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Report on Excel Automotive Doing Business in Nigeria
Emerging markets presents a wonderful platform for setting up different kinds of businesses especially automotive manufacturing company. However, before setting up a business in these markets, it is important to assess the risk involved as well as the rewards for the business in question. Companies have to face enormous risks investing in emerging markets (Henisz and Zelner, 2010). Undeniably, several rewards are involved in doing business in emerging markets. These risks may include policy matters, direct seizures, political risks and several other risks caused by political uncertainty. Policy and regulatory uncertainty could affect businesses investing in emerging markets.
In the past, the most significant risk faced by foreign businesses investing in emerging markets was the volatile and immature political system of these developing nations and these results in expropriation risk. However, this risk seems to have disappeared because of the stronger international laws and also the symbiotic nature of growth in emerging markets (Henisz and Zelner, 2010).
Nigeria is one of the emerging markets in the world, located in sub-Saharan Africa (SSA). The nation have good growth potential for investing in automotive manufacturing giving its large population and automotive manufacturing market. KPMG, (2014) mentioned that as of 2012, the manufacturing sector only accounted for an estimate of 2.6% of the nation's GDP. The country also has minimal manufacturing value added “MVA." The country faces a lot of significant problems affecting the manufacturing sector mostly caused by the unstable political system and epileptic power supply. However, Nigeria presents a good ground for investing in automotive manufacturing. There are lots of obtainable rewards from such investment due to its large market, economy and the relatively low competition in the market.
It is quite essential to research and enquire about the risks and rewards in setting up the chosen business in the emerging market. Even though, Nigeria is an attractive and wonderful emerging market for automotive manufacturing company but manufacturers must know the possible risks that would be faced while operating in this country. For instance, how to mitigate these risks and deal with them efficiently. The data from this paper is obtained from secondary research as well as a few primary research in Nigeria, and this may help us to understand the prevailing business environment in Nigeria.
More specifically, SWOT, an acronym for Strengths, Weaknesses, Opportunities, and Threats, is a tool used in strategic planning for managing and evaluating both the internal and external factors affecting an organization. On the other hand, PESTLE which stands for Political, Economic, Social, Technical, Legal and Environmental examines external factors in an organization. In fact, the factors happening in the larger outer world that might also affect the organization in one way or the other. Thus, a good combination of the tools, SWOT, and PESTLE, will help in buttressing the opportunities and risks involved in initiating business in a given environment especially in an emerging market like Nigeria.
Agbo (2011) pointed out that the reason, why Nigeria has no automobile manufacturing company is simply because there is no enabling environment to happen. More so, the country keeps importing automobiles from foreign countries, and this affects its economies. However, Kolawole (2014) mentioned that times and trends of things have changed, and automobile companies are now making their way into the country. This is where the strength of Excel Automotive comes in. With top notch and state of the art technologies, the automotive manufacturing company can dominate the emerging market in a couple of years.
However, to make it the most of this emerging market, it is very important that the automotive manufacturing company ascertain its weaknesses and factors that might limit its operation and effectively handle them. (Business Link, 2009). Some of these factors could include the development of enabling environment and ensuring that there is a free-trade agreement between the country and neighboring country. In fact, this is the problem faced by Ford Motor Corporation in Nigeria. Bisiriyu (2014) pointed out that the automotive company is still interested in setting up an automotive manufacturing firm in Nigeria, but it insists that the conditions must be made right for its operation.
Opportunities in this context are external factors regarding an organization establishing a business in a geographical location. Excel Automotive has a lot to gain with the current trend in Nigeria. Automakers in Nigeria are currently experiencing unprecedented growth. This is catalyzed by the country's heavy reliance on foreign goods (KPMG, 2014). More so, Nigerian government is planning intensively on auto development, and this will encourage foreign automakers to take advantage of the prevailing opportunities presented by the market. The country has announced many policies in place that would favor local automakers.
Despite the benefits mentioned above and opportunities, it is imperative to consider that there are still a lot of threats to contend with investing in this emerging market. The country faces many obstacles such as inadequate infrastructures, corruption, issues of epileptic power supply that causes the manufacturing industries to rely heavily on the costly power supply. Some other problems that might hamper the growth of a manufacturing company in Nigeria include widespread corruption, challenging business environment and the high level of corruption in the sub-Saharan African nation.
Political factors are another important factor to consider in setting up business in an emerging market like Nigeria. Nigeria has faced political instability for a considerable length of time. However, the recent interest of the government in protecting the domestic industry result into the New Automotive Industrial Policy Administration. Hence, automotive manufacturing industries that make their way into the country might have a lot to gain. The political factors that might affect businesses in Nigeria include tax policy, labor law, environmental law, trade restrictions, tariffs, incentives and political stability (Ogunro, 2014).
Economic factors are also crucial to consider before investing in Nigeria. Ogunro (2014) pointed out that in the recent years, most investors have become afraid of investing in Nigeria’s business environment because of the uncertainty that surrounds doing business in Nigeria. Economic factors include economic growth, interest rates, inflation rates and exchange rates. These factors are vital in influencing the determination and operation of businesses in any geographical location. Nigeria has a wonderful economic growth, but it also has lots of challenges economically especially when it comes to inflation rates and exchange rates. Broadman (2015) outlined that sub-Saharan African countries like Nigeria have been able to sustain an average GDP growth rate of over five percent since the 2008 financial crisis. While the US and European countries struggle to recover from the recession.
Social factors determine the prospect of a business in a business environment. These factors have cultural aspects that include among many other factors population growth rate, age distribution, career attitudes and so forth. At present, Nigeria has the largest population in Africa, with a population of about 170 million people, and therefore it presents a good ground for investment. Automotive manufacturers can take advantage of this huge population and the prospect that it presents for business advancement. Social factors are very relevant as they determine how the company’s production and products will be demanded. That is one of the prime aspects that make Nigeria a good ground for setting up an automotive manufacturing company.
Technology is a vital asset when it comes to the establishment of business in a geographical location. Ogunro (2014) defined technological characteristics as factors including research and development activity that determine minimum efficient production level affecting innovation, quality, costs and so forth. Nigeria is a developing country, and thus it is essential that companies with the intention of investing in Nigeria have the appropriate technologies to make it happen. Another issue to consider is access to efficient and effective labor force in the manufacturing company (KPMG, 2014).
These factors relate to changes in legislation and the risks or benefits they pose. Such legislation that might affect foreign businesses in Nigeria includes consumer law, antitrust law, discriminatory law, health, employment law and safety law. The country has a weak legal system and as Henisz and Zelner (2010) pointed out that policy outcome determines the state of businesses in any country. However, international investors can turn it to their advantage by identifying and engaging local politicians' power bases. With the prevailing policies favoring the course of a business, it is bound to excel in the environment.
Environmental aspects include factors that determine the progress of businesses in the environment. Nigeria has an environment favorable for investment. However, this depends on the part of Nigeria in question. The recent feud in northern Nigeria by the Islamic sect, Boko Haram, has claimed a lot of lives of the citizens, and this makes this part of the country unfavorable for investment.
Nigeria is a nation blessed with marvelous natural resources and manpower, but these factors should be put into consideration before setting up an automotive manufacturing company in the country. The recent governmental policies in the country, legislation and lots of other factors as discussed in this report makes Nigeria favorable for investment. However, as pointed out, the part of Nigeria to invest is an important question to consider.
Lots of automotive manufacturing companies are now making their way into the country because the government of Nigeria is set to provide an enabling environment for automotive manufacturing in the country. It is worthwhile to note that it is not only automotive manufacturing that has a positive prospect in Nigeria but also other businesses such as cellular telecommunications and internet network providing service. The most wonderful thing about the sub-Saharan African country is its image that presents good market for these businesses. Therefore, manufacturers can be rest assured that they have a ready market for their goods and services.
Agbo, C. 2011. A Critical Evaluation of Motor Vehicle Manufacturing In Nigeria. Nigerian Journal of Technology, 30(1), pp.9-16.
Bisiriyu, R. 2014. Ford gives conditions for establishing factory in Nigeria. [Online] The Punch - Nigeria's Most Widely Read Newspaper. Available at: <http://www.punchng.com/business-economy/ford-gives-conditions-for-establishing-factory-in-nigeria/> [Accessed 4 April 2015].
Broadman, H. 2015. Competing for African markets: Strategies to win new business now. [Online] PwC. Available at: <http://www.pwc.com/us/en/view/issue-16/strategies-win-african-business.jhtml> [Accessed 2 April 2015].
Business Link 2009. Strategic tools: SWOT and PESTLE. [Online] Available at: <http://redochre.org.uk/wp-content/uploads/2012/03/SE-Strategic-tools-SWOT-and-PESTLE-pdf1.pdf>[Accessed 4 April 2015].
Henisz, W. and Zelner, B. 2010. The Hidden Risks in Emerging Markets. [Online] Harvard Business Review. Available at: https://hbr.org/2010/04/the-hidden-risks-in-emerging-markets [Accessed 2 Apr. 2015].
Kolawole A. 2014. Made in Nigeria Vehicle are better than Imported Ones – Innoson. [Online] Available at: <www.vanguardngr.com/2014/05/made-nigeria-vehicles-better-imported-ones-innoson/> [Accessed 4 April 2015].
KPMG, 2014. Manufacturing in Africa. [Online] Available at: http://www.kpmg.com/Africa/en/IssuesAndInsights/Articles-Publications/General-Industries-Publications/Documents/Manufacturing%20in%20Africa.pdf [Accessed 2 Apr. 2015].
Olukayode, O. 2014. Nigeria’s Business Environment: Issues Challenges and Prospects. IJARBSS, 4(4), pp.132-138.
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