FACULTY OF COMMERCE

DEPARTMENT OF BUSINESS ADMINISTRATION

SUBMITTED BY: GROUP 14

NAMES REGISTRATION NUMBERS

1. Patrick Banda BBA/19/SS/005
2. Emily Manda BBA/19/SS/037
3. Vanessa Siliya BBA/19/SS/066
4. Agness Chembezi BAM/19/SS/006
5. Jacob Kamkamba BBA/19/SS/026
6. Issah Alidie BAM/18/SS/041
7. David Gaya BAM/19/SS/019
8. Elias Hetekere BBA/19/SS/022

SUBMITTED TO: Mr. C. Namakhwa

PROGRAMME: BBA/BAM

MODULE CODE: BUS-MAM-411

YEAR: 4

SEMESTER: 1
1.0 EVALUATION OF MALAWIS COOKING OIL INDUSTRY COMPETITIVE
ENVIRONMENT

The Malawi’s competitive environment of the cooking oil industry can be evaluated and
analyzed using the porters five forces model which assesses the attractiveness of industry. It
addresses threat of entry, bargaining power of buyers, bargaining power of suppliers, threat of
substitutes and rivalry of competitors.

1.1 MARKET STRUCTURE

Due to a small number of dominating companies, such as Capital Oil Refining Industries Ltd.
and Sunseed Oil Ltd., a significant private cooking oil manufacturer, the cooking oil market in
Malawi has an oligopoly structure. Nonetheless, there are still other, smaller regional companies
that operate all throughout the country. For instance, the Kasenge cooperative in northern
Malawi's Chitipa district produces cooking oil from sunflower seeds. The market structure is
rather competitive, with new companies periodically entering the market.

2.1 BARRIERS TO ENTRY

These are factors that need to be overcome by new entrants if they are to compete in an industry
and these include legislation or Government Action, differentiation, scale and experience, access
to supply or distribution, etc.

2.1.1 Government Action

The government can take a number of steps to shield domestic businesses from foreign
competition by tightening regulations that prevent foreign brands from having easy access to the
domestic market. However, policies can be relaxed to allow foreign brands to enter the domestic
market to increase competition, which in turn brings relief to consumers, particularly when price
wars are conducted, when policymakers observe that domestic firms are, for example, exploiting
the oligopolistic nature of the domestic market structure by charging high prices on their
commodities. In response to growing cooking oil prices on the domestic market in 2022, the
government granted licenses to seven merchants of imported cooking oil (Maseko, 2022).
Cooking oil firms need to strategically prepare for such policy adjustments in order to maintain
their position and market share in Malawian market. In addition to that the Malawi government
has also implemented several policies and regulations to protect the local industries and promote
import substitution.

2.1.2 Waste management

A self-regulatory business model called corporate social responsibility (CSR) enables businesses
to hold themselves, their stakeholders, and the public in general socially accountable. The
environment is one area of society for which the companies are responsible. Guidelines for trash
management and the usage of recyclable materials were established under Malawi's Environment
Management Act (No. 19 of 2017). Companies that violate the rules risk being charged with a
crime. Sunflower press cake, for example, is a byproduct of the production of cooking oil and
can be thrown away or used as a starting point for organic fertilizer. To prevent environmental
pollution, businesses in the cooking oil sector must be aware of these laws and have a plan for
how to handle their waste.

2.1.3 Scale and Experience

The cooking oil industry in Malawi is dominated by a few large firms which enjoy economies of
scale. Economies of scale are cost advantages reaped by companies when production becomes
efficient and companies can achieve this by increasing production and lowering costs. Once
incumbents reach this stage, it becomes very expensive for new entrants to match them and until
they reach a similar volume, they will incur higher unit costs.

2.1.4 Capital requirements

The operation of manufacturing cooking oil is capital intensive meaning it requires the
acquisition of modern and expensive machinery. A lot of costs are also incurred in the
acquisition of land, raw materials for manufacturing, labor, etc. All these capital requirements
will discourage new entrants from entering the industry.

2.2 BARGAINING POWER OF SUPPLIERS

Malawi has many firms which produce cooking oil some of which supply national wide while
others mostly operate in their community yet they all need similar inputs for production of
cooking oil. Even though some firms import the raw materials for production from countries like
Zambia, many still choose to buy their inputs from local farmers which makes it easy for
suppliers of the of the key production inputs to drive their cost up. The power of suppliers to
drive costs is affected factors including the number of suppliers of key inputs, availability of
substitute inputs and switching costs.

2.2.1 Number of suppliers

There are only few suppliers of raw materials needed for production of cooking oil in Malawi.
This gives the suppliers of the raw materials more bargaining power to control the prices of the
materials and to ask for more advantages in trade since there is little competition in the
production of inputs including sunflower seeds.

2.2.2 Availability of substitute products

Results without compromising the quality of the cooking oil, some firms choose to buy from
suppliers who will give them the best advantages such as discounts and bargains. On the other
hand, when there are no substitute inputs, firms are forced to buy from the available suppliers
and meet their demands.

2.2.3 Switching costs

Finding new suppliers of raw materials is costly in the cooking oil industry since the firms will
have to rearrange their supply chains if they were to find the new suppliers thereby giving
suppliers more bargaining power.

2.3 BARGAINING POWER OF BUYERS.

This is the extent to which the buyers influence the organization. Based on cooking oil industry
in Malawi, bargaining power of buyers depends on factors like degree of differentiation among
cooking oil brands, availability of substitute products, number of competitors and buyers
purchasing power. Degree of differentiation among cooking oil brands affects power of buyers.
For example, buyers can choose cooking oil from different brands which can affect the market
share of cooking oil producers due to similarities in brands giving buyers a high bargaining
power since producers do competition to attract consumers. The cooking oil industry is
dominated by a few large players for instance Kukoma capital oil refining industry which
produces kukoma oil in Blantyre, Sunseed oil Ltd that produces Mulawe oil, Soyola oil and
Nano oil, Universal industries Ltd which produces Kazinga, since there are few companies, the
buyers have a low bargaining power because they are a few supplies. The buyers bargaining
power can change if they can easily switch to a substitute such as animal fats and margarine, it
can also change if the purchasing power of the buyer is high.

2.4 THREATS OF SUBSTITUTE

This is when companies within the same industry are forced to compete with industries
producing substitute products or services. Profitability of cooking oil depends on the extent to
which it can be substituted buy another product. Some of the Examples of cooking oil substitute
include animal fats and barter. Availability of substitute product lowers the attractiveness of the
cooking oil producers because profits are threatened. So, buyers can choose to use these
substitutes due to taste preferences, availability and cost.

2.5 COMPETITIVE RIVALRY

The rivalry among existing competitors in the cooking oil industry in Malawi is high. There are
several established players in the market, including Kukoma capital oil refining industry which
produces Kukoma oil in Blantyre, Sunseed oil Ltd that produces Mulawe oil, Soyola oil and
Nano oil, Universal industries Ltd which produces Kazinga. These companies compete on price,
product quality, distribution channels, and marketing strategies. The industry's intense rivalry
drives companies to continually improve their products and services to stay competitive. Price
competition is particularly intense in the industry. As cooking oil is a commodity product with
relatively low differentiation between brands, companies often compete on price to attract
customers.

REFERENCES

Kotler, P., & Armstrong, G. (2018). Principles of Marketing (17th ed.). Harlow: Pearson
Education.
Porter, M. E. (1979). How competitive forces shape strategy. Harvard Business Review, 57(2),
137-145.

Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors.
Free Press.

Hill, C. W., & Jones, G. R. (2012). Essentials of strategic management: The quest for
competitive advantage. Cengage Learning.