Moving a business to Nigeria. Political and Legal, Demographics, Culture And Human Development Index - Essay Example

Moving a business to Nigeria The major challenge facing the business is the high labor costs and entry of new firms which target the company’s scooter market. Moving to Nigeria, a country with completely different socio-cultural and economic conditions is a risky move that needs careful evaluation. The following paper discusses the many challenges of shifting business to Nigeria and recommends solutions to the soaring labor costs and increasing competition. Information regarding Nigeria’s demographic, economic, cultural, political and developmental situation has been analyzed leading to the decision that the company should continue to produce and sell in the US and not do any kind of business in Nigeria. Demographics of Nigeria Nigeria is the most populous country in Africa. In July 2012, Nigeria was estimated to record a population of 170,123,740 people (Akinpelu 7). This translates to a population density of 184. 52 compared to 33. 114 people per square kilometer in USA (Hamilton and Webster 51). This indicates that Nigeria's resources, especially land, are quite strained. Such a high population density indicates poor planning and possibility of a nation not being able to sustain itself. Although the high population may indicate availability of cheap labor, lack of sufficient funds from the government towards education leads to lack of quality human resource. This is not good for business and thus, it would not be advisable to move a business from New York to Nigeria on the basis of high population densities. In fact, USA has a population higher than that of Nigeria making it a larger market amidst growing competition in the business of manufacturing motorized scooters. There are 250 ethnic groups in Nigeria divided almost equally between Christianity and Islam. Religious differences have seen a history of intense religious clashes between Muslims and Christians causing poor business environments. On 20th June 2012, Red Cross estimated that 80 had been killed in Kaduna due to a Muslim-Christian conflict. To curb language barriers, English is used as the official language. The literacy level in Nigeria is estimated to be 78% compared to 99% for USA (Hamilton and Webster 73). This gives USA an upper hand while using these figures to compare quality of workforce between the two countries. Culture Being an African country, Nigeria has deep roots in its culture. With over 50 languages being spoken by the 250 ethnic groups, Nigeria’s culture is quite diversified and thus complex to generalize. This may not be good for business since it is complex to familiarize a business with the many cultures in Nigeria. Nigeria’s is however rapidly changing into a modernized country as a result of the rise of its movie industry known as Nollywood in the global market (Akinpelu 24). This shows that Nigerians are hardworking and creative relative to many countries in Africa but certainly not the USA which has the biggest and most developed movie industry in the world. USA’s culture is modernized and more uniform compared to that of Nigeria (Hamilton and Webster 93). USA’s culture is more liberal as compared to Nigeria hence making it easier to accommodate change as a strategy in business. Culture is an important factor while considering modes of marketing in order to reach and convince a larger audience. Human Development Index Human development index is important in determining how developed a country is. This index captures information about life expectancy, education, literacy, quality of life and standards of living. With the inclusion of all the above determinants of human development index, we can comfortably classify countries as underdeveloped, developing or developed. Nigeria’s HDI was estimated to be 0.459 and thus classified as having low human development. USA’s HDI is classified as very high ranking 3rd globally with a figure of 0.910 (Hamilton and Webster 49). This makes US a better region to nature one’s business compared to Nigeria. Skilled and well trained workers are less likely to shift with my company from New York to Nigeria where the standards of living are poor. Relocation of my business to Nigeria would therefore be tough since the business will be starting afresh in trying to train new employees to match the needs of my well established scooter business. Political and Legal Structure It is important to consider the Political, Legal and Economic Structure of Nigeria so as to determine whether to relocate my business to Nigeria. Twelve states in Nigeria use Sharia Law similar to the Law used in Iran and Saudi Arabia. Since this law is based on the Qur’an, Non-Muslim communities living in these parts of Nigeria have fallen victims to criminal offences associated with morality. Sentences include amputation, stoning to death, and decapitation which defy Human Rights (Hauss and Haussman 28). Due to ambiguities of this law and lack of a clear evidence based system it is difficult to adjust into this system of law especially when shifting a business from New York to Nigeria. The political climate in Nigeria has been wanting. Nigeria is one of the most corrupt countries in the world. Corruption and bribes are common from the processes of starting a business to enforcing contracts (Hauss and Haussman 31). Such vices are hindrances to free and fair competition for businesses making it difficult to shift my business to Nigeria. This increases the cost of doing business in Nigeria as compared to New York, a city famous for its justice system. Religious and ethnic clashes are a common phenomenon in Nigeria due to the huge diversities of its people. The UK recently gave a travel advice to its citizens against some of the regions in Nigeria such as Kaduna, and Zaria Cities due to interreligious clashes between Muslim and Christian communities. In November 2012, a number of people died in Kaduna Sate after a series of bomb attacks. Ethic clashes are also on the increase in areas such as Agyaragu leading to deaths and closure of normal operation of business (Foreign & Commonwealth Office). Anti-western and antigovernment demonstrations have also been on the increase since the beginning of this year leading to distress and security concerns for Americans and their business. These conditions are not good for relocation of an established business from the sanity of New York to a politically unstable Nigeria. Economic Structure of Nigeria Nigeria can be termed as a mixed middle income economy. Nigeria’s economy ranks third in Africa. The middle-incomed economy does not offer good market for motorized scooters meaning that my business is not likely to succeed by depending on the Nigerian market. Nigeria is categorized as an emerging market and hence offers business prospects for businesses in some sectors. The services, financial, communication and entertainment sectors have been expanding at a high rate. The Gross Domestic Product (PPP) was estimated to be $415 billion in 2011 ranking Nigeria 30th in the world (International Monetary Fund 121). The manufacturing sector which should be my prime concern has been underperforming in Nigeria. This means that my motorized scooter business would be affected by the underperformance of this sector in Nigeria adding to the reasons why I would not shift my business to Nigeria. Agriculture contributes 40% to the GDP of Nigeria showing that Nigeria’s economy is highly dependent on climatic conditions. This is much different for the well diversified economy of USA making it irrational to move my business to Nigeria. Although Nigeria’s economic growth has been high (7.8% in 2011), 45% of its population is under the poverty line (Akinpelu 32). This reduces the prospects of getting a good market for motorized scooters even though there is no specialized company this field. The country is in the process of streamlining its infrastructure for economic take off. However, in urban areas, Nigeria’s infrastructure ranks well in Africa with its economic center and chief port in Lagos. Its airports are able to handle large carriers while its rail networks enables distribution of goods across the country (International Monetary Fund 124). If I was to shift the business to Nigeria, Lagos would be a good place for business due to nearness to the port. There are however inadequate spaces left for development of industrial companies due to overpopulation (Akinpelu 35). Nigeria exports most of its goods and services in the West African market and imports mainly from countries such as China, Netherlands and USA. These include machineries and raw materials for industrial use. It therefore makes no sense to relocate to Nigeria only to import goods from USA at a premium due to logistical costs. Nigeria’s is part of OPEC and has crude oil as its number 1 export. Interestingly, Nigeria has been importing refined oil making it expensive for its users in Nigeria. The FDI stock is low compared to other emerging markets and is estimated to $71.59 billion showing lack of strong foreign investors’ confidence (International Monetary Fund 135). The Naira, Nigeria’s currency, is overvalued which in turn leads to foreign exchange risks if my company relocates to Nigeria. Conclusion In conclusion, I would not recommend a move to Nigeria even though the labor prices are lower compared to New York. Major reasons behind this decision include risks and costs associated with unstable political, legal and economic systems, currency overvaluation, culture difference and lack of a good high end market as that available in New York and USA in general. Though the country’s economy has been growing gradually, the manufacturing sector in which my business is in remains underdeveloped in Nigeria. The increasing competition in New York in the production of motorized scooters can be well managed to the first mover advantages my business has. Intense marketing and non-monopoly pricing mechanisms will secure my company’s market. To reduce labor costs, I might consider relocating the production plant to China or India due to availability of affordable and well skilled labor. The economic and market conditions in this countries are also far much prospective that those of Nigeria. I will however aim towards retaining the market I already have across USA. Works Cited Akinpelu, Olusola. Corporate Governance Framework in Nigeria: An International Review. Bloomington, IN: iUniverse, 2012. Print. Foreign & Commonwealth Office. Travel advice by country: Nigeria. Accessed on 7th December 2012 from http://www.fco.gov.uk/en/travel-and-living-abroad/travel-advice-by- country/sub-saharan-africa/nigeria Hamilton, Leslie, and Philip Webster. The International Business Environment. 2nd ed. Oxford: Oxford UP, USA, 2012. Print. Hauss, Charles, and Melissa Haussman. Comparative Politics: Domestic Responses to Global Changes. 8th ed. Boston, MA: Wadsworth, 2011. Print. International Monetary Fund. Regional Economic Outlook, April 2012: Sub-Saharan Africa - Sustaining Growth amid Global Uncertainty. Washington: International Monetary Fund, 2012. Print. Read More