Reference no: EM133187572

RAABOAD PTY LTD:

Raaboad Pty Ltd was established 30 years ago in Accra, Ghana. Its founder was a retired Marketing Manager of a leading distribution company who decided to use his expertise to build a company that would manufacture and distribute concrete products for the construction industry. 

The company became a leader in the supply of roofing tiles and pavement blocks. Ten years ago, Raaboad Ltd, added the production of concrete slabs and kerbs to its business portfolio. The company has been successful in its operations because it relies on competent and dedicated workforce. 

The company has a head office and ten distribution depots across the country. It has a total workforce of 300. The company provides haulage services to its customers who buy in bulk. However, in recent times the management of the company has had difficulties controlling the haulage aspect of the business and is contemplating to outsource the service. 

Competition in the industry is becoming more intense as new entrants both foreign and local are coming in with competitive prices and modern technology. The company has to act fast in order to reposition itself as a leader in the industry. 

The Managing Director and his team have decided to prepare a plan for the next five years to address the challenges facing the company. At a meeting to discuss the first draft plan, the following estimates were made: 

(i) Sales in the current year should reach GHC10,000,000 and forecasts for the next five years are GHC10,600,000; GHC11,400,000; GHC12,400,000; GHC13,600,000 and GHC15,000,000.

(ii) The ratio of net profit after tax to sales is 10%, and this is expected to continue throughout the planning period.

(iii) Total assets less current liabilities will remain around 125% of sales. It was also suggested that 

• If profits rise, dividends should rise by at least the same percentage;
• An earnings retention rate of 50% should be maintained;
• The ratio of long-term borrowing to long-term funds (debt plus equity) is limited by the market to 30%, which happens also to be the current gearing level of the company.

a) Describe the reasons why Raaboad Pty Ltd should outsource the haulage service?

b) Evaluate the strategies that the company could utilize to ensure its survival in the industry.