ORGANIZATIONAL PERFORMANCE AND CHALLENGES OF TYRE MANUFACTURING IN ETHIOPIA: THE CASE OF HORIZON ADDIS TYRE FACTORY

Abstract

The evolution of manufacturing such as tyre went back to early 19th century and matured technologically and automated in the 1980s. Ethiopia joined the tyre industry in 1970sin the name of Addis Tyre SC(currently Horizon Addis Tyre SC); however, the tyre manufacturing stayed stagnant since then owing to various internal and external factors. The case is more serious and lures scientific inquiry when it is seen from the context of Ethiopia which is with a single tyre manufacturing company that operates below 40% capacity; on the other hand the hard-currency scarce developing country is importing 85% of the tyre from abroad. The general objective of the study is to investigate its performance and challenges through mapping its value chain for better understanding of the process and evaluate the performance as well as bottlenecks. Data is collected using a multiple of approaches. Desktop data was mined, survey was conducted on 385 respondents, observation was made to understand and map out the tyre production process, seven detailed key informant interviews were carried out. Data were analyzed both in descriptive and econometric applications, i.e., descriptive analyses were made about performance and performance measurements while econometric analysis (i.e., ordinal logistic regression) is used to identify the determinants of customers’ satisfaction. In terms of results, the production value-chain map was developed where three grand stages and ten-specific sub processes were indentified. The company is extremely dependent on the imported raw materials where about 98% raw materials and technology were imported with a value of 317 million - 716 million Birr annually. In terms of capacity utilization, in all three production process sections, the company is performing below 40% which is much below the target due to foreign currency scarcity. In terms of financial performance indicators, it is performing with 12.1-33.4% (ROI), 11.4-23.3% (ROS), and 14.1-29.8 (GPM). In terms of market share, it covers 14.97% and of customer satisfaction, the result depicted that 35.4% and 58.7% were very satisfied and satisfied respectively. With regard to the determinants of customer satisfaction, the product related attributes (i.e., ‘important’), such as design, raw material, price, sales and after sales services and most importantly price significantly contribute to the satisfaction of customers at 5% level of significance. Moreover, customers’ level of education has a significantly positive relationship with level of customer satisfaction at 5% level of significance. Finally, durability of the product has a strong positive effect upon the satisfaction level of customers with 5% level of significance. To conclude, although Horizon Addis is producing strategically vital product, its operational performance is far much below both from its target and from the demand of the product at domestic market. The company is under a number of operational and managerial intricacies which require serious attention both from the owners and government so that the company plays its role both in fulfilling the domestic tyre demand and in saving the country’s economy which is already struck by the most serious hard currency deficit in the economic history of Ethiopia.