way entrepreneurs can contribute their
quota in that regard is to also focus on manufacturing. Those already in sales may also
consider some form of backward integration to achieve this goal.
I shall leave you with words of Alhaji Aliko Dangote: "Manufacture, don't just trade. There is money in manufacturing even though it is capital intensive. To achieve a big breakthrough, I had to start manufacturing the same product I was trading in; which is commodities". [Source].
Maybe that is why Forbes Lists named him Africa's Richest Man, for three years running.
Maybe that is why Forbes Lists named him Africa's Richest Man, for three years running.
it's so sad that even things as little as HB pencils and erasers are imported from China.
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