Subject: Detailed analysis report to determine the course of action for Larson Inc.’s Nigerian operations. This report provides information on the macroeconomic conditions prevailing in Nigeria apart from taking into consideration the report given by the CEO-Nigeria operations. With this the report attempts to evaluate the economic viability of the business in Nigeria in a long run.
The Nigerian wing of Larson Inc. finds it hard to operate efficiently owing to the changing policies of the local government; the issues related to cash flow, expatriate work force, unions, corruption, tax policies, red tape and scarcity of local skilled man. In this wake, the CEONigerian operations understands it to be rational to divest from Nigeria. However, considering the future opportunities that would emerge in Nigeria and in countries around, it is recommended to continue business, expand and tap potential markets by entering into alliances with local partners to evolve as a major cable manufacturer and service provider.
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Larson in Nigeria
Along with the CEO’s report, to evaluate the future of JV it becomes significant to understand the geopolitical scenario prevailing in Nigeria. Demographic dividend With decreasing total fertility rate, falling birth rate and dependency ratio less than 1 (or working age: dependent population= 1.13), Nigeria is in demographic window. (Annexure: 1) GDP Between 1999-2003, the % GDP- real growth rate is positive which averaged 4.2% a year, up from 3.5% over the 1995-98 period. (Annexure: 2) - Investment Gross fixed investment (private and public) increased by 6.7% on average over 2000-03. - Foreign direct investment (FDI) inflows increased from US$1.0 billion in 1999 to US$2.0 billion in 2003. Reforms The Trade Policy Review include deregulation in electricity and telecommunication sectors; privatization of public enterprises and efforts to strengthen market-oriented institutions, including those dealing with corruption. Nigerian Government has recently introduced the National Economic Empowerment and Development Strategy (NEEDS). (Annexure: 3) The United Nations (UN) runs National Millennium Goals for Nigeria. (Annexure: 3) Telecommunications The number of telephone lines have increased at an average rate of 12.62% annually from 1995-2003. The internet users have increased at average rate of 325% annually from 2000 to 2003. The National Telecommunications Policy launched in 2000 aims at full liberalization of the market and has enacted to reduce import duties on telecom equipment from 25% to 5%. (Annexure: 4) Revenue About 35% of sales from Nigerian Operations come from the local Govt. Being a developing country, the utilities (power, telecommunications, etc.) is under the purview of Govt. (Annexure: 5)
Larson in Nigeria
Inflation Effect of inflation and devaluation of naira since 1998: The purchasing power of dollar in Nigeria has decreased on an average by 1.7% annually which is very less compared to that of naira ranged which between 10%-11.7%. This still favours investment in Nigeria. (Annexure: 6) Also, Nigeria’s location coupled with inflation and devaluation of currency can be exploited to increase exports.
How to bring effectiveness in Nigerian operations while addressing the issue of expatriate staff, increasing operational costs, local government’s proposals to increase equity by 51% and deal with the divergent views of persons in controlling positions?
Statement of Options
The examination of the situation has led to following probable solutions: 1. JV with promising local partners. Company can offer stakes to potential local players to tap more markets in Nigeria. 2. Job rotation. To improve productivity and keep the staff motivated company should implement job rotation policy among other operations. 3....