Tricom is a telecommunications services provider based in the United States of America, and the second largest U.S. wireless carrier in the United States, with estimated annual revenues of US$ 92.8 million with its head quarters in Detroit. The company is listed on the New York Stock Exchange (NYSE) and operates across two segments which are wireless and wire line. Its wireless segment provides both wireless voice and data communications services across the U.S.
Due to the saturation of the American market and the ongoing economic crises taking place in most parts of the world, there has been a need for the company to look for opportunities in other international market. The Emergence of the Telecommunications sector in sub Saharan Africa has not gone unnoticed by major multinational companies in this industry across the globe and as a researcher Tricom with operations based in United States, the company has recently decided to embark on International Business as part of its strategy to grow and increase its market by investing in Nigeria.
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This report is based on the assessment of the Nigerian telecommunication market with a vision of establishing if Nigeria is a viable investment opportunity or not. The main aim of this report is to advice the CEO and the top management of Tricom on the form of Foreign Direct Investment (FDI) that would be suitable for its operations in Nigeria. It addresses the overview of the telecoms industry, aspects of the Nigerian market like trade patterns between the United States of America and Nigeria, business systems, cultural conditions, and the national business systems in Nigeria, how they influence the telecoms industry and preferred mode of entry. This also highlights the exchange rate regimes that govern the United States and Nigeria investment barriers, the competitive advantages available to Tricom the risks that MNCs like Tricom are exposed to.
Since the transfer of Public ownership of telecommunication enterprises in 2001, the telecommunications sector has experienced a rapid increase in growth and a huge impact on the economy's growth. With this rapid growth, large multinationals are eager to take opportunity which will increase their global presence, market dominance and also their profitability.
The purpose of this report is demonstrate research in the area of International Business, analysing and considering the national business systems, cultural conditions and other factors that relates to international business in both the USA and Nigeria within the telecommunications industry. Our ultimate aim is recommend the best possible business strategy to the management of Tricom that can be implemented to influence its mode of entry into Nigeria.
1.1 REVIEW OF TELECOMMUNICATION INDUSTRY GLOBALLY AND IN NIGERIA
Hardy (1980) argued that a potential correlation between telecommunications, infrastructural development and economic growth. Both developed and developing countries have gone through privatizing processes in their telecommunications sector in order to improve service and interconnect ability. Though developing countries might have different reasons for privatization, such as eradicating external debts and intentions for obtaining foreign direct investment, the improvement in service might help bring them into the global market.
The world is indeed in the information and knowledge based economic system given the continuous and ubiquitous availability of processed information at the speed of light. In the last fifty years or so, unique advancement has been made in the area of information and communication technology that it has become one of the most important industries.
The telecommunications industry has experienced a rapid and structural change over the past decade. From 1996-2006, the number of fixed-line and mobile subscribers grew from less than 1 billion worldwide to almost 4 billion (economy watch, 2009). The dramatic growth of the sector coincided with the widespread liberalization. Public ownership of the telecommunications sector was also squared with the economic thinking of the 1970s, which favored large investments in key sectors that were expected to stimulate economic growth. However, especially before 1998, the spread of liberalization had been uneven.
The liberalization of the telecom sector along with increased competition among players have brought substantial benefits to consumers in terms of lower subscription rates and enhanced choice. In 2002, the NCC embarked upon a process of licensing fixed wireless local loop operators.
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The Nigerian market has moved to a fully liberalized market where the law of jungle has been replaced by the law of competition. NCC has removed the barriers to market entry and is now relying upon natural market forces to ensure market sustainability.
Figure 1.1a: Growth of the Nigerian telecommunications Industry
Source: Teledensity and Subscriber base vs. date *
Figure 1.1b: Evolution of competition in the mobile telephony segment in Africa, selected years (per cent). Source: ITU (2004).
The Nigerian telecommunication sector received a global acclaim as one of the fastest growing mobile markets in the world. Its major contribution to the economy includes employment generation, revenue generation to Government, foreign direct investment and private investment.
Furthermore, a number of International agencies and multilateral institutions have also been investing in the Nigerian telecoms industry for example, in April, 2008 Stanbic IBTC Bank had a private placement of a 9.45% equity stake in MTN Nigeria for US$ 944,709,757. Tella et al (2007) further identified other financier of the telecommunication sector to include the Export - Import Bank of the US (US Exim Bank), African Export - Import Bank (Afrexim), African Development Bank (ADB), Development Bank of South Africa (DBSA), and DMO Germany.
1.2 THE COUNTRIES
The table 1.2 shows an analysis of both the America and Nigeria, showing a brief summary of the major features of the countries .the table below has shown that Tricom would have a competitive advantage in Nigeria due to the rapid economic growth.
9,826,675 sq km
77years(men) and 82 years (women)
Automobiles, agricultural product
chemicals, computers, telecommunications
GNI per capita
GDP growth rate
1 - 2.6% per annum
923,769 sq km
46years(men) and 47 years (women)
Petroleum, petroleum products, cocoa, rubber
GNI per capita
GDP growth rate
6.5% per annum
Table 1.2- Country Analysis of America and Nigeria
Source: Table prepared with information sourced from university of Pennsylvania - African studies centre as at the end of 2009
2.0 NATIONAL BUSINESS SYSTEMS AND CULTURAL CONDITIONS IN NIGERIA
Culture is seen as the integrated pattern of human knowledge, what people eat, how they dress, activities they practice, belief, custom and behaviour as a member of the society (Hofstede, 1984).macroeconomic variable such as Cultural practices, Economic, Political, Educational and Legal systems of Nigeria must be carefully considered before taking an investment decision (Hill, 2008). This gives a clear picture on the implications on the telecoms industry and how they can influence Tricom operations and investment in Nigeria. These macro economic variables are highlighted below.
2.1 ECONOMIC SYSTEM
Nigeria is the most popular country in sub Saharan Africa's most with a population of over 150 million. Nigeria has been plagued by political instability, corruption, civil unrest, inadequate infrastructure, and poor macroeconomic management but in 2008 began pursuing economic reforms. Nigeria's former military rulers failed to diversify the economy away from its overdependence on the capital-intensive oil sector, which provides 95% of foreign exchange earnings and about 80% of budgetary .The size of the Nigerian economy as measured by the nominal GDP was $ 212.8 billion. Since year 2000, the GDP has been increasing at an average of 5.9% each year. However, it only grew by 5.3% in between 2007 and 2008 (Central Intelligence Agency, online, 2009). The declining growth of the oil sector caused by disturbances in the Niger-Delta area was to blame for reduction in oil output. Other sectors such as agriculture, wholesale and retail trade, construction and services have continued to show strong performances. According to a study by Augustus and co in 2007 the communication sub-sector recorded the highest growth rate at 31%. This impressive growth can be attributed to the liberalization of the sector and the emergence of mobile telephony. Inflation and inadequate power supply also have to be considered as they are considered as constraints to industrial growth.
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USA's GDP was $12,376.10 billion in 2005 and the wireless telecoms sector provided 2.5% of this figure. At an annual growth rate of 15% the industry is expected to become a larger sector of the economy than the agriculture and automobile sectors within five years (Enter and Lewin, 2005).
Table 2.1-analysis of the economic system
Table 2.1 National GDP and Telecommunication Contribution to GDP (2003- 2007)
GDP at 1990 Constant Basic Prices
Telco Contribution at 1990 Constant Basic Prices
Annual Growth Rate National
Annual Growth Rate
Sources: National Bureau of Statistics and Central Bank of Nigeria Annual Report 2006 (Growth rates calculated by the Author) GDP growth in 2007 i.e. 6.3% as per World fact book on Nigeria (2007) indicators
2.2 POLITICAL SYSTEM
Nigeria gained its independence in 1960 and as a result of democracy, several sectors in the economy have been privatised or liberalised to allow or invite foreign direct investment into Nigeria. The political environment has been very volatile due to the religious feud between the Christians and the Muslims who strive for constant political power. However, since the transition to democracy in 1999 the political situation has become more stable. Various sectors of the economy have been liberalized from the monopoly of state run organizations. The most prominent liberalisation is the breaking of the monopoly of NITEL. The government granted telecommunication licences to private businesses in 2001. This led to a rapid change in the use of telephony in Nigeria. The Teledensity increased from 0.45 per 100 in 2001 to 28 per 100 in 2006 (Augusto and CO, 2007). This development also brought change in related sectors especially Information Technology. Other political influences that should be considered include high level of corruption especially among government officials, civil unrest in some areas like the north and Niger delta. Nigeria was ranked the 37th most corrupt country in a survey of 179 countries (Transparency International Online, 2009). To fight this social vice the government set up the Economic and Financial Crimes Commission (EFCC). The civil unrest should also be taken into consideration as foreigners and expert rates are often their key targets.
Table 2.2-analysis of the political system
2.3 TECHNOLOGICAL SYSTEM
Technological system provides an enabling environment required for rapid growth of technological and industrial development and comprises of physical and human variables such as energy, water, transport, communication, financial and human capital (Isamah, 2002; Afonja, 2003). These infrastructures provide the basic framework for a nation to support essential public services in order to achieve higher economic growth and better quality of life.
Nigeria has witnessed significant increase since 2001 as most of the exchanges have become digital a number of networks are wireless third generation compatible. Smaller CDMA networks have installed 3G equipments in readiness for future growth (Augusto and CO, 2007). To enable efficient communication with the outside world, the Nigerian government and 35 other African countries have invested in a submarine cable system called Sat3/WASC/SAFE (SAT3). The Sat3 provides quality voice, data and broadband services which are necessary requirements for all ICT service providers. Nitel monitors and controls the use of this system. For a long time Sat3 was the only available submarine cable system available in the country. However there is a need to improve on the infrastructure of the telecoms sector.
Table 2.3.analysis of the technological system.
2.4 LEGAL SYSTEM
The legal system in Nigeria is the Civil Law System and it is guided by the 1999 constitution. The Corporate and Allied Matters Act (CAMA) of 1990 is what is used as a guide for business establishments in Nigeria. The legal 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.
For any company in Nigeria to be recognised, a legal entity has to be registered with the Corporate Affairs Commission (CAC, Online 2009).Nigeria is noted for its high corrupt practices, the country has instituted such agencies like the EFCC and ICPC to curb unethical practices which has led to an improvement in the nation's economy. Considering the fact that the country is bounded under the ICJ ruling, we do not expect that there will be practices that are similar to international legal practices.
Nigeria operates the 6-3-3-4 education system which is similar to that of America. The government spends 0.7% of its GDP every year. Despite the huge expenditure the government incurs on education, there is still a high level of illiteracy making the educational output low in the country (CAC, Online 2009).This might be a setback when recruiting qualified staff to work for Tricom.
Culture is a way of life of different individuals living in the same region. Hill (2009) defined culture as a system of values and norms that are shared by a group of people. Nigeria is a country with various ethnic groups, rich culture cultures and several languages. Even though the lingua franca the major languages spoken are Yoruba, Ibo and Hausa. The Nigerian cultural conditions have played an important role in influencing the societal values. Hill (2009) segmented the cultural system of an economy into four segments which are: social structure, social stratification, religious and ethical system and language.
Therefore, Tricom should be prepared to devote a decent period of time to know people on a personal basis and adapt their cultural values. A couple of year ago only adults that were well to do used mobile phones. It was seen as a status symbol. Religion plays a major role in the cultural make up of Nigeria and different areas of identify with different.
TRADE RELATIONS BETWEEN THE US AND NIGERIA
PATTERN OF TRADE IN THE US
The United States economy is the world's largest national economy and is the world's leading country in absolute volumes of imports and exports. Its nominal GDP is estimated to be $14.3 trillion as at 2009, which is approximately a quarter of nominal global GDP. Its GDP has the largest parity in the world and is a fifth of global GDP at purchasing power parity. The US dollar holds a large share of the world reserves, and is seconded by the controls about 24%.
Due to the un going recession taking place in America, its public debt has gone in excess of $13 trillion and is expected to steadily increase at a rate of about $5.48 billion each day by direct calculation between Jan 31, 2010 and August 31, 2010. The American labor market has attracted immigrants from all over the world and has one of the world's highest migration rates. The United States is ranked fourth, down from first in 2008-2009 due to the economic crisis, in the Global Competitiveness Report.
Major trading partners with the America are, Canada, Mexico, China, Japan, Germany and United Kingdom. Its main exports are Agricultural supplies, Capital goods such as transistors, aircrafts, motor vehicles parts, telecoms equipment, Consumer goods such as automobile, medicine and telecommunication equipment. Its major partners as regards to imports are China, Canada, Mexico, Japan, Germany, with products such as Machinery, Chemical, Transport equipment, manufactured goods, food, and live animals (economy watch, 2010).
PATTERN OF TRADE IN NIGERIA
Nigeria is a West African economy with a long coastline along the Atlantic Ocean. It is ranked 31st in the world in terms of GDP as of 2009 with net imports of $42.1 billion and net exports of $45.43 billion in 2009. Its manufacturing sector is the second-largest on the continent, producing a large proportion of goods and services for the West African region. The country has a total population in excess of 154 million and the country ranks 151 out of 177 with the highest poverty rate on the UN Development Index for countries. Nigeria's economy is overly dependent on the petroleum sector .it is the 12th largest producer of petroleum products in the world. The industry accounts for almost 80% of the GDP share and above 90% of the total exports. Outside the petroleum sector, the Nigerian economy lacks basic infrastructure.
Major exports trading partners with the Nigeria are China, Netherlands, U.S, U.K South Korea and France. Its main exports are U.S, India, Brazil, Spain, and France. Its major partners as regards to imports are China, Canada, Mexico, Japan, Germany, with products such as Machinery, Chemical, Transport equipment, manufactured goods, food, and live stock (economy watch, 2010).
TRADE PATTERN BETWEEN USA AND NIGERIA
Nigeria is the United States' largest trading partner and the largest foreign investor in Nigeria is the U.S.A. Crude oil and liquefied petroleum gases represent 95.4% of all Nigerian exports to America in 2008.Nigeria is the 14th largest exporter of goods to the United States (US Department of States, Online, 2009). The stock of U.S foreign direct investment in Nigeria was $2billion in 2004 but went down to $339 million in 2006 (US Department of States, Online, 2009). These investments are concentrated mainly in petroleum/mining and the wholesale trade sector. According to the CIA World Fact book (2010), Nigeria imported $45.5 billion worth of foreign goods last year with its exports to America rose 16.2% to $38.1 billion. Over that same period, Nigeria bought $4.1 billion worth of imported U.S. goods. Nigeria's international trade amounted to $122.3 billion or 57% in relation to its overall GDP.
The table below presents the top 10 exports and imports that American and Nigerian enterprises exchanged in 2008. The fastest-growing trade product categories are also listed.
Fastest-Growing Nigerian Exports to the U.S.
Fastest-Growing Nigerian Imports from the U.S.
Nigeria's Top Exports to America
Civilian aircraft parts … US$2.2 million, up 8,181% from 2007
Tobacco, waxes, non-food oils … $3.5 million, up 6,343%
Cocoa beans … $34.3 million, up 393.2%
Natural rubber and similar gums … $22.9 million, up 194.5%
Feedstuff and food grains … $9.2 million, up 98.6%
Nuts and preparations … $2.6 million, up 86.6% (0.01%)
Other petroleum products … $873.1 million, up 56.8% (2.3%)
Fuel oil … $632.6 million, up 54.1%
Tea, spices, and preparations … $1.5 million, up 51.2%Liquified petroleum gases … $1.2 billion, up 17%.
Corn … US$1.2 million, up 2,444% from 2007
Vessels, excluding scrap … $3.2 million, up 1,419%
Rice … $1.4 million, up 817%
Generators and accessories … $68.1 million, up 692.3%
Other petroleum products … $422.8 million, up 471.9%
Vegetables … $1.3 million, up 402.3%
Semiconductors … $9.2 million, up 374.1%
Cotton fibre cloth … $1.2 million, up 309.3%
Alcoholic beverages, excluding wine … $1.2 million, up 210%
Aluminium … $2.8 million, up 199.5%.
Crude oil … US$35.1 billion, up 16.7% from 2007 (92.2% of US imports from Nigeria)
Liquefied petroleum gases … $1.2 billion, up 17% (3.2%)
Other petroleum products … $873.1 million, up 56.8% (2.3%)
Fuel oil … $632.6 million, up 54.1% (1.7%)
Natural gas … $110.3 million, down 81.6% (0.3%)
Cocoa beans … $34.3 million, up 393.2% (0.1%)
Natural rubber and similar gums … $22.9 million, up 194.5% (0.1%)
Feedstuff and food grains … $9.2 million, up 98.6% (0.06%)
Tobacco, waxes, non-food oils … $3.5 million, up 6,343% (0.02%)
Nuts and preparations … $2.6 million, up 86.6% (0.01%).
Source: site 101.com, 2008
3.4TRADE IN THE TELECOM SECTOR BETWEEN USA AND NIGERIA
Nigeria is the largest and the fastest growing telecommunications market in Africa. It has over 1,863 licenses that is managed by the Nigerian Communications Commission (NCC).NCC has assisted the Nigerian telecommunications market is big way as it deepens and expands its telecommunications infrastructure over the next 2-3 years. Since infrastructure is a critical factor in this market, manufacturers and suppliers have huge opportunity for partnership in technology and professional service.
Nigeria is a strategic gateway to the West African markets and offers U.S. firms a tremendous growth opportunity that may be difficult to equal or exceed elsewhere. ECOWAS, the 16-member body of West African countries, recently adopted a common currency known as Eco and share a common tariff. Interested U.S. firms should take advantage of this business opportunity.
3.5 TRADE BARRIERS IN THE TELECOM SECTOR IN NIGERIA
A critical look at the nations of the world indicates a vast difference in industrial and technological development. While technological development is prerequisite for industrial development, the industrial sector is the major propelling force for technological development and innovation (Mytelka et al. 1994).Trade restriction in the telecoms industry in Nigeria is very minimal. The telecoms industry depends solely on expensive, high tech infrastructures and equipments to enable them function efficiently as a network provider. However, in the developing economies like Nigeria, the limited availability of telecommunication infrastructure is constraining economic growth. Nigeria telecommunication Industry is still in its infant stage, there is a shortage of infrastructure and the existing businesses are unable to meet demand. This is a reason why government cannot place any trade restrictions on this sector for now.
EXCHANGE RATE REGIMES BETWEEN THE US AND NIGERIA
Multinationals companies such as Tricom should understand the exchange regimes of the currencies of the countries with which they trade in. These regimes will help reduce the risk associated with the unpredictable changes in the exchange rates. Foreign exchange markets allow the conversion of currency from one to the other. It also provides insurance against foreign exchange risk which occurs as a result of unpredictable changes in the exchange rates (Hill, 2009).
Nigeria used to have a fixed exchange rate system where its value was pegged against the US dollar to protect the currency by giving it a healthy balance of payment position. In recent times, it has been changed to a controlled floating exchange rate which gives the government the authority to influence the exchange rate within a given range. On other hand, the US adopts a floating exchange regime where market forces determine its value without any influence by the government (Hill, 2009).
IMPLICATION OF THE NIGERIAN EXCHANGE RATE POLICY ON TRADE
The value of naira steadily appreciated against the dollar between 2006 and 2009. However, during the time of depreciation the value of a dollar steadily declined. The average exchange rate stood at 128 naira to $1 and an appreciation of 2.2% over 2005 when the exchange rate was 131.7 naira to $1 dollar. The instability of oil prices has a great effect on the market value of the naira as Nigeria depends mainly on oil exports for its foreign exchange. This instability has led to high speculations which makes it very difficult to make forecasts and also plans and its implementation (economy watch, 2010).
POLITICAL RISK ANALYSIS IN NIGERIA
Every economy has its unique set of political risk variables. Nigeria in this case is a country with various cultures, languages, religion and these differences dictates the political situation of the country. Since independence, Nigeria has witnessed many political mishaps, military coups, religious and civil unrest and very few successful elections. Multinational companies such as Tricom, willing to invest in another country must take all these factors into consideration must prepare themselves to face any unforeseen situations. Identifying, analysing and forecasting have become major growth areas for international business consultants (Rugman, 1986) .They most also create a means of reducing these risks. However, there are various steps can be taken to reduce its effect on the organisation and its employees showing its attributes and implication for business as well as the risk reduction measures are outlined below.
Table 5.0 Political Risk Analysis
Political Risk Issue in Nigeria
Implication on the firm
How to reduce the effects
When multinational companies fail to abide by the rules and regulation sat by the government, there is a high probability of government intervention or a huge fine.
Ensure prompt payment of taxes, tariffs, and duties.
Carry out favourable corporate social responsibility programmes
Ensure that rules and regulations of the government, NCC and other regulatory bodies are strictly adhered to.
Also ensure all relevant stake holders are carried along during decision making processes
Host Community relationship
And Socioeconomic Violence
Nigeria is noted for hostile community activities, especially Niger-Delta area where businesses in the oil sectors are located, this is due to the recent militant activities and kidnappings in that area, it has become an unsafe environment for the expert rates or those who are seen to be important in the society.
Carry out favourable corporate social responsibility programmes that would enhance the company's relationship with the local communities.
Nigeria is a country with different languages, traditions cultures and religious beliefs. This has led a nonstop feud between some religious groups in the country especially the Muslims and the Christians who try to defend their beliefs. This has resulted in some parts of the country unsafe for both individuals and businesses. The government has tried to curb this religious unrest but to no avail.
Tricom should locate its business Major facilities and offices should be located in areas that are not prone to civil or religious unrest. Tricom should avoid going to the northern part of Nigeria and consider mostly the southern part.
MODE OF ENTRY
There are various entry strategies available for Tricom to choose from, which ranges from export to franchising, licensing and FDI (Hill, 2009). The nature of the business eliminates the option of exporting because it is a network provider. The use of franchising and licensing would give local operators the right to use the company's brand name and giving support in terms of training and technical expertise while the company pays Tricom commission or royalties'. Considering the opportunities that exist in the Nigerian market and the willingness of the Government to support the expansion of the telecoms sector, FDI would be the suitable mode of entry for Tricom. Tricom brand name and size which will provide economies of scale would be properly exploited to establish itself as a strong player in the sector that is still regarded as being in its infant stage. The size of the Nigerian population is very attractive. Tricom has sufficient funds to float and a green field investment and is willing to take advantage of the deregulated telecoms sector. However, judging by the political and cultural dynamics of Nigeria and the time as well as the training it would take to build a competitive brand, the chosen mode of entry is acquisition. This report recommends that Tricom should acquire one of the existing telecoms companies and integrate its brand name, size, financial capabilities, and technical expertise with a company that already exists in the local environment.
Nigeria stands to be a viable investment prospect for the international expansion plan of Tricom. Due to the deregulation of the telecoms sector in Nigeria, the removal of the major entry restriction has led to the birth of fastest growing sector in the economy. The growth rate of the telecoms industry in Nigeria is one of the reasons it is seen by the world as an emerging economy with ample opportunities. Tricom is advised to take advantage of the opportunities that exist in this rapidly increasing industry, acquisition of an existing telecoms company has been recommended. This is due to the fact that setting up cost is high and investment is long term liberalization and deregulation initiative of the Nigerian government will make it much easier to enter the market. A sizeable presence should be created in the industry and compete favorably within a relatively short period.This will enhance Tricom goal of increasing its global market share and presence as it enters other African countries.