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Johannes Kepler Universität Linz
FMCG IN NIGERIA: MARKET ENTRY BARRIERS
AND KEY SUCCESS FACTORS
(A CASE STUDY OF UNILEVER NIGERIA)
Master’s Thesis
to attain the academic degree of
Master of Science (MSc)
in the Master Program General Management
Department of Retailing, Sales and Marketing
Supervisor: o.Univ.-Prof. Dkfm. Dr. Gerhard A. Wührer
Co-Supervisor- Univ.-Prof. Mag. Dr. Zeynep Bilgin
Nzeadibe Franca. N.
Gruberstrasse 18/2/17
4020 Linz
Linz, July 2014
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Sworn Declaration
I hereby declare under oath that the submitted Master's degree thesis has been written solely by
me without any third-party assistance, information other than provided sources or aids have not
been used and those used have been fully documented. Sources for literal, paraphrased and cited
quotes have been accurately credited.
The submitted document here present is identical to the electronically submitted text document.
…………………………………….. Nzeadibe Franca .N. June 2014
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Acknowledgement
My sincere gratitude to God almighty for His grace and favor throughout the period of my study.
May He alone be praised.
I will like to appreciate my supervisors for sharing their knowledge, wisdom, and wealth of
experience with me. Their counsel and support really made the work very easy.
To my husband, your contribution and support can’t be quantified. You are simply the best. God
bless you beyond measure.
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Table of Content
Sworn Declaration ........................................................................................................................................ ii
Acknowledgement ....................................................................................................................................... iii
List of Tables ............................................................................................................................................... vi
List of Figures ............................................................................................................................................. vii
List of Abbreviations .................................................................................................................................... x
Abstract .......................................................................................................................................................xiii
1. INTRODUCTION .................................................................................................................................... 1
1.1 Background of the Study .................................................................................................................... 1
1.2 Problem Definition .............................................................................................................................. 2
1.3 Research Objectives ............................................................................................................................ 4
1.4 Scope of the Study .............................................................................................................................. 5
1.5 Relevance of the Study ....................................................................................................................... 6
2. THEORETICAL FOUNDATIONS .......................................................................................................... 9
2.1 Emerging Market Characteristics and Developments ......................................................................... 9
2.1.1 Characteristics and Types of Emerging Markets ....................................................................... 10
2.1.2 Nigeria as an Emerging Market in Africa .................................................................................. 18
2.1.3 The Macro-Environmental Overview of Nigeria ....................................................................... 23
2.1.4 Sectoral Developments in Nigeria ............................................................................................ 34
2.2 Contribution of Theories in Foreign Market Entry .......................................................................... 47
2.2.1 The Transaction Cost Theory ..................................................................................................... 47
2.2.2 The Resource Based View ......................................................................................................... 49
2.2.3 The Eclectic Paradigm ............................................................................................................... 51
2.2.4 The Markets Based View .......................................................................................................... 53
2.2.5 The Relational View ................................................................................................................. 55
2.3 Barriers to Market Entry and Success Factors to Overcome the Barriers ........................................ 57
2.3.1 Types of Market Entry Barriers ................................................................................................. 62
2.3.2 Ways to militate against the barriers .......................................................................................... 68
3. RESEARCH METHODOLOGY ............................................................................................................ 72
3.1 The Research Approach .................................................................................................................... 72
3.2 The Rationale for Research Approach .............................................................................................. 72
3.3 Data Collection Method and Instrument ........................................................................................... 73
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3.4 Limitations of the Study .................................................................................................................... 73
3.5 Data Analysis .................................................................................................................................... 74
4. FINDINGS OF THE EMPIRICAL STUDY .......................................................................................... 75
4.1 Firm Characteristics: Company Background, Mode of Operation and Growth Level ..................... 75
4.2 The Interview Analysis ..................................................................................................................... 80
4.3 Discussion of the findings ................................................................................................................. 86
4.4 Empirical Model ............................................................................................................................... 90
5. SUMMARY, CONCLUSION AND RECOMMENDATIONS ............................................................. 94
5.1 Summary and Conclusion ................................................................................................................. 94
5.2 Recommendations ............................................................................................................................. 96
REFERENCES ........................................................................................................................................... 98
APPENDIX: INTERVIEW GUIDELINES .............................................................................................. 120
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List of Tables
Table 1: Emerging Markets Aggregate Growth (2009-2012) ....................................................... 11
Table 2: Key Difference Among Major Country Groups ............................................................. 13
Table 3: Trade Conditions Within Major Country Groups ........................................................... 15
Table 4: Types of Emerging Markets ........................................................................................... 18
Table 5: List of some Multinational Corporations in Nigeria ....................................................... 22
Table 6: Index of Industrial Production and Manufacturing Capacity Utilization ...................... 44
Table 7: Types of Market Entry Barriers ...................................................................................... 64
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List of Figures
Figure 1: Consumption and Population Forecast 1950-2025 ....................................................... 12
Figure 2: GDP Growth Rate in Advanced Economies and Emerging Economies ....................... 14
Figure 3: The Nigerian Map ......................................................................................................... 20
Figure 4: Nigeria Oil Production and Revenue ............................................................................. 23
Figure 5: Nigeria Real GDP Index................................................................................................ 25
Figure 6: Non -Oil GDP(2008 Q1-Q3, 2013 Q1-Q3) ................................................................... 25
Figure 7: Nigeria Poverty Rates According to States 2009-2010) ............................................... 26
Figure 8: Nigeria Gross Monetary Reserve (US$ billion) ............................................................ 27
Figure 9: CPI and Food Price Inflation ......................................................................................... 28
Figure 10: Government Expenditure in Agriculture, Forestry, Fishing and Hunting 2010 .......... 36
Figure 11: Volume and Value of Traded Securities ..................................................................... 38
Figure 12: Finance and Insurance Sector Growth Rate (Q1 2008-Q3 2013) ............................... 39
Figure 13: Telecommunication Growth Rate (Q1 2008-Q3 2013) ............................................... 41
Figure 14: Index of Industrial Production 1990-2013 .................................................................. 43
Figure 15: Oil GDP Growth Rate at Constant Price (Q1 2008-Q3 2013) .................................... 46
Figure 16: The Endowment/Market Failure Paradigm of International Production ..................... 52
Figure 17: Internal and External Measures of Performance Metrics ............................................ 54
Figure 18: Determinants on Inter-Organizational Competitive Advantage .................................. 56
Figure 19: Key Success Factors .................................................................................................... 61
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Figure 20: Elements of Business Model Design ........................................................................... 70
Figure 21: Turnover and Operating Profit Trend .......................................................................... 77
Figure 22: Unilevers' Investment Rate .......................................................................................... 78
Figure 23: Unilevers' Forecasted Growth Rate ............................................................................. 79
Figure 24: Empirical Model .......................................................................................................... 93
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List of Abbreviations
AC Action Congress
ADB African development Bank
AIDS Acquired Immune Deficiency Syndrome
APGA All Progressive Grand Alliance
APP All Nigeria Peoples’ Party
B.C Before Christ
BEMs Big Emerging Markets
BRICS Brazil, Russia, India, China, South Africa
CBN Central Bank of Nigeria
CPC Consumer Protection Council
CRR Cash Reserve Ratio
E.G For Example
E.T.C Etcetera
EBRD European Banks for Reconstruction and Development
ECOWAS Economic Community of West African States
EFCC Economic and Financial Crime Commission
EMs Emerging Markets
FAO Food Agricultural Organization
FDI Foreign Direct Investment
GDP Gross Domestic Products
GNI Gross National Income
GSM Global System of Mobile Communication
HDI Human Development Index
HIV Human Immune Deficiency Virus
ICO International Cocoa Organization
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ICT Information Communication Technology
IDA International Development Association
IFC International Financial Corporation
JOA Joint Operating Agreement
LR Liquidity Ratio
MBV Market Based View
MNCs Multinational Corporations
MNOCs Multinational Oil Companies
MPR Monetary Policy Rates
MW Mega Watts
NAFDAC National Agency for Food and Drug Administration and Control
NBS National Bureau of Statistics
NCC Nigeria Communication Commission
NECON National Electoral Commission of Nigeria
NEPD Nigeria Enterprise Promotion Decree
NITDA National Information Technology Development Agency
NITEL Nigerian Telecommunication Limited
NOC National Oil Commission
NOP Net Open Position
NSE Nigerian Stock Exchange
NTBs Non-Tariff Barriers to Trade
OLI Ownership, Location, internationalization
OPEC Organization for Petroleum Exporting Countries
P& G Procter and Gamble
PDP Peoples’ Democratic Party
PPP Purchasing Power Parity
RBV Resource Based View
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SEMs Small Emerging markets
SON Standard Organization of Nigeria
TC Transaction Costs
TE Transition Economies
UN United Nations
UNFAO United Nations Food and Agriculture Organization
UNISEF United Nations Children’s’ Fund
USA United States of America
USLP Unilever Sustainability Living Plan
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Abstract
The presence of Multinational Corporations (MNCs) in emerging markets is on the increase.
MNCs seek to expand and promote their wide range of products and services in order to globally
grow their brands. Every country or economy has its unique characteristics that could pose a
barrier to market entry into the business domain. This thesis will take a closer look at how MNCs
in the Fast Moving Consumer Goods (FMCG) industry penetrate emerging markets with a focus
on Nigeria and Unilever Nigeria as a case study. First types of emerging markets and their
unique characteristics are examined. The different market entry strategies that could be adopted
are viewed from different perspective theoretically. Nigeria as a country is viewed
comprehensively in order to pinpoint its unique characteristics, risks and opportunities. Nigeria is
located on the Western part of Africa which is endowed with immense natural and human
resources and has been able to attract of MNCs into its’ domain. The market entry barriers and
success factors prevalent in Nigeria are then identified. One major FMCG industry in Nigeria
(Unilever) that has succeeded in this market environment will is the vocal point of reference in
the main text. From the finding it was revealed that Unilever adopted the wholly owned
subsidiary mode of entry and has encountered various entry barriers that could have limited their
operations, but the deployment of dynamic business strategies gave Unilever the edge needed to
militate the barriers and to operate profitably within Nigeria business domain.
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1. INTRODUCTION
1.1 Background of the Study
Globalization, trade liberalization and economic integrations have given rise to increased level of
movement of goods and services through the migration of MNCs (Multinational Corporations)
from developed economies to emerging economies. The world has gradually become a global
village. MNCs are leveraging on the immense resources and potentials in these economies in
order to increase their global presence, maximize profit and grow shareholders revenue. These
strategic business goals determine the long term success and existence of these firms. FMCG
(Fast Moving Consumer Goods) industries are one of the main drivers of globalization through
their construction of numerous production plants in emerging economies. They have also
recorded high level of success in Nigeria. The sector grew by 15% to a market size of about
N130,000 Billion (US $ 884 million ) in 2008 1. One important question in the minds of the
management board of MNCs when entering a new market is: What are the threats and
opportunities about investing in this market? It is a fact that the rate of growth of emerging
markets over the past decade has doubled than that of advanced economies 2 and this trend is
significantly on the increase and won’t decline anytime soon. However there is a misconception
as regards the challenges and benefits of venturing into emerging markets. In a lot of situations
the threats are either understated or grossly overstated; as it also applies to the opportunities. As
soon as a firm decides on the country to enter, careful consideration should be done while trying
to impose global processes and policies. Empowering the local entrepreneurs and closer
observation of the market environment should be one of the key factors in the decision making
processes.
In Nigeria some MNCs that ventured into the market lacked the basic accurate information about
the market conditions and characteristics. They had no clear idea of the variety of tribes and
people that make up the population figure. Large number of corporations has the notion that
there are no significant investment opportunities in Nigeria; investors see Nigeria and Africa as a
whole as market loaded with excess risk and uncertainties. Just like in other developing
1 Cf. Report by Olumide et al (2010) w.p
2 Cf. Norris Floyd (2006) P.8
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economies e.g. Brazil, Russia, India China, India, and South Africa (BRICS), there is an
appreciable level of risks and market entry barriers in these markets as well. 3. The United
Nations4 stated in one of their latest report on World Economic situations and prospect that
Africa is “plagued by numerous challenges, including armed conflicts in various parts of the
region”. These are facts that MNCs have to deal with while investing in emerging economies.
Investing in Nigeria and succeeding in the environment by MNCs requires diligence, genuine
commitment to the people and most especially understanding the business environment through a
comprehensive market research and market sensing techniques. 5. This comprehensive market
research will give a clear view of the inherent market entry barriers, risks, threats as well as the
success factors and opportunities within the market environment.
1.2 Problem Definition
The increased rate of global market competition has triggered the movement of Fast Moving
Consumer Goods (FMCG) companies in search of new markets in order to take advantage of the
market opportunities inherent in these markets especially in emerging markets and the
developing countries. Africa as a continent has the potential for a large market and a growing
population of over one billion customers, a rising middle class and increasing amount of
disposable income and more especially the heightened interest in foreign products. Africa is one
of the fastest growing markets with an annual Gross Domestic product (GDP) growth of 4.9
percent since 2000 6. According to World Bank
7 forecast the population is set to double in the
next forty years from one billion to two billion. With labor productivity of 27percent Africa
possesses the potentials to position itself in the global market. These developments have
increased the trade between Africa and the world by 200percent in comparison to the year 2000.
While inflation rate was at 22percent in the 1990s it has significantly been reduced to 8percent in
3 Cf. Pele (2007), P. 173-205
4 UN- (2013)World Economic Situation and prospect , P. 8
5 Cf. Anderson et.al (2004), P. 43-44
6 Cf. McKinsey &company (2008). w.p
7 Cf. World Bank (2013) w.p
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the past decade. According to the World Bank this is as a result of the rising middle class with
increasing purchasing power.
Nigeria is a country located in the Western part of Africa, popularly called “The Giant of Africa”
is the largest consumer market in Africa with an increasing population of about 158 million
people and by 2050 this figure is set to double to 326 million in Marc8 report titled “Best strategy
for entering Nigeria’s consumer goods market”. Nigeria received $45 billion Foreign Direct
investment (FDI) inflow in 2013 alone as stated by the World Bank9 . This is as a result of the
establishment of new foreign firms and the expansion of operational activities of the existing
firms. The level of infrastructural development and other key factors has not attained world
standard yet but still improving .This has been a major factor in determining the rate of industrial
growth within this region.
Early movers into the Nigeria business environment in spite of the limitations have established
successful profitable business ventures. Some of the early FCMG companies are Nestle,
Unilever, and Procter & Gamble to mention but a few as listed by10
. These consumers’ goods
industries are not the only MNCs that have established their businesses in Nigeria but for the
purpose of this study, the scope will be limited to FMCG industries with the main focus on
Unilever Nigeria Plc as a case study.
As important as it is in recognizing the opportunities and potentials loaded in this market, it is
also important to understand the barriers and limitations, the pros and cons to market entry and
devise a means to overcoming them. Identifying a suitable market entry mode and
comprehensive market research will be a good platform to commence.
There are major factors that pose as barriers to market entry in the Nigerian business
environment; these are11
;
Regulatory and policy issues
Adequate human capital
Level of infrastructural development
8 Cf. Marc-P.Z, (2012)
9 World bank (2013), w.p
10 Afribiz.info Nigeria (2013), w.p
11 Cf. Funmi Carew (2013), Pp.14-16
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Taxes
Diverse culture
Corruption
Access to finance
Political instability
Economic and social factors
Insecurity
Non-Tariff barriers to trade (NTBs)
Religious crisis
Infrastructural problems
Business registration procedure
An in-depth study into these barriers, the success factors and the impact they have on the
Nigerian business environment is discussed in this thesis study.
1.3 Research Objectives
The first objective of the study is to understand the Nigerian business environment, some
questions to raise are: What are the potentials in this market and how do the MNCs of the FMCG
sector tap into the potential and resources in this market.
The second objective will be to identify strategic focus of the FMCG companies in Nigeria by
example, Unilever (which is the case company) one of the oldest consumer goods market in
Nigeria. The main research questions are tailored towards understanding:
What barriers and challenges were encountered by Unilever in the process of market
entry into the Nigerian business environment and what are the current market challenges
and how to militate against them?
What are the key success factors in the Nigeria business environment?
The third objective will be to investigate Unilever react to pressures arising from local
institutional environment and how they achieved success in turbulent market in Nigeria.
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These objectives will be expounded and linked systematically with the under listed theories
discussed in the literature review part of this study.
The Transaction Cost Theory
The Resource Based View
The Eclectic Paradigm
The Market Based View
The Relational View
These theories emphasize the economic efficiency in deciding the governance techniques of a
business engagement. The transaction cost theory will examine the cost of exchanging resources
in terms of contracting, coordinating and production cost involved in the business process. The
resource based theory posits that the level of resources possessed by firm has the capability of
positioning them for competitive advantage in the market environment, while the eclectic
paradigm of Dunning provides a three tier platform for a company to follow when pursuing FDI ;
product or company specific advantage such as a comparative advantage, location specific
advantage i.e. where the company derives greater benefit through a foreign establishment and
finally market internalization.
The market based view deals with the strategy that balance and emphasize more on the external
compared with the internal which involves creating and delivering customer value but in a more
sustainable way. The relational view acknowledges resources in enterprise relations as the main
source and barrier to competitive advantage. It focuses on sustainable competitive advantage.
1.4 Scope of the Study
The scope of the study is mainly focused on the market entry barriers for FCMG industries in
Nigeria and the success factors. For the purpose of adding of new knowledge with respect to the
identified research questions, Unilever which is a MNC in Nigeria with global brands will serve
as a model example for examining the market entry barriers. Geographically, the study will focus
on Africa with Nigeria serving as a country of reference. The unique characteristics of the
country is explored, the inherent risks, threats, opportunities and business potentials in this
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market is also identified by viewing the economic political, societal and cultural background of
this country at large. Various concepts and themes associated with emerging markets and
different market entry modes are detailed systematically and are adapted to the Nigerian business
environment. The various types of emerging markets and their unique characteristics are also
explored by the researcher. The structure of this study is as follows:
The first section- following the introduction, the research explains the aims and
objectives of this study. The reason behind this study and its’ contribution to existing
knowledge is also explained by the researcher.
The second section- examines various literatures pertinent to the study. It also contains
conceptual and theoretical underpinning which gives a leeway to collection of primary
data.
The third section- gives a clear description of the methodology adopted for this study.
Comprehensive detail as regards collection and analysis of data.
The fourth section- empirical findings and discussion of this research on Unilever Nigeria
is enumerated.
The fifth section- presents conclusion and recommendations made to the Nigerian
government, investors and FMCG industries
1.5 Relevance of the Study
Venturing into an emerging market has a significant impact in triggering high level of innovative
activities that have the capacity to boost the economy12
. Analyzing the market entry barriers for
FMCG in Nigeria is expository and relevant for MNCs, businessmen and business
conglomerates that are looking for viable business environments in African to invest their capital
and grow profits. This research contributes and builds on existing knowledge and concepts of
emerging markets and barriers to entry especially in Africa. Although Nigeria isn’t currently one
of the BRICS that are large and are manifesting the attributes of large emerging markets13
. As a
nation known as the largest in Africa, it has significant growth opportunities and could serve as
12
Cf. Gorodinchenko, (2008), P .22 13
Cf. Goldman Sachs Report, (2001) P. 6
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the next ‘business hub’ for investors in the next four decades as predicted by 14
I quote: “Nigeria
could be the fastest growing country in our sample due to its youthful and growing working
population, but this does rely on using its oil wealth to develop a broader based economy with
better infrastructure and institutions (e.g. as regards rule of law and political governance) and
hence support long term productivity growth – the potential is there, but it remains to be realized
in practice”. Therefore it is important to identity the business opportunities and untapped
potentials that MNCs can leverage on while growing their business.
Common mistakes to avoid and important business decisions to make when entering emerging
markets with peculiar characteristics like Nigeria is also discussed. This will create a solid
foundation for idea generation for incoming investors in Nigeria. Within the international market
environment, “understanding the emerging market”15
presents unique features of emerging
markets. According to his studies on BRICS he offered a comprehensive insight on business
challenges and solutions in emerging markets. He deemed it appropriate to identify the impact of
ethics and corruption as one of the barriers to market entry. 16
The outcomes of the
internationalization process- the market entry modes that are applicable in business terrains are
discussed in order to determine the various modes that can be adopted in different market
environment. Lastly this study will also emphasize the economic efficiency in deciding the
governance techniques of a business engagement.
The transaction cost theory a contribution by 17
will examine the cost of exchanging resources in
terms of contracting, coordinating and production cost involved in the business process. It will
analyze whether it is more beneficial for firms to rely on the market forces or to internalize its’
operations. In contrast to the Transaction cost theory which basically emphasizes mainly the
exploitation of firm-specific advantages to minimize transaction cost, the Resource based view
focuses on their exploitation and development. This theory will also aid in evaluating the
different entry modes18
.
14
Pwc economics (2013), P. 12 15
Cf. Pelle (2007), P. 144-154 16
Vida and fairhurt, (1998), Pp.143-155 17
Cf. Coase, R.(1937) Pp.386-405 18
Cf. Madhok, (1997) Pp.39-61
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The eclectic paradigm of Dunning provides a three tier platform for a company to follow when
pursuing FDI19
. The decisions are taken in terms of Ownership (O), Location (L) and
Internalization (I). Hence the Eclectic paradigm is also known as the ‘OLI paradigm’. These
three dimensions are analyzed in order to understand its impact in an emerging market such as
Nigeria.
The market based view will examine strategy that balance and emphasize more on the external
compared with the internal which involves creating and delivering customer value but in a more
sustainable way. Three sources of market power are frequently noted: monopoly, barriers to
entry and bargaining power20
.
The relational view acknowledges resources in enterprise relations as the main source and barrier
to competitive advantage. The relational rent will examine the high level of profit jointly
generated in an exchange relationship not by the firm operating on its own but by some strategic
business alliances 21
as the case is in emerging markets.
Empirically these theories are critically analyzed and a model integrating them into the research
topic is constructed with the aim of giving a broader view to the study.
19
Cf. Dunning, (1980) Pp.9-31 20
Cf. Grant, (1991) Pp.114-135 21
Cf. Klein et al, (1978), Pp.297-326
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2. THEORETICAL FOUNDATIONS
2.1 Emerging Market Characteristics and Developments
The term ‘Emerging Market’ was introduced by the World Bank economist Antomnie Van
Agtmael in the 1980s. The term is used interchangeably with Emerging economies.22
Sevic
expressed emerging markets as market activity in countries which are considered to be
transitional phase between developing and developed status. Emerging markets are defined as
low income countries undergoing rapid growth through economic liberalization and adoption of
free market policies’23
.
For over two decades, emerging markets have been creating various forms of investment
opportunities across the globe. Economies in Asia, Latin America, Eastern Europe and Africa are
growing at rates the out performs the developed markets. Strategic economic reforms and
international trade liberalization has opened the doors to Western investment in emerging
markets. It was point out in CIA fact book that24
Western countries are now paying attention to
countries like India and China not just for holidays and sightseeing but countries with immense
investment opportunities. Increased level of urbanization and a growing middle class has given
rise to new set of consumer with high demand for consumer goods and infrastructural
developments to support their changing life style. Given the statistics25
that emerging markets
currently represents 86 percent of the world’s population 75 percent of the world’s land mass and
their resources accounts for 50 percent of the world Gross domestic product (GDP) at purchasing
power parity (PPP).
From the facts stated above, emerging markets creates huge opportunities for growth and market
expansion for MNCs. In order to have a full grasp of the potentials loaded in these markets; it is
pertinent to discuss the various types of emerging markets and their unique characteristics.
22
Cf. Sevic Z. (2005) Vol 12, P.2 23
Hoskisson et al (2000) P. 249 24
Cf. Pelle (2007) P. 11 25
Cf. CIA fact book (2011)
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2.1.1 Characteristics and Types of Emerging Markets
Emerging markets are in the process of restructuring their economies in order to plug in to
market oriented globalization that provides opportunities in trade, transfer of technology and
Foreign Direct investment (FDI) through the channel of trade liberalization policies. Emerging
markets have similarities with less developed countries that are known for dual economies,
growing population, high level of illiteracy, low labor productivity, poor infrastructural
development and lack of capital26
. An emerging market is also referred to as a nation’s social and
business activity in the process of rapid growth and industrialization’27
. Making these markets
part of an investment portfolio can create some benefits in numerous ways, from providing a
source of growth to providing diversification of a portfolio that can compete with the returns
from developed markets through having adequate knowledge of the unique market environment.
Some examples of the large emerging markets are; Brazil, Russia, India, China and South Africa
popularly known as the BRICS. These countries are experiencing rapid economic growth,
industrialization and modernization. They also present attractive markets with low
manufacturing and labor costs28
. The international Finance Corporation 29
(IFC) identifies 51
rapid growth developing countries in Asia, Latin America, Africa and the Middle East as
emerging economies. Following these fast moving economies are 13 transition economies
according to the classification of the European Bank for Reconstruction and Development30
. The
collapse of communism in 1989 carved out a new group of rapid growing countries in Central
and Eastern Europe. These transition economies are strongly committed to strengthening their
market through liberalization, economic stabilization and encouraging the influx of private
enterprises. The openness to privatization and strategic alliances had led to an increasing number
of joint ventures by foreign firms that involve the overall restructuring of the local firms and
26
Cf. Samil and Kaynak, (1984), P. 25 27
Cf. Evert Jan (2005) P.6 28
Cf. Pelle (2007) Pp.16-34 29
IFC (1999) International Finance Corporation, w.p. 30
Cf. European Bank for Reconstruction and Development- EDRD report (1998) P. 10
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adoption of western business practices and policies for market growth of these economies. These
economies are also termed emerging markets.
Emerging markets are forecasted to grow at 5.5percent in 2010 and 5.1 percent in 201131
.There
is a growth decline by 2.4 percent in developing economies. The growth rate in Europe and
Central Asia slowed down due the slow recovery process. Latin America projection for 2010 has
risen from 3.6 percent to 4.0 percent. The Middle East, North Africa and Sub Saharan Africa
regions are also experiencing slower growth rate due to turbulent political situations (Table 1).
Aggregate growth across board still shows that the emerging markets are still growing and will
continue to grow in the decades that follow compared to the growth with the developed
economies.
Table 1: Emerging markets aggregate growth (2009-2012)
Source: Business Monitor International Limited (2012)
31
Cf. Business Monitor International, w.p
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As these economies continues, so also will the rate of consumption increase. A recent survey by
McKinsey32
, shows that consumers in emerging preferences has given rise to global innovation
in product design, manufacturing, distribution and supply chain management. Companies that
lack the abilities to cater for the changing consumer needs in these new markets will be losing
opportunities for growth and expansion
Figure 1: Consumption and Population forecast 1950-2025
Source: McKinsey and company (2011)
According to predictions, by 2025 the consuming class will increase to 4.2 billion people.
Consumption in emerging will account for $30 trillion which is nearly half of the global
total(Figure 1). MNCs encounter the challenge of relating with the diversity of emerging markets
as regards meeting the consumers changing needs. With a large number of growing consumers,
the markets need to be segmented in order to identify the various target markets33
.
After years of stunted growth due to the economic recession, the recovery process has slowed
down the economy of developed countries while emerging markets have significantly shown an
32
Cf. McKinsey, (2011), Pp.7-13 33
Cf. McKinsey, (2012), P.13
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amazing GDP/GDP per capita growth rate. Advanced economies are saturated, hence low growth
rate abounds. Across the board emerging markets firms are growing faster than the developed
economies.
Table 2: Key difference among major country groups
Source: World Bank, International Monetary Fund (2013)
The table 2 above listed key economic indicators that show the broad difference between the
three categories of economies. These factors explain the level of technological advancement, the
population rate and GDP rate.
China is the fastest growing emerging market and its’ playing a significant role in international
business expansion. With a population of 1.3 billion (one fifth of the world total population) the
economy is growing at a constant rate of 10 percent per year. China also produced some global
challengers such as Sinopec (Oil Company), ChunlanGroup (Home appliances), Hua Neng
Group (Fossil fuels) and many more companies34
.
34
Cf. Pelle, (2007) , Pp. 175-178
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Specific differences in emerging markets pose numerous challenges for MNCs, but also create
opportunities for firms that have the capabilities to maneuver them by providing the right
solutions. Developing economies are characterized by high debt rate. Some African countries
e.g. Nigeria, Latin America and South Asia have high debt rate that exceed the GDP.
Figure 2: GDP growth rate in advanced economies and emerging economies
Source: Norris Floyd (2006)
Globalization, trade and investment have helped to stimulate economic growth, create jobs and
raise income level.
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15
Table 3: Trade conditions within major country groups
Source: International Monetary Fund, World Bank and CIA world fact book
a. Emerging Markets Characteristics
Unstable market conditions: It is a fact that emerging markets are changing rapidly and will
continue to change in the next decades. The precise duration of development will depend on the
governments’ regulations and interventions, local business practices, culture and foreign
company’s policies and practices. The impact of political and economic influence in these
countries also determines the stability of the markets overtime35
. Increased earning power,
improved standard of living and better economic conditions have changed consumers’ habits and
the society at large. Having a clear understanding of this complex path of development,
companies can restructure their business activities in order to meet the changing needs of the
developing economies. These firms can experiment with new products36
in one country and
export the successes to another as we see in the relationship that exists between China and the
35
Cf. Garten (1996), Pp. 7-31 36
Cf. Pelle, (2007) , Pp.17-180
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16
other neighboring Asian countries where they operate inter regionally as illustrated by Prema-
chandra37
.
Weak distribution channels: Emerging markets have poor distribution networks. The lack of
effective means of communication and bad road network pose a serious threat to distribution of
good and services. Some villages in the rural settings do not have retail outlets and distribution
activities through sales promotion are temporal in nature.
Low technological advancement: The developed economies are already advanced in their
technological development level especially in the pharmaceutical industries, biotechnology,
mobile devices etc. Emerging markets are still lagging behind in these areas. Companies have
opportunities to create new systems from the scratch which are tailored towards meeting the
needs of these markets. The new technology can spread quickly as consumers adopt them. Large
firms tend to innovate more than the small firms which are consistent with findings in the vast
majority of studies in innovative activities38
.
Poor infrastructural development: Most of the rural population markets are inaccessible by
vehicle. They lack good urbanization. Owing to the fact the cities are growing rapidly, there is a
lot of strain on the little urban infrastructure there is. Transportation networks are horrible,
existence of epileptic power supply, clean water supply and sanitation is often lacking. The weak
level of infrastructural development creates opportunities for companies that can fill the gaps
with water purification systems, generators, inverters, and other products and services that can
improve the level of infrastructures in these markets.
Limited Income: Inflow of cash and income in the emerging markets are much lower compared
to the advanced economies. Low income limits the level of purchases and reduces the standard of
living. FMCG can reduce the package size of their product offerings in the developing markets.
This unique business strategy was launched by Unilever in their Shakti Project in rural India
39.Some of the consumer products that suffer very low penetration due to high product cost
became affordable through repackaging of the products into sachets in smaller sizes that matches
the income level of the rural dwellers.
37
Cf. Prema-chandra .A (2010), Pp.18-26 38
Cf. Becheikh et al (2006), Pp.644-664 39
Cf. Unilever in India (2007), Pp. 10-11
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Youthful and growing population: The advanced economies are worried about pensions and
the rapid aging populations. AsagharZaide posited that the population aging is hazardous for the
advanced society, which is mainly the aging of the baby-boom generation, that is the generation
born from 1945 and 10-20 years after40
. In emerging economies, the youth population is large
and is growing rapidly. The young population creates markets for education, games,
entertainment, apparel, fast foods, cafes, fashion, beauty products, to mention a few. Any firm
that thinks young will connect quickly with these markets.
Demanding markets and culture: Low budgets by companies in the emerging markets could
lead to the production of low quality products where the consumers are demanding high value
for their scarce resources. Production of goods and services are adapted to the local cultures and
traditions which are usually different from developed economies.
b. Types of Emerging Markets
There are two categories of Emerging of emerging markets41
. They are the BEMs (Big Emerging
Markets) and the SEMS (Starting Emerging markets). According to the American Economic
Alert 42
, BEMs was given by the Clinton administration to some developing countries which
were seen as future export zones for the United States of America (U.S.A). These countries
include; Argentina, Brazil, China, India, Indonesia, Mexico, Poland, South Africa, South Korea,
and Turkey43
. These countries are known for large population and strong resource base. The
Starting Emerging Markets (SEMs) are the upcoming markets that just got their economies
liberalized and are open to foreign investors and international trade. These countries included the
transition economies (TE) such as Russia, Albania, Hungary, Bulgaria, and Ukraine.
40
Cf. Asgharaide (2008). Pp. 11-4 41
Cf. Bilgin et al (2004) cited in Zayde Halibryam Thesis P.29 42
American Economic Alert w.p 43
Cf. Garten, (1996),Pp. 7-31
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18
The table 4 below gives a clear classification of the various types of emerging markets as
compiled by44
.
Table 4: Types of emerging markets
Emerging Markets
Ems
Big Emerging Markets
BEMs
Starting Emerging
markets
SEMs
BEMs
+
SEMs
Argentina Poland
Brazil Czech Republic
China, Taiwan,HongKong Slovakia
Brunei India Albania
Malaysia South Korea Hungary
Philippines Turkey Romania
Singapore Indonesia Bulgaria
Vietnam Mexico Former Yugoslavia
Thailand Ukraine
South Africa, Ghana Belarus
Poland Baltic States
Source: Bilgin, z., VenSriram and Gerhard A Wuehrer (2004). Drivers of global business success lessons
from emerging markets. New York: Palgrave Macmillan
2.1.2 Nigeria as an Emerging Market in Africa
Africa as a continent has recorded a high level of growth in recent years. Despite the global
economic downturn and crippled the economy of the advanced countries, Africa grew at 4.8
percent in 2012. Economic activities within this region have grown due to the rise in mineral
wealth, (new discoveries in oil, gas, and other mineral resources), a growing middle class and
44
Bilgin et al (2000)
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19
increase in urbanization has created social and economic opportunities for investors as stated by
World Bank press release45
.
Africa the ‘dark continent’ has gained an immense level of recognition at an amazing speed. It is
attracting the likes of industrialist and MNCs from every nock and cranny of the globe46
. The
challenges and developing nature of Africa today has introduced changes in patterns of buying
and selling of goods and services. Consumer products of different varieties now graces the
African markets for the first time. The establishment of industries is being encouraged;
marketing activities are taking a new form as competition increases and as the market continues
to open to new investors. The economic potentials of Africa is more evident in the number of
firms taking interest in the commercial viability of the continent and this interest is very much
concentrated and committed in the large and progressive Federal Republic of Nigeria47
.
Nigeria spans an area of 924,000 square kilometers, and surrounded by Gulf of Guinea,
Cameroon, Benin, Niger and Chad. The topography ranges from Mangrove swampland along the
tropical rainforest and savannah to the North48
. Roughly 10 percent of the land is covered by
forest which serves as a rich source of biodiversity and pharmaceutical industry. The forest has
experienced 50 percent reduction in mass land due to constant deforestation in the past one and
half decade49
.The fishery resources are quite small but are mostly concentrated in the coastal
areas. Agriculture is the one of the main economic
45
World Bank press release,(2014) w.p 46
Cf. Robert Bates report (2012), w.p 47
Cf. Raymond (1965),Pp 40-48 48
Cf. Ukeje (2002) P.1 49
Cf. Rhett A.B (2006) , w.p
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20
Figure 3: The Nigerian map
activity that links Nigeria with other economies of the world through international trade. The
land is rich in arable land and 40 percent of it is cultivated with agricultural produce. According
to the United Nations Food and Agricultural Organization (UNFAO) Nigeria’s productivity level
is from low to medium but medium to good if properly harnessed. Nigeria has two main rivers;
the river Niger and the river Benue, but the agricultural crops are mainly nourished by rainfall.
Yam, cassava, maize, rice, sorghum, millet are the main food crops while cocoa, rubber; cashew
nuts are the cash crops. They account for 60 percent of non-oil export. Nigeria is the world eight
largest oil producers, the sixth in OPEC50
.
Nigeria has 32 billion barrels of oil reserves, mainly located in the Southeastern and South-south
coastal area. It is also the seventh largest reserves of natural gas with an estimate of 174 trillion
cubic feet51
. Nigeria and the West African Gulf region are expected to supply a one-fourth of oil
needs in the United States by the end of the decade52
. “The regions oil fields have become an
important battle ground of influence between China, India and the U.S as they struggle to ensure
50
Cf. Chris Hajzler, (2012) W.p 51
Cf. Fred E. (2013) P.33. 52
Financial times (2006), w.p
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21
the motor of their future economic growth does not run out of fuel.” Solid mineral deposits such
as coal, tin, ore, kaolin, gypsum, columbine, gold, germ stones, barites, graphite, marble,
tantalite, uranium, salt, sodium and sulphur. Unfortunately these minerals are not explored to the
fullest. Over 60 universities are functional in Nigeria and a teeming labor force made of
university graduates is available. The labor cost is lower compared to other emerging market like
Brazil and South Africa. Independent estimates and the World Bank put the unemployment and
underemployment rate at above 15 percent. This level of unemployment exists among young
graduates. Nigeria is endowed with large domestic market which could serve as a spring board
for venturing into export market. According to the World Bank report53
.Nigeria has an attractive
business investment environment in spite of the current challenges facing the nation. Marie-
nelly, the country director World Bank stated that there is a need for the country to improve its
business environment in order to maximize the untapped potential that exists across the country.
Nigeria as a nation has gained popularity as the most populous nation in Africa. It currently has a
population of over 158 million populations. It accounts for over half of the West Africa’s
population which is a main characteristic of an emerging market. Less than 25 percent of
Nigerians are urban dwellers. Up to 24 cities have populations of more than a 100,000 dwellers.
There is a wide range of customs, traditions and languages. This comprises of 250 ethnic groups.
This is a clear indication of rich diversity in culture and traditions. The northern part of the
Hausa-Fulani which are mostly Muslims make two third of the country’s population. The
Yoruba’s are dominant in the West and the Igbo are dominant in the East. Two main religions
exist in the country; Islam and Christianity.
Nigeria is speedily gaining stature as a major political and commercial leader in African. Since
the 1920s Nigeria has been attracting MNCs from various sectors; the FMCG, oil and gas,
automobile, home appliances, and banking sectors. The recent liberalization of the
telecommunication sector has further opened the market for MNCs. In over a decade ago, the
rate of economic liberalization and globalization has made the environment attractive for various
MNCs to move into Nigeria and this has improved the marketing activities and has boosted the
economy of Nigeria.
53
Cf. World Bank report (2012), P.15
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22
Table 5: List of some multinational corporations in Nigeria
Company Home Country Sector
Year of Entry
Nestle Nigeria Plc Switzerland
Food, beverages, and
tobacco
1920s
Unilever Nigeria Plc
Netherlands Chemicals and
chemical products
1923
CFAO Nigeria Plc
France Holding 1902
Mobil Producing
Nigeria Unlimited
United States
Chemicals and
chemical products
1955
Elf Petroleum Nigeria
Limited
France Petroleum 1956
Siemens Ltd
Germany Appliances
1956
Volkswagen Of
Nigeria Ltd
Germany Automobile 1976
Nigerian Agip
Exploration Ltd
Italy Petroleum 1989
Citibank US Banking
1984
Motorola US Telecommunication
1994
Indofood CBP Indonesia FMCG
1995
KIA/Dana Motors South Korea Automobile
1996
Hyperia Abu Dhabi Communication
Technology
1997
Standard Chartered
Bank
UK Baking 1999
MTN South Africa Telecommunication
2001
Dabur international India FMCG
2004
Cisco US Information
Technology
2006
TATA India Automobile 2006
Source: compiled by researcher
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23
2.1.3 The Macro-Environmental Overview of Nigeria
A. The Economic Overview
The Nigerian economy is majorly dependent on the oil sector which is basically the main source
of foreign exchange earnings and growth. The oil sector has a direct link to the rest of the
economy54
and in this thesis, the researcher considers it vital to take an in-depth look into the
impact of this huge resource base in the macro-economic context.
Figure 4: Nigeria Oil production and revenue
Source: By 55
CEIC Analyst
“The proceeds from Nigeria’s oil and gas industry comprised 38.77 percent of its nominal GDP
and generated 76.26 percent of the country’s overall government revenues in the first quarter of
2013. However, Nigeria’s high dependence on its oil reserves could prove to be a losing strategy
in its attempt to sustain long-term economic growth that has not fallen below 6 percent in the
past twelve years. Volatile global oil prices, combined with the steep decline in industrial
production growth in the Nigerian mining sector since September 2011, have resulted in
diminishing oil revenues. At the core of the increasingly inefficient oil industry lie the political
reluctance to renovate this sector, not to mention the frequent attacks on the pipelines and oil
54
Cf. Economic report on Africa (2013) w.p 55
Iveta J.(2013), w.p
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24
thefts. As at the first quarter of 2013, Nigeria’s gross federation account revenue from oil stood
at NGN 1.85 trillion, a 30 percent decline from the third quarter of 2011”56
.
One of the major economic challenges of Nigeria is its macro-economic volatility as a result of
external terms of trade shocks and the country’s gross dependence on oil export revenue. Sadly
Nigeria was in the rank of most volatile economy in the world for the period 1960-200057
. Loose
and unstructured fiscal policies and fluctuations in public expenditure by the government
reflected the over reliance on oil revenue58
. Various fiscal expansions solely financed with oil
revenue led to appreciation of the domestic currency which indirectly created the Dutch-disease
concerns59
. Abundance of natural resources has a link with slow economic growth60
which can
also lead to increased conflict and civil unrest61
as we see in the case of Nigeria where militancy
is the order of the day in Niger Delta region of Nigeria. The rise of militancy has led to the
disruption of oil production, depletion of revenue and financial losses to oil companies.
Continuous occurrence of such activities can lead to total economic collapse62
. Apart from the oil
revenue, it is pertinent to examine other key economic indicators of the Nigerian economy, the
progress level, the current trends and forecast of these indicators as it affects the growth and
viability of the market environment.
ECONOMIC GROWTH (GDP)
The Nigerian economy shows strong GDP growth over a decade ago. It grew at 6.81percent in
the third quarter of 201363
. The figure shows that the Nigerian economy has grown 170 percent
higher than the beginning of the decade. The non-oil sector has also grown considerably; it has
grown 240 percent higher. The Oil sector accounts for 40percent of the Nigerian GDP at current
56
‘Ibid’ 57
Cf. World bank (2003), w.p 58
Cf. Ngozi O. et al (2007), P.7 59
Cf. Barnett et al (2002), Pp 11-15 60
Cf. Sach and Waner(1995) 61
Cf. Collier and Hoeffler (2005) Pp.625-633 62
Cf. Skaperdas S. et al (1996). 63
Cf. Nigerian Bureau of Statistic, w.p
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25
prices64
unfortunately growth in this sector has been stagnant for the period 2011-2012 than the
non-oil economy.
Figure 5: Nigeria real GDP index
Source: Nigerian Bureau of Statistics 2013
The rate of non-oil export has remained small, it account for only 5 percent of all exports. The
non-oil sector recorded 7.95 percent growth against 7.55 percent in 2012 and 7.36 percent in the
second quarter of 2013. The economic activities of the Agricultural sector, banking and
insurance, hotels, real estate, building construction and Solid mineral production has largely been
responsible for this growth level.
Figure 6: Non -Oil GDP(2008 Q1-Q3, 2013 Q1-Q3)
Source: National Bureau of Statistics 2013
64
Cf. Akindele et al 2002) P,6
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26
POVERTY
Nigeria is still plagued with poverty, in spite of being one of the fastest growing economies in
Africa. Nigeria was on the rank of 153 out of 186 poverty stricken countries in 201365
. Given the
growth of population, the level of poverty is on the increase especially in the rural areas. It
reduced in 2013, but not significant enough to reflect Nigeria as fast growing economy.
The rate of poverty varies in the various states in Nigeria. According to the figure below Lagos
State, the commercial center of Nigeria has the lowest record of 22.9 percent, while Jigawa State
ranked the highest with 77.5 percent. The Northern part of the country shows a very high level of
poverty while the Southern part shows the lowest rate. North-east and North-west averaged 59.7
and 58 percent, while the North central has an average of 48.8 percent. The average rates in the
West, South-east and South-south are 30.6,39, and 37, 6 percent respectively.
Figure 7: Nigeria Poverty rates according to states 2009-2010)
Source: Nigerian bureau of Statistics 2013
THE BALANCE OF PAYMENT
High dependence on oil revenue has tilted the balance of payment into an unfavorable position in
Nigeria. A decline in oil prices has a significant impact on the current account, the capital
account and investor attitudes towards Nigeria. The ability to manage oil price volatility in the
international market determines the investors’ commitment in the economy. Oil revenue
accounts for 95 percent exports and 75 percent of budgetary revenue in Nigeria. The figure
65
Cf. UN 2013 HDI report, w.p
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27
below shows Central Bank of Nigeria (CBN) reserve position and price of Bonny light oil. Any
major reduction of monetary reserves indicates a balance of payment deficit and vise-versa. In
2008, the world oil price increased and Nigeria’s BOP position reflected a surplus position
amounting to US$ 62 billion in monetary reserves. A decline in the oil revenue in the last quarter
of 2008-2009 drove the position down and that led to 26 percent depreciation of Naira. Nigeria
incurred a loss of US$ 20 billion in reserves in 2009 and US$ 22 billion fiscal reserve for budget
support66
.
Figure 8: Nigeria Gross Monetary reserve (US$ billion)
Source: Central bank of Nigeria, Bonny light oil Price Index. Economic Report Nigeria (2013)
The year 2010 marked a recovery period globally due to world price oil increase67
. This enabled
most oil dependent emerging economies to restore their BOP to equilibrium. Nigeria’s BOP
remained in deficit and there after resulted to a loss US$ 10 billion in reserves. In order to
manage this macro- economic issue, the central bank depreciated the Naira value from 150 -155
Naira to a dollar in 2011. From 2011 till second half of 2012 Nigeria was recording a surplus
position. By 2013 the monetary reserves has increased considerably to US$ 49 Billion. This
66
Cf. Economic Report Nigeria, World bank (2013), P. 11 67
Cf. Economic report Nigeria World Bank (2013), P 11
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28
generally has strengthened the balance payment position and has also boosted investors’
confidence in the Nigerian economy
INFLATION
The rate of consumer price inflation has been on the increase in Nigeria. In 2012 it was recorded
as 12 percent. Poor weather conditions and increase in world food prices also contributed to the
increased inflation rate in 2008. Despite the decline in food and commodity prices, the inflation
level continued to soar in 2009-2010. The beginning of 2011 marked the declining point of
inflation. However it moved upward in the first half of 2012 due to heavy flooding and security
challenges with in the country68.
Figure 9: CPI and food price inflation
Source: National Bureau of statistics (2013)
B. The Political Overview
The Federal Republic of Nigeria is structured as a federation as was introduced by the British
Colonial rulers. It is made up of 36 states, one federal territory (Abuja). Power is vested on the
central government which is in control of the country’s revenue and resources. The main
political parties are the People’s Democratic party (PDP), All Nigeria People party (APP),
68
Cf. Economic report Nigeria, World Bank(2013), P. 12
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29
Action Congress(AC) and All progressive Grand Alliance (APGA) as recorded by69
. The
Nigerian federation is bound by a federal arrangement that provides for presidential system of
government which involves the executive, the legislature and the judiciary arm of government at
the Federal, State and Local levels. The Nigerian territory is made up of 250 distinct ethnic
groups ruled under a single administration. The diversity in religion, language and tradition has
contributed to the high rate of conflict and unrest such as the Nigerian civil war of 1967-190, the
Ogoni crisis, Niger Delta crisis and the resent insurgence of Boko-haram ( Western education in
sacrilege) has further dented the image of Nigeria within the international community. Boko
haram has been named by the US as a terrorist group in 2011 after the bombing of the UN
headquarters in Abuja, Nigerian. It is listed as number 52 in the foreign terrorist organization list
Bureau of counter terrorism 201270
.All these challenges portrays a deep political fracture and
intolerance in the Nation’s political system. The political conflict in Nigeria is bordered around
two main areas. One of the area stems from ethnic, religious and geographical issues between
northern and southern Nigeria. The second area stems from the oil extraction activities in Niger
Delta71
. Other areas of concerns are the weak institutions, high rate of corruption and insecurity;
i.e. the political issues affecting economic growth. The research also linked policy volatility to
the political instability and the degree of uncertainty created by the government. 72
North noted
that political environment can influence the business strategies and progress of firms operating
with their domain. An environment riddled with domestic instability such as civil war and
sectorial clashes will indirectly be reducing economic activities73
.
The political situation of Nigeria has impacted the domestic and international environment
negatively. The federal Government loses a huge part of government’s revenue during crisis.
Taxes and rates that are one of the sources of government revenue cannot be collected during
crisis. This affects the availability of revenue that could be used for developmental purposes.
Lives are lost and this depletes the workforce. For instance the Niger Delta crisis has claimed the
69 Nigeria Creaky Political System, w.p
70Cf. Richard B. et (2001) Pp. 74-86
71Cf. Agagu (2004) ,Pp. 6-10
72Cf. North (1990) Pp. 1-4
73Cf. Darby et al(2004) P.1-2
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30
lives of oil workers and expatriates74
. Turbulence in the environment has also impacted the rate
of international activities within the country. The movement of MNCs into Nigerian business is
not at the level at which it should be. The chaotic situation has reduced investment activities and
has reduced the inflow of FDI into the nation. With the presence of large resource base and a
burgeoning market size, Nigeria stands a good chance of being a large recipient of FDI in Africa.
Indeed it is listed amongst the top African countries that have consistently received FDI in over
the past 10 years. However the level of FDI into this region is below expectation75
compared with
the level of resources and Nigeria has implemented some measures that can accelerate growth
and development in the domestic economy76
which is also the main source of attracting FDI into
the country. Despite the growth in FDI, Nigeria is experiencing some environment deficiencies
in labor law and uncertainties within the various institutions77
. When corporations are also
attacked during these crises, production is halted, sales will drop, facilities and plants are
vandalized or damaged78
. All these challenges pose a lot risk and barriers to market entry into the
Nigerian business environment. The government at various levels need to create a stable political
platform that can bridge the gap between the Northern and western part of the country and also
provide a long term solution to Niger delta crisis so that the economic situation can improve,
hence investors’ confidence in Nigeria are boosted.
C. Societal Overview
The Nigerian societal environment is plagued with various kinds of challenges. The uneven-
distribution of wealth and power has driven lots of Nigerians into untold hardship and poverty
112 millions of Nigerians are living below poverty line79
.The figure represents 67 percent of the
entire population. The citizens are mostly preoccupied with daily struggles to earn a living and
not much material possessions while the leaders, politicians and high ranking civil are busy
accumulating wealth and flaunting it at various degrees. Economic inequality has negatively
74
Cf. O’Neil (2004), P.25 75
Cf. Asiedu 2003 P. 497-498 76
Cf. Aremu (2004), Pp 1-5 77
Cf. Jerome and Ogunkola(2004), P 144-145 78
Cf. Camignani (2003) Pp 1-54 79
World Bank bureau of statistics w.p
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31
affected the system. The rising level of inequality has slowed down the rate of poverty
reduction80
. The pathetic level of poverty has reflected in the health condition of the populace
especially the children. Nigeria ranks among the top 10 African countries with high rate of child
mortality as reported by United Nations Children’s Fund81
(UNICEF).Children die of treatable
diseases such malaria, measles, whooping cough, diarrhea, and pneumonia before the age five,
the report emphasized.
Fifty years after independence Nigeria is still lacking some basic amenities especially in the rural
areas. Only 48 percent of the entire population has access to safe drinking water82
. Majority of
the villages do not have access to good health care due to far distances of the clinics and non-
availability of medical personnel, even where they are available, the charges and fees are not
affordable83. Poverty level in the rural area is as pervasive as the urban area. The costs of living
in the urban areas are high due to high transportation, housing and feeding cost. Securing a good
job within the city to foot the bills is another herculean tasks. This situation leaves the fresh and
old university graduates roaming the streets in search of jobs that are not readily available. After
years of endless search they end up as street urchins engaging in all kinds of criminal activities
such as fraudsters, armed robbery, kidnapping, rape, human trafficking, ritual killing, drug
dealing and so on. Politicians also use them as tools to cause unrest within the society. These acts
portray Nigeria in a negative light within the international community. Investors and MNCs find
it difficult to wade through the risks and challenge within the system, hence the low record of
economic development.
International organizations such as the UN have stepped in order to get the governments and
leaders of various nations committed towards improving the lives and economy of the citizens
through the Millennium Development Goals (MDGs). The program was drawn from the actions
and targets contained in the millennium declaration that was adopted by 189 nations and signed
by 147 head of states (Nigeria inclusive) and governments during the UN summit in September
80
Cf. Ben E. (2008) Pp 1-25 81
Cf.Unisef (2013) P.10 82
Cf. Unisef (2006) P. 12-13 83
Cf. Onokerhoraye (1976), Pp. 237-240
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32
2000. Nigerian as nation has shown progress level according to MDGs report84
yet, a lot needs to
be done in order to meet the targets. The main targets using 1990 as a baseline are as follows:
Eradicate extreme poverty and hunger- Three main targets are used for monitoring the
progress rate. (a) Halve the proportion of the people living in extreme poverty that is,
people living on less than $1 per person per day. (b) Achieve full productive employment
and decent work for all, including women and young people. (c) Halve the proportion of
people who suffer from hunger. These targets are to be achieved between 1990 and 2015.
In Nigeria 60 percent of the population are living in poverty as at 2000. This poverty
level is supposed to fall by 21.35 percent in 2015 as indicated by the MDGs. Based on
2000- 2004 where data’s where available; poverty situation would have reduced to 48.7
percent by the year 2015 as projected85
. This projection is a clear indication that Nigeria
is still far from reaching the target.
Achieve universal primary education- The number of enrolled pupils into primary
school education stood at 68 percent in 2000 and it improved to 88.8 percent in 2008.
Between 2004 to 2007 the net enrollment has been on the increase, but effort need to be
intensified especially in the northern part of Nigeria where cultural and religious barriers
still persist in order to attain the MDGs goal 2 in 2015.
Promote gender equality and empower women- The number of girls enrolled in
primary schools has increased considerably but not enough to reach the target. In the
northern part of Nigeria some constraints such as early child marriage, religious and
cultural practice still persist. In women empowerment, seats held by the women in
parliamentary positions have improved from 3.1 percent in 2000 to 7.5 percent in 2008.
After the 2007 election 9 female senators compared to 3 in 2003 and 26 female members
of the House of Representatives against 23 in 2003 emerged. 11.8 percent of the 17
members of the court appointed between 2003-2009 are women. Women are also being
appointment as judges in the Supreme Court positions.
Reduce child mortality rate- The reduction of child mortality rate in Nigeria has been
rapid. With intensified effort in improving water supply and clean environment, there is a
strong possibility of achieving the goal by 2015. Death of live births has reduced from
84
Cf. MGDs report (2010),Pp. 4-58 85
Cf. MDGs report 2010 Pp.4- 58
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33
201 deaths per 1000 live births in 2003 to 157 deaths per 1000 live births in 2008.There
is an urgent need to improve the health care needs, investments in human resources,
Infrastructural developments and advanced medical equipment in order to sustain and
improve the progress rate.
Improve maternal health- Maternal mortality rate fell by 32 percent, from 800 deaths
per 100,000 live births in 2003 to 545 deaths per 100,000 live births in 2008. This is a
progressive position. However, more effort needs to be intensified in providing adequate
antenatal care and easy access to primary health care. Good incentives should be readily
available for health workers in order to encourage movement into the rural areas where
some these health care services are needed most.
Combat HIV-AIDS, Malaria and other diseases- Polio is currently at the verge of
being totally eradicated in Nigeria. The number of Polio cases has reduced by 98 percent
between 2009 and 2010. HIV (Human Immune Deficiency Virus) and AIDS (Acquired
Immune Deficiency Syndrome) among pregnant women fell from 5.8 percent in 2001 to
4.2 percent in 2008. This target has been achieved as a nation. The Cases of malaria has
also reduced due the distribution of 72million long lasting insecticide treated mosquito
nets. 10.9 percent of children were protected from malaria in 2009 compared to 5.5
percent in 2008.
Ensure environmental sustainability- Deforestation one of the major threats to natural
resources in Nigeria has shrunk from 14.4 percent to 9.8 percent of land mass area
between 200-2010. The forest provides job opportunities for over 2 million Nigerians as
especially in harvesting of fuel wood and poles86
. The water supply system has also
gained some momentum in construction of pipe borne water, public taps, boreholes or
pumps, protected wells, and protected spring water. 58.9 percent of the population has
access to clean water supply compared to 55.8 percent in 200887
.
Develop a global partnership for development- The negotiation of debt relief in 2005
provided a new platform for investment in the social and economic sector of Nigeria. The
burden of servicing debt from 15.2 percent of export in 2005 to 0.5 percent in 2008.
Improvement in the quality of human and capital resources is crucial to attract FDI into
86
Cf. Food and Agricultural organization of the UN report (2010), P.5 87
Cf. National Bureau of statistics (2009), P.32
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34
Nigeria. The deregulation of the telecommunication sector in 2001 has attracted foreign
investment and has boosted the sector from US $ 2.1 billion investment in 2002 to US $
8.1 billion in 200688
.
These issues are critical to the development and enhancement of the social well-being of
Nigerians. The government, the leaders and the entire populace are saddled with the
responsibilities of ensuring that the gap between the targeted and the actual goal is bridged. As a
nation a big push forward is needed, 2015 is by the corner and lot grounds need to be covered.
Although the nation has been facing a lot disruption and crisis within the system but the progress
level has shown that timely intervention combined with enough funds and commitment on the
part of the leaders will make a difference before 2015.
2.1.4 Sectoral Developments in Nigeria
A. The Agricultural Sector
The agricultural sector in Nigeria is known for its regional and crop diversity. In the 1960s and
70s, agriculture was the corner stone of Nigeria’s economic revenue. It contributed immensely to
domestic production, employment and foreign exchange earnings. During the period 1964-1965,
70 percent of the GDP and 70 percent of the workforce was recorded as a result of agricultural
activities89
.The rural economy was booming with resourceful activities. People travel from far
and wide to transact businesses in seed crops, cash crops and fishing within the rural areas.
Nigeria was a major exporter of cocoa, groundnuts, rubber, and palm oil. Three decades later the
situation remained the same except that agriculture was replaced with oil as the principal foreign
exchange earner. This resulted into stagnancy within the agricultural sector. The oil boom of the
1970s impacted negatively on agricultural output level. Cocoa production declined due to over
aged and outdated varieties. It’s currently stable around 180,000 tons annually compared to
300,000 tons decades ago. Nigeria was also one of the largest producers of poultry in Africa;
output has declined from 40million birds to 18million. Bad management has also affected fish
88
Cf. Industry analysis : Nigeria Mobile Telco, w.p 89
Cf. World Bank (2003), w.p
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35
production as well. GDP rate declined from 60 percent of 1960s to 48.8 percent in the 1970s and
22.2% in the 1980s as reported by the National Bureau of Statistics90
.
Over the past decade agricultural activities has been gaining some momentum but not as
expected. Between 1999 and 2006 the sector grew by 29 percent and the government also
recorded that agricultural value-added grew at 7.0 percent91
. In a recent report by the National
Bureau of statistics 2013, agricultural output during the third quarter of 2013 was 5.08 percent
compared to 3.89 in 2012. It was reported as the highest growth level in the last eight year.
Government expenditure on agricultural related activities and capital expenditure has been quite
low compared to some other emerging economies. The figure below gives a clear indication that
the government is not doing enough. Attention needs to be shifted from oil related activities and
more focus on the agriculture. Farmers can be supported with interest free credit in order to
acquire advanced farming tools. Provision of fertilizers at cheap rates and encouraging of rural
farmers through agricultural incentives will boost the agricultural sector.
90
Cf. National Bureau of Statistics (2013), P. 6 91
Cf. UN Food and Agricultural Association (2008) Pp.16-19
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36
Figure 10: Government expenditure in Agriculture, Forestry, Fishing and Hunting 2010
Source: IMF and FAO statistics division
The international community has shown faith in the agricultural development in Nigeria.
Bringing the nation back to its glory days where agriculture thrived and poverty was at its
minimal level will be huge step toward building a sustainable and prosperous economy92
. In a
recent development in Washington approved two International Development Association Credit
(IDA) amounting to US $ 300 million to help the government of Nigeria to boost its agricultural
sector and also to provide food security and better nutrition for the rural dwellers.
B. The Financial Sector
The economic progress of any nation depends on the viability of the financial system. In Africa
and Nigeria in particular, financial under-development and various forms of financial crisis has
92
Cf. World Bank , w.p
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37
contributed to the limitations with in the economic system93
. Nigeria in recent years has been
involved in economic reforms and restructuring of the various sectors including the deregulation
and liberalization of the financial sector through the banks94
. A stable financial sector builds
higher savings and investement which invariably impacts the level of eceonomic growth. The
financial sector is a strong catalyst for economic growth. There is a need for a healthy financial
system that will foster growth95
. A link exists between the financial sector growth and economic
development of Nigeria. The Nigerian financial system manages the the payment system,
formation of capital, and promulgation of dynamic monetary policies. They act as intermediaries
between the surplus and the deficit units. The operations of the financial sector has improved
signinficantly after various reform and restsructuring. The system is made up of the banks, non-
bank financial institutions, markets and the regulatory authorities. The CBN played a crucial role
in managing the aftermath of the global financial and economic crisis. The impact of the crisis on
the Nigerian economy was cushoined through the implementation of the quantitative easing
policy. Some major challenges still persist in the sector such as high lending rates, declining
inter-bank rates and surplus liquidity within the banking system. The opertaional activities of the
financial market which includes money market and capital market as main drivers in the
financial sector will be examined closely.
MONEY MARKET- According to the economic report
96 for the first quarter of 2013,
money rates were influenced by the condition of liquidity in the banking system. The
Monetary Policy Rates (MPR) were maintained at 12.0 percent. The Cash Reserve
ration(CRR) and the Liquidity Ratios (LQ) remained at the levels of 12.0 and 30.0
percent. The Net Open Position(NOP) also remained at 1.0 percent. The short term
monetary market instuments remained relatively stable while the bank’s discount were
avaliable to authorized dealers. All these are measures were put in place by the CBN as a
strategy to ensure a stable and progessive money market activities that could be attractive
to foreign investors.
93
Cf. Okpe (2013), P. 5-6 94
Cf. Ngozi O and Philip .O (2007), P.15 95
Cf. Adeoye (2003) cited in Bashir Olayinka Kolawole, (2012), P.283 96
Cf. CBN Economic report (2013) Pp 8-11
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38
THE CAPITAL MARKET- The operations of the NSE were mixed during the first
quarter of the 201397
. The volume of traded security trended upwards by 50.9 and 40.6
percent to 31.8 billion shares and N254.98 billion respectively, involving 383,014 deals
compared to 21.1 billion shares valued at N181.4 billion in 265,625 dealings in the past
quarters. The financial sector participated activley on the exchange as measured by
turnover volume with a traded volume of 13.4 billion in 125,244 deals.
Figure 11: Volume and Value of traded securities
Source: CBN economic report
Generally the financial sector has experience some improvement but effort need to be intensified
by the sector . Other sub-sectors such as the insurance sector also grew from the period 2008-
2013 as reported by the NBS third quarter report98
. Both the finance and insurance sector grew
at 4.15 percent in the third quarter indicating a slight decline from 5.18 percent in the second
quarter. The growth is lightly higher compared to 2012 third quarter report of 4.08 percent. The
financial sector’s real GDP contribution showed a decline from 2.92 percent recored in the
previous year to 2.84 in 2013. The figure below explains the level of growth.
97
Cf. CBN economic report P.14-15 98
Cf. NBS (2013) report P.7
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39
Figure 12: Finance and Insurance sector growth rate (Q1 2008-Q3 2013)
Source: National Bureau of Statistics (2013)
C. The Information Communication Technology Sector
Information Communication Technology (ICT) is playing a pivotal role in economic
development globally. In Nigeria, ICT has gained some grounds in the recent years. Lack of
funding, mismanagement and poor development in research and development has limited the rate
of ICT growth in Nigeria. High dependence on imported ICT products is thriving within the
society. The ICT sector has also gone through some reforms and restructuring; the privatization
of the Nigerian Telecommunication Limited (NITEL) and liberalization of the sector in 2000 by
the then administration resulted into expansion and growth within the sector. Foreign
telecommunication and ICT firms such Mobile Telecommunication Network (MTN), Airtel,
Microsoft, Reltel, Lenovo, etc. flooded into the Nigerian market so as to leverage on the budding
opportunities and potentials. Lenovo one the ICT firms in a recent interview with Vanguard
Newspaper Nigeria in 2013 acknowledged that the ICT sector in Nigeria is developing rapidly
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40
and pledged the commitment to Nigeria99
. The launching of their products in Nigeria such as
desktops, laptops and other devices and the partnership with Cosharis, ICT brokers and Tri-
continental signals a positive drive towards growth in the sector. The president of the Institute of
Software Practitioners of Nigeria100
in a recent interview with Thisday Newspaper in Nigeria
urged the Minister of communications technology, Mrs.Omobola Johnson to make software,
strategy policy and legislation a point of priority in 2013 as way of increasing commitment to the
sector. In a similar vein, the e-Nigeria 2013 summit and exhibition organized by the National
Information Technology Development Agency (NITDA) with the theme “Local content in ICT
development in Nigeria: The journey so far”. The progress rate made in Nigeria ICT product
campaign has impacted the country and to chart a course for a global competiveness in
Information Technology(IT) products and services, options for funding IT development and to
integrate Nigerians in diaspora in terms of technology transfer in developing ICT industry in
Nigeria101
. Growth in ICT has also reflected in the use of telephone. In 2012 the penetration rate
stood at 81 percent according to the Nigeria Communication Commission (NCC). The
introduction of Global System of Mobile Communication Network (GSM) over ten years ago
has impacted the economic growth, corporate communication and quality of life positively. In
their latest report102
Nigeria Communication Commission declared that Nigeria’s tele –density
increased from 63.11 percent by the end of 2010 to 85.25 percent in June 2013, accounting for
22.14 percent increase. Mobile subscription has increased to over 120million in 12 years. The
telecommunication sector data services are contributing immensely to the growth of the sector. A
GDP growth of 24.53 percent was recorded in the first quarter of 2013 compared to 34.06
percent recorded in 2012. The decline in growth was due to challenges relating to the level of
infrastructural development103
.
99
Cf. Providence Obuh(2013) w.p 100
Cf. Amaka Eze, (2013), w.p 101
Cf. Omobola Johnson(2013), Pp 2-6 102
Cf. Nigeria Communication Commission, w.p 103
Cf. National Bureau os Statistics report (2013) P.8
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41
Figure 13: Telecommunication growth rate (Q1 2008-Q3 2013)
Source: National Bureau of Statistics.
The decline as presented in the figure above indicates a clarion call to policy makers, leaders and
the government on the need to look inwards and identify the basic deficiencies in the ICT sector
and other sub- sectors of the economy and tackle them in order to rescue the nation from under-
development.
D. The Manufacturing Sector
Globally, the manufacturing sector has pioneered the growth of many economies. It is regarded
as a basis for ascertaining an economy’s level of efficiency and effectiveness in managing its
human and natural resources104
. Rating the various sectors on the scale of importance, no sector
is more important than the manufacturing sector in economic development, creating employment
opportunities and eradication poverty105
.
104
Cf. Amakon U. (2012) Pp.185-206 105
Cf. Ogbu (2012)Pp. 1-7
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42
Nigeria as a nation has not been able to live up to its’ full potential despite the immense deposit
of natural and human resources. The nation has witness one civil war, violent changes of
government and high level of mismanagement of funds that has led to crippling of economic
development since independence in 1960. The introduction and reliance on industrial import
substitution before the independence seemed like a favorable idea that worked well since the
nations’ GDP level began to grow from 2 percent in 1957 to 7 percent to 1967106
. In the long run
this idea hampered the growth of industrial activities in the region. Taking a closer look at the
level of progress since the 1960s as accounted by the CBN 2011 statement of account and report,
the growth level has trended downwards. From 4.8 percent in 1960, manufacturing sector
contribution to GDP increased to 7.2 percent in 1970 and to 7.4 percent in 1975. In 1980 it
recorded a decline of 5.4 percent, but moved to 10.7 percent in 1985. By 1990, manufacturing in
GDP stood at 8.1percent but recorded a declined to 7.9 percent in 1992, 6.7 percent in 1995 and
declined further to 6.3 percent in 1997. In 2001 the share of manufacturing in GDP reduced to
3.4 percent from 6.2 percent in 2000. However, it increased to 4.16 percent in 2011 which is way
below what it was in 1960. Currently, Nigeria’s manufacturing sector’s share in the (GDP) is
very low107
. Looking at the situation above there is no basis to compare the growth of Nigeria’s
manufacturing sector with other emerging economies that have embraced structural changes and
where poverty is minimal due to manufacturing activities: manufacturing contributes 20 percent
of GDP in Brazil,34 percent in China, 30 percent in Malaysia, 35 percent in Thailand and 28
percent in Indonesia Ogbu,2012.Nigeria’s’ shifting from developing the manufacturing
production base into heavy dependence on crude oil has negatively impacted the manufacturing
sector negatively108
. Revenue generated from the oil boom of 1970s was utilized in building
investment in the state owned enterprises, but this progress level was not to last. In the 1980s, the
oil price fell and the economy’s’ growth declined. This development resulted into high level of
unemployment of the young and educated population and low level of industrial activities. One
of the major challenges confronting the manufacturing sector is the poor level of infrastructural
development and the epileptic level of power supply. The target of the nation in 2009 is to
provide 6,000 Mega Watts (MW) of electricity while the estimated demand for power is
estimated at 25,000 MW. Manufacturing companies both foreign and indigenous have to depend
106
Cf. Utomi (1998) 107
Cf. CBN.(2013) Statement of Accounts and Annual Reports, P.28-29 108
C.f Englama et al (2010) Pp. 31-48
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43
on power generators for production processes. This method led to high overhead cost and high
cost of production, a cost that is transferred indirectly to the consumers through high cost of
goods and services. This pathetic situation makes it hard for locally produced goods to compete
with cheaper imported substitute. Foreign investors find the situation unattractive for investment
since profit generation and growing of shareholder’s revenue as core basis for business
investment can’t be guaranteed.
In recent years the government has taken a paradigm shift away from oil since the revenue is
dropping and now focusing on other sectors of the economy. As a result some staggering level of
improvement is being recorded in the manufacturing sector.CBN economic report reflects the
following109
; industrial activities declined by 0.9 percent below the preceding years rate. It
increased by 0.7 percent compared to 2012 record. The decline is due to a decline in other sub-
sectors. The index of manufacturing declined by 0.9 percent below the last year but increased by
0.4 percent. The capacity utilization also declined by 1.3 percent below the preceding quarter.
The decline was due to poor level of electric supply.
Figure 14: Index of Industrial production 1990-2013
109
C.f CBN economic report(2013) P.26-27
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44
Source: Central Bank of Nigeria Economic Report 2013
Table 6: Index of industrial production and manufacturing capacity utilization
Source: Central Bank of Nigeria Economic Report 2013
E. The Oil Sector
Economist is the last decade has argued that there is a paradox that exists between actual
resource abundance and economic development110
. Most emerging economies with abundant
natural resources are performing poorly compared to the economies that are less endowed.
Poverty, unemployment, poor infrastructural development and deficiencies in various sectors of
their economies are common. This pathetic phenomenon is termed as “resource curse”111
as the
case is in Nigeria. The exploration of oil and gas started in Nigeria in the 1956 by Shell D’Arcy a
Multinational Oil Company (MNOCs) that had the sole concession in 1938 to explore for oil in
the country. Shell’s operation dominated the region until Nigeria joined the OPEC in 1971. After
this development, Nigeria began active participation in the controlling the nation’s resources in
oil and gas. National Oil Companies (NOC) was created with the sole aim of monitoring and
protecting the interest of the host country in the exploration of its resources. Through a Joint
Operating Agreement (JOA), companies such as; Gulf Oil and Texaco now(Chevron Texaco),
Elf Petroleum now(Total), Mobil now(Exon Mobil) and Agip entered the oil fields and are
110
Cf. Auty (2001) P.3-16 111
Cf. Sach &Warner, (1995)
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45
actively participating in the industry even up till date. Their operations in 1979 accounting for 50
percent of oil production which stood at 2 million barrels of oil per day. Nigeria attained the
status of a major producer ranking 7th
in the world in 1972 and has grown to the 6th
position over
the years having 27 billion barrels of oil as reserve in the south eastern and south-south coastal
line which can last till about 37 years. 174 trillion cubic feet of natural gas equivalent to 30
billion barrels of crude oil, is also on reserve112
.
The discovery of oil and its exploration has impacted economic growth in Nigeria. The sector
contributes over 30 percent of the nations’ GDP ratio and 90 percent of gross earnings. It is also
the main source of foreign exchange earnings and FDI inflow into the nation. Nigeria depended
more on the oil revenue at the expense of other sectors of the economy and are currently facing
the dire consequences. The volatility of oil prices in the international realm has created some
macro- economic challenges within the nation since global price changes can’t be controlled by
domestic policies. In recent years the price of oil has fallen and the level of revenue has
drastically declined due to international fall in price of oil. The Niger Delta region (the oil
producing region) notorious activities have resulted to significant decline in oil production. The
destruction of oil pipes, theft, illegal refineries, kidnapping of oil expatriates and environmental
crisis has negatively affected the rate of progress within the oil sector113. The government of
Nigeria and other responsible agencies are reforming the non-oil sectors in order to cushion the
effect of these challenges on the nations’ wellbeing. The non- oil sector is currently growing at 8
percent despite the political situation in the country114
. In a recent report by the NBS (2013)115
,
the GDP contribution of the oil sector to economic development has dwindled compared to the
1970-1980s. The figure shows a true picture of the drastic decline in oil revenue.
112
Cf. Charles. S (2003) Pp.15- 17 113
Cf. Skaperdas and Syropuolos (1996), Pp.322-355 114
Cf. Thomas Hansen, (2013), w.p 115
Cf. National Bureau of Statistics,(2013) P. 32
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46
Figure 15: Oil GDP growth rate at constant price (Q1 2008-Q3 2013)
Source: National Bureau of Statistics 2013
The Oil sector contributed 12.50 percent to real GDP in the third quarter of 2013, which is lower
compared to 12.90 percent contribution in the second quarter of 2013, and the 13.42 percent
recorded during the third quarter of 2012.
In Nigeria, uncertainties as a result from economic volatility, unstable political environments,
and the lack of government commitments are some of the hindrances to the inflow FDI. Any
environment characterized with economic volatility and lack of stable governance, plays a
significant role in hampering capital flow in conjunction with other macroeconomic and policy
uncertainties116
. When the political realm of a nation troubled the other macro-economic
indicators will also be negatively impacted as we see in the case with Nigeria.
116
Cf. Lemi and Asefa (2009), P.169-170
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47
2.2 Contribution of Theories in Foreign Market Entry
In this part of the thesis, the five basic approaches in marketing theory will be discussed with
their link and usefulness for the internationalization process of the firms and their link to the
various market entry modes contributing to their effectiveness and efficiency in their operations.
These five approaches are the transaction cost theory, the resourced based view, the eclectic
paradigm, the market based view, and the relational view.
2.2.1 The Transaction Cost Theory
Transaction Cost refers to the cost involved in “designing, negotiating, executing and monitoring
exchange transactions”117
. The various costs incurred in an exchange process are crucial in
explaining the market structure and non-market forms of economic organizations118
. TC has
become a major tool for studying economic systems operations, cost reduction mechanism and
performance enhancement in internationalization of markets119
. This profound theory was
originally developed from Coase, literature – “The Nature of the firm” in 1937. In another of his
literature- The problem of Social cost, he opined that for there to be a market transaction, it is
important to identify the parties involved, information sharing between parties and the
establishment of the terms and conditions of negotiations120
. TC theory also determines the level
to which a firm can internalize its business operations or to depend on market forces. Firms
usually depend on market force in order to leverage on economies of scale of markets .This
approach can expose the firm to difficulties including all contingent issues in the agreement and
a challenge of receiving a fair price due to information lapses as indicated by Coase. On the other
hand, when a firm internalizes its’ operations the firm has to deal with costs within the corporate
environment. They are referred to as organizational or bureaucratic costs, they include; legal,
administrative, operating and information transfer costs121
. The application of TC theory is
117
Brown et al (2003). P, 474. 118
Cf. Coarse (1937), P. 388 cited in Zhengchao et al, (2012), P.127 119
Cf. Zhengchao et al, (2012), P.127-128 120
Cf. Coase (1960) ,P. 15 121
Cf. Davidson and Mc Fetridge. P.2
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majorly the same approach at both domestic and international domain. On the internalization of
foreign firms, there is a possibility of having more options as regards mechanisms for cost
reduction through the international markets entry modes. TC is one of the profound theories used
in analyzing and evaluating various market entry modes122
. The export mode of entry is riddled
with low resource investment which yields low risk and returns. This mode lacks the capacity to
provide market control necessary for market seeking firms; however it provides operational
control of the firm. The sole venture is another entry mode that is a high investment with high
risk and high returns; however the firm also has a control over its investment. The joint venture
approach involves relatively low investment but provides risk, return and control equivalent to
the extent of investment in the firm. And lastly licensing mode is a low risk investment, return
and consequently provides the least level of control to the licensee. A firm has to decide whether
to rely on external international market measures (exporting) or to internalize its’ operations
(FDI) when entering foreign market. There exists a high level of uncertainty as regards the cost
of entry externally and internally. Joint venture approach can be adopted in order to reduce entry
cost, although a portion of the firms’ control will be lost in the process123
. Exporting and joint
venture mode of entry may seem more suitable for low potential markets when risk reduction is
the main objective. However, they may not permit the strategic control, change and flexibility
required to secure a competitive market position firms pursuing low transaction cost tend to
prefer joint venture mode of entry due to constraints in high legal restriction and high investment
risk associated with the host country124
. The TC theory does not suggest one best approach to
enter a foreign market, but rather the choice of an entry mode should be based on the
environmental condition within the foreign market. In order to have a broad knowledge of which
entry mode might be more favorable there are three ways,125
the market, contract and hierarchies.
Markets will function effectively whenever there is a large number of buyers and sellers, since
cost will trend upwards whenever the numbers of participants are few. Contracts will provide a
degree of protection since the terms and conditions of transactions are specified from the onset,
hence the reduction of risk and cost associated with it. Hierarchies’ seemed is also efficient
since the different parties are now members of the same firm. In emerging markets where TCs
122
Cf. Canabal and White (2008), P. 269 123
Cf. Anderson and Gatignon, (1986) 124
Cf. Brouthers, (2002) Pp 206-208 125
Cf. Hennart, (1989), P.214-215
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are high, hierarchical governance approach are more favored as they enhance firm’s efficiency
level126
. The network strategy as a hybrid structure has also been identified by scholars to be
most effective for emerging markets. Through pooling of resources and coordinating the
resources of firms, economies of scale can be gained and establishing strong relationship base
with stake holders can aid in the reduction of environmental, political and business
uncertainties127
.
Peng and heath128
expanded the TC theory to institutional and cultural
perspectives. The institutional theory they explained consists of factors that do not consider
property rights and increases risks in an exchange process, while the cultural factors influences
managerial costs and uncertainties. They concluded by saying that MNCs decide on entry modes
based on these criteria perform better than the firms that do not. Meyer129
in his research on
transition economies examined the investment pattern of German and British MNCs. He opined
that unstable institutions can increase the transaction cost then influence the choice of mode of
entering an international market. When a firm has a high level of asset specificity, the firm
should use a vertical integration approach when entering a foreign market in order to guard
against opportunistic behavior130
. A firm with higher level of asset specificity in alliance
arrangement stands a better chance in choosing joint venture over a contract mode131
.
2.2.2 The Resource Based View
Peng132
referred to Resource based view (RBV) as a theoretical innovation. Contrary to the
transaction cost theory that focuses mainly on the analysis and exploration of firm’s specific
advantages in order to minimize transaction cost, the resource based view proposes their
development and exploration. This is due to the fact that TC theory is static while RBV focuses
on firms’ inward capabilities and resources which drive profitability, value creation133
and
development of firms’ core capabilities that are difficult for competitors to imitate or
126
Cf. Choi et al (1999), Pp. 198-201 127
Cf. Peng and Heath (1996) P. 494-495 128
Cf.’ Ibid’ 129
Cf. Meyer (2000) P. 2 130
Cf. De vita et al (2011), P 336-337 131
Cf. Chen and Chen (2003), P 2-3 132
Cf. Peng (2001), P.807 133
Cf. Barney (1986), P.1232-1233
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reproduce134
. RBV posits that firms with greater deposits of competitive capabilities, that are rare
and non-substitutable stands a better chance of being more successful in entering foreign market
through the suppression of entry barriers135
. The resources of a firm are both tangible and
intangible assets they include; knowledge power, information power, dynamic capabilities,
specific rare assets, technical know-how and attributes136
. This theory ascertains “…all assets,
capabilities, organizational processes, firm attributes, information , knowledge etc. controlled by
the firm that enables the firm to conceive of and implement strategies that improve its’ efficiency
and effectiveness” Daft, (1983) cited in Barney 137
.
The value of a firm resource can be ascertained when comparing the resources possessed by
competitors since only the resources that are competitive and unique has the capabilities to
generate economic value and resources such as organizational capabilities, core competences and
administrative capabilities are the key elements required for global transformation processes138
.
RBV does not specifically discuss the internalization of firms but rather it analysis the core
capabilities that will determine the survival of the firm in a new market environment. The RBV
evaluates the effectiveness and efficiency of different entry modes. The ability to bridge cultural
and environmental gaps offer some form of competitive advantage139
. For instance, if a MNCs is
better at managing cultural differences than the other. Firms that are flexible in adapting to new
environment and culture can leverage on the advantages within the environment and develop
competences that can strengthen their position competitively in that new market environment140
.
Dynamic resource capabilities deal with internal conditions that determine a firms’ stamina when
faced with major institutional changes and uncertainties141
while non-dynamic resource
capabilities is another perspective of the RBV that enables a firm to operate effectively in stable
and relatively predictable business environment, although they can be less effective when
operating in an unstable and crisis prone business environment.
134
Cf. Peteraf (1993) ,P.179-180 135
C.f Wernerflet .B (1984), P. 172-173 136
C.f Barney, (1991), P.101 137
‘ Ibid’ 138
Cf. Collis, (1991), P. 51 139
Cf. Shenkar, (2001), Pp.521-523 140
Cf. Jefferson and Rawski, (1995) 141
Cf. Eisenhardt and Tabrizi,(1995), P 88-89
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One of the main motivations of the RBV is to enter a foreign market, exploit the market
advantages or develop a new one and building a platform for profitable business venture. In
view of this theory, firms basically rely on their existing resources to gain competitive advantage
when entering a new market since it is more effective and efficient to transfer this knowledge to
a foreign market. Sharma and Erramilli linked some entry modes to the RBV; the indirect
exporting, direct exporting, contractual mode, joint ventures and wholly owned subsidiary142
.
According to them143
a firm can adopt the indirect exporting mode if there is as likely hood that
the competitive advantage in the market is low, however if the likely hood of higher competitive
advantage exists, then a contractual mode of entry should be adopted through franchising and
licensing.
2.2.3 The Eclectic Paradigm
The eclectic paradigm explains…“Where and why international productions takes place…why
firms from one country engage in value added activities outside their national boundaries, where
they choose to produce and by what means”144
. John Dunning through a series of publication has
developed the eclectic paradigm. Three major factors are responsible for the determination of
international activities of MNCs. They are the Ownership (O) advantages, Location (L)
advantages, and Internalization (I) advantages. The eclectic paradigm is also referred to as the
OLI paradigm145
. The OLI posits that Ownership advantages are firm specific advantages that
are already developed in the firms’ home country. This competitive ownership advantage is
transferred abroad through FDI which provides a business platform for MNCs to internalize the
(O) advantage. The (O) advantage comprises of specific assets such as tangible assets and
intangible assets (technical knowhow, brand and organizational skills) and factor endowment
(natural resources). The acquisition of these advantages determines the ability of the firm to
142
Cf. Sharma and Erramili (2004),P 11 143
Cf. Sharma and Erramilli (2004), P. 9 144
Ederner and Shapiro, (2005). P 417 145
Cf. Dunning, (2001), P. 178-179
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52
overcome domestic challenges. Hence (O) advantage is a crucial factor in determining the failure
and success of MNCs in internalization process of the firm146
.
Figure 16: The endowment/market failure paradigm of international production
Source: Dunning (1988)
The (L) advantage refers to specific characteristics that are embedded in a location or an
environment. These are in the form of raw materials, low production costs, low wage rates, taxes
and tariff barriers147
. The rate of FDI into a country depends partly on the location advantage.
The resource abundance and large market size of emerging markets create locational advantages
for MNCs.
The (I) internationalization advantage deals with taking advantage of domestic markets
through the internalization of markets. This can be achieved through a partnership arrangement
such as licensing, joint ventures and forming strategic alliances148
. This internalizing activities
could be buying and selling of goods and services in open markets through a variety of inter-firm
non- equity agreements, integration of intermediate product markets and the outright purchase of
146
Cf. Dunning, (1988) P.12 147
Cf. Dunning, (2001), P.174 148
Cf. Dunning, (2001), P. 184
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53
foreign corporation149
. Dunning further asserted that rather than a firm licensing its operations to
a foreign firm, it is better to engage in foreign production by itself.
The Eclectic paradigm is also applicable in the formation of global strategic business ideas,
although this perspective hasn’t drawn the attention of economists. This concept is more centered
on developing dynamic company strategy for operating internationally rather than the
conventional form of explaining firms’ behavior, FDI and pattern of trade. This framework can
also be used in building global corporate strategies150
.
2.2.4 The Market Based View
The business strategy of being market driven or being market oriented is an essential rudiment
for success in a market competitive environment. Therefore market based resources are
occupying a vantage position in today’s economy and have a significant impact in a firms’
performance level. The market based view (MBV) identifies the market as the main source of
advantage, its’ unique strategy gears an organization towards identifying its’ market driven
competences. It emphasizes the advantages of quality product as one of the bases for abnormal
profits and returns151
. It focuses on market power152
and values which are embedded in its
external product market. A firm acquires power through its level of market performance153
.
Market monopoly, barrier to entry and bargaining power are the main sources of market
power154
. When the market position of a firm is monopolized, the firm is bound to perform better
and can generate larger returns on investment. In the same vein if there are barriers to entry for
competition, the performance level of the firm soars since there are no external pressures from
competitors. Also if a firm possesses skillful bargaining in power as regards it’s dealing with
149
Cf. Dunning, (2000), P. 164 150
Cf. H.Peter Gray (2003), P. 59 151
Cf. Porter, (1979), Pp. 214-227 152
Cf. Makhija,(2003) P.434 153
Cf. Makhija, (2003) P. 437 154
Cf. Grant, (1991)
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suppliers and customers there are a higher possibility of better performance155
. “The foundation
of market based performance is built around commitment to market performance”156
.
The development of a market based orientation provides an avenue to respond to customers
changing needs and desires while monitoring competitors actions and reactions to changes in the
markets. Roger157
opined that the internal and external performance metric level of a firm should
be monitored. The internal metrics track costs, expenditures, asset utilization while the external
metrics measure the market based from outside the firm.
Figure 17: Internal and External measures of performance metrics
Source: Roger J. (2004)
An organization with deep rooted marketing view is structured in three different behavioral
dimensions (1) is customer oriented, (2) is competitor oriented (3) has interconnections with
different departments and units in order to create value to the end customers 158
. The MBV
suggests that for a firm to leverage on its competitive advantage and perform effectively in its
financial position, the firm should focus on gathering information about its present customers
and potential customers, current competitors and potential competitors and map a strategy to
deliver superior value to customer compared to competitor’s offerings
155
‘Ibid’ 156
Roger. J, (2004) P.32 157
C.f Roger.j (2004) P.33 158
Cf. Narver and Slater,(1990), P. 22-23
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2.2.5 The Relational View
The Relational View (RV) suggests that firm resources are embedded in its inter-firm resources.
Productivity and gain is made possible when partners are willing to combine resources159
.
Combination of resources by firms’ for instance strategic business alliances or joint ventures
strengthens the external and internal resources of the firm against competition. Apart from the
reduction in transaction cost associated with setting up a business. In inter-firm relationship,
there are various facets of benefits associated with relational view proponents. The objective of
the RV approach is to ensure a relationship between firms based on mutual benefits. Through the
management of stakeholders’ assets, sharing of knowledge, resources and internal governance
structure, relationship with stakeholders can be managed effectively over long period of time160
.
Each partner firm needs to show high level of commitment to the relationship and any chosen
business model. Inter-firm relationship in form of joint venture strengthens the ability of the
firms to create a barrier against competition since the relationship is not accessible by
competitors. The conversion of tangible and intangible relational specific assets for a unique
business purpose is combined with partners’ assets in order to generate competitive advantage.
Williamson (1985) as cited by Dyer and Singh161
suggested three main types of assets
specificity; site specificity, physical assets specificity and human assets specificity. The site
specificity refers to the immobility of production stages which warrants siting them closer to one
another. Physical assets specificity refers to transaction specific capital investment that suit the
exchange partners. Human asset specificity deals with knowledge that has been generated
through long standing relationship. The RV also proposes that organization are committed to
investing in partner organizations that have capabilities to influence the organization positively
through knowledge sharing and the firms’ absorptive capabilities162
which is the ability of a firm
to acquire new knowledge and share the knowledge within the firm. The interdependences and
synergy between the resources of different firms generate great value than those generated from
159
Cf. Dyer H.J, (1997), P.536-537 160
Cf. Dyer and Singh, (1998), P.660 161
Cf. Dyer and Singh, (199), P.662-663 162
Cf. Lyles and Salk (1996), Pp.4-6
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individual resources. This is the basis of inter-firm relationship and partnership Shan and
Hamilton, (1991) cited in163
.
Figure 18: Determinants on inter-organizational competitive advantage
Source: Dyer and Singh (1998).
Internationalization theories have been a focal point for most researchers with regard to market
entry modes. The Transaction cost theory being the oldest theory addresses and determines the
market entry mode of international markets by the putting together of firm’s boundaries, the
capabilities of a firm with respect to competitive advantages and efficiency of the transaction
cost as vital factors to consider while choosing a market entry mode. The Eclectic paradigm
another profound internalization theory also known as the OLI framework, a tripod concept that
aid MNCs in determining or deciding on the most appropriate entry mode to adopt when entering
a foreign market through the exploitation and exploration of foreign country’s advantages.
Examining the internal resource base capabilities of a firm compared with competitors is very
essential when entering a foreign market. The RBV posits that strategy and performance are
affected by firms’ specific assets. These assets also have a direct link in determining the most
163
Cf. Ranjay Gulati, (1998). P. 299
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appropriate market entry strategy that will better position the firm competitively in the new
market environment. The MBV focuses on market competences that will aid in positioning a
firm strategically when entering a foreign market. The level at which a firm grows depends on its
market power. This deals with the product offerings, the firms’ bargaining power, and market
monopoly. Deciding on an entry mode will depend on the internal and external market position
of a firm. A firm’s position can further be boosted through inter- firm relationship as the RV
stresses. Leveraging on inter- firm resources which can aid in reducing transaction cost
associated with entering a foreign market can be achieved through joint venture mode of market
entry.
2.3 Barriers to Market Entry and Success Factors to Overcome the Barriers
Market entry of new entrants is a crucial factor that affects the market share and profitability of
firms already existing in the market164
, hence they build barriers to prevent new entrants into the
market. (cited by Jasper bless et al 2003) Bains165
defined barriers to entry as “the advantages of
established sellers in an industry over potential entrants’ sellers, their advantages being reflected
in the extent to which established sellers can persistently raise their prices above a competition
level without attracting new firms to enter the industry”. Bain’s major focus according to the
definition is on the consequences of barriers to entry and also referring to economies of scale as a
barrier to entry. Retaliatory strategies such as price reduction, cost reduction, increased
advertisement and speedy introduction of new products are deployed by incumbents in order to
prevent new entrants166
.
Understanding market entry barrier is vital since it is one of the bases of analyzing market
power167
. It is also referred to as “factors that limit competition by preventing market entry of
new firms, the process often leading to an increase in the profit of established incumbents in the
market place"168
. There is a strong linkage between market entry barriers and government
164
Cf. Karakaya and Stahl, (1989). P.80 165
Bain (1956).,P.3 166
Cf. Kuester et al, (1999) P.90-91 167
Cf. OECD (2007) P.1 168
Karakaya, (2002)
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regulations which has a negative on the economy of a country. Investorwords defined entry
barrier as the “circumstances particular to a given industry that create disadvantages for new
competitors attempting to enter the market. These may include government regulations,
economic factors, and marketing conditions”. Barriers encountered in the process of entering a
new can prevent the process of allocative and dynamic efficiency of a firm169
. These barriers can
be classified into structural and strategic barriers. The structural barriers focuses on the
characteristics of industry structure which prevents the markets entry of new entrants while the
strategic barriers focuses on using firms’ resource in creating a competitive advantage against
new entrants170
. These two approaches compliments rather than contradicting one another. Entry
barriers are costs that are incurred by a firm seeking to enter a new market. They impact the level
of profitability, market share of firms already existing in the firm171
.
Succeeding or failing in entering a new market by a firm is determined by the firm’s capacity to
critically analyze the following five key success factors namely; the mode of entry, entry timing,
firm size, technology and innovation focus, and the distribution network.
1) Mode of Entry: The mode of entry a firm chooses to adopt when entering a new market
determines how successful the firm can be. It has a direct impact on the firms business
operations, the level of risks and challenges encountered in the entering process172
. Fifteen
different modes of entry were listed 173
but are categorized into five main types of entry.
Export: This is a firm sells goods and services produced in home country in a foreign
country through an agent or a company in the host country. This means of exporting is
easier and mostly commonly adopted approach by MNCs who are venturing for the first
time into international business in order to curtail and minimize financial and
environmental risks.
License and Franchise: A right given to a firm or an agent located on a foreign country
to use a home country’s proprietary technology or other resources in return for payment
169
Cf. Lutz et al, (2010) P.19 170
Cf. Lutz et al, (2010) P. 21 171
Cf. Peter Yannopoulos. P.1-2 172
Cf. Gielens et al, (2007) P.197 173
Cf. Root, (1994)
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Alliance: A strategic agreement and collaboration with a firm in the home country and a
firm in the home country in order to share the operational activities in the foreign
country.
Joint Venture: This is the sharing of ownership of a business between a partner or
partners in the home country and partners in the foreign country.
Wholly owned subsidiary: Complete ownership of a business of business located in the
foreign country by a firm located in the home country.
A firm can choose an entry mode or a combination of modes when entering a foreign country.
One of the main factors that differentiate the entry modes is the level of control being exerted
over the firm174
.
Two contrasting theories proposed different approach with respect to control. The resource based
view proposes that as the degree of control increases, the firm has a greater chance of success,
since it can deploy the needed resources for coordination of the business operations. The said
resources could be intangible assets such as core competences, technical know-how, and
marketing knowledge175
. In contrast the transaction cost theory posits that cost increases as the
control over entry mode increases. Commitment and control are interlinked factors in market
entry modes176
. Wholly owned subsidiaries and joint ventures modes of entry are more
susceptible to high cost of entry due to the level of resources committed into setting up the
business venture.
2) Entry Timing: The time of entering into a new market has impact in determining how fast a
firm can succeed177
. Early movers benefit from first movers advantage such as having access to
strategic distribution channels and suppliers. They also have first -hand knowledge of the
consumers’ preferences and can device a means of meeting them178
. First movers also stand a
better chance of benefiting from grants, incentives, and waivers from the government and
regulatory authorities that might not be available for late movers179
. Firms that lack accurate
information about the economic and market position of the country they intend to enter may
174
Cf. Anderson and Gatignon, (1986), Pp.10-15 175
Cf. Collis, (1991), P.51-52 176
Cf. Luo, (2001), Pp. 88-100 177
Cf. Pan and Chi (1999), P.360 178
Cf. Carpenter and Nakamoto, (1989), P. 286 179
‘Ibid’
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delay their time of entry and thereby loose market opportunities to competitors180
. The extent of
experience acquired in the process of internationalization also determines how fast a firm can
enter a country. This reflect on how effective and efficient MNCs expand their horizon with
minimal costs and risk due to experience gained from other countries which can easily be
replicated in a new market with minimal adjustments181
.
3) Firm Size: Larger firms are prone to having greater success at entering a new market than
smaller firms, due to the fact that they possess the capacity to command greater resources both
tangible and intangible resources182
. Larger firms are able to deploy their wealth of experience
and firm specific knowledge into the new market environment. For instance Nestle has a market
portfolio of 7,695 brands to choose from when entering a new market183
. The size of a firm
determines the survival level of a firm in the face of negative performance at the entry level184
.
4) Technology and Innovation: Firms rely on innovative capabilities to improve the value of
their product offerings in order to position themselves ahead of competition. These capabilities
are employed through siting a technological equipped production plant, product packaging, and
distribution processes. Constant marketing update will enable the firm in coping with changing
consumer preferences and demands185
. Global companies that have succeeded in siting their
firms in new markets environment develop strategic and innovative responses to consumer need.
They import new techniques from their home country into the foreign country186
.
5) Distribution Network: An efficient and effective distribution network determines the pace
and speed at which product reach the consumers. Circulation of goods and services determines
the market share and the level profitability. The new entrant will have to decide how and who
manages the distribution of its’ products in the foreign market. The firm can choose to either
employ a distributor via the company owned distribution channel or contract the distribution
process out to an independent firm within the foreign country. The former option gives the firm
control over its’ operations while the latter option give minimal or no control over the firms’
180
Cf. Gielens et al, (2007), P.198 181
Cf. Gielens et al, (2007), P.199 182
Cf. Bonaccorsi, (1992),P. 304 183
Cf. Parson, (1996) 184
Cf. Luo, (1997), Pp. 89-100 185
Cf. Ana Mundim, (2012), Pp.5-7 186
Cf. Maddala and Knight, P.531
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distribution processes187
. When decisions about the distribution channel are made by a firm, it
may be difficult to change without incurring some costs. Williamson188
suggests that a new firm
is better position if an independent distribution channel in the foreign market is adopted. This
strategy gives the firm the ability to explore and benefit from the experience and expertise of the
local distributors and also minimizes pressure from the government and regulatory authorities as
regards the need to use local employees in their business operations.
The figure 19 below gives further sources of key success factors.
Figure 19: Key Success factors
Source: Economist intelligence Unit survey; June –August 2008
187
Cf. Ahmed, (1977), Pp. 327-336 188
Cf. Williamson, (1981), P. 1543-1544
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2.3.1 Types of Market Entry Barriers
Researchers in various write ups have listed various sources and types of market entry barriers.
Porter, M. E., (1980)189
, in his text on competitive strategy elaborated on six major sources of
entry barriers. These are:
Cost Advantages of Incumbents: This barrier stems from economies of scale.
Economies of scale refer to the reduction in unit cost of a production though large or
mass production of goods. It poses a barrier by compelling new entrants to enter the
market with large scale production process while risking strong reaction from the exiting
firms or to enter with small scale production and settle for cost disadvantages in
manufacturing, purchasing, research and development, marketing, services network, sales
force utilization and distribution190
. Cost advantages of incumbents’ increases as a result
of technological knowhow, design characteristics, easy access to raw materials, favorable
location, government subsidies and market experience gained through years of
production and business operations191
.
Product Differentiation: creates insulation against competitive warfare. Already
existing established firms have created or carved a niche for their business through brand
identification, especially if the country has high preference for locally made products.
Products are differentiated through product design and product use attributes192
.
Customers build their loyalty to the firm through advertisement and customer service193
.
New entrants are tempted to engage in heavy advertisement and sales promotion that
generates high cost of marketing activities which may not yield the targeted result.
Capital Requirements: Capital is a major requirement when venturing into any business
venture. The level of capital required for new venture especially in wholly owned
subsidiary mode of entry poses a barrier to new entrants194
. It is needed for initial
189
Cf. Porter, (1980), P.13 -14 190
Cf. Porter, (1980), P.13 191
Cf. Karakaya and Staphl, (1989), P. 85 192
Cf. Pehrsson, (2006), P.267 193
Cf. Porter, (1980), P. 14 194
‘Ibid’
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investment before the marketing operations195
. Part of the initial investment will focus on
the acquisition of equipment’s, labor, facilities, training, inventory, advertisement, hiring,
raw material, and promotion costs. New entrants must make adequate provision for
capital in order to benefit from economies of scale196
.
Switching Costs: This barrier is created through the switching or changing of suppliers
within a location or industry197
. Such costs may be incurred since the buyer who switches
supplier may adjust its’ product specification or modify the process and information
system. The bigger the switching costs the more difficult it will be for the new entrants to
gain customers. On the hand, the high switching costs hinders buyers or firms from
changing suppliers despite unfavorable business dealings and condition. Suppliers are
key players and a key success factor for any business venture.
Access to Distribution Channel: A new firm must secure an effective means of
distributing its product and services. The more the challenges in locating viable means of
distribution (wholesalers and retailers), and the existing competitors block them, the
harder the entry into the market will be. New entrants are most times compelled to bypass
the existing channels and create a new channel which might be cost intensive198
.
Government Policies: The government of a country through policies and regulation
measures can limit and foreclose entry into a particular industry or country. These
measures can hinder or aid new entrants as well as amplify the other barriers to entry
through patenting rules that are geared towards protecting proprietary technology from
imitation and environmental regulations199
. On the other hand government also grants
subsidies to new entrants which in most cases are already given to early movers than late
movers200
.
The table 7 below gives a comprehensive listing of other types and sources of market entry
barriers according to various researches.
195
Cf. Pehrsson, (2008a), Pp. 168-175 196
Cf. Robinson and Mcdouga, (2001), P.671 197
‘Ibid’ 198
‘Ibid’ 199
‘idid’ 200
Pan and Chi (1999), P.360
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Table 7: Types of market entry barriers
Barriers Source Implications
Cost advantage of
Incumbents
Product differentiation of
Incumbents
Capital requirements
Customer switching costs
Access to distribution
channels
Government policy
Advertising
Bain1956;Day1984;
Harrigan1981;Henderson,1984;
Lieberman1987;Porter 1980; Scherer
1970,
1980; Schmalensee 1981;
Weizsäcker,1980;Yip 1982
Bain 1956, 1962; Bass et al. 1978;Hofer
and Schendel 1978; Porter1980b;
Schmalensee 1982
Bain 1956; Eaton and Lipsey 1980;
Harrigan 1981; Porter 1980
McFarlan 1984; Porter 1980
Porter 1980b, 1985
Beatty et al. 1985; Dixit and Kyle 1985;
Grabowski and Vernon 1986; Moore
1978; Porter 1980; Pustay 1985
Brozen 1971; Comanor and Wilson 1967;
Demsetz 1982; Harrigan 1981; Netter
One of the most important entry
barriers, and usually results from
economies of scale and learning curve
effects
Established firms have brand
identification and customer loyalties
due to advertising, being first in a
market, customer service, or product
differences
Need to invest large financial
resources in order to compete or enter
a market constitutes barrier to entry,
and is higher in capital-intensive
industries.
Switching costs prevent the buyer
from changing suppliers, and
technological changes often raise or
lower these costs.
First or early market entrants use
intensive distribution strategies to
limit the access to distributors for the
Potential market entrants
Government limits the number of
firms in a market by requiring
licenses, permits, etc
Heavy advertising by firms already in
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Number of competitors
Research and development
Price
Technology and
technological change
Market concentration
1983; Reed 1975; Reekie and
Bhoyrub 1981; Spence 1980
Harrigan 1981
Harrigan 1981; Schmalensee 1983
Needham 1976; Smiley and Ravid
1983
Arrow 1962; Ghadar 1982; Porter
1985; Reinganum 1983
King and Thompson 1982
Bain 1956, 1968; Crawford 1975;
the market increases the cost of entry
for potential entrants and affects brand
loyalty as well as the extent of
economies of scale by causing cost per
dollar revenues to decline
Market entry is expected to be more
likely during periods of increasing
incorporations and less likely after a
lag, during periods when high
numbers of business failures occur.
This barrier is usually short-lived.
Incumbent firms may prevent the
entry of new firms by investing
effectively in R&D, which increases
technological scale economies and
forces the ongoing industry context to
evolve in a way that would make
subsequent attempts to enter even
more ineffectual.
Price warfare can be a significant
deterrent to entry, particularly in
industries where firms are more likely
to lower their prices to fill
underutilized plants
Usually present in high technology
industries and can actually raise or
lower economies of scale, which is
one of the major sources of cost
advantages.
The influence and impact of
concentration on entry appear to be
minimal.
Entry is unlikely to be as easy in
highly concentrated as in less
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Seller concentration
Divisionalization
Brand name or trademark
Sunk costs
Selling expenses
Incumbent's expected
reaction to market entry
Mann 1966
Schwartz and Thompson 1986
Krouse 1984
Baumöl and Willig 1981
Williamson 1963
Needham 1976; Yip 1982
concentrated markets. The higher the
degree of concentration, the greater
the effect of barriers on profit; the
lower the degree of concentration, the
lower the effect of barriers on profit
Only expected in exceptionally
profitable oligopolistic industries.
Incumbent firms create new
independent divisions more
cheaply than potential entrants who
must incur additional overhead costs
for entry
New entrants to an industry are denied
the benefits of brand name created by
others as a result of the exclusive
rights to use given with a trademark.
Usually a weak barrier.
Contribute to entry barriers that can
also give rise to monopoly profit,
resource misallocation, and
inefficiencies.
Shifts in demand functions can result
from selling efforts making market
entry
endogenous
May deter market entry only if the
incumbent firms are able to influence
potential entrants' expectation about
the post-entry reaction of the
incumbents
Access to strategic raw materials
contributes to firms' absolute cost
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Possession of strategic raw
Materials
Scherer 1970
advantages
Source : Adapted from Karakaya , F. & Stahl, M. J(1989)
The listed barriers can be grouped into four broad categories which are; firm specific advantages,
product differentiation, financial requirements, profit expectation and industry characteristics201
.
Firm’s specific advantages are more difficult for the new entrant to overcome. It is one of the
most pronounced entry barriers in the internationalization of a firm since they are mostly
embedded in the firm and are difficult transfer or imitate. Advantages gained from differentiated
products create loyal customers for the incumbent firm. Customers are usually unwilling to
switch to other products especially when the switching cost is high. The size of the new entrant
determines their ability to cope with the huge capital required in entering a new market. This is
also a major market barrier especially in emerging markets where some basic infrastructures are
not in place and have to be fixed by the new entrant. The main motive of entering a foreign firm
is to make or growth profit. The level at which this target is achieved has a significant impact on
the entry decision of the firm since the incumbent firm will also be deploy strategic tactics to
defend their profit position in the market and this will invariably pose a big challenge to the new
entrant. Another factor that creates barrier to entry is the characteristics of the industry. Industrial
and consumer markets have unique characteristics such as government policies, location, patents
etc. These characteristics in their various degrees need to be dealt differently by the new entrant.
In their research on 202
32 developing countries (including Nigeria) scholars linked government
policies to administrative barriers that hinder the inflow of FDI from foreign investors due to the
201
Karakaya (2002) 202
Cf. Morisset and Lumego (2002), P. 3-4
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long time and costs involved in the business establishment procedures. Economies of scale,
capital requirements and products were identified by Bain (1956), Porter (1980), Pehrsson
(2008), Lutz et al. (2010) as the most significant market entry barriers.
2.3.2 Ways to militate against the barriers
Overcoming market entry by new entrants entails the development of strategic business models
and thorough market analysis that will position the firm for a sustainable competitive position in
the new market environment. The proposed seven steps to successful market entry are;203
identify the target market, develop the right value proposition, market strategy that minimizes
risk, tackling procurement and sourcing, manufacturing model, distribution strategy and
marketing and promotion. New entrants should identify the market areas that are more attractive
and can serve effectively through an in-depth analysis of the industry, the country, the
consumers’ preferences and the relationship between customer satisfaction and return based on
the firm’s resources and capabilities204
. This market analysis will enable the new entrant to
understand the market environment, the competitors (their strength and weaknesses), the
opportunities embedded in the market and device a means to allocate resources for sustainable
competitive market position205
. Some marketing strategies that is all encompassing for new
entrants206
, they are:
Differentiate your products and services to meet your customer needs and desires.
Design or redesign new products and services to meet your market needs.
Find hidden needs and make improvements to your existing products.
By selecting and focusing on the most responsive segments to the exclusion of others,
marketing can be created to more effectively fit your consumers. Finding, understanding
and focusing on the needs of your best customers can make you a market leader.
Target your marketing mix to the customers most likely to want your products or
services
203
Cf. Grant et al (2011) Pp 4-10 204
Cf. Doyle, (1995), P.26-27 205
Cf. Wind, (1978), P. 317-318 206
Sulekha Goyat (2011), P.50
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Identify behaviors and buying motives for your products.
Identify your most and least profitable customers.
Help you avoid unprofitable markets.
Increase brand loyalty and decrease brand switching.
Learning more about your competitors makes you more effective
Improve your competitive positioning to be more accurate and better differentiate you
from the competition.
Reduce competition by competing in a more narrowly defined market and establishing a
niche.
Market segmentation is a proven way of improving profitability. By focusing on
individualized sub groups, you're better able to meet their needs and gain higher market
share and profits.
Refine your pricing to maximize revenue.
Find markets where you can increase your price.
Optimize your marketing resources and get the most impact for your investment
Focus and match your activities to things you can do effectively and profitably.
David207
also developed a business model that can aid new entrants in competitive market
positioning.
207
David. J, (2010) P.1173
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Figure 20: Elements of business model design
Source: David J.(2010)
The unique characteristics of emerging markets as discussed in the research create a dynamic
business environment for establishing a business venture. Opportunities are embedded in these
markets so also are the barriers and risk very enormous. However, identifying the market entry
barriers and devising a strategic plan to militate the barriers through adequate market research
processes, selecting the right entry mode, good understanding of the culture, quality and
differentiated product offering, effective distribution channel, adequate man power supply,
choosing the right internationalization strategy, and sensitivity to local government regulations.
MNCs that aim at succeeding in emerging market need to identify their market as stated in the
business model design of David J. Targeting a particular market segment ensures adequate
understanding of the markets components and how to meet their need. Being customer focused
enables the firm to produce goods that are tailored towards to satisfying their target market and
ensuring sustainable existence. Ascertaining the right technology and product mix for a specific
market determines the level of acceptance and growth of such product offering. A technology or
product that succeeded in advanced economies might need some modifications and adaptations
for it to succeed in an emerging market hence the need for flexibility when operating in an
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emerging market. Generating profit and increasing shareholders value is one of the main reasons
for establishing a firm. A MNCs must create a steady and reliable means of generating revenue
from its’ business operations in order to ensure a sustainable future.
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3. RESEARCH METHODOLOGY
This section of the study describes the research approach, the rationale behind the choice of
approach, the data collection method as well the method for data analysis.
3.1 The Research Approach
This study is based on qualitative method of research which allows the researcher to study the
identified issues with depth and detail. Human resources are the key sources of raw data
collection. In a bid to answer the research questions and achieve the aims and objectives of the
study, the researcher deployed a case study approach. Unilever Nigeria Plc is chosen as the case
company. The market entry barriers encountered at the point of entering the Nigeria business is
identified. The key success factors, the potentials embedded in the environment and how
Unilever overcame the barriers to benefit from the market is also discussed.
3.2 The Rationale for Research Approach
The main reason for choosing a case study approach to gain a descriptive account of Unilevers’
experience in Nigeria. The questions as to how, why, what and where are investigated through
secondary and primary data208
. This approach will also aid in an in-depth exploration of issue in
real life setting209
.
Unilever Nigeria Plc is chosen as the cases company due to the fact that it is the one the oldest
and successful FMCG industry in Nigeria. Also from my investigation, there hasn’t been any
research on Unilever Nigeria with regard to this research perspective. This study will increase
knowledge as regards the operations of Unilever in Nigeria how they have maintained a
sustainable and successful business empire in Nigeria in spite of the risks and challenges facing
Nigeria as an emerging markets.
208
Cf. Jennifer Rowley, (2002), P.16-17 209
Cf. Crowe et al (2011) w.p
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Nigeria as a nation is also chosen on the bases of huge opportunities embedded in the business
environment. Being one of the fastest growing African countries presents an opportunity to
explore the market barriers, ways to militate the barriers.
3.3 Data Collection Method and Instrument
Multiple data sources were used, both primary and secondary data was collected. The secondary
data were collected through academic electronic journals, economic reports, textbooks, industry
analysis reports and newspaper reports for the theoretical background of this master’s thesis.
While the internet and mail interview were used to generate the primary data to highlight the
objectives and main aim of the study. A mail interview approach was used and unstructured open
ended interview questions (see appendix) were sent to the interviewee via email to Mr.Felix
Odudu the products innovations and process expert in Unilever Nigeria. The questions where
broken down into four different sections. The first section covers the history of Unilever in
Nigeria. The second section deals with the uniqueness of the Nigeria business environment. The
third section deals with the market entry barriers and how Unilever was able to overcome the
barriers while embracing the opportunities. The final section covers the key success factors.
3.4 Limitations of the Study
The main challenge encountered in this study is a distance barrier that limited the primary data
gathering process. A face to face interview would have been most appropriate for a case study
research but a mail interview approach was chosen due to distance barrier. However, the
cooperation of the interviewee, the product, innovation and process expert of Unilever Nigeria-
provided a comprehensive measure of data for this study. Furthermore, collecting data’s’ from a
variety of firms would increase the significance of the study, but due to time constraints only one
firm responded to cooperate for this qualitative study.
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3.5 Data Analysis
The responses from the interviewee were collected and analyzed by the researcher. The empirical
information gathered is also analyzed and merged with the theoretical foundation discussed in
the previous chapter. The results of the empirical study are interpreted and a model linking the
discussed concepts is constructed in order to give a holistic view of the study.
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4. FINDINGS OF THE EMPIRICAL STUDY
This chapter highlights the findings from the interview conducted with Mr. Felix Odudu; the
products innovations and process expert at Unilever Nigeria. The interviewee was asked
questions on major aspect of Unilever’s operations in Nigeria which are; the history, its’
experience in the Nigerian business environment, the market entry barriers, and the key success
factors. Due to nature of the interview, which was unstructured in nature, the findings were
presented in a re.-organized but raw format. Relevant information that was extracted from firm
publications, annual reports and the firms’ website are also presented for firm characteristics.
The information gathered further through the interview are examined critically with the aim of
achieving the research objectives.
4.1 Firm Characteristics: Company Background, Mode of Operation and
Growth Level
Unilever Nigeria is an extension of Unilever family with its origin in the UK is known as one of
the worlds’ leading FMCG industries. It was established in April 1923 initially as a soap
manufacturing company known as Lever Brothers West Africa by Lord Leverhulme. Premium
soaps such as sunlight, lifebuoy, and lux were launched and subsidiaries of the company were set
up in U.S, Switzerland, Canada, Australia and Germany between 1914 and 1906. By 1930 in
Britain, Lever Company merged with Dutch company- Margarine Unie to form Unilever which
is arguably the first modern multinational company.
In Nigeria, through the merger and acquisition of Lipton Nigeria Ltd in 1985, and Cheese bough
industries in 1988, the company diversified its operations into manufacturing and marketing of
foods and personal care products. The name of the company changed from Lever Brothers West
Africa to Unilever Nigeria Plc in 2001. It became quoted on the Nigerian Stock Exchange in
1973 with an equity holding of 50.04 percent Unilever and 49.96 percent Nigerian investors210
.
210
‘ Ibid’
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The company has built manufacturing plants in Lagos state and Agbara in Ogun State. The
markets is segmented into three broad categories; food, home care and personal care. The food
segment offers products such as; tea, sauces, margarines, spreads and cooking products. While
the home and personal care offers products such as the, skin, hair care and oral care products.
The company’s well-known brands are; Close-up toothpaste, Lipton yellow label tea, Blue band
margarine, Knorr, Lux soap, Royco, Vaseline, Omo, Sunlight soap, Pepsodent, and Pears baby
products. These products brands are world class product brands that grace homes within and
outside Nigeria. Unilever brands gained its’ popularity in Nigeria through its strong roots in local
markets and first-hand knowledge of the local culture and world class business expertise which is
applied internationally to serve consumers everywhere. They also understood Nigeria as an
eclectic collection of different languages, cultures, traditions and business practices. This fact
buttresses the company’s internationalization strategy of being a multi- local multinational
organization according to the211
.
According to Mr. Odudu, the market entry mode adopted by Unilever in the Nigerian business
environment is the wholly subsidiary mode of entry with a combination of mergers and
acquisition for market expansion. This they did through the setting up of their production plants
and deployment of international technical know-how into the business domain. Through this
mode of entry Unilever, has shown great confidence in the Nigeria business environment despite
the numerous environmental, social, political and economic challenges present in Nigeria as has
been discussed in the previous chapters. Furthermore, the company has developed a high growth
aspiration and a vision to double the business in the years that follow while reducing the
environmental impacts of their operations. It has also shown a high level of commitment to the
citizens by being socially responsible through the provision of nutritional / oral care donations to
various communities and being involved in sponsorships programs. Employees are also
encouraged to engage in voluntary services to the less privileged.
A strategic distribution and supply network are key factors that determine how products and
services penetrate every part of a nation especially for an emerging market like Nigeria. Unilever
implemented an effective and efficient product delivery system in Nigeria that is faced with poor
road network, due to inadequate infrastructural development. The distribution channels were
211
Cf. Unilever annual report(2013), P. 4
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segmented into regions, the south- east, the south central, the west, the north and the use of
numerous trade outlets.
Over the decades Unilever has grown in leaps and bounds financially and otherwise which
signifies that moving into in to the Nigerian business has been profitable. Although there has
been periods of tumult and environmental challenges which has impacted the financial growth.
According to212
report while accessing Unilevers for a two year period; the revenue generated as
at December 2012 stood at N55,547,7980. The net income was N5,597,6130 with a profit margin
of 10.0771 percent. In December 2013, the revenue generated increased to N60,004,1192 while
the net income decreased to N4,806,9074 with a profit margin of 8.0110 percent. The figure
below shows the turnover and operating profit for a five year period which also indicates a
decline in the turnover in 2013.
Figure 21: Turnover and operating profit trend
Source: Unilever Annual Report and Financial statement (2013), pp 95
The turnover and profit trend for the period 2008- 2013 has been very erratic especially for 2013
where the profit declined from 16 percent to 13 percent. According to the Chairman of Unilever
his Royal Majesty Nnaemeka A. Achebe 213
, the decline has been due to rise in power generation
212
Cf. Bloomberg report (2013), w.p 213
Cf. Unilver annual report (2013), P.8
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cost as a result of drastic drop in national power generation and supply. He also mentioned that
high pressure on consumer disposable income, security issue in some parts of the country has
negatively impacted the company’s performance in 2013. Poor infrastructural development has
also hampered the effectiveness and efficiency of the distribution and logistics processes.
However, in spite of these challenges Unilever has continued to show its’ relentless effort in
continued commitment to the Nigerian business environment as the investment on in 2013 on the
contrary has been on the increase through “building of world class brands, consumer relevant
advertisement, cutting edge product innovation, capacity and expansion distribution and logistics
investment, and sales capacity investment”214
as we see in the figure below.
Figure 22: Unilevers' investment rate
Source: Unilever Annual Report and Financial statement (2013) P. 95
The level of investment has been on the progressive according to the years under review and it
peaked in 2013.
The opportunities for growth in Nigerian business environment still hold high for Unilever
despite the challenges that the environment presents. Unilever has been forecasted to grow at an
average rate of +8.81 percent annually as the figure below showcases. 214
‘ Ibid’
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Figure 23: Unilevers' forecasted growth rate
Source: Market Ft 2013 report
The Chairman of Unilever His Royal Majesty Nnaemeka A. Achebe indicated the strategies for
this growth rates in his statement in the annual report. He stated that Unilever is poised to
continue its sustainability journey through building more enduring business that will enable it to
harness the potentials and opportunities in Nigeria market. A focused direction on strengthening
the core capabilities, cost reduction, investment in human resources and leveraging on Unilever
Sustainability Living Plan (USLP) for continuous annual growth rate.
Unilever as a MNC has grown and has been able to build a sustainable business empire in
Nigeria. Although so many challenges and threats has faced impacted their operations negatively
but they have been able to whether the storms and have continues to uphold their confidence in
the Nigeria market.
The main objectives of this the study is to identify the market entry barriers, that Unilever
encountered and how they were able to militate the barriers. Also to identity the key success
factors within the Nigerian business environment and how they have been able to manage
external pressures while growing profitably.
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4.2 The Interview Analysis
The interviewee was presented with the following questions and responses provided accordingly.
From your experience, what significant changes (government regulations,
competition, and consumer spending habits) are in the environment presently as
compared to the time of moving into the Nigerian business domain?
The interviewee gave a clear insight into the Nigerian business environment and the various
changes that has taken place over the years as regards the government regulations, competition
and consumer spending habits. He stated that in the past Nigeria was like a dumping ground for
all sorts of products due to the fact that laws and regulations guiding the importation of goods
into the country was not enforced despite its’ existence. This challenge led to the inflow of
adulterated products which were being heavily patronized by the consumers since they are
cheaper and very much affordable. Unfortunately, some Nigerians even collaborate with foreign
manufacturers such as China to imitate premium produce them outside the country and ship them
into the country at cheaper prices. Consequently high rate of fake products hampered the growth
of indigenous companies and even MNCs.
The present day state of business operation in Nigeria has changed drastically. Various Nigerian
trade and manufacturing associations have risen to the occasion of protecting their trades and
industries through strong collaboration with the government agencies in order to eradicate
counterfeits and illegal importation of goods. The Port Reform 2012 is also one of the major
strategies deployed by the government to curb this menace and to restore stability in the system.
Poverty level was quite high in the past and there existed a few elite. Brand quality was also a
major and consumers were not protected in any form unlike today that consumer protection
council (CPC) is functional and consumers’ right to seek redress is upheld. Unilever has a
department which is solely responsible for gathering and analyzing information from consumers.
Results have shown that consumers spending based on disposable income has increased
significantly despite the fact that the income per capita of some consumers are still below $1. An
average Nigerian is sophisticated and demands value for money. Nowadays, quality products are
sort after by the consumers and they are willing to pay high prices for them unlike in the past
where any product sells.
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There has also been the influx of MNCs into Nigeria compared to the time when Unilever moved
into the Nigerian market. The environment due to its potential and varied opportunities has
attracted more FMCG industries such as; P&G launching the opening a new product and a
factory in Abeokuta, Kraft Foods acquiring Cadbury Nigeria plc and dominating the beverage
and confectionary industry, Unilever Nigeria plc under “Lift Africa Agenda” also venturing into
new product line and United biscuit international based in the UK moving its’ investment into
Nigeria and acquiring some major biscuit companies e.g. A&P foods. These internationalization
operations of the MNCs have triggered a healthy competitive business environment which is
good for business and for the nation at large.
The rate of advertisement and outdoor activities by various companies has also taken a
significant turn. Companies are becoming very dynamic and innovative in their promotional
activities. Advert messages through beautiful jingles in very simple languages that the young and
old consumers can easily relate with are used. Numerous channels of communication are also
employed e.g. television, radio, internet, street storming, billboards etc. All these prove the fact
that there has been a significant changes compared to decades ago.
Unilever Nigeria Plc as a MNC has the capabilities and the resources to compete in this
environment through the deployment of strategic market plans and being ahead of the
competition through the research and development he stated.
How has the changes impacted your business both positively and negatively
The changes have impacted Unilevers’ operations both positively and negatively. Positively,
Unilever brands that used to be susceptible to counterfeits and adulteration are now protected
from such risks and challenges through reformed regulations and good relationship that exists
between the government and the manufacturers association. This has been increased level of
profit generation as we see in figure 4.1 and it has also boosted consumers’ confidence in the
Unilever product quality. Negatively, the system has become very bureaucratic which has
indirectly created a “bottle neck” especially within the government agencies where lobbying is a
major way of getting things done faster.
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What has been the companies’ experience in terms of the environment, culture and
traditions of the populace and how has it impacted your business operations?
The environments have not been very friendly ranging from Federal, State and Local government
policies and regulations which at one time or the other are inimical to doing business with less
sweats. Unilever experienced multiple taxes, imposition of unnecessary levies and forced
contributions and sponsorship of some Agencies’ programs. Also experiencing high demands
and compelling requests from heads of communities and youth leaders. In 2004, Unilever moved
its Aba in Abia State factory site to Agbara in Ogun state due to some of the aforementioned
reasons. Employees from that part of the country disengaged not interested in relocating with
family to far away state and some were also laid off by the management. All these were huge
cost on the business. Building a new factory entirely was a setback at that point in time as also a
cost on the business. The activities of the “Omonile” (original owners of the land as they are
called in Yoruba – they called themselves) every year coming back to resell the same land at
higher prices despising “Certificate of ownership” issued by government. Which the business
must pay or business activities grounded. This set of human beings, lawless and fearless without
regards to law enforcement Agencies.
In spite of all these odds, Unilever still engaged in a number of activities under her Social
Responsibilities to the communities, renovating schools, sinking borehole waters, carrying out
sanitary activities in swampy areas, etc.
Does Nigeria as an emerging market fit into your global business model?
“Unilever business model is designed to deliver sustainable growth. For us, sustainability is
integral to how we do business. In a world where temperatures are rising, water is scarce, energy
is expensive, sanitation is poor in many areas, and food supplies are uncertain and expensive, we
have both a duty and an opportunity to address these issues in the way we do business”215
Yes, Nigeria fits into the global business model where sustainable and improvement in standard
of living is of great interest. The initiative such as “Lift Africa Agenda” – with Unilever global
governing Council supports is a clear indication of this fact.
215
Unilever web page.
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How can your firm rate the consumers spending habit 20 years ago compared to
now?
In Mr.Odudu’s opinion an average Nigerian consumer is now highly sophisticated compared to
20yrs back. They are now more knowledgeable, exposed, well informed and sensitive to changes
in the market. They are aware of what they need and they prepared to pay premium prices even if
it means switching to competitors. Consumers nowadays are also health conscious and are
prepared to go for products that have more health benefits and add vitality to life.
Nigeria being regarded as one of the fastest growing emerging economies in Africa,
do you think this reflects in the life style of the citizens as regards their spending
habits?
The Nigerian population is a growing population teeming with able bodied youths who wants to
be in tune with the globe. They are sensitive to what they wear, eat and how they spend their
resources. Consumers are responding to new brand launches on daily basis and spending a lot to
afford them. They are proud of belonging to the reigning class of consumers and therefore spend
what it takes.
How can you rate the FMCG market environment in terms of competition?
Mr. Odudu again stated that it is very competitive but also very healthy. There have been
mergers and acquisitions by large multinational corporations, citing of ultramodern factories and
movement of new investors in the Nigerian FMCG industries. This has intensified the rate of
competition.
Do you think the environment is attractive enough to attract more FMCG
industries?
For the interviewee both Federal and State governments are encouraging investors with
incentives to enable them settle in and compete favorably with existing industries,
notwithstanding the infrastructural issues currently embattling the country economy and social
life.
Which market entry modes were implemented by your firm when you first entered
Nigeria and what factors influences these modes?
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Unilever has always deployed a wholly owned subsidiary mode of entry during
internationalization. In Nigeria this same mode was used and later mergers and acquisitions were
used for expansion purposes. As the time of entry from information gathered, acquiring
properties for setting up factories or companies was not really a big a challenge as compared to
the present day due to the fact that there were a few companies in Nigeria and the government
encouraged the MNCs through incentives as regards land usage and acquisition of properties in a
bid to boost economic activities within the region and foster the sale of cash crops and farm
produce in form of raw materials needed by the MNCs for their production processes. This factor
contributed to the entry mode choice in Nigeria.
What specific barriers did Unilever encounter at the point of entry and what
marketing strategies were adopted in order to militate against them?
One of the main barriers encountered by Unilever is the issue of multiple taxes. Nothing was
really done to militate against this barrier until the federal and state government put some
measure in place to curtail the rate of tax being paid by MNCs including Unilever.
Another barrier encountered was the poor level of infrastructural development. Unilever had to
set up a lot facilities where ever the factory is sited. Facilities such as power generating set, pipe
borne water, good road and other amenities in order to keep production functional.
Would you say the entry barriers have reduced presently compared to when your
firm entered the Nigerian business environment in terms of transaction cost, risk,
crisis and environmental challenges?
Yes, some incentives such as tax exemption and harmonization of multiple taxes introduced
presently by the state and Federal governments have aided in managing the tax barriers and this
has impacted profitability level positively. However the business environment in Nigeria is
currently facing some challenges in terms of sectorial, religious and political crisis which has
increased the risks and the cost of setting up a business in Nigerian thereby posing a threat to
market entry.
Is the government doing enough in terms of supporting the operations of the MNCs
in Nigeria through the elimination of institutional barriers to entry?
According to Mr. Odudu government has relaxed some policies in order to make the
environment attractive and profitable to the MNCs through the reduction of tariffs. However, the
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government and the responsible agencies still have a lot to do as regards ensuring stability within
the polity by eradicating corruption, bribery and bureaucratic bottle necks within its’ institutions.
Has the business operations been profitable? And to what extent.
Business has been profitable for Unilever Nigeria Plc as shown in the figure 4.1 although there
was a decline in 2013 which was due to some environmental factors. Figure 4.3 shows forecast
of +8.81 percent growth rates, a clear indication of a thriving business venture. These
developments have engineered Unilevers’ commitment to the Nigerian business environment.
What key success factors were employed by your firm?
Unilever has employed some key success factors in attainting its’ level of growth, profitability
and sustainability. Some of these factors are; dynamic business strategies, employee motivations,
quality and fast decisions making processes, brand Innovations and aggressive Marketing
activities.
As a global company, do you think your global presence has contributed to the level
of growth and profitability experienced in this environment?
Unilever has a reputation for quality brands and premium products that graces most homes all
over the globe. In Nigeria, it has also produced products with local adaptations. It is much easier
for consumers to identify with global brands such Unilever products. The technical know- how
of Unilever is replicated in its’ foreign markets and this has enabled it to maintain its’ global
presence and consequently impacts profitability in the foreign market.
What candid recommendations can you make to incoming investors, the
government and the entire populace as regards growing a business empire in
Nigeria as an emerging market?
For investors coming into Nigeria, Mr. Odudu recommends that they have a good understanding
of the consumers and their unique needs by introducing brands that are tailored to their live style
and environment. They should also introduce quality brands that are affordable and also chart a
course for effective delivery of these products into the rural part of the country. Adhering to the
rules and regulations governing the nation or the state where they are located will safe them a lot
of trouble and costs through engaging in legal business, paying taxes and fees where applicable.
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Having genuine interest of the consumers and being socially responsible to the society will aid in
ensuring sustainability of the firm.
To the government and the entire populace, I will recommend the relaxation of draconian laws
capable of inhibiting investments in the nation through the abolition or further harmonization of
the multiple taxes. Policies that pertain to investing in Nigeria should also be reviewed from to
time as the business environment changes especially in the area of importation of products in
order to protect indigenous manufacturing companies. Finally, government agencies responsible
for the registration of businesses in Nigeria should work at reducing the length or period it takes
to register a business venture in Nigeria by removing some unnecessary procedures and
bureaucracies.
The populace should develop more interest in made in Nigeria products and desists from
depending mostly on imported goods which are more expensive and some are even of less
quality compared to the locally made products. Patronizing locally made goods will contribute to
growing the local manufacturing companies, increase economic activities within the country and
rapid economic growth as we see in other emerging markets e.g. China.
.
In your own opinion, do you think that they are opportunities for investors in the
Nigerian business environment?
Unlimited opportunities abound and are varied. Nigeria is one fastest growing African countries
loaded with so many untapped potentials in various segment of the nation. Investors only need to
identify these needs and device a means of meeting them. However, there are challenges and
risks within the environment as with most emerging markets, but these challenges can be
surmounted if adequate research, market sensing activities and genuine commitment to the
nation is upheld.
4.3 Discussion of the Findings
This section of the study will focus on discussing the findings and integrating them into
achieving the research objectives of identifying the potentials in the Nigeria market and how
MNCs such as Unilever tapped into these resources. The research questions of what barriers and
challenges were encountered by Unilever as the time entering of entering the Nigeria market and
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what the current barriers are and how to militate against them. Finally what are the key success
factors employed by Unilever in Nigeria are answered. These issues are grouped into three main
perspectives as outlined in the study. These are; the Nigerian business environment, market entry
barriers and key success factors.
A. THE NIGERIAN BUSINESS ENVIRONMENT
According to the findings of this case study, Nigeria as an emerging market is one of the fastest
growing African country that is loaded with huge untapped potentials. MNCs have shown a high
degree in this market through various forms of investment and internationalization of their
operation via different market entry modes such as wholly owned subsidiary, merges and
acquisitions, alliance, exporting etc. all in the bid to grow profit and expand their market.
Unilever Nigeria Plc is one of the oldest FMCG industries that has benefitted immensely from
the business opportunities in Nigeria despite the numerous challenges facing the nation.
However, the environment has gone through significant changes from when Unilever entered the
market till date. The environment has attracted more FMCG companies which has developed the
market competitively. The tastes and lifestyle of the consumers has also change. They are more
choosy, sophisticated and have good appetite for quality products. They are also more educated,
knowledgeable, informed and are more aware of their rights and privileges. These are major
characteristics of emerging markets as discussed in the theoretical framework. These are signs of
a budding and a growing market that companies with foresight and good insight can tap into. The
population is a growing population made up of youths and that creates a business platform for
products that are tailored towards the youths as we see in the product offerings of Unilever
Nigeria. Unilever’s global business model that is geared towards improving the standard of
living of the populace also fits into the Nigerian business environment.
B. MARKET ENTRY BARRIERS
The findings shows that there are numerous barriers that inhibit market entry of MNCs. Table
2.7 in the theoretical framework presents a table showing the variant barriers there is. At the
point of Unilever entering the Nigerian business domain, the major barriers that they encountered
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was a challenge of multi-taxing system and poor level of infrastural development. Setting up
manufacturing plants entails setting up a whole new set of infrastructures such pipe borne water,
power generating plans, good road networks just mention a few. These activities increased the
transaction cost and depleted profit. Findings also confirmed that the government plays a
significant role as an influencer of the market entry barriers, most especially the structural
barriers. For there to be an increased level of growth of the FMCG in Nigeria, the current
structures need to be improved upon so that indigenous manufacturing firms can and also to
attract FDI through the MNCs. The bureaucratic structures are mainly focused on the
specifications rather that needs within the market environment. Government should be more
focused on improving the social and economic structures that will be geared towards economic
development in terms of providing basic amenities such as pipe borne water, constant electricity
supply, good road network, and overall infrastural development which are main factors that
determines how attractive an environment is for the inflow of FDI.
According to the Eclectic paradigm or the OLI frame work which stresses firm ownership
advantage where MNCs as we see in the case of Unilever transfers competitive ownership
advantage from the home country to a foreign where the location such as Nigeria is loaded with
resource abundance and taking advantage of the domestic market domestic through
internationalization of markets. However, constant FDI can only flow into Nigeria if the
environment if the government ensures a favorable, stable and profitable business environment
according to the findings
C. KEY SUCCESS FACTORS
Five major key success factors were identified in Unilever. These are:
1). Dynamic Business Strategies: Unilever has been able to remain profitable and sustainable
through the deployment of dynamic business strategies. It is dynamic in the sense that they
understand the Nigerian business environment as an emerging market that is unstable and prone
to market changes. Consumer needs and preferences are constantly changing and high level of
competition also propels constant change in production processes and products offerings.
Advanced technological rate has also increased the rate at which new products are launched
compared to decades ago. Competitors are constantly developing new approaches and method to
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out compete one another through rapid brand launching and new product designs. In Nigeria,
Unilever is faced with strong competition from FMCG industries such as P&G, Nestle, Kraft
foods etc. hence the need for dynamic strategies that will guarantee sustainability, profitability
and increased market share.
2). Employees Motivation: Working with highly motivated employees guarantees effective and
efficient business and market operations in various segments on Unilever. The Resource based
view proposes that exploration and development of firm’s specific resources such as human
resources. Firm core competences are most times embedded in the technical know-how and the
expertise of the employees and when they are developed overtime, they become tacit knowledge.
This unique capability determines the survival of a firm. Motivating the employees through
incentives, good working conditions, adequate salaries, job security, employee training and
development reduces turnover of employees and loss of valuable employees. Unilever through
various employees’ oriented programs has indirectly impacted positively on the growth of
Unilever in Nigeria.
3). Quality and Fast decision making processes: From the findings Nigeria is a dynamic
environment that changes are prevalent, hence the need for quality and fast decision making
processes. Flexibility and breaking of bureaucratic processes within the organizational structure
aid in fast decision making process which enable proactive and fast response to environmental
changes. The quality of decision taken within by a firm determines the outcome that reflects on
the success and growth of an organization. The Market based view posits that market based
orientation provides an avenue to respond to customers changing needs and desires while
monitoring competitors actions and reactions to changes in the markets. This changing customer
needs require fast response, by monitoring competitors, the market trends and customers
preferences. Unilever according to findings has a strong management team that are saddled with
the responsibility of ensuring quality decisions are taken as fast as they needed in order achieve
the overall goals and objectives of the firm.
4). Brand Innovation: Unilever globally is known for its’ strong position in research and
development in product development which has led to constant innovative activities as regards
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it’s’ product innovation and product offerings. In todays’ business environment MNCs are
developing better ways of meeting and satisfying customers’ needs. Products with strong brand
names and quality are constantly being improved upon. Unilever has also ventured into face care
products which are currently breaking new grounds in their product portfolio. RBV also sees
strong brand name as core competence within an organization. Developing and improving this
core competence has contributed to the growth and success of Unilever in Nigeria.
5). Aggressive Marketing activities: Findings shows that the Nigerian FMCG market is highly
competitive and one of the measure or tactics to stay ahead of competition is to device aggressive
marketing strategies through sales promotion activities, street storming, internet and effective
means of advertisement. No business venture can survive without a strategic marketing plan.
MBV emphasizes the advantages of quality products as one of the basis of abnormal profits and
returns. Marketing a product with good quality such as Unilever products that are standardized
globally still requires aggressive marketing in order to gain market power which is acquired
through the level of performance of marketing activities being carried out.
4.4 Empirical Model
Below is an empirical model that gives a vivid description of the main subjects of this study. The
research questions as regards the market entry barriers and how to militate these barriers are
outlined according to findings.
Overcoming these barriers are obvious key success factors in succeeding in the Nigeria business
environment. However some of the internationalization theories discussed in the literature review
may not have done justice in their application with smaller firm.
Unilever is a global company that already possesses the potentials to succeed in any market, due
to the acquired technical know-how, development of capable human resources, adequate
financial resources, quality product brands and high technological advancement just to mention a
few. Succeeding in Nigeria may have resulted into high transaction costs that Unilever could
afford, but how about smaller firms (SMEs) that do not possess the level of resources that
Unilever has, would they have been successful as well?
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From the researchers point of view TC theory is more suitable for developed countries that
possesses specific assets or technological advantage rather than developing countries. TC also
does not address the internationalization of firms with low competitive market. Unilever may
have succeeded due its’ global presence while firms with less competitive advantage would have
failed in their internationalization attempt in a market such as Nigeria.
In emerging markets, the TC tends to be very high due to the unique characteristics of these
markets, such as weak legal system and high level of uncertainty. The ability to predict the TC in
these markets is quite low and the costs of transaction are hard to measure which is why the TC
favors mostly the wholly owned subsidiary mode of entry in order to exert control and to guard
against opportunistic behaviors. Then again smaller firms that want to internationalize may settle
for joint venture, exporting, strategic alliances and franchising mode of entry in order to reduce
or avert high TC.
One of the benefits of the RBV is the effective and efficient transfer of resources to foreign
country with minimal change in value216
. Unilever was able to transfer its’ technology, financial
and human resources into Nigeria and replicate the same global products with local adaptation.
This may not be achievable for smaller firms. The RBV also favor the wholly owned subsidiary
mode of entry where firms with required capabilities can set up their business operations in a
foreign country. This approach may also not to attainable by smaller firms that do not possess the
sort of resources that Unilever possesses, hence they go for mode of entry that are less risky and
cost efficient in order to internationalize.
The eclectic paradigm posits that MNCs possess competitive or ownership advantage compared
to their competitors, which can be further exploited by locating production in countries with
locational advantages. According to Dunning there are three types of ownership advantages; the
first one is due to the ownership of unique intangible assets such as firm-specific technology,
knowledge of markets, R&D over new firms in the market. The second is the collective
ownership of complementary assets, e.g. joint ability to create new technologies, access to
market, monopoly power and size. The third type of ownership advantage derives from the
firm’s multi-nationality, i.e., a firm operating in many countries is likely to be in a better position
than a national firm to take advantage of different business situations. However the applicability
of this theory on SMEs is yet to be tested.
216
Cf. Sharma and Erramilli (2004), P.9
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The MBV view emphasizes the creation of market power and value which is acquired through a
firm’s level of market performance. Market monopoly, strong bargaining power and barriers to
entry create a high level of market power. All these are capabilities that are easily achievable for
MNCs than small firms. Unilever dominated the Nigeria business environment in the 19th
centuries and that has earned them the market power for successful business operations.
The Relational view emphasizes inter- firm resources sharing as a medium to reduce transaction
cost and to build a barrier against competition. This seems to be a theory that will favor small
firms in their bid to internationalize their operations since they can build strong business
alliances that can position them competitively in a foreign market.
It has been argued that there are not many empirical studies that compare the internationalization
behavior of small firms with that of large firms systematically. Identifying the gaps in these
theories and the application in the internationalization of firms should not be generalized but
rather applied specifically to the large MNCs that has the resources and capabilities.
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Figure 24: Empirical model
Source: Constructed by the researcher
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5. SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary and Conclusion
Globalization has given rise to rapid changes in business environment; economies and the world
are integrating through international trade and FDI. Advances in technology and communication
have also created opportunities for MNCs to expand their businesses especially in emerging
markets where the opportunities are unlimited. Nigeria as an emerging market has been involved
in international trade since the colonial era, and this opened doors to early movers such as
Unilever Nigeria plc. Unilever has been operating in Nigeria since 1923 and has remained
profitable over the years in spite of the challenges facing the nation.
The research problem of this study is to identify the market entry barriers encountered by
Unilever, how to militate against these for and the key success factors. After a review of the
existing literatures and analyses of the finding from the conducted interview, some basic facts
are identified. These facts will increase knowledge of the Nigeria business environment to
incoming investors, the government and the existing MNCs in Nigeria. Unilever was majorly
faced with a multi-taxed system of the government and poor level of infrastural development at
the point of entry in 1923. However these barriers have taken a new turn as Nigeria has grown in
leaps and bounds so also has the entry barriers increased in spite of the fact the government has
liberalized trade as much as possible, internal issues still create a major barrier to foreign
investors.
217Identified regulatory and policy barriers, inadequate human capital, poor level of
infrastructural development, high taxes, diverse culture and traditions, corruption and bribery,
access to finance, political instability, economic and social factors, insecurities, non-tariff
barriers to trade, religious crisis, power supply and rigorous business registration procedures as
the current market entry barriers facing incoming investors. Some of the listed issues are
common with emerging markets such as India. They are part of the characteristics discussed in
the theoretical foundation. In Nigeria, the government is making effort to limit these barriers in
order to make country attractive to foreign investors and to increase the rate of the flow of FDI
irrespective of the fact that Nigeria is one of the largest recipients of FDI in Africa.
217
‘ibid’
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Militating against these barriers for new entrants requires developing strategic business ideas that
will position the firm for sustainable competitive position. Some steps such as identifying the
target market; develop the right value proposition, market strategy that minimizes risks, tackling
procurement and sourcing, marketing model, distribution strategy and marketing promotion218
.
Unilever deployed these steps in their marketing operations in Nigeria. They understood the
unique characteristics of the nation and its people by launching the right products that are
adapted to the local needs. Risk was reduced in their marketing operation through the use of
local employees that understands the business terrain and the culture and traditions of the people.
Unilever procures and source most of its’ raw materials locally and the brands sold in Nigeria are
produced in Nigeria except for blue-band margarine that is produced in Ghana due to high cost
of palm produce. This has aided in managing an efficient and effective manufacturing model.
Distribution of Unilever products are done in regions although bad road networks and
environmental crisis in some states inhibits a complete circulation of the products into crisis
prone areas. Promotional activities that are adapted to the local languages are also being used by
Unilever in order to get their products into every household. The use of the television, radio,
internet and jingles as advertisement tools aided in paving a way for Unilever in Nigeria.
Every business operates with the aim of generating revenue, grow shareholders wealth and
operate sustainably. Unilevers’ operation in Nigeria has been profitable and sustainable but the
success level didn’t come on a platter of gold, some strategic efforts were deployed in order to
attain this level of profitability as shown in figure 4.1. Their key success factors are; dynamic
business strategies, employee motivation, quality and fast decision making process, brand
innovation, and aggressive marketing activities.
Unilever has shown a strong level of commitment to Nigeria through continued investment and
development as we see in figure 4.2. Despite the draw-back experienced in 2013 which led to a
decline in profit generated for the period, investment was still on the increase.
218
‘Ibid’
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5.2 Recommendations
Based on the findings in this study, the researcher hereby makes some recommendations to
incoming investors and the government. These recommendations aims at encouraging more
inflows of FDI into Nigeria, strengthening the business operations of existing MNCs and serving
as a guide incoming investors.
Incoming investors must ensure that they have adequate knowledge of the Nigeria business
environment through a comprehensive market research and market sensing activities. This will
enable them to identify the need, the diverse culture, the laws and regulations guiding business
operations, the level of infrastructural development as regards transportation, distribution and
logistics.
The quality of products introduced should be of good standard. According to findings Nigerian
consumers are sophisticated and have a thirst for quality products that are also affordable. A new
entrant should introduce products that can meet the demands of the consumers at minimal cost.
Distribution of these products is a major factor that must be considered since Nigeria has a wide
geographical area comprising of 250 ethnic groups. Employing local staffs will also give the new
entrants forehand knowledge on how to maneuver the business terrain by avoiding risks, high
transaction costs and losses. A genuine commitment to the Nation as displayed by Unilever also
determines how much the people will be committed to the new entrants. This commitment can be
inform of corporate social responsibility. Contributing to the welfare of the communities where
the firms’ are located by giving back to the communities through scholarships, voluntary
donations, contributing to infrastructural development can go a long way in boosting consumers
interest and loyalty to the firms’ products. A clear understanding of these factors will create a
stable platform for sustainable and profitable business venture for a new entrant.
The government as identified is one of the major influencers of market entry barriers. The laws,
rules and regulations enacted by the government determine how attractive a business
environment will be to new entrants. It is therefore recommended that the government of Nigeria
should relax some draconian laws that tend to scare investors away. This can be done through the
abolition or further harmonization of multiple taxes. Existing policies reforms should also be
reviewed further since the market and its’ environment in changing rapidly due to globalization
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of business activities. The fight against counterfeit products, smuggling and illegal importation
should be intensified. This is one of the major factors that frustrate the activities of MNCs in
Nigeria.
Furthermore, the scope of this study is mainly focused on Unilever a globally known MNC in
Nigeria, it is recommended that further study should be carried on smaller FMCG in Nigeria in
order to identify their challenges and how they are able to compete with the big MNC within the
same market environment. It will also be beneficial and interesting to carry out a comparative
study with other emerging African countries such as South Africa and Ghana so as to compare
the challenges encountered by MNCs during market entry or internationalization of firms in
order to increase knowledge.
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APPENDIX: INTERVIEW GUIDELINES
Open ended/ unstructured interview questions
BRIEF HISTORY
1. How long has your company operated in Nigeria? Give a brief history of your firms’ existence in
Nigeria.
2. From your experience, what significant changes (government regulations, competition, and consumer
spending habits) are in the environment presently as compared to the time of moving into the Nigerian
business domain?
3. How has the changes impacted your business both positively and negatively
THE NIGERIA BUSINESS ENVIRONMENT
3. What has been the companies’ experience in terms of the environment, culture and traditions of the
populace and how has it impacted your business operations?
4. Does Nigeria as an emerging market fit into your global business model?
5. How can your firm rate the consumers spending habit 20 years ago compared to now?
6. Nigeria being regarded as one of the fastest growing emerging economies in Africa, do you think this
reflects in the life style of the citizens as regards their spending habits?
7. How can you rate the FMCG market environment in terms of competition?
8. Do you think the environment is attractive enough to attract more FMCG industries?
9. What risks and challenges (market risk, environmental risks, exchange risk etc) have your firm
experienced and how did you overcome these risks while embracing the opportunities?
MARKET ENTRY BARRIERS
10. Which market entry modes were implemented by your firm when you first entered Nigeria and what
factors influences these modes?
11. What specific barriers did Unilever encounter at the point of entry and what marketing strategies were
adopted in order to militate against them?
12. In what ways has these barriers limited your operations in Nigeria?
13. Would you say the entry barriers have reduced presently compared to when your firm entered the
Nigerian business environment in terms of transaction cost, risk, crisis and environmental challenges?
14. Is the government doing enough in terms of supporting the operations of the MNCs in Nigeria
through the elimination of institutional barriers to entry?
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KEY SUCCESS FACTORS
15. Has the business operations been profitable? And to what extent. (Please provide some data if
possible)
16. What key success factors were employed by your firm?
17. If profitable what measures are in place in order to sustain the profitable position of your firm?
18. If not profitable what measures are being employed by your firm in order to grow profit and increase
shareholders value?
19. As a global company, do you think your global presence has contributed to the level of growth and
profitability experienced in this environment?
20. What candid recommendations can you make to incoming investors, the government and the entire
populace as regards growing a business empire in Nigeria as an emerging market?
21. In your own opinion, do you think that they are opportunities for investors in the Nigerian business
environment?
