International Business Environment

UB 05014195
International Business Environment

Tutorial Group A3
Module Coordinator- Dr Anna Zueva
I have read the University Regulations relating to

plagiarism and certify that the above piece of coursework
is all my own work and do not contain any
unacknowledged work from any other sources.
Signature:
……………………………………………………………………………
…
Number of words: 3,694

(excluding executive summary, references, tables, titles
and diagrams)
05014195 – MSC FINANCE, ACCOUNTING & MANAGEMENT Page 1

TABLE OF CONTENTS
Page
Executive summary
3
1.0 Introduction 4
1.1- The Tobacco industry 4
1.2- The Countries 5
2.0 National Business Systems and Cultural Conditions

6
2.1- National Business Systems
6
2.1a- Political System
6
2.1b- Economic System
7
2.1c- Legal System 8
2.2- Cultural Conditions
8
3.0 Pattern and Trend of Trade between two Countries

9
3.1- Pattern of Trade in the United Kingdom
9
3.2- Pattern of Trade in Nigeria
9
3.3- Pattern of Trade between the United Kingdom and Nigeria
10
3.4- Trade in the Tobacco industry between United Kingdom and Nigeria
10
3.5- Restrictions and Protections on Trade in Nigeria
10
3.6- Restrictions in the Nigerian Tobacco Industry
11
4.0 Exchange Rate Regimes in the United Kingdom and Nigeria

12
4.1- Exchange Rate Regimes
12
4.1a- Exchange Rate Regime in the United Kingdom
12
4.1b- Exchange Rate Regime in Nigeria
12
4.2- Implication of the Nigerian Exchange Rate Policy on Trade- Import and
Export 13
4.3- Exchange rate risks inherent to the Nigeria and its Tobacco Industry
14
5.0 Political Climate and Political Risk Analysis in Nigeria

15
5.1- Political Issues in Nigeria
15
5.2- Analysis Political Risks Inherent in engaging in International Business in
Nigeria -
Analysis and Mitigating Measures
15
6.0 Means of Investment 17
6.1- Need for Internationalisation of GBT Plc’s Operations
17
6.2- Implication of Trade Policies, Exchange Rate and Political Risks on entry
strategy 17
6.3- Entry strategy to be adopted
17
6.4- The Type of FDI recommended
18
7.0 Conclusions
19
References 20

EXECUTIVE SUMMARY
Major Multinational companies (MNC) grapple with increasing competition, thus the
need to increase business frontiers across country and regional boundaries becomes
inevitable. Forecasting foreign opportunities and risks correctly are not always
possible; however, by envisioning different ways in which the future may evolve,
companies avoid unpleasant surprises (Daniels and Radebaugh, 2001)
As a researcher in Great Britain Tobacco Plc (GBT) with operations based in the
United Kingdom, the company has recently decided to embark on International
Business as part of its strategy to grow and increase market by embarking on
International Business in Nigeria. This report is intended to guide management in
choosing the mode of investment in Nigeria.
The objective of this report is to advise the CEO as part of a decision making process
on whether GBT should export or use foreign direct investment (FDI), as its mode of
operation in Nigeria by outlining the following;
• Providing insight into national business systems and cultural conditions

affecting business decision in Nigeria with hindsight of the United Kingdom
and focus on tobacco industry and related activities.
• Assessing the pattern of trade in the United Kingdom, trade between UK and
Nigeria especially in the Tobacco industry considering the types and level of
protection measures against entry modes (Export, FDI or
Licensing/Franchising) in Nigeria focusing on the Tobacco industry; and
outlines competitive advantages available to GBT in considering either of the
entry modes in Nigeria.
• Outlining the exchange rate regimes that govern the UK and Nigeria with an
evaluation of the risks inherent for GBT and measures to be adopted in
mitigating its effects.
Following from the above and inferences drawn, it recommends the acquisition of an
existing entity- a form of FDI as an entry strategy in Nigeria considering the level of
political risk in Nigeria and recommends viable measures to be applied to protect
GBT’s investment in Nigeria.

1.0 INTRODUCTION
This is a feasibility report which follows the international business strategy of

improving the GBT’s profitability. It is expected to assist the company’s
management in deciding its policy having identified Nigeria as a country with
sufficient market potentials to boost its business growth.
The purpose of this report is to demonstrate research in the area of International

Business, analysing and considering the national business systems and cultural
conditions in both the United Kingdom and Nigeria. It also considers the pattern and
trends of trade between both countries; emphasizing the types and levels of
protection measures against imports and/or foreign investments in Nigeria within the
Tobacco Industry. It outlines the exchange regimes that govern the UK and Nigeria,
while assessing the potent risk inherent herein for Great Britain Tobacco.
By the end of this feasibility report, the optimal strategy will have been identified for
implementation given that the recommended strategic venture is considered viable,
it explores issues bordering on exchange rate regimes and advises on the problems
of political risk existing in Nigeria; offering guidelines and suggestions on how best
to mitigate against them.
1.1 The Tobacco industry
The Tobacco Industry around the world despite its unpopularity with the UN, WTO,
governments and medical societies remains one of the biggest consumer product
industry in the world with 20% of the world population and over 1.3 billion
consumers around the globe (Euromonitor, 2008). While the North American and
Western Europe markets recorded a decline due to smoking bans, tax increases and
non-supporting legislations, the size and level of participation in the sector has
increased especially in the developing world (Euromonitor, 2008). An analysis of the
Tobacco industry in the UK and Nigeria is discussed in Table 1a below.
Industry Issue United Kingdom Nigeria

Analysis
Market Definition Market Segments Market Segments
• Chewing tobacco, • Chewing tobacco, cigarettes
cigarettes, cigars & and loose tobacco.
cigarillos and loose tobacco.
Market Analysis Market Size Market Size

• $21.7billion in 2007 • Not Available
Key Drivers Key Drivers
• Cigarette sales • Cigarette sales
Growth Rate Growth Rate
• 1% per Annum over the last • Not Available
3years
Raw Materials and Source of Tobacco Source of Tobacco
Inputs • Local and international • Local sources
sources Other materials- Wrappers and
Other materials- Wrappers and Filter
Filter • Internationally sourced
• Locally Produced
Competition Market Type Market Type

• Highly competitive, huge • Relatively low, few players,
number of players characterized mainly by
import.
Others Leading Players Leading Players
• Imperial Tobacco Group PLC • British American Tobacco
• Gallaher Group Plc Company
• Altria Group, Inc • Nigerian Tobacco Company
Table 1.1a- Tobacco Industry Analysis; United Kingdom and Nigeria

Source: Table prepared with information sourced from Datamonitor, Euromonitor and
Company profiles

1.2 The Countries
Based on tougher legislations, increased pack warnings and tax hikes reducing the
profit margin in the UK tobacco market and growth in the level of participation in the
industry in developing world, the decision to do business within the developing
market of Nigeria is welcomed. The business entry modes available and an overview
of some key indices of the home country (United Kingdom) and the host country
(Nigeria) are highlighted in Figure 1.2a and Table 1.2a respectively below.
Figure 1.2a- Business entry modes available to GBT
Features United Kingdom Nigeria

Geographic Capital City Capital City
London Abuja
Landed Area Landed Area
242,514 sq km 923,768 sq km
Language Language
English English
Demographic Population Population

60.7 million 148 million
Major Religions Major Religions
Christianity Christianity and Islam
Life Expectancy Life Expectancy
77years(men) and 82 years 46years(men) and 47 years (women)
(women)
Economic Main Export Main Export
Manufactured goods, chemicals, Petroleum, petroleum products,
foodstuffs cocoa, rubber
GNI per capita GNI per capita
US $42,740 US $930
GDP growth rate GDP growth rate
1- 1.3% per annum 6.5% per annum
Political Ruling System Ruling System

Monarchy Democracy
Leader Leader
Head of State: Queen Elizabeth II Head of State: President Musa
Prime Minister: Gordon Brown Yar’Dua
Table 1.2a- Country Analysis of the United Kingdom and Nigeria

Source: Table prepared with information sourced from BBC website all figures correct as at
end of 2007

2.0 NATIONAL BUSINESS SYSTEMS AND CULTURAL CONDITIONS
2.1 NATIONAL BUSINESS SYSTEM
Cultural practices, political, economic and legal systems as well as education and
skill level of its population are some of the basic fundamentals that have
implications for international business practice (Hill, 2008), the disparity in culture
and way of life between Nigerians and English affects the national business system
of both countries.
In considering these fundamentals which ranges from Institutional frameworks

(political, legal, economic, educational and health systems) within the formal and
informal society to national culture and socio-economic disparities, emphasis was
laid on their implication for international business with focus on tobacco and related
businesses. Discussions on institutions and institutional frameworks are outlined in
Tables 2.1a- 2.1c below covering the Political, Economic and Legal systems; it
analyses national business systems in Nigeria with its implication for GBT seeking to
do business in the country.
2.1a. The Political System
Framework for Political System

Discussion
Political System Nigeria, an independent member of the Commonwealth, has been ruled by
civilian administrations for only 18 of its 48years of independence. Parliament
has two chambers; the House of Representatives has 360 members, elected for
a four year term in single-seat constituencies and the Senate has 109 members,
elected for a four year term in 36 3-seat constituencies, and 1 seat in a single-
seat constituency representing the Federal Capital Territory. This is quite
different from the Monarchy system that operates in the UK.
Source: Euromonitor, 2008- Country Fact file on Nigeria Pp1

Implication for The existence and practice of a viable democratic system of government in
Business Nigeria makes the terrain relatively predictable, although the country has had its
share of instability, however, since the democratic elections in 1999, the political
system has been stable.
Civil rights and Nigeria has experienced a number of ethnic and religious violence since the
political unrest emergence of civilian rule and which have cost businesses especially those in
the Oil and Gas sectors in the past few years. (Euromonitor, 2008.). There are no
stable police and security forces in Nigeria like it exist in the UK. The Nigerian
Police force and its security apparatus is also quite corrupt.
Corruption and
Government Corruption is very high among government officials and it is expected that to do
practices business in Nigeria, the GBT may need to compromise on corporate governance
standards. The Transparency international currently rates Nigeria 121 on the
corruption perception index, although an improvement from the 147th position in
2007. (Transparency International, 2008).
Business and
government Government interference in businesses is at its minimal level as there have been
interference moves to privatise some governments’ establishments within the last 8years.
We do not expect a difference in corporate governance principles as a number of
international businesses from the UK operate in Nigeria.
Other Tobacco In a bid to retain its position in the committee of nations especially in Africa, we
Industry Experiences do not expect an undue interference by the state in business activities. Notable
Tobacco industries that do businesses in Nigeria include the British American
Tobacco Company and Northern Nigerian Tobacco Plc
Table 2.1a- Political System in Nigeria

2.1b The Economic System
Framework for Economic System

Discussion
Nigeria Nigeria is Africa’s most populous country with close to 132 million people,
approximately 55% live on less than a dollar a day. The Nigerian economy
depends heavily upon the oil sector, which contributes 95% of export revenues,
76% of government revenues and about a third of GDP. Before the
establishment of democracy in 1999, the country was governed by military
generals, under whose rule Nigeria's economic performance had taken a beating
for 15 consecutive years.
Source: Datamonitor, 2007- Nigeria Country Profile Pp 13.

Implication for The Nigerian economy is classified as developing and under the emerging
Business markets (World Bank, 2007). The government has tried to diversify the major
income earner of the economy by encouraging investment and development in
the real and manufacturing sectors of the economy.
Inflation Rate Inflation has been brought down to single figures over the last three years, but
not as low as what obtain in the UK. Figure 2.1b below shows a snapshot of the
country’s major indicators and a 24 month review of Interest rate vs the inflation
rate for Nigeria. Official reserves stood at $57.8 billion as of 24 November 2008.
(UBA Capital, 2008)
Infrastructure and
Services The problem of infrastructure however continues to cripple the economy, the
non existence of constant electricity supply has crippled several local industries
in the Nigerian economy, It is important that GBT ensures the availability of
electrical power generating plants to provide its own electricity if it intends to
engage in business in Nigeria.
The Monetary and
Control System The Central Bank of Nigeria has been actively supporting the naira, although its
style is to fill demand for foreign currency by supplying it in weekly auctions,
rather than by intervening directly (UBA Capital, 2008). The CBN provides
foreign exchange to foreign investors wishing to sell positions to meet
redemption requests abroad, as well as normal seasonal demand for dollars.
Although the auction amount sounds alarmingly high, it should be kept in
perspective. (UBA Capital, 2008).
The implication of this on our UK operations is that there is dependent on the

government for the supply of foreign exchange. Due to the fact that Tobacco is
internationally traded. We may experience some bottlenecks in sourcing foreign
exchange to support our operations or for remittance
Table 2.1b- Economic System in Nigeria
Figure 2.1b- Nigerian Economic Indicators

Source: UBA Capital (Europe) Ltd. Nigeria Review, Issue 27

2.1c The Legal System
Framework for Legal System

Discussion
Nigeria In view of the fact that the country was colonized by the United Kingdom, the
Nigerian legal system is based on the English common law legal tradition
through the process of legal transplant (Dina, 2005) Some of the various sources
of guidance are; the 1999 Constitution, Legislation, English law, Customary law,
Islamic law, and Judicial precedents.
Implication for The Nigerian legal system is the civil law system, the 1999 constitution contains
Business a set of laws categorized into sections and sub-sections. However, the legal
Legal System system in the local governments also includes customary courts and the Islamic
judicial system that is practiced by some states within the federation. All matters
related to company practices are handled by the federal government.
International Law The Country is a signatory to the ICJ legal treaty and accepts compulsory ICJ
Membership Jurisdiction (CIA, 2007).Notable among legal cases that the company relied on
the ICJ ruling is its contention with Cameroun over the Bakasi peninsula, which
today has been ceded to Cameroun.
Cases and litigations-
Copyright and There are notable legal laws that affect doing business in Nigeria, the legal
proprietary law. system is well abided to and also enforceable; furthermore, issues like copyright,
Property rights and Company rights are quite grounded within the Nigerian Legal
Corruption and system.
Government
Intervention Nigeria is noted for its high corrupt practices, the country has instituted such
agencies like the EFCC and ICPC to prosecute corrupt officers, this has led to an
improvement in the country’s TI rating since the return of civilian rule in 1999.
Considering the fact that the country is bounded under the ICJ ruling, we do not
expect that there will be practices that are akin to international legal practices.
There exists laws protecting private property rights and enforcement of
contractual obligations.
Table 2.1c- The Legal System in Nigeria

2.2 CULTURAL CONDITIONS
Business success in a variety of countries requires cross cultural literacy (Hill, 2007);
In his article ‘Cultural determinants of entrepreneurial emergence in a typical sub-
Sahara African context’, Madichie et al, 2008 argued that the Nnewi cultural traits
affects the entrepreneurial attitude of the people; the Nnewi cultural tribe is one of
the 256 cultural societies in Nigeria. Using Hofstede’s framework that views culture
as a system of values and norms shared among group of people, (Hill, 2008), the
Nigerian cultural conditions can be said to be influenced by societal values.
Considering the role still played by much of the country’s cultural heritage and
ceremonies in everyday businesses, making an in-route into the Nigerian Tobacco
industry will require cooperation with societal groups and informal
institutions.Further analysis of the cultural conditions is considered in table 2.2a
considering social structure, social stratification, religious and ethical systems and
language.
Framework for Key attributes and indices
Discussion
Social Structure The Nigerian social structure is largely driven by group ideals, with exceptions
been noticed in some urban centres. Negotiations for business decision are
largely group driven mostly community oriented.
Social Stratification In Nigeria, most business negotiations are done at the societal level, Shell has
approached its business in the Niger-Delta region by ensuring that its decision
making and business dealings are done with community elders (Shell, 2006)
Religious and Ethical The major religion groups in Nigeria are Christianity and Islam, neither of these
System has strong implication on the tobacco industry as there are no religious advices
against smoking or taking tobacco.

Language There are three ethnic languages- Hausa, Yoruba and Igbo spoken in the
country, while English is the official language, the ‘Pidgin-English’ is also widely
spoken across the country and the in the West-African sub region.
Table 2.2a- Major Cultural Condition Indices in Nigeria
3.0 PATTERN OF TRADE BETWEEN TWO COUNTRIES
3.1 PATTERN OF TRADE IN THE UNITED KINGDOM
The United Kingdom is a member state of the European Union (EU), all EU members
are WTO members, as is the EU (WTO, 2008). The EU makes most trading decisions
on behalf of the 27 member states. It has a single customs union with single trade
policy and tariffs (WTO, 2008).
The Balance of Payment (BoP) indices released by the UK National Statistics office
indicates a deficit of £3.9billion for the month of October 2008, a further decrease of
£300million from the £3.6Billion recorded in September 2008, these figures is part of
a series of negative BoP recorded in the UK over the last 6years; which implies that
the UK imports more than it exports, it however still remains a key exporter on the
WTO export list with over £34.6Billion total goods and services exported in October
2008 (UK Office of National Statistics, 2008).
Major trading partners with the UK outside of the EU in terms of exports are the US,
China, Dubai among others. Its main exports are manufactured goods, chemicals
and foodstuffs. Considering imports, the US, Saudi Arabia and Russia are prominent
trading partners; the only notable African country that featured in a 3-month trade in
goods geographical analysis released by National Statistics in August 2005 is South
Africa.
3.2 PATTERN OF TRADE IN NIGERIA
Nigeria has continued to enjoy a better integration into the world economy since its
transition to civilian rule, external trade has improved over the years peaking at 79%
of GDP in 2004 (Datamonitor, 2007). Its key exports remain crude oil and natural gas
which accounted for over 99% of its total export in 2004.
In terms of export, The US is Nigeria’s biggest trading partner and accounts for
around half of the country’s exports, followed by Spain and Brazil contributing 8%
and 7.3% respectively to the country’s total export earnings. Nigeria’s largest import
trading partner is China and accounts for 10.7% of the country's total imports,
followed by the US and Netherlands that accounts for 8.4% and 6.2% respectively.
Others major import statistics are 6.2% for the UK and 6% for France while Germany
accounts for 4.5% of Nigeria's import volume (Datamonitor, 2007).
The country has also recently improved its trading relationships with emerging
markets particularly those in Asia, with China and Korea notable in this relationship.
Figure 3.2 below shows statistical highlights of Nigeria’s trading relationships for
2007.

Figure 3.2- Nigerian Major Export and Import Destination for 2007
Source: Euromonitor, 2008- Global Market Information Database

3.3 PATTERN OF TRADE BETWEEN THE UNITED KINGDOM AND NIGERIA
Being one of the colonies of the UK and having gained its independence in 1960;
relationship between the two countries have been cordial especially in terms of
trade, before the discovery of oil, when cocoa and groundnuts were the major export
commodities in Nigeria, the United Kingdom remained one of the country’s major
trading partners and trade relations between both countries have improved over the
years. The UK maintains a department for Trade and Investment; UKTI- an arm of the
Foreign and Commonwealth Office in Nigeria that supports British companies
seeking to do business in the Nigerian Market.
In 2008 alone, over 79 UK companies entered the Nigerian market, several of whom
have established JVs or formed alliances with local companies; British exports to
Nigeria exceeded over $1billion dollars in 2008 and this growth is expected to rise
(UKTI, 2008). Investments opportunities in Nigeria currently involving British
companies are in several sectors of the economy with major players including
Standard Chartered Bank, British American Tobacco Company other players are in
the Oil and Gas, Aviation Services, Communications and Power sectors of the
Nigerian economy.
Considering recent developments, trade between both countries is expected to grow

as Nigeria continues to feature prominently amongst emerging economies in Sub-
Saharan Africa.
3.4 TRADE IN THE TOBACCO INDUSTRY BETWEEN UNITED KINGDOM AND

NIGERIA
The trade in Tobacco and related products between Nigeria and the UK dates backs
over decades; Nigeria remains one of the suppliers of raw tobacco to UK cigarette
manufacturers. Since the privatization of the state owned Tobacco Company;
Nigerian Tobacco Company (NTC) in the late seventies, the industry has witnessed a
stunted growth especially during the military regimes. However, following the return
to civil rule, one of UK’s leading tobacco companies British American Tobacco made
a foray into the Nigeria, it initially started with the importation of various brands of
finished cigarette, and has since started production of various brands since 2003
(BAT, 2008)
Other notable trade in Tobacco between Nigeria and UK are mainly in the
importation of cigarette filters and wrappers that are supplied through Nigeria to the
West African market.
3.5 RESTRICTIONS AND PROTECTIONS ON TRADE IN NIGERIA
The current trade regime in Nigeria is guided by the WTO trade convention the
country has been a part of since January 1995, however, prior to that, especially
from the mid 70’s, its trade policy digressed remarkable away from tariffs to
quantitative import restrictions, particularly prohibition and licensing (Oyejide,
2007). Several products were covered by import prohibitions covering about 29% of
agricultural products and 20% of industrial products in terms of tariff lines (GATT,
1991; cited in Oyejide, 2007).These prohibitions and tariffs were largely driven by
the government’s claims to protect local and infant industries and have since been
faulted by various stakeholders within the Nigerian trade circle.
Various negotiations and discussions during WTO and GATT meetings have led to the
relaxation of the prohibition list to only about 20 groups; they consists largely anti-
dumping and second hand goods which are considered harmful to domestic
production and development (Nigerian Customs Service, 2008). The relaxation of
trade prohibition included the removal of import prohibition on finished cigarette and
other tobacco related product.
Although no legal restriction on the importation of tobacco related products into the
country, there are various administrative bottlenecks that characterize the
importation of products into the country; part of which include undue government
bureaucratic activities. Apart from the pre-shipment inspection procedures,
importers are made to undergo sets of guidelines, processes and documentation
checklist before their products are allowed in. Standard import duty tariff in the
country ranges from between 20% on healthcare and petroleum products to 70% on
luxury goods (Nigerian Customs Services, 2008).
There is however some government incentives such as tax holidays and other
inducements meant to encourage foreign investment especially since the advent of
democratic rule. These are discussed in the course of this report.
3.6 RESTRICTIONS IN THE NIGERIAN TOBACCO INDUSTRY
Based on the country’s drive to influence foreign investment, various institutional

frameworks to implement the international Tobacco Control Legislation; the WHO’s
framework convention on tobacco legislation (Euromonitor, 2008) have not been
fully implemented. Although there are legislations that standardize health warning
on cigarette packs on the dangers on tobacco consumption, the public
advertisement of Tobacco through both the media and print electronics are not
controlled, but there are legislations against the sale of cigarettes and tobacco
products to under aged, its enforcement is however in question.
A certain company operating within the sector was even granted tax holidays for
them to reap full benefits of its investment in the reasonable volatile environment.
There are no smoking bans in public places, restaurants and clubs. It is expected
that laxity in the smoking legislations in Nigeria will make it an investment friendly
environment for the tobacco industry.

4.0 EXCHANGE RATE REGIMES IN THE UNITED KINGDOM AND NIGERIA
4.1- EXCHANGE RATE REGIMES
Enterprises that operate in a multi-national environment like ours needs to be in

sync with intricacies of the foreign exchange market for two main functions; to
convert the currency of one country to another as well as provide insurance against
foreign exchange risk (Hill, 2007). Considering the uniqueness of each operating
environment (UK and Nigeria) to various market structures and external economic
influences as well as the fact that each country has its currency priced in £ (Pounds)
for the UK and N (Naira) for Nigeria, the knowledge of the exchange regime helps us
proffer mitigating strategies against its risks to our business.
4.1a- Exchange Rate Regime in the United Kingdom
The United Kingdom currently operates the floating exchange rate system, the
government through the Bank of England has not intervened in the currency market
and the Sterling has been market determined in the last nine years (Bank of
England, 2008). Overall, changes in market demand and supply have been
responsible for changes in the value of the Sterling. The British economy
experienced a boom in the last 5years preceding the fall in property market and
failures in the financial system in mid 2009. This made the Sterling stronger against
major international currencies; a graphic review of the Sterling exchange rate with
the US dollars is shown in figure 4.1a below.
However, following the financial crises and the onset of recession affecting major
economies around the world, the shift in positions away from the Sterling by
investors as interest rates have been on the decline has led to a drop in the value of
the Sterling since September 2008.
Figure 4.1a- The US Dollar – Sterling Exchange rate

Source: Reuters- EcoWin
4.1b- Exchange Rate Regime in Nigeria

The exchange rate regime in Nigeria has experienced various transformations since
the country gained independence in 1960, ranging from a fixed regime in the 1960s
to a pegged arrangement between the 1970s and the mid-1980s, and finally, to the
various types of the floating regime since 1986 (Sanusi, 2004). The adoption of a
fiscal policy instrument- the Structural Adjustment Programme (SAP) signalled the

transition to a regime of managed float and this has been the predominant
characteristics since then.
Nigeria’s exchange rate policy is aimed at aimed at preserving the external value of
the currency and maintaining a healthy balance of payment position (Sanusi, 2004);
these issues have influenced the provision of the law and policies as regards foreign
exchange in Nigeria. To date the country’s exchange rate mechanism has been
managed floating; with the Naira allowed a permitted band of fluctuations against
the dollar and the Central Bank having to intervene to maintain the value of the
currency within set targets.
The peculiarity of the market needs to be highlighted as the country’s foreign

exchange earnings are largely dependent on payments received from Crude Oil
sales, thus the Volatility in the world oil market affects supply of foreign exchange
and affects the value of the currency (CBN, 2008), thus the value of the nation’s
currency has a direct relationship with international Oil prices since the shift to
floating exchange rate regime. Figure 4.1b below is a graph showing the Naira to US
Dollar average exchange rate between 1995 and 2006. A certain school of thought
however beliefs that the country’s currency is over-valued and there has been
consistent call for the devaluation of the Naira.
Figure 4.1b- The Naira- US Dollar Exchange rate

Source: Datamonitor, CIA: The World Fact book
In considering the relationship between the Sterling and Naira over the last decade,
there has been a high degree of volatility with Naira- Pounds Exchange rate going for
N250 to £1 in January 2008 and reaching N190 to £1 in December of the same year
(GTBank, 2009). To date the country runs the Dutch Auction Sales (DAS) for its
foreign exchange market and the market is regulated by the Central Bank of Nigeria
(CBN).
4.2- IMPLICATION OF THE NIGERIAN EXCHANGE RATE POLICY ON TRADE-

IMPORT AND EXPORT
The dependence of the country’s foreign earnings on crude oil sales means the
volatility of the Naira can likened to that of Oil prices; in the years prior to 1986, the
Naira had been over-valued creating a high propensity to import and promoting the
balance of payments deficit. The government tries to manage the value of the

currency by controlling the supply of foreign exchange into the market; these results
in high demand for FX in the market.
The demand pressure has led to speculation on the currency. Social and political
unrest, expectations of further depreciation of the currency by the government and
depletion of foreign reserves have implication for our global business strategy and
will need to be managed to ensure that income is not lost in the volatile FX market.
4.3- EXCHANGE RATE RISKS INHERENT TO NIGERIA AND ITS TOBACCO

INDUSTRY
Considering the volatility of Nigeria’s FX market and the level of trade in

international goods and services expected in the tobacco industry, one may argue
that there are no significant risk that are inherent to our business except that of
Transaction exposure which can affect the value of both forward and spot rates
when engaging in international business, this can however be mitigated by engaging
a lead strategy (Hill, 2007)- which involves attempting to collect foreign currency
receivables before they are due in anticipation of depreciating Naira value.

5.0 POLITICAL CLIMATE AND POLITICAL RISK ANALYSIS IN NIGERIA
5.1- Political Issues in Nigeria
Political instability has proven to be a thorny issue in Sub Sahara Africa- Nigeria
Inclusive, according to a KMPG survey quoted in Frynas, 1998, three-quarters of
British firms would not do business in Nigeria because of its reputation for fraud. Yet
Shell expanded its investments despite increasing political risks in the country and
despite many alternative investment opportunities in other countries (Frynas, 1998).
It is apparent that the political risk in Nigeria can be mitigated given the right
business strategy. Table 5.1 below indicates the various Nigerian Governments
between 1960 and 2008. Since the emergence of civilian rule in 1999, the country
has experienced a lull in political unrest; however incidents of kidnap, civil and
religious unrest are still rife especially in the Oil rich Niger-Delta regions and
northern states.
Table 5.1- The Nigerian Government 1960-2008

Source: Updated from the Library.
5.2- Analysis Political Risks Inherent in engaging in International Business

in Nigeria - Analysis and Mitigating Measures
MNEs like ours must be prepared for and respond to host country intervention;
identifying, analysing and forecasting have become major growth areas for
international business consultants (Rugman et al, 1986). Strategic, Structural and
International perspectives are three motives of key importance when considering
political risks to business as posited by Frynas, 1998 in his article- Political Instability
and Business: Focus on Shell in Nigeria. Various political risks that are inherent in
engaging in business in Nigeria, its attributes and implication for business as well as
the risk mitigating measures are outlined in Table 5.2a below.
It is also essential to say that our business activity which is in the Tobacco Industry
does not generate much of political influence as most businesses that encounter
political risks within Nigeria operate mainly in the oil and gas sectors or other natural
resources / mining business segments.

5.2. Political Risk Analysis
Political Risk Attributes and Indices Risk Mitigating Measures
Issue
Government This is the probability that the government Ensure strict compliance to
Intervention in may meddle in private business affairs. government regulations and
Business. Incidents of this have become very low prompt payment of taxes,
since the transition to civilian rule. Although duties and tariffs
corruption levels are still high, the state has
actually encouraged the participation of the
private sector, as various state run business
have since been privatised.
Incidents of The state has ceased to nationalise any Involve the private sector of the
business institution, the Nigerian government is not country in the business for
nationalisation known to have nationalised any private proper integration of local
establishment in the last decade, thus we communities.
Business The Nigerian government is a signatory to Ensure strict compliance with all
regulations the WHO and other international Tobacco laid down tobacco and related
Control Legislation. Standardize health products control mechanism.
warning on cigarette packs on the dangers
on tobacco consumption, the public
advertisement of Tobacco through both the
media and print electronics are controlled.
Evolve our best corporate
Tobacco industry There are legislations against the sale of governance practice involving
control mechanism cigarettes and tobacco products to under the sale of products and
aged. necessary health warnings.
Non-Governmental The activities of anti-smoking bodies and Involve all the necessary
Organisations non-governmental organisations are quite stakeholders in the decision
insignificant. However, it must be noted that making process and ensure that
our operations will still be guided by the the company does not flaunt
International practices and tobacco control international standards with
legislations set by the WHO and other regards to tobacco legislations
organisations.
Host Community Nigeria is noted for hostile community Evolve a community

relationship activities, especially businesses that development and enhancement
operate in the Niger-Delta oil sectors, project that will endear GBT to
although most Tobacco company operating the hearts of the host
the country do enjoy a relatively calm community.
operating environment.
Business
Communities and The Business environment and community It is also important to play
Cartels are quite involving, they are not known for actively in the business
unwholesome competitive practices that community, chambers of
may hinder business growth and commerce and industries and
development. There are no known cartels necessary business
within the Nigerian business environment. organisations.
Religious unrest Nigeria has seen a fair share of religious Locate our business factory in
and civil unrest in the last 5years, these are an area with little or no history
mainly between the Christian and Muslim of civil and religious unrests. It
populace. Some states in the northern areas is also important to maintain a
have also implemented the Sharia legal neutral stand with respect to
system (Islamic Codes). religious activities in the
country.
Table 5.2a- The Political Risk Analysis of Nigeria

6.0 MEANS OF INVESTMENT
6.1- Need for Internationalisation of GBT Plc’s Operations
In considering the determinants of international operations, Rugman et al, 1986 (Pp

24) argued that the expansion of trade is essential to the growth of a firm and that
trade provides new opportunities for firms workers and consumers. International
trade is usually the first phase of international operations of a firm; this then leads to
other modes of international operations which include franchising, exporting, joint
ventures (JVs) and Foreign Direct Investment (FDI).
Having concluded to embark on International Business as part of a strategy to grow

and increase market share and adopting the market seeking approach as the basis
of trade; embarking on Internationalisation requires us to consider the national
business system, cultural conditions and risks inherent in doing business in Nigeria
with focus on the tobacco industry as contained herein this report and further
summarized below.
6.2- Implication of Trade policies, Exchange rate and Political risks on entry
strategy
Considering the level of trade barriers, volatility in exchange rate market and
reasonable level of political risk identified and analysed above, we are open to
various forms of entry strategy ranging from export, franchising or licensing and FDI.
There are various indicators that do not encourage export as there exist a high level
of tariffs bureaucratic and administrative restrictions. Furthermore, government
incentives such as tax holidays encourage investments by way of FDI.
6.3- Entry strategy to be adopted
Evolving the best strategy to enter a foreign market, I have considered the relevant
issues highlighted above and trade theories with focus on the internalization theory
to explain the choice of establishing operations abroad through FDI over other
alternatives (export and franchising) available. The Internationalisation theory also
known as the theory of market Imperfections (Hill, 2007), harps on the
disadvantages of other options of international trade available to us when
considering operations in Nigeria.
Exporting requires us engaging in business in or serving the Nigerian market with

goods produced domestically (in the UK) or in another market, the viability of this
strategy is however constrained by the transportation and trade barriers that
currently exist in Nigeria; with duty rates on importing finished cigarettes and
tobacco related products hovering between 20-70% (NCS, 2007) and the volatility of
the exchange regime; the cost of exporting relative to that of FDI will thus be too
high.
Franchising or Licensing involves GBT engaging in tobacco business in Nigeria by

granting concession or privilege to an identified local companies or entities to serve
that market and pay dues or dividends to us by way of royalties. This options is
however not viable to us as it may result in giving away valuable technological
knowhow to potential foreign competitor, this negates our company strategy and its
long term implication for business has far-reaching implications. Furthermore,
licensing does not give us firm control over manufacturing hence we may be unable
to ensure that cigarette and product standards meet our global brands.
Rugman et al (1986), considers the eclectic theory and specifies a set of three
conditions required if a firm is to engage in International Trade, these issues are
considered relative to GBT and its market seeking strategy in the Nigerian tobacco

sector. Using John Dunnings eclectic model, table 6.3a-c gives the analysis these
various conditions (Firms Specific, Internalisation and Country Specific Advantages)
relative to GBT’s tobacco operations.
6.3a - Firm Specific Advantages

Discussion
Proprietary Technology The know-how available to GBT has ensured that our cigarette brands
remain the best quality within the UK and all the market we operate in.
The ability to process raw tobacco into finished products within a
reasonably short time beats our competitors to the market
Skills and core GBT boasts of some of the best hands in the tobacco industry, our R&D
competency team has been able to design new brands of cigarettes and related
products with low cost to the market.
Brand name, product The brand names which include Benson and Calboro are world
differentiation and renowned names and our products remains one of the best in the
trademarks market.
Size and scale of The production units have devised measures of cutting cost to produce
economies quality cigarettes at minimum efficiency scale.
Capital requirements GBT has been one of the most successful companies within the tobacco
and scale of operations industry; year on year, we have set aside part of our profit to embark on
market seeking ventures, thus funds and capital are readily available.
Table 6.3a- Analysis of Firm Specific Advantages to GBT
6.3b- Internalization Advantages

Discussion
Contracts and The Nigerian government currently seeks the development of the real
enforcement sector of the economy, thus its willingness to ensure that it creates a
suitable atmosphere to encourage FDI which includes enactment of laws
and reducing investment barriers.
Market Availability The Nigerian population is currently a fifth of the entire African
continent.
Control of Product Sale The problem of counterfeiting and imitation of products does not arise
as processes required to produce finished products are quite
cumbersome.
Size and scale of The production units have devised measures of cutting cost to produce
economies quality cigarettes at minimum efficiency scale.
Table 6.3b- Analysis of Internalization Advantages to GBT
6.3c - Country Specific Advantages

Discussion
Natural resources Nigeria is one of the exporters of tobacco which is a key raw material in
the manufacturing of cigarette; the nearness to the source of raw
material also conveys competitive advantage to GBT to embark on FDI.
Efficient and Skill labour Availability of both skilled and unskilled labour at a relatively low cost
force also makes FDI a viable proposition to enter into the Nigerian Tobacco
Market.
Trade Barriers and tariff Existing trade and import barriers by the Nigerian government on
restrictions cigarette increases the cost of servicing the market by export, there are
also tax incentives available to investors to ensure that they make an

appreciable level of profit.
Table 6.3c- Analysis of Country Specific Advantages to GBT
6.4- The Type of FDI recommended
Given the alternatives available and the choice of FDI as a mode of operation in
Nigeria; onus is now on the form of FDI to consider, one of our major competitors;
British American Tobacco (BAT) already operates in the market and it controls over
20% of the market. The form of FDI must ultimately reduce the market gestation
period if we are to compete favorably with BAT in the long run.
The global market seems to favor mergers and acquisitions as over 70% of all FDI
inflows have been in the form of mergers and acquisition (ACG, 2008). The best form
of FDI to adopt by GBT in operating in Nigeria is the acquisition of an already existing
entity that is involved in the Nigerian Tobacco sector.

7.0 CONCLUSIONS
The dearth of smoking in the developing world with Western Europe, North America
and Australia records a decline in smoking consumption for 2007 due to increased
grip of tobacco control on world consumption; (Euromonitor, 2007). The role being
played by emerging markets and developing countries in the world economies
comes to foray.
This report considers intricate issues, giving an insight into the vast subject of
International Business strategy outlining relevant discusses on culture and national
business systems, pattern and trends of trade, exchange regimes and political risks
with hindsight that our company seeks to embark on investment in Nigeria from our
UK based operation.
Nigeria has become one of the key directions of FDI in emerging markets, while the
country may have significant risks, a number of developments have reduced risk in
the market, the country has seen improvements in corporate governance, corporate
regulations and the political arena has seen structural changes over the years
making the country an investor haven.
Finally, it is apparent that the issues outlined in the course of this report and
inferences drawn, the best investment entry strategy would be to embark on Foreign
Direct Investment by acquiring an existing firm in Nigeria’s tobacco or
manufacturing sector owing to reasons stated below.
• Take advantage of the recent liberalization and deregulation initiative of the

Nigerian government will make it much easier to enter the market.
• Establish a sizeable presence in the industry and compete favorably within a
relatively short period.
• Reduce the risk that may become inherent in entering the market through
Greenfield investment by purchasing the assets of a company with known
revenue stream.
It is envisaged that measures outline above will indeed integrate into Great Britain
Tobacco Plc’s long term market seeking growth strategy. The due diligence and
modalities for selecting our target firm will be given consideration in other
management reports.

REFERENCES
ACG-Association of Company Growth(2008); Available at

http://www.acg.org/AboutACG/tabid/70/Default.aspx
Daniels, J. D and Radebaugh, L .H (2001) ‘International Business Environments and

Operations, 9th Edition. Upper Saddle River, NJ. Prentice Hall
Dina, Y., Akintayo, J. and Ekundayo, F. (2005) “Guide to Nigerian Legal Information.
Euromonitor International (2008), ‘Global Tobacco: Survival Strategies for a Savage Market’.
Frynas, J. G., 1998. ‘Political instability and business: Focus on Shell in Nigeria’. Third World
Quartely Review; Vol 19, No 3, Pp 457-478
Guaranty Trust Bank; Dealers’ Daily Digest (2008)’The Forex Market’. Available at:
www.gtbank.com (Accessed 9th Jan, 2008)
Mussa, M., Masson, P., Swoboda, A., Jadresic, E., Mauro, P. and Berg, A. (2000) ‘Exchange
Rate Regimes in an Increasingly Integrated World Economy’. International Monetary Fund.
Available at: http://www.imf.org/external/pubs/ft/op/193/index.htm
Nigerian Customs Services (2008), ‘Import Procedures’. Available at
http://www.customs.gov.ng/Guidelines/Destination_Inspection/import_procedures.php
Oyejide, A., Ogunkola, A. and Bankole, A. (2007). ‘Import Prohibition as a Trade Policy
Instrument: The Nigerian Experience’
http://www.wto.org/english/res_e/booksp_e/casestudies_e/case32_e.htm (Accessed 2nd Jan,
2009)
Rugman A. M., Lecraw D. j. and Booth L. D. 1986 ‘International Business- Firm and
Environment’. McGraw-Hill Book Company, New York.
Sanusi, J., O., (2004)’ ‘Exchange Rate Mechanism: The Current Nigerian Experience’ Address
to the Nigerian-British Chamber of Commerce by the Central Bank Governor. Available at
http://www.cenbank.org/OUT/SPEECHES/2004/Govadd-24Feb.pdf (Accessed 6th Jan, 2008)
Shell Petroleum Development Company, 2008. ‘Community Development in Nigeria’.
Available at;
http://www.shell.com/home/content2/nigeria/society_environment/dir_community_developme
nt.html
Transparency International
http://www.transparency.org/policy_research/surveys_indices/cpi/2008
UBA Capital, (2008) ‘Nigeria Review’. Issue no 27. UBA Capital (Europe) Ltd. London
UK in Nigeria, Foreign and Commonwealth Office, Available at;

http://ukinnigeria.fco.gov.uk/en/doing-business/contact-offices/sector-snapshot (Accessed
12th Dec, 2008)
UK Trade and Investment Commission, (2008). ‘Information Sheet- Fraud’. Available at;
https://www.uktradeinvest.gov.uk/ukti/appmanager/ukti/countries?
_nfls=false&_nfpb=true&_pageLabel=CountryType1&navigationPageId=/nigeria (Accessed
2nd Jan, 2009)
UK Trade and Investment, Advice for engaging in International Trade, West Africa; Nigeria.
Available at; https://www.uktradeinvest.gov.uk/ukti/appmanager/ukti/countries?
_nfpb=true&portlet_3_5_actionOverride=%2Fpub%2Fportlets%2FgenericViewer
%2FshowContentItem&_windowLabel=portlet_3_5&portlet_3_5navigationPageId=
%2Fnigeria&portlet_3_5navigationContentPath=%2FBEA+Repository
%2F323%2F226332&_pageLabel=CountryType1 (Accessed 21st Dec, 2008)

International Business Environment

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

International Business Environment

Uploaded by

Copyright:

Available Formats

UB 05014195

International Business Environment

I have read the University Regulations relating to

Number of words: 3,694

05014195 – MSC FINANCE, ACCOUNTING & MANAGEMENT Page 1

2.0 National Business Systems and Cultural Conditions

3.0 Pattern and Trend of Trade between two Countries

4.0 Exchange Rate Regimes in the United Kingdom and Nigeria

5.0 Political Climate and Political Risk Analysis in Nigeria

05014195 – MSC FINANCE, ACCOUNTING & MANAGEMENT Page 3

• Providing insight into national business systems and cultural conditions

05014195 – MSC FINANCE, ACCOUNTING & MANAGEMENT Page 4

This is a feasibility report which follows the international business strategy of

The purpose of this report is to demonstrate research in the area of International

1.1 The Tobacco industry

Industry Issue United Kingdom Nigeria

Market Analysis Market Size Market Size

Competition Market Type Market Type

Table 1.1a- Tobacco Industry Analysis; United Kingdom and Nigeria

05014195 – MSC FINANCE, ACCOUNTING & MANAGEMENT Page 6

Figure 1.2a- Business entry modes available to GBT

Features United Kingdom Nigeria

Demographic Population Population

Political Ruling System Ruling System

Table 1.2a- Country Analysis of the United Kingdom and Nigeria

05014195 – MSC FINANCE, ACCOUNTING & MANAGEMENT Page 7

2.1 NATIONAL BUSINESS SYSTEM

In considering these fundamentals which ranges from Institutional frameworks

2.1a. The Political System

Framework for Political System

Source: Euromonitor, 2008- Country Fact file on Nigeria Pp1

Table 2.1a- Political System in Nigeria

05014195 – MSC FINANCE, ACCOUNTING & MANAGEMENT Page 8

Framework for Economic System

Source: Datamonitor, 2007- Nigeria Country Profile Pp 13.

The implication of this on our UK operations is that there is dependent on the

Table 2.1b- Economic System in Nigeria

Figure 2.1b- Nigerian Economic Indicators

05014195 – MSC FINANCE, ACCOUNTING & MANAGEMENT Page 9

Framework for Legal System

Table 2.1c- The Legal System in Nigeria

05014195 – MSC FINANCE, ACCOUNTING & MANAGEMENT Page 10

Table 2.2a- Major Cultural Condition Indices in Nigeria

3.0 PATTERN OF TRADE BETWEEN TWO COUNTRIES

3.1 PATTERN OF TRADE IN THE UNITED KINGDOM

3.2 PATTERN OF TRADE IN NIGERIA

05014195 – MSC FINANCE, ACCOUNTING & MANAGEMENT Page 11

05014195 – MSC FINANCE, ACCOUNTING & MANAGEMENT Page 12

Considering recent developments, trade between both countries is expected to grow

3.4 TRADE IN THE TOBACCO INDUSTRY BETWEEN UNITED KINGDOM AND

3.5 RESTRICTIONS AND PROTECTIONS ON TRADE IN NIGERIA

3.6 RESTRICTIONS IN THE NIGERIAN TOBACCO INDUSTRY

Based on the country’s drive to influence foreign investment, various institutional

05014195 – MSC FINANCE, ACCOUNTING & MANAGEMENT Page 14

4.1- EXCHANGE RATE REGIMES

Enterprises that operate in a multi-national environment like ours needs to be in

4.1a- Exchange Rate Regime in the United Kingdom

Figure 4.1a- The US Dollar – Sterling Exchange rate

4.1b- Exchange Rate Regime in Nigeria

05014195 – MSC FINANCE, ACCOUNTING & MANAGEMENT Page 15

The peculiarity of the market needs to be highlighted as the country’s foreign

Figure 4.1b- The Naira- US Dollar Exchange rate

4.2- IMPLICATION OF THE NIGERIAN EXCHANGE RATE POLICY ON TRADE-