{"id":4275,"date":"2015-12-08T23:54:11","date_gmt":"2015-12-09T04:54:11","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/cementing-a-position\/"},"modified":"2015-12-08T23:54:11","modified_gmt":"2015-12-09T04:54:11","slug":"cementing-a-position","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/cementing-a-position\/","title":{"rendered":"Cementing a Position"},"content":{"rendered":"

The Dangote Group (\u201cDG\u201d or the \u201cGroup\u201d) is a diversified industrial conglomerate based in Lagos and operating primarily across West Africa. DG is made up of a number of subsidiaries that produce cement, sugar, flour and salt, among other operations.[1]<\/a> DG employs upwards of 30,000 people, has begun expanding across the remainder of the African continent and has even discussed plans to list shares in its cement subsidiary on the London Stock Exchange.[2]<\/a> For a variety of reasons to be discussed below, the Dangote Group\u2019s business and operating models are effective.<\/p>\n

 <\/p>\n

The Group\u2019s business model is not particularly original. The parent\/holding company sits at the top and a variety of subsidiaries sit beneath it. Ownership of the privately-held Group and its subsidiaries is held by founder and chief executive Aliko Dangote, the shareholders in the Group\u2019s publicly traded subsidiaries and other private investors. The Group enters into joint ventures, such as its current $5 billion energy infrastructure joint venture with The Blackstone Group,[3]<\/a> and also takes advantage of special situations, such as the privatization of government assets and the exit of certain international oil companies from the Nigerian market.[4]<\/a> Pasta, cement, noodles, the world\u2019s second-largest sugar refinery, fertilizer operations, tomato paste, crude oil refineries and power plants are all produced or operated under a single corporate umbrella.[5]<\/a> Nigerian Stock Exchange-traded Dangote Cement Plc contributes over half of the Group\u2019s revenue and is responsible for roughly one quarter of the Exchange\u2019s market capitalization.[6]<\/a><\/p>\n

 <\/p>\n

The most important component of DG\u2019s operating model is its human capital, specifically the presence of its founder. Aliko Dangote has managed to survive, thrive and steer his conglomerate through several roller coaster decades of repeated military coups and democratic transitions in Nigeria. This objectively requires a certain ability to be able to find yourself at ease in the company of both despots and technocrats. Mr. Dangote is the most powerful man on the entire continent. This has enabled the Group to enjoy preferential business treatment at the hands of successive governments in various countries and to capitalize on opportunities that might otherwise be unavailable.[7]<\/a> Observers speculate that Mr. Dangote\u2019s closeness to key players in the Nigerian government influences central policies, such as the cement importation ban that props up profits in the most important subsidiary of his company.[8]<\/a><\/p>\n

 <\/p>\n

Founder Aliko Dangote\u2019s roughly $20 billion fortune is an estimated 3% of Nigeria\u2019s GDP. John D. Rockefeller\u2019s (the richest man in American history) fortune was an estimated 1.5% of the country\u2019s GDP in 1937, and a 3%-of-GDP fortune in today\u2019s American dollars would be $500 billion.[9]<\/a> Another important component of the operating model is the cheap cost of labor in Nigeria, a situation that mirrors that which was seen in China in decades past. DG hires a considerable number of expatriates from other developing nations in key management positions, presumably to add their experience operating companies like DG to the Group\u2019s institutional knowledge.[10]<\/a><\/p>\n

 <\/p>\n

As with any business in which the founder or founders still remain, succession planning is the most important question. Although his brother Sani Dangote and his cousin Abdu Dantata hold senior positions within the Group,[11]<\/a> it is unclear if Mr. Dangote is grooming any specific successor or successors. Even if he is, investors have no way of knowing whether the newcomer will possess and wield the same force of character that has typified the company\u2019s leadership approach during Mr. Dangote\u2019s tenure (although perhaps the LEAD HBS case currently being written about him might answer that question?). DG\u2019s competitive advantage is predicated on this trait. The conglomerate business model benefits from this key feature of the operating model by allowing Mr. Dangote to leverage his connections in a wide range of industries (and African countries) at the same time. Without him at the top, it is unclear if the business model can continue to be as successful as it has been. But for now…<\/p>\n

[1]<\/a> http:\/\/dangote.com\/aboutus\/companyoverview.aspx<\/p>\n

[2]<\/a> http:\/\/www.bloomberg.com\/news\/articles\/2014-01-20\/africa-s-richest-man-dangote-considers-buying-nigeria-oil-fields<\/p>\n

[3]<\/a> https:\/\/www.blackstone.com\/news-views\/press-releases\/details\/blackstone-backed-black-rhino-and-dangote-industries-to-invest-5-billion-in-african-energy-infrastructure-projects<\/p>\n

[4]<\/a> https:\/\/www.blackstone.com\/news-views\/press-releases\/details\/blackstone-backed-black-rhino-and-dangote-industries-to-invest-5-billion-in-african-energy-infrastructure-projects<\/p>\n

[5]<\/a> http:\/\/en.calameo.com\/read\/001335124dbc42bb3d499<\/p>\n

[6]<\/a> http:\/\/www.fool.com\/investing\/general\/2015\/10\/22\/aliko-dangote-5-things-you-can-learn-from-africas.aspx<\/p>\n

[7]<\/a> Personal knowledge and analysis.<\/p>\n

[8]<\/a> http:\/\/www.economist.com\/news\/business\/21600688-mix-natural-advantages-and-protectionism-has-made-dangote-group-nigerias-biggest-firm-now<\/p>\n

[9]<\/a> http:\/\/www.fool.com\/investing\/general\/2015\/10\/22\/aliko-dangote-5-things-you-can-learn-from-africas.aspx<\/p>\n

[10]<\/a> Interviews with Dangote Group employees.<\/p>\n

[11]<\/a> http:\/\/en.calameo.com\/read\/001335124dbc42bb3d499<\/p>\n","protected":false},"excerpt":{"rendered":"

The Dangote Group is a Nigerian industrial conglomerate that operates across the African continent, producing salt, fertilizer, flour, noodles and, most notably, cement. 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