International Business Environment Business Essay

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This report is based on the analysis of investment opportunities in United Kingdom and Nigeria. It will analyse and the Nigerian corporate suit for women by showing how the National business systems, cultural differences will affect our firm, assess the trade patterns between the two countries in the textile and clothing industry, outline the exchange rate regime that governs the two countries and the political risks that our firm may encounter. Finally, a decision and recommendation will be made as to whether our firm should export or use foreign direct investment or a combination of the two means to operate effectively in Nigeria.

1.0 Introduction

Choices Apparel was established in 1898 in Ducks land, London. It's a famous international company that produces corporate suits specifically for women. The company is known for its good works and effective customer services. It has successfully gained a high reputation and built a niche market for itself. It is famously known as most wanted because the demand for its suits by corporate personnel and high net worth individuals has ever been increasing.

The founder, Sir Grey Choices was obsessive about quality and value and worked hard to build choices apparel's reputation by first making women's shirt with a tail shape. He was the first person in years to make a "tail shaped shirt with buttons". The company started from making just camisoles and shirts for women before it expanded into the making suits. Over the years, the company has created women's product to cover the entire business wardrobe and has currently introduced various pattern of suits ranging from bright coloured suits, as well as striped, checked and patterned suits. The company currently has over 50 stores in the United Kingdom and still on the verge of opening more. It also has various stores in United States, China and Germany.

Choices apparel has decided to diversify into the Nigerian market as it is not well-known over there. Its target market will be the corporate working class women like bankers and other workers of financial institutions.

1.1 Historical Background

Nigeria was colonised by the British in October 1st 1960. It is the largest country in Africa and accounts for 41% of the West African population. It's the biggest oil exporter in the whole of Africa and blessed with natural resources (World Bank, 2010). This huge potential is Choices apparel's main motive for wanting to invest in the country. The country's currently has 36 states with Abuja being the capital, major religions are Islam and Christianity.

The report from CIA world fact book (2011) shows that 55.5% of the country's population are male and female between the ages of 15-64. This pose a great opportunity for choices apparel based on the large target market. The major spoken languages in the country are Yoruba, Hausa, and Igbo but English remains the official language for national, political and commercial communications. Therefore choices apparel would not have problems in communicating its business activities.

Although Nigeria has a great potential but might not be seen as an attraction for international investment because it dwells in disaster of enormous proportions like political instability, regional strife and the deteriorating influence of immense corruption. These has resulted in the country failing to benefit from its many advantages; leaving the mass population in relative poverty and the country enormously infra-structure poor.

1.2 Textile and Clothing Industry in Nigeria

The textile industry in Nigeria is the largest in Africa after Egypt and South Africa. The industry which currently accounts for 25% of manufacturing value added has faced a lot of challenges during growth. The major textile industry in Nigeria is in Lagos, the centre of excellence, while others are in the northern part of the country (Kano and Kaduna). In Nigeria, the industry is known to be labour intensive and has been estimated to provide job opportunities for over 150,000 Nigerians.

Textiles have been produced in Nigeria for so many years but the industry just began its real activities like fibre production, spinning, weaving, lace and embroidery makings, dyeing, printing, carpet production and finishing. The sector produces various fabrics every year from African prints, shirting, embroideries and wax print. Similarly it has been reported that the Nigerian Textile and clothing Industry which consists of the cotton textile and synthetic fabrics have continued to account for a significant proportion of the overall growth of manufacturing products (CBN 2005 Annual report).

Although, Nigeria's aim is to become a textile investment destination of choice but it is faced with various environmental issues in the production process. The risk associated with the process is the water use like scouring, bleaching etc, the treatment of colour removal also increases risk pollution. The industry is an important earner of foreign exchange and its exports were estimated between 25% - 30% of production. Investment in textile and clothing industry is bright either operating locally or exporting.

2.0 National Business System and Cultural Conditions in Nigeria

2.1 National Business Systems

National business systems can be seen as elements in an environment that affects the workings of an organisation. Countries have different political, social and legal systems and all this differences have major implications for practising international business. These various systems have great impact on the "benefits, costs and risks associated with doing business" (Hill 2007:44). It directs the way operations should be managed in different countries and how international business should operate in different countries. In addition, a good understanding of the national business systems in Nigeria will aid choices apparel in making successful investment within the country.

2.1.1 Political System

Nigeria adopted a democratic system of government whereby citizens are directly involved in decision-making. At the federal level, the government is headed by an elected president. The president acts as the Head of state, the chief executive of the federation as well as the commander-in-chief of the armed forces (Federal Executive Council, 2010). The country looks up to the president as the overall manager of the economy whereby he/she will gain credit in times of prosperity and criticized for economic failures. The country has 36 states and 1 territory. Choices apparel has lots of options in deciding which of the states to set-up its business. Additionally, the country has various political parties which include All People's Party (ANPP), Action Congress (AC), and People's Democratic Party (PDP) amongst others. The ruling PDP has displayed its victory in national elections.

Nigerian's transit from military to democratic rule began in 1999. However, the third democratically elected government is committed to be in line with the "7 Point Agenda" which focuses on developing the human capital, critical infrastructure, food security, land tenure changes and home ownership, national security, wealth creation and the Niger-delta.

World Bank (2010) reports that the Nigerian socio-political system is fairly stable but there are still various parts of the country with instability due to corruption, Lack of independence, Lack of transparency in operating and making decisions and failure to make logistical arrangements where necessary. Nigeria is not a poor country but its biggest problem is Bribery and Corruption (Transparency watch, 2008). Corruption is very high among government officials in Nigeria. In as much as the President is committed to fight corruption, he still has to work within a political framework surrounded by corruption. In essence, Choices apparel might have to conform to the corporate governance in the country in other to run a smooth business.

2.1.2 Economic System

According to U.S department of state diplomacy in action, Nigerian population was reported to be 152million persons in 2010 and it's expected to be 178.72 million persons in 2015. Nigeria's economy share of world total GDP, adjusted by purchasing power parity, was 0.48% in 2009 and it's forecasted to be 0.51% in 2015 (International Monetary Fund in Trading economics, 2010).

Nigeria is the largest country in Africa, It accounts for 47% of West-African population (World Bank, 2010). This makes it the regional power bloc in Africa. Nigeria is known as the biggest oil exporter in Africa as it has the largest natural reserves in the continent. This basically explains some of the reasons why choices apparel is considering investing in the country. The country has been on the edge of building a prosperous economy by reducing poverty, providing health, education, infrastructural amenities to its population with its large reserves of human natural resources. The problem of electricity in the Nigerian economy cannot be over emphasized because it has made so many industries inefficient. This is indeed going to affect our company and it is necessary that we make available electrical facilities that will be used to generate power supply.

In addition, the oil boom in Nigeria led it to ignore the strong manufacturing and agricultural system because it was overly dependent on the crude oil (US department of state diplomacy in action, 2010). According to World Bank (2010), employment opportunities have been a major constraint in Nigeria and it has been estimated that 50million of Nigerian youths are unemployed. This poses an opportunity for our company "Choices Apparel" because the issue of unemployment makes cost of labour relatively cheap, and setting up our business will provide additional employment for Nigerian youths.

Furthermore, Nigeria operates a free market system where all productive activities are privately owned. The price of corporate suits is determined by the market demand and supply. There are no barriers to entries into any businesses in Nigeria. Even the industries that seem protected only last for a short while before it starts operating freely. An effective management firm can carry out its business in any industry where inefficiency has created an opportunity for entry. For instance, the textile and clothing industry which was neglected by the government serves as a huge opportunity for Choices Apparel to explore. We should also have in mind that governments have minimal decisions as regards business operations in the free market economy and this will bring about huge competition in the industry as new entrants can emerge at any point in time.

Another important factor to note is that labour union in Nigeria is very strong. Nigerian Labour congress (NLC) sets a minimum wage for the citizens, defends their political, economic, social and cultural rights and unites them against any discrimination or exploitation. However, this may not be a big challenge for Choices Apparel considering that the United Kingdom's trade union is also very effective. Nevertheless, we should endeavour not to set wages below the minimum wage required by the country. In addition, we would benefit from doing business in Nigeria in the long-run because the textile and clothing industry is still in its early stage of development (Encyclopaedia of the nations, 2011). Therefore, we should invest early in the potential future of the Nigerian economy and build a brand loyalty for our products.

2.1.3 Legal System

The Nigerian legal system is based on the English common law legal tradition because she was colonized by the British. The English had a remarkable influence on the Nigerian legal system and the English law forms a significant part of the Nigerian law says Obilade (1979). The sources of the Nigerian law are the constitution, the legislation, English law, customary law, Islamic law and judicial precedents.

The Nigerian legal system is the civil law system and the current constitution is the "1999 constitution which came into limelight in May 29, 1999. The 1999 constitution of the Federal republic of Nigeria regulates how legislative business is distributed between the National Assembly which make laws for the federation and House of Assembly make laws for the states. However, all matters related to how businesses are operated are handled by the federal government and their different agencies such as Bureau of Corporate Enterprises, Corporate Affairs Commission, Independent National Electoral Commission, National Planning Commission, Central Bank of Nigeria and the National Police Force.

The Economic and Financial Crimes Commission (EFCC) is also part of the federal government agency set up by the present administration to reform Nigeria's economy sector. It serves as a Financial Intelligence Unit to fight against money laundering and other economic and financial crimes. This has led to an improvement in the country's economy.

However, Choices apparel may participate in forming a company in Nigeria, subject to the provision of any law regulating the rights and capacity of foreigners to engage in any business within the country.

2.2 Cultural differences

Hofstede defined culture as "the collective programming of the mind which distinguishes the members of human group from another" (in Hill, 2007 p.91). The following are the various cultural conditions in Nigeria.

Background to Business: Nigerians population is made up of around 200 ethnic groups, 500 different languages and two major religions which are Christianity and Islam. This clearly gives Choices Apparel an opportunity for a successful investment as female Pastors, Deaconess and some choir members dress corporately to church. The basic cultural practices in Nigeria are greetings, personal space, eye contact, and gestures (Global It is also applied to business etiquettes, meetings, negotiations and dress codes.

Business Structures: Indigenous Nigerian companies have different approaches of dealing with their businesses. Because the country is rich in tribal tradition and culture, all bosses or elders are expected to receive respects from those below them. Age is highly valued in the Nigerian culture because it is believed to bring wisdom.

Nigerian Meetings: Meetings may prove difficult to arrange by telephone in Nigeria because the infrastructural facilities are unreliable. Appointments within a locality are made by self appearance or hand delivered notes. Building relationships is very important in Nigeria; therefore meetings will start and finish with social interaction. Another important thing to note is patience is very important in dealing with businesses in the country because meetings do not start on time. It is generally called "African time".

Nigerian Dress Code: It is very important to dress properly in Nigeria because ones manner of dressing determines ones level of significance. Men wear dark suits, while women wear dark business style suits. This is means that our business has the potential of making sales to a large population of high-net worth and corporate individuals. Choices Apparel should also note that Nigeria is a very hot place; therefore the clothing pack should be light.

Using the Hofstede Framework to analyse the business culture in Nigeria.

Uncertainty Avoidance

Individualism/ Collectivism

Masculinity/ Femininity

Power Distance

Figure 1

Individualism and Collectivism shows how members of a culture set themselves apart from a group membership. In the individualist culture people are expected to display their individual personalities. This can be seen in practise in the Nigerian business culture. Therefore, it is important for Choices apparel to understand the essential behaviours of doing business in Nigeria as the culture is way different from its origin.

3.0 Patterns and Trends of Trade between United Kingdom and Nigeria in Women Suits

Nigeria is UK's 33rd largest overseas market and 2nd largest African market for goods and services. UK export of goods to Nigeria was worth £1,235million in 2009 and services was worth £1279million in 2008 (UK trade and Investment, 2011). It has been reported that Nigeria has strong historical, language and constitutional ties with the UK. This serves as a major advantage for our company.

Nigerian's import was grossed over $42.1billion in 2009. A large proportion of this import came from UK, Netherlands, France, Germany, US and China. Major goods imported ranges from consumer good, machineries and equipment. Similarly, the trade (% of GDP) in Nigeria was reported to be 66.32 according to World Bank. The graph below shows the country's trade in GDP from 1968-2008.

Graph 3.1 Nigeria-Trades (% of GDP)

Most importantly, the Nigerian government placed a ban on the importation of textile and clothing into the country in 2003 based on the allegations by local manufacturers that the materials being dumped in the country were inferior, so also to give domestic manufacturers the opportunity to thrive (Anosike 2010).The ban has resulted to government loosing huge revenues as local manufacturers were inefficient in their production due to unstable power supply. As a result, many of the country's retailers engaged in smuggling of banned goods such as clothing's, suits and so on from neighbouring countries.

However, stakeholders have urged government of the country to lift the embargo placed on finished clothes based on the following reasons; over 50million Nigerians have been unemployed, the country has no functioning textile industry to clothe its citizens. They further argued that the textile materials are neither threats nor harmful materials.

After all said and done the Nigerian government have lifted the ban placed on the importation of textiles and clothing's (This Day, 2010). This information serves as a great opportunity for Choices Apparel to explore the market knowing full well that as Nigerians love for foreign goods, most importantly suits keeps increasing and Nigeria will make an investment friendly environment to our company.

4.0 Exchange rate regime in United Kingdom and Nigeria and its associated risks

4.1 Exchange rate regime in Nigeria

Exchange rate is the price at which national currency is valued in relation to a foreign currency (Latter, 1996). A country could either have fixed or floating exchange rate systems. Under the fixed exchange system, the government of central bank of the country determines the exchange rate, whereas, the exchange rate is freely determined by the market forces under the floating exchange rate system.

The exchange rate regime in Nigeria has experienced lots of significant changes since it gained independence in 1960. It operated under the fixed regime in the 1960's to a "pegged" arrangement between the 1970's and mid 1980's (Sanusi, 2004 p.1). It has been operating on a floating exchange rate regime since 1986 following the adoption of the Structural Adjustment Programme (SAP). The earnings on the country's foreign exchange are more than 90% depending on the crude-oil export receipts (Sanusi 2004).

On the other hand, the floating exchange rate regime implies that the exchange rate will be determined by the forces of demand and supply, meaning that there will be no presence of any visible hand in the foreign exchange market and the exchange rate can adjust automatically to clear any deficit or surplus in the market.

The main advantage of the floating exchange rate system is the monetary policy independence which enables the country to control its monetary aggregates and to influence its domestic interest rate and inflation. On the contrary, there are some risks of the floating exchange regime which could affect Choices Apparel, some of which are exchange rate volatility, high inflation and transaction cost.

According to business monitor international, the Nigerian naira has began to experience some weaknesses. It has moved from NGN149.80/US$ to NGN152.30/US$ in the past six weeks, but it's expected to return to NGN150/US/$ if the central bank meets forex demand in full. Nigeria's foreign exchange market is controlled by the central bank using the Dutch Auction Sales (DAS).

CBN Committed To Stability

Source: Business Monitor International

Graph 4.1 Nigeria - Exchange Rate, NGN/US$

4.2 Exchange rate regime in United Kingdom

The table below shows United Kingdom exchange rate regime for past years.


end-1989 end -1995

Number of countries

Pegged to single currency or composite

Flexibility limited in terms of single currency or group of currencies

More flexible (adjusted according to set indicators, or managed independent float)









Source: International Monetary Fund

Table 1

The exchange rate regime in the United Kingdom is the floating exchange rate system. Overall, changes in the market demand and supply affects are responsible for the changes in the value of pounds. The rate of naira-pounds has been around N250-£1 which is the very high.

5.0 Mode of entry to be undertaken in order to enter Nigeria

Although the ban placed on the importation of finished goods such as clothing and textiles have been lifted recently in Nigeria and the tariffs placed on these goods are high. The Nigerian federal government recently launched a 2008-2012 Nigeria customs and excise tariff books which states that finished goods that are not produced locally will attract 35% tariff (Trade Invest Nigeria, 2008).

As a result, I would propose that Choices apparel should engage in a Horizontal Foreign Direct Investment in Nigeria i.e. dealing with the same clothing industry. I also suggest that due to incapability of some clothing and textile industries in the Nigeria, we could engage in a brown field mode of entry by acquiring some of the affected companies as they will be willing to let go of their properties at a lower amount.

6.0 Assessment of political risks in Nigeria and measures of mitigating the risks

Political risks are those risks carried out by politics of a country to make ones business difficult to operate. There are various political risks that affect the business environment in Nigeria, table 1.1 below shows the different attributes of risks inherent in the country and ways to reduce them. Ways to deal with these risks is to develop a comprehensive contingency plan.

Political risk issue


Ways of reducing the risks

Militancy in Nigeria

Kidnappings and attacks have been happening in country for past weeks especially in the Niger Delta oil region

Choices apparel should avoid investing in areas like the Niger-delta sectors in order to have a smooth operation

Interference in operations

Economic instability which affects production such as insufficient electricity.

In order for Choices apparel to function properly, it needs to put in place generating facilities in order to have constant power supply.

Interference in operations

Corruption is very high even amongst government officials, low-level of transparency in dealing with business operations in Nigeria

Choices Apparel should ensure strict compliance with all laid down rules and regulations guiding the operations of the business especially within the textile and clothing industry.

Political violence

Some parts of Nigeria are known for terrorism and sabotage, kidnap and ransom, extortion and theft.

Choices apparel should ensure tight security by not keeping huge sums of money in the company and try to engage in community developments in order to gain individuals hearts. We should insure all our properties in case of other unseen circumstances.Table 1.1

The table below shows the risk ratings in Nigeria as at 2010.






Last Month







Mkts Avg

S-T Political







L-T Political







S-T Economy







L-T Economy







Business Environment















Source: Business monitor international

Table 1.2

7.0 Recommendation

We should engage in Foreign Direct Invest in Nigeria through brown field mode of entry because there are several opportunities to be gotten. Some of which are;

It will be cheaper due to the fact that some companies in the clothing industries can no longer run the business because of inadequate infrastructure

Nigerians love for foreign goods keeps increasing to the extent that the ban placed on importation of textiles and clothing resulted in high rate of smuggling into the country.

Our company has a strong brand name in the UK and other countries where it operates; therefore it can build a niche market in Nigeria.

Nigeria is the most populated country in Africa, and the second ranked destination in Africa for Foreign Direct Investment.