Adofo Boateng (Adofo) and Coffie Oduro (Coffie) met in 2010 when they were both students at a university in the United States. They both had ambitions to succeed in business back in their home country, Ghana. They shared common interest in Ghanaian history and culture, and saw commercial opportunities in setting up a business in the tourism industry. At that time, tourism was a growing but under-developed industry. Adofo and Coffie agreed that if they could establish a small and successful tourism business, there would be opportunities for rapid growth within just a few years.

On returning to Ghana in late 2011, they established a private company, Ghanalux Ltd, with money from family backers and some private means. The company’s business was to organise small tour groups of tourists from the United States, mainly the north-eastern states of the US. They had dedicated tour guides taking the groups on planned itineraries lasting about four weeks. Initially, Adofo and Coffie acted as tour guides themselves, although they gradually did less of this work as the company expanded.

The tours are priced at a high rate, but the aim is to deliver high-quality ‘luxury’ holidays for all customers. Ghanalux uses the services of a travel booking company in the US to advertise its tours and attract customers. The booking company charges a commission for its services, as a percentage of the tour prices paid by customers.

Early growth
The tourism industry in Ghana suffered from a skills shortage, and Ghanalux proved a success initially because Adofo and Coffie were both talented individuals, with a strong motivation to succeed, extensive knowledge of Ghana and its tourist attractions, and an ability to communicate easily with their US customers. The company gained a strong reputation in parts of the US for efficient tour organisation, but also exhilarating and life-enhancing tours.

The company operated from a small office in Accra, from which tours were organised and coordinated. In the first year of operations, ending December 2012, they generated revenue of just under GH¢2 million, and although they made losses in the early years, they were pleased with the revenue growth they achieved. As the company grew, it recruited a small number of full-time tour guides, using contacts in US universities to identify and attract Ghanaians who were studying there and were attracted by the prospects of working in the tourist industry in Ghana, and for a company where the prospects of career development seemed strong. In recruiting new guides, the company looked for individuals with strong motivation, an interest in Ghana and its history, culture and resources, and an ability to communicate well with both foreigners and the local folks.

By 2018, the company was operating several tours each year for tour groups of about 16 people who were willing to pay premium prices for a top quality holiday experience, combining elements of Ghanaian culture, heritage, recreation and adventure. They also started to organise special themed tours each year to the PANAFEST festival in Elmina and Cape Coast. The company’s annual revenue in 2018 amounted to just short of GH¢16 million, and the net profit margin after tax was about 4% of revenue or GH¢639,000.

The tourism industry in Ghana
Tourism is now a major industry in Ghana. In 2018, the industry earned about US$3 billion for the national economy, attracting about 1.5 million international tourists from around the world and employing almost 700,000 people. However the industry is fragmented, with many small companies operating hotels, travel services, tours, catering for tourists, and so on. Visitors range from tourists looking for low-price holidays or short breaks to wealthier tourists taking longer holidays and visitors to business conferences.

The government is helping to support growth in tourism by funding infrastructure projects and other initiatives. However, Ghana’s tourist industry is still under-developed compared to other countries in Africa. Factors that appear to be holding back growth are a shortage of individuals with suitable skills, and insufficient branding and marketing of Ghana as an attractive tourist location to other countries. Tourists also often complain about the lack of comfort on tour buses that take them between their hotels and sightseeing locations.

Adofo and Coffie have discussed what Ghana needs to do to be a more attractive destination for foreign tourists.

Growth strategies
Adofo and Coffie believe that they need to think ahead and develop a strategy for taking the company forward and growing the business. There seem to be a number of different options for growth, and they want Ghanalux to be at the forefront of developments in the tourism industry. The strategic options they have discussed are set out briefly below:

Increase the number of tours each year. In 2018 the company ran twelve tours. It might be able to increase this number in future, although there is probably a limit to the number of tours that can be sold to customers in the north-east of the USA. There would be a need to recruit more tour guides.

Develop new bespoke high-end luxury tours, tailored to the specific requirements of individuals, couples or small families, where customers are accommodated in top quality hotels and have their own tour guides and private cars. These bespoke tours should sell for at least twice the price per person that the company charges for its existing tours.

Develop a range of themed tours. Currently, the company’s tours have an itinerary that combines different types of activity, such as visits to local festivals and events, visits to UNESCO heritage sites linked to the country’s history, adventure tours to rain forests and game parks, and recreational days at beach resorts. The company could develop tours that deal exclusively with just one type of activity.

Seek strategic tie-ups with other businesses in the tourism industry in Ghana, such as hotels and festival event organisers, so that they actively market each other’s services and products to their customers.

Merger. The company might consider a merger with one or more other tour companies. The directors of Ghanalux think that they would be unable to raise enough finance for an acquisition of suitable size, so any growth by way of business combination would have to be in the form of a merger, involving a share-for-share exchange.

A restriction on the company’s growth potential is that currently all its customers come from the north-eastern part of the USA. Ghanalux would be able to sell more tours if it could market its services successfully in other countries.

Company performance
The directors are pleased with the progress that the company has made since it was established. Annual revenues have grown, although profit has only been a relatively recent outcome, and there are encouraging future prospects. However, the company’s business is still at an early stage of development, and the directors understand that the company needs to sustain or improve the quality and efficiency of its operations and the skills of its employees. It cannot stand still and so needs to innovate, and it must find new ways of attracting customers so that its business continues to grow.

Until now, the directors have not made formal plans or budgets for the business, but they think that the company is reaching a stage where greater formality is required in the process of setting business targets and monitoring performance.

Shortage of talent
The company has so far been very careful in its selection of guides to lead its tour groups. Guides are well-educated, communicate well with other people and enjoy the tourism industry. However, many of them are also ambitious. If they think that Ghanalux is unable to offer them an attractive career, they are likely to move elsewhere in time, and possibly set up their own businesses. Already two experienced tour guides have left the company to seek a career elsewhere.

Adofo and Coffie think that if they are to retain as well as attract the top talent available, they will need to offer long-term incentives to their best guides. Incentives should encourage them not only to stay with the company, but also to contribute innovative ideas about how the company should develop.

At the moment guides are paid annual salaries of around GH¢60,000, plus a small annual bonus, but other forms of incentive might be needed.

Adofo thinks that if the company is unable to retain talent, it should ‘accept the inevitable’ and recruit guides locally on lower salaries, but give them intensive training before using them as tour leaders.

Ownership and organisation structure
Adofo and Coffie each own 40% of the shares in their company, and are the only directors of the company. The remaining 20% of shares are owned by members of their families. There are 50,000 equity shares in issue.

They recognise that unless and until the Ghana Stock Exchange grows substantially, there are no prospects for the company to obtain a stock market listing.

Now that the company has grown, neither Adofo nor Coffie act as tour guides themselves, and together they handle all the administrative and financial affairs of the company, with the help of an assistant, from their office in Accra.

Although there is no requirement for the company to appoint non-executive directors, Adofo thinks that more diversity of membership would benefit the board and the company’s leadership. He thinks that it might be a good idea to appoint a non-executive director to assist them with strategy formulation. Coffie disagrees, and thinks that if there is any benefit to be gained by increasing the size of the board, the new appointment should be an executive director, chosen from among the company’s tour guides. In this way, the owners would be demonstrating their commitment to promoting the careers of the individuals they recruit for their business.

Decision-making
The directors are reluctant to delegate authority to their employees. Each tour has a strict budget, and most spending is controlled from head office, for example spending on hotels, transport, entry to tourist sites and insurance. Tour guides are given a small budget for each tour for discretionary spending. Problems and concerns of customers during their tour are dealt with initially by the tour guide, but are referred to head office if they cannot be resolved easily.

Even so, the directors are keen to encourage their participation in decision-making, and to this end they hold six-monthly meetings with staff. These meetings are used to discuss issues that have arisen in the business, matters that concern staff, and ideas that the directors have for the future of the business. Adofo and Coffie think that these meetings are constructive and useful. The meetings help them to monitor feelings and concerns among employees, and give employees an opportunity to contribute their ideas about how the company should be run and what it should be doing.

Sustainability
During their period of study in the USA, Adofo and Coffie met and shared ideas with many individuals who were concerned about climate change, pollution of the earth and its atmosphere, and protection for wildlife. As a result of these influences, both directors have a strong sense of business ethics and sustainability. They believe that their company should demonstrate the attractions of Ghana to foreign visitors, but should operate their business without causing unnecessary environmental damage. They strongly support efforts by the government to protect rain forests and game parks, and for the protection of wildlife in game parks.

In spite of these views, they want to increase the numbers of international tourists visiting Ghana, even though they recognise that an expanding tourism industry might have adverse consequences for the country’s environment.

Personal security and customer protection
International visitors to Ghana sometimes express their concerns about personal security and the risk of being attacked and robbed. Tourists are often the target for criminals operating around tourist locations, with crimes such as muggings, bag snatching, petty theft and pickpocketing, particularly in markets and tourist sites, and on beaches.

Tour guides are instructed to warn the tourists in their group about the dangers, and to remain vigilant for possible problems. Customers are also advised to take out suitable insurance before starting their holiday.

It is generally recognised that Ghana is a safer country for tourists than some other countries in Africa, but there is also a view that tourist concerns about personal security might be holding back tourist numbers visiting Ghana.

Standards of customer service
The company has produced a code of conduct for its employees. As well as addressing the matter of personal security and crime, the code also deals with standards of service to the company’s customers. There have been occasional incidents in the past when standards of service have been poor; in particular, tour guides have sometimes left their group on their own, waiting for the local guide to turn up. There have also been complaints about tour guides ignoring customer requests for assistance, or forgetting to do something that they were supposed to do for their group.

There have been some indications recently that this problem is getting worse.

Financial issues
When the company was established, it was financed entirely by equity capital. As the business grew and made profits in some years, a proportion of the profits were retained in the business to finance further growth. However, there have been some years of loss, although the director’s still recommended and paid a dividend even in those loss-making years. As at 31 December 2016, there were retained losses, although this has since improved. The company rents its offices in Accra, and does not have many non-current assets. Some thought was given a few years ago to buying two tour buses for the company, but the buses would not be used sufficiently to justify their cost, and the cost of employing the drivers. Even so, it has not been possible for the company to rely entirely on equity finance to support the business operations.

The company needs a relatively large amount of working capital. This is because when a tour is organised, Ghanalux is required to make down-payments to airlines, hotels and other suppliers a long time in advance of the tour. Customers who book tours are required to pay a deposit, but the deposit money is insufficient to cover the company’s payments to other businesses. The company therefore borrows from its bank to finance working capital.

The company prices its tours in US dollars. Its expenses are mainly in US dollars (e.g. payments to airlines) and partly in cedis (for example, payments to hotels). Its short-term borrowings are in cedis.

Occasionally, tour groups visit parts of Ghana where most businesses do not accept credit card payments. Customers also sometimes want to buy cedis for personal expenditure, but have difficulty in finding a reliable foreign currency bureau or bank which can arrange currency transactions. The Ghanalux directors would like to make it more convenient for customers to make payments in cedis or buy cedis, but they are not sure what can be done.

Summary financial statements for the years ending December 2017 and December 2018 are shown in Appendix 1.

Note 1  : There were no non-current asset additions or disposals in the year.
Note 2  : Sundry assets comprise an inventory of brochures, and some small currency notes in a tin.

Porter‘s Diamond can be used to analyse the competitive advantage of nations. At the moment the tourism industry in Ghana is relatively under-developed, compared with tourism in other countries, although it is growing and has government support.
Porter argued that four factors can give one country’s industry a competitive advantage over similar industries in other countries.

• One factor is the existence of strong and competitive supporting industries. A tourism and tourist hotels industry benefits from a strong and competitive transport industry and a good and reliable food and restaurants industry, for example. Arguably, these supporting industries well-developed in other countries, putting tourism in Ghana at a relative disadvantage.

• A second factor is the strength of local demand for tourism within a country, particularly when this demand is sophisticated and discerning. Strong local demand can help firms in the country to develop products and services that can attract demand from other countries, and make the country’s tourism industry more attractive than foreign competition. Arguably, the demand for tourism within Ghana is not as strong as local demand in other countries.

• A third factor is the structure and strategy of firms in the industry, and the rivalry between them. The tourism industry will benefit from the existence of companies with a large amount of resources and efficient management organisation, and strong competition between firms. In Ghana, there is probably an insufficient number of large, competing firms in the tourist industry, and further development is needed to make tourism in Ghana compete more effectively with other countries.

• The fourth factor is favourable factor conditions, i.e. advantages in terms of natural resources, climate, labour skills, technological development, and infrastructure such as transport and telecommunications networks. Countries with more favourable factors will compete more successfully with countries that have less of them. Tourism in Ghana will benefit from more labour skills and better infrastructure, and building these will take time. However, Ghana has natural resources – historical sites, game parks, beaches, rainforests and so on – that give its tourism industry great strength, and these have already contributed to its development and growth, and will continue to do so in the future.
(4 points well explained @ 2 marks each= 8 marks)