R102930N FINAL DISSERTATION

R102930N Midlands State University-Business Management Honours Degree Page 1
FACULTY OF COMMERCE
DEPARTMENT OF BUSINESS MANAGEMENT
IMPACT OF THE REGULATORY ENVIRONMENT ON BUSINESS
PROFITABILITY: A CASE OF MANICA ZIMBABWE (P.v.t) Ltd
R102930N
MAY 2014
SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIERMENTS OF THE
BANCHELOR OF COMMERCE HONOURS DEGREE IN BUSINESS
MANAGEMENT
APPROVAL FORM
MIDLANDS STATE UNIVERSITY

FACULTY OF COMMERCE
DEPARTMENT OF BUSINESS MANAGEMENT
The undersigned certify that they have read and recommended to the Midlands State
University for acceptance, a research project entitled “Impact of the regulatory environment
on business profitability,” submitted by R102930N in partial fulfilment of the requirements
for the honours degree of Bachelor of Commerce in Business management.
DATE
RESEARCHER: ………………………………… ……/……./………
PROJECT SUPERVISOR: ………………… ……/……./………
EXTERNAL EXAMINER: …………………… ……../……../……..

RELEASE FORM
NAME OF AUTHOR : R102930N
TITLE OF DISSERTATION
IMPACT OF THE REGULATORY ENVIRONMENT ON BUSINESS PROFITABILITY
YEAR OF COMPLETION : 2014
Permission is hereby given to the Midlands State University Library to produce single copies
of this dissertation and to lend or sell such copies for private, scholarly or scientific research
purposes only.
The author do reserve other publications rights and neither the whole dissertation nor
extensive extracts from it may be printed, duplicated and or reproduced without written
permission of the author.
Signed ……………………………………………………..
CONTACTS
Cell phone Number 0733 523 956
Email Addresses (es)
Permanent Address 8764 Natview Natvest Mutare

DEDICATIONS
I thank you Moses for the patience and time you invested proposing to Tambu could not have
made it without you two. “I LOVE YOU MOM AND DAD,” here is the product of your love
and care.

ABSTRACT
This research study was triggered by the researcher’s experiences during his internship at
Manica Freight Zimbabwe (Mutare branch), a member of Bid freight group of Companies.
The researcher observed that although Manica Zimbabwe operations were managed by
professional, there are a lot of inefficiencies arising as a result of the governing bodies
operating rules and guidelines in the freight sector. The research aims to explore the
effectiveness of the various regulatory instruments used in the freight sector and their impacts
on the operations of the industry players and the profit regulations relationship. Chapter 1 of
this research project highlights briefly the problems faced by Manica Zimbabwe, thus delays,
operational charges incurred as a result of regulatory environment changes and stoppages.
purpose of the study, as well as the approach taken by the researcher to address the Research
problem. Chapter 2 reviews the available literature on the regulatory instruments. It focuses
on establishing the regulations used in other regions, their effectiveness in application and the
relationship they have with freight operations profitability. The researcher used Manica
Zimbabwe as a case study of the freight transport players carrying out his studies in an
explanatory and descriptive methodology. It shows the type of research carried out and the
field work conducted by the researcher. In the chapter 4 of the research the researcher found
out the regulatory environment in the freight transport sector of Zimbabwe had negative
effects on the operations and the profit ability of Manica. After the research the author
suggests the regulatory authorities (government) needs to appoint a specific regulator of the
freight transport system whilst operators also need to form their own conglomerates which
would improve their bargaining powers with the regulator to improve their profit generation
capacity.

ACKNOWLEDGEMENTS
I feel honoured to have successfully completed this research project in partial fulfilment of
the requirements of my Bachelor of Commerce Honours degree in Business Management.
Firstly, I would like to extend my sincere gratitude to my project supervisor, May the Lord
bless her abundantly. I am also grateful to all the respondents from Manica Freight
Zimbabwe who contributed immensely to this research project by responding to the
questionnaires sent to them and participated in interviews. I thank you very much.
I would also like to thank my brothers Kedrick, Simon and Nyasha for the morale support
they gave me throughout my four year course. To my colleagues (Shangwa, Simbamu,
Divah, Inno and Rumbie) college would not have been the same without you guys thank you
for the support, criticism and encouragement during the entire four years you made Gweru
my home away from home.
Finally to the Lord God all the Glory

Table of Contents
Approval Form...……………………………………………………………………………….i
Release Form…………………………………………...……………………………………...ii
Dedication…………………………………………………………………………………….iii
Abstract……………………………………………………………………...………………..iv
Acknowledgements……………………………………………………………………………v
List of Tables ……………………………………………...………………………………….vi
List of Figures...…………………………………...…………………………………………vii
Definitions of Acronymanes………………………………………..……………………….viii
Key Terms……………………………………….……………………………………………ix
CHAPTER 1....................................................................................... Error! Bookmark not defined.
CHAPTER ONE............................................................................................................................ 14
INTRODUCTION.......................................................................................................................... 14
1.0 Introduction...................................................................................................................... 14
1:1 Background Of The Study................................................................................................... 15
1.2 Statement Of The Problem................................................................................................. 18
1.3 Statement Of Hypothesis................................................................................................... 19
1.4 Objectives Of The Study..................................................................................................... 19
1.5 Significance Of The Study................................................................................................... 19
1.6 Delimitation of the Study................................................................................................... 21
1.6.1 Theoretical ................................................................................................................. 21
1.6.2 Physical...................................................................................................................... 21
1.6.3 Time........................................................................................................................... 21
1.7 Limitations........................................................................................................................ 21
1.8 Assumptions..................................................................................................................... 21
1.9 Summary .......................................................................................................................... 22
CHAPTER 2................................................................................................................................. 23
LITERATURE REVIEW................................................................................................................... 23
2.0 Introduction...................................................................................................................... 23

2.1 Definition Of Terms........................................................................................................... 23
2.1.1Governing regulations.................................................................................................. 23
2.1.2 Profitability................................................................................................................. 24
2.2 Historical Background of governing Regulations.................................................................. 25
2.3 The nature and scope of the regulatoryenvironment.......................................................... 26
2.3.1 Direct taxes or charges................................................................................................ 27
2.3.2 Environmental guiding regulations............................................................................... 27
2.3.3 Safety guiding principles ....................................................................................... 28
2.3.4 Energy and climate change policies........................................................................ 28
2.3.5 Land use regulations............................................................................................. 28
2.3.6 Industry operational guidelines.................................................................................... 29
2.4 The role of government set regulatory environmentin the freight sector............................. 29
2.4.1 Export taxes................................................................................................................ 31
2.4.2 Import and Export Licensing ........................................................................................ 31
2.4.3 Quality issues.............................................................................................................. 32
2.5 Effectiveness of the regulatory system governing the freight sector..................................... 32
2.6 The impact (effects) of regulation on firms operations......................................................... 35
2.7 The role (impact) of freight forwarding agents on the profitability of business .................. 39
2.8 Influence of governing regulatoryenvironment on process flows......................................... 40
2.8.1 Changed willingness to pay.......................................................................................... 40
2.8.2 Regulation as red tape................................................................................................. 41
2.8.3 Legal complications and accessibility............................................................................ 41
2.9 Relationship between regulations and profitability.............................................................. 41
2.9.1 Financial performance versus regulatory environment.................................................. 41
2.9.2 Regulation impact on prices......................................................................................... 43
2.9.3 Regulation impact on Survivorship............................................................................... 43
2.9.4 Cost elements of the freight sector.............................................................................. 44
2.10 Summary ........................................................................................................................ 45
CHAPTER THREE ......................................................................................................................... 46
RESEARCH METHODOLOGY......................................................................................................... 46
3.0 Introduction...................................................................................................................... 46
3.1 Research Design................................................................................................................ 46

3.2 Population Of The Study.................................................................................................... 47
3.2.1 Sample size................................................................................................................. 48
3.2.2 Sampling technique..................................................................................................... 49
3.3 Data Collection.................................................................................................................. 50
Sources Of Data...................................................................................................................... 50
3.3.1 Primary data............................................................................................................... 50
3.3.2 Secondary data........................................................................................................... 50
Data Collection Procedures ..................................................................................................... 51
3.4. Research Instruments Used To Obtain Primary Data........................................................... 51
3.4.1 Questionnaire............................................................................................................. 51
3.4.2 Interviews................................................................................................................... 52
3.6 Data PresentationAnd Analysis Plan................................................................................... 52
3.6.1 Data analysis procedure .............................................................................................. 53
3.6.2 Data analysis methods................................................................................................. 54
Deductive techniques............................................................................................................. 54
3.7 Validity and Reliability of findings....................................................................................... 54
3.7.1 How validity and reliability were improved................................................................... 54
3.8 Pilot Study ........................................................................................................................ 54
3.9 Summary .......................................................................................................................... 55
CHAPTER FOUR:.......................................................................................................................... 56
DATA PRESENTATION, INTERPRETATION AND ANALYSIS............................................................... 56
4.0 Introduction...................................................................................................................... 56
4.1 Response Rate .................................................................................................................. 56
4.2 Significant regulations affectingfreight transport operations............................................... 57
4.3.1 Regulatoryenvironment changes pattern..................................................................... 58
4.3.2 Compliance rate.......................................................................................................... 59
4.4 Have Manica found out otherways of operating................................................................. 60
4.5 Do regulatoryenvironment brings problems in the smooth flow of your operations............. 60
4.6.1Effect of regulations on throughput cycles........................................................................ 61
Source: Questionnaires Output............................................................................................ 62

4.6.2Regulatory (changes) Impact onProfitability of the Freight Sector.................................. 62
4.7 Regulationseffect on profitability of freight operations....................................................... 63
Source: Primary Data.............................................................................................................. 64
4.8 Quantitative Statistics........................................................................................................ 64
4.8.1Chi-square Test............................................................................................................ 64
4.9 Services Provided By Manica Zimbabwe As A Freight Forwarding Agent ............................... 68
4.10 Agency Services effect on Throughput.............................................................................. 68
4.10 Chapter Summary............................................................................................................ 69
CHAPTER FIVE ............................................................................................................................ 70
SUMMARY OF FINDINGS, CONCLUSIONS AND RECCOMENDATIONS .............................................. 70
5.0 Introduction...................................................................................................................... 70
5.1 Summary of Objectives...................................................................................................... 70
5.2 Summary of Findings......................................................................................................... 70
5.3 Conclusions....................................................................................................................... 72
5.3.1 Challenges faced by the freight transport sector in terms of regulations......................... 72
5.3.2 Impact of Government regulations on the Freight Transport system.............................. 72
5.3.3 Role of freight forwarding agents on the operations profitability of the transport players73
5.3.4 Relationshipof the regulatoryenvironmentandprofitabilityof the freighttransportsector
.......................................................................................................................................... 73
4.5 Recommendations ............................................................................................................ 73
5.5 Suggestionsfor Further Research....................................................................................... 74
REFERENCE PAGES...................................................................................................................... 75
APPENDIX 1................................................................................................................................ 80
Midlands State University ........................................................................................................... 80
APPENDIX 2................................................................................................................................ 81
APPENDIX 3................................................................................................................................ 84

LIST OF TABLES
Table 1.1 Manica Zimbabwe Mutare branch revenue reports
Table 1.2 Manica Zimbabwe Mutare branch Operations Costs reports
Table 2.1 Schematic Representation of the Porter Hypothesis
Table 3.1 Target population
Table 3.2 Sample size
Table 4.1 Response rate
Table 4.2 Regulatory environment changes pattern
Table 4.3 Compliance rate
Table 4.4 Regulatory environment vs operations smooth flow
Table 4.5 Regulations effect on throughput
Table 4.6 Regulatory changes vs profitability
Table 4.7 Observed frequencies for Chi square
Table 4.8 Expected frequencies for Chi square
Table 4.9 Chi square presentation
Table 4.10 Services provided by Manica Zimbabwe as a freight forwarding agent
Table 4.11 Manica Zimbabwe Services Effect on Throughput cycles

LIST OF FIGURES
Figure 4.1 Significance of regulations affecting freight transport operations
Figure 4.2 Have operators found new method of doing business
Figure 4.3 Effect of regulations on throughput cycles
Figure 4.4 Regulations effect on profitability

LIST OF ABBREVATIONS AND KEY TERMS
ZIMRA Zimbabwe Revenue Authority
SADCC Southern African Development Community
COMESA Common Market for Eastern and Southern Africa
ACP African, Caribbean and Pacific group of States
EU European Union
OECD Organisation for Economic Co-operation and Development
NCFRP National Cooperate Freight Research Program
CPIA Country Policy and Institutional Assessment
GDP Gross Domestic Programme
EMA Environmental Management Agency
NSSA National Social Security Authority
WHO World Health Organisation
UNCTAD United Nations Conference on Trade and Development
UNESCAP United Nations Economic and Social Commission for Asia and the Pacific
Key Terms
Regulatory environment; profitability; operations guidelines; freight transport sector

CHAPTER ONE
INTRODUCTION
1.0 Introduction
This research study was triggered by the researcher’s experiences during his internship at
Manica Zimbabwe ltd, a member of the Bidfreight group of company. The researcher
observed that although Manica freight- forwarding business was thriving, there are a lot of
inefficiencies arising due to regulatory environmental policies tone. This academic research
study will focus on an analysis of regulatory environment bureaucracy management in the
Zimbabwean freight Transport services sector impact on the profitability of the sector.
It is well known that businesses are trying to offer a high quality service or product in order
to generate customer satisfaction which in turn might lead to customer repurchase, long term
trade relations with the client and stable financial performance for the firm. The impetus for
the development of relationships with customers has been a growing awareness of the long-
term financial benefits it can provide. Despite this awareness, service failure remains a
problematic issue for almost every firm in the world (Ennew and Shoefer, 2003). In ensuing
quality service delivery firms (agents) in the freight transport sector (handling imports and
exports) face regulatory challenges which affect its service delivery. Thus, despite strategic
decisions that freight forwarding firms make to improve service delivery macro regulatory
bureaucracies’ effect takes centre stage in the total service quality provision in the sector.
Zairi (2000) mentioned that most organizations face important challenges in the service
delivery system due to misunderstandings between the consignee and consignor contractual
terms, differing government (in import and export) regulations and lack of both technological
facilities and skilled dedicated personnel to handle cross border transactions.
Finally, firms working under changing macro-economic conditions must listen and rapidly
respond to regulatory changes in order to match their customers’ expectations. As a result,
firms have need to keep up-to-date with regulatory control in designing mechanisms for
provision of quality services dealings for their clients to maintain long-term relations for
stable financial performance.

1:1 Background Of The Study
Manica Zimbabwe limited is a freight forwarding contractor which also offers a variety of
services to support the firm’s transport contracts such services include customs clearing,
warehousing and transport broking. The firm is operates in most of the SADCC community
countries having branches throughout Zimbabwe, Zambia, Malawi, Mozambique, Botswana,
Namibia and its headquarter being found in South Africa under the name Manica Africa. The
firm thus have entered contracts for freight forwarding with clients in these countries in a
way to encourage trade amongst SADCC and the opening of branches in all these countries is
a way to increase efficiency in service delivery to clients in the region. In offering its services
Manica Africa subcontracts to transporters in the region in order to meet its various contracts
obligations within the region. Thus in offering its forwarding services the firm handles
imports and exports of the countries as they trade goods which will need to cross national
borders and in the process problems are usually encountered. Problems encountered vary
from time to time, and if not properly handled and not timorously solved they result in more
problems arising with the clients of the products (importer) as goods delay to reach their
target destine.
During the researcher’s time as an operation activities intern from August 2012 to July 2013
he witnessed various situations in which regulatory policies and bureaucracy hinders smooth
floor processes of the operation activities. This gave rise to poor relations between the firm
and its clients due to delays in cargo delivery problems. When clients’ goods would be in
transit on their way to their destinations the agreed upon delivery time frames failed to met
thereby resulting in the firm failing to fulfil its contractual terms timorously.
Several incidents have occurred have arisen due to differences in standards measurement by
the government regulatory bodies. This was witnessed though various discrepancies an
example of such being a truck carrying timber on behalf of Shefeira Timbers S.A from Wattle
Company. The truck had picked the load of timber from Wattle Company Nyanga pines
plantation on time for delivery of the load to Shefeira Timber in R.SA in four days time. The
truck failed to pass Messina Border post load scan due to excessive height though it had
passed the Beitbridge border post. This raised questions on the authorities regulatory
standards of cargo as under normal conditions a pass on the Zimbabwean side should mean
automatic entry into R.S.A in terms of scanning regularities. This problem also resulted in
quarrels on who had the obligation to meet the expense between the consignor and consignee
(timorously). The consignor (Wattle Company) argued that they had loaded the truck

accordingly with Zimbabwe standards to their order to the consignee and if however the scan
results were correct there were supposed to generate another invoice to the consignee in four
days time while the truck would have to wait for the renewal of the clearing documents. To
make matters worse the border post changes were multiplying over night. And as a result it
took 5 days for the truck to pass the border post awaiting payment of overload charges. On
the other side the consignee was waiting for the delivery impatiently as he had made an
advance payment for the services. The issue of these kinds of irregularities raise questions on
the regulatory bureaucracy standards. This can be proved by the recent Newsday issue on 21
October 2013 business in transportation news. In the article the reporter-Tarisai Mandizha
states “the Chinese government donated three mobile scanners to Zimra through the
government of Zimbabwe”. In his address at Manica Container Depot in Harare the Minister
of Finance, Mr Chinamasa said, “the pass out parade for Zimra’s canine unit was meant to
embrace high levels of customer clearance procedures to enhance national economic
development’’. In his response at the same occasion the Zimra commissioner General Mr
Gershem Pasi said, ‘the three scanners would help them bring outstanding results on the way
business is done at Border Posts”.
Late issuing of exporting and importing compliance certificates by the government
regulatory bodies such as forestry commission is another problem being encountered by the
transport sector. In servicing its orders in the timber production area of Mutare, Manica
usually struggle to get health and safety standards certificates from the forestry commission
in time. This can be illustrated using Timber Bay l.td. (Consignee) which issued an order for
service provision for poles which it had already paid for from Border Timbers. In possession
of the order the driver was instructed to pick the load while the certificate would be send to
authorities at Beitbridge Post. However due to administrative irregularities with the forestry
commission authorities it took them more than three days as is the norm to produce the
certificate for exportation. This resulted in the expiring of exports manifestos and clearing
documents before the loading truck crossed the border post. When this occurred it resulted in
the manifesto papers being forwarded back to Mutare, the truck having to wait for the
documents return at the border post as the papers had to be renewed on payment of a fee to
Zimra. In such a case the Zimra officers insisting on physical renewed documents for export
despite the potential for online clearing systems available. The consignee ended up charging
demurrage to the agent for delays on behalf of the consignor thereby further smashing the
firm’s revenue profit margin. This was as the agent Manica could not pass the demurrage

charges to the authorities’ irregularities. This is also the case when some trucks are issued
with wrong certificate specifications for the product on transit as drivers do not check
whether they are carrying the documents for the correct commodity on board. It results in
complications and suspicion of product smuggling in clearing as customs tariffs differ
according to products and replacement of documents is supposed to be done while the truck
waits at a charge at the border post.
Another major problem which also frequently occurred was misallocation of prepaid duty for
the imported goods by the ZIMRA personnel. This resulted usually as some foreign
companies’ forward payments for specific special type of timber. When a batch of trucks
were however despatched Zimra officers at the Beitbridge border post however would usually
clear the first truck (in subtraction of the total amount prepaid) to arrive without noting the
product description and financial allocation of the prepaid amounts thereby forwarding the
wrong cargo to customers (consignee) would be ignorant they are supposed to pay the
amounts due thinking that will be the responsibility of the consignor. Faced with this
situations usually the agent (Manica) would expected to meet the costs on behalf of the
consignee (in the circumstances the agent is paid by the consignee) thereby straining financial
operation assets of the firm. However that was not always the case and trucks would take
long in the no man’s area resulting in more expenses for the sub-contracted transporter.
Production Revenue trends for Manica Mutare Branch
Table 1.1
Months Budgeted($) Actual($) Variance($)
August-October
2012
58 000 48 158 (9842)
November2012-
January2013
45 000 28 288 (16 412)
February-April 2013 63 000 51 645 (11 355)
May-July 2013 50 000 30 200 (19 800)
(Source: Manica Zimbabwe l.t.d Mutare branch month end reports August 2012 to July
2013)

The variances being attributed to the results on unfamiliar governing authorities practises.
This in turn reduced the production (efficient) levels capacity of the firm.
Freight Forwarding Operations Costs incurred by Manica Mutare Branch
Table 1.2
Months Inventory carrying
costs ($)
Storage and
Costs($)
Demurrage charges
($)
August-October2012 1 586 3 500 4 756
November2012-January
2013
2 807 3 750 9 855
February-April 2013 2 005 3 000 6 350
May-July2013 2 595 6 705 10 500
(Source: Manica Zimbabwe l.t.d Mutare branch month end reports August 2012 to July
2013)
The demurrage charges incurred being attributed to delays of governing authorities
processing of documents procedures required.
It is against this background and many more transit problems that the researcher wants to
investigate the government regulations and bureaucracy effect on the firm service delivery
performance and financial performance.
1.2 Statement Of The Problem
With the recovering, unstable Zimbabwean economy, most of the economic sectors are
struggling. The transport sector is no exception with fuel, one of their major resource prices
fluctuating even on the international market. This is further worsened by higher tariffs
charged when importing the fuel and other spare parts for repairing and maintenance. In their
efforts to provide quality service many of these organization’s efforts had been going back to
the traditional role of forwarding cargo with little or no effort being made to keep contractual
terms. With research showing that 80% of business comes from repeat customers,
organizations need to keep up-to-date with regulatory process flows and then aim at
providing quality services in line with governing authorities’ requirements. This makes it a
prerequisite for organizations to comply with regulations and cope with changes in the olicy

framework. With the intangibility, perish ability, variability and inseparability nature of
services, it leaves a gap if service providers can operate profitably under the guiding
regulatory environment being implemented without going out of bound of government
regulations and authorities. Thus this research study aims at analysing the impact of the
regulatory requirements on the profitability of Manica Zimbabwe ltd.
1.3 Statement Of Hypothesis
H0: Manica Zimbabwe operations are not affected by governing regulations changes
H1: Manica Zimbabwe operations are being negatively affected by changes in
governing regulations
1.4 Objectives Of The Study
 To identify the challenges faced by transport sector in terms of regulations.
 To evaluate the impact of government regulations on the freight transport system.
 To identify the role (impact) of agents on the operations profitability of the business
of transport players.
 To assess the relationship of regulations to the profitability of the industry.
1.5 Significance Of The Study
Zimbabwe is a land locked developing country under indigenous investment, foreign
investment and internal market. We do not have adequate resources to meet even our
consumption, so to meet our own usage capacity we need to export and import worldwide.
For doing export and import we have two modes of transportation for cargo movement which
is rail shipping lines and road freight lines which connect to the outside world in every
destination due to which we can be able to consume international products and trade our local
produced products worldwide for generating revenue.
To the research (University Community)
This research is aimed at providing better conceptualization understanding of freight
forwarders business to the government of Zimbabwe. This research will provide a clear
image of the benefits and relationship of road freight forwarder and government regulations
policies. The findings of this study will help to understand the importance of road freight

forwarder in promoting trade and how the sector can be used effectively to improve the
national G.D.P.
The research adds literature to the existing understanding on the effect of the regulatory
environment on the operations of the freight transport sector. The research also reveals the
importance of freight forwarders in improving operations smooth flow of the freight transport
sector.
To the Organisation-Manica Zimbabwe ltd
The company will also benefit on how government policies can be manipulated to forge good
business relationships to enhance productivity and quality service delivery resulting in the
achievement of the primary objective of all firm thus profit maximisation. The company
would be able to notice how government regulations policies are impacting on its operation
activities performance. This could be done by tracing organizational performance with
government notices and regulations trends.
The company will also realise the importance of bargaining contractual terms that does not
disadvantage it in charges (through fines and demurrage charges) as a result of delays caused
by changes in the regulatory environment of the trucking system.
The company will also benefit on the importance of government policies, thus how serious
are regulations in crippling the organization’s operations.
New or improved operations management techniques will be at the company’ disposal, which
will improve the company’ conducts with the government as well its clients. Need for
improved operating contracts terms will be acquired from this research.
To the researcher
From this research, the researcher will be subjected to various Manica Zimbabwe freight
transport operations management strategies and contracts terms negotiation from other
authors who will enhance his managing skills and knowledge.
The research also assisted the researcher in sharpening his research skills which are for
further educational advancement as well as valuable tools in conducting tasks at work.

The research project was also of great significance for the fulfilment of a Bachelor of
Commerce Degree in Business Management
Knowledge of research will increase.
1.6 Delimitation of the Study
1.6.1 Theoretical
This research will focus on freight transport operations being practiced by Manica
Zimbabwe-Africa Limited. Much attention is given on the government regulations policies
effects on the firm’s operations holding other variable affecting the freight operations
activities constant.
1.6.2 Physical
This study will be carried out at Manica Zimbabwe in the customs and clearing, transport
broking, warehousing and business development departments. Manica Zimbabwe ltd is
situated at number 20 Glasgow Road, Glenburn Centre, Mutare
1.6.3 Time
This study will be carried out focusing on the period from 2009 to 2013.This is the period
within which data needed will be gathered , presented, analyzed and recommendations made.
1.7 Limitations
Monetary resources for travelling to and from Mutare to gather data was a great challenge.
The researcher encountered financial difficulties to travel from Gweru to Mutare at certain
intervals to collect data for the project. However, the researcher had to operate mini printing
shop at his lodgings in Senga to raise money and save for the anticipated travelling expenses.
Time resources since most of the times the respondents were busy. To combat this, the
researcher had to schedule appointments with the respondents and get a timetable on which
he had to manage to see the target population.
1.8 Assumptions
 Respondents will be faithful and able to disclose all the information needed in my
research.
 I will get enough time to talk to the target population.

 Freight transport throughput is only affected by regulatory guidelines
 The regulatory environment in Zimbabwe is totally controlled by the government
1.9 Summary
This chapter was mainly concerned with the introductory part of the study whereby
comprehensive perspective was smoothly brought forth considering what the research
entailed. It was also in this chapter where research gap was identified thus bringing out the
significance of the research .The study mainly centred on evaluating the impact of regulations
on the profitability of business operations. The study came at time when the road freight
sector has been taking a nosedive because of punitive business environment. However
Manica Zimbabwe ltd implements a vigorous freight operation system to comply with the
regulatory environment in with the current economic quagmire .In light of the preceding
discussion the study now proceeds to review available literature on governing regulations
impact that have been adopted.

CHAPTER 2
LITERATURE REVIEW
2.0 Introduction
This section is going to explore the previous work done by other scholars and researchers. It
looks at the empirical and theoretical evidence of articles, journals and textbooks which
focused the two major facets of this study that are; governing environmental regulations and
their effect on organisational financial performance and other related forces such as service
quality. In general, this review will focus on the subset impact of the incentive a firm faces to
undertake research and development in order to manage regulatory environment compliance
costs under different approaches to remain viable.
2.1 Definition Of Terms
2.1.1Governing regulations
Governing regulations according to Rossetti (2010) is referred to as a “established and
enacted laws by the legislative and executive subdivisions that ascertain how a specific job,
business, or industry is supposed to run.’’ For example, the Standard Association of
Zimbabwe determines the safe standards and fitness of purpose of products in the country.
Conchita and Carmen (2005) agree stressing that governing regulations “is the use of
legislative measures and government regulations to affect economic outcomes.” The authors
further elaborates that government regulation extends “from forms of government that control
and regulate all aspects of economics to measures which are enacted to address particular
issues such as deregulation of industries or measures intended to address various economic
factors.”
Meunier and Nicolai (2012), also forwarded his opinion of government regulations as the
economics of controlling the economy, thus the sense of application of law by state for
various purposes, such as unitary-planning an economy, finding solutions to market failure,
enriching well-connected firms, and or benefiting politicians. However it is not considered to
incorporate voluntary regulation that may be accomplished in the private sphere. Meunier et
al (2012) further stresses, “the regulatory environment can take several forms; standards, tax
quotas, possibly tradable.”

The NCFR further elaborates that governing laws could be by-city regulations crafted by
local authorities to suit their affected areas. Thus it is taken as the general statements of
principles or goals. They also elaborates that these policy statements “may convey intend or
desire to adopt measures for stated purposes but are not themselves government actions that
that affect the behaviour of individuals, firms and other government agencies.
However in the context of this research I would take governing environmental regulations as
a set of operating guidelines put in place by the governing authority bodies. The term may
encompass a wide range of instruments; from primary laws and secondary regulations to
implement primary guidelines, supporting rules, administrative formalities and decisions that
give effect to higher-level regulations and standards. Thus ruling conditions in which a
business entity operates in thereby making companies which fail to comply to with the
guiding principles of operations in an industry are faced with a penalty charge or ban from
operating its business endeavours. Thus I will explore the regulatory guidelines as a tool for
shaping a company’s strategy and competitiveness.
2.1.2 Profitability
Profitability is defined in two broad ways in the economics world thus: normal profit
represents the total opportunity costs (both explicit and implicit) of a venture to an investor or
entrepreneur, whilst economic profit (or simply profit) is, the difference between a firm's total
revenue and all costs, including normal profit. On the other hand profit is a measure of the
value a firm creates for its clients, thus business cannot be based on a rip-off. Therefore trade
to be sustainable, the clients must receive value for their expenditure through services or
products they buy; the workforce must get equity remuneration for their effort; and the
shareholders of the company must earn a reasonable return on their investment. San Diego et
al (2011) stresses as the world economies have become more interlinked, both public and
private sectors have become increasingly concerned about becoming more competitive in the
global market. But in many economies, companies engaged in international trade still
struggle with high trade costs arising from transport, logistics and regulations impeding their
competitiveness and preventing them from taking full advantage of their production capacity.
With the availability of doing business indicators on trading across borders- which measure
the time, procedural and monetary costs of exporting and importing.

In this research profitability and productivity are going to be used in similarity, where
productivity is regarded as effective output (revenue) per unit of units of inputs (costs)
invested in business activities (environmental guiding regulatory).
2.2 Historical Background of governing Regulations
According to the European Business review 2006 volume 12 published in October, in
America, throughout the 18th century and 19th century, the government got engaged in
substantial regulation of its economy. In the 18th century, the production and distribution
operations of goods and services were monitored and regulated by the British government
ministries over all the American Colonies. Subsidies were granted to agriculture related
products and services and tariffs and restrictions were imposed, sparking the American
Revolution. The American government maintained high tariffs and restrictions for the entire
19th century and into the 20th century up to the point the Reciprocal Trade Agreement (R.T.A)
was passed in 1934 under the authority and guidance of Franklin D. Roosevelt
administration. Despite this development, regulation and deregulation came in batches and or
waves, with the major deregulation of huge business in the Gilded Age resulting in President
Theodore Roosevelt's trust exploding/dividing from 1901 to 1909. Deregulation and Laissez-
Faire economics were practiced once again in the growing 1920's leading to the Great
Depression, intensive government regulations and Keynesian economics practices under
Franklin Roosevelt's New Deal plan. President Ronald Reagan deregulated business in the
1980s with his Reaganomics plan.
According to the Zimbabwe National policy (2012), our country over the past decade and a
half , has been under the guide of a lot of trade related laws and regulations being
administered by differing ministries, bilateral, regional and multilateral trading agreements
that the nation is a signatory, these include SADC,COMESA, the ACP-EU Partnership
Agreements and the World Trade Organisation. .
The development and techniques of regulating sectors has long been the subject of academic
research, this is especially in the utilities sector such as the freight-forwarding industry. There
are two basic schools of thought that have emerged on regulation issues, that is, positive
theories of regulation and negative theories of regulation

2.3 The nature and scope of the regulatory environment
The U.N Economic and Social Commission for Asia and the Pacific (2011), stresses there are
two main ways of regulatory controls in the set up process for business entities in Sub Sahara
that is registration/filing and licensing. Governing authorities usually require monitoring that
all needed information should be divulged and then permit process set up. Thus granting
permits processes is meant to measure the suitability of the applicants and their background
against sustentative circumstances which may be less or more strict or explicit in the laid
down procedures ruling the operations. The governing authority role being inspecting
competency and ensuring performances practices are in line with the set rules.
The OECD Regulatory Policy and Road to Sustainable Growth for (2010) position indicate
that regulatory policies role is to stimulate economic and social renew, its core institutions
and processes needs to include:
 Strengthening evidence-based impact assessment to support policies coherence
 Institutional capacities to identify and drive reform priorities ; and not least
 Paying more attention to the voice of users, who need to be part of the regulatory
Conchita et al (2005), pointed out, the government at all levels has a role in building,
operating, maintaining, and regulating business activities. At Federal level the two major
governing roles in business operations are:
1) Funding and related cost-recovery policies and
2) Regulation, especially safety and environmental regulation. The Federal government sets
overall levels of federal aid and, through the earmarking process, takes a hand in project
selection. Congress must also provide the financing for investment through taxes, other user
charges, or various credit devices.
The state role in funding business operations is similar to the federal role. State legislatures
set funding levels and play a role in projects selection; they are also involved in setting taxes
and other user charges to finance the system. Thus the business operating regulations aim at
the federal role is to impose doing business charges on operators to finance the administration
of effective business environment. Fairfax et al (2010) also stresses that State authorities have
responsibility to enforce some safety regulations for specific business activities in protection

of both the environment and the industry players. In Zimbabwe case bodies such as the
Environmental Management Agency (EMA), Standard Association of Zimbabwe and Traffic
council of Zimbabwe are responsible for setting business taxes and charges and safety rules
and limits in the freight transport sector.
Fairfax, Vienna and San Diego NCFRP’s report on the impacts of public policy on the freight
transportation system summarises the following operations settings regulations:
2.3.1 Direct taxes or charges.
Conchita et al (2005) suggested this refers to operation licences taxes that are levied on firm
in setting up their business operations. Fairfax et al (2010) further emphasises that these
incorporate charges of carrying out business activities within an industry. The CPIA statistics
as at the end of December 2013 reports that corporate tax rate in Zimbabwe stands at 25.75%
averaging 28.3% from January 2006 to end of 2013. In Zimbabwe this tax is collected based
on the net revenue gained by a company while exercising business activities usually within its
financial year as a way of compensating for the environmental damage done to the ecology
through the process of the firm generating its revenues. The rate stated herewith being the
highest within the region making doing business in the country very costly due to the
environmental corporate tax laws. The OECD Sustainable Policy (2010) revealed that with
major crisis constraints on government expenditure and social resistance to higher taxes,
regulations may receive attention as lever of state intervention. However the policy document
reveals that although regulatory instrument can be a substitute for fiscal measures and may be
an efficient alternative to direct taxation, it requires careful management. The hasty adoption
of these inappropriate direct taxes and charges in reaction to events could add unnecessary
burdens, inhibit innovation and harm competitiveness and open market.
2.3.2 Environmental guiding regulations
Fairfax et al (2011), in the NCFRP elaborates that this is a wide segment where all 3levels of
control (state, legislature and local authorities) have an active role. They suggest that pivotal
environmental regulations affecting business operations concern air quality. Thus regulatory
bodies main concern in the freight transport sector is to ensure operators do not excessively
emit carbon monoxide. In agreement to Fairfax et al (2011), Ambec. S, Cohen M, Elgie S
and Lanoie (2011) also suggested that environmental regulations are there to regulate the use
of chemicals or to lower waste disposal cost. In Zimbabwe the Environmental Management

Agency (EMA) controls national engine emission standards and regulates fuels to achieve
emission reduction. However although EMA is the responsible national authority in ensuring
companies compliance with environment friendly strategies, local authorities can set specific
regulations to be considered by companies in their regions. This as local authority is
responsible for town planning and land allocation. This leaves business entities in a corner as
sometimes the local authority may approve certain business activities to be done in an area
and when EMA comes for inspection for organisation might get penalty for contravening the
national authority environmental regulations and guidelines.
2.3.3 Safety guiding principles
Safety guidelines are also one of the major rules that business operations should commit
themselves to, according to Fairfax et al. (2011)’s NCRRP report. Fairfax elaborates that
safety regulations are supposed to be meant to protect all stakeholders of an entity business
endeavours. Ambec at al. (2011) stressed that most of these safety guidelines decision
making is made at the Federal level. This takes in account operating hours of service, rules
for electronic on board recorders, equipment design standards. In Zimbabwe the National
Social Security Association (NSSA) makes these provisions and takes the inspection
procedures for standards for equipment to ensure that business activities undertaken does not
hurt both the consumers and the mechanisms.
2.3.4 Energy and climate change policies
This takes into account emissions standards for diesel engines and other fuels emissions
according to Conchita and Carmen (2005). Recently there has been a worry about global
climate change and regulatory authorities aim at pursuing guidelines that promote alternative
sources and reduce gas emissions through fuel efficiency standards that penalty high carbon
fuel. This has created a global campaign against business activities that produce carbon which
has an effect of destroying the ozone layer as pointed out by King and Lenox (2001). In
Zimbabwe this has resulted in the mixing of fuel consumed by engines being combined with
ethanol fuels (E10 fuel) as a way to compacting the percentage of hazardous gasses emitted
in the air.
2.3.5 Land use regulations
Land use policies that affect location of business operations facilities. Fairfax et al (2011)
state that governing land use principles are done exclusively by the state and the local

authorities. The civil government thus can pursue policies that have an effect on local
authorities land use planning procedures. However most land use decisions are made at the
local level. Lenox et al (2001) stresses land use regulations regard zoning, setting up,
redevelopment of infrastructure and property. These have significant indirect effects on the
business operations system according to Fairfax et al (2011), who pointed out distance from
loading points and delivery point is a vital element in the freight transport industry. Thus
when freight transport players are pushed away from the manufacturing sector it adds to their
cost of operations.
2.3.6 Industry operational guidelines
Meunier et al (2010) pointed out that industry operational regulations differ according to
industry and region thus they are crafted mostly by the central government in line with
international standards under the lying ministry. Fairfax et al (2011) added that freight
transport operators guidelines though they may differ according to regions their basic
application is usually the same except in ad hoc circumstances when a nation seeks to protect
its market. This has been the case in Zimbabwe freight transport sector where the government
though trying to match with regional and international standards has applied strict measures
to freight players involved in importation of basics.
2.4 The role of government set regulatory environment in the freight sector
Frank M. Gollop and Mark J. Roberts (2008) points out that regulation can have several
elements such as public statutes, local municipality standards and or code of conduct
(statements of expectations).A process of registration and or licensing to approve/permit and
to give right the operation of a service, by a specifically named firm or person in the freight
sector.
 A process of inspection and or other form of ensuring standard compliance in
operations and or goods carried on board, including reporting methods and
management of non-compliance with these regulations standards: where there is
continued non-compliance, then:
 A process of de-licensing whereby an organisation or individual is judged to be
operating outbound of regulations, and is ordered to stop its operations or suffer the
penalty of acting unlawfully.

San Diego et al (2011) specify the direct elements of service industry regulations which are
relatively in agreement with Gollop et al (2008) these can be quantity restrictions on
operating licenses (supply criteria). This can be given as protection measures against imports
and exports of specific products by government through restricting the amount of the specific
products an entity can import for processing (handle) within a specific time frame.
Relative effect of route versus area licensing limitations and minimum performance level
requirements; thus for a company operations to be given authority (permit) to service some of
statutory contracts there is need to set up a satisfactory ground work through buildings and
putting in place basic equipment to meet governing standards
Tariffs and rates set by government and consumption of commodities (products and or
services) restrictions. This is when a government impose statutory measures against the sale
of specific products as the products may not have been inspected by the governing body to
measure if it meets legal requirements. This can be viewed in line with the process of de-
regulation explained by Meunier et al. (2012). Thus if an organisation goes outbound in
producing and sale some products in restricted areas they face penalty.
These set of laws generate challenges in freight transport industry when a firm enters into
horizontal forwarding contracts with its client. However this tends to differs from operating
guidelines in any deliberate sphere of activity, although it can be put in comparison with it in
other aspects. For example, when a broker wants to export agricultural products, there are
specific rules of operation the broker must comply with as contractual and agreed-upon
circumstances and terms that direct exportation. The coercive regulations of the Zimra and
Export Commission, for example, are obligatory without regard for any dispute as to that
specific trade. However, in a democracy (where the government and the industry players
work together in decision making) , there is still joint agreement on the control—the body
politic as one agrees, through its representatives, and impose the agreement on the group of
firms involved in the regulated business.
Regulation in this logic according to San Diego et al (2011) is thus taken as an accepted
standard of ethics for a given business activity, to uphold the interests of the companies
involved in the business operations as well as standardised continuation of the business
operations within specified limits.

2.4.1 Export taxes
According to Zimbabwe Trade Policy 2012 document, “the government will gradually
introduce export taxes on primary commodities where value addition options are available in
order to promote exports of value added goods. This measure will be instituted strategically
based on sectoral considerations and in line with the country’s international commitments”.
This restriction has a direct impact on the operations of the freight industry players as they
also get to be penalised for moving primary commodities. Thus additional local industry
protection taxes are also being passed to freight players to discourage them from moving raw
products; these taxes eat up in the freight logistics firms’ revenue as they have limited
parameters in charges set by transport Ministry. However this can act in the best interests of
local manufacturing firms as the regulations tends to promote local infant industries
producing inputs of other manufacturing companies thereby boosting their profits. The
measure conversely negatively affect large manufacturing firms through restricting them to
the local market it means they cannot access cheap foreign inputs for their processes thereby
eating into their profits.
2.4.2 Import and Export Licensing
The Zimbabwe Trade Policy document 2012 stipulates that most of Zimbabwe’s trade is
administered by routine open general import and export licenses. However, imports and /or
exports of specific goods may be subjected to detailed licensing governed by the ministry of
Industry, Commerce and Trade and the Ministry of Agriculture as a way of curbing exporting
and or importing substandard and environmentally harmful products. Otherwise the
government will uphold import and export licensing in line with the WHO (World Trade
Organisation) system for stastical reasons and Sanitary and phytosanitary purposes. The rule
of Zimbabwe will also impose import and export quotas in extraordinary conditions
depending on the supply state of certain essential commodities. This means products to be
exported should first meet the ministry of agriculture for inspection of international standards
whilst the ministry of Industry, Commerce and Trade would try to measure the conditions in
which the products to be imported have no harm to the local settings and if being exported it
validates whether the environmental guidelines were met in producing the export product.

2.4.3 Quality issues
Atkinson (2010) stresses while most firms focus efforts on improving supply chain efficiency
by looking at the supply chain process itself, a few realise that other departments can have an
impact in efficiency and speed. One of these departments is quality which is tasked with
inspecting incoming raw materials, in process work and final product effect on the
environment before it is passed to the final consumer.
2.5 Effectiveness of the regulatory system governing the freight sector
According to Adam Jaffe and Palmer (2011), putting an entity within, the context of an
imperfectly competitive market and imposing other regulatory requirements can also change
the nature of the entity’s revenues. After assessing the above challenges faced by the industry
players the ministry of transport in Korea (2011) in their study of the economic impact of
regulations in the Trucking industry discovered that there were problems with the regulatory
authorities. Thus the legal framework lacks key features taking the example of the vehicle
size and cargo weight rules. The governing boards do not define the basis of further
implementing the rules when truck moves across borders. This resulted in operators incurring
more costs in penalty charges. Similarly, Djankov, Freund and Pham (2010), examines the
effect of time delays in exporting on total bilateral trade volumes to identify the cause effect
of time delays and trade volumes. The researchers’ findings showed, on average each day of
delays caused by regulatory procedures reduces business profitability by a minimum of 1%.
The report adds on that sometimes the legal framework in unclear and too restrictive to the
operators which bring about dispute with the conditions between the customer and products
suppliers. These take restrictions regarding of which extra charges incurred cannot be payable
by the third party to compensate the accidental costs. Therefore this provokes the companies
to invest in research and development (that is changes in processes, organisations and so on)
which may lead them to new ways of doing business according to Ambec et al. (2011).
Taking into consideration the above noted regulatory rules Meunier et al (2012) seminaries’
report, point out regulations governing operations are a drawback from the business
organisations view point. Thus they have a negative impact on the one of its keys, the
pollutant seepage, with a consequent impact on its charge. Ambec et al (2011), emphasises
regulations requiring firms to reduce an externality like pollution restrict business options
thus by definition reduce their profits. In this background the effect of a cost addition on the
profit margin of the organisation has a direct impact on the guiding principle influence.

Suitability of regulation is often attained through free allocations projected to reduce negative
effect on the profit. Guy and Jean-Philippe (2012) gave specific provisions for the abatement
technology under which stringency and or tightening of business setting background directive
can improve or reduce a firm’s profitability. In support of this theory a hypothesis which
points out that amongst economists and managers environmental protection regulatory
compliance comes at an additional cost which may erode their global competitiveness and
profitability. Regulatory environment to freight operators such as technological standards,
environmental taxes, or tradable emissions permits force firms to allocate variable inputs to
restrict pollution, viewed as unproductive in the operations process. Taxes and tradable
permits charge firms for their emissions, a by-product of the operations process that used to
be free. These charges necessarily divert capital away from productive investments.
In contrast Conchita et al (2010) in an analysis, suggested even with ideal competition in the
industry, there may be issues in which a stringency of operating directives may guide to a
boost in profits. Using their abatement technology effect model similar to Porter and Class
van Linde (1995) they concluded that “business guiding regulations modify the business cost
of organisations and may provoke a positive result on profits of complying firms. When the
abatement technology is on hand, the environmental guidelines make the process tech
endogenous. Regardless of flexible demand, business operations parameters may be cost-
effective”. This was supported by Professor Porter’s Hypothesis theory which suggests
regulations provoke companies to find innovative ways of doing business thus enhancing
their competitive advantage.
In the same view with Conchita et al.(2010), Michael Porter and his co-author Class van
Linde (1995). Based on their case studies they suggested that pollution is a waste of resources
and that a reduction in pollution may lead to an increase in productivity with which resources
are used.
Table 2.1: Schematic Representation of the Porter Hypothesis
Strict but flexible Innovation Environmental Regulations
performance
Business Performance

Porter et al (1995) continued to clarify that there are at minimum five bases that properly
drawn up rules may lead to these outcomes as pointed out by S. Ambec et al.(2011)
 First, rules indicate to firms about likely resource inadequacy and potential
technological expansion.
 Second, governing regulation with focus on information gathering can attain main
advantages by raising corporate consciousness.
 Third, directives lessen the uncertainty that funds to address the setting will be
valuable.
 Forth, parameters formulate pressure that stimulates innovation and development.
 Fifth, bylaw levels the intermediary playing field
Finally, they recognize, “we voluntarily acknowledge that innovation does not always
counterbalance the cost of conformity, particularly in the short-range before knowledge can
decrease the cost of innovation-based results” (Porter and van Linder 1995,100).
However Ambec et al. (2011) pointed out the Porter’s hypothesis has met great support in the
political framework, because it oppose the idea that business operations regulation is always
risky to economic growth. The PH has been raised to convince the business community to
recognize governing set of laws, as it does not only shield the environment but aids to
improve profits and competitiveness by improvement of the commodities and or services or
operation processes through innovation which is not often the result.
As noted by Gilmore (2005), the regulatory environment manages a vital amount of assets
and has direct impact on cash-flow and the bottom line, adds products worthiness through
continuous efficiency and service expansion, and posses a vital link with a company’s
customer service and returns. As worldwide out-sourcing is rapidly arising as a vital business
tactic, capturing and assessing the legal costs, which may counterbalance the profit of
undertaking business with the global contractors. Governing regulatory authorities processes
form the essential loops of supply chains and manage the flows of supplies, information and
money, which are critical basics of satisfying customers’ orders. Gilmore (2005) stresses as
greater distances, legal tenders and traditions (governing rules) separate markets, contractors
and producers, logistics has a more crucial responsibility in achievement of supply chains. As
a result, total logistics price tag has turn into one of the most significant trade and industry
indicators of supply chain competence.

Fairfax et al (2011) further stresses that government at all levels has a role in building,
operating maintaining, regulating the freight system, although the specific government roles
vary considerably across the modes. The report indicates that at federal level the
government’s main concern is regulating safety and the environment. There is also need to
provide financing for highway investment through fuel taxes, other user charges, and or
different credit devices.
Clemenz (2012) pointed out that effect of regulations may require work in the direction
involving economies of scope of research and development. This suggests that regulations
trigger research and development investments which can be used to some extend for the cost
reduction process innovation. Thus economies of scope in research and development generate
additional knowledge which increases the chances of triumph for the expenditure plummeting
innovation process. Despite this argument Clemenz (2012) stressed however, most of these
government policies and regulations are crafted by individuals with interests in various
sectors thereby creating unmerited advantages to other players in the service sectors.
2.6 The impact (effects) of regulation on firms operations
Conchita Garces Ayebe and Carmen Galve Gorriz (2010), states that initially, the theoretical
literature on the effects of regulations on business profitability has uphold the belief that there
is a negative correlation between reaching the regulatory objectives and business cut-off. This
is supported by Gerhard Clemenz (2011) who identified that traditionally governments were
unwilling and hesitant to put in place regulatory systems fearing it may result in competitive
disadvantage for domestic firms against outside competitors not require technologies or
conformity with certain standards and principles in order to proper any pollution externalities,
thereby taming the investment and operational decisions of companies.
Positive theories of regulation examine importance of regulations. Such theories of regulation
incorporates issues of market power and interest group theories that perceives stakeholders'
interests in authorities regulations, and theories of control opportunism that scrutinise why
boundaries on government discretion might be vital for the freight-sector to provide efficient
services for customers (contactors) while remaining profitable. Generally, the conclusions of
these theories are that regulation takes place because the guiding authorities are concerned in
trouncing information discrepancies with the operator and bringing to harmony the operator's
values with the administration’s interest. Customers also requires shield from market

dominators when competition is imaginary or ineffective in the industry, operators need
protection from competitors, or operators need defence from supervision opportunism.
Normative economic theories of guiding regulations sum up the regulatory environment
should
1. promote competition where possible,
2. reduce the expenses of information discrepancies by acquiring information and
offering operators with enticements to develop their performance,
3. offer pricing strategies that improve economic cost effectiveness, and
4. Set up governing procedures that provide for rule under the act and liberty,
transparency, inevitability, legitimacy, and reliability for the monitoring board.
On the other hand, many deviating economists functioning outer the neoclassical practice,
makes it clear that business operations regulation is vital for protection against one firm
industry domination formation, the overall steadiness of markets, ecological damage, and to
ensure fair business practices. These draw on a varied collection of sociologists of markets,
together with M Weber; Karl Polanyi; N. Fligstein, and K. Marx as well as the learnt account
of supervisory institutions drawn inn in authoritarian guidelines.
Principal-agent theory deals with issues of information asymmetry, which in the framework
of service regulation. Generally this means that the industry players have more knowledge
about its aptitude and endeavour about the service market more than does the watchdog. In
this structure, the government is the principal and the operator is the agent, whether the
operator is administration controlled or privately managed. Principle-agent hypothesis is
applied in inducement ruling and multipart duties. Conchita et al (2010) noted while a
customary “command and control” system based strictly on the imposition of operating
standards, may ultimately hurt the efficiency of a sector, the system that is supported by
market incentives permits both the ecological results as well as costs competence results to be
enhanced.
Christiansen and Haveman (2005) pointed out the most universal idea obvious in
convectional literature shows that environmental set of rules improves the total economic
well being at the cost of business productivity and or profitability. The research findings that
argue in this point of view arose back in the seventies. This was mainly in the U.S when

environmental regulation in various industries coincided with a distinguished reduction in the
indicators of productivity and firms’ profitability. Christiansen et al (2005), use a series of
data at the industry level in order to find out what percentage of the decline in the growth of
profitability indicators- may be related to the costs for abiding by with the environmental
regulations in the industry. In order to regard the influence of the regulation on the
effectiveness of productive effort visa vie profitability growth, the models include, in addition
to the convectional regulation on the productivity growth, the models include, in addition to
the regular inputs-labour, capital, energy and materials- the force of the environmental
regulations, either through the pollution abatement investments inputs or through the variable
dummies that include the existence of standards that destabilise the smooth flow of
operations and restrict efficiency. The results vary between 8-16% to environmental
regulations when the span of the analyses refers to the majority of value addition sectors.
With a similar intent in past works a negative results were achieved in the electricity service,
manufacturing plants level in the U.S. The results also find a negative correlation between the
overheads of pollution decrease and the total factor efficiency level of three inputs; labour,
materials, and energy expenditures and the weighted average of the three inputs.
Among the arguments that I come across most often highlighted in the literature for
validating the outputs in the aforementioned works are;
1) The use of a convectional productivity measurement for measuring the impact of the
environmental regulation,
2) The opportunity cost of the investments designed for compliance with the environmental
regulation, and
3) The very nature of the environmental regulation itself.
Clemenz (2011) argues the regulatory environment have in the recent years developed a
positive correlation with productivity due to the design of guidelines which has become more
market based and lees rigid. However this turns to be difficult for with two strands of
literature based on organisational failures and the other on market failures. As a consequence
decision of managers may not be guided by the profit maximisation principal, but by other
objectives as pursued by managers. Acknowledging the works of Schutzler (2001), Ambec
and Barla (2005), Clemenz (2011) suggests this may cause information asymmetries between

owners and managers, differing departments within an organisation, thereby creating various
principal-agent problems. All these facets have the effect that profitable investments in
research and development might not be possible devoid of some external drive, which in
usually offered by principles guiding the settings operations. This is based on imperfect
competition and market failures. Environmentally attractive improvements could not be
achieved because the classified proceeds to research and development are smaller than the
social costs incurred. One of the reasons is spillages as suggested by Greaker (2006). Andre
et al (2009), supports that environmental standards may help to overcome coordination
difficulties. Thus implementing regulations by companies reduce discrepancies of processes
through inspections as they become a matter of rubber stamping therefore firms are forced to
innovate, they all profit from positive externalities and are better off than before. Kriechel
and Ziesemer (2006) used a model of strategic trade policy to show that operations guiding
rules might result to a considered merit of local companies.
Christiansen et al. (2005) empathize first of the opinion is incorporated in the works of Jaffe
et al 1995, who elaborated “the measured productivity of the affected industry will fall
because measured inputs of capital, labour, and energy are being diverted to the production of
an additional output (environmental quality) that is not included in convectional measures of
output and hence productivity.” In support of this view Repetto (1990) points out that
economists use profitability indicators that are totally restricted to the correlation between the
market inputs and outputs. In this manner, positives in productivity can only be measured in
terms of the variations in the production of outputs or in the utilization of inputs that are
proportionally quantifiable in monetary units.
According to Christiansen et al (2005), most of the opinions tabled in the literature for
mitigating the negative influence of rules are openly linked to the regulation nature.
In this sense, four aspects in particular have been considered: rigidity, uncertainty,
liberalism, and voluntarism. Regarding rigidity, which refers to the degree that technology,
components, and specific methods are required. Gray and Shadbegian (2005) specify that the
said rigidity may make up a barrier when choosing the most favourable combination of
inputs. This draw back obtains special significance when the compliance period is not
sufficiently flexible and when no suitable guideline offers exists.

According to Shaw and Stroup (2012) “countering, overriding, or bypassing regulation is
regulatory capture” where a regulatory agency formed to act for the public interest, instead
pursues the commercial and or special concerns of interest groups that control the industry
activities that the agency is stimulating with regulating. The possibility of regulatory capture
is economically biased, this is as vested interests in an industry or sector have the greatest
financial stake in regulatory activities and are likely to be motivated to manipulate the
regulatory authorities than dispersed individual consumers, who have little to entice
regulators to influence their decision making. Therefore regulatory incarcerate is a risk to
which all freight transport agencies are exposed to by their very nature.
Public services authorities usually encounter conflict between commercial procedures (e.g.
efficient services for profit maximizing firms ), and the interests of the organisations using
these services, so as the interests of third parties, thus those not directly involved in business.
Therefore governments have some form of control (regulations) to manage these possible
conflicts. These regulations ensure that a safe environment for appropriate service is
delivered, while not pulling down the effective functioning and development of businesses.
2.7 The role (impact) of freight forwarding agents on the profitability of business
The U.N Economic and Social Commission for Asia and the Pacific (2011), defines freight
forwarders as “the means the person or company, as an agent, concluding a contract with a
customer on freight forwarding services relating to the carriage, consolidation, storage,
handling, packing or distribution of the goods as well as ancillary and advisory services in
connection therewith.” The UNCTAD Multimodal Transport Handbook (2001) in agreement
also clarified that freight forwarders’ role is to coordinate movement of goods as a carrier and
issues own bills of landing or relevant documents but does not own or operate a major means
of transport thus subcontracts to truck operators the business of carrying goods. Baluch
(2010) pointed out in today world freight forwarders have moved from being just contractors
to being consultants who would give advice and technical assistance, handling and
documentation to clients and subcontractors through teams on the ground that interact and
interact with regulators on a day to day basis. Freight agencies have come handy in assisting
transport players as regulation now appears to be a growing industry. Businesses around the
world are coming under the regulatory microscope – at local, national and international levels
– more than ever before, with proposals for new rules, restrictions and incentives across a
wide spectrum of industries. Thus in summary their roles have turned be involve:

 Inventory handling of business regulations and procedures, stakeholders’ consultation,
legal review, mapping of business process, institutional capacity assessment
 Reform recommendations, legal and regulatory amendments, simplifying and
streamlining of regulatory requirements, institution building, business process re-
engineering
 Regulatory “guillotine,” standard cost model, regulatory impact assessment, risk
based assessment
 Capacity building through training, workshops, and peer to peer learning
 E- registry and automated regulatory service delivery
 Strategic communications and information campaign.
Conchita et al (2010)further elaborates in first world countries agents (freight forwarders)
have become more organised by grouping together forming their own regulatory bodies and
consulting the government to act as the ex official. This has improved operations cycle turns
as regulatory bodies are a unit of industry players thereby giving room for consultative
guidelines to be implemented in the interest of the private players. This has also reduced
administrative burden on business through decisive actions making it helpful to trade and
investment.
2.8 Influence of governing regulatory environment on process flows
Dall Olio (2013) emphasises that business regulatory environment has a vital effect on the
overall financial performance of companies and economies, through its impact on growth rate
of output, productivity and innovation.
2.8.1 Changed willingness to pay
Clemenz (2011) pointed out the introduction of stricter environmental policies may lead to
increased awareness of consumers reflected in a greater willingness to pay for goods which
are produced with less pollution, thus conferring a competitive advantage to the firm with the
cleaner production process. While it is conceivable that this effect could also be achieved by
a firm’s campaign aimed at convincing consumers to prefer products which are produced
based to regulatory standards way, there is a plausible arguments why a firm would hesitate
to try such an approach. Probably most importantly such campaign would be costly, thus
adding up to the costs for reducing wastes and overall costs of production. Secondly, the

government may be more credible than a firm when advocating and forcing the
implementation of cleaner processes.
2.8.2 Regulation as red tape
According to the World Bank’s Doing Business database which collects data from around
178 nations on the costs of complying with regulation of companies operations in specific
areas, such as setting up a business, complying with industry governing rules, acquiring credit
lines, and honouring taxes obligations. Their research shows that, it requires an average of 19
working days to set up a business go on the in the OECD, in contrast to 60 days in Sub-
Saharan Africa; the outlay as a ratio of Gross National Products (not including bribes) is 8%
in the OECD, and 225% in Africa.
The Global Administrators Indicators plan at the World Bank take recognition of the fact that
regulations have a considerable effect on the quality of service delivery of a nation. The
Regulatory Quality of a nation being, defined as "the capability of the government to devise
and execute sound guiding principles and regulations that allow and support private sector
growth is one of the six elements of control that the Global Governance Indicators determine
for over 200 nations.
2.8.3 Legal complications and accessibility
The OECD 2010 regulatory policy and road to sustainable growth report states that
regulatory authorities have a problem in crafting quality and simplified objectives for their
regulatory policies. This usually gives rise to regulatory inflation which has serious
consequences for the rule of law as corruption emerges (as business try to reduce cost of
operations). Thus making a proliferation of regulations obscure legal clarity and accessibility
of the guiding operating procedures thus affecting legal certainty. Regulatory uncertainty
reduces trust in regulatory authorities, and at a practical level, it undermines the prospects of
compliance and sets the scene for corrupt behaviour.
2.9 Relationship between regulations and profitability
2.9.1 Financial performance versus regulatory environment
Gallop et al (2005) indicated that many industries of the trade sector have for sometime
protested about government policies and their restrictive character. They mentioned that the

regulatory environment acts as an obstruction to corporate and firms’ profits, and a misuse of
valuable time and effort. Timothy Forsyth (2005) also emphasized that regime constitutional
requirements sometimes need to be criticized, ignored and dishonoured by businesses
organisations for them to maximise on their revenues generation. Shaw and Stroup (2012)
emphasized this practice started as early as the 20th century when the corporate duty and anti-
trust laws were passed. Greenstone .M, List .J.A and Syverson .C (2012) emphasises that the
conventional wisdom states strict environmental standards raise business’s costs of
production, which weakens local firms’ positions on international markets thereby reducing
the revenue base of the local entities.
However, in the mysterious paradox of government involvement or interference in so many
facets of the financial system of the country, trade in general has posted vast profits as
countries comes out from the economic crisis, and lots of the organisations aided by
government assistance and incentive agendas have managed to reimburse loans, several with
interest charges.
According to Timothy Forsyth (2005), since the passing of anti-trust regulations, constant
increases in business tax rates and more complex and stringent regulatory rules controlling
the behaviour of business, business profits have constantly declined. The American business
community has generally been an opponent of any government law, regulation, compliance
obligation or tax levy that it perceives to undermine profitability or impede business
operations. Thus for the past year a lot of economic players have misstated profits to uphold
or boost the market price of their stock. They are also dishonouring immigration rules by
employing undocumented workers. They've violated ecological laws by unlawfully dumping
impurity or releasing pollutants into the air or into streams and dams.
According to King et al. (2001), qualitative studies discretionary improvements in regulatory
environment performance often provide financial benefits. To separate the effects of
regulatory restrictions from other underlying aspects, King et al (2001) espoused empirical
strategies that account for unmeasured companies attributes. More so they separated between
regulations violation reduction and divestiture of operations in dirtier industries, separating
environment into two accounts thus;
1) relative performance within a given industry and
2) the average performance of the industries in which one chooses to operate

King and Lenox (2001) in contrast to Timothy Forsyth (2005) concluded that “there is real
association between lower regulation violation and higher financial performance”. However
they could not conclusively show that an organisation’s choice to venture in less restrictive
industries can be related to better financial performance nor did they managed to prove a
casual correlation of the relationships they noted. King et al. (2001) goes further to argue that
complying with the regulatory environment provides future cost saving through increasing
efficiency, reducing compliance costs, and minimising future liabilities of an organisation.
They however empathised managers often lack knowledge and experience in determining the
total cost of breaching regulations while quoting Jaffe et al (1995) who proposed that excess
returns (profits above the industry mean)result from differences in meeting the regulatory
requirements by companies. Thus managers’ should possess unique abilities that enable them
to employ regulatory compliance strategies that may be difficult for others to match. Dowell
(2000) emphasises companies that adopt a single, stringent regulatory standards worldwide
gain a higher market share than firms that do not comply with standards. Thus market returns
of regulatory compliant firms are above the most industries average performers as there is
significantly higher risk- adjusted return for regulatory compliant companies. Lenox and
King (2001) went on to elaborate that firms that get involved in lawsuits concerning improper
handling of operating procedures waste suffers huge losses in capital market shares as they
lose tenders to regulatory complaint rivals.
2.9.2 Regulation impact on prices
According to Greenstone .M, List .J.A and Syverson .C (2012), strict measures on the
regulatory environmental means companies are going to invest more in complying costs
thereby raising the cost of doing business. This result in higher prices for companies outputs.
Applying the primary objective of customers to minimize costs this means firms which
comply with the stringent regulatory environmental measures lose out on the market share
resulting in decline in profits for complying companies.
2.9.3 Regulation impact on Survivorship
It is vital to realise that governing environmental standards creates conditions for business
survival within an industry according to Greenstone .M, List .J.A and Syverson .C (2012).
Thus if regulations are tightened, a pool of companies may experience large negative shocks
from non attainment which may eventually force them to cease operations and exit the
industry. On the other hand firms which manages to adopt the tighter restrictions increase

their market share and their profits level due to the effect of some players exiting industries of
their dominance
2.9.4 Cost elements of the freight sector
According to Gilmore (2005), the bulk of previous research on freight logistics costs can be
classes into 2 streams. One group is centred on core elements of the logistics overheads and
the other components compact with optimized cost-effective freight movement decisions.
Richardson (1995) quoted by Gilmore (2005), stresses logistics directs aspects, posses a
direct influence on cash flow and the sector has a correlation with a suppliers’ customer
service level and profits. Fagan (1991) was also quoted noting that “as worldwide sourcing is
gradually increasing as a vital business policy, capturing and assessing the logistics
overheads accrued in the global freight forwarding appears as increasing significant and
central as uncovering the core benefits”.
The overheads related with freight logistics activities in general consist of the following
elements: cargo shipping, warehousing, order processing, supervision, and inventory holding
(Lambert et al., 1998; Saccomano as quoted by Christian Rossetti journal on Developing a
framework for evaluating the logistics costs in global sourcing processes 2010). The increase
in firms outsourcing their key inputs or services to international suppliers has made it more
critical to appreciate and measure the various freight forwarding costs elements to guarantee
the profit margin. There are various components to be considered for efficient global logistics
which include differing forecasting, operating regulatory environment, operations
management skills, prior contracts, transporters and end customers .Rossetti. C (2010)
suggests the methods used to measure the freight forwarding overheads could be summarised
into four classes: recurrence-based, regression-based, activity based, and optimization-based.
Fera (1998) attempt to discover and categorize the relevant cost elements for assessing the
viability of global outsourcing idea, compiling a comprehensive list of recurring and non
recurring accounting overheads elements. Zoroya (1998) presented a regression model to
weigh the cost drivers of freight forwarders overheads, where 3focused elements can be used
to scrutinise the determinants of the total forwarding overheads offered by van Damme and
van der Zon(1999) which aids top management examine the financial data in order to make
logistics decisions.

2.10 Summary
All the above studies provide us a solid base and give us idea regarding environmental
regularities, their components and the effect of these regulations on the operations of
companies. They also give us the results and conclusions of those researches already
conducted on the same area for different countries and environments from different operating
environments. On basis of these researches done in different countries, I have developed our
own methodology for the research.

R102930N FINAL DISSERTATION

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