Introduction
Conducting business on an international scale and investing into an enterprise in a specific country implies a certain level of risk. There are economic, social, and political factors and influences that should be considered for all aspects of operations. Kimango Farms Enterprises is a successful and rapidly developing venture of organically run farms in the Morogoro region of Tanzania. This report will analyze the business environment and create a viable plan of management and operations for Kimango Farms.
International Economy
Kimango Farms specializes in organic agricultural export as the primary function of its business. Therefore, the primary focus of the international economy in its business plan is the agricultural sector. Agriculture is complex and diverse. Despite compromising a comparatively small percentage of the global economy (2.8%), it is critical to global supply chains and stability. Approximately 19% of the world population is engaged in the sector, and many developing countries rely on agriculture as the primary industry for employment and income from foreign exports. (Alston & Pardey, 2014).
Farming outputs have increased significantly in the last decades. Agricultural development is considered a vital tool for ending poverty and boosting economic prosperity in developing and poor nations. Agriculture accounts for a third of global GDP output and serves a vital role in driving economic growth, reducing poverty, and ensuring food security (The World Bank, 2018).
International agricultural trade is experiencing changes currently as climate change affects both crop yields and supply chains while the demand for food products continues to increase with rising populations. However, the agricultural capacity of emerging countries such as Tanzania is reshaping global supply and demand patterns for food products and agricultural commodities (United States Department of Agriculture, 2018).
Concerns of the agricultural sector in the international economy are rising food prices and short-term fluctuations for commodity prices. Non-industrialized nations have become large exporters of basic food commodities, leading to increased competition on the world market. Meanwhile, the impact of World Trade Organization policies has led to poorer countries having few policy instruments to protect from imports and the ability to subsidize local agricultural producers (Maetz, 2014).
These issues can be addressed through liberalization of the agricultural market which would decrease the level of trade-distorting producer support and reduce barriers to market access (Greenville, 2015). A business can engage in policy lobbying with the local, national governments. Furthermore, at both the government and business levels, it is possible to mitigate these concerns by producing annual outlook reports that would project regional agricultural commodity markets and baseline agricultural income. A comprehensive understanding of markets and dynamic changes can contribute to predicting and identifying potential concerns and medium-term impacts on international economics in the sector, allowing to introduce necessary measures to policy and business models.
Cultural Influences
Culture is a general concept of accepted norms, traditions, and values which guides the behavior of a group. Cultural values in a country guides business operations as well as it is important to be sensitive and understanding of these norms and attitudes. History of colonialism is relevant to Africa’s culture and society. European incursions destroyed regional cultures and suppressed various traditions.
Furthermore, many populations were spread out and forced to intermix leading to a large diversity of cultural landscape on the continent. Conducting business in Tanzania requires social-cultural awareness and effective communication. Implementation and business communication may differ significantly from Europe or Asia. Some examples include a slower pace of business decision-making, building relationships through social functions, and the importance of sharing similar values (Ravindran, n.d.).
It is important to evaluate the cultural context of Tanzania when conducting business. The local population often disapproves of foreign business owners, seeing them as taking advantage of Africa. Personal relationships are vital for conducting business as many locals will only cooperate if trust and respect are established based on personal character and behavior. Paper contracts are less important to Tanzanians as they value verbal commitments or promises, especially before witnesses. When hiring, it is important to consider loyalty just as much as experience. There is a high level of personal influence as one is expected to hire based on friendships and personal recommendations.
Furthermore, it is important to consider that Tanzanians avoid giving negative answers, commonly saying “tomorrow” as a tactic to delay or subdue a business-related request (Government of Canada, 2018). In order to adjust to the cultural context, it will be invaluable to have a local or regional business partner for guidance and support. Engaging in extensive preliminary research about the cultural norms is critical for success.
Political Impact
In recent years, the Tanzanian government has undergone a positive change as there has been a competent approach to good governance and development. There is increased demand and pressure from citizens, media, and civil society for responsible governance and accountability. This has led to better transparency and access to information. However, politics continues to be dominated by a top-down approach which is inefficient.
Furthermore, bureaucracy and corruption are very prevalent in the country which challenges business operations. Business owners, particularly in the agricultural sector, must procure numerous permits and are expected to pay bribes to government officials. Private sector participation is relatively low as there is both public and government distrust for private businesses due to the long socialist political past of Tanzania (Ministry of Foreign Affairs of Denmark, n.d.).
Agricultural market developments are central to economic policy in the country. Tanzania enjoys a relatively stable political environment that is focused on fostering a productive, business-friendly environment. Therefore, politically, there is a limited risk if all regulations are properly followed. Risk can be mitigated through cooperation with government agencies and international business organizations which could protect the business in case of any potential changes to the political status quo.
Optimal Organization Structure
Business structures in Tanzania are commonly conservative and hierarchical. The culture strictly defines roles where senior managers are revered and respected. There is a rigid organizational structure which is used to manage and conduct business (Mgeni, 2015). A large commercial farm can be either mono-product or mixed type, organized along commercial lines. Kimango Farms is a large commercial family-owned enterprise with partner ownership.
The owners serve as executive directors that control all farm operations. It may be helpful to have a board of directors as well that would guide the direction of the enterprise and provide potential to become publicly listed. An operations officer is in place to oversee day to day functions of the farm. The structure should then be split into categories of crop management, equipment, administrative support, finance and accounting, marketing, and tourism. Each section has a manager with employees.
The primary and largest part of the organization will remain crop management responsible for the agricultural aspects of the farm. It may have field workers, equipment operators, and crop inspection, specialists. The equipment branch can include subcategories of mechanics and technicians. Kimango Farms currently utilizes two land plots, and as it continues to expand, it may be viable to set up a structure of a primary nuclear farm surrounded by smaller catalyst farms in the area. The nuclear farm will serve as the central service and technical provider.
Management Style
Management style in Tanzania should remain authoritarian and strict but also maintain the friendliness that allows to build mutually trusting relationships. Respect and honor are critical to ensuring stability and success within an organization. Tanzanians are private individuals, and it is important to avoid any public embarrassment in meetings. Any criticism should not be voice publicly in front of other employees. A cross-cultural approach and communication are vital. Currently, intercultural competence and acceptance of change in Tanzania are low. The conservative nature of society sees change as a threat.
Therefore, management should consider that making even minor changes to operations will take longer to implement. Managers set rules and regulations with employees often obeying without any questions. However, motivation may be lacking, and teamwork is a fairly new concept in Tanzania’s business environment. Therefore, collective work with the team is important and should be fostered in the business environment. The ultimate decision-making is up to the executives. High-pressure tactics, regarding sales or negotiations, are regarded negatively and views as confrontational. Meanwhile, proposals and contracts should remain simplistic (Commisceo Global, n.d.).
Foreign Exchange
The currency exchange rate implies the value of the national currency in terms of another currency. Commonly, the global currency for international trade is the United States dollar, while regional currency such the Euro may be used as well. Foreign exchange rates significantly impact farm businesses since it can affect export prices, prices of imported inputs, and overall competitiveness of the national agricultural sector in international trade.
A rise in the value of the national currency may decrease exports as other countries may buy in smaller amounts or offer lower prices. Meanwhile, a lower value helps producers to increase exports and become competitive. However, the effect is reversed for farm inputs such as machinery and pesticides (Blue, 2018). Foreign exchange earnings from agriculture continue to increase in Tanzania. The local currency remains stable due to high export earnings and agricultural inflows. The country is improving its fiscal stability by introducing a prudent monetary policy that maintains stable foreign exchange rates that would prevent volatility in the agricultural sector.
Kimango Farms can mitigate any risk in terms of foreign exchange by maintaining any of its earnings and savings in U.S. dollars since most global importers and exporters continue to demand this international currency rather than local money. Furthermore, is possible, exchange rate risk can be managed through an exchange forward or options contract with a bank. This eliminates the risk of exchange rate fluctuation by locking a price when there is a profitable or stable rate. Hedging transactions on the futures market is also a possibility (Blue, 2018).
Legal Environment
All business entities in Tanzania are required to legally register and receive a business license of operation from the ministry with which operations are associated. Enterprises must also register with the Business Registration and Licensing Agency (BRELA). The Tanzanian legal system is similar to the English Common Law judiciary approach. Labor and land divisions have exclusive jurisdictions, as it may be relevant to agricultural businesses. The courts are considered one of the most corrupt systems in the country (U.S. & Foreign Commercial Service, 2016).
Traditional forms of business structures are allowed. Companies incorporated in Tanzania, as well as foreign enterprises that hold management located in the country, are treated as resident companies. The Finance Ministry and its sub-department of Tanzanian Revenue Authority is the sole entity with authority to issue tax or exemptions. Income tax depends on the profit of Tanzanian resident companies. If turnover exceeds 40 million Tsh, then a business must register for VAT. Standard labor and employment practices exist in Tanzania, prohibiting discrimination, child labor, and ensuring the right to strike. The maximum standard full-time working week is 45 hours, six days with no more than 12 hours per shit (Association of African Entrepreneurs, n.d.).
Information Needs
The sophistication of farm management and the diverse and rapidly shifting dynamics of the agricultural sector require significant informational needs for businesses such as Kimango Farms. The complex context of farms must take into account that the agricultural business has shifted from simple production to a multifunctional service sector. Farms must take into consideration environmental concerns and climate change.
In Tanzania, this is vital due to unfavorable conditions for most of the year. Agricultural businesses must incorporate compliance with regulations including ecological guidelines such as the use of agrochemicals. The liberalization of markets which allows for Kimango Farms to export internationally creates the necessity of tracking commodity prices that may be volatile due to various events globally impacting agricultural output.
Farm management and technological integration have led to large volumes of data. Land plot layouts, equipment tracking, and landscape modeling are done via GIS technology that requires expertise and vital knowledge of local areas (Husemann & Novkovic, 2014).
As a business, Kimango farms requires various information regarding agricultural activities. This includes modern cultivation techniques, prices on seeds and planting materials, and up to date information on pest management and diseases. Knowledge of the latest policies on agriculture, water management, and trade is vital. Market information such as trends in pricing and demand is beneficial as well. Farms require data regarding funding and value addition to ensure a successful business venture (Singh & Varma, 2017). Rural farmers, particularly in poorly developed countries such as Tanzania, rely on outdated and traditional communication methods.
Without modern communication, the rate of receiving information and consequentially its relevance puts the business at a significant disadvantage. Therefore, integration of modern technology into the farm, including internet connection, farm management information systems, and GIS/GPS tracking software is vital to fulfilling informational needs and ensuring the efficient functioning of all operations.
Conclusion
Tanzania’s Kimango Farms has significant potential for growth and development within the local and international economy. The agricultural sector is vital to many developing and non-industrialized countries, generating value, employment, and profit. Tanzania has the advantage of political, economic, and legal stability as well as an environment which supports agricultural businesses. Identifying cultural influences on business operations such as forming personal relations and rigid management hierarchy is beneficial to creating a viable organizational structure. Finally, ensuring business information needs are met can contribute significantly to efficient and competent operations.
References
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